FASTNET CORP, 424B4, 2000-02-08

FASTNET CORP
424B4, 2000-02-08
BUSINESS SERVICES, NEC

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<PAGE>

PROSPECTUS

4,000,000 SHARES

[LOGO]

COMMON STOCK

This is the initial public offering of shares of FASTNET Corporation's
common stock. The initial public offering price is $12.00 per share.

Our common stock will be listed on the Nasdaq National Market under the
symbol FSST.

INVESTING IN OUR SHARES INVOLVES A HIGH DEGREE OF RISK. SEE RISK FACTORS
BEGINNING ON PAGE 8 FOR A DISCUSSION OF MATERIAL RISKS THAT YOU SHOULD CONSIDER
BEFORE YOU INVEST IN THE COMMON STOCK BEING SOLD WITH THIS PROSPECTUS.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Initial public offering price............................. $12.00 $48,000,000
Underwriting discounts and commissions.................... $ 0.84 $ 3,360,000
Proceeds, before expenses, to us.......................... $11.16 $44,640,000
</TABLE>

The underwriters may purchase up to an additional 600,000 shares of common
stock from us at the initial public offering price less underwriting discounts
solely to cover over-allotments.

ING BARINGS

WIT SOUNDVIEW

FAC/EQUITIES

DLJDIRECT INC.

The date of this prospectus is February 8, 2000

<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 8
Use of Proceeds........................ 16
Dividend Policy........................ 16
Forward-Looking Statements............. 16
Capitalization......................... 17
Dilution............................... 18
Selected Consolidated Financial Data... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 21
</TABLE>

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Our Business........................... 29
Management............................. 44
Related Party Transactions............. 52
Principal Shareholders................. 53
Description of Capital Stock........... 54
Shares Eligible for Future Sale........ 57
Underwriting........................... 58
Legal Matters.......................... 61
Experts................................ 61
Where You Can Find Additional
Information.......................... 61
Index to Financial Statements.......... F-1
</TABLE>

FASTNET-Registered Trademark- and the FASTNET logo are registered United
States trademarks. Total Managed Security-TM- and CC/vpn-TM- are trademarks of
FASTNET. Other trademarks and tradenames appearing in this prospectus are the
property of their respective owners.

In making your investment decision relating to the shares offered hereby,
you should rely only on the information contained in this prospectus and not on
any other information, including information available on our Web site. We have
not authorized any other person to provide you with different information. If
anyone provides you with different or inconsistent information, you should not
rely on it. We are not making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus. Our business and financial condition may
have changed since that date.

UNTIL MARCH 4, 2000 ALL DEALERS SELLING SHARES OF THE COMMON STOCK, WHETHER
OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS AND
SUBSCRIPTIONS.

<PAGE>
PROSPECTUS SUMMARY

THIS PROSPECTUS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE
IN THIS PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU
SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING THE RISK FACTORS SECTION STARTING ON PAGE 8 AND
THE FINANCIAL STATEMENTS, BEFORE MAKING AN INVESTMENT DECISION.

FASTNET

OVERVIEW

We are a growing Internet service provider offering Internet access and
enhanced services, such as Web hosting, managed security solutions and other
value added products, to small and medium sized enterprises through our regional
customer network facilities. We primarily offer our services to the mid-
Atlantic area of the United States and our strategy is to expand by replicating
our customer network facilities and our services offered to small and medium
sized enterprises in selected high growth secondary markets throughout the
United States. We currently have customer network facilities in Pennsylvania,
New Jersey and Maryland that enable us to service markets in Pennsylvania, New
Jersey, New York, Maryland and Delaware. We have been providing Internet access
services to our customers since 1994. The services we provide include:

- INTERNET ACCESS SERVICES--connectivity to our regional networks that
provides our customers access to the Internet;

- TOTAL MANAGED SECURITY--electronic protection for a customer's computer
network;

- WEB HOSTING SERVICES--shared and dedicated hosting of Web servers,
including colocation services, where a customer locates its Web servers at
our facilities;

- INTERNET APPLICATIONS HOSTING SERVICES--hosting, monitoring and management
of Internet-based applications;

- VIRTUAL PRIVATE NETWORKS--a secure seamless network connecting a company's
remote offices, employees and customers via our CC/vpn product;

- UNIFIED MESSAGING--remote access to faxes, paging messages and e-mail
messages through a single Internet application; and

- TOTAL MANAGED BACKUP AND RECOVERY SERVICES--Internet-enabled backup and
recovery services for a company's data network through off-site data
storage.

As of December 31, 1999, we provided Internet access and enhanced products
and services to approximately 300 enterprise customers, of which approximately
275 were small and medium sized enterprises, and approximately 15,800 dial-up
customers in the mid-Atlantic area. We charge a fee to our customers for our
products and services, including Internet access services. As of December 31,
1999, the number of our Web hosting customers was approximately 4,400. We also
provide Web server colocation services, which includes necessary floor space,
electrical and environmental control, physical and electronic security, Internet
bandwidth, monitoring and maintenance to customers who wish to outsource their
Web site or application site servers to a service provider.

We have developed a highly reliable and scalable network architecture that
is designed to be efficiently deployed and operated in each of our target
markets. Our network architecture is designed around our customer network
facilities, which are high capacity data centers that provide our customers with
not less than two direct connections to the Internet as well as access to our
enhanced products and services. Each customer network facility is connected to
our centralized network operations center.

3
<PAGE>
We currently have seven customer network facilities in operation servicing
the regions in and around Allentown, Pennsylvania, Harrisburg, Pennsylvania,
Basking Ridge, New Jersey, Holland Township, New Jersey, and Jersey City, New
Jersey, and the secondary markets surrounding Baltimore, Maryland and
Philadelphia, Pennsylvania. We are in the process of constructing three
additional customer network facilities to service Scranton/Wilkes Barre,
Pennsylvania, Pittsburgh, Pennsylvania, and the secondary market surrounding
Washington, D.C.

OUR CUSTOMERS

We target primarily small and medium sized enterprise customers located in
selected high growth secondary markets that generally have less than 100
employees and annual revenues of less than $100 million. Our target markets are
typically smaller than the 100 most populated U.S. metropolitan markets. We
select these markets based upon specific criteria, such as the density of target
customers, expected population and economic growth and existing competitive
factors. Small and medium sized enterprises are often concentrated in these
markets to avoid the higher cost associated with locating in a metropolitan
area. We target small and medium sized enterprises because, based upon our
experience, we believe that:

- These enterprises increasingly need high-speed data and Internet
connections to access business information and to communicate more
effectively with employees, customers, vendors and business partners.

- A relatively small percentage of these enterprises currently utilize the
Internet. This number is increasing rapidly. The small and medium sized
enterprise segment of the Internet industry is growing quickly. According
to International Data Corporation, Web-related expenditures by small
businesses in the United States are expected to grow from $9.6 billion in
1999 to over $32 billion by 2003.

- Many of these enterprises lack the resources and expertise to develop,
maintain and expand the facilities and network systems necessary for
successful Internet operations.

- These enterprises often prefer an Internet service provider with
locally-based personnel who are available to assist in developing and
implementing their growing use of the Internet and to respond to technical
problems in a timely manner.

- These enterprises rely more heavily on their Internet service provider
than larger enterprises.

Although our primary business strategy is to target small and medium sized
enterprises, we currently derive a significant portion of our revenues from a
small number of our business customers that are not small and medium sized
enterprises.

OUR GROWTH STRATEGY

Our goal is to be the premier provider of Internet access and enhanced
Internet products and services to small and medium sized enterprises in our
target markets. Key elements of our strategy include:

- replicating our model rapidly in selected secondary markets;

- leveraging customer relationships to market enhanced services;

- leveraging our centralized sales and marketing operations to take
advantage of economies of scale; and

- entering into strategic relationships and making selected acquisitions.

4
<PAGE>
Our headquarters are located at Two Courtney Place, Suite 130, 3864 Courtney
Street, Bethlehem, Pennsylvania 18017 and our telephone number is (610)
266-6700.

RISK FACTORS

Investing in our shares of common stock involves a high degree of risk. In
particular, you should be aware that we incurred net losses of approximately
$115,000 for the year ended December 31, 1996, approximately $322,000 for the
year ended December 31, 1997, approximately $1.3 million for the year ended
December 31, 1998 and approximately $3.1 million for the nine months ended
September 30, 1999, resulting in an accumulated deficit of approximately $5.1
million at September 30, 1999. We expect to continue to operate at a net loss as
we incur costs related to expanding our regional network, expanding our product
and service offerings, and establishing brand-name recognition in our new
regions of operation. We face strong competition in our industry which could
also cause our net operating losses to continue and increase. You should read
the section entitled Risk Factors beginning on page 8 as well as the other
cautionary statements throughout this prospectus to ensure you understand the
risks associated with an investment in our common stock.

THE OFFERING

<TABLE>
<S> <C>
Common stock offered by FASTNET.............. 4,000,000 shares
Common stock to be outstanding after this
offering................................... 14,388,947 shares
Over-allotment option........................ 600,000 shares
Use of proceeds.............................. $19.7 million for working capital, including
the expansion of our sales and marketing
capabilities, $7.4 million for capital
expenditures, including for the construction
of additional customer network facilities,
$500,000 for financial advisory fees payable
to Hambrecht & Quist LLC, $1.0 million for
repayment of a loan that we entered into with
one of our shareholders, and the remainder
for general corporate purposes and potential
strategic acquisitions. See the section
entitled Use of Proceeds for more
information.
Nasdaq National Market symbol................ FSST
</TABLE>

Please see the section of this prospectus entitled Capitalization for a more
complete discussion regarding the outstanding shares of FASTNET common stock and
warrants and options to purchase shares of FASTNET common stock and other
related matters.

ADDITIONAL INFORMATION

For additional information concerning the common stock, see the sections of
this prospectus entitled Description of Capital Stock and Where You Can Find
Additional Information.

5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION

The statement of operations data set forth below is presented on an actual
basis for the years ended December 31, 1996, 1997 and 1998 and for the nine
months ended September 30, 1998 and 1999. The balance sheet data set forth below
is presented on an actual basis as of September 30, 1999. The statement of
operations data for the year ended December 31, 1998 and for the nine months
ended September 30, 1999 is also presented on a pro forma basis to reflect the
following events:

- the issuance of 546,984 shares of common stock in connection with the
acquisition of Internet Unlimited, Inc. on July 30, 1999, as if it had
occurred at the beginning of each period;

- the conversion of a $3.1 million note payable into 2,033,334 shares of
common stock, which will automatically occur immediately prior to
consummation of this offering, as if it had occurred on May 28, 1998, the
date on which the note was issued;

- the conversion of 666,198 shares of series A convertible preferred stock
issued in August 1999, into 666,198 shares of common stock, which will
occur immediately prior to consummation of this offering, as if such
conversion had occurred on the dates these shares were issued; and

- the conversion of a $1.0 million note payable and associated accrued
interest into 142,431 shares of series A convertible preferred stock in
August 1999, and the conversion of such shares into 142,431 shares of
common stock, which will automatically occur immediately prior to
consummation of this offering, as if each had occurred on May 14, 1999,
the date the note was issued.

- the elimination of service revenues derived by FASTNET from Internet
Unlimited, Inc. prior to July 30, 1999 and the elimination of Internet
Unlimited, Inc.'s corresponding cost of services.

The balance sheet data as of September 30, 1999 is also presented on a pro
forma basis to reflect the following events as if they had occurred on
September 30, 1999:

- the conversion of a $3.1 million note payable into 2,033,334 shares of
common stock, which will automatically occur immediately prior to
consummation of this offering;

- the conversion of all outstanding shares of series A convertible preferred
stock into 808,629 shares of common stock, which will automatically occur
immediately prior to consummation of this offering.

In addition, the balance sheet data as of September 30, 1999 is also
presented on a pro forma as adjusted basis to reflect the events described above
as well as the sale of 4,000,000 shares of common stock in this offering,
assuming that the underwriters' over-allotment option is not exercised, at the
initial public offering price of $12.00 and our application of the estimated net
proceeds of this offering as described in Use of Proceeds.

The pro forma results are not necessarily indicative of the results of
operations or financial position of FASTNET had the events described above
occurred at the dates described above.

6
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------- --------------------------------------
1998 1999
------------------------- -------------------------
1996 1997 ACTUAL PRO FORMA 1998 ACTUAL PRO FORMA
---------- ---------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Services......................... $1,545,072 $2,846,338 $ 4,875,471 $ 5,452,549 $3,453,758 $ 5,751,503 $ 6,448,025
Hardware and software............ 397,535 824,276 652,508 672,635 634,479 94,871 115,713
---------- ---------- ----------- ----------- ---------- ----------- -----------
1,942,607 3,670,614 5,527,979 6,125,184 4,088,237 5,846,374 6,563,738
---------- ---------- ----------- ----------- ---------- ----------- -----------
Operating expenses:
Cost of services................. 740,186 1,771,968 2,572,732 2,644,861 1,793,452 3,844,531 3,915,892
Cost of hardware and software.... 421,825 561,951 669,009 680,196 558,894 89,194 101,143
Selling, general and
administrative................. 793,336 1,445,224 3,067,740 3,516,740 2,052,782 3,911,189 4,492,302
Depreciation and amortization.... 78,804 177,375 346,568 1,866,908 230,475 904,233 1,812,308
---------- ---------- ----------- ----------- ---------- ----------- -----------
Total operating expenses....... 2,034,151 3,956,518 6,656,049 8,708,705 4,635,603 8,749,147 10,321,645
---------- ---------- ----------- ----------- ---------- ----------- -----------
Operating loss..................... (91,544) (285,904) (1,128,070) (2,583,521) (547,366) (2,902,773) (3,757,907)
Other expenses, net................ (23,680) (36,162) (146,220) (39,975) (91,766) (227,138) (65,445)
---------- ---------- ----------- ----------- ---------- ----------- -----------
Net loss........................... $ (115,224) $ (322,066) $(1,274,290) $(2,623,496) $ (639,132) $(3,129,911) $(3,823,352)
========== ========== =========== =========== ========== =========== ===========
Basic and diluted net loss per
common share..................... $ (0.01) $ (0.03) $ (0.14) $ (0.25) $ (0.07) $ (0.44) $ (0.39)
---------- ---------- ----------- ----------- ---------- ----------- -----------
Weighted average number of common
shares outstanding............... 11,575,000 11,575,000 8,880,833 10,613,929 9,480,339 7,122,004 9,754,654
========== ========== =========== =========== ========== =========== ===========
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 3,812,558 $ 3,812,558 $46,852,558
Working capital (deficit)................................... (1,652) (1,652) 43,038,348
Total assets................................................ 16,089,521 16,089,521 59,129,521
Shareholders' equity........................................ 3,799,745 6,849,745 49,889,745
</TABLE>

The foregoing tables should be read in conjunction with the historical
financial information of FASTNET and Internet Unlimited, Inc. and the unaudited
pro forma combined financial information contained elsewhere in this prospectus.
See the sections entitled Selected Financial Data and Management's Discussion
and Analysis of Financial Condition and Results of Operations for additional
information.

7
<PAGE>
RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND ALL OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING OUR COMMON STOCK.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.

RISKS RELATED TO OUR BUSINESS

WE ONLY RECENTLY BEGAN TO IMPLEMENT OUR CURRENT BUSINESS STRATEGY. AS A RESULT,
YOU MAY NOT BE ABLE TO EVALUATE OUR BUSINESS PROSPECTS BASED ON OUR HISTORICAL
RESULTS.

In late 1998, we began to implement our current business strategy of
targeting small and medium sized enterprises in high growth secondary markets
not only within the mid-Atlantic United States, but also outside of such region.
Prior to 1998, we conducted business solely in the mid-Atlantic area,
particularly in Eastern Pennsylvania. Consequently, the evaluation of our future
business prospects is difficult because our historical results for periods
during which we were implementing our current business strategy are limited.

WE HAVE A HISTORY OF LOSSES AND EXPECT FUTURE LOSSES.

We incurred net losses of approximately $115,000, or 6% of revenues, for the
year ended December 31, 1996, approximately $322,000, or 9% of revenues, for the
year ended December 31, 1997, approximately $1.3 million, or 23% of revenues,
for the year ended December 31, 1998 and approximately $3.1 million, or 54% of
revenues, for the nine months ended September 30, 1999 resulting in an
accumulated deficit of approximately $5.1 million at September 30, 1999. On a
pro forma basis, assuming that the acquisition of Internet Unlimited, Inc. was
consummated on January 1, 1998, we would have incurred net losses of
approximately $2.6 million, or 42% of revenues, for the year ended December 31,
1998 and approximately $3.8 million, or 58% of revenues, for the nine months
ended September 30, 1999. Under our current business strategy, we expect to
continue to operate at a loss for the foreseeable future. In particular, we will
need to utilize an estimated $19.7 million of the proceeds from this offering
for working capital for the next 12 months. In addition, we will need at least
an estimated $7.4 million to fund planned capital expenditures, including the
construction of our customer network facilities in our currently targeted
regions.

In order to achieve profitability, we must develop and market products and
services that gain broad commercial acceptance by small and medium sized
enterprises and residential customers in our target regions. We cannot give any
assurances that our products and services will ever achieve broad commercial
acceptance among our customers. Although our revenues have increased each year
since we began operations, we cannot give any assurances that this growth in
annual revenues will continue or lead to our profitability in the future.
Therefore, we cannot predict whether we will obtain or sustain positive
operating cash flow or generate net income in the future.

OUR OPERATING RESULTS FLUCTUATE DUE TO A VARIETY OF FACTORS AND ARE NOT A
MEANINGFUL INDICATOR OF FUTURE PERFORMANCE.

Our operating results have fluctuated in the past and may fluctuate
significantly in the future, depending upon a variety of factors, including:

- the timing of costs relating to the construction of our customer network
facilities;

- the timing of the introduction of new products and services;

- changes in pricing policies and product offerings by us or our
competitors; and

- fluctuations in demand for Internet access and enhanced products and
services.

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Therefore, we believe that period-to-period comparisons of our operating
results are not necessarily meaningful and cannot be relied upon as indicators
of future performance. If our operating results in any future period fall below
the expectations of common stock analysts and investors, the market price of our
common stock would likely decline.

OUR EXPANSION EFFORTS MAY NOT BE SUCCESSFUL IN OUR NEW TARGET REGIONS BECAUSE
OUR BUSINESS GROWTH STRATEGY IS LARGELY UNTESTED.

Our growth strategy includes building customer network facilities in high
growth secondary markets where we do not currently operate. In each market, we
will target primarily small and medium sized enterprise customers. Since our
growth strategy is largely untested, we cannot give any assurances that we will
be able to successfully implement it in our target regions.

Our success will depend upon:

- our ability to identify attractive target regions outside of the
mid-Atlantic area;

- our ability to rapidly deploy additional customer network facilities; and

- our ability to replicate our sales and marketing efforts.

Our ability to successfully implement our business strategy, and the
expected benefits to be obtained from our strategy, may be adversely affected by
a number of factors, such as unforeseen costs and expenses, technological
change, economic downturns, competitive factors or other events beyond our
control.

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999, TWO OF OUR CUSTOMERS TOGETHER
ACCOUNTED FOR 26% OF OUR TOTAL REVENUES. THE LOSS OF ANY OF THESE CUSTOMERS
COULD HARM OUR RESULTS OF OPERATIONS.

Although our primary business strategy is to target small and medium sized
enterprises, we currently derive, and expect in the future to derive, a
significant portion of our revenues from a small number of our business
customers that are not small and medium sized enterprises. For example, Lucent
Technologies, Inc. accounted for 7% of total revenues for the nine months ended
September 30, 1999 and 11% of total revenues for the fiscal year ended
December 31, 1998 and Microsoft's WebTV Networks, Inc. accounted for 19% of
total revenues for the nine months ended September 30, 1999 and 9% of total
revenues for the fiscal year ended December 31, 1998. On a pro forma basis,
assuming that the acquisition of Internet Unlimited, Inc. was consummated on
January 1, 1998, Lucent Technologies would have accounted for 6% of total
revenues for the nine months ended September 30, 1999 and 10% of total revenues
for the fiscal year ended December 31, 1998 and Microsoft's WebTV Networks, Inc.
would have accounted for 17% of total revenues for the nine months ended
September 30, 1999 and 8% of total revenues for the fiscal year ended
December 31, 1998. If we are unable to implement our strategy of targeting small
and medium sized enterprises, we will continue to be substantially dependent
upon revenues from our larger customers. We expect revenues from these customers
to vary from year to year. Our agreement with Lucent Technologies is a service
contract with a one year term, which automatically renews on a monthly basis
until such time as it is renegotiated or terminated. Our agreement with
Microsoft's WebTV Networks may be terminated upon 120 days notice. The loss of
any of our significant customers or a significant decrease in revenues from
these customers could harm our results of operations.

IN THE FUTURE, WE MAY BE UNABLE TO EXPAND OUR SALES, TECHNICAL SUPPORT AND
CUSTOMER SUPPORT INFRASTRUCTURE, WHICH MAY HINDER OUR ABILITY TO GROW AND MEET
CUSTOMER DEMANDS.

We rely upon our centralized sales force and regional marketing managers to
sell our products and services in our new regions. We serve our existing
customers through our sales, technical support and customer support staff. If,
in the future, we are unable to expand our sales force and our technical

9
<PAGE>
support and customer support staff, our business would be harmed because this
would limit our ability to obtain new customers, sell products and services and
provide existing customers with a high level of technical support.

IF WE ARE UNABLE TO RAPIDLY EXPAND INTO OUR TARGET REGIONS, WE MAY NEED TO
MODIFY OUR GROWTH AND OPERATING PLANS.

Our business strategy depends on our ability to rapidly expand into our new
regions, which requires significant capital resources. As a result, we
anticipate that we will need significant additional funds to execute our growth
strategy. We currently anticipate that we will require an estimated $19.7
million for working capital for the next 12 months and at least an estimated
$7.4 million for capital expenditures, including the construction of our
customer network facilities in our currently targeted regions.

If we are unable to complete this offering or if the net proceeds from this
offering are not sufficient to meet our cash requirements, our need to fund our
ongoing operations could limit our ability to execute our business strategy.
Therefore, we will need to seek additional capital from public or private equity
and debt sources to fund our growth and operating strategies. We cannot be
certain that we will be able to raise additional capital in the future on terms
acceptable to us or at all. If alternative sources of financing are insufficient
or unavailable, we may be required to modify our growth and operating plans in
accordance with the extent of available financing.

In the past, we have been able to provide limited services to customers 90
days after the date a lease is signed for the site of a new customer network
facility. There are many factors, however, which may affect our ability to
expand rapidly into target regions, including availability of equipment and
telecommunications services. Therefore, there can be no assurances that we will
be able to expand into our target regions in our anticipated time frame. If we
are unable to rapidly expand into our target regions, our business and results
of operations will be harmed.

WE FACE SIGNIFICANT AND INCREASING COMPETITION IN OUR INDUSTRY WHICH COULD CAUSE
US TO LOWER PRICES RESULTING IN REDUCED REVENUES.

The growth of the Internet access and related services market and the
absence of substantial barriers to entry have attracted many start-ups as well
as existing businesses from the telecommunications, cable, and technology
industries. As a result, the market for Internet access and related services is
very competitive. We anticipate that competition will continue to intensify as
the use of the Internet grows. Current and prospective competitors include:

- national Internet service providers and regional and local Internet
service providers, including providers of free dial-up Internet access;

- national and regional long distance and local telecommunications carriers;

- cable operators and their affiliates;

- providers of Web hosting, colocation and other Internet-based business
services;

- computer hardware and other technology companies that bundle Internet
connections with their products; and

- terrestrial wireless and satellite Internet service providers.

We believe that the number of competitors we face is significant and is
constantly changing. As a result, it is extremely difficult for us to accurately
identify and quantify our competitors. In addition, because of the constantly
evolving competitive environment, it is extremely difficult for us to determine
our relative competitive position at any given time.

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<PAGE>
As a result of an increase in the number of competitors, and vertical and
horizontal integration in the industry, we currently face and expect to continue
to face significant pricing pressure and other competition in the future.
Advances in technology and changes in the marketplace and the regulatory
environment will continue, and we cannot predict the effect that ongoing or
future developments may have on us or the pricing of our products and services.

We believe that the following are the primary competitive factors in our
market:

- pricing;

- quality and breadth of products and services;

- ease of use;

- personal customer support and service; and

- brand awareness.

Many of our competitors have significantly greater market presence,
brand-name recognition, and financial resources than we do. In addition, all of
the major long distance telephone companies, also known as interexchange
carriers, offer Internet access services. The recent reforms in the federal
regulation of the telecommunications industry have created greater opportunities
for local exchange carriers, including incumbent local exchange carriers and
competitive local exchange carriers, to enter the Internet access market. In
order to address the Internet access requirements of the current business
customers of long distance and local carriers, many carriers are integrating
horizontally through acquisitions of or joint ventures with Internet service
providers, or by wholesale purchase of Internet access from Internet service
providers. In addition, many of the major cable companies and other alternative
service providers, such as those companies utilizing wireless and
satellite-based service technologies, have announced their plans to offer
Internet access and related services. While few of these larger companies have
focused on our key customer base of small and medium sized enterprises in our
target markets, it is possible that they will do so in the future. Accordingly,
we may experience increased competition from traditional and emerging
telecommunications providers. Many of these companies, in addition to their
substantially greater network coverage, market presence, and financial,
technical and personnel resources, also already provide telecommunications and
other services to many of our target customers. Furthermore, they may have the
ability to bundle Internet access with basic local and long distance
telecommunications services, which we do not currently offer. This bundling of
services may harm our ability to compete effectively with them and may result in
pricing pressure on us that would reduce our earnings.

OUR GROWTH DEPENDS ON THE CONTINUED ACCEPTANCE BY SMALL AND MEDIUM SIZED
ENTERPRISES OF THE INTERNET FOR COMMERCE AND COMMUNICATION.

If the use of the Internet by small and medium sized enterprises for
commerce and communication does not continue to grow, our business and results
of operations will be harmed. Our products and services are designed primarily
for the rapidly growing number of business users of the Internet. Commercial use
of the Internet by small and medium sized enterprises is still in its early
stages. Despite growing interest in the commercial uses of the Internet, many
businesses have not purchased Internet access and related services for several
reasons, including:

- lack of inexpensive, high-speed connection options;

- a limited number of reliable local access points for business users;

- lack of affordable electronic commerce solutions;

- limited internal resources and technical expertise;

11
<PAGE>
- inconsistent quality of service; and

- difficulty in integrating hardware and software related to Internet based
business applications.

In addition, we believe that many Internet users lack confidence in the
security of transmitting their data over the Internet, which has hindered
commercial use of the Internet. Technologies that adequately address these
security concerns may not be developed.

The adoption of the Internet for commerce and communication applications,
particularly by those enterprises that have historically relied upon alternative
means, generally requires the understanding and acceptance of a new way of
conducting business and exchanging information. In particular, enterprises that
have already invested substantial resources in other means of conducting
commerce and exchanging information may be reluctant or slow to adopt a new
strategy that may make their existing personnel and infrastructure obsolete.

OUR SUCCESS DEPENDS ON THE CONTINUED DEVELOPMENT OF INTERNET INFRASTRUCTURE.

The recent growth in the use of the Internet has caused periods of
performance degradation, requiring the upgrade by providers and other
organizations with links to the Internet of routers and switches,
telecommunications links and other components forming the infrastructure of the
Internet. We believe that capacity constraints caused by rapid growth in the use
of the Internet may impede further development of the Internet to the extent
that users experience increased delays in transmission or reception of data or
transmission errors that may corrupt data. Any degradation in the performance of
the Internet as a whole could impair the quality of our products and services.
As a consequence, our future success will be dependent upon the reliability and
continued expansion of the Internet.

WE RELY ON A LIMITED NUMBER OF VENDORS AND SERVICE PROVIDERS, SOME OF WHICH ARE
OUR COMPETITORS. THIS MAY ADVERSELY AFFECT THE FUTURE TERMS OF OUR
RELATIONSHIPS.

We rely on other companies to supply key components of our network
infrastructure, which are available only from limited sources. For example, we
currently rely on routers, switches and remote access devices from Lucent
Technologies, Inc., Cisco Systems, Inc. and Nortel Networks Corporation. We
could be adversely affected if any of these products were no longer available on
commercially reasonable terms, or at all. From time to time, we experience
delays in the delivery and installation of these products and services, which
can lead to the loss of existing or potential customers. We do not know that we
will be able to obtain such products in the future cost-effectively and in a
timely manner. Moreover, we depend upon Sprint Communications Company, L.P., MCI
WorldCom, Inc. and UUNET Technologies, Inc. as our primary backbone providers.
These companies also sell products and services that compete with ours. Our
agreements with our primary backbone providers are fixed price contracts with
terms ranging from one to three years. Our backbone providers operate national
or international networks that provide data and Internet connectivity and enable
our customers to transmit and receive data over the Internet. Our relationship
with these backbone providers could be adversely affected as a result of our
direct competition with them. Failure to renew these relationships when they
expire or enter into new relationships for such services on commercially
reasonable terms or at all could harm our business, financial condition and
results of operations.

WE DEPEND ON OUR EXECUTIVE OFFICERS TO EXECUTE OUR BUSINESS STRATEGY AND COULD
BE HARMED BY THE LOSS OF THEIR SERVICES.

Our success depends in part upon the continued service and performance of:

- David K. Van Allen, Chief Executive Officer;

- Sonny C. Hunt, President;

12
<PAGE>
- Stanley F. Bielicki, Chief Financial Officer;

- Phillip L. Weller, Chief Technology Officer;

- Rafe Scheinblum, Executive Vice President--Operations;

- Mark A. Horinko, Vice President--Engineering; and

- Thomas J. Roberts, Vice President--Sales.

We currently do not have employment agreements with any of our executive
officers. The loss of the services of one or more of our executive officers
could impair our ability to expand our operations and provide a high level of
service to our customers.

WE NEED TO RECRUIT AND RETAIN QUALIFIED PERSONNEL OR OUR BUSINESS COULD BE
HARMED.

Competition for highly-qualified employees in the Internet service industry
is intense because there is a limited number of people with an adequate
knowledge of and significant experience in our industry. Our success depends to
a significant degree upon our ability to attract, train and retain highly
skilled management, technical, marketing and sales personnel and upon the
continued contributions of such people. Since it is difficult and time consuming
to identify and hire highly qualified employees, we cannot assure you of our
ability to do so. Our failure to attract additional highly qualified personnel
could impair our ability to grow our operations and services to our customers.

WE COULD EXPERIENCE SYSTEM FAILURES AND CAPACITY CONSTRAINTS, WHICH COULD RESULT
IN THE LOSS OF OUR CUSTOMERS OR LIABILITY TO OUR CUSTOMERS.

The continued operation of our network infrastructure depends upon our
ability to protect against:

- downtime due to malfunction or failure of hardware or software;

- overload conditions;

- power loss or telecommunications failures;

- human error;

- natural disasters; and

- sabotage or other intentional acts of vandalism.

Any of these occurrences could result in interruptions in the services we
provide to our customers and require us to spend substantial amounts of money
repairing and replacing equipment. In addition, we have finite capacity to
provide service to our customers under our current infrastructure. Because
utilization of our network is constantly changing depending upon customer use at
any given time, we maintain a level of capacity that we believe to be adequate
to support our current customer base. If we obtain additional customers in the
future, we will need to increase our capacity to maintain the quality of service
that we currently provide our customers. If customer usage exceeds our capacity
and we are unable to increase our capacity in a timely manner, our customers may
experience interruptions in or decreases in quality of the services we provide.
As a result, we may lose current customers or incur significant liability to our
customers for any damages they suffer due to any system downtime as well as the
possible loss of customers.

OUR NETWORK MAY EXPERIENCE SECURITY BREACHES WHICH COULD DISRUPT OUR SERVICES.

Our network infrastructure may be vulnerable to computer viruses, break-ins
and similar disruptive problems caused by our customers or other Internet users.
Computer viruses, break-ins or other problems caused by third parties could lead
to interruptions, delays or cessation in service to our customers. There
currently is no existing technology that provides absolute security, and the
cost of minimizing these security breaches could be prohibitively expensive. We
may face liability to customers for such security breaches. Furthermore, such
incidents could deter potential customers and adversely affect existing customer
relationships.

13
<PAGE>
WE FACE POTENTIAL LIABILITY FOR INFORMATION DISSEMINATED THROUGH OUR NETWORK.

It is possible that claims could be made against Internet service providers
in connection with the nature and content of the materials disseminated through
their networks. The law relating to the liability of Internet service providers
due to information carried or disseminated through their networks is not
completely settled. While the U.S. Supreme Court has held that content
transmitted over the Internet is entitled to the highest level of protection
under the U.S. Constitution, there are federal and state laws regarding the
distribution of obscene, indecent, or otherwise illegal material, as well as
material that violates intellectual property rights which may subject us to
liability. Several private lawsuits have been brought in the past and are
currently pending against other entities which seek to impose liability upon
Internet service providers as a result of the nature and content of materials
disseminated over the Internet. If any of these actions succeed, we might be
required to respond by investing substantial resources or discontinuing some of
our service or product offerings, which could harm our business.

NEW LAWS AND REGULATIONS GOVERNING OUR INDUSTRY COULD HARM OUR BUSINESS.

We are subject to a variety of risks that could materially affect our
business due to the rapidly changing legal and regulatory landscape governing
Internet access providers. For example, the Federal Communications Commission
currently exempts Internet access providers from having to pay per-minute access
charges that long-distance telecommunications providers pay local telephone
companies for the use of the local telephone network. In addition, Internet
access providers are currently exempt from having to pay a percentage of their
gross revenues as a contribution to the federal universal service fund. Should
the Federal Communications Commission eliminate these exemptions and impose such
charges on Internet access providers, this would increase our costs of providing
dial-up Internet access service and could have a material adverse effect on our
business, financial condition and results of operations.

We face risks due to possible changes in the way our suppliers are regulated
which could have an adverse effect on our business. For example, most states
require local exchange carriers to pay reciprocal compensation to competing
local exchange carriers for the transport and termination of Internet traffic.
However, in February 1999, the Federal Communications Commission concluded that
at least a substantial portion of dial-up Internet traffic is jurisdictionally
interstate which could ultimately eliminate the reciprocal compensation payment
requirement for Internet traffic. Should this occur our telephone carriers may
no longer be entitled to receive payment from the originating carrier to
terminate traffic delivered to us. The Federal Communications Commission has
launched an inquiry to determine a mechanism for covering the costs of
terminating calls to Internet service providers, but in the interim state
commissions will determine whether carriers will receive compensation for such
calls. If the new compensation mechanism that may be adopted by the Federal
Communications Commission increases the costs to out telephone carriers for
terminating traffic to us, or if states eliminate reciprocal compensation
payments, our telephone carriers may increase the price of service to us in
order to recover such costs. This could have a material adverse effect on our
business, financial condition and results of operations.

We face risks due to possible changes in the way our competitors are
regulated which could have an adverse effect on our business. For example, the
Federal Communications Commission is considering measures that could stimulate
the development of high-speed telecommunications facilities and make it easier
for operators of these facilities to obtain access to customers. Such favorable
regulatory measures could enhance the viability of our competitors in the
Internet access marketplace. In addition, changes in the regulatory environment
may provide competing Internet service providers the right of access to the
cable systems of local franchised cable operators. The adoption of open access
to cable systems by Internet service providers could harm our business.

14
<PAGE>
RISKS RELATED TO THIS OFFERING

OUR OFFICERS, DIRECTORS AND AFFILIATES WILL BE ABLE TO CONTROL MATTERS REQUIRING
SHAREHOLDER APPROVAL, AND MAY HAVE INTERESTS THAT DIFFER FROM OUR INVESTORS.

Following the closing of this offering, our officers, directors and 5%
shareholders together will beneficially own approximately 70.6% of the
outstanding shares of our common stock, 69.6% if the underwriters'
over-allotment option is exercised in full. As a result, these shareholders will
be able to control all matters requiring shareholder approval and, thereby, our
management and affairs. These shareholders may have interests that differ from
our investors. Matters that typically require shareholder approval include:

- election of directors;

- approval of a merger or consolidation; and

- approval of a sale of all or substantially all our assets.

In addition, this concentration of ownership may delay, deter or prevent
acts that would result in a change of control, which in turn could reduce the
market price of our common stock.

WE WILL HAVE BROAD DISCRETION AS TO USE OF PROCEEDS FROM THIS OFFERING.

We have broad discretion as to the use of proceeds from this offering
without prior shareholder approval. As of the date of this prospectus, we have
only designated $28.6 million of the proceeds from this offering for specific
purposes. Accordingly, you will have to rely on our management to properly apply
a significant portion of these proceeds. Moreover, our intended use of proceeds
may change as a result of many factors, including a change in our business
strategy. In addition, we may use the proceeds from this offering for future
strategic acquisitions of, or investments in, other businesses. Our failure to
apply these proceeds effectively could cause our business to suffer.

FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.

Sales of a substantial number of shares of common stock in the public market
following this offering and the expiration of lock-up arrangements with the
underwriters could reduce the market price of our common stock. All the shares
sold in this offering will be freely tradable. The remaining 10,388,947 shares
of common stock outstanding after this offering will be available for sale in
the public market after 180 days from the date of this prospectus subject to
compliance with Rule 144, or Rule 144(k) if they are not held by our affiliates.

We have granted options to purchase shares of our common stock under our
equity compensation plan, and intend to register the shares of common stock
issuable or reserved for issuance under the plan within 180 days after the
consummation of this offering.

NEW INVESTORS IN OUR COMMON STOCK WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION.

The initial public offering price is substantially higher than the book
value per share of our common stock. Investors purchasing our common stock in
this offering will, therefore, incur immediate dilution of $8.83 in net tangible
book value per share of our common stock on a pro forma basis assuming the
acquisition of Internet Unlimited, Inc., the sale of series A convertible
preferred stock, the conversion of all outstanding shares of series A
convertible preferred stock into shares of common stock and no exercise of the
underwriters' over-allotment option. This dilution figure deducts the
underwriting discounts and commissions and estimated offering expenses payable
by us from the initial public offering price. Investors will incur additional
dilution upon the exercise of outstanding stock options.

15
<PAGE>
USE OF PROCEEDS

We will receive approximately $43.0 million in net proceeds from the sale of
the 4,000,000 shares of common stock in this offering at the initial public
offering price of $12.00 per share after deducting the estimated underwriting
discount and commissions and offering expenses. We expect to receive
approximately $49.7 million in net proceeds if the underwriters' over-allotment
option is exercised in full, after deducting the estimated underwriting discount
and commissions and offering expenses.

We currently intend to use $19.7 million of the net proceeds of this
offering for working capital, including the expansion of our sales and marketing
capabilities, $7.4 million for capital expenditures, including the construction
of our customer network facilities in our currently targeted regions, $500,000
for financial advisory fees payable to Hambrecht & Quist LLC and the remainder
for general corporate purposes. The $500,000 fee to be paid to Hambrecht & Quist
LLC is partial consideration for services previously rendered to us and is due
upon the earlier of the consummation of this offering and February 1, 2001. In
January 2000, we entered into a purchase agreement under which we issued a
$1.0 million note to H&Q You Tools Investment Holding, L.P. The note bears
interest at a rate equal to 7% per annum and will mature upon consummation of
this offering. We will use approximately $1.0 million of the net proceeds of
this offering to repay the outstanding principal and interest on the note to H&Q
You Tools Investment Holding, L.P. We may also use a portion of the net proceeds
to acquire additional businesses, products and technologies or to establish
joint ventures that we believe will complement our current or future business.
However, we have no specific plans, agreements or commitments, oral or written,
to do so. The amounts that we actually expend for the specified purposes may be
greater than or less than our estimates and will vary significantly depending on
a number of factors, including any change to our business strategy, future
revenue growth, if any, and the amount of cash we generate from operations. If
our business strategy changes, we may use proceeds from this offering to acquire
or develop new products or engage in businesses not currently contemplated by
our present business strategy. In addition, if our future revenue growth and
available cash are less than we currently anticipate, we may need to support our
ongoing business operations with funds from this offering that we currently
intend to use to support growth and expansion. As a result, we will retain broad
discretion in the allocation of the net proceeds of this offering and may spend
such proceeds for any purpose, including purposes not presently contemplated.
Pending the uses described above, we will invest the net proceeds in short-term,
interest-bearing, investment-grade securities.

DIVIDEND POLICY

We have never paid cash dividends on our common stock. We currently intend
to retain any future earnings to fund the development and growth of our
business. Therefore, we do not anticipate paying any cash dividends in the
foreseeable future.

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements which involve risks and
uncertainties. These forward-looking statements are often accompanied by words
such as believes, anticipates, plans, expects and similar expressions. These
statements include, without limitation, statements about the market opportunity
and our growth strategy. These statements may be found in the sections of this
prospectus entitled Prospectus Summary, Risk Factors, Use of Proceeds,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Our Business and in this prospectus generally. Our actual results
could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including all the risks discussed in
Risk Factors and elsewhere in this prospectus.

16
<PAGE>
CAPITALIZATION

The following table sets forth our capitalization as of September 30, 1999.
We present capitalization:

- on an actual basis;

- on a pro forma basis to reflect the conversion of all outstanding shares
of series A convertible preferred stock into 808,629 shares of common
stock and the conversion of a $3.1 million note payable into 2,033,334
shares of common stock; both conversions will automatically occur
immediately prior to the consummation of this offering; and

- on a pro forma as adjusted basis to reflect events described in the
previous bullet point as well as the sale of 4,000,000 shares of common
stock in this offering at the initial public offering price of $12.00 per
share and our application of the estimated net proceeds of approximately
$43.0 million as described in Use of Proceeds, assuming no exercise of the
underwriters' over-allotment option.

This table should be read in conjunction with the historical financial
information of FASTNET and Internet Unlimited, Inc., and the unaudited pro forma
combined financial information contained elsewhere in this prospectus.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ------------ -----------
<S> <C> <C> <C>
Long-term debt and capital lease obligations,
excluding current portion........................... $ 5,531,480 $ 2,481,480 $ 2,481,480
Shareholders' equity (deficit):
Preferred stock, no par value, 10,000,000 shares
authorized, 808,629 shares issued and outstanding
actual; 9,191,371 shares authorized and no shares
issued and outstanding pro forma and pro forma as
adjusted............................................ 5,480,537 -- --
Common stock, no par value per share, 50,000,000
shares authorized, 7,546,984 shares issued and
outstanding actual; 10,388,947 issued and
outstanding pro forma; and 14,388,947 issued and
outstanding pro forma as adjusted................... 4,798,924 13,329,461 56,369,461
Deferred compensation................................. (419,246) (419,246) (419,246)
Accumulated deficit................................... (5,060,470) (5,060,470) (5,060,470)
Treasury stock, at cost............................... (1,000,000) (1,000,000) (1,000,000)
----------- ------------ -----------
Total shareholders' equity........................ 3,799,745 6,849,745 49,889,745
----------- ------------ -----------
Total capitalization............................ $ 9,331,225 $ 9,331,225 $52,371,225
=========== ============ ===========
</TABLE>

This table is based on shares outstanding as of September 30, 1999 and does
not include:

- 585,000 shares of our common stock issuable upon the exercise of
outstanding options that have been granted under our equity compensation
plan at a weighted average exercise price of $1.89 per share, of which
options to purchase 295,000 shares of common stock are currently
exercisable at a weighted average exercise price of $1.52 per share;

- 415,000 shares of our common stock available for grant under our equity
compensation plan as of the date of this prospectus; and

- 1,000,000 shares of our common stock issuable upon the exercise of a
warrant issued to H&Q You Tools Investment Holding, L.P. that is
exercisable at an exercise price of $1.50 per share.

17
<PAGE>
DILUTION

As of September 30, 1999, we had a net tangible deficit of approximately
$410,000 or $(0.05) per share of common stock. Net tangible book value per share
represents the amount of our total tangible assets reduced by the amount of our
total liabilities, divided by the number of shares of common stock outstanding.
As of September 30, 1999, our net tangible book value was $2.6 million or $0.25
per share; assuming on a pro forma basis, the conversion of all outstanding
shares of series A convertible preferred stock into 808,629 shares of common
stock and the conversion of a $3.1 million note payable into 2,033,334 shares of
common stock. Both conversions will automatically occur immediately prior to the
consummation of this offering. As of September 30, 1999, our pro forma net
tangible book value, on a pro forma as adjusted basis for the factors listed in
the preceding sentence and for the sale of 4,000,000 shares in this offering,
assuming no exercise of the underwriters' over-allotment option, based on the
initial public offering price of $12.00 per share and after deducting the
underwriting discounts and commissions and other estimated offering expenses,
would have been $3.17 per share. This represents an immediate increase of $2.92
per share to existing shareholders and an immediate dilution of $8.83 per share
to new investors. The following table should be read in conjunction with the
historical financial information of FASTNET and Internet Unlimited, Inc. and the
unaudited pro forma combined financial information contained elsewhere in this
prospectus. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $12.00
------
Pro forma net tangible book value per share at September
30, 1999................................................ $ 0.25
Pro forma increase per share attributable to new
investors............................................... 2.92
------
Pro forma as adjusted net tangible book value per share
after the offering........................................ 3.17
------
Dilution per share to new investors......................... $ 8.83
======
</TABLE>

The following summarizes as of September 30, 1999, the differences between
the total consideration paid and the average price per share paid by the
existing shareholders and the new investors with respect to the number of shares
of common stock purchased from us based on the initial public offering price of
$12.00 per share assuming the pro forma adjustments described in the paragraph
above.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders...................... 10,388,947 72% $13,081,999 21% $ 1.26
New investors.............................. 4,000,000 28 48,000,000 79 12.00
---------- --- ----------- ---
Total.................................. 14,388,947 100% $61,081,999 100%
========== === =========== ===
</TABLE>

The above information is based on shares outstanding as of September 30,
1999 and does not include:

- 415,000 shares of our common stock available for grant under our equity
compensation plan as of the date of this prospectus; and

- 1,000,000 shares of our common stock issuable upon the exercise of a
warrant issued to H&Q You Tools Investment Holding, L.P. that is
exercisable at an exercise price of $1.50 per share.

18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The tables that follow present portions of our financial statements and are
not complete. You should read the following selected financial data in
conjunction with our Financial Statements and related Notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations and unaudited pro forma financial information included elsewhere in
this prospectus. The statement of operations data for the years ended
December 31, 1996, 1997, and 1998, and the balance sheet data as of
December 31, 1996, 1997 and 1998 are derived from our Financial Statements that
have been audited by Arthur Andersen LLP, independent auditors, which are
included elsewhere in this prospectus. The statement of operations data for the
period from inception (May 10, 1994) to December 31, 1994 and the year ended
December 31, 1995 and the nine months ended September 30, 1998 and 1999 and the
balance sheet data as of December 31, 1994 and 1995 and September 30, 1999 are
derived from unaudited Financial Statements and include all adjustments,
consisting only of normal recurring adjustments, that we consider necessary for
a fair presentation of our financial position and operating results for that
period. Historical results are not necessarily indicative of future results. See
Note 2 of Notes to Financial Statements and Note 2 of Notes to Unaudited Pro
Forma Financial Information for an explanation of the method used to calculate
pro forma basic and diluted loss per share. See the section entitled
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations for more information.

The statement of operations data for the years ended December 31, 1998 and
for the nine months ended September 30, 1999 is also presented on a pro forma
basis to reflect the following events:

- the issuance of 546,984 shares of common stock in connection with the
acquisition of Internet Unlimited, Inc. on July 30, 1999, as if it had
occurred at the beginning of each period;

- the conversion of $3.1 million note payable into 2,033,334 shares of
common stock, which will automatically occur immediately prior to
consummation of this offering, as if it had occurred on May 28, 1998, the
date on which the note was issued;

- the conversion of $1.0 million note payable and associated accrued
interest into 142,431 shares of series A convertible preferred stock in
August 1999, and the conversion of such shares into 142,431 shares of
common stock, which will automatically occur immediately prior to
consummation of this offering, as if each had occurred on May 14, 1999,
the date the note was issued.

- the elimination of service revenues derived by FASTNET from Internet
Unlimited, Inc. prior to July 30, 1999 and the elimination of Internet
Unlimited, Inc.'s corresponding cost of services.

The balance sheet data as of September 30, 1999 is also presented on a pro
forma basis to reflect the following events as if they had occurred on
September 30, 1999:

- the conversion of $3.1 million note payable into 2,033,334 shares of
common stock, which will automatically occur immediately prior to
consummation of this offering;

The pro forma results are not necessarily indicative of the results of
operations or financial position of FASTNET had the events described above
occurred at the dates described above.

19
<PAGE>
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION YEAR ENDED DECEMBER 31,
(MAY 10, ---------------------------------------------------------------
1994) TO 1998
DECEMBER 31, -------------------------
1994 1995 1996 1997 ACTUAL PRO FORMA
------------- --------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Services.................... $ 26,258 $ 299,956 $1,545,072 $2,846,338 $ 4,875,471 $ 5,452,549
Hardware and software....... 50,918 148,848 397,535 824,276 652,508 672,635
--------- --------- ---------- ---------- ----------- -----------
77,176 448,804 1,942,607 3,670,614 5,527,979 6,125,184
--------- --------- ---------- ---------- ----------- -----------
Operating expenses:
Cost of services............ 37,427 122,622 740,186 1,771,968 2,572,732 2,644,861
Cost of hardware and
software.................. 38,341 190,482 421,825 561,951 669,009 680,196
Selling, general and
administrative............ 78,991 243,525 793,336 1,445,224 3,067,740 3,516,740
Depreciation and
amortization.............. 6,448 23,193 78,804 177,375 346,568 1,866,908
--------- --------- ---------- ---------- ----------- -----------
Total operating
expenses.............. 161,207 579,822 2,034,151 3,956,518 6,656,049 8,708,705
--------- --------- ---------- ---------- ----------- -----------
Operating loss................ (84,031) (131,018) (91,544) (285,904) (1,128,070) (2,583,521)
Other expenses, net........... 680 (4,610) (23,680) (36,162) (146,220) (39,975)
--------- --------- ---------- ---------- ----------- -----------
Net loss...................... $ (83,351) $(135,628) $ (115,224) $ (322,066) $(1,274,290) $(2,623,496)
========= ========= ========== ========== =========== ===========
Basic and diluted net loss per
common share................ $ (0.02) $ (0.01) $ (0.01) $ (0.03) $ (0.14) $ (0.25)
--------- --------- ---------- ---------- ----------- -----------
Weighted average number of
common shares outstanding... 5,450,000 9,537,500 11,575,000 11,575,000 8,880,833 10,613,929
========= ========= ========== ========== =========== ===========

NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------
1999
-------------------------
1998 ACTUAL PRO FORMA
---------- ----------- -----------
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Services.................... $3,453,758 $ 5,751,503 $ 6,448,025
Hardware and software....... 634,479 94,871 115,713
---------- ----------- -----------
4,088,237 5,846,374 6,563,738
---------- ----------- -----------
Operating expenses:
Cost of services............ 1,793,452 3,844,531 3,915,892
Cost of hardware and
software.................. 558,894 89,194 101,143
Selling, general and
administrative............ 2,052,782 3,911,189 4,492,302
Depreciation and
amortization.............. 230,475 904,233 1,812,308
---------- ----------- -----------
Total operating
expenses.............. 4,635,603 8,749,147 10,321,645
---------- ----------- -----------
Operating loss................ (547,366) (2,902,773) (3,757,907)
Other expenses, net........... (91,766) (227,138) (65,445)
---------- ----------- -----------
Net loss...................... $ (639,132) $(3,129,911) $(3,823,352)
========== =========== ===========
Basic and diluted net loss per
common share................ $ (0.07) $ (0.44) $ (0.39)
---------- ----------- -----------
Weighted average number of
common shares outstanding... 9,480,339 7,122,004 9,754,654
========== =========== ===========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1999
------------------------------------------------------------ -------------------------
1994 1995 1996 1997 1998 ACTUAL PRO FORMA
-------- --------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............. $ 2,401 $ 6,113 $ 28,591 $ 88,981 $ 256,782 $ 3,812,558 $ 3,812,558
Working capital deficit................ (95,682) (209,282) (552,418) (1,447,138) (4,356,637) (1,652) (1,652)
Total assets........................... 64,413 288,205 822,953 1,683,345 3,226,841 16,089,521 16,089,521
Shareholders' (deficit) equity......... (39,352) (94,980) (210,203) (532,269) (2,564,081) 3,799,745 6,849,745
</TABLE>

20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH OUR
FINANCIAL STATEMENTS AND THE RELATED NOTES TO THE FINANCIAL STATEMENTS APPEARING
ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING INCLUDES A NUMBER OF FORWARD-LOOKING
STATEMENTS THAT REFLECT OUR CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND
FINANCIAL PERFORMANCE. WE USE WORDS SUCH AS ANTICIPATE, BELIEVES, EXPECTS,
FUTURE, AND INTENDS, AND SIMILAR EXPRESSIONS TO IDENTIFY FORWARD-LOOKING
STATEMENTS. YOU SHOULD NOT PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS, WHICH APPLY ONLY AS OF THE DATE OF THIS PROSPECTUS. THESE
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR OUR
PREDICTIONS. FOR A DESCRIPTION OF THESE RISKS, SEE THE SECTION ENTITLED RISK
FACTORS.

OVERVIEW

We began providing Internet access services to our customers in 1994. In
1998, we began to implement our current strategy of providing Internet access
and enhanced products and services to small and medium sized enterprises in
selected high growth markets. In order to fund this strategy, we decided to seek
financing through the issuance of additional equity and debt.

- In May 1998, we raised approximately $3.3 million in a private debt and
equity financing, of which approximately $1.5 million was used to retire
debt and repurchase outstanding shares of our common stock. We used the
remainder of the proceeds to advance our business plan.

- In May 1999, we raised $1.0 million from H&Q You Tools Investment Holding,
L.P. through the issuance of a convertible note. The principal and accrued
interest on this note were converted in August 1999 into 142,431 shares of
series A convertible preferred stock at $7.13 per share. In August 1999,
we sold 666,198 shares of series A convertible preferred stock at $7.13
per share for net proceeds of approximately $4.5 million to a group of
investors including Lucent Technologies, Inc. All of the outstanding
preferred stock will convert automatically into an equivalent number of
common shares immediately prior to the consummation of this offering.

On July 30, 1999 we acquired Internet Unlimited, Inc., a Web hosting and
colocation company located in Bethlehem, Pennsylvania. As a result of this
acquisition, we increased the number of customers using our Web hosting services
and supplemented our management and technical expertise.

OUR HISTORY OF OPERATING LOSSES

We have incurred operating losses in each year since our inception. Our
operating losses were 5% of revenues for the year ended December 31, 1996, 8% of
revenues for the year ended December 31, 1997, 20% for the year ended
December 31, 1998 and 50% of revenues for the nine months ended September 30,
1999. On a pro forma basis, assuming the acquisition of Internet Unlimited was
consummated on January 1, 1998, our losses would have increased from 20% of
revenues on an actual basis to 42% on a pro forma basis for the year ended
December 31, 1998, and would have increased from 50% on an actual basis to 57%
on a pro forma basis for the nine months ended September 30, 1999. We anticipate
that we will continue to operate at a loss for the foreseeable future.

RESULTS OF OPERATIONS

We broadly classify our revenues by customer type, enterprise and
non-enterprise. Enterprise customers are business customers, governmental
entities, and non-profit organizations. Our non-enterprise customers are
residential customers and Microsoft's WebTV Networks' customers. We historically
have derived at least 60% of our revenues from our enterprise customers. Our
customers purchase Internet access, Web hosting services and other enhanced
products or services either individually or as part of a bundled solution.

21
<PAGE>
Typically, our customers sign annual service contracts that set forth their
charges for recurring services, and may include one time set up fees. We offer
our customers monthly, quarterly, semi-annual and annual service periods and
provide discounts to our customers for prepayment and for purchase of bundled
services. In most cases, our customers are invoiced 30 days prior to the start
of their service period. In only a limited number of instances are our customers
invoiced after services have been provided. Revenues are recognized as services
are rendered. Amounts billed relating to future periods are recorded as deferred
revenues and recognized as services are rendered.

Dedicated Internet access, virtual private networking and dial-up Internet
access together represent more than 60% of our revenues in each period
presented. Our dedicated Internet access revenue has grown in each period and
represented approximately $1.4 million in 1996, $1.8 million in 1997 and
$2.9 million in 1998. In addition, for the nine months ended September 30, 1999,
dedicated Internet access revenue represented $2.3 million. Revenues from our
virtual private networking service, which we began offering in 1997, were
$632,000 for the year ended December 31, 1998 and $1.3 million for the nine
months ended September 30, 1999. This increase in virtual private networking
revenues is primarily attributable to the increase in Microsoft's WebTV
Networks' customers utilizing this service and our expansion into new regions.
Dial-up access revenues increased from approximately $147,000 in 1996 to
approximately $719,000 in 1998 and approximately $991,000 in the nine months
ended September 30, 1999. This growth is primarily attributable to expansion of
our customer base and increased sales and marketing efforts.

Our primary focus is on generating recurring revenues from small and medium
sized business customers. Currently, revenues from enterprise customers
represent more than 60% of total revenues. During the years ended December 31,
1997 and 1998, revenues from the sale of our enhanced products and services
represented between 11% and 16% of our total revenues. On a pro forma basis
assuming our acquisition of Internet Unlimited, Inc. occurred on January 1,
1998, enhanced products and services revenues would have been 19% of revenues in
the year ended December 31, 1998 and 28% of revenues in the nine months ended
September 30, 1999. We anticipate that enhanced products and services revenues
will increase as a percentage of our total revenues in the future.

As our revenues have grown, we have increased the number of our employees,
expanded our facilities and infrastructure, and increased our sales and
marketing efforts. We had 19 employees at December 31, 1996, 33 employees at
December 31, 1997, 41 employees at December 31, 1998 and 77 employees at
September 30, 1999. As of December 31, 1996 we operated our network operations
center and one customer network facility. As of September 30, 1999, we had
expanded the capabilities of the network operations center and had four customer
network facilities in operation with four additional customer network facilities
in construction. Our advertising expenditures increased from $105,000 in 1996
and $243,000 in 1997 to $625,000 in 1998. Advertising expenditures were $529,000
in the nine months ended September 30, 1999. We expect to continue to increase
the number of our employees, to expand our facilities and infrastructure, and to
increase our sales and marketing efforts. As a consequence, we expect operating
expenses to continue to increase for the foreseeable future.

Cost of services revenues consists primarily of Internet access and
telecommunications charges. These charges are the costs of directly connecting
to Internet backbone providers. Cost of services revenues also includes the
payroll and related expenses for engineering, and rental expense on leased
network and customer network facility equipment. Costs of hardware and software
includes the costs of third party hardware and software sold to our customers.

Selling, general and administrative expense consists primarily of payroll
and related expenses for personnel engaged in marketing, selling, customer
service, accounting, management, and administrative functions. Selling, general
and administrative expense includes office space rent, advertising, promotion,
insurance, professional fees, as well as other general corporate expenses.

22
<PAGE>
The following table sets forth statement of operations data as a percentage
of revenues for the periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------ -----------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Services..................................... 79.5% 77.5% 88.2% 84.5% 98.4%
Hardware and software........................ 20.5 22.5 11.8 15.5 1.6
------ ------ ------ ------ ------
100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------
Operating Expenses:
Cost of services............................. 38.1 48.3 46.5 43.9 65.8
Cost of hardware and software................ 21.7 15.3 12.1 13.7 1.5
Selling, general and administrative.......... 40.8 39.4 55.5 50.2 66.9
Depreciation and amortization................ 4.1 4.8 6.3 5.6 15.5
------ ------ ------ ------ ------
104.7 107.8 120.4 113.4 149.7
------ ------ ------ ------ ------
Operating loss............................... (4.7) (7.8) (20.4) (13.4) (49.7)
Other expense, net........................... (1.2) (1.0) (2.7) (2.2) (3.8)
------ ------ ------ ------ ------
Net loss..................................... (5.9)% (8.8)% (23.1)% (15.6)% (53.5)%
====== ====== ====== ====== ======
</TABLE>

NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1998

REVENUES. Total revenues increased by $1.7 million, or 43%, to
$5.8 million for the nine months ended September 30, 1999, compared to
$4.1 million for the nine months ended September 30, 1998. On a pro forma basis,
assuming our acquisition of Internet Unlimited, Inc. occurred prior to
January 1, 1999, total revenues would have been $6.6 million for the nine months
ended September 30, 1999.

Services revenues increased by $2.3 million, or 67%, to $5.8 million for the
nine months ended September 30, 1999, compared to $3.5 million for the nine
months ended September 30, 1998. This increase in services revenues is primarily
attributable to an increase in the number of customers using our dedicated
Internet access services and a 191% increase in virtual private network revenues
from $460,000 for the period ended September 30, 1998 to $1.3 million for the
period ended September 30, 1999. This increase in virtual private networking
revenues is primarily attributable to the increase in revenues from one
customer, Microsoft's WebTV Networks. Our enhanced products and service revenues
increased by 184% for the period ended September 30, 1999 over the same period
in 1998 in part due to our acquisition of Internet Unlimited, Inc. Our dial-up
customer base continued to grow over the comparable period, resulting in an
increase in dial-up revenues of 26% for the period ended September 30, 1999 over
the same nine month period in 1998.

Hardware and software revenues which represents our resale of third party
hardware and software to our customers decreased by $539,000 or 85% to $95,000
for the nine months ended September 30, 1999, compared to $634,000 for the nine
months ended September 30, 1998. In the nine months ended September 30, 1998, we
sold a significant amount of third party hardware and software as part of an
installation for one of our major customers. We expect hardware sales to decline
as a percentage of revenue because of our focus on small and medium sized
enterprises. These customers historically have required less hardware because of
the scale of their Internet needs and their inclination to use their existing
equipment when available.

During these periods, we derived a significant portion of our revenues from
Microsoft's WebTV Networks and the State of Delaware. Microsoft's WebTV Networks
represented 19% of total revenues

23
<PAGE>
for the nine months ended September 30, 1999. The State of Delaware represented
10% of total revenues for the nine months ended September 30, 1998.

COST OF REVENUES. Cost of revenues increased by $1.5 million, or 67%, to
$3.9 million for the nine months ended September 30, 1999, compared to
$2.4 million for the nine months ended September 30, 1998. As a percentage of
revenues, cost of revenues increased to 67% for the nine months ended
September 30, 1999 from 58% for the nine months ended September 30, 1998. On a
pro forma basis, assuming our acquisition of Internet Unlimited, Inc. occurred
prior to January 1, 1999, cost of revenues would have been $4.0 million for the
nine months ended September 30, 1999.

Cost of services increased by $2.0 million, or 114%, to $3.8 million for the
nine months ended September 30, 1999, compared to $1.8 million for the nine
months ended September 30, 1998. As a percentage of services revenues, cost of
services were 52% in the nine months ended September 30, 1998 compared to 67% in
the nine months ended September 30, 1999. These increases were primarily
attributable to the increase in Internet access and telecommunications charges,
increased rental expense on leased equipment, and an increase in payroll and
related expenses for engineers associated with our increased revenues, in
advance of generating revenues in new regions.

Cost of hardware and software decreased by $470,000 or 84% to $89,000 for
the nine months ended September 30, 1999, compared to $559,000 for the nine
months ended September 30, 1998 as a result of the decrease in hardware and
software revenues.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by $1.8 million, or 91%, to $3.9 million for the nine months
ended September 30, 1999 compared to $2.1 million for the nine months ended
September 30, 1998. As a percentage of revenues, selling, general and
administrative expenses increased to 67% for the nine months ended
September 30, 1999 from 50% for the nine months ended September 30, 1998. This
increase is primarily attributable to the increase in selling, general and
administrative personnel from 31 at September 30, 1998 to 63 at September 30,
1999, and a 35% increase in advertising expense from $391,000 in the nine months
ended September 30, 1998 to $529,000 in the nine months ended September 30,
1999. As a result of the increase in personnel, all related general and
administrative expenses increased. $500,000 of the $1.8 million increase was for
financial advisory services provided by Hambrecht & Quist LLC. On a pro forma
basis, assuming our acquisition of Internet Unlimited, Inc. occurred prior to
January 1, 1999, selling, general and administrative expenses would have been
$4.5 million for the nine months ended September 30, 1999.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased by
$674,000 or 292%, to $904,000 for the nine months ended September 30, 1999,
compared to $230,000 for the nine months ended September 30, 1998. This increase
was primarily attributable to the purchase of equipment necessary to support the
expansion of our network and to the amortization of the intangible assets
associated with our acquisition of Internet Unlimited, Inc. On a pro forma
basis, assuming our acquisition of Internet Unlimited, Inc. occurred prior to
January 1, 1999, depreciation and amortization, including the amortization of
intangible assets associated with the Internet Unlimited acquisition would have
been $1.8 million for the nine months ended September 30, 1999.

24
<PAGE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997

REVENUES. Total revenues increased by $1.8 million, or 51%, to
$5.5 million for the year ended December 31, 1998, from $3.7 million for the
year ended December 31, 1997. On a pro forma basis, assuming our acquisition of
Internet Unlimited occurred prior to January 1, 1998, total revenues would have
been $6.1 million for the year ended December 31, 1998.

Services revenues increased by $2.1 million, or 71%, to $4.9 million for the
year ended December 31, 1998, from $2.8 million for the year ended December 31,
1997. This increase in services revenues resulted from an overall increase in
the number of customers using our dedicated Internet access services and from an
increase in virtual private networking revenues for the year ended December 31,
1998, compared, to the year ended December 31, 1997. Our dedicated Internet
access revenues increased by $1.2 million, or 67%, in 1998 compared to 1997. Our
dial-up customer base continued to increase in 1998 compared to 1997, resulting
in dial-up revenues increasing $207,000, or 40%, in 1998 compared to 1997.

Hardware and software revenues decreased by $171,000, or 21%, to $653,000
for the year ended December 31, 1998, from $824,000 for the year ended
December 31, 1997, primarily because we sold a significant amount of third party
hardware and software as part of an installation for one of our major customers
in 1997.

During the year ended December 31, 1998, revenues from Lucent Technologies,
Inc. represented in excess of 11% of total revenues. During the year ended
December 31, 1997, revenues from Lucent Technologies, Inc. represented 24% and
revenues from Vanguard Cellular Systems, Inc. represented 13% of total revenues.

COST OF REVENUES. Cost of revenues increased by $908,000, or 39%, to
$3.2 million for the year ended December 31, 1998 from $2.3 million for the year
ended December 31, 1997. On a pro forma basis, assuming our acquisition of
Internet Unlimited occurred on January 1, 1998, cost of revenues would have been
$3.3 million for the year ended December 31, 1998.

Cost of services increased by $801,000, or 45%, to $2.6 million for the year
ended December 31, 1998, from $1.8 million for the year ended December 31, 1997.
This increase was primarily attributable to the increase in Internet access and
telecommunications charges and increased rental expense on leased equipment. As
a percentage of services revenues, cost of services were 53% in the year ended
December 31, 1998 compared to 62% in the year ended December 31, 1997. This
decrease is primarily attributable to a higher utilization rate of our network
and the addition of new customers without proportional incremental
infrastructure and telecommunications costs.

Cost of hardware and software increased by $107,000 or 19% to $669,000 for
the year ended December 31, 1998, from $562,000 for the year ended December 31,
1997. This increase is primarily attributable to a large sale of hardware to one
customer.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by $1.7 million, or 112%, to $3.1 million for the year ended
December 31, 1998 from $1.4 million for the year ended December 31, 1997. As a
percentage of revenues, these expenses were 56% for the year ended December 31,
1998, compared to 39% for the year ended December 31, 1997. This increase in
selling, general and administrative expense in dollars and as a percentage of
revenues is primarily attributable to the increase in selling, general and
administrative personnel from 28 at December 31, 1997 to 35 at December 31,
1998, and a 157% increase in advertising expense from $243,000 in the year ended
December 31, 1997 to $625,000 in the year ended December 31, 1998. On a pro
forma basis, assuming our acquisition of Internet Unlimited occurred on
January 1, 1998, selling, general and administrative expenses would have been
$3.5 million for the year ended December 31, 1998.

25
<PAGE>
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased by
$170,000, or 95%, to $347,000 for the year ended December 31, 1998 from $177,000
for the year ended December 31, 1997. This increase was primarily attributable
to the purchase of equipment necessary to support the expansion of our network.
On a pro forma basis, assuming our acquisition of Internet Unlimited, Inc.
occurred on January 1, 1998, depreciation and amortization, including the
amortization of intangible assets associated with the Internet Unlimited
acquisition, would have been $1.9 million for the year ended December 31, 1998.

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

REVENUES. Total revenues increased by $1.8 million, or 89%, to
$3.7 million for the year ended December 31, 1997, from $1.9 million for the
year ended December 31, 1996.

Services revenues increased by $1.3 million, or 84%, to $2.8 million for the
year ended December 31, 1997, from $1.5 million for the year ended December 31,
1996. Our 1997 dedicated Internet access revenues grew by $360,000, or 26%,
compared to 1996. As a result of growth in our dial-up customer base in 1997,
our dial-up revenue increased $365,000, or 248%, over 1996.

Hardware and software revenues increased by $426,000, or 107%, to $824,000
for the year ended December 31, 1997, from $398,000 for the year ended
December 31, 1996.

During the year ended December 31, 1997, revenues from Lucent Technologies,
Inc. represented 24% of total revenues compared to 16% of total revenues for the
year ended December 31, 1996. During the year ended December 31, 1997, revenues
from Vanguard Cellular Systems represented 13% of our total revenues.

COST OF REVENUES. Cost of revenues increased by $1.1 million, or 101%, to
$2.3 million for the year ended December 31, 1997, from $1.2 million for the
year ended December 31, 1996.

Cost of services increased by $1.1 million, or 139%, to $1.8 million for the
year ended December 31, 1997, from $740,000 for the year ended December 31,
1996. In 1997, we began leasing equipment through operating leases. Equipment
lease expense was $172,000 in 1997. As a percentage of services revenues, cost
of services were 62.3% for the year ended December 31, 1997, compared to 47.9%
for the year ended December 31, 1996. This increase was primarily attributable
to the increase in Internet access and telecommunications charges, and rental
expense on leased equipment.

Cost of hardware and software increased by $140,000 or 33% to $562,000 for
the year ended December 31, 1997, from $422,000 for the year ended December 31,
1996.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by $652,000, or 82%, to $1.4 million for the year ended
December 31, 1997, from $793,000 for the year ended December 31, 1996. This
increase was primarily due to the growth in selling, general, and administrative
personnel from 15 at December 31, 1996 to 28 at December 31, 1997. Advertising
expense increased by $138,000, or 131%, for the year ended December 31, 1997,
compared to the year ended December 31, 1996.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased by
$98,000, or 125%, to $177,000 for the year ended December 31, 1997 from $79,000
for the year ended December 31, 1996. This increase was primarily attributable
to the purchase of equipment necessary to support the expansion of our network.

RECENT UNAUDITED FINANCIAL DATA

Our revenues for the year ended December 31, 1999 were approximately $8.4
million and our net loss for the year ended December 31, 1999 was approximately
$5.6 million. The financial data for such periods are unaudited. The preparation
of these financial data requires management to make estimates

26
<PAGE>
and assumptions that affect the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.

LIQUIDITY AND CAPITAL RESOURCES

Our business plan has required, and is expected to continue to require,
substantial capital to fund operations, capital expenditures, expansion of sales
and marketing capabilities and acquisitions. The following is a table setting
forth our cash flow activities:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------- ------------------------
1996 1997 1998 1998 1999
--------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Cash flows provided by (used in)
operating activities............. $ 175,518 $ 483,415 $ (613,979) $ (658,499) $ (99,402)
Cash flows used in investing
activities....................... (331,153) (690,352) (899,996) (423,867) (1,493,270)
Cash flows provided by financing
activities....................... 178,113 267,327 1,681,776 1,691,958 5,148,448
--------- --------- ---------- ---------- -----------
Net increase in cash and cash
equivalents...................... $ 22,478 $ 60,390 $ 167,801 $ 609,592 $ 3,555,776
========= ========= ========== ========== ===========
</TABLE>

To date, we have satisfied our cash requirements primarily through debt and
equity financings. In May 1998, we issued 1,000,000 shares of our common stock,
a convertible promissory note in the amount of approximately $3.1 million to H&Q
You Tools Investment Holding, L.P. and a warrant to purchase 1,000,000 shares of
our common stock at an exercise price of $1.50 per share to H&Q You Tools
Investment Holding, L.P. for an aggregate of approximately $3.3 million in cash.
In connection with this financing, we granted H&Q You Tools Investment Holding,
L.P. a security interest in substantially all of our assets. H&Q You Tools
Investment Holding, L.P. has committed to convert this note into 2,033,334
shares of our common stock and release its security interest immediately prior
to the consummation of this offering. We used a portion of the proceeds from
this financing to repurchase outstanding shares of our common stock representing
50% of our then outstanding shares of common stock for $1.0 million.

In May 1999, we issued a $1.0 million convertible note to H&Q You Tools
Investment Holding, L.P. for $1.0 million in cash. The principal amount of this
note and accrued interest was converted into 142,431 shares of series A
convertible preferred stock at $7.13 per share in August 1999. In July 1999, we
used a portion of the proceeds from this financing to acquire Internet
Unlimited, Inc. a provider of Web hosting and colocation services, for $400,000
in cash and 546,984 shares of common stock.

In August 1999, we sold 666,198 shares of series A convertible preferred
stock to purchasers including Lucent Technologies, Inc. at $7.13 per share. The
net proceeds from these sales of series A convertible preferred stock were
approximately $4.5 million. All of the outstanding preferred stock will
automatically convert into common stock immediately prior to the consummation of
this offering.

In June 1999, we entered into a master lease agreement with Ascend Credit
Corporation for a $20 million equipment lease facility, of which $10 million
will not be available until consummation of this offering. Under this
arrangement, we lease equipment necessary for the construction of our customer
network facilities. Currently, we have approximately $6.3 million available
under this facility. In order to complete the three customer network facilities
currently being constructed and the related expansion of our network operations
center, we anticipate that we will require an aggregate of approximately
$800,000 of additional borrowings under our Ascend equipment lease facility.

In January 2000, we entered into a purchase agreement under which we issued
a $1.0 million note to H&Q You Tools Investment Holding, L.P. The note bears
interest at a rate equal to 7% per annum

27
<PAGE>
and will mature upon consummation of this offering. We will use approximately
$1.0 million of the net proceeds of this offering to repay the outstanding
principal and interest on the note. We intend to use the $1.0 million proceeds
from the loan for working capital and capital expenditures.

As of September 30, 1999, our cash and cash equivalents were $3,812,558. We
do not invest our cash in securities that are subject to market risks. We
believe that the net proceeds from this offering, together with our existing
cash and cash equivalents, and available financing under the $20 million
equipment lease facility, will be sufficient to meet our working capital and
capital expenditure requirements for at least the next 12 months. If we are
unable to complete this offering or if the net proceeds from this offering are
not sufficient to meet our cash requirements, our need to fund ongoing
operations could limit our ability to execute our business strategy. Therefore,
we may be required to seek additional sources of financing, including financing
for our current long term capital commitments which we currently estimate to be
approximately $9.5 million through 2004. We may also be required to raise
additional financing before such time. If additional funds are raised through
the issuance of equity securities, our existing shareholders may experience
significant dilution. Furthermore, additional financing may not be available
when needed or, if available, such financing may not be on terms favorable to us
or our shareholders. If such sources of financing are insufficient or
unavailable, or if we experience shortfalls in anticipated revenue or increases
in anticipated expenses, we may need to slow down or stop the expansion of our
regional deployment, including our customer network facilities and reduce our
marketing and development efforts. Any of these events could harm our business,
financial condition or results of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our financial instruments primarily consist of debt. All of our debt
instruments bear interest at fixed rates. Therefore, a change in interest rates
would not affect the interest incurred or cash flows related to our debt. A
change in interest rates would, however, affect the fair value of the debt. The
following sensitivity analysis assumes an instantaneous 100 basis point move in
interest rates from levels at December 31, 1998 with all other factors held
constant. A 100 basis point increase or decrease in market interest rates would
result in a change in the value of our debt of less than $50,000 at
December 31, 1998. Because our debt is neither publicly traded nor redeemable at
our option, it is unlikely that such a change would impact our financial
statements or results of operations.

All of our transactions are conducted using the United States dollar.
Therefore, we are not exposed to any significant market risk relating to
currency rates.

28
<PAGE>
OUR BUSINESS

GENERAL

We are a growing Internet service provider offering Internet access and
enhanced services, such as Web hosting, managed security solutions and other
value added products to small and medium sized enterprises through our regional
customer network facilities. We primarily offer our services in the mid-
Atlantic area of the United States and our strategy is to expand by replicating
our customer network facilities and our services offered to small and medium
sized enterprises in selected high growth secondary markets throughout the
United States. We have been providing Internet access services to our customers
since 1994. We supplement our dedicated Internet access services with a
comprehensive suite of enhanced products and services that are designed to meet
the expanding needs of our customers and increase our revenue per customer. The
services we provide include:

- Internet access services;

- Total Managed Security;

- Web hosting services;

- Internet applications hosting services;

- virtual private networks;

- unified messaging; and

- total managed backup and recovery services.

Our customer network facility infrastructure and local sales support are
regionally located in order to provide cost savings to our customers and a high
quality of customer service. We intend to duplicate this network architecture in
targeted high growth secondary markets across the mid-Atlantic and northeastern
United States and, eventually, across the entire country.

On July 30, 1999, we acquired Internet Unlimited, Inc., a Web hosting and
colocation company. As of December 31, 1999, we provided Internet access and
enhanced products and services to approximately 300 enterprise customers, of
which approximately 275 were small and medium sized enterprises, and
approximately 15,800 dial-up customers in the mid-Atlantic area. We also provide
Web hosting services to approximately 4,400 customers.

OUR MARKET OPPORTUNITY

OVERVIEW. The Internet has become an important global medium enabling
millions of people to obtain and share information and conduct business
electronically. Its expanded use has made the Internet a critical tool for
information and communications for many users. Internet access and enhanced
Internet services, including Web hosting and electronic commerce services,
represent two of the fastest growing segments of the telecommunications services
market. International Data Corporation estimates that at the end of 1998 there
were over 62 million Web users in the United States and over 134 million
worldwide, and projects that by the end of 2003 the number of Web users will
increase to 177 million in the United States and over 472 million worldwide. The
availability of Internet access, advancements in technologies required to
navigate the Internet, and the proliferation of content and applications
available over the Internet have attracted a rapidly growing number of Internet
users.

GROWTH IN BUSINESS USE OF THE INTERNET. The dramatic growth in Internet
usage in recent years, combined with enhanced functionality, accessibility and
security, has made the Internet increasingly attractive to businesses as a
medium for communication and commerce. For many businesses, the Internet has
created a new communication and sales channel which enables large numbers of
geographically dispersed organizations and consumers to be reached quickly and
cost-effectively. International Data Corporation estimates that the number of
consumers buying goods and services on the Internet will grow from 21.1 million
in 1998 to 72.1 million in 2003, and that the total value of

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goods and services purchased over the Internet will increase from approximately
$37 billion in 1998 to approximately $707 billion by 2002.

Businesses are increasingly adding a variety of enhanced services and
applications to their basic Internet access, Web sites and e-commerce
applications in order to more fully capitalize on the power of the Internet.
These services and applications allow them to more efficiently and securely
communicate company information, expand and enhance their distribution channels,
increase productivity through back-office automation, ensure reliability and
reduce costs.

- DEMAND FOR INTERNET ACCESS SERVICES. The Internet continues to increase
in size and importance as its role in integral business operations
expands. Internet access services represent the means by which ISPs
interconnect their customers to the Internet or corporate intranets and
extranets. According to International Data Corporation, Internet access
revenues from businesses are expected to more than double in the next four
years from $5.1 billion in 1999 to $12 billion in 2003. Because small and
medium sized enterprises often lack the technical capabilities and
operational scale to implement their Internet operations, these
enterprises often seek assistance from third-party service providers.

- DEMAND FOR WEB HOSTING SERVICES. As Internet Web sites become
increasingly critical to businesses, many businesses are seeking to
outsource to ISPs services such as Web hosting, colocation and file
transfer protocol data storage and retrieval.

- DEMAND FOR SECURE PRIVATE NETWORKS. As businesses increasingly rely on
the Internet for communication and commerce, concerns relating to the
security of their internal and proprietary information, data loss and
reduced transmission speed has led those businesses to demand Internet
services that include the ability to provide electronic security
monitoring and threat responses.

THE SMALL AND MEDIUM SIZED ENTERPRISE MARKET. We have specifically targeted
small and medium sized enterprises because:

- We believe that these enterprises increasingly need high-speed data and
Internet connections to access business information and to communicate
more effectively with employees, customers, vendors and business partners.

- We believe that a relatively small percentage of these enterprises
currently utilize the Internet. This number is increasing rapidly. The
small and medium sized enterprise segment is expected to be one of the
fastest growing segments of the Internet industry. According to
International Data Corporation, Web-related expenditures by small
businesses in the United States are expected to grow from $9.6 billion in
1999 to over $32 billion by 2003.

- Many of these enterprises lack the resources and expertise to develop,
maintain and expand, on a cost-effective basis, the facilities and network
systems necessary for successful Internet operations.

- We believe that these enterprises rely more heavily on their Internet
service provider than larger enterprises.

INTERNET SERVICES IN SECONDARY MARKETS. Small and medium sized enterprises
are often concentrated in secondary markets to avoid the higher costs associated
with locating in a metropolitan area. We define a secondary market as typically
smaller than the 100 most populated U.S. metropolitan markets. However, national
ISPs have historically placed their largest points of presence, only in or
around densely populated major cities. Customers that are located within a few
miles from these points of presence often receive cost savings on their access
pricing. However, customers located in secondary markets that are 20 to 75 miles
away from these points of presence have typically been charged higher prices for
Internet access services.

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We believe that small and medium sized enterprises located in high growth
secondary markets are currently underserved by both national and local providers
of Internet access and related services. National ISPs typically lack the local
presence to provide local support. Local ISPs, on the other hand, often lack the
requisite scale and resources to provide a full range of services at acceptable
quality and pricing levels.

OUR SOLUTION

We believe that we offer our customers a comprehensive solution to their
Internet access and enhanced products and services needs. Key aspects of our
solution include:

TECHNOLOGY PLATFORM. Our network architecture is designed around our
customer network facilities that we construct in each region in which we
operate. A customer network facility is a high capacity data center that
provides our customers with redundant connections to the Internet through
connections to not less than two independent Internet backbone networks. This
assures our customers of fewer delays in accessing the Internet and continued
service should one of the backbone networks fail. In addition, our customer
network facilities feature redundant power and climate control systems, and are
continuously monitored through a connection to our network operations center.
This connection allows us to monitor and control regional customer network
facility operations 24 hours-a-day, 7 days a week, which allows our staff to be
immediately alerted and responsive to problems as they arise. This control of
our network infrastructure also allows us to improve quality of service by
minimizing network downtime. The network operations center also provides an
additional level of redundancy of Internet connectivity. In the event that both
independent Internet backbone networks to which a customer network facility is
connected fail, customer traffic can be routed to the Internet through the
network operations center to minimize service interruptions. Likewise, a
customer network facility will continue to function even if its connection to
the network operations center fails.

[LOGO]

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We currently have seven customer network facilities in operation servicing
the regions in and around Allentown, Pennsylvania, Harrisburg, Pennsylvania,
Jersey City, New Jersey, Basking Ridge, New Jersey and Holland Township, New
Jersey, and the secondary markets surrounding Philadelphia, Pennsylvania and
Baltimore, Maryland. We are in the process of constructing three additional
customer network facilities to service Scranton/Wilkes Barre, Pennsylvania,
Pittsburgh, Pennsylvania, and the secondary market surrounding Washington, D.C.

COMPREHENSIVE SUITE OF SERVICES. We seek to provide small and medium sized
enterprises with a single source for their Internet service needs. Our
comprehensive suite of services enables our customers to easily and more
cost-effectively address their Internet needs without developing solutions
internally or assembling services from multiple vendors, including resellers,
other Internet service providers and information technology service providers.
We offer our services in customized bundles through a single network connection
and provide our customers with technical support and management expertise.

HIGH QUALITY CUSTOMER SUPPORT AND SERVICE. We focus on providing our
customers with high quality support and service in order to maintain customer
loyalty and maximize retention. Our focus on regional marketing and regional
network access enables us to provide the personalized service and attention that
small and medium sized enterprises often require. In addition, we believe that
customer satisfaction is critical to our success in selling our enhanced
products and services. We provide around-the-clock customer support, real-time
monitoring of all circuits and services and high quality customer service.

PLUG AND PLAY EASE OF INSTALLATION. In order to simplify what is sometimes
a technically challenging installation, we have designed and continue to enhance
our products and services to provide our customers with plug and play
installation. We ship pre-configured equipment to our customers that, in most
cases, is ready for installation. In the event that a customer requires
assistance, the customer can contact our engineering installation department,
where the customer is guided through the installation process at no additional
charge. In addition, many of our enhanced products and services require no
additional hardware and can be installed through the customer's existing
connection to our customer network facility.

COST SAVINGS TO OUR CUSTOMERS. We believe based upon comments from our
customers that our Internet solutions are more cost-effective for our customers
than developing their own in-house Internet solutions. In order to match the
level of performance and reliability that we provide to our customers, they
would need to make significant expenditures for equipment, personnel and
dedicated bandwidth. In addition, they would need to develop Internet expertise
and would be required to divert resources from their primary business
activities.

We believe that we can continue to provide high quality Internet services to
small and medium sized enterprises because we have developed a cost-effective
and highly efficient regional strategy that enables us to eliminate many of the
high cost network transport and interconnect elements typically associated with
a national network. A national network is commonly designed to include a point
of presence, or Internet access point, which enables a customer to connect to
one or more peering points. These peering points enable national networks to
connect with other networks to access the Internet for their customers. National
network customers connect to a point of presence then to a peering point through
large and typically expensive data circuits owned by the national network. Our
regional network design reduces the high costs associated with a national
network structure by eliminating the need for us to invest capital to purchase
large expensive data circuits. Instead, our network delivers the data from the
customer directly to the primary backbone provider which requires less expensive
circuits that connect our regionally located customer network facilities to our
main network operations center. In addition, because we position our customer
network facilities close to secondary markets, we often are able to utilize
shorter circuits than those used by national providers and do not need to rely
on national or international transport circuits, which are generally higher cost
than regional circuits.

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Furthermore, because our customer network facilities support only our data
products, we do not incur expenses related to telephony equipment, long-distance
switches and other voice services.

OUR STRATEGY

REPLICATING OUR MODEL RAPIDLY IN SELECTED SECONDARY MARKETS. We intend to
expand into selected high growth secondary markets by replicating our regional
network and marketing model. Our network architecture and scalable sales and
marketing plan are designed to allow us to penetrate additional regions rapidly
and cost-effectively. In the past, we have been able to provide limited services
to customers within 90 days after the date a lease is signed for the site of a
new customer network facility. By focusing on smaller regions, we are able to
build our regional networks more quickly than if we were to build a contiguous
national network. Our customer network facilities are modular and use
non-proprietary standards-based equipment that can be obtained from multiple
vendors. This allows for a simpler design, easier duplication and cost savings.
We also implement a flexible marketing model in each region that addresses the
particular product and service needs of our target customers in that region. In
order to successfully replicate our model in our target regions, we must:

- IDENTIFY ATTRACTIVE REGIONS. We target regions that are typically growing
rapidly and have a large concentration of small and medium sized
enterprises. Our focus has been on regions outside of major metropolitan
cities located in the mid-Atlantic area of United States. We intend to
expand throughout the mid-Atlantic United States and enter into target
regions in the northeastern United States and, eventually, throughout the
entire country.

- RAPIDLY BUILD ADDITIONAL CUSTOMER NETWORK FACILITIES. Our network
architecture is easily replicated in each target region. Each of our
customer network facilities requires virtually the same equipment,
physical space and redundancy regardless of the region. As a result, we
can pre-fabricate many of the elements required to deploy a customer
network facilities and also take advantage of volume pricing for our
equipment.

- CONTINUE OUR HIGHLY FOCUSED SALES AND MARKETING EFFORTS. We have
established a sales and marketing strategy based upon a centralized sales
staff with active local support. We will continue to market our products
and services in our target regions through a combination of highly focused
local advertising, brand awareness campaigns and a focused sales effort.
We tailor our marketing efforts to each region to utilize the most
cost-effective methods of advertising and to address local preferences. As
a result, we generally do not incur the significant expenses related to
broad-based national media and advertising campaigns.

EXPANDING CUSTOMER RELATIONSHIPS TO MARKET ENHANCED SERVICES. We offer a
portfolio of enhanced products and services to meet the expanding needs and
complexity of our customers' Internet operations. We market these products and
services to our existing customers to increase revenue per customer and maintain
high customer retention by strengthening our customers' relationships with us.

USING CENTRALIZED SALES AND MARKETING OPERATIONS TO EXPAND OUR REGIONAL
SALES AND MARKETING BY TAKING ADVANTAGE OF ECONOMIES OF SCALE. We use our
centralized sales and marketing staff to help implement our regional strategy
cost-effectively. We intend to hire and train additional local sales and
marketing personnel within our target regions to compliment the core of our
sales and marketing staff which will continue to be concentrated in one
centralized location to maximize efficiency. These regionally located employees
add local market knowledge, expertise and familiarity to our sales and marketing
efforts. This allows us to maintain a field presence in each of our regions,
while maximizing the utilization of our central operations, where the majority
of our employees are located.

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ENTERING INTO STRATEGIC RELATIONSHIPS AND MAKING SELECTED ACQUISITIONS. We
seek to enter into strategic relationships with third party vendors to develop
and obtain new technologies to incorporate into our product and service
offerings. We believe that this enables us to meet our customers' needs
efficiently and in a cost-effective manner. For example, as part of our
relationship with WatchGuard Technologies, Inc., we worked with WatchGuard to
modify their security product to meet customers' needs. Additionally, we have
recently entered into an agreement with Covad Communications Company to sell
Covad's DSL services to our customers.

We recently entered into an equipment lease arrangement with Lucent
Technologies, Inc. and acquired Internet Unlimited, Inc., a provider of Web
hosting and colocation services. We intend to make strategic acquisitions that
enable us to offer additional enhanced products and services to our customers.
We may also enter into strategic relationships with third-party service
providers to enable them to deliver their Internet products and services
directly to our customers.

SALES AND MARKETING

As of December 31, 1999, we employed 29 sales and marketing professionals at
our corporate headquarters. This group comprises our centralized sales and
marketing team and is responsible for contacting potential and existing
customers within each region. Our sales team also works with our regional
marketing managers to offer enhanced products and services to existing customers
and ensure overall customer satisfaction. In order to maximize the efficiency of
our sales process, we have developed a uniform set of sales procedures, which
our sales staff has been trained to implement.

We use targeted marketing and media advertising to develop brand awareness
and supplement these efforts with our highly customized sales process and
personalized customer service. Through our regional marketing managers, we seek
to develop strong customer relationships within local communities.

Our regional marketing managers will also provide assistance and support to
our centralized sales staff. This enables us to evaluate customers' needs more
effectively, to design customized solutions and to reinforce our local presence
as a value-added provider of enhanced Internet services. Our regional marketing
managers also identify market trends, provide constant data regarding changes in
the competitive landscape and also may identify and initiate contact with new
customers. In addition, our regional marketing managers attend trade shows and
Chamber of Commerce events, as examples, to further reach the targeted small and
medium sized enterprises in each region.

We also maintain a Web site at WWW.FAST.NET, which provides Internet users
information about us and the opportunity to obtain answers to some frequently
asked questions. Through our Web site, customers can also learn how to obtain
Internet access and enhanced products and services through a FASTNET connection.

PRODUCTS AND SERVICES

We offer a comprehensive Internet solution to our customers, which includes
dedicated and dial-up Internet access and enhanced Internet products and
services. Our dedicated Internet access offering is available at speeds that
range from 56 kilobits per second to 45 megabits per second. Dedicated Internet
access can be delivered through standard telephony circuits, such as T-1 through
T-3 digital circuits, digital subscriber line technology, also known as DSL, or
wireless connections. We offer our customers DSL service through an agreement
with Covad Communications Company which enables us to sell Covad's DSL service
as a bundled package with our Internet access and other value added services.
Our dedicated Internet access provides our customers with always-on connectivity
to the Internet as well as access to our enhanced Internet products and
services. In addition, we offer dial-up Internet access to customers, which
provides lower cost, lower bandwidth connectivity to the Internet.

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To ensure maximum availability and reliability of our products and services, our
facilities feature backup power and redundant bandwidth.

We offer enhanced Internet products and services to our customers on a
monthly recurring fee basis including:

- TOTAL MANAGED SECURITY SERVICES--We address our customers' concerns about
the security of data transmitted over the Internet by offering various
levels of protection through our Total Managed Security services. These
services will provide security to a company's network, including local
area networks and wide area networks, from unauthorized access by external
sources. In addition, as part of our services, our network operations
center personnel provide 24 hours-a-day, seven days-a-week monitoring and
threat response. We incorporate third-party products into our security
solution and we continually evaluate third-party products to meet the
future needs of our customers. These products include Web content
filtering, mail filtering and detailed log file generation. On
December 30, 1998, we entered into a Managed Security Services Agreement
with WatchGuard Technologies, Inc. to provide these security services and
products, which expires on December 31, 2000. This agreement renews for an
additional one-year term if we meet or exceed minimum quarterly purchase
amounts and neither party has provided the other party notice of its
intention not to renew the agreement at least 30 days prior to the end of
the applicable term. Under the terms of this agreement, we have agreed to
purchase a minimum annual amount of services and products from WatchGuard,
resulting in minimum payments to WatchGuard of approximately $274,000 per
year.

- WEB HOSTING SERVICES--We provide a wide range of content hosting services,
including shared and dedicated hosting on our servers for customer Web
sites as well as colocation hosting of customer supplied servers in our
facilities. Entry level shared server Web hosting provides our customers
with a managed and pre-configured system at a reasonable cost. The
customer simply adds its content through an interface such as FTP (file
transfer protocol) or, in a growing number of cases, through Microsoft's
FrontPage extensions. Server colocation allows customers to place their
own servers within our facilities. Upon request, we can sell servers to
the customer and maintain them for an additional fee.

- INTERNET APPLICATIONS HOSTING SERVICES--The growth of the Internet has
made a strong Web presence increasingly important for small and medium
sized enterprises. We provide our customers with the Internet applications
hosting services they need to remain competitive. Our Internet
applications hosting services include e-commerce services and other
sophisticated applications related to the operation of an e-commerce
enabled Web site. Our Internet applications hosting services work in
conjunction with our Web hosting services to provide our customers with a
comprehensive Web presence.

- VIRTUAL PRIVATE NETWORK SERVICES--When an enterprise customer wants to
enable remote or off-site access to its computer network, the enterprise
commonly uses a form of a virtual private network connection. A virtual
private network provides a convenient and secure computer connection from
a remote location back to the company's main computer network. We provide
customers with our CC/vpn product, which enables them to control many
aspects of their configuration, such as user profile changes and security
functions, through a private Web-based interface.

- UNIFIED MESSAGING SERVICES--The Internet has been the catalyst for a
variety of convenient Web-based communications services, such as e-mail,
computer-based faxing and paging. In many cases, each of these services
requires the user to access individual applications to view messages.
Unified messaging combines messaging services and allows a user to view
all messages through one application. We provide our customers with a user
friendly unified messaging service that is based on Internet protocol
standards. We believe that we will be able to offer our unified messaging
services in the future with enhancements such as voicemail and other
multimedia tools.

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- TOTAL MANAGED BACKUP AND RECOVERY SERVICES--We provide Internet-enabled
backup and recovery services for a company's data network through off-site
data and storage. We believe that many small and medium sized businesses
lack a scheduled computer data back-up routine, which may leave them
vulnerable to data loss. Our total managed backup and recovery product is
simple to use and can be easily installed on most servers and desktop
computers. By using this service, our customers can schedule automatic
data back-ups to our servers located within our network. Typically, the
customer accesses our server over the customer's connection to our
customer network facility. In most cases, this eliminates the need for the
customer's data to be transmitted over the Internet. For a further level
of security, we encrypt the customer's data before transmission to the
storage servers. We encrypt the customer's data before it is transmitted
to the storage servers where it remains in a secret encrypted form. These
total managed backup and recovery services effectively provide our
customers convenient and secure off-site storage of their data.

We have agreements with our customers for our services that are typically
for a one year term that after expiration will automatically convert to a
monthly term until the agreement is either terminated upon 30 days notice or
renewed for a new one year term. We bill our customers on a monthly basis and in
circumstances we offer discounts for prepayment. We offer each of our services
individually or as part of a bundled solution. Our customers receive additional
discounts from us if they purchase more than one of our services.

NETWORK ARCHITECTURE AND INFRASTRUCTURE

Our network architecture is designed to provide our customers with reliable,
high speed Internet access as well as our comprehensive suite of enhanced
products and services. Key components of our network are:

CUSTOMER NETWORK FACILITY. The core of each of our regional networks is the
customer network facility. Each customer network facility is designed to operate
as a stand-alone, self-contained Internet services facility capable of
supporting our full range of products and services to meet the needs of our
customers in each region. We provide our dedicated access customers with
constant Internet access through a data circuit that is connected continuously
to the Internet by way of a central network facility. Dedicated access customers
in each region connect to one of our customer network facilities using high
speed data circuits provided by an incumbent local exchange carrier or
competitive local exchange carrier. An incumbent local exchange carrier is
generally the original telephone company which services the customer's area. A
competitive local exchange carrier is generally a company that is trying to
compete with an incumbent local exchange carrier. Our dial-up customers connect
to our network using either 56K modem or digital ISDN circuits. We subscribe on
a monthly basis for services provided by a number of local exchange carriers,
including AT&T Corporation, through its subsidiary Teleport Communications
Group, and Bell Atlantic Corporation. We also have agreements with local
exchange carriers, including the following companies:

- HYPERION COMMUNICATIONS OF NEW JERSEY, LLC. We entered into an agreement
with Hyperion on May 12, 1999 for a term of one year. Hyperion provides us
with local exchange, switched access, long distance and dedicated access.
Under the terms of this agreement, we have agreed to purchase a minimum
annual amount of services from Hyperion, resulting in minimum payments to
Hyperion of approximately $242,000 per year.

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- NEXTLINK PENNSYLVANIA, INC. We entered into agreements with NEXTLINK in
June, October and December 1999, each for a term of three years. NEXTLINK
provides us with point-to-point DS3 service. Under the terms of these
agreements, we have agreed to purchase a minimum annual amount of services
from NEXTLINK, resulting in minimum payments to NEXTLINK of approximately
$327,000 per year.

Each customer network facility has access to at least two Internet backbone
providers. We have agreements with a number of national Internet backbone
providers, including the following companies:

- MCI WORLDCOM INC. We entered into an agreement with MCI on August 6, 1999
for a term of three years. MCI provides us with DS3 private line service.
Under the terms of this agreement, we have agreed to purchase a minimum
annual amount of services from MCI, resulting in minimum payments to MCI
of approximately $180,000 per year. This agreement is renewable on a
month-to-month basis.

- UUNET TECHNOLOGIES, INC. We entered into agreements with UUNET, one in
August for a one year term and another in December 1999 for a three year
term. UUNET provides us with T3 and T1 service. Under the terms of these
agreements, we have agreed to purchase a minimum annual amount of services
from UUNET, resulting in minimum payments to UUNET of approximately
$669,000 per year. These agreements may be terminated by either party upon
60 days advance notice to the other party, without obligation or penalties
for further payments.

- SPRINT COMMUNICATIONS COMPANY, L.P. We entered into an agreement with
Sprint on June 8, 1999 for a term of three years. Sprint provides us with
dedicated Internet access service. Under the terms of this agreement, we
have agreed to purchase a minimum annual amount of services from Sprint,
resulting in minimum payments to Sprint of approximately $1.4 million per
year.

These services provide redundancy and high reliability in the event that any
of our backbone providers should experience network difficulties. We are billed
by all of our backbone providers monthly and are generally charged according to
the number of services that we choose to subscribe to in addition to initial
installation fees. Since we maintain a carrier-independent design, we have the
flexibility to select the most reliable and lowest cost provider in each region.

NETWORK OPERATIONS CENTER. Each customer network facility is connected to
our network operations center. The network operations center monitors the
operation of each device connected to our network and provides instantaneous
notification of any faults or failures. This monitoring process is designed to
ensure that we are in position to react quickly to restore operations in the
event of technical problems. In addition, the connection between the network
operations center and the customer network facilities provides an additional
level of redundancy for customer traffic if needed. Since each customer network
facility is connected to the Internet independently from the network operations
center, connections from a customer network facility to the network operations
center typically do not require the same expensive high capacity or high
bandwidth transport facilities that link customer network facilities to the
Internet. As a result, we reduce our costs of backbone transport.

EQUIPMENT. We purchase our equipment from a number of vendors to take
advantage of beneficial pricing and improvements in technology and performance.
We currently use routers from Cisco Systems, Inc., such as the 7500 series, that
are equipped with redundant components including route switching processors and
power supplies for added reliability. We sell both Cisco Systems, Inc. and
Nortel Networks Corporation (Bay Networks) routers to our customers for use as
customer premise equipment. We entered into an Equipment Lease Agreement with
Bay Networks on May 29, 1997 for a term of three years. Under the terms of this
agreement, we have agreed to make minimum payments to Bay Networks of
approximately $31,000 per year. This agreement is renewable on a month-to-month
basis. We entered into a Master Lease Agreement with Cisco Systems on
November 3, 1999 for a term of three years. Under the terms of this agreement,
we have agreed to lease equipment

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from Cisco Systems, resulting in minimum payments to Cisco Systems of
approximately $235,000 per year. Our dial-up Internet access, as well as our
virtual private network services for 56K analog and 128K ISDN, use Lucent
Technologies (Ascend) TNT remote access servers. On September 18, 1998 and
June 29, 1999 we entered into Master Lease Agreements for equipment leasing with
Lucent Technologies (Ascend), each having three year terms. Under the terms of
one of these agreements, we have agreed to lease equipment from Lucent,
resulting in minimum payments to Lucent of approximately $34,000 per year. Under
the terms of the second agreement, we have a credit line to finance the leasing
of additional equipment. We have the option to purchase the equipment subject to
these leases at the end of the lease term and, in some cases, renew the term of
the lease for an additional rental period. Our networks also utilize and rely on
switches, hubs and other connection devices, which we purchase from a number of
different manufacturers. Our enhanced products and services are supported by Sun
Microsystems, Inc. UNIX-based and Microsoft Windows NT-based servers located at
our customer network facilities.

PEERING ARRANGEMENTS. Peering is the act of exchanging data across
networks, typically at specific, defined locations. Peering allows traffic from
one network to be delivered to an address located on another network. In
general, our contracts with our Internet backbone providers include peering
arrangements at the public peering points on the Internet. We may decide in the
future to supplement these public peering arrangements with private peering
agreements with other service providers if we determine that these would improve
our service and provide economic and/or technological benefits.

CUSTOMERS

Our customer base consists primarily of small and medium sized enterprises
and dial-up customers located in high growth secondary markets. As of
December 31, 1999, we provided Internet access and enhanced services to
approximately 300 enterprise customers, of which approximately 275 were small
and medium sized enterprises, and approximately 15,800 dial-up customers in the
mid-Atlantic area. We also provided Web hosting services to approximately 4,400
customers. While we have not concentrated our sales and marketing efforts on
Fortune 500 companies, we provide our Internet solutions to a number of large
enterprises. Lucent Technologies, Inc. accounted for 7% of total revenues for
the nine months ended September 30, 1999 and 11% of total revenues for the
fiscal year ended December 31, 1998 and Microsoft's WebTV Networks, Inc.
accounted for 19% of total revenues for the nine months ended September 30, 1999
and 9% of total revenues for the fiscal year ended December 31, 1998. On a pro
forma basis, assuming that the acquisition of Internet Unlimited was consummated
at the beginning of each period, Lucent Technologies would have accounted for 6%
of total revenues for the nine months ended September 30, 1999 and 10% of total
revenues for the fiscal year ended December 31, 1998 and Microsoft's WebTV
Networks, Inc. would have accounted for 17% of total revenues for the nine
months ended September 30, 1999 and 8% of total revenues for the fiscal year
ended December 31, 1998. We expect that a significant portion of our revenues
will continue to be derived from a limited number of customers which may vary
from year to year.

CUSTOMER AND TECHNICAL SUPPORT

We believe superior customer and technical support is critical to our
ability to retain existing customers and attract new customers. Our customers
depend on the speed and reliability of our network and our ability to keep them
connected to the Internet at all times. The knowledge and service orientation of
our local customer and technical support personnel are key elements in our
ability to assist our customers in quickly resolving their problems.

To address individual customer problems, we provide customer technical
support 24 hours-a-day, seven days-a-week. Our customers also have the ability
to reach our customer support representatives by e-mail or schedule a telephone
appointment at a time that is convenient to the customer. In addition, our local
customer representatives are also available to respond to individual customer
needs

38
<PAGE>
and provide direct customer support within their designated area. Our strategy
of creating a partnership between local support teams and a central call center
enables us to capture economies of scale, improve quality and responsiveness and
increase productivity, while allowing local personnel to focus on relationships
with customers.

COMPETITION

The Internet services market is extremely competitive and highly fragmented.
We face competition from numerous types of ISPs, including national ISPs, and
anticipate that competition will only intensify in the future as the ISP
industry consolidates. We believe that the primary competitive factors in the
Internet services market include:

- pricing;

- quality and breadth of products and services;

- ease of use;

- personal customer support and service; and

- brand awareness.

We believe that we have competed favorably based on these factors, particularly
due to our:

- regionally focused operating strategy;

- superior customer support and service; and

- high performance.

Our current competitors include many large companies that have substantially
greater market presence, brand-name recognition and financial resources than we
do. Some of our local or regional competitors may also enjoy greater recognition
within a particular community. We currently compete, or expect to compete, with
the following types of companies:

- national Internet service providers, such as PSINet, Inc. and Concentric
Network Corporation;

- providers of Web hosting, colocation and other Internet-based business
services, such as Verio, Inc.;

- numerous regional and local Internet service providers, some of which have
significant market share in their particular market area;

- established on-line service providers, such as America Online, Inc.;

- computer hardware and other technology companies that provide Internet
connectivity with their or other products, including the International
Business Machines Corporation and Microsoft Corporation;

- national long distance carriers such as AT&T Corporation, MCI WorldCom,
Inc., Qwest Communications International Inc. and Sprint Communications
Company, L.P.;

- regional Bell operating companies and local telephone companies;

- providers of free Internet service, including NetZero, Inc. and MicroWorkz
Computer Corporation

- cable operators or their affiliates, including At Home Corporation and
Time Warner Entertainment Company, L.P.;

- terrestrial wireless and satellite Internet service providers; and

- nonprofit or educational ISPs.

39
<PAGE>
Many of the major cable companies and some other Internet access providers
have begun to offer or are exploring the possibility of offering Internet
connectivity through the use of cable modems. Cable companies, however, are
faced with large-scale upgrades of their existing plant, equipment and
infrastructure in order to support connections to the Internet backbone via
high-speed cable access devices. We believe that there is a trend toward
horizontal integration through acquisitions or joint ventures between cable
companies and telecommunications carriers. Other alternative service companies
have also announced plans to enter the Internet connectivity market with various
wireless terrestrial and satellite-based service technologies. In addition,
several competitive local exchange carriers and other Internet access providers
have launched national or regional digital subscriber line programs providing
high speed Internet access using the existing copper wire telephone
infrastructure. Several of these competitive local exchange carriers have
announced strategic alliances with local, regional and national service
providers to provide broadband Internet access. These developments could harm
our business.

Recently, several national access providers have begun to offer dial-up
Internet access for free or at substantial discounts to prevailing rates, which
may result in significant pricing pressure for dial-up Internet access services.
We also believe that manufacturers of computer hardware and software products,
media and telecommunications companies and others will continue to enter the
Internet services market, which will also intensify competition, especially for
dial-up access providers.

GOVERNMENT REGULATION

We provide Internet access, in part through transmissions over public
telephone lines. These transmissions are governed by regulations and policies
establishing charges, terms and conditions for communications. As an Internet
provider, we are not currently regulated directly by the Federal Communications
Commission or any other agency, other than regulations applicable to businesses
generally. We could, however, become subject in the future to regulation by the
Federal Communications Commission and/or other regulatory agencies if we become
classified as a provider of basic telecommunications services. These regulations
could affect the charges that we pay to connect to the local telephone network
or for other purposes. For example, currently, Internet access providers, unlike
long distance telephone companies, are not required to pay carrier access
charges. Access charges are assessed by local telephone companies on
long-distance companies for the use of the local telephone network when the
local telephone company originates and terminates long-distance calls, generally
on a per-minute basis. The payment of access charges has been a matter of
continuing dispute, with long-distance companies complaining that the charges
are substantially in excess of actual costs and local telephone companies
arguing that access charges are justified to subsidize lower local rates for end
users and other purposes. In May 1997, the Federal Communications Commission
reaffirmed its decision that Internet access providers should not be required to
pay access charges. Subsequent statements issued by the Federal Communications
Commission have not altered this conclusion. A requirement by the Federal
Communications Commission that we pay access charges could have a significant
impact on our costs of providing service.

The Federal Communications Commission also has concluded that Internet
access providers should not be required to contribute to a new universal service
fund established to replace current local rate subsidies and to meet other
public policy objectives, such as providing access to enhanced communications
systems for schools, libraries and health care providers. As a result, unlike
other telecommunications providers, Internet access providers do not have to
contribute a percentage of their revenues to the federal universal service fund
and are not expected to be required to contribute to similar funds being
established at the state level. Both the access charge issue and the universal
service treatment of Internet access providers, however, are the subjects of
further Federal Communications Commission proceedings and could change.
Telephone companies are actively seeking reconsideration or reversal of the
relevant Federal Communications Commission decisions and their arguments are

40
<PAGE>
gaining support as Internet-based telephony begins to compete with conventional
telecommunications services. We cannot predict how these matters will be
resolved but we could be adversely affected if, in the future, Internet service
providers are required to pay access charges or contribute to universal service
support.

In addition, to the extent that an end user's call to an Internet access
provider is considered local rather than long distance, the local telephone
company that serves the Internet service provider may be entitled to reciprocal
compensation from the calling party's local telephone company. Reciprocal
compensation is a reimbursement mechanism between telephone companies whereby
the carrier that terminates a call is eligible for payment from the carrier
serving the calling party. To the extent that a call to an Internet service
provider is considered local, the local telephone company serving an Internet
service provider would be entitled to reciprocal compensation. This payment of
reciprocal compensation reduces the local telephone company's costs and
ultimately reduces the internet service provider's costs. However, the Federal
Communications Commission recently determined that most, but not all, traffic to
an Internet access provider is interstate rather than local in nature. This
determination could potentially eliminate the payment of reciprocal compensation
to the local telephone companies that serve us, which ultimately may affect our
costs. There is a pending proceeding at the Federal Communications Commission to
determine appropriate compensation mechanisms for such calls and has ruled that
state commissions, in the interim, may determine under what circumstances
reciprocal compensation should be paid. To date, most states considering the
issue have upheld reciprocal compensation for calls placed to Internet service
providers. If new compensation mechanisms increase the costs to carriers that
terminate calls to Internet service providers or if states eliminate reciprocal
compensation payments for calls to Internet service providers, the affected
carriers could increase the price of service to Internet service providers to
compensate, which could have a material adverse effect on our business,
financial condition and results of operation.

The Federal Communications Commission is also considering measures that
could stimulate the development of high-speed telecommunications facilities and
make it easier for operators of these facilities to obtain access to customers
by requiring incumbent telephone companies to provide access to their
rights-of-way and wiring located within multiple tenant buildings. In addition,
the Federal Communications Commission is considering requiring owners of
multiple tenant buildings to provide competing service providers
nondiscriminatory access to their buildings. Such regulatory measures could
enhance the competitive viability of Internet service providers that are
affiliated with the providers of these high-speed facilities.

Finally, the issue of Internet service provider access to the infrastructure
deployed by cable television operators is being considered at the local and
federal levels. Several municipal franchising authorities have required
franchised cable companies to provide competing Internet service providers open
access to their cable infrastructure. However, the Federal Communications
Commission has recently filed a brief in federal court addressing the open
access issue in which it voiced its opposition to such local regulation,
preferring instead a uniform national policy on the issue of open access. Also,
an ISP has recently sought a ruling from the Federal Communications Commission
that, pursuant to Section 612 of the Communications Act, cable operators should
be required to lease to competitors a 6 MHz channel to be used to provide
Internet services. Section 612 of the Communications Act requires cable
operators to provide leased access to competitors seeking to provide video
service. The Internet service provider seeking this Federal Communications
Commission ruling claims that almost all Internet services involve video
services, such as streaming technology, and therefore qualify for leased access
rights under Section 612. The outcome of these efforts to compel open access and
leased access will affect our business, by either increasing or foreclosing
Internet service provider access rights to the cable television infrastructure.

The law relating to the liability of Internet service providers and online
service providers due to information disseminated through their networks is not
completely settled. While the U.S. Supreme

41
<PAGE>
Court has held that content transmitted over the Internet is entitled to the
highest level of protection under the U.S. Constitution, nevertheless, there are
federal and state laws regarding the distribution of obscene, indecent,
defamatory or otherwise illegal material, as well as materials that infringe on
intellectual property rights, that may subject us to liability. These risks are
mitigated by two federal laws. In 1996, Congress immunized Internet service
providers and online service providers from liability for defamation and similar
claims arising from materials the Internet service providers and online service
providers did not create, but merely distributed without knowing or having had
reason to know of their defamatory nature. Likewise, in 1998, Congress created a
safe harbor from copyright infringement liability for Internet service providers
and online service providers arising from materials placed on the Internet
service provider's or online service provider's network by third parties so long
as basic requirements are satisfied.

Due to the increasing popularity and use of the Internet, it is possible
that additional laws and regulations may be adopted with respect to the
Internet, covering issues such as the sale of alcohol and firearms, content,
user privacy, pricing and trademark or copyright infringement. Laws and
regulations potentially affecting us have been adopted, and may be adopted in
the future, by federal and state governments, as well as by foreign governments.
We cannot predict the impact, if any, that recent and any future legislative or
regulatory changes or developments may have on our business, financial condition
and results of operations. Changes in the regulatory environment relating to the
Internet access industry, including regulatory changes that directly affect
telecommunications costs or increase the likelihood or scope of competition from
regional telephone companies or others, such as open access to cable
infrastructure, could have a material adverse effect on our business.

INTELLECTUAL PROPERTY

We have proprietary rights to trade secrets relating to technical and
business aspects of our operations. We have sought and will continue to seek
federal, state and local protection for these proprietary rights. We rely on a
combination of copyright, trademark and trade secret laws to protect our
proprietary rights, particularly related to our names and logos. We have each of
our employees enter into an inventions agreement pursuant to which each agrees
that any intellectual property rights developed while in our employment belong
to us. We believe that we were the first to adopt the service mark FASTNET and
the associated logo in connection with Internet service business, and have
received federal registrations for them. In addition, we have registrations
pending for the following other names and marks: YOU'RE HUMAN, SO ARE WE;
123HOSTME.COM; 123HOSTME! and HOST ME! We currently believe that these names and
marks are not material to our business.

In connection with the delivery of some of our services, we bundle third
party software in our products for customers using personal computers operating
on the Microsoft Windows or Apple Macintosh platforms. While some of the
applications included in our start-up kit for access services subscribers are
shareware that we have obtained permission to distribute or that are otherwise
in the public domain and freely distributable, other applications included in
the start-up kit have been licensed where necessary. We currently intend to
maintain or negotiate renewals of all existing software licenses and
authorization as necessary, although we cannot be certain that such renewals
will be available to us on acceptable terms, if at all. We may also enter into
additional licensing agreements in the future for other applications.

EMPLOYEES

As of December 31, 1999, we had a total of 91 employees, including 88
full-time employees and three part-time employees. Of these employees, 19 people
were in engineering, 43 people in general and administrative positions,
including executives, customer support, facilities-based transport and
accounting/billing and 29 people in sales and marketing.

42
<PAGE>
We are not a party to any collective bargaining agreements covering any of
our employees, have never experienced any material labor disruption and are
unaware of any current efforts or plans to organize our employees. We consider
our relationships with our employees to be good.

PROPERTIES

Our principal administrative, marketing, sales and technical support
facilities and our network operations center is located at our headquarters in
Bethlehem, Pennsylvania. As of December 31, 1999 we leased approximately 46,411
square feet of office space under a lease which ends July 22, 2006. We paid
aggregate rent of approximately $90,000 for the year ended December 31, 1999 for
our Bethlehem facility. We lease an additional 34,580 square feet of office
space under another lease, which ends January 6, 2006. We are obligated to pay
rent of approximately $345,500 for the fiscal year 2000 for this additional
office space.

We typically require approximately 800 square feet of space for each of our
customer network facilities. We currently lease space at the following two
customer network facility locations:

<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE LEASE EXPIRATION 1999 ANNUAL RENTS
- -------- -------------- ---------------- -----------------
<S> <C> <C> <C>
Philadelphia, 1,100 January 1, 2002 $19,200
Pennsylvania

Holland Township, New 1,700 June 15, 2004 $1,200
Jersey
</TABLE>

In addition, as part of our acquisition of Internet Unlimited, Inc., we
assumed a lease for an additional 15,000 square feet of office space in
Bethlehem, Pennsylvania. Internet Unlimited, Inc. paid approximately $34,000 in
rent for the year ended December 31, 1999 under this lease, which expires
March 31, 2004. Our annual rents are subject to adjustments. We also have
colocation agreements for space in each region in which we currently have a
customer network facility or are in the process of constructing a customer
network facility. We anticipate that we will require additional space for
customer network facilities as we expand, and we believe that we will be able to
obtain suitable space as needed on commercially reasonable terms.

LEGAL PROCEEDINGS

We are not involved currently in any pending legal proceedings that either
individually or taken as a whole, will have a material adverse effect on our
business, financial condition and results of operations.

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<PAGE>
MANAGEMENT

The following table sets forth information about our executive officers and
directors as of the date of this prospectus.

EXECUTIVE OFFICERS AND DIRECTORS

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
David K. Van Allen........................ 41 Chief Executive Officer and Director
Sonny C. Hunt............................. 39 President and Director
Stanley F. Bielicki....................... 54 Chief Financial Officer
Phillip L. Weller......................... 39 Chief Technology Officer
Rafe Scheinblum........................... 47 Executive Vice President--Operations
Mark A. Horinko........................... 37 Vice President--Engineering
Thomas J. Roberts......................... 40 Vice President--Sales
Douglas L. Michels........................ 45 Director
David J. Farber........................... 66 Director
R. Barry Borden........................... 60 Director
Alan S. Kessman........................... 53 Director
</TABLE>

DAVID K. VAN ALLEN has served as the chief executive officer and chairman of
the board of directors of FASTNET since May 1994. Mr. Van Allen co-founded
FASTNET together with Mr. Hunt in May 1994. From March 1991 until May 1994,
Mr. Van Allen formed and managed his own company, Van Allen & Associates, which
provided computer network services to businesses. From July 1988 until
February 1991, Mr. Van Allen was a manager with Tandy Corporation, a
manufacturer and vendor of consumer electronics. From April 1986 until
June 1988, Mr. Van Allen was a chief design engineer with Texar Inc., a provider
of hardware to the radio broadcast industry. From January 1984 until
March 1986, Mr. Van Allen was a consultant with Motorola Corporation, a
manufacturer of electronic equipment and developer of communications and
computer systems, where he focused on designing and marketing audio processing
systems.

SONNY C. HUNT has served as president and a member of the board of directors
of FASTNET since May 1994. Mr. Hunt co-founded FASTNET together with Mr. Van
Allen in May 1994. From June 1991 until May 1994, Mr. Hunt formed and managed
his own company, HS&T, a provider of hardware, software and training services.
From December 1987 until June 1991, Mr. Hunt, was a programmer for Nexus Inc., a
developer of word processors and other multi-user software tools for business,
and in June 1991, he acquired the company. From August 1985 until
December 1987, Mr. Hunt was a programmer for The Small Computer Company, a
database software developer. Mr. Hunt attended George Mason University and has
completed advanced courses in computer programming.

STANLEY F. BIELICKI has served as chief financial officer of FASTNET since
February 1997. From March 1984 until February 1997, Mr. Bielicki maintained a
private practice as a financial advisor, specializing in small and medium sized
businesses. Mr. Bielicki is a certified public accountant and holds a B.S. in
microbiology from Ohio State University and a M.B.A. from Southern Illinois
University.

PHILLIP L. WELLER has served as chief technology officer of FASTNET since
November 1999. Mr. Weller previously served as executive vice president of
engineering of FASTNET from November 1996 until November 1999. From June 1991
until November 1996, Mr. Weller was a project manager and senior developer with
AT&T Microelectronics/Lucent Technologies, where he participated in the
development of new and modern message handling systems. From June 1980 until
June 1991, Mr. Weller was a circuit designer with AT&T Bell Laboratories, a
developer of voice, data and video telecommunications, in its Very Large Scale
Integration division. Mr. Weller holds an A.A.S. in

44
<PAGE>
electronics technology from Lehigh County Community College, a B.S. in computer
science from Moravian College and a M.S. in engineering science from
Pennsylvania State University.

RAFE SCHEINBLUM has served as executive vice president of operations of
FASTNET since July 1996. From September 1989 until June 1996, Mr. Scheinblum
formed and managed his own company, Double Click Computers. Mr. Scheinblum holds
a B.F.A. in theatrical design from Windham College.

MARK A. HORINKO has served as vice president of engineering of FASTNET since
May 1999. From May 1984 until May 1999, Mr. Horinko held several senior
management positions with Vanguard Cellular Systems, Inc., including director of
technical services. Mr. Horinko's responsibilities at Vanguard included working
in areas of network engineering and operations, network deployment and real
estate, information technology and network management and security. Mr. Horinko
holds an A.A.S. from Lincoln Technical Institute in microelectronics and has
studied Computer Science and Business Management at Mansfield State University
and Moravian College.

THOMAS J. ROBERTS joined FASTNET as vice president of sales in January 2000.
From April 1989 until January 2000, Mr. Roberts served as director, field sales
for Binney & Smith where he was responsible for managing all of their food, drug
and regional mass merchandiser customers. Mr. Roberts holds a B.A. in
communications from Bloomsburg University and an M.B.A. from Columbia University
Business School.

DOUGLAS L. MICHELS has served as a member of the board of directors of
FASTNET since October 1998. Mr. Michels currently serves as the President, Chief
Executive Officer and a director of The Santa Cruz Operation, Inc., which
provides UNIX-based, open system software, where he has held various positions
since 1979. Mr. Michels co-founded The Santa Cruz Operation, Inc. in 1979.
Mr. Michels holds a B.S. in computer and information science from the University
of California, Santa Cruz.

DAVID J. FARBER has served as a member of the board of directors of FASTNET
since January 2000. In January 2000, Mr. Farber was appointed to serve as Chief
Technologist for the Federal Communications Commission. Due to this appointment,
Mr. Farber has taken a leave of absence from his postion as a professor at the
University of Pennsylvania, where he has held appointments in both the
Department of Computer Science and the Department of Engineering since September
1988. Since September 1998, Mr. Farber has also served as director for both the
Center for Communications and Information Sciences and Policy, and the
Distributed Computer Laboratory, managing research in high-speed networking. Mr.
Farber holds a B.S.E.E., a Masters in Mathematics and an honorary doctorate of
Science from the Stevens Institute of Technology.

R. BARRY BORDEN has served as a member of the board of directors of FASTNET
since January 2000. Mr. Borden has served as president of Nettech Systems, Inc.,
a supplier of software for wireless data communications, since August 1997. In
addition, Mr. Borden has served as president of LMA Group, Inc., a general
management consulting firm, since August 1984. Mr. Borden is also a member of
the board of directors of Sedona Corporation, a supplier of software to
corporations for visualization of spatial data, and AM Communications, Inc., a
provider of status and network monitoring systems for broadband networks.
Mr. Borden holds a B.S.E.E. from the University of Pennsylvania.

ALAN S. KESSMAN has served as a member of the board of directors of FASTNET
since January 2000. Mr. Kessman has been a partner in PS Capital, an investment
management advisory partnership, since October 1998, and has served as chief
executive officer and a director of Vion Pharmaceuticals, Inc., a company
focused on cancer research, since January 1999. From 1983 to June 1998, Mr.
Kessman served as chief executive officer and president of Executone Information
Systems, Inc., a company that designs, manufactures and supports voice
processing and healthcare communications systems and offers voice, data and
video network services. Mr. Kessman holds a B.S. in Business Administration from
Lehigh University and is a certified public accountant.

45
<PAGE>
Our executive officers are elected by and serve at the discretion of our
board of directors. There are no family relationships among our directors and
officers.

BOARD COMMITTEES

We established a compensation committee. The compensation committee consists
of Mr. Van Allen and Mr. Michels. The compensation committee:

- reviews and approves the compensation and benefits for our executive
officers and grants stock options under our stock option plans, and

- makes recommendations to the board of directors regarding such matters.

We intend to establish an audit committee prior to the completion of the
offering. The audit committee will:

- review the results and scope of the audit and other services provided by
our independent auditors, and

- review and evaluate our audit and control functions.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The compensation committee is responsible for determining salaries,
incentives and other forms of compensation for directors, officers and other
employees of FASTNET and administering various incentive compensation and
benefit plans. The compensation committee consists of Mr. Van Allen and
Mr. Michels. Mr. Van Allen participates in all discussions and decisions
regarding salaries and incentive compensation for all employees and consultants
of FASTNET, other than himself. No interlocking relationship exists between any
member of FASTNET's compensation committee and any member of any other company's
board of directors or compensation committee.

DIRECTOR COMPENSATION

We reimburse each member of our board of directors for out-of-pocket
expenses incurred in connection with attending board meetings. No member of our
board of directors currently receives any additional cash compensation. Prior to
the consummation of this offering, we will grant 50,000 options to our new
directors David J. Farber, R. Barry Borden and Alan S. Kessman, which will vest
quarterly over a five year period. The new directors will also receive an
additional 5,000 options which will vest immediately. Each outside director will
receive an annual grant of 6,000 options during their term which will vest over
five years.

On March 3, 1999, we granted Mr. Michels, a member of our board of
directors, an option to purchase 100,000 shares of our common stock at an
exercise price of $1.50 per share, which expires on March 3, 2009. The option
became immediately exercisable on the date of grant.

EXECUTIVE COMPENSATION

The table below summarizes information concerning the compensation awarded
to, earned by, or paid for services rendered to FASTNET in all capacities during
the fiscal years ended December 31, 1998 and 1999 by:

- our chief executive officer; and

- our executive officers whose salary and bonus for that fiscal year
exceeded $100,000 and who served as an executive officer of FASTNET during
that fiscal year.

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<PAGE>
Other than the salary and bonus described in the table below, we did not pay
any executive officer named in the Summary Compensation Table any fringe
benefits, perquisites or other compensation in excess of either $50,000 or 10%
of the total of his salary and bonus during the fiscal years ended December 31,
1998 and 1999.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) COMPENSATION($)
- --------------------------- -------- --------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
David K. Van Allen..................... 1998 33,800 70,000 -- 2,705
CHIEF EXECUTIVE OFFICER 1999 182,250 -- -- 2,705
Sonny C. Hunt.......................... 1998 76,154 54,699 -- --
PRESIDENT 1999 150,000 -- -- --
Stanley F. Bielicki.................... 1999 111,424 33,576 -- --
CHIEF FINANCIAL OFFICER
Phillip L. Weller...................... 1998 95,000 35,000 2,308 --
CHIEF TECHNOLOGY OFFICER 1999 125,000 -- -- --
Rafe Scheinblum........................ 1998 72,700 48,403 3,060 --
EXECUTIVE VICE PRESIDENT--OPERATIONS 1999 125,000 -- -- --
</TABLE>

The amount listed under All Other Compensation for Mr. Van Allen represents
a life insurance policy on Mr. Van Allen, for which Kathryn Van Allen, Mr. Van
Allen's wife, is a co-beneficiary with FASTNET.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information regarding options granted in the
1999 fiscal year to the executive officers named in the Summary Compensation
Table above. Mr. Van Allen was not granted any options during the 1999 fiscal
year. Amounts represent the hypothical gains that could be achieved from the
respective options if exercised at the end of the option term. These gains are
based on assumed rates of stock appreciation of 5% and 10% compounded annually
from the date the respective options were granted to their expiration date based
upon the grant price.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SHARES PRICE APPRECIATION FOR
UNDERLYING PERCENTAGE OF OPTION TERM
OPTIONS TOTAL OPTIONS EXERCISE EXPIRATION -----------------------
NAME GRANTED GRANTED PRICE ($/SHARE) DATE 5% ($) 10% ($)
- ---- ---------- ------------- --------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sonny C. Hunt....................... 5,000 1.0 2.50 5/24/09 7,861 19,922

Stanley F. Bielicki................. 100,000 21.5 1.50 3/3/09 94,334 239,061

Phillip L. Weller................... 100,000 21.5 1.50 3/3/09 94,334 239,061

Rafe Scheinblum..................... 100,000 21.5 1.50 3/3/09 94,334 239,061
</TABLE>

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

The following table sets forth information concerning year end option values
for the 1999 fiscal year for the executive officers named in the Summary
Compensation Table above. The value of

47
<PAGE>

unexercised in-the-money options is calculated based on a value equal to the
initial public offering price of $12.00 per share.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR END OPTIONS AT FISCAL YEAR END
--------------------------- -----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE ($) UNEXERCISABLE ($)
- ---- ----------- ------------- --------------- -----------------
<S> <C> <C> <C> <C>
Sonny C. Hunt............................. 5,000 -- 47,500 --

Stanley F. Bielicki....................... 50,000 50,000 525,000 525,000

Phillip L. Weller......................... 50,000 50,000 525,000 525,000

Rafe Scheinblum........................... 50,000 50,000 525,000 525,000
</TABLE>

EQUITY COMPENSATION PLAN

We have adopted the FASTNET Corporation 1999 Equity Compensation Plan,
effective as of March 3, 1999. The plan provides for grants of incentive stock
options, nonqualified stock options, and restricted stock to our designated
employees, advisors and consultants, and to non-employee directors. By
encouraging stock ownership, we seek to motivate such individuals to contribute
materially to our success.

GENERAL. The plan authorizes up to 1,000,000 shares of common stock for
issuance under the terms of the plan. No more than 500,000 shares in the
aggregate may be granted to any individual in any calendar year. If options
granted under the plan expire or are terminated for any reason without being
exercised, or shares of restricted stock are forfeited, the shares of common
stock underlying such grant will again be available for purposes of the plan.

ADMINISTRATION OF THE PLAN. A compensation committee administers and
interprets the plan. The compensation committee consists of two or more persons
appointed by the board of directors from among its members, each of whom must be
a non-employee director as defined by Rule 16b-3 under the Securities Exchange
Act of 1934, and an outside director as defined by Section 162(m) of the
Internal Revenue Code of 1986 and related U.S. Treasury Regulations. The
compensation committee has the sole authority to:

- determine the individuals to whom grants shall be made under the plan;

- determine the type, size and terms of the grants to be made to each such
individual;

- determine the time when the grants will be made and the duration of any
applicable exercise or restriction period, including the criteria for
vesting and the acceleration of vesting;

- determine the total number of shares of common stock available for grants;
and

- deal with any other matters arising under the plan.

The compensation committee may require a grantee to execute a shareholder's
agreement with terms that the compensation committee deems appropriate.

GRANTS. Grants under the plan may consist of:

- options intended to qualify as incentive stock options within the meaning
of Section 422 of the Internal Revenue Code;

- nonqualified stock options that are not intended to qualify; and

- restricted stock.

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<PAGE>
ELIGIBILITY FOR PARTICIPATION. Grants may be made to any of our employees
or employees of our subsidiaries and to any non-employee member of the board of
directors. Key consultants and advisors who perform services for us or any of
our subsidiaries are eligible if they render bona fide services, not as part of
the offer or sale of securities in a capital-raising transaction. As of
December 31, 1999, options to purchase 585,000 shares of common stock were
outstanding under the plan.

OPTIONS. Incentive stock options may be granted only to employees. Any
stock option will become a nonqualified stock option if the aggregate fair
market value of common stock on the date of grant under which incentive stock
options are exercisable for the first time by the grantee during the calendar
year, under all of our stock option plans, exceeds $100,000. Nonqualified stock
options may be granted to employees, non-employee directors, and key advisors.
The exercise price of common stock underlying an option will be determined by
the compensation committee and may be equal to, greater than, or less than the
fair market value; provided that:

- the exercise price of an incentive stock option will be equal to or
greater than the fair market value of a share of common stock on the date
such incentive stock option is granted;

- the exercise price of an incentive stock option granted to an employee who
owns more than 10% of the common stock may not be less than 110% of the
fair market value of the underlying shares of common stock on the date of
grant;

- if required by state law, the exercise price of a nonqualified stock
option granted to any individual may not be less than 85% of the fair
market value of the underlying shares of common stock on the date of
grant; and

- if required by state law, the exercise price of a nonqualified stock
option granted to any individual who owns at least 10% of the common stock
may not be less than 110% of the fair market value of the underlying
shares of common stock on the date of grant.

The participant may pay the exercise price:

- in cash;

- with the approval of the compensation committee, by delivering shares of
common stock owned by the grantee and having a fair market value on the
date of exercise equal to the exercise price of the grant; or

- by other method as the compensation committee shall approve, including
payment through a broker in accordance with procedures permitted by
Regulation T of the Federal Reserve Board.

Options vest according to the terms and conditions determined by the
compensation committee and specified in the grant instrument. Options are
nontransferable during the grantee's lifetime; provided that, nonqualified stock
options may be transferred to family members, or for the benefit of family
members, according to the terms determined by the compensation committee and as
specified in the grant instrument.

The compensation committee will determine the term of each option up to a
maximum of ten years from the date of grant, except that the term of an
incentive stock option granted to an employee who owns more than 10% of the
common stock may not exceed five years from the date of grant. The compensation
committee may accelerate the exercisability of any or all outstanding options,
at any time, for any reason.

RESTRICTED STOCK. The compensation committee will determine the number of
shares of restricted stock granted to a participant, but may not exceed the
maximum plan limit described above. Grants of restricted stock will be
conditioned on such performance requirements, vesting provisions, transfer
restrictions or other restrictions and conditions as the compensation committee
may determine in its

49
<PAGE>
sole discretion. The restrictions will remain in force during a restricted
period set by the compensation committee. Unless the compensation committee
determines otherwise:

- if the grantee is no longer employed by us during the restriction period
or if any other conditions are not met, the restricted stock grant will
terminate as to all shares covered by the grant for which the restrictions
are still applicable, and those shares must be immediately returned to us;
and

- during the restriction period, restricted stock may not be sold, assigned,
transferred or otherwise disposed of and will not have voting rights or
dividend rights.

AMENDMENT AND TERMINATION OF THE PLAN. The compensation committee may amend
or terminate the plan at any time, except that, it may not make any amendment
that requires shareholder approval pursuant to Rule 16b-3 of the Securities
Exchange Act of 1934 or Section 162(m) of the Internal Revenue Code without
shareholder approval. The plan will terminate on the day immediately preceding
the tenth anniversary of its effective date, unless the compensation committee
terminated the plan earlier or extends it with approval of the shareholders.

ADJUSTMENT PROVISIONS. Upon several transactions identified in the plan,
the compensation committee may appropriately adjust:

- the maximum number of shares available for grants;

- the maximum number of shares that any participant may be granted in any
year;

- the number of shares covered by outstanding grants;

- the kind of shares issued under the plan; and

- the price per share or the applicable market value of such grants.

CHANGE OF CONTROL. Upon a change of control, the compensation committee may
determine that:

- all outstanding options will immediately vest; and

- the restrictions and conditions on all outstanding restricted stock will
immediately lapse.

Upon a change of control where we are not the surviving entity or where we
survive only as a subsidiary of another entity, unless the compensation
committee determines otherwise, all outstanding grants will be assumed by or
replaced with comparable options or stock by the surviving corporation. In
addition, the compensation committee may

- require that grantees surrender their outstanding options in exchange for
payment by us, in cash or common stock, at an amount equal to the amount
by which the then fair market value of the shares of common stock subject
to the grantee's unexercised options exceeds the exercise price of those
options; and/or

- after giving grantees an opportunity to exercise their outstanding
options, terminate any or all unexercised options.

A change of control is defined to have occurred if:

- any person other than persons who are our shareholders as of the effective
date of the plan becomes a beneficial owner, directly of indirectly, of
common stock representing more than 50% of the voting power of the
then-outstanding shares of common stock; the terms person and beneficial
owner are each defined in the Securities Exchange Act of 1934; or

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<PAGE>
The shareholders or the directors, as appropriate, approve:

- any merger or consolidation of us with another corporation where the
shareholders, immediately prior to such transaction, will not beneficially
own, immediately after the transaction, shares entitling such shareholders
to more than 50% of all votes to which all shareholders of the surviving
corporation would be entitled to in the election of directors, without
consideration of the rights of any class of stock to elect directors by a
separate class vote;

- the sale or other disposition of all or substantially all of our assets;
or

- our liquidation or dissolution.

SECTION 162(m). Under Section 162(m) of the Internal Revenue Code, we may
be precluded from claiming a federal income tax deduction for total remuneration
in excess of $1.0 million paid to the chief executive officer or to any other of
our four most highly compensated officers in any one year. Total remuneration
would include amounts received upon the exercise of stock options granted under
the plan and the value of shares received when the shares of restricted stock
became transferable or such other time when income is recognized. An exception
does exist, however, for performance-based compensation, including amounts
received upon the exercise of stock options pursuant to a plan approved by
shareholders that meets requirements. The plan has been approved by shareholders
and is intended to make grants of options thereunder by meeting the requirements
of performance-based compensation. Awards of restricted stock generally will not
qualify as performance-based compensation.

LIMITATIONS ON LIABILITY OF DIRECTORS AND OFFICERS AND INDEMNIFICATION

LIMITATION OF LIABILITY.

Our articles of incorporation provides that our officers and directors will
not be personally liable to us or our shareholders for monetary damages
resulting from a breach of fiduciary duty except for:

- any breach of the duty of loyalty to the corporation or its shareholders,

- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,

- unlawful payments of dividends or unlawful stock repurchases or
redemptions, or

- any transaction from which the director derived an improper personal
benefit.

This limitation of liability does not apply to non-monetary remedies that
may be available, such as injunctive relief or rescission nor does it relieve
our officers and directors from complying with federal or state securities laws.

INDEMNIFICATION.

Our articles of incorporation provide that we will indemnify our directors
and executive officers and may indemnify our other corporate agents, to the
fullest extent permitted by Pennsylvania law. Section 1741 of the Pennsylvania
corporate laws provides the power to indemnify any office or director acting in
his capacity as our representative who was, is or is threatened to be made a
party to any action or proceeding for expenses, judgments, penalties, fines and
amounts paid in settlement in connection with such action or proceeding. The
indemnity provisions apply whether the action was instituted by a third party or
arose by or in our right. Generally, the only limitation on our ability to
indemnify our offices and directors is if the act violates a criminal statute or
if the act or failure to act is finally determined by a court to have
constituted willful misconduct or recklessness.

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RELATED PARTY TRANSACTIONS

EQUITY INVESTMENTS

In May 1998, we sold 1,000,000 shares of our common stock for an aggregate
purchase price equal to $200,000 and issued a secured note for cash in the
principal amount of $3.1 million and a warrant to purchase 1,000,000 shares of
our common stock to H&Q You Tools Investment Holding, L.P. The note bears
interest at a rate equal to 7% per annum and matures on January 31, 2001. H&Q
You Tools may convert the note into our common stock at any time prior to
maturity of the note and has agreed with us to convert the note immediately
prior to the closing of this offering. The warrant is currently exercisable at
an exercise price of $1.50 per share and expires in May 2005.

In May 1999 we issued a second secured note for cash in the principal amount
of $1.0 million to H&Q You Tools Investment Holding, L.P. The note bears
interest at a rate equal to 7% per annum and matures on May 15, 2000. H&Q You
Tools has converted this note into 142,431 shares of series A preferred stock at
a conversion price equal to $7.13 per share.

In August 1999, Lucent Technologies, Inc. purchased 280,505 shares of
series A convertible preferred stock and H&Q You Tools Investment Holding, L.P.
purchased 142,431 shares of series A convertible preferred stock, at a price of
$7.13 per share. The shares issued to H&Q You Tools Investment Holding, L.P.
were in exchange for the cancellation of their $1.0 million secured term note
and accrued interest on the note. These shares of series A convertible preferred
stock are convertible into shares of common stock at any time at the option of
the holders and all of the series A convertible preferred stock will
automatically convert into our common stock immediately prior to the closing of
this offering.

We also entered into a rights agreement with the holders of series A
convertible preferred stock, granting them registration rights, other than in
connection with this offering, of the common stock issuable upon conversion of
their preferred stock.

In November 1999, we entered into an amendment to our agreement with
Hambrecht & Quist LLC which provides for the payment to Hambrecht & Quist LLC of
$820,000 for services provided for the August 1999 private placement and general
strategic and financial advisory services. We are obligated to pay Hambrecht &
Quist LLC $500,000 of the $820,000 upon completion of our initial public
offering and the balance on February 1, 2001. Hambrecht & Quist LLC is
affiliated with H&Q You Tools Investment Holding, L.P. through a mutual
association with Hambrecht & Quist Group.

On December 31, 1999, we purchased software for approximately $245,000 in
cash pursuant to a corporate software license agreement with The Santa Cruz
Operation, Inc. Douglas Michels, a director of FASTNET, is the chief executive
officer of The Santa Cruz Operation, Inc.

In January 2000, we entered into a purchase agreement with H&Q You Tools
Investment Holding, L.P., under which we issued a $1.0 million note to H&Q You
Tools Investment Holding, L.P. In addition, H&Q You Tools Investment Holding,
L.P. received warrants to purchase 30,000 shares of our common stock. The
warrant is immediately exercisable at the initial public offering price per
share and expires seven years after the closing of this loan. The loan bears
interest at a rate equal to 7% per annum and matures upon the closing of this
offering.

INDEBTEDNESS OF MANAGEMENT

On October 10, 1998, we made an unsecured loan of $50,000 at 6% interest per
year to David K. Van Allen, our chief executive officer and a director. In
addition, in 1997 and 1998, we made unsecured loans totaling $19,400, each at 6%
interest per year, to Kathryn Van Allen, spouse of David K. Van Allen. All of
these notes mature upon consummation of this offering. The notes became due and
payable pursuant to an agreed upon payment schedule as of January 1, 2000.

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<PAGE>
PRINCIPAL SHAREHOLDERS

The following table sets forth information regarding the beneficial
ownership of FASTNET's common stock as of the date of this prospectus, and as
adjusted to reflect the sale of common stock in this offering, by:

- each person or entity who is known by us to own beneficially more than 5%
of FASTNET's outstanding common stock;

- each of the executive officers of FASTNET, including those listed on the
summary compensation table on page 47;

- each director of FASTNET; and

- all directors and executive officers as a group.

Except as otherwise indicated, and subject to applicable community property
laws, the persons named in the table have sole voting and investment power with
respect to all shares of common stock held by them. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission. In computing the number of shares beneficially owned by a person and
the percentage ownership of that person, shares of common stock subject to
options or warrants held by that person that are currently exercisable or will
become exercisable within 60 days of the date of this prospectus are deemed
outstanding, while such shares are not deemed outstanding for purposes of
computing percentage ownership of any other person. The options listed as
beneficially owned by Mr. Hunt reflect options to purchase 5,000 shares of
common stock that were issued to Mr. Hunt's wife, who is also an employee of
FASTNET. Applicable percentage ownership in the following table is based on
10,388,947 shares of common stock outstanding and 14,388,947 shares immediately
following the completion of this offering. The number of options represents
stock options that are exercisable within 60 days of the date of this
prospectus. To the extent that any shares are issued upon exercise of options,
warrants or other rights to acquire FASTNET's capital stock that are presently
outstanding or granted in the future or reserved for future issuance under
FASTNET's equity compensation plan, there will be further dilution to new public
investors.

In addition, the following table reflects:

- the issuance of 666,198 shares of series A convertible preferred stock in
August 1999;

- the exchange of a $1.0 million note payable and associated accrued
interest for 142,431 shares of series A convertible preferred stock in
August 1999;

- the conversion of a $3.1 million note payable into 2,033,334 shares of
common stock, which will automatically occur immediately prior to
consummation of this offering;

- the conversion of all outstanding shares of series A convertible preferred
stock into 808,629 shares of common stock which will automatically occur
immediately prior to this offering; and

- no exercise of the underwriters' over-allotment option.

<TABLE>
<CAPTION>
PRIOR TO OFFERING AFTER OFFERING
------------------------------------------ ------------------------------------------
OPTIONS AND OPTIONS AND
NAME SHARES WARRANTS TOTAL PERCENT SHARES WARRANTS TOTAL PERCENT
- ---- --------- ----------- --------- ------- --------- ----------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5% SHAREHOLDERS
H&Q You Tools Investment Holding,
L.P................................... 3,175,765 1,000,000 4,175,765 36.7% 3,175,765 1,000,000 4,175,765 27.1%
One Bush Street
San Francisco, CA
94104
EXECUTIVE OFFICERS AND DIRECTORS
David K. Van Allen...................... 2,825,000 -- 2,825,000 27.2% 2,825,000 -- 2,825,000 19.6%
Sonny C. Hunt........................... 2,725,000 5,000 2,730,000 26.3% 2,725,000 5,000 2,730,000 19.0%
Stanley F. Bielicki..................... 100,000 50,000 150,000 1.4% 100,000 50,000 150,000 1.0%
Rafe Scheinblum......................... 175,000 50,000 225,000 2.2% 175,000 50,000 225,000 1.6%
Phillip L. Weller....................... 175,000 50,000 225,000 2.2% 175,000 50,000 225,000 1.6%
David J. Farber......................... -- -- -- -- -- -- -- --
R. Barry Borden......................... -- -- -- -- -- -- -- --
Alan S. Kessman......................... -- -- -- -- -- -- -- --
Douglas L. Michels...................... -- 100,000 100,000 1.0% -- 100,000 100,000 0.70%
All directors and executive officers as
a group (11 persons).................. 6,000,000 255,000 6,255,000 60.3% 6,000,000 255,000 6,255,000 43.5%
</TABLE>

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<PAGE>
DESCRIPTION OF CAPITAL STOCK

GENERAL

At the closing of the offering our authorized capital stock will consist of
50,000,000 shares of common stock, no par value per share, and 10,000,000 shares
of preferred stock, no par value per share.

Our articles of incorporation and bylaws contain provisions that are
intended to enhance the likelihood of continuity and stability in the
composition of the board of directors and which may have the effect of delaying,
deferring, or preventing a future takeover or change in control of FASTNET
unless such takeover or change in control is approved by the board of directors.

COMMON STOCK

As of December 31, 1999, there were 7,546,984 shares of common stock
outstanding which were held of record by 9 shareholders. There will be
14,388,947 shares of common stock outstanding (assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options or
warrants) after giving effect to the sale of common stock in this offering and
the conversion of all of the outstanding shares of series A preferred stock.

Holders of common stock are entitled to one vote per share on all matters to
be voted upon. Holders of common stock do not have cumulative voting rights.
Holders of common stock are entitled to receive dividends as may be declared
from time to time by the board of directors out of funds legally available for
the payment of dividends, subject to the preferences that apply to any
outstanding preferred stock. See the section entitled Dividend Policy for more
information. In the event of liquidation, dissolution or winding up of FASTNET,
the holders of common stock are entitled to share proportionately in all assets
remaining after payment of liabilities, subject to distribution rights of any
then outstanding preferred stock. The common stock has no preemptive or
conversion rights and no additional subscription rights. There are no redemption
or sinking fund provisions applicable to the common stock. All outstanding
shares of common stock are fully paid and nonassessable. The shares issued in
this offering will be fully paid and nonassessable.

PREFERRED STOCK

Our articles of incorporation authorize the board of directors, without
shareholder action, to designate and issue preferred stock. The board may
designate the price, rights, preferences and privileges of the preferred shares,
which may be greater than the rights of the common stock. It is not possible to
state the actual effect of the issuance of any shares of preferred stock upon
the rights of holders of common stock until the board determines the specific
rights of the preferred stock. However, possible effects of issuing preferred
stock with voting and conversion rights include:

- restricting dividends on common stock;

- diluting the voting power of common stock;

- impairing the liquidation rights of the common stock;

- delaying or preventing a change of control of FASTNET without shareholder
action; and

- lowering the market price of common stock.

We have no present plans to issue any additional shares of preferred stock.

COMMON STOCK WARRANTS

H&Q You Tools Investment Holding, L.P. holds a warrant to purchase up to
1,000,000 shares of our common stock at an exercise price of $1.50 per share.
This warrant is currently exercisable and will remain exercisable until May 30,
2005.

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<PAGE>
In January 2000, we entered into a term sheet under which we will issue a
$1.0 million note to H&Q You Tools Investment Holding, L.P. If the loan is
consummated, we will also issue a warrant to purchase 30,000 shares of our
common stock to H&Q You Tools Investment Holding, L.P. for an aggregrate
purchase price of $300. The warrant shall vest upon consummation of this
offering and shall have an exercise price equal to the public offering price.
The warrant will expire on the seventh anniversary of the date of the loan.

The exercise price and the number of shares of common stock issuable upon
the exercise of the warrants may be adjusted upon the occurrence of a stock
split, stock dividend, reorganization, reclassification or merger.

REGISTRATION RIGHTS

Lucent Technologies, Inc. and H&Q You Tools Investment Holding, L.P. and the
other holders of our series A convertible preferred stock are entitled to
registration rights with respect to their securities pursuant to a registration
rights agreement. The agreement grants three types of registration rights:

- REQUESTED REGISTRATION. The holders of the registrable securities may
require us to use our best efforts to prepare a registration statement and
other related documents which would permit the sale of their registrable
securities. We only need to prepare the registration statement and related
documents if at least 20% of the registrable securities are to be
registered. We are obligated to pay the expenses incurred in a requested
registration.

- FASTNET REGISTRATION. If we elect to register any of our shares of common
stock in any future public offerings, the holders of the registrable
securities are entitled to include their shares in the registration. We
have the right to reduce the number of shares to be registered in view of
market conditions, but to not less than 30% of any offering after this
offering. We are obligated to pay the expenses incurred in this type of
registration.

- REGISTRATION ON FORM S-3. Holders of the registrable securities may
require that we register their shares for public resale on Form S-3, if we
are eligible to use Form S-3 and the value of the securities to be
registered is at least $500,000. We could be required to make two
requested S-3 registrations in any one-year period. We are obligated to
pay the expenses incurred in a registration on Form S-3.

The holders of these registration rights have entered into lock-up
agreements with the underwriters and have no registration rights with respect to
this offering.

PENNSYLVANIA ANTI-TAKEOVER LAW AND PROVISIONS IN OUR CHARTER AND BYLAWS

Provisions of Pennsylvania law, our articles of incorporation and bylaws
could make the acquisition of FASTNET by proxy contest or otherwise and the
removal of incumbent officers and directors more difficult. These provisions are
intended to discourage coercive takeover practices and inadequate takeover bids
and to encourage persons seeking to control FASTNET to first negotiate with us.
We believe that the benefits provided to FASTNET by allowing us to negotiate
with an unfriendly or unsolicited acquiror outweigh the disadvantages of
discouraging such proposals since we will have the opportunity to negotiate
improved terms. These provisions deter transactions not approved by the board,
and could have the effect of discouraging tender offers which may provide a
premium over the market price of our shares of common stock. Consequently, these
provisions may also inhibit fluctuations in the market price of our shares
resulting from actual or rumored takeover attempts.

PENNSYLVANIA LAW. Generally, subchapters 25E, F, G, H, I and J of the
Pennsylvania corporate laws place procedural requirements and establish
restrictions upon the acquisition of voting shares of a corporation which would
entitle the acquiring person to cast or direct the casting of a percentage of
votes in an election of directors. Subchapter 25E of the Pennsylvania corporate
laws provides generally that, if a company were involved in a control
transaction, shareholders of the company would have the

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<PAGE>
right to demand from a controlling person or group payment of the fair value of
their shares. For purposes of subchapter 25E, a controlling person or group is a
person or group of persons acting in concert that, through voting shares, has
voting power over at least 20% of the votes which shareholders of the company
would be entitled to cast in the election of directors. A control transaction
arises, in general, when a person or group acquires the status of a controlling
person or group.

In general, Subchapter 25F of the Pennsylvania corporate laws delays for
five years and imposes conditions upon business combinations between an
interested shareholder and us. The term business combinations is defined broadly
to include various merger, consolidation, division, exchange or sale
transactions, including transactions utilizing our assets for purchase price
amortization or refinancing purposes. An interested shareholder, in general,
would be a beneficial owner of at least 20% of our voting shares.

In general, subchapter 25G of the Pennsylvania corporate laws suspends the
voting rights of the control shares of a shareholder that acquires for the first
time 20% or more, 33 1/3% or more, or 50% or more of a company's shares entitled
to be voted in an election of directors. The voting rights of the control shares
generally remain suspended until such time as the disinterested shareholders of
the company vote to restore the voting power of the acquiring shareholder.

Subchapter 25H of the Pennsylvania corporate laws provides in circumstances
for the recovery by a company of profits made upon the sale of its common stock
by a controlling person or group if the sale occurs within 18 months after the
controlling person or group became a controlling person or group and the common
stock was acquired during such 18 month period or within 24 months before such
period. In general, for purposes of Subchapter 25H, a controlling person or
group is a person or group that:

- has acquired;

- offered to acquire; or

- publicly disclosed or caused to be disclosed an intention to acquire
voting power over shares that would entitle such person or group to cast
at least 20% of the votes that shareholders of the company would be
entitled to cast in an election of directors.

If the disinterested shareholders of a company vote to restore the voting
power of a shareholder who acquires control shares subject to Subchapter 25G,
such company would then be subject to subchapters 25I and J of the Pennsylvania
corporate laws. Subchapter 25I generally provides for a minimum severance
payment to employees terminated within two years of such approval. Subchapter
25J, in general, prohibits the abrogation of labor contracts prior to their
stated date of expiration.

The above descriptions of subchapters of the Pennsylvania corporate laws
summarize the material anti-takeover provisions contained in the Pennsylvania
corporate laws but are not a complete discussion of those provisions.

OUR CHARTER DOCUMENTS. Our articles of incorporation and bylaws do not
provide for cumulative voting in the election of directors. The authorization of
undesignated preferred stock makes it possible for the board of directors to
issue preferred stock with voting or other rights or preferences that could
impede the success of any attempt to change control of FASTNET. These and other
provisions are intended to enhance continuity and stability in the composition
of the board of directors and to reduce the vulnerability to unsolicited or
hostile takeovers, and could delay changes in the control or management of
FASTNET. The amendment of any of these provisions requires approval by holders
of 66 2/3% of the outstanding common stock.

TRANSFER AGENT

The transfer agent and registrar for the common stock is StockTrans, Inc.,
Ardmore, Pennsylvania.

NASDAQ NATIONAL MARKET LISTING

Our common stock will be listed on the Nasdaq National Market under the
symbol FSST.

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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, we will have outstanding 14,388,947 shares
of common stock based upon shares outstanding at December 31, 1999, assuming no
exercise of the underwriters' over-allotment option. Excluding the 4,000,000
shares of common stock offered hereby and assuming no exercise of the
underwriters' over-allotment option, as of the effective date of this
registration statement, there will be 10,388,947 shares of common stock
outstanding all of which will be restricted shares under the Securities Act of
1933. All restricted shares are subject to lock-up agreements with the
underwriters pursuant to which the holders of the restricted shares have agreed
not to sell, pledge or otherwise dispose of such shares for a period of
180 days after the date of this prospectus without the prior written consent of
ING Barings LLC. Beginning 180 days after the effective date of this
registration statement, all of such restricted shares will become available for
sale at various times pursuant to Rule 144, or Rule 144(k) if they are not held
by our affiliates. The general provisions of Rule 144 are described below. All
of the restricted shares that will become available for sale in the public
market beginning 180 days after the effective date will be subject to volume and
other resale restrictions pursuant to Rule 144 because the holders are
affiliates of FASTNET. ING Barings LLC may release the shares subject to the
lock-up agreements in whole or in part at any time with or without notice.
However, ING Barings LLC has no current plans to do so.

In general, under Rule 144, an affiliate of FASTNET, or person or persons
whose shares are aggregated who has beneficially owned restricted shares for at
least one year, will be entitled to sell in any three-month period a number of
shares that does not exceed the greater of (a) 1% of the then outstanding shares
of our common stock, approximately 143,900 shares immediately after this
offering, assuming no exercise of the underwriters' over-allotment option or
(b) the average weekly trading volume during the four calendar weeks preceding
the date on which notice of the sale is filed with the Securities and Exchange
Commission. Sales pursuant to Rule 144 are subject to requirements relating to
manner of sale, notice and availability of current public information about us.
A person, or persons whose shares are aggregated, who is not deemed to have been
an affiliate of FASTNET at any time during the 90 days immediately preceding the
sale and who has beneficially owned his or her shares for at least two years is
entitled to sell such shares pursuant to Rule 144(k) without regard to the
limitations described above.

H&Q You Tools Investment Holding, L.P. holds a warrant to purchase 1,000,000
shares of common stock. In addition, 1,000,000 shares were reserved for issuance
under our equity compensation plan, of which options to purchase 585,000 shares
were then outstanding and 295,000 options to purchase shares of common stock
were then exercisable. Beginning 180 days after the date of this prospectus,
approximately 380,000 shares issuable upon the exercise of vested options will
become eligible for sale.

The holders of 666,198 shares of our series A preferred stock are entitled
to registration rights with respect to the shares of common stock issuable upon
the conversion of the preferred stock. If such holders, by exercising their
registration rights, cause a large number of shares to be registered and sold,
it could have an adverse effect on the market price for our common stock.

We intend to file, within 180 days after the date of this prospectus, a
Form S-8 registration statement under the Securities Act to register shares
issued pursuant to stock purchase agreements under our equity compensation plan
and shares issued in connection with option exercises. Shares of common stock
issued pursuant to our equity compensation plan or upon exercise of options
after the effective date of the Form S-8 will be available for sale in the
public market, subject to Rule 144 volume limitations applicable to affiliates
and lock-up agreements.

LOCK-UP AGREEMENTS

All officers and directors and holders of our common stock, warrant and
options to purchase common stock have agreed pursuant to lock-up agreements
that, among other things, they will not offer, sell, contract to sell, pledge,
grant any option to sell, or otherwise dispose of, directly or indirectly, any
shares of common stock or securities convertible or exchangeable for common
stock, or warrant or other rights to purchase common stock for a period of
180 days after the date of this prospectus without the prior written consent of
ING Barings LLC.

57
<PAGE>
UNDERWRITING

Subject to the terms and conditions in an underwriting agreement, dated
February 7, 2000, the underwriters named below, who are represented by ING
Barings LLC, SoundView Technology Group, Inc., FAC/Equities, a division of First
Albany Corporation, and DLJDIRECT Inc., have severally agreed to purchase from
FASTNET the number of shares of common stock set forth opposite their names
below.

<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
ING Barings LLC............................................. 1,802,000
SoundView Technology Group, Inc............................. 807,000
FAC/Equities, a division of First Albany Corporation........ 496,000
DLJDIRECT Inc............................................... 100,000
Bear, Stearns & Co. Inc..................................... 75,000
CIBC Oppenheimer Corp....................................... 75,000
Fleetboston Robertson Stephens Inc.......................... 75,000
PaineWebber Incorporated.................................... 75,000
Prudential Securities Incorporated.......................... 75,000
SG Cowen Securities Corporation............................. 75,000
Thomas Weisel Partners LLC.................................. 75,000
Dominick & Dominick LLC..................................... 45,000
Janney Montgomery Scott LLC................................. 45,000
Jefferies & Company......................................... 45,000
Kaufman Bros., L.P.......................................... 45,000
C.I. King & Associates, Inc................................. 45,000
Pennsylvania Merchant Group................................. 45,000
---------
Total................................................. 4,000,000
=========
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock of
this offering are subject to approval by their counsel of legal matters and to
other conditions. The underwriters are obligated to purchase and accept delivery
of all the shares of common stock, other than those shares covered by the
over-allotment option described below, if any are purchased.

The underwriters propose initially to offer the shares of common stock in
part directly to the public at the initial public offering price set forth on
the cover page of this prospectus and in part to selected broker/dealers,
including the underwriters, and other broker/dealers not included in the table
above, at this price less a concession not in excess of $0.50 per share. The
underwriters may allow, and these dealers may re-allow, to other dealers, a
concession not in excess of $0.10 per share. After the initial offering of the
shares of common stock, the public offering price and other selling terms may be
changed by ING Barings LLC at any time without notice.

The following table shows the underwriting fees to be paid to the
underwriters by FASTNET in connection with this offering. The underwriting
discount is 7% of the initial offering price per share of common stock. The
underwriting discounts and commissions are equal to the public offering price
per share of the common stock less the amount paid by the underwriters to us for
each share of common stock. These amounts are shown assuming both no exercise
and full exercise of the underwriters' option to purchase additional shares of
common stock.

<TABLE>
<CAPTION>
TOTAL
---------------------------
PER SHARE NO EXERCISE FULL EXERCISE
--------- ----------- -------------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by us... $0.84 $3,360,000 $3,864,000
</TABLE>

58
<PAGE>
Other expenses of this offering, including the registration fees and the
fees of financial printers, counsel and accountants, payable by FASTNET are
expected to be approximately $1.6 million.

FASTNET has granted to the underwriters an option that may be exercised
within 30 days after the date of this prospectus, to purchase, from time to
time, in whole or in part, up to a total of 600,000 additional shares of common
stock at the public offering price less the underwriting discounts and
commissions. The underwriters may exercise this option solely to cover
over-allotments, if any, made in connection with this offering. To the extent
that the underwriters exercise this option, each underwriter will become
obligated, subject to conditions, to purchase its pro rata portion of these
additional shares based on such underwriter's percentage underwriting commitment
as indicated in the table above.

An electronic prospectus will be made available on the Web site maintained
by DLJDIRECT. Other than the prospectus in electronic format, the information on
the Web site maintained by DLJDIRECT relating to this offering is not part of
this prospectus and has not been approved and/or endorsed by us or any
underwriter, other than DLJDIRECT.

FASTNET has agreed to indemnify the underwriters against liabilities,
including liabilities under the Securities Act, or to contribute to payments
that the underwriters may be required to make in respect of any of those
liabilities. These liabilities generally consist of losses, claims, damages or
actions arising from or relating to the offer, purchase or sale of common stock
in this offering by the underwriters. Indemnification under the Securities Act
may be unenforceable as against public policy.

Each of FASTNET, its executive officers, directors and shareholders has
agreed, subject to exceptions, not to: (1) issue, offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any shares of common stock or
any securities convertible into, exercisable or exchangeable for, or represent
the right to receive common stock, or (2) grant any options or warrants to
purchase common stock or enter into any swap or other arrangement that transfers
all or a portion of the economic consequences associated with the ownership of
any common stock, regardless of whether any of the transactions described in the
first or second clause is to be settled by the delivery of common stock, or such
other securities, in cash or otherwise, for a period of 180 days after the date
of this prospectus without the prior written consent of ING Barings LLC. In
addition, during such period, we also agreed not to file any registration
statement with respect to, other than a Form S-8 registration statement in
connection with shares received under a FASTNET stock plan, stock ownership
plan, employment agreement or dividend reinvestment plan), and each of our
executive officers, directors and shareholders have agreed not to make any
demand for, or exercise any right with respect to, the registration of any
shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock without the prior written consent of ING Barings.

At our request, the underwriters have reserved for sale, at the initial
public offering price, 100,000 shares of common stock, representing
approximately 2.5% of the shares of common stock offered by this prospectus, for
sale to directors, officers and employees and their family members of FASTNET
and to business associates of FASTNET. The number of shares of common stock
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares which are not orally
confirmed for purchase within one day of the pricing of this offering will be
offered by the underwriters to the general public on the same terms as the other
shares offered by this prospectus. Participants in the sale of reserved shares
will not be subject to any lock-up arrangements with the underwriters.

Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of our common
stock in any jurisdiction where action for that purpose is required. The shares
of common stock may not be offered or sold, directly or indirectly, nor may this
prospectus or any other offering material or advertisements in connection with
the offer and sale of any shares of our common stock be distributed or published
in any jurisdiction, except under

59
<PAGE>
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this prospectus
comes are advised to inform themselves about, and to observe, any restrictions
relating to the common stock and the distribution of this prospectus. This
prospectus is not an offer to sell or a solicitation of an offer to buy any
shares of our common stock in any jurisdiction in which such an offer or
solicitation is unlawful.

We have been informed that the underwriters do not intend to confirm sales
to any accounts over which they exercise discretionary authority without the
prior written approval of the customer.

Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price was determined by
negotiations between us and the representatives of the underwriters. The factors
considered in determining the initial public offering price were:

- the history of and prospects for our business and the industry in which we
compete;

- an assessment of our management and the present state of our development;

- our past and present revenues, earnings and cash flows;

- our prospects for growth, revenues, earnings and cash flows;

- the current state of the economy in the United States and the current
level of economic activity in the industry in which we compete and in
related or comparable industries; and

- currently prevailing conditions in the securities markets, including
current market valuations of publicly traded companies which are
comparable to FASTNET.

Our common stock will be listed on the Nasdaq National Market under the
symbol FSST.

Until the distribution of our common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
selling group members to bid for and purchase the common stock. As an exception
to these rules, the representatives of the underwriters are permitted to engage
in transactions that stabilize the price of the common stock. These transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the common stock.

If the underwriters create a short position in the common stock in
connection with the offering, I.E., if they sell more shares of the common stock
than are set forth on the cover pages of this prospectus, the representatives of
the underwriters may reduce that short position by purchasing the common stock
in the open market. The representatives of the underwriters may elect to reduce
any short position by exercising all or part of the over-allotment option
described above.

The representatives of the underwriters may also impose a penalty bid on
individual underwriters and selling group members. This means that if the
representatives purchase shares of the common stock in the open market to reduce
the underwriters' short position or to stabilize the price of the common stock,
it may reclaim the amount of the selling concession from the underwriters and
selling group members who sold those shares as part of the offering.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of the common stock to the extent that it
were to discourage resales of the common stock.

Neither FASTNET nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
FASTNET nor any of the underwriters makes any representation that the
representatives of the underwriters will engage in these transactions or that
these transactions, once commenced, will not be discontinued without notice.

60
<PAGE>
LEGAL MATTERS

Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania will provide us an
opinion relating to the validity of the common stock issued in this offering.
Certain legal matters in connection with this offering will be passed upon for
the underwriters by Morrison & Foerster LLP, New York, New York.

EXPERTS

FASTNET's financial statements, as of December 31, 1997 and 1998 and for the
years ended December 31, 1996, 1997 and 1998, included in this prospectus have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of such firm as experts in giving said report.

Internet Unlimited, Inc.'s financial statements, as of December 31, 1997 and
1998 and for the years ended December 31, 1997 and 1998, included in this
prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of such firm as experts in giving said
report.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to our common stock. This prospectus, which
constitutes a part of the registration statement, does not contain all of the
information described in the registration statement or the exhibits and
schedules which are part of the registration statement. For further information
with respect to FASTNET and the common stock, refer to the registration
statement and the related exhibits and schedules. You may read and copy any
document we file at the Securities and Exchange Commission's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call
the Securities and Exchange Commission at 1-800-SEC-0330 for further information
about the public reference rooms. Our Securities and Exchange Commission filings
are also available to the public from the Securities and Exchange Commission's
web site at HTTP://WWW.SEC.GOV. Upon completion of this offering, we must comply
with the information and periodic reporting requirements of the Securities
Exchange Act and will file periodic reports, proxy statements and other
information with the Securities and Exchange Commission. These periodic reports,
proxy statements and other information will be available for inspection and
copying at the Securities and Exchange Commission's public reference room and
the Web site of the Securities and Exchange Commission. We maintain a web site
at HTTP://WWW.FAST.NET.

61
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

Basis of Presentation....................................... F-2
Unaudited Pro Forma Combined Statement of Operations--Year
Ended December 31, 1998................................... F-3
Unaudited Pro Forma Combined Statement of Operations--Nine
Months Ended September 30, 1999........................... F-4
Notes to Unaudited Pro Forma Combined Financial
Information............................................... F-5

FASTNET CORPORATION

Report of Independent Public Accountants.................... F-6
Consolidated Balance Sheets................................. F-7
Consolidated Statements of Operations....................... F-8
Consolidated Statements of Shareholders' Equity (Deficit)... F-9
Consolidated Statements of Cash Flows....................... F-10
Notes to Consolidated Financial Statements.................. F-11

INTERNET UNLIMITED, INC.

Report of Independent Public Accountants.................... F-19
Balance Sheets.............................................. F-20
Statements of Operations.................................... F-21
Statements of Shareholders' Deficit......................... F-22
Statements of Cash Flows.................................... F-23
Notes to Financial Statements............................... F-24
</TABLE>

F-1
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

BASIS OF PRESENTATION

On July 30, 1999 FASTNET Corporation ("FASTNET") acquired all of the
outstanding capital stock of Internet Unlimited, Inc. ("Internet Unlimited"), a
provider of Web hosting and colocation services for $400,000 in cash and 546,984
shares of FASTNET Common stock valued at $7.13 per share (the "Acquisition").
(FASTNET and Internet Unlimited are collectively referred to as the "Combined
Company") The Acquisition will be accounted for as a purchase by FASTNET
pursuant to Accounting Principles Board Opinion No. 16, "Business Combinations"
("APB 16").

The purchase price was $4,299,996 excluding costs of approximately $75,000.
The application of the purchase method of accounting will result in
approximately $4,462,498 in excess of purchase price over net tangible deficit
acquired as of July 30, 1999. Based on a preliminary analysis completed by
management, it has allocated $2,000,000 of this amount to customer list and the
remaining amount of $2,462,498 to goodwill. Customer list and goodwill are being
amortized on a straight-line basis over 3 years. The final allocation of the
purchase price and the assignment of useful lives are subject to change.

In August 1999, FASTNET sold an aggregate of 666,198 shares of Series A
Convertible Preferred stock ("Series A Preferred") to investors at $7.13 per
share. The proceeds from the sales of the Series A Preferred were $4,464,992,
net of offering costs of $285,000. On August 3, 1999 the principal and accrued
interest on a $1,000,000 note payable to H&Q You Tools Investment Holding, L.P.
converted into shares of Series A Preferred. All of these outstanding shares of
Series A Preferred will automatically convert into 808,629 shares of Common
stock immediately prior to the consummation of FASTNET's initial public offering
(the "Offering"). In addition, H&Q You Tools Investment Holding, L.P. has
committed to convert a $3,050,000 convertible note into 2,033,334 shares of
Common stock upon the consummation of the Offering. The sales of the Series A
Preferred, the conversion of the notes payable and accrued interest, and the
conversion of the Series A Preferred are collectively referred to as the
"Financing Transactions."

The Pro Forma Statements of Operations reflect the amortization of customer
list and goodwill of $1,487,500 for the year ended December 31, 1998 and
$1,115,625 (including $252,843 recorded by FASTNET in August and September 1999)
for the nine months ended September 30, 1999 and the removal of interest expense
related to the notes payable to H&Q You Tools Investment Holding, L.P. which
have been or will be converted into Common stock. Additionally, prior to the
Acquisition, FASTNET derived revenues from Internet Unlimited. These revenues
and the corresponding costs of revenues recorded by Internet Unlimited have been
eliminated from the pro forma statements of operations.

We present the pro forma amounts below for informational purposes only.
These pro forma amounts are not necessarily indicative of the results of
operations of the Combined Company that would have actually occurred had the
Acquisition been consummated as of January 1, 1998 and if the notes payable had
been converted on the date the notes were issued or of the future results of
operations or financial condition of the Combined Company. The unaudited pro
forma statements of operations do not reflect any synergies FASTNET expects to
realize as a result of the Acquisition, in particular, the elimination of costs
associated with duplicative operating and administrative activities. FASTNET
cannot assure that such synergies will be realized.

F-2
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
INTERNET PRO FORMA
FASTNET UNLIMITED ADJUSTMENTS PRO FORMA
HISTORICAL HISTORICAL (SEE NOTE 3) COMBINED
----------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
REVENUES:
Services................................... $ 4,875,471 $700,878 $ (123,800) $ 5,452,549
Hardware and software...................... 652,508 20,127 672,635
----------- -------- ----------- -----------
5,527,979 721,005 (123,800) 6,125,184
----------- -------- ----------- -----------

OPERATING EXPENSES:
Cost of services........................... 2,572,732 195,929 (123,800) 2,644,861
Cost of hardware and software.............. 669,009 11,187 680,196
Selling, general and administrative........ 3,067,740 449,000 3,516,740
Depreciation and amortization.............. 346,568 32,840 1,487,500 1,866,908
----------- -------- ----------- -----------
6,656,049 688,956 1,363,700 8,708,705
----------- -------- ----------- -----------
Operating income (loss).................. (1,128,070) 32,049 (1,487,500) (2,583,521)
----------- -------- ----------- -----------

OTHER INCOME (EXPENSES):
Interest income............................ 15,256 -- 15,256
Interest expense........................... (166,831) (18,297) 124,542 (60,586)
Other...................................... 5,355 -- 5,355
----------- -------- ----------- -----------
(146,220) (18,297) 124,542 (39,975)
----------- -------- ----------- -----------

NET INCOME (LOSS)............................ $(1,274,290) $ 13,752 $(1,362,958) $(2,623,496)
=========== ======== =========== ===========

BASIC NET LOSS PER COMMON SHARE.............. $ (0.14) $ (0.25)
=========== ===========

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
(Note 2)................................... 8,880,833 1,733,096 10,613,929
=========== =========== ===========
</TABLE>

See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.

F-3
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 1999

<TABLE>
<CAPTION>
INTERNET PRO FORMA
FASTNET UNLIMITED ADJUSTMENTS PRO FORMA
HISTORICAL HISTORICAL (SEE NOTE 3) COMBINED
----------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
REVENUES:
Services.................................... $ 5,751,503 $802,125 $(105,603) $ 6,448,025
Hardware and software....................... 94,871 20,842 115,713
----------- -------- --------- -----------
5,846,374 822,967 (105,603) 6,563,738
----------- -------- --------- -----------

OPERATING EXPENSES:
Cost of services............................ 3,844,531 176,964 (105,603) 3,915,892
Cost of hardware and software............... 89,194 11,949 101,143
Selling, general and administrative......... 3,911,189 581,113 4,492,302
Depreciation and amortization............... 904,233 45,293 862,782 1,812,308
----------- -------- --------- -----------
8,749,147 815,319 757,179 10,321,645
----------- -------- --------- -----------
Operating income (loss)................... (2,902,773) 7,648 (862,782) (3,757,907)
----------- -------- --------- -----------

OTHER INCOME (EXPENSES):
Interest income............................. 34,305 -- 34,305
Interest expense............................ (262,499) (22,392) 184,085 (100,806)
Other....................................... 1,056 -- -- 1,056
----------- -------- --------- -----------
(227,138) (22,392) 184,085 (65,445)

NET LOSS...................................... $(3,129,911) $(14,744) $(678,697) $(3,823,352)
=========== ======== ========= ===========

BASIC NET LOSS PER COMMON SHARE............... $ (0.44) $ (0.39)
=========== ===========

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
(Note 2).................................... 7,122,004 2,632,650 9,754,654
=========== ========= ===========
</TABLE>

See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.

F-4
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

1. SIGNIFICANT ACCOUNTING POLICIES:

There are currently no material differences in the Companies' significant
accounting policies, therefore, no consideration has been given to conforming
the Companies' significant accounting policies in this pro forma presentation.
The Companies do not expect to have material changes to current accounting
policies in connection with the transaction. For further information on the
Companies significant accounting policies, see notes to the consolidated
financial statements of the Companies, included elsewhere in this registration
statement.

2. LOSS FROM CONTINUING OPERATIONS PER COMMON SHARE:

The Combined Company has presented its net loss per common share for the
year ended December 31, 1998 and for the nine months ended September 30, 1999
pursuant to Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share."

Basic net loss per common share was computed by dividing the net loss by the
weighted average number of shares of Common stock outstanding during the year
ended December 31, 1998 and the nine months ended September 30, 1999. Diluted
loss per common share has not been presented, since the impact on loss per share
using the treasury stock method is anti-dilutive due to the Combined Company's
losses. The shares used in computing pro forma combined net loss per share
reflects the following:

- Actual weighted average common shares outstanding for the periods
presented.

- Common shares issued for the Acquisition as if the transaction occurred on
January 1, 1998.

- Common shares issued for the conversion of the principal and accrued
interest on a $1,000,000 note payable to H&Q You Tools Investment Holding,
L.P. as if such conversion occurred on May 14, 1999, the date of the
original issuances of the note.

- Common shares to be issued for the conversion of the $3,050,000
convertible note payable to H&Q You Tools Investment Holding, L.P. upon
the consummation of the Offering as if such conversion occurred on
May 28, 1998, the date of the original issuance of the note.

- Common shares to be issued for the conversion of 666,198 shares of
Series A Preferred upon the consummation of the offering as if such
conversion occurred on the dates of the issuances of the shares.

3. PRO FORMA ADJUSTMENTS:

The results of Internet Unlimited are included in the Internet Unlimited
columns through July 30, 1999, the date of the acquisition. The results of
Internet Unlimited for August and September 1999 are included in Fastnet's
historical results.

The Pro Forma Statements of Operations reflect the amortization of customer
list and goodwill of $1,487,500 for the year ended December 31, 1998 and
$1,115,625 (including $247,916 recorded by Fastnet in August and September 1999)
for the nine months ended September 30, 1999 and the removal of interest expense
related to the notes payable to H&Q You Tools Investment Holding, L.P. which
have been or will be converted into Common stock. Additionally, prior to the
Acquisition, FASTNET derived revenues from Internet Unlimited. These revenues
and the corresponding costs of revenues recorded by Internet Unlimited have been
eliminated from the pro forma statements of operations.

F-5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To FASTNET Corporation:

We have audited the accompanying consolidated balance sheets of FASTNET
Corporation (a Pennsylvania Corporation) as of December 31, 1997 and 1998, and
the related consolidated statements of operations, shareholders' deficit and
cash flows for each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FASTNET
Corporation as of December 31, 1997 and 1998, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1998 in conformity with generally accepted accounting principles.

/s/ Arthur Andersen LLP

Philadelphia, Pa.,
August 17, 1999

F-6
<PAGE>
FASTNET CORPORATION

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1997 1998 1999
---------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................. $ 88,981 $ 256,782 $ 3,812,558
Accounts receivable, net of allowance of $14,442,
$17,187 and $37,187................................. 449,662 878,523 1,128,673
Other current assets.................................. 71,759 135,478 1,026,524
---------- ----------- -----------
Total current assets.............................. 610,402 1,270,783 5,967,755
---------- ----------- -----------
PROPERTY AND EQUIPMENT, net............................. 1,047,402 1,741,635 5,510,368
GOODWILL, net........................................... -- -- 2,320,766
CUSTOMER LIST, net...................................... -- -- 1,888,889
OTHER ASSETS............................................ 25,541 214,423 401,743
---------- ----------- -----------
$1,683,345 $ 3,226,841 $16,089,521
========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Line of credit........................................ $ 217,489 $ -- $ --
Current portion of long-term debt..................... 248,857 3,061,283 16,690
Current portion of capital lease obligations.......... 31,206 52,921 693,711
Accounts payable...................................... 879,174 1,289,156 2,081,388
Accrued expenses...................................... 58,761 338,896 1,400,385
Deferred revenues..................................... 622,053 885,164 1,777,233
---------- ----------- -----------
Total current liabilities......................... 2,057,540 5,627,420 5,969,407
---------- ----------- -----------
LONG-TERM DEBT.......................................... 127,272 44,816 3,088,007
---------- ----------- -----------
CAPITAL LEASE OBLIGATIONS............................... 30,802 118,686 2,443,473
---------- ----------- -----------
OTHER LIABILITIES....................................... -- -- 788,889
---------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 7)

SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock (Note 6).............................. -- -- 5,480,537
Common stock (Note 6)................................. 124,000 366,478 4,798,924
Deferred compensation................................. -- -- (419,246)
Accumulated deficit................................... (656,269) (1,930,559) (5,060,470)
Less- Treasury stock, at cost......................... -- (1,000,000) (1,000,000)
---------- ----------- -----------
Total shareholders' equity (deficit).............. (532,269) (2,564,081) 3,799,745
---------- ----------- -----------
$1,683,345 $ 3,226,841 $16,089,521
========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-7
<PAGE>
FASTNET CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
---------- ---------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Services....................... $1,545,072 $2,846,338 $ 4,875,471 $3,453,758 $ 5,751,503
Hardware and software.......... 397,535 824,276 652,508 634,479 94,871
---------- ---------- ----------- ---------- -----------
1,942,607 3,670,614 5,527,979 4,088,237 5,846,374
---------- ---------- ----------- ---------- -----------
OPERATING EXPENSES:
Cost of services............... 740,186 1,771,968 2,572,732 1,793,452 3,844,531
Cost of hardware and
software..................... 421,825 561,951 669,009 558,894 89,194
Selling, general and
administrative............... 793,336 1,445,224 3,067,740 2,052,782 3,911,189
Depreciation and
amortization................. 78,804 177,375 346,568 230,475 904,233
---------- ---------- ----------- ---------- -----------
2,034,151 3,956,518 6,656,049 4,635,603 8,749,147
---------- ---------- ----------- ---------- -----------
Operating loss............. (91,544) (285,904) (1,128,070) (547,366) (2,902,773)
---------- ---------- ----------- ---------- -----------
OTHER INCOME (EXPENSE):
Interest income................ 1,151 1,305 15,256 13,584 34,305
Interest expense............... (18,587) (38,368) (166,831) (110,704) (262,499)
Other.......................... (6,244) 901 5,355 5,354 1,056
---------- ---------- ----------- ---------- -----------
(23,680) (36,162) (146,220) (91,766) (227,138)
---------- ---------- ----------- ---------- -----------
NET LOSS......................... $ (115,224) $ (322,066) $(1,274,290) $ (639,132) $(3,129,911)
========== ========== =========== ========== ===========
BASIC AND DILUTED NET LOSS PER
COMMON SHARE................... $ (0.01) $ (0.03) $ (0.14) $ (0.07) $ (0.44)
========== ========== =========== ========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING............. 11,575,000 11,575,000 8,880,833 9,480,339 7,122,004
========== ========== =========== ========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-8
<PAGE>
FASTNET CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------------- ----------------------- DEFERRED ACCUMULATED TREASURY
SHARES AMOUNT SHARES AMOUNT COMPENSATION DEFICIT STOCK TOTAL
-------- ---------- ---------- ---------- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1996................ -- $ -- 11,575,220 $ 124,000 $ -- $ (334,203) $ -- $ (210,203)
Net loss............ -- -- -- -- -- (322,066) -- (322,066)
------- ---------- ---------- ---------- --------- ----------- ----------- -----------
BALANCE, DECEMBER 31,
1997................ -- -- 11,575,220 124,000 -- (656,269) -- (532,269)
Purchase of treasury
stock............. -- -- (5,787,610) -- -- -- (1,000,000) (1,000,000)
Sale of Common
stock............. -- -- 1,000,000 200,000 -- -- -- 200,000
Issuance of Common
stock to employees
for
compensation...... -- -- 212,390 42,478 -- -- -- 42,478
Net loss............ -- -- -- -- -- (1,274,290) -- (1,274,290)
------- ---------- ---------- ---------- --------- ----------- ----------- -----------
BALANCE, DECEMBER 31,
1998................ -- -- 7,000,000 366,478 -- (1,930,559) (1,000,000) (2,564,081)
Issuance of Common
stock options
below fair value
(unaudited)....... -- -- -- 532,450 (532,450) -- -- --
Amortization of
deferred
compensation
(unaudited)....... -- -- -- -- 113,204 -- -- 113,204
Issuance of Common
stock for
acquisition
(unaudited)....... -- -- 546,984 3,899,996 -- -- -- 3,899,996
Sale of Preferred
stock
(unaudited)....... 666,198 4,464,992 -- -- -- -- -- 4,464,992
Conversion of note
payable
(unaudited)....... 142,431 1,015,545 -- -- -- -- -- 1,015,545
Net loss
(unaudited)....... -- -- -- -- -- (3,129,911) -- (3,129,911)
------- ---------- ---------- ---------- --------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30,
1999 (unaudited).... 808,629 $5,480,537 7,546,984 $4,798,924 $(419,246) $(5,060,470) $(1,000,000) $ 3,799,745
======= ========== ========== ========== ========= =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-9
<PAGE>
FASTNET CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------- -------------------------
1996 1997 1998 1998 1999
--------- --------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss............................ $(115,224) $(322,066) $(1,274,290) $ (639,132) $(3,129,911)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities-
Depreciation and amortization..... 78,804 177,375 346,568 230,475 904,233
Stock-based compensation
expense......................... -- -- 42,478 42,478 --
Amortization of deferred
compensation.................... -- -- -- -- 113,204
Changes in operating assets and
liabilities--
Decrease (increase) in assets--
Accounts receivable........... (176,554) (216,190) (428,861) (213,724) (155,075)
Other assets.................. 4,603 (88,079) (252,601) (80,430) (82,167)
Increase (decrease) in
liabilities--
Accounts payable and accrued
expenses.................... 277,067 533,819 689,616 (52,845) 776,489
Deferred revenues............. 106,822 398,556 263,111 54,679 684,936
Other liabilities............. -- -- -- -- 788,889
--------- --------- ----------- ----------- -----------
Net cash provided by (used
in) operating
activities................ 175,518 483,415 (613,979) (658,499) (99,402)
--------- --------- ----------- ----------- -----------
INVESTING ACTIVITIES:
Purchases of property and
equipment......................... (331,153) (690,352) (899,996) (423,867) (1,093,071)
Cash paid for business
acquisition....................... -- -- -- -- (400,199)
--------- --------- ----------- ----------- -----------
Net cash used in investing
activities........................ (331,153) (690,352) (899,996) (423,867) (1,493,270)
--------- --------- ----------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from long-term debt........ 381,873 215,599 3,344,000 3,344,000 1,000,000
Repayments of long-term debt........ (296,960) (46,049) (615,920) (613,145) (140,407)
Repayments of capital lease
obligations....................... (3,800) (22,712) (28,815) (21,408) (176,137)
Net borrowings (repayments) of line
of credit......................... 97,000 120,489 (217,489) (217,489) --
Purchase of treasury stock.......... -- -- (1,000,000) (1,000,000) --
Proceeds from sale of common
stock............................. -- -- 200,000 200,000 --
Proceeds from sale of Series A
Preferred stock, net of
transaction costs................. -- -- -- -- 4,464,992
--------- --------- ----------- ----------- -----------
Net cash provided by
financing activities...... 178,113 267,327 1,681,776 1,691,958 5,148,448
--------- --------- ----------- ----------- -----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS......................... 22,478 60,390 167,801 609,592 3,555,776
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD........................... 6,113 28,591 88,981 88,981 256,782
--------- --------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF
PERIOD.............................. $ 28,591 $ 88,981 $ 256,782 $ 698,573 $ 3,812,558
========= ========= =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-10
<PAGE>
FASTNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION AS OF SEPTEMBER 30, 1999, AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1999, IS UNAUDITED)

1. THE COMPANY:

FASTNET Corporation and its subsidiary (formerly You Tools Corporation)
("FASTNET" or the "Company"), a Pennsylvania corporation, has been providing
Internet access services to its customers since 1994.The Company is a growing
Internet services provider targeting small and medium sized enterprises in
selected high growth secondary markets in the mid-Atlantic area of the United
States. The Company complements its Internet access services by delivering a
wide range of enhanced products and services that are designed to meet the needs
of its target customer base.

As of September 30, 1999, the Company had a working capital deficit of
$1,652 and accumulated losses of $5,060,470. The Company has incurred losses
since inception and continues to incur losses in 1999. The Company intends to
expand its operation into new regions in the northeastern United States and
eventually across the entire country. To do so, the Company plans to construct
and deploy new facilities, increase its sales and marketing operations and
enhance its internal systems. In order to accomplish these objectives and fund
its operations, the Company must raise additional capital. There can be no
assurance that such capital will be available when needed or on terms favorable
to the Company.

The Company is subject to those risks associated with companies in the early
stages of development. The Company's future results of operations involve a
number of risks and uncertainties. Factors that could affect the Company's
future operating results and cause actual results to vary materially from
expectations include, but are not limited to, dependence on major customers,
risks from competition, new products and technological change, dependence on key
personnel, and potential year 2000 issues.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

INTERIM FINANCIAL STATEMENTS

The financial statements for the nine months ended September 30, 1998 and
1999 are unaudited, and in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial position as of September 30, 1999 and the results
of its operations for the nine months ended September 30, 1998 and 1999. The
results of operations for the nine months ended September 30, 1999 are not
necessarily indicative of the results to be expected for the entire year.

PRINCIPLES OF CONSOLIDATION

The accompanying financial statements include the accounts of FASTNET and
its wholly owned subsidiary. All material intercompany balances and transactions
have been eliminated in consolidation.

USE OF ESTIMATES

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

F-11
<PAGE>
FASTNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation and amortization are
provided on the straight-line basis over the estimated useful lives of the
respective assets, which range from 3 to 7 years. Maintenance, repairs and minor
replacements are charged to expense as incurred.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Carrying amounts of financial instruments held by the Company, which include
cash equivalents, accounts receivable, other current assets, accounts payable,
accrued expenses and deferred revenue, are reflected in the accompanying
financial statements at fair value due to the short-term nature of those
instruments. The carrying amount of long-term debt approximates fair value on
the balance sheet dates.

IMPAIRMENT OF LONG-LIVED ASSETS

In 1996, the Company adopted Statement of Financial Accounting Standard
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of." The Company reviews its long-lived assets,
including property and equipment, goodwill and customer list, for impairment,
whenever events or changes in circumstances indicate that the carrying amount of
the assets may not be fully recoverable. To determine recoverability of its
long-lived assets, the Company evaluates the probability that future
undiscounted net cash flows, without interest charges, will be less than the
carrying amount of the assets. Impairment is measured at fair value. There have
been no such asset impairments.

REVENUE RECOGNITION

Service revenues include one-time and ongoing charges to customers for
accessing the Internet. One-time charges relate to porting, initial connection
or other related fees and are recognized as revenue when the Company completes
the process, typically when the customer is set up for initial or expanded
service. The Company recognizes ongoing access revenue over the period the
services are provided. The Company offers contracts for Internet access that are
generally paid for in advance by customers. The Company has deferred revenue
recognition on these advance payments and recognizes this revenue on a
straight-line basis over the service period.

Revenues also include revenues from the resale of products, including
hardware and software, revenues derived from web hosting services and other
revenues. The Company recognizes product sales revenue when the equipment is
shipped to the customer. The Company sells its Web hosting and related services
for contractual periods ranging from one to twelve months. These contracts
generally are cancelable by either party without penalty. Revenues from these
contracts are recognized ratably over the contractual period as services are
provided. Incremental fees for excess bandwidth usage and data storage are
billed and recognized as revenues in the period customers utilized such
services. Revenues include network installation, maintenance and consulting
services. These services are

F-12
<PAGE>
FASTNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

provided on a time-and-material basis and revenues are recognized based upon
time (at established rates) and other direct costs as incurred.

ADVERTISING

All advertising costs are expensed as incurred. Advertising expenses for the
years ended December 31, 1996, 1997 and 1998 and the nine months ended
September 30, 1998 and 1999 amounted to $105,053, $243,104, $625,264, $391,452
and $528,833, respectively.

COST OF REVENUES

Cost of revenues includes telecommunications charges and other charges
incurred in the delivery and support of services, including personnel costs in
the Company's operations support function, as well as equipment costs related to
hardware and software sales. The telecommunications component of cost of
revenues was $671,578, $1,318,021, $2,091,772, $1,606,950 and $2,880,762 for the
years ended December 31, 1996, 1997, and 1998, and the nine months ended
September 30, 1998 and 1999, respectively.

INCOME TAXES

The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax bases of assets and liabilities and are measured using enacted tax rates
that are expected to be in effect when the differences reverse.

At December 31, 1998, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $1,450,000. The net operating loss
carryforward will begin to expire in 2010. The Company's utilization of its loss
carryforward could be limited pursuant to the Tax Reform Act of 1986, due to
cumulative changes in ownership in excess of 50%.

The Company has a net deferred tax asset primarily related to the net
operating loss carryforward and timing differences between the financial
reporting and tax accounting treatment of certain expenses. Due to the Company's
history of operating losses, the realization of the deferred tax asset is
uncertain. The Company has; therefore, provided a full valuation allowance
against the net deferred tax asset.

NET LOSS PER COMMON SHARE

The Company has presented net loss per share pursuant to SFAS No. 128,
"Earnings per Share," and the Securities and Exchange Commission Staff
Accounting Bulletin No. 98. Basic loss per share was computed by dividing net
loss by the weighted average number of shares of Common stock outstanding during
the period. Diluted loss per share has not been presented, since the impact on
loss per share using the treasury stock method is antidilutive due to the
Company's losses.

MAJOR CUSTOMERS

The Company derived revenues of approximately 16% from its largest customer
for the year ended December 31, 1996, 24% and 13% from its two largest customers
for the year ended December 31,

F-13
<PAGE>
FASTNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

1997, 11% from its largest customer for the year ended December 31, 1998, 10%
from its largest customer for the nine months ended September 30, 1998, and 19%
from its largest customer for the nine months ended September 30, 1999. The
Company had no other customer which exceeded 10% of revenues in 1996, 1997, 1998
or the nine months ended September 30, 1998 and 1999.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash balances and trade receivables. The
Company invests its excess cash with federally insured banks. The Company does
not require collateral from its customers.

SUPPLEMENTAL CASH FLOW INFORMATION

For the years ended December 31, 1996, 1997 and 1998, and the nine months
ended September 30, 1998 and 1999, the Company paid interest of $18,540,
$36,281, $171,101, $58,208 and $243,077, respectively. For the years ended
December 31, 1997, 1998 and for the nine months ended September 30, 1998, the
Company paid income taxes of $23,069, $103,187 and $85,581, respectively; these
amounts are included in other current assets in the accompanying balance sheets
at September 30, 1999, as the Company expects these amounts to be refunded. For
the year ended December 31, 1996 and for the nine months ended September 30,
1999, the Company paid no income taxes.

STOCK-SPLIT

On May 28, 1998, the Company effected a 24,115-for-1 split. All references
in the financial statements to the number of shares and to per share amounts
have been retroactively restated to reflect this change.

3. PROPERTY AND EQUIPMENT:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1997 1998 1999
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Equipment................................ $ 920,610 $1,591,667 $5,496,255
Computer equipment....................... 272,084 359,095 506,613
Computer software........................ 77,745 133,385 300,860
Furniture and fixtures................... 52,004 153,510 271,783
Leasehold improvements................... 14,209 125,109 217,694
---------- ---------- ----------
1,336,652 2,362,766 6,793,205

Less--Accumulated depreciation and
amortization........................... (289,250) (621,131) (1,282,837)
---------- ---------- ----------
$1,047,402 $1,741,635 $5,510,368
========== ========== ==========
</TABLE>

Depreciation and amortization expense for the years ended December 31, 1996,
1997 and 1998, and the nine months ended September 30, 1998 and 1999 was
$78,804, $177,375, $346,568, $230,475

F-14
<PAGE>
FASTNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. PROPERTY AND EQUIPMENT: (CONTINUED)

and $904,233, respectively. The net carrying value of property and equipment
under capital leases was $79,919, $188,883 and $3,368,949 at December 31, 1997
and 1998 and September 30, 1999, respectively.

4. LINE OF CREDIT:

The Company had a $500,000 line of credit with a bank. The line was paid in
full in May 1998 with the proceeds from a convertible note (see Note 5) and was
immediately cancelled.

5. DEBT:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1997 1998 1999
--------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Convertible Notes Payable................ $ -- $ 3,050,000 $ 3,050,000
Demand Note Payable...................... 200,000 -- --
Term Loans............................... 176,129 56,099 54,697
--------- ----------- -----------
376,129 3,106,099 3,104,697
Less--Current portion.................... (248,857) (3,061,283) (16,690)
--------- ----------- -----------
$ 127,272 $ 44,816 $ 3,088,007
========= =========== ===========
</TABLE>

On May 28, 1998, the Company sold a $3,050,000 convertible note (the
"Convertible Note"), and a warrant to purchase 1,000,000 shares of Common stock
at an exercise price of $1.50 per share to an investor. The investor also
purchased 1,000,000 shares of Common stock (see Note 6). The Black-Scholes
pricing model calculated a minimal value for the warrants; therefore, no
proceeds were assigned to the warrant.

The Convertible Note bears interest at 7% and is convertible into Common
stock at the option of the investor at any time prior to maturity at $1.50 per
share subject to adjustment, as defined. The Convertible Note is secured by
substantially all of the assets of the Company. Interest on the Convertible Note
is payable quarterly in arrears. The Convertible Note matures on November 30,
1999. On August 9, 1999, the investor agreed to extend the maturity of the
Convertible Note to January 31, 2001. The investor also agreed to convert the
Convertible Note into 2,033,334 shares of Common stock immediately prior to the
consummation of the Offering.

On May 14, 1999, the Company sold a $1,000,000 convertible note to an
investor (the "May 14(th) Convertible Note"). The May 14(th) Convertible Note
bore interest at 7%, and both principal and accrued interest were convertible at
the option of the holder at any time prior to maturity at rates subject to
adjustment based on the future sales price of the Company's Common stock. In
August 1999, this investor converted the May 14(th) Convertible Note together
with accrued and unpaid interest on the note into 142,431 shares of Series A
Preferred.

In 1997, the Company received a $21,873 term note from a financing company,
bearing interest at 10.75%. The outstanding balance at December 31, 1998 was
$14,772.

F-15
<PAGE>
FASTNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. DEBT: (CONTINUED)

In 1998, the Company received a $44,000 term note from a bank, bearing
interest at 9%. The outstanding balance at December 31, 1998 was $41,828. Future
maturities on this term note are $7,096, $8,200, $8,969, $9,811, and $7,752 and
are due in 1999, 2000, 2001, 2002, and 2003, respectively.

In 1998, the Company received a $250,000 note from a customer bearing 7.5%
interest. The note was paid off in May 1998.

In 1997, the Company issued a $200,000 demand note bearing 8.0% interest to
a company controlled by a shareholder of FASTNET. The note was repaid in
May 1998 with the proceeds from the Convertible Note.

6. SHAREHOLDERS' EQUITY:

COMMON STOCK

The Company has 50,000,000 authorized shares of no par value Common stock.
The Company had 11,575,220 shares outstanding on December 31, 1997 and 7,000,000
shares outstanding on December 31, 1998.

In May 1998, the Company purchased 5,787,610 shares of Common stock from
certain employee shareholders (the "Sellers") of the Company. Subsequently in
May 1998, the Company sold 1,000,000 shares to an investor. The Company has
recorded the purchase from the Sellers as a purchase of treasury stock. Also, in
May 1998, the investor purchased a $3,050,000 note from the Company and received
a warrant to purchase 1,000,000 shares of Common stock for $1,500,000 (see
Note 5). Also in May 1998, the Company issued 212,390 shares of fully vested
Common stock to certain employees. In connection with issuing these vested
shares, the Company charged $42,478 to compensation expense, the value of the
212,390 shares. This expense is included within selling, general and
administrative expenses in the accompanying statements of operations.

PREFERRED STOCK

The Company has 10,000,000 authorized shares of no par value Preferred
stock. The Company designated and issued 808,629 shares as Series A Preferred in
August 1999.

In August 1999, FASTNET sold 666,198 shares of Series A Convertible
Preferred stock ("Series A Preferred") to certain investors at $7.13 per share.
The Series A Preferred will convert into Common stock immediately prior the
consummation of FASTNET's initial public offering. In connection with the sale
of Series A Preferred stock, an advisory fee of $285,000 is due to a financial
advisor, who is an affiliate of a significant shareholder. The proceeds from the
sales of the Series A Preferred were $4,464,992, net of offering costs of
$285,000.

COMMON STOCK OPTIONS

In March 1999, the Company approved the 1999 Equity Compensation Plan (the
"1999 Plan"). The 1999 Plan provides for the issuance of up to 1,000,000 shares
of Common stock for incentive stock options ("ISOs"), nonqualified stock options
("NQSOs") and restricted shares. ISOs are granted with exercise prices at or
above fair value as determined by the Board of Directors. NQSOs are granted with
exercise prices determined by the Board of Directors. Each option expires on
such date as the Board of Directors may determine, generally ten years.

F-16
<PAGE>
FASTNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. SHAREHOLDERS' EQUITY: (CONTINUED)

The Company applies Accounting Principal Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and the related interpretations in
accounting for options issued under the 1999 Plan. Accordingly, compensation
expense is recognized for the intrinsic value (the difference between the
exercise price and the fair value of the Company's stock) on the date of grant.
Compensation, if any, is deferred and charged to expense over the respective
vesting period. The Company issued options to purchase 110,000 shares of Common
stock for $2.50 per share in May 1999, at this time the fair value of the
Company's Common stock was $4.00 per share. The Company issued options to
purchase 3,000 shares of Common stock for $2.50 per share in June 1999, at this
time the fair value of the Company's Common stock was $7.13 per share. These
options vest over periods ranging from one to five years. As a result of these
option grants, deferred compensation of $532,450 was recorded as additional
paid-in capital for the six months ended September 30, 1999, and the resulting
amortization expense as a result of its amortization was $113,204 in the same
period.

Under SFAS No. 123, "Accounting for Stock-Based Compensation," compensation
cost related to stock options granted to employees is computed based on the
value of the stock option at the date of grant using an option valuation
methodology, typically the Black-Scholes pricing model. SFAS No. 123 can be
applied either by recording the fair value of the options or by continuing to
record the APB No. 25 value and disclosing the SFAS No. 123 impact on a pro
forma basis. The Company has elected the disclosure method of SFAS No. 123.

Information with respect to outstanding options under the 1999 Plan is as
follows:

<TABLE>
<CAPTION>
OPTIONS AVERAGE
AVAILABLE FOR OUTSTANDING EXERCISE
GRANT OPTIONS PRICE RANGE PRICE
------------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Plan inception, March 3, 1999.... 1,000,000 -- $ -- $ --
Granted........................ (585,000) 585,000 $1.50-$7.13 $1.89
--------- ------- ----------- -----
Outstanding, September 30,
1999........................... 415,000 585,000 $1.50-$7.13 $1.89
========= ======= =========== =====
</TABLE>

As of September 30, 1999, there were 295,000 options vested under the 1999
Plan.

WARRANTS

In May 1998, the Company issued a warrant to an investor to purchase
1,000,000 shares of Common stock at an exercise price of $1.50 per share (see
Note 5). This warrant is currently exercisable and expires in May 2005.

7. COMMITMENTS AND CONTINGENCIES:

LEASES

In June 1999, the Company entered into a $20 million master equipment lease
agreement with an equipment vendor (the "Master Equipment Lease"). Leases under
the agreement are payable in three monthly installments of 0.83% of the value of
the equipment leased and 33 monthly installments of 0.0345% of the value of the
equipment leased. As of September 30, 1999 the Company had $17,420,471 available
for the purchase of additional equipment under the Master Equipment Lease.

F-17
<PAGE>
FASTNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. COMMITMENTS AND CONTINGENCIES: (CONTINUED)

The Company leases office space and equipment under capital and operating
leases expiring through August 2005. Rent expense under the operating leases was
$40,384, $221,851, $542,447, $210,420, and $466,716 during 1996, 1997, 1998, and
the nine months ended September 30, 1998 and 1999, respectively. The interest
rates implicit in the capital leases range from 6.6% to 14.9%. Future minimum
lease payments as of September 30, 1999, are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- ----------
<S> <C> <C>
Three months ending December 31, 1999................ $ 338,334 $ 280,224
2000................................................. 983,372 1,041,610
2001................................................. 1,096,634 753,113
2002................................................. 718,844 400,755
2003................................................. -- 383,781
2004 and thereafter.................................. -- 447,321
---------- ----------
Total minimum lease payments......................... 3,137,184 $3,306,804
==========
Less--Current portion................................ (693,711)
----------
$2,443,473
==========
</TABLE>

LITIGATION

From time-to-time, the Company is involved in certain legal actions arising
in the ordinary course of business. In the Company's opinion, based on the
advise of counsel, the outcome of such actions will not have a material adverse
effect on the Company's future financial position or results of operations.

RELATED PARTY TRANSACTION

In June 1999, the Company entered into a financial arrangement as amended
with an advisor (the "Financial Advisor"), who is an affiliate of a significant
shareholder. This agreement provided for a payment of $320,000 to be made to the
Financial Advisor on February 1, 2001 related to the private placement of
securities (see Note 1), and a $500,000 payment to be made upon the earlier of
the consummation of an initial public offering or February 1, 2001. This
$500,000 payment is related to general strategic and advisory services rendered
during the three months ended September 30, 1999.

In January 2000, the Company received a $1,000,000 promissory note from the
Financial Advisor, bearing interest at 7%. This promissory note is to be repaid
upon the earlier of the consummation of an initial public offering or May 15,
2000.

8. ACQUISITION:

On July 30, 1999, the Company acquired 100% of the capital stock of Internet
Unlimited, Inc., a provider of Web hosting and colocation services, for
approximately $400,000 in cash and 546,984 shares of Common stock with estimated
transaction costs of $75,000. The company recorded the acquisition using the
purchase method of accounting pursuant to APB No. 16 "Accounting for Business
Combinations." The Company expects the excess of purchase price over the fair
value of net liabilities acquired to be approximately $4,462,498. The Company
expects to allocate the excess purchase price to customer list and goodwill.

F-18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Internet Unlimited, Inc.:

We have audited the accompanying balance sheets of Internet Unlimited, Inc.
(a Pennsylvania Corporation) as of December 31, 1997 and 1998, and the related
statements of operations, shareholders' deficit and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Internet Unlimited, Inc. as
of December 31, 1997 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.

/s/ Arthur Andersen LLP

Philadelphia, Pa.,
July 30, 1999

F-19
<PAGE>
INTERNET UNLIMITED, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 3,639 $ 2,614 $ 45,454
Accounts receivable....................................... 85,144 134,448 112,124
Other current assets...................................... 15,028 23,207 15,813
-------- -------- --------
Total current assets.................................... 103,811 160,269 173,391
-------- -------- --------
PROPERTY AND EQUIPMENT, net................................. 94,380 128,770 210,961
OTHER ASSETS................................................ 11,322 5,069 10,302
-------- -------- --------
$209,513 $294,108 $394,654
======== ======== ========

LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of capital lease obligations.............. $ -- $ -- $ 6,898
Accounts payable and accrued expenses..................... 27,167 31,310 41,306
Deferred revenues......................................... 123,308 185,004 271,422
Due to shareholder........................................ 115,550 150,554 154,554
-------- -------- --------
Total current liabilities............................... 266,025 366,868 474,180
-------- -------- --------
CAPITAL LEASE OBLIGATIONS................................... -- -- 10,706
-------- -------- --------
COMMITMENTS (Note 6)
SHAREHOLDERS' DEFICIT:
Common stock, no par value, 1,000 shares authorized, 100,
67, and 67 shares issued and outstanding at December 31,
1997 and 1998, and June 30, 1999, respectively.......... 93,800 93,800 93,800
Accumulated deficit....................................... (150,312) (136,560) (154,032)
Less--Treasury stock, at cost, 33 shares.................. -- (30,000) (30,000)
-------- -------- --------
Total shareholders' deficit............................. (56,512) (72,760) (90,232)
-------- -------- --------
$209,513 $294,108 $394,654
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these statements.

F-20
<PAGE>
INTERNET UNLIMITED, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- -------------------
1997 1998 1998 1999
--------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:.......................................... $ 523,528 $721,005 $318,902 $666,011
OPERATING EXPENES:
Cost of revenues (see Note 2).................. 224,045 207,116 109,731 142,996
Selling general and administrative............. 381,947 449,000 151,380 485,297
Depreciation and amortization.................. 21,766 32,840 15,019 32,798
--------- -------- -------- --------
627,758 688,956 276,130 661,091
--------- -------- -------- --------
Operating income (loss).................... (104,230) 32,049 42,772 4,920
INTEREST EXPENSE................................... 10,407 18,297 6,841 22,392
--------- -------- -------- --------
NET INCOME (LOSS).................................. $(114,637) $ 13,752 $ 35,931 $(17,472)
========= ======== ======== ========
</TABLE>

The accompanying notes are an integral part of these statements.

F-21
<PAGE>
INTERNET UNLIMITED, INC.

STATEMENTS OF SHAREHOLDERS' DEFICIT

<TABLE>
<CAPTION>
COMMON STOCK
------------------- ACCUMULATED
SHARES AMOUNT DEFICIT TREASURY STOCK TOTAL
-------- -------- ----------- -------------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996................ 100 $37,100 $ (35,675) $ -- $ 1,425
Contribution of Common stock by
an officer............................ (63) 56,700 -- (56,700) --
Issuance of Common stock to employees
for compensation...................... 63 -- -- 56,700 56,700
Net loss................................ -- -- (114,637) -- (114,637)
--- ------- --------- -------- --------
BALANCE, DECEMBER 31, 1997................ 100 93,800 (150,312) -- (56,512)
Purchase of treasury stock.............. (33) -- -- (30,000) (30,000)
Net income.............................. -- -- 13,752 -- 13,752
--- ------- --------- -------- --------
BALANCE, DECEMBER 31, 1998................ 67 93,800 (136,560) (30,000) (72,760)
Net loss (unaudited).................... -- -- (17,472) -- (17,472)
--- ------- --------- -------- --------
BALANCE, JUNE 30, 1999 (unaudited)........ 67 $93,800 $(154,032) $(30,000) $(90,232)
=== ======= ========= ======== ========
</TABLE>

The accompanying notes are an integral part of these statements.

F-22
<PAGE>
INTERNET UNLIMITED, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- -------------------
1997 1998 1998 1999
--------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................... $(114,637) $13,752 $35,931 $(17,472)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities-
Depreciation and amortization..................... 21,766 32,840 15,019 32,798
Stock-based compensation expense.................. 56,700 -- -- --
Changes in operating assets and liabilities-
Decrease (increase) in assets--
Accounts receivable........................... (48,262) (49,304) 22,937 22,324
Other current assets.......................... (17,501) (7,523) 11,686 (637)
Increase (decrease) in liabilities--
Accounts payable and accrued expenses......... 20,259 4,143 (6,959) 9,996
Deferred revenues............................. 69,479 61,696 9,537 86,418
--------- ------- ------- --------
Net cash (used in) provided by operating
activities................................ (12,196) 55,604 88,151 133,427
--------- ------- ------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment................. (78,232) (61,633) (42,471) (90,234)
--------- ------- ------- --------
FINANCING ACTIVITIES:
Proceeds from shareholder loan...................... 94,996 40,000 20,000 34,000
Repayments on shareholder loan...................... -- (4,996) (34,996) (30,000)
Repayments of capital lease obligations............. (1,943) -- -- (4,353)
Purchase of treasury stock.......................... -- (30,000) (24,000) --
--------- ------- ------- --------
Net cash provided by (used in) financing
activities................................ 93,053 5,004 (38,996) (353)
--------- ------- ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................................... 2,625 (1,025) 6,684 42,840
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........ 1,014 3,639 3,639 2,614
--------- ------- ------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.............. $ 3,639 $ 2,614 $10,323 $ 45,454
========= ======= ======= ========
</TABLE>

The accompanying notes are an integral part of these statements.

F-23
<PAGE>
INTERNET UNLIMITED, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED)

1. THE COMPANY:

Internet Unlimited, Inc. (the "Company"), a Pennsylvania corporation,
commenced operations in 1995 as a partnership. The Company provides Web hosting
and colocation services.

As of June 30, 1999, the Company had a working capital deficit of $300,789
and accumulated losses of $154,032. The Company has incurred losses since
inception and continues to incur losses in 1999. The Company intends to invest
in expanding its network operations center, marketing, promotion, and
development of its infrastructure. The Company's future results of operations
involve a number of risks and uncertainties. Factors that could affect the
Company's future operating results and cause actual results to vary materially
from expectations include, but are not limited to, risks from competition, new
products and technological change, dependence on key personnel, availability of
capital, and potential year 2000 issues.

On July 30, 1999, FASTNET Corporation ("FASTNET") purchased all of the
outstanding capital stock of the Company pursuant to a definitive merger
agreement.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

INTERIM FINANCIAL STATEMENTS

The financial statements for the six months ended June 30, 1998 and 1999 are
unaudited, and in the opinion of management, include all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of the
financial position as of June 30, 1999 and the results of its operations for the
six months ended June 30, 1998 and 1999. The results of operations for the six
months ended June 30, 1999 are not necessarily indicative of the results to be
expected for the entire year.

USE OF ESTIMATES

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation and amortization are
provided generally on the straight-line basis over the estimated useful lives of
the respective assets, which is currently 5 years for all assets. Maintenance,
repairs and minor replacements are charged to expense as incurred.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Carrying amounts of financial instruments held by the Company, which include
cash equivalents, accounts receivable, other current assets, accounts payable,
accrued expenses and deferred revenues,

F-24
<PAGE>
INTERNET UNLIMITED, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

are reflected in the accompanying financial statements at fair value due to the
short-term nature of those instruments.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company follows Statement of Financial Accounting Standard ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of." The Company reviews its long-lived assets, primarily
property and equipment, for impairment, whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be fully
recoverable. To determine recoverability of its long-lived assets, the Company
evaluates the probability that future undiscounted net cash flows, without
interest charges, will be less than the carrying amount of the assets.
Impairment is measured at fair value. There have been no such asset impairments.

REVENUE RECOGNITION

The Company recognizes ongoing Web hosting and colocation services revenue
over the period the services are provided. The Company offers contracts for Web
hosting and colocation services that are generally paid for in advance by
customers. The Company has deferred revenue recognition on these advance
payments and records the amounts to revenue on a straight-line basis over the
service period.

COST OF REVENUES

Cost of revenues includes initial set-up and recurring Web hosting charges,
telecommunications charges and other charges incurred in the delivery and
support of services. The Company uses FASTNET for all telecommunication
services. The telecommunications component of cost of revenues was $106,172,
$123,800, $58,750 and $87,080 for the years ended December 31, 1997 and 1998,
and for the six months ended June 30, 1998 and 1999, respectively.

ADVERTISING EXPENSES

All advertising costs are expensed as incurred. Advertising expenses for the
years ended December 31, 1997 and 1998 and the six months ended June 30, 1998
and 1999 amounted to $7,267, $65,193, $4,425 and $77,304, respectively.

INCOME TAXES

From inception to June 30, 1996, the Company was a partnership. Effective
July 1, 1996, the Company elected to be taxed under Subchapter S of the Internal
Revenue Code. As a result, the Company was not subject to federal or state
income taxes, and the taxable loss or income of the Company was included in the
shareholders' individual tax returns.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash balances. The Company invests its
excess cash with federally insured banks. The Company does not require
collateral from its customers.

SUPPLEMENTAL CASH FLOW INFORMATION

For the years ended December 31, 1997 and 1998, and the six months ended
June 30, 1998 and 1999, the Company paid cash for interest of $1,690, $2,433, $0
and $3,592, respectively.

F-25
<PAGE>
INTERNET UNLIMITED, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. PROPERTY AND EQUIPMENT:

<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31,
------------------- JUNE 30,
1997 1998 1999
-------- -------- -----------
<S> <C> <C> <C>
Equipment.................................... $113,919 $175,552 $264,931
Leasehold improvements....................... -- -- 18,310
Furniture and fixtures....................... -- -- 4,502
-------- -------- --------
113,919 175,552 287,743
Less--Accumulated depreciation............... (19,539) (46,782) (76,782)
-------- -------- --------
$ 94,380 $128,770 $210,961
======== ======== ========
</TABLE>

Depreciation and amortization expense for the years ended December 31, 1997
and 1998, and the six months ended June 30, 1998 and 1999 was $21,766, $32,840,
$15,019 and $32,798, respectively. The net carrying value of property and
equipment under capital leases was zero, zero and $20,312 at December 31, 1997
and 1998, and June 30, 1999, respectively.

4. DUE TO SHAREHOLDERS:

During 1997 and 1998, a certain officer/shareholder made loans to the
Company through personal borrowing from a bank. The borrowings are due on
demand. The Company pays interest on such borrowings at an annual rate of 6%,
payable monthly. The Company had $115,550 and $150,554 outstanding under these
loans at December 31, 1997 and 1998, respectively.

5. SHAREHOLDERS' EQUITY:

COMMON STOCK

In 1997, an officer/shareholder of the Company contributed 63 shares of
Common stock to the Company with a fair value of $56,700. As a result of the
transaction, the Company recorded an increase to Common stock for the fair value
of these shares with an offset to treasury stock. Immediately following this
contribution, the Company distributed these 63 shares of Common stock equally
among the other shareholders/officers of the Company. The distribution was
recorded as compensation expense for the fair value of the Common stock
distributed.

6. COMMITMENTS:

LEASES

The Company leases office space under a non-cancelable operating lease,
expiring in 2002. Rent expense under the operating lease was $21,382, $34,270,
$18,136, and $35,298 during 1997, 1998, and the six months ended June 30, 1998
and 1999, respectively. Future minimum lease payments as of December 31, 1998,
are as follows:

<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
1999........................................................ $ 38,721
2000........................................................ 39,785
2001........................................................ 40,848
2002........................................................ 24,360
--------
Total minimum lease payments................................ $143,714
========
</TABLE>

F-26
<PAGE>
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