U.S.
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM
10-QSB  xQUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES
EXCHANGE ACT OF 1934. For
the quarterly period ended March 31, 2001. oTRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES
EXCHANGE ACT OF 1934. For
the transition period from ________________ to _______________. Commission
File Number 0-25115 TERAGLOBALCOMMUNICATIONS CORP. (Exact name of small business issuer as
specified in its charter) Delaware
  33-0827963(State
  or other jurisdiction
  (I.R.S.
  Employerof
  incorporation)
  Identification
  No.)9171 Towne Centre Drive,
  Suite 600San Diego, California 92122(Address of principal executive offices)(858) 404-5500(Issuer's
  telephone number)
 Check whether
the issuer  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
during the past 12 months (or for such shorter period that the registrant was
required to file such reports, and (2) has been subject to such filing
requirements for the past 90 days. xYesoNo State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: As of March 31, 2001,
26,906,282 shares of the issuer's common stock were outstanding. Transitional Small Business Disclosure
Format (Check One):oYesxNo   TERAGLOBALCOMMUNICATIONS CORP.
AND SUBSIDIARIES
Form 10-QSB for the period ended March 31, 2001

COVER PAGEINDEXPART I. FINANCIAL INFORMATIONITEM 1. Financial StatementsConsolidated
  Balance Sheets as of March 31, 2001 (unaudited) and December 31, 2000
  (audited)Consolidated
  Statement of Operations - Three Months Ended March  31, 2001  and March 31,
  2000 (unaudited)Consolidated
  Statements of Cash Flows - Three Months Ended March 31, 2001 and March 31,
  2000 (unaudited)Notes
  to Condensed Consolidated Financial Statements - March 31, 2001ITEM
  2. Management's Discussion and Analysis of Financial Condition and Results of
  OperationsPART
  II.  OTHER INFORMATIONITEM 1.
  Legal ProceedingsITEM
  2. Change in SecuritiesITEM 3. Defaults upon
  Senior SecuritiesITEM
  4. Submission of Matters to a Vote of Security HoldersITEM
  5. Other InformationITEM 6. Exhibits and
  Reports on Form 8-KSIGNATURESTeraGlobal® and TeraMedia® are
  registered trademarks of
  TeraGlobal Communications Corp.


PART I.
  FINANCIAL INFORMATIONItem 1.
  Financial StatementsTERAGLOBAL COMMUNICATIONS CORP.AND SUBSIDIARIESCONDENSED CONSOLIDATED
  BALANCE SHEETMarch 31, 2001 (unaudited) and December 31, 2000  ASSETSMarch 31,
  2001
  December 31,
  2000(Unaudited)Current
  assetsCash and cash equivalents
  $511,262
  $467,383Accounts receivable
  175,977
  117,543Notes receivable - related parties
  376,834
  377,901Inventory
  72,599
  186,071Prepaid expenses and other current assets, including $15,869 and
  $23,874,                 respectively, to
  related parties
  119,018
  260,770Total current assets
  1,255,690
  1,409,668Furniture
  and equipment,
  net
  1,431,010
  1,947,936Other asset - deposits
  567,000
  680,000Total assets
  $3,253,700
  $4,037,604
 See accompanying notes to condensed
consolidated financial statements. LIABILITIES AND SHAREHOLDERS' EQUITYMarch
  31,
  2000
  December
  31,
  2001(Unaudited)Current liabilitiesAccounts payable
  $768,892
  $869,789Short-term loans
  63,396
  66,658Accrued expenses
  15,000
  68,293Accrued severance pay
  119,252
  178,879Accrued interest on convertible promissory note
  -
  98,681Accrued vacation
  112,200
  150,555Convertible promissory note
  -
  475,000Total current liabilities
  1,078,741
  1,907,855Shareholders' equityPreferred stock, $1.00 par value, non-voting 1,000,000 shares
  authorized       no shares issued and
  outstanding
  
  Common stock, $0.001 par value 200,000,000 shares authorized       26,906,282 shares issued and
  outstanding March 31, 2001       22,706,922 shares issued and
  outstanding December 31, 2000
  26,906
  22,707Additional paid-in capital
  39,542,433
  37,449,327Other comprehensive income (loss)
  38,560
  (11,181)Accumulated deficit
  (37,432,939)
  (35,331,104)Total shareholders' equity
  2,174,960
  2,129,749Total liabilities and shareholders equity
  $3,253,700
  $4,037,604See accompanying notes to condensed
consolidated financial statements.





TERAGLOBAL COMMUNICATIONS
  CORP.AND SUBSIDIARIESCONDENSED
  CONSOLIDATED STATEMENTS OF OPERATIONSFor the three months ending
  March 31, 2001 and 2000 (Unaudited)

Three months
  ended March 31,2001
  2000Net Sales
  $174,853
  $106,548Cost of sales
  116,795
  68,132Gross profit
  58,058
  38,416Operating expensesGeneral and administrative
  1,426,243
  2,827,167Selling
  306,044
  308,038Research and development
  437,621
  1,148,658Total operating expenses
  2,169,908
  4,283,863Loss from operations
  (2,111,850)
  (4,245,447)Other income (expenses)Interest income
  14,985
  83,781Interest expense
  (7,073)
  (11,635)Other income
  2,103
  -Total other income (expense)
  10,015
  72,146Net Loss
  $(2,101,835)
  $(4,173,301)Basic loss per common share
  $(0.09)
  $(0.21)Weighted-average common shares outstanding
  23,503,868
  19,721,835See accompanying notes to condensed
consolidated financial statements.

TERAGLOBAL COMMUNICATIONS
  CORP.AND SUBSIDIARIESCONDENSED
  CONSOLIDATED STATEMENTS OF CASH FLOWSFor the Three Months ended
  March 31, 2001 and 2000 (Unaudited)

Three months
  ended March 31,2001
  2000Cash flows from operating activitiesNet loss
  $(2,101,835)
  $(4,173,301)Adjustments to reconcile net loss to net cash used inOperating activitiesStock issued for services rendered
  15,625
  1,051,125Loss on sale of property and equipment
  48,858
  --Depreciation
  390,982
  221,184Amortization of goodwill
  --
  190,905(Increase) decrease inAccounts receivable
  (58,433)
  83,806Prepaid expenses and other current assets
  141,753
  134,826Inventory
  113,471
  (1,364)Increase (decrease) inAccounts payable
  (100,897)
  (439,721)Accrued expenses
  (53,294)
  64,031Accrued severance
  (59,627)
  --Accrued interest (non-cash interest expense)
  4,999
  --Accrued vacation
  (38,355)
  --Net cash used in operating activities
  (1,696,753)
  (2,868,509)Cash flows from investing activitiesProceeds from redemption of Certificate of Deposit
  113,000Proceeds from sale of (purchase of) furniture and equipment
  79,086
  (586,277)Notes receivable  related parties
  1,067
  (42,507)Net cash provided by (used in) investing activities
  193,153
  (628,784)Cash flows from financing activitiesPayment of short-term loans
  (3,262)
  934Payment of capital lease obligations
  --
  (706,688)Proceeds from issuance of common stock, net of fees
  1,501,000
  --Proceeds from exercise of stock options
  --
  45,533Net cash provided by (used in) financing activities
  1,497,738
  (660,221)See accompanying notes to condensed
consolidated financial statements.

Three months
  ended March 31,2001
  2000Cumulative translation adjustment
  49,741
  (13,889)Net increase (decrease) in cash and cash equivalents
  43,879
  (4,171,403)Cash and cash equivalents, beginning of period
  467,383
  7,893,036Cash and cash equivalents, end of period
  $511,262
  $3,721,633

Supplemental
schedule of non-cash investing and financing activities

During the
three months ended March 31, 2001, the Company entered into an agreement to
convert a promissory note into shares of common stock. The principal amount of
the promissory note of $475,000 and accumulated interest of $103,680 were
converted into 1,157,360 shares of the Company's common stock and 120,000
warrants to purchase shares of common stock at a price of $0.60 per share for a
period of two years.  None of these
warrants were exercised as of March 31, 2001.

During the three
months ended March 31, 2001, the Company issued 2,000 shares of common stock
valued at $2,000 as payment for the acquisition of additional shares of
TechnoVision Communications, Inc.  The
TechnoVision Communications, Inc. shares were tendered pursuant to the
Companys exchange offer which was consummated on August 10,1998; however, the
Companys shares were never issued at the time of the exchange offer.





See accompanying notes to condensed
consolidated financial statements.


TERAGLOBAL COMMUNICATIONS
  CORP.AND SUBSIDIARIESNOTES
  TO CONDENSED CONSOLIDATED FINANCIAL STATMENTSMarch 31, 2001  NOTE
1 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES Basis of Presentation The unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information. 
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included.  Operating results for the
three-month period ended March 31, 2001 are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 2001.  These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes thereto included in the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 2000. Principles of Consolidation The consolidated financial statements include
the accounts of TeraGlobal Communications Corp. and its wholly owned
subsidiaries, ATI Access Technologies, Inc., TGC Acquisition, Inc., TeraGlobal
Communications (Canada) Corporation, and TechnoVision Communications, Inc.  All inter-company accounts and transactions
have been eliminated. NOTE 2  FURNITURE AND
EQUIPMENT Furniture
and equipment consisted of the following: March 31, 20001
  December 31, 2000(Unaudited)Furniture
  and fixtures
  $446,635
  $446,635Office
  equipment
  1,073,119
  1,123,271Computers
  and software
  2,308,266
  2,308,266TeraMedia®
  networks
  174,975
  334,2904,002,995
  4,212,462Less
  accumulated depreciation
  2,571,985
  2,264,526Total
  $1,431,010
  $1,947,936
 Depreciation expense for the three months ended
March 31, 2001, and the year ended December 31, 1999, was $390,982 and
$1,203,721, respectively.  During the
three months ended March 31, 2001, the Company recognized a loss of $48,858 in
conjunction with the disposition of certain non-core assets and TeraMedia®
network assets as it transitioned from a service provider business model to one
that focuses on the sale and licensing of TeraMedia® software. NOTE 3 - OTHER ASSET - DEPOSITS

The Company has a standby letter of credit
agreement with a bank for $500,000 as collateral for the lease of the office
space at the Companys headquarters in San Diego, California. Per the terms of
the lease agreement, the amount of the standby letter of credit can be reduced
annually, over the five-year term of the lease.  The Company reduced the letter of credit by $113,000 during the
three months ended March 31, 2001.NOTE 4 - CONVERTIBLE PROMISSORY
NOTE

During the three months ended March 31, 2001,
the Company entered into an agreement whereby the principal amount of a
promissory note of $475,000, and accumulated interest of $103,680, were
converted into 1,157,360 shares of the Companys common stock and 120,000
warrants to purchase shares of common stock at a price of $0.60 per share for a
period of two years.  The warrants vest
immediately and have a term of two years. 
None of these warrants were exercised at March 31, 2001.NOTE 5 - COMMITMENTS AND
CONTINGENCIES

Larry
Jernigan v. TeraGlobal Communications Corp., et alDuring the three months ended March 31, 2001, the Company paid to Mr. Jernigan
approximately $30,000 in cash and stock in exchange for a release of all
claims, including any interest in TeraGlobal and TechnoVision stocks or stock
options.The Company has no litigation pending against it
at this time.NOTE 6 - SHAREHOLDERS' EQUITY

Common StockDuring the three months ended March 31, 2001,
the Company converted all outstanding convertible promissory notes into common
stock.  The Company had $475,000 in
principal and $103,680 in interest outstanding, all of which were exchanged for
an aggregate of 1,157,360 shares of common stock and 120,000 warrants to purchase
shares of common stock at a price of $0.60 per share for a period of two years.During the three months ended March 31, 2001,
the Company sold 3,015,000 shares of common stock in a private placement,
receiving $1,501,000, net of offering costs of $6,500.During the three months ended March 31, 2001,
the Company issued 25,000 shares valued at $15,625, pursuant to the settlement
of certain litigation against the Company.During the three months ended March 31, 2001,
the Company issued 2,000 shares of common stock valued at $2,000 as payment for
the acquisition of additional shares of TechnoVision.  The TechnoVision shares were tendered pursuant to the Company's
exchange offer, which was consummated on August 10, 1998; however, the shares
were never issued at the time of the exchange offer.Stock OptionsDuring the three months ended March 31, 2001,
the Company granted employees an aggregate of 122,000 options under its 1999
Stock Option Plan (the 1999 Plan), at an exercise price of $0.56 per share.During the three months ended March 31, 2001,
the Company entered into an employment agreement with Robert Randall to act as
the Chief Executive Officer of the Company. 
In connection with that employment agreement, the Company also granted
Mr. Randall a nonqualified stock option to purchase up to 1,000,000 shares of
common stock, subject to time and performance-based vesting.The following schedule summarizes the stock
options transactions:Stock
  Options
  Outstanding
  Weighted
  Average
  Exercise PriceOutstanding, December 31, 2000
  2,083,250
  $5.57Granted
  1,122,000
  $0.56Forfeited
  600
  $7.81Exercised
  --
  $--Outstanding, March 31, 2001
  3,204,650
  $3.82Exercisable, March 31, 2001
  2,111,460


Item
2.Management's Discussion and Analysis of
Financial Condition and Results of Operations The
matters discussed in this Managements Discussion and Analysis of Financial
Condition and Results of Operations and other sections of this report contain
forward-looking statements that are based on current expectations, estimates,
forecasts and projections about the Company and the industry in which it
operates.  These forward-looking
statements involve risks and uncertainties and are not guarantees of future
performance.  Forward-looking statements
include, but are not limited to, statements concerning anticipated trends in
revenues, the mix of software and hardware that the Company will sell in the
future and resulting gross margins, statements concerning Company's reseller
arrangements and the amount and timing of any revenues that will be derived
from those relationships, statements concerning the adequacy of existing staff
and infrastructure to sustain operations and projections concerning the
adequacy of cash flow.  The Company's
actual results could differ materially from the results discussed in such
forward-looking statements based on a number of factors including those set
forth under Factors That May Affect Future Results and Financial Condition
below and more completely in the Companys Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2000. 
The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.  The following
discussion of the Company's financial condition and results of operations
should be read in conjunction with the Company's financial statements and the
related notes thereto appearing elsewhere in this report. Overview TeraGlobal Communications Corp., a
Delaware corporation (the Company) develops advanced networking software that
enables real-time voice, video and data communication and collaboration.  The applications are based on the Internet
Protocol (IP), and can run over any common broadband network that delivers IP
packets. The Company's current application suite, marketed under the name
TeraMedia®, delivers Voice over IP and Video over IP and data collaboration
simultaneously over a single broadband connection. The Company began operating in this
business in 1998. The Company launched its first commercial version of its
TeraMedia® software in October of 1999. 
During fiscal 2000, the Company approached sales primarily under a
"service" model.  Under that
model, the Company acts as a solutions provider, contracting for and reselling
broadband connectivity and network and computer hardware.  The customer enters into a contract with the
Company to pay for the bundled cost of the connectivity, network
infrastructure, computer hardware and software over the length of a Service
Agreement.  The Company recognizes
revenue as it is billed each month, and its costs of goods sold include the
cost of broadband connectivity, hardware, and support charges. The Company entered 2001
restructuring its expenses and building a foundation for scalable revenue
growth. On the expense side, the Company
effected sweeping changes during the quarter. 
While the service model entails recurring revenue, it is capital
intensive.  The Company is compelled to
purchase network equipment to deliver the service.  It is also required to develop support staff to accommodate the
service offering.  The Company generated
$389,000 in revenues during that fiscal 2000, and had an operating budget of
approximately $1.1 million per month. 
As a result, the Company finished 2000 with a working capital deficit
and needed additional capital to fund operations. Effective
January 2, 2001, the Company restructured its workforce resulting in the
elimination of over 60% of its employee base. The majority of the positions
eliminated were administrative, or related to customer support functions.  The Company's payroll expenses were reduced
from approximately $450,000 per month in December 2000, to approximately
$270,000 in January 2000, exclusive of expenses related to the
restructuring.  The Company also reigned
in other spending bringing monthly cash expenditures down to approximately
$550,000 per month for the quarter. In February 2001, the Company
completed a private placement of 3,015,000 shares of common stock resulting in
net proceeds to the Company of $1,501,000. 
The Company also successfully negotiated the conversion of $475,000 of
outstanding convertible promissory notes, plus accrued interest, into common
stock and warrants. On the revenue side, the Company
moved to a "software" sales model, and continued development of cross
platform solutions to broaden the Company's markets.  Under the software model, the Company licenses the TeraMedia®
software to the customer, who then operates the software on their own
networks.  The Company also sells an
accessory kit that can include a camera, speaker system, and other peripherals
that enhance the TeraMedia® experience. 
The customer is responsible for securing network infrastructure and
support.  This model requires
substantially less infrastructure and personnel to support.  Overall revenues under this model may be
lower than the service model, but will carry larger profit margins.  Costs of good sold will not include
connectivity costs, and will have reduced network and computer hardware costs,
as the Company focuses on sales of software. The Company generated sales of
$324,853 in the first three months of 2001. 
Of that amount $174,853 were recognized as revenues in the period ended March
31, 2001, and the balance will be recognized in the second quarter.  Substantially all of this revenue was from
the one-time sale of hardware, software, and related cameras, speakers and
microphones. The Company's product development
efforts during the quarter focused on support for multiple operating
systems.  The Company's initial server
software was written for the Sun Solaris operating system.  The Company has revised its server software
and has planned a release for early third quarter of a version of its registry
server software that uses the Lightweight Data Access Protocol, and will run
over common server platforms including Solaris, Novell, Windows, Unix and
Macintosh.  The Company is also focusing
on development of a Windows® 2000 version of its client software.  The initial release is expected in the
fourth quarter. Looking beyond the period ended
March 31, 2001, the Company enters the second quarter with a restructured work
force.  It has consolidated operations,
and reduced overhead expenditures.  The
Company expects to require additional capital in the second quarter, and has
entered into preliminary arrangements to secure that capital, as discussed in
"Liquidity and Capital Resources", below. The Company continues to pursue
direct sales opportunities to the government, education, media and science
industries.  To an increasing degree,
however, the Company is looking to indirect sales models to drive revenue.  Subsequent to March 31, 2000, the Company
entered into a Strategic Alliance Agreement with Motorola to pursue contracts
with the United States Department of Defense. 
The Company has also entered into an agreement with Marconi
Communications Federal, giving Marconi the right to resell TeraMedia® software
to customers in the United States Government. 
Finally, the Company has been pursuing joint sales opportunities with
Apple Computer.  Apple has installed
TeraMedia® in some of its market centers, and has invited the Company to
demonstrations to strategic accounts, particularly in the education
market.  As a result of these
activities, the Company is looking for increased revenues for the balance of
the year, including revenues from development fees and licenses.    Results of Operations

The following table sets forth the
selected unaudited quarterly results of operations for the three months ending
March 31, 2001, and March 31, 2000.



Statements of
  Operations Data:
  Three Months
  ending March 312001(unaudited)
  2000(unaudited)Sales
  $174,853
  $106,548Cost of Sales
  116,795
  68,132General and administrative
  1,426,242
  2,827,167Selling
  306,044
  308,038Research and development
  437,621
  1,148,658Net Loss
  $(2,101,835)
  $(4,173,301)Basic loss per common share
  $(0.09)
  $(0.21)Weighted average common sharesOutstanding
  23,503,868
  19,721,835



First Quarter 2001 Compared to
First Quarter 2000.

Sales.Sales
for the three months ended March 31, 2001, were $174,853 compared to $106,548
in the three months ended March 31, 2000, an increase of 64 percent. Sales for
the three months ended March 31, 2001, related to the sale of TeraMedia®
software and the resale of hardware to support TeraMedia® software. Sales for
the three months ended March 31, 2000, related primarily to subscription sales
under contracts for TeraMedia® services. 
The increase in revenue is due to the immediate recognition of revenue
associated with the resale of hardware to support TeraMedia® software, as well
as an increase in the sales volume of TeraMedia® software.

The Company will continue to focus
its revenue growth on the sale of TeraMedia® software to customers with an
existing network infrastructure. For example, during the period ended March 31,
2001, the Company entered into an agreement with the Anthony Wayne School
District in the State of Ohio.  The
$150,000 sale will be recognized as revenue in the second quarter, and was
predominately a sale of software, but included the resale of accessories
required to fully utilize TeraMedia® software. 
The Company is also placing significant emphasis on joint sales and
indirect sales opportunities as it continues to formalize licensing
arrangements and reseller programs.  The
Company has secured its initial reselling arrangements and, on that basis,
expects that sales from resellers will begin to contribute to revenues in the
third and fourth quarter.

Cost of Sales. Cost of sales
for the period ended March 31, 2001, was $116,795, resulting in a gross margin
of 33 percent. Cost of sales for the period ended March 31, 2000, was $68,132,
resulting in a gross margin of 36 percent for the period. Cost of sales for
both periods was associated primarily with the resale of hardware components,
such as computers, cameras, speakers and microphones.  Cost of sales for March 31, 2000, also included bandwidth services
related to the sale of TeraMedia® under the service model.

As the Company expands it efforts
to focus on a software sales model and licensing opportunities it expects cost
of sales to decrease substantially. 
Historically the Company's cost of sales has included costs of broadband
connectivity and computer hardware The Company is working on joint sales
opportunities with hardware manufacturers and targeting customers with required
end point devices and network infrastructure in place, which allows the Company
to sell predominantly software.

General and Administrative.General and administrative expenses were
$1,426,243 for the three months ended March 31, 2001, compared to $2,827,167
for the three months ended March 31, 2000, a decrease of $1,400,924, or 50
percent. The Company took substantial measures to reduce general and
administrative personnel and spending early in the first quarter of 2001, which
included a 60 percent reduction in staff.

The Company is continuing to
identify opportunities to reduce overhead spending, however, it may need to add
some additional personnel to support increased sales activity.  The Company recognized non-cash charges for
depreciation expense of $390,982 for the period ended March 31, 2001, compared
to $197,700 for the period ended March 31, 2000.  All assets associated with the Company's TechnoVision subsidiary
and Canadian subsidiary have been fully depreciated and non-cash expenses
related to depreciation will decline significantly, as the Company continues to
control capital expenditures.

Research and Development.
Research and Development expenses were $437,621 for the three months ended
March 31, 2001, as compared to $1,148,658 for the three months ended March 31,
2000, a decrease of $711,037, or 62 percent. The decline in research and
development expenses from the prior period is primarily the result of decreased
expenditures for network, equipment and software expenses, as the Company has
established the core infrastructure needs for its current development efforts.  The Company also reduced the number of
research and development engineers, and discontinued the use of all contract
research and development professionals.

The Company expects that spending
on research and development will continue for the next two quarters at its
present level or increase slightly. The Company is continuing its development
of a Windows® 2000 version of TeraMedia® that will operate on PC computers with
a Pentium 4 or equivalent speed processor, and may increase spending modestly
for equipment and resources related to that effort.

Selling. Sales and marketing
expenditures were $306,044 in the three months ended March 31, 2001, as
compared to $308,038 in the three months ended March 31, 2000, a decrease of
$1,994, or one percent.  Approximately
30 percent of this amount related to one eventthe attendance of Macworld, a
tradeshow showcasing products associated with Apple computers.

The Company expects sales and
marketing expense to decline over the next two quarters as it has substantially
reduced its attendance to tradeshows. 
The Company has also taken measures to more efficiently transport and
deliver remote product demonstrations, allowing more visibility to potential
customers at significantly reduced cost. 
The Company will continue to target end-user sales, but believes
significant growth in sales will be attributed to the build out of indirect
sales channels, and will focus on establishing OEM and VAR relationships. Under
those selling arrangements the Company will license software at a discount to
its standard retail price.

Liquidity and Capital Resources

As of March 31, 2001, the Company
had cash and cash equivalents totaling $511,264, with a working capital surplus
of $176,949, as compared to a cash balance totaling $3,721,633 with a working
capital surplus of $2,411,372 at March 31, 2000.

For
the three months ended March 31, 2001, net cash used in operating activities
was $1,696,752 compared to $2,868,509 for the period ended March 30, 2000.  The decrease in cash used in operating
activities was almost entirely associated with the decrease in personnel.
Monthly operating expenses are expected to decrease further as the Company
downsizes its Logan, Utah office, and restructures its broadband connectivity.  As a result of these changes cash used in
operating activities averaged  $565,584
for the first three months of 2001, and is expected to be lower in the second
quarter of 2001.

While
operating expenses have been reduced substantially, the Company increased
operating revenues in the first quarter, and expects that trend to
continue.  The Company is working more
closely with indirect resale channels to take advantage of their customer base
and sales infrastructure.  In the second
quarter of 2001, the Company has engaged in joint sales activities with Apple
Computer, Motorola and Marconi Communications Federal to sell its TeraMedia®
software.  The Company has also reduced
the pricing structure for its software and is focusing its own direct sales
efforts on large installations with existing networks.  Each of these activities is resulting in
increased exposure and larger opportunities. 
However, the Company does not expect that these activities will result
in significant revenues for the Company until the third or fourth quarter of 2001.

The Company generated positive cash flows
from investing activities, receiving the release of $113,000 from the security
deposit on its facilities in San Diego. 
The Company also generated $79,086 during the period from the sale of
non-core assets.  The Company is
continuing to liquidate excess furniture, fixtures and equipment.  However, receipts from the disposition of
those assets will be offset by purchases of additional hardware for development
and testing of the Windows® 2000 version of the Company's TeraMedia® software.

The Company has funded
substantially all of its operations to date from financing activities.  Net cash provided by financing activities
was $1,497,738 for the period ended March 31, 2001, compared to a total of $660,221
used in financing activities for the three months ended March 31, 2000. The
February private placement added $1,501,000 in cash, net of fees.  The conversion of the outstanding
convertible promissory notes resulted in the elimination of $475,000 of
outstanding principal obligations and $103,680 in accrued interest.  As a result of that transaction, the Company
has entered the second quarter with virtually no debt, excluding trade
payables.

Although the Company has reduced
operating expenses, and is increasing its revenue generating activities, it
does not anticipate that revenues will be adequate to sustain operations in the
second quarter.  Accordingly the Company
has sought external financing.  The
Company has signed a Term Sheet with an investment fund to provide a preferred
equity financing.  The transaction
contemplates the sale of approximately $5 million in preferred stock, at a
price based on a premium to the 20-day trailing average price for the Company's
common stock.   The preferred stock
would have the right to certain director representation, and have approval
authority over certain significant corporate transactions or restructuring
events.  In addition the preferred
stockholders would be granted warrants to purchase common stock.

The financing transaction is still
subject to due diligence review and final approval by the investment fund.  No guarantees can be given that the
transaction will close.  If due
diligence is completed satisfactorily, the final terms of the transaction are
subject to negotiation.  The Company may
solicit shareholder consent for the transaction at the upcoming Annual Meeting
of Shareholders.  In that event,
additional information concerning the transaction will appear in the Company's
proxy statement to be mailed to shareholders.

The Company is also pursuing a
bridge financing for up to $1.5 million, which it will seek to close in May,
2001.  The bridge financing consists of
convertible debt and warrants to purchase common stock.  The convertible debt converts into equity on
the same terms as the preferred stock transaction, or the Company's next
significant equity financing.

As with the preferred stock
financing, no commitments exist for the bridge financing at this time, and no
assurances can be given that it will fund. 
If the Company is successful in raising an aggregate of $5 million to
$6.5 million it intends to use those funds for general working capital
purposes.  The Company does not
anticipate significant increases in its expenses, without reasonable assurance
of offsetting revenues.  As a result,
the funds would be expected to finance the Company's restructured operations
for at least the next year, even if the Company generated no significant
revenues.  Based on the Company's
anticipated revenues, the financing proceeds would be sufficient to fund its
current business model for the foreseeable future.

Factors That May Affect Future
Results and Financial Condition

The Company operates in a rapidly
changing environment that involves a number of uncertainties, some of which are
beyond the Company's control. In addition to the uncertainties described
elsewhere in this report, there are many factors that will affect the Company's
future results and business, which may cause the actual results to differ from
those currently expected. The Company's future operating results and financial
condition are dependent upon the Company's ability to successfully develop,
manufacture, and market technologically innovative products and services in
order to meet dynamic customer demand patterns. Inherent in this process are a
number of factors that the Company must successfully manage in order to achieve
favorable future operating results and a favorable financial condition.

Potential risks and uncertainties
that could affect the Company's future operating results and financial
condition include, among other things, continued competitive pressures in the
marketplace and the effect of any reaction by the Company to such competitive
pressures; the availability of key components on terms acceptable to the
Company; the Companys ability to deliver products and services at a certain
price point in the marketplace; the Company's ability to supply products free
of latent defects or other faults; the Company's ability to make timely
delivery to the marketplace of technological innovations, including its ability
to continue to make timely delivery of planned enhancements to the current
TeraMedia Service; and timely delivery of future versions of the TeraMedia
Service the availability of third-party software for particular applications;
and the Company's ability to attract, motivate and retain key employees.

For a discussion of these and other
factors affecting the Company's future results and financial condition, see
"Item 6 - Management's Discussion and Analysis - Risk Factors That May
Affect Operating Results" in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 2000.


PART II            OTHER INFORMATION ITEM
1.LEGAL
PROCEEDINGS The Company has no
litigation pending against it at this time. ITEM
2.CHANGE IN
SECURITIES None ITEM
3.DEFAULTS UPON SENIOR SECURITIES None ITEM
4.SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS None ITEM
5.OTHER
INFORMATION None ITEM
6.EXHIBITS AND REPORTS ON FORM 8K a)
  Exhibits.Number
  Description
  Method of Filing10.2.4
  Employment Agreement with
  Filed herewithRobert Randall10.3.3
  Non Qualified Stock Option
  Filed herewithAgreement with Robert Randallb)
  Reports on Form 8-K
 In accordance with the requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.  DATED: 
  May 14, 2001
  TERAGLOBAL COMMUNICATIONS CORP.By: /S/ JAMES A MERCER IIIJames A Mercer III, Interim Chief Financial
  OfficerBy: /S/ ROBERT RANDALLRobert Randall, Chief Executive Officer