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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended June 30, 2000

or

|/ / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission file number 0-00000

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Universal Access, Inc.(Exact name of registrant as specified in its charter)

Delaware(State or other Jurisdiction of incorporation or organization)

36-4186543(IRS Employer Identification No.)100 N. Riverside Plaza, Suite 2200
Chicago, Illinois(Address of principal executive offices)

60606(Zip Code)


(312) 660-5000(Registrant's telephone number, including area code)

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

The
number of shares outstanding of the issuer's common stock, par value $0.01, as of July 31, 2000 was 89,468,159 shares.

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Universal Access, Inc.  Form 10-Q  Table of Contents

Part I

Financial Information

|Item 1.                   |  | Condensed Consolidated Financial Statements                                                                                  |  |      
|------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------- |  | -----
|                          |  | Condensed Consolidated Balance Sheets at December 31, 1999 and June 30, 2000 (Unaudited)                                     |  | 3    
|                          |  | Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 1999 and 2000 (Unaudited) |  | 4    
|                          |  | Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and 2000 (Unaudited)                  |  | 5    
|                          |  | Notes to Condensed Consolidated Financial Statements                                                                         |  | 6-8  
|Item 2.                   |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                        |  | 9-25 
|Item 3.                   |  | Quantitative and Qualitative Disclosures about Market Risk                                                                   |  | 26   
|Part II
Other Information |  |                                                                                                                             
|Item 1.                   |  | Legal Proceedings                                                                                                            |  | 27   
|Item 2.                   |  | Changes in Securities and Use of Proceeds                                                                                    |  | 27   
|Item 6.                   |  | Exhibits and Reports on Form 8-K                                                                                             |  | 28-30
|Signatures                |  | 31                                                                                                                          

2

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## 

PART I. FINANCIAL INFORMATION
ITEM I. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNIVERSAL ACCESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

|                                                                                                                                                                                    |                                                                                                                                                                                  | Dec. 31,
1999                              |         | June 30,
2000 |       
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------------- | ------
|
|ASSETS                                                                                                                                                                              |                                                                                                                                                                                  |                                            |         |               |       
|Current assets:                                                                                                                                                                     |                                                                                                                                                                                  |                                            |         |               |       
|                                                                                                                                                                                    | Cash and cash equivalents                                                                                                                                                        |                                            | $       | 38,024        |       
|                                                                                                                                                                                    | Investments                                                                                                                                                                      |                                            |         |              |       
|                                                                                                                                                                                    | Accounts receivable, less allowances for doubtful accounts of $649 and $942, respectively                                                                                        |                                            |         | 2,996         |       
|                                                                                                                                                                                    | Prepaid expenses and other current assets                                                                                                                                        |                                            |         | 1,900         |       
|                                                                                                                                                                                    |                                                                                                                                                                                  |                                            |         |               |       
|                                                                                                                                                                                    |                                                                                                                                                                                  | Total current assets                       |         |               | 42,920
|Restricted cash                                                                                                                                                                     |                                                                                                                                                                                  |                                            |        |               |       
|Property and equipment, net                                                                                                                                                         |                                                                                                                                                                                  |                                            | 18,888  |               |       
|Intangible assets, net                                                                                                                                                              |                                                                                                                                                                                  |                                            | 2,457   |               |       
|                                                                                                                                                                                    |                                                                                                                                                                                  |                                            |         |               |       
|                                                                                                                                                                                    |                                                                                                                                                                                  | Total assets                               |         | $             | 64,265
|                                                                                                                                                                                    |                                                                                                                                                                                  |                                            |         |               |       
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                                |                                                                                                                                                                                  |                                            |         |               |       
|Current liabilities:                                                                                                                                                                |                                                                                                                                                                                  |                                            |         |               |       
|                                                                                                                                                                                    | Accounts payable and accrued expenses                                                                                                                                            |                                            | $       | 5,174         |       
|                                                                                                                                                                                    | Unearned revenue                                                                                                                                                                 |                                            |         | 2,113         |       
|                                                                                                                                                                                    | Notes payable                                                                                                                                                                    |                                            |         | 1,019         |       
|                                                                                                                                                                                    | Other liabilities                                                                                                                                                                |                                            |         | 1,277         |       
|                                                                                                                                                                                    |                                                                                                                                                                                  |                                            |         |               |       
|                                                                                                                                                                                    |                                                                                                                                                                                  | Total current liabilities                  |         |               | 9,583 
|                                                                                                                                                                                    | Notes payable                                                                                                                                                                    |                                            |         | 2,246         |       
|Other liabilities                                                                                                                                                                   |                                                                                                                                                                                  |                                            | 394     |               |       
|                                                                                                                                                                                    |                                                                                                                                                                                  |                                            |         |               |       
|                                                                                                                                                                                    |                                                                                                                                                                                  | Total liabilities                          |         |               | 12,223
|Commitments and contingencies (Note 5)                                                                                                                                              |                                                                                                                                                                                  |                                            |         |               |       
|Stockholders' equity:                                                                                                                                                               |                                                                                                                                                                                  |                                            |         |               |       
|                                                                                                                                                                                    | Series A Cumulative Convertible, $.01 par value; 1,000,000 shares authorized; 772,331 shares issued and outstanding plus accrued dividends of $196 (liquidation value of $2,208) |                                            |         | 2,208         |       
|Series A warrants                                                                                                                                                                   |                                                                                                                                                                                  |                                            | 83      |               |       
|Series B Cumulative Convertible, $.01 par value; 2,400,000 shares authorized; 2,233,335 shares issued and outstanding plus accrued dividends of $298 (liquidation value of $5,531)  |                                                                                                                                                                                  |                                            | 5,531   |               |       
|Series B warrants                                                                                                                                                                   |                                                                                                                                                                                  |                                            | 500     |               |       
|Series C Convertible, $.01 par value; 667,000 shares authorized; 666,667 shares issued and outstanding (liquidation value of $1,941)                                                |                                                                                                                                                                                  |                                            | 1,941   |               |       
|Series D Cumulative Convertible, $.01 par value; 7,058,823 shares authorized; 6,042,697 shares issued and outstanding plus accrued dividends of $663 (liquidation value of $26,220) |                                                                                                                                                                                  |                                            | 27,102  |               |       
|Series E Cumulative Convertible, $.01 par value; 1,597,386 shares authorized; 1,557,385 shares issued and outstanding plus accrued dividends of $50 (liquidation value of $27,954)  |                                                                                                                                                                                  |                                            | 27,954  |               |       
|Series E warrants                                                                                                                                                                   |                                                                                                                                                                                  |                                            | 136     |               |       
|Common stock, $.01 par value; 300,000,000 shares authorized; 31,975,021 and 89,234,808 shares issued and outstanding                                                                |                                                                                                                                                                                  |                                            | 320     |               |       
|Common stock warrants                                                                                                                                                               |                                                                                                                                                                                  |                                            | 13      |               |       
|Additional paid-in-capital                                                                                                                                                          |                                                                                                                                                                                  |                                            | 22,930  |               |       
|Deferred stock option plan compensation                                                                                                                                             |                                                                                                                                                                                  |                                            | (11,909 | )             |       
|Accumulated deficit                                                                                                                                                                 |                                                                                                                                                                                  |                                            | (23,039 | )             |       
|Notes receivable  employees                                                                                                                                                        |                                                                                                                                                                                  |                                            | (1,728  | )             |       
|                                                                                                                                                                                    |                                                                                                                                                                                  |                                            |         |               |       
|                                                                                                                                                                                    | Total stockholders' equity                                                                                                                                                       |                                            |         | 52,042        |       
|                                                                                                                                                                                    |                                                                                                                                                                                  |                                            |         |               |       
|                                                                                                                                                                                    |                                                                                                                                                                                  | Total liabilities and stockholders' equity |         | $             | 64,265
|                                                                                                                                                                                    |                                                                                                                                                                                  |                                            |         |               |       

The accompanying notes are an integral part of these condensed consolidated financial statements.

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UNIVERSAL ACCESS, INC. AND SUBSIDIARIES  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  (unaudited)  (in thousands, except per share data)

|                                                                                               |                                                                        | Three Months Ended
June 30, |        | Six Months Ended
June 30, |       
|---------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | --------------------------- | ------ | ------------------------- | ------
|
|Revenues                                                                                       |                                                                        | $                           | 2,719  |                           | $     
|Costs and expenses:                                                                            |                                                                        |                             |        |                           |       
|                                                                                               | Cost of revenues                                                       |                             |        | 2,316                     |       
|                                                                                               | Operations & administration (excluding stock option plan compensation) |                             |        | 2,470                     |       
|                                                                                               | Operations & administration (stock option plan compensation)           |                             |        | 156                       |       
|                                                                                               | Depreciation & amortization                                            |                             |        | 28                        |       
|                                                                                               |                                                                        |                             |        |                           |       
|                                                                                               |                                                                        | Total costs and expenses    |        |                           | 4,970 
|                                                                                               |                                                                        |                             |        |                           |       
|                                                                                               |                                                                        | Operating loss              |        |                           | (2,251
|                                                                                               |                                                                        |                             |        |                           |       
|Other income (expense), net                                                                    |                                                                        |                             | 30     |                           |       
|                                                                                               |                                                                        |                             |        |                           |       
|Net loss                                                                                       |                                                                        |                             | (2,221 | )                         |       
|Accretion and dividends on redeemable and nonredeemable cumulative convertible preferred stock |                                                                        |                             | (226   | )                         |       
|                                                                                               |                                                                        |                             |        |                           |       
|Net loss applicable to common stockholders                                                     |                                                                        | $                           | (2,447 | )                         | $     
|                                                                                               |                                                                        |                             |        |                           |       
|Basic and diluted net loss per share                                                           |                                                                        | $                           | (0.08  | )                         | $     
|Shares used in computing basic and diluted net loss per share                                  |                                                                        |                             | 30,600 |                           |       

The accompanying notes are an integral part of these condensed consolidated financial statements.

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## 

UNIVERSAL ACCESS, INC. AND SUBSIDIARIES  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (unaudited)  (in thousands)

|                                               |                                                                        | Six Months Ended
June 30,                 |       
|---------------------------------------------- | ---------------------------------------------------------------------- | ----------------------------------------- | ------
|
|Cash flows from operating activities:          |                                                                        |                                           |       
|                                               | Net cash used for operating activities                                 |                                           | $     
|                                               |                                                                        |                                           |       
|Cash flows from investing activities:          |                                                                        |                                           |       
|                                               | UTX capital expenditures                                               |                                           |       
|                                               | Non-UTX capital expenditures                                           |                                           |       
|                                               | Purchase of short-term investments                                     |                                           |       
|                                               |                                                                        |                                           |       
|                                               |                                                                        | Net cash used for investing activities    |       
|                                               |                                                                        |                                           |       
|Cash flows from financing activities:          |                                                                        |                                           |       
|                                               | Proceeds from debt issuance                                            |                                           |       
|                                               | Debt repayments                                                        |                                           |       
|                                               | Restricted cash balance                                                |                                           |       
|                                               | Proceeds/(payments) on capital leases                                  |                                           |       
|                                               | Proceeds from initial public offering of common stock                  |                                           |       
|                                               | Proceeds from exercise of stock options                                |                                           |       
|                                               | Proceeds from issuance of preferred stock and preferred stock warrants |                                           |       
|                                               | Other                                                                  |                                           |       
|                                               |                                                                        |                                           |       
|                                               |                                                                        | Net cash provided by financing activities |       
|                                               |                                                                        |                                           |       
|Net increase in cash and cash equivalents      |                                                                        |                                           | 20,139
|Cash and cash equivalents, beginning of period |                                                                        |                                           | 844   
|                                               |                                                                        |                                           |       
|Cash and cash equivalents, end of period       |                                                                        | $                                         | 20,983
|                                               |                                                                        |                                           |       

The accompanying notes are an integral part of these condensed consolidated financial statements.

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## 

UNIVERSAL ACCESS, INC. AND SUBSIDIARIES  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (UNAUDITED)

Note 1  Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by Universal Access, Inc. and its subsidiaries ("the Company"
or "we"), and reflect all adjustments, consisting only of normal recurring adjustments, which in the opinion of management are necessary to state fairly the financial position and the results of
operations for the interim periods. The statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and
footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations.
These statements should be read in conjunction with the Financial Statements and Notes thereto included in the Company's Registration Statement on Form S-1, as amended, filed with the SEC on
March 16, 2000. Results for fiscal 2000 interim periods are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2000.

Recently Issued Accounting Standards

In December 1999, the SEC issued Staff Accounting Bulletin 101, which addresses revenue recognition. In March 2000, the SEC issued 101B, which
delays the effective date of SAB 101 until October 1, 2000. The Company has evaluated the impact of SAB 101 and determined that it will not have a material impact.

Note 2  Initial Public Offering and Common Stock

On March 17, 2000, the Company completed its initial public offering ("IPO") of common stock that resulted in the issuance of 12,650,000 shares at a
price to the public of $14.00 per share. This offering resulted in net proceeds of $162,361,000 after deducting an underwriting discount of $12,397,000 and offering expenses such as legal and
accounting fees, printing costs and SEC registration fees of approximately $2,342,000. Upon the closing of the IPO, all outstanding preferred stock automatically converted to shares of common stock as
follows:

Series A Cumulative Convertible Preferred Stock

5,097,384Series B Cumulative Convertible Preferred Stock

13,400,010Series C Convertible Preferred Stock

2,000,001Series D Cumulative Convertible Preferred Stock

18,128,091Series E Cumulative Convertible Preferred Stock

4,672,155


Additionally,
upon closing of the IPO, all outstanding preferred stock warrants to purchase 166,667 shares of Series B Cumulative Convertible Preferred Stock and 40,000 shares of
Series E Cumulative Convertible Preferred Stock converted into warrants to purchase 1,000,002 and 120,000 shares of common stock, respectively.

During
February and March 2000, and prior to the IPO, 360,000 common stock warrants were exercised. During the same period, 77,233 warrants to purchase Series A
Cumulative Convertible Preferred Stock were exercised and were subsequently converted into 463,398 shares of common stock upon the IPO date.

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Note 3  Investments

The Company's short-term investments have original maturities of between three and six months, are classified as held-to-maturity and are stated at amortized
cost. The Company had no such investments at December 31, 1999. Investments consist of the following at June 30, 2000, (in thousands):

Commercial paper

$
40,063Government agencies


8,655Total investments

$
48,718


Note 4  Property and Equipment, Net

Property and equipment consists of the following, stated at cost, at December 31, 1999 and June 30, 2000, respectively (in thousands):

1999

2000Furniture and fixtures

$
885

$
2,075UTX costs


3,974


4,381Computer hardware and software


2,453


7,042Other equipment


56


79Construction in progress


12,260


19,28319,628


32,860Less: Accumulated depreciation and amortization


(740
)

(1,821
)Property and equipment, net

$
18,888

$
31,039


Construction
in progress primarily relates to costs incurred during the expansion of the Company's Universal Transport Exchange ("UTX") facilities.

Note 5  Commitments and Contingencies

The Company leases UTX facilities, office facilities and certain equipment over periods ranging from two to fifteen years. During the quarter ended
March 31, 2000, the Company entered into a significant new lease agreement for its corporate headquarters located in Chicago, Illinois. The Company continues to increase occupancy of the office
space throughout fiscal year 2000. Future rentals for operating leases are as follows at June 30, 2000 (in thousands):

2000

$
4,0262001


8,5542002


9,6102003


10,0632004


10,321Thereafter


76,982Total minimum lease payments

$
119,556


The
Company leases certain equipment under capital leasing arrangements with periods ranging from three to seven years. Additionally, the Company has entered into non-cancelable
agreements with various

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telecommunications vendors to purchase minimum amounts of network services on a monthly basis. The total amount of these purchase commitments at June 30, 2000 is as follows (in thousands):

2000

$
13,3902001


38,6502002


42,0502003


41,7002004


31,600Thereafter


79,500Total minimum purchase commitments

$
246,890


The
Company is a party to certain litigation for which the claimants are seeking damages in excess of $10,000,000. The litigation arose out of a letter of intent that the Company
entered into in December 1998 relating to the Company's potential acquisition of a business. In the opinion of management, such litigation is without merit and will not have a material adverse
effect on the operations or financial condition of the Company. Accordingly, no amount has been accrued as a liability as of December 31, 1999 and June 30, 2000.

The
Company is involved in various other legal matters in the ordinary course of business. In the opinion of management, the ultimate resolution of these matters will not have a
material adverse impact on the Company's financial position, results of operations or cash flows.

Note 6  Net Loss Per Share

Basic and diluted net loss per share has been computed by dividing the net loss applicable to common stockholders by the weighted average number of shares of
common stock outstanding. Basic and diluted net loss per share for the three and six months ended June 30, 1999 and June 30, 2000 do not include the effect of 360,000 and 1,120,002
warrants to purchase shares of common stock or options to purchase 7,035,500 and 12,037,732 shares of common stock, respectively, as their effect would be antidilutive. Basic and diluted net loss per
share for the three and six months ended June 30, 1999 also do not include the effect of preferred stock and preferred stock warrants that were convertible into
31,328,115 shares of common stock and 1,462,206 common stock warrants, as their effect would also have been antidilutive.

Note 7  Subsequent Event

On July 1, 2000, the Company acquired substantially all of the assets and liabilities of Tri-Quad Enterprises, Inc., including its LATTIS
database in exchange for $3.2 million in cash and 169,949 shares of common stock. The acquisition allows the Company to extend the reach of the UIX and provide carriers and internet service
provider customers with expanded worldwide pricing data and speed-to-market. The acquisition of Tri-Quad will be accounted for under the purchase method of accounting. Accordingly, the assets will be
recorded at their estimated fair values at the date of acquisition.

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## 

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information in this discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that
are not statements of historical facts may be deemed to be forward-looking statements. For example, words such as "may", "will", "should", "estimates", "predicts", "potential", "continue", "strategy",
"believes", "anticipates", "plans", "expects", "intends", and similar expressions are intended to identify forward-looking statements. Our actual results and the timing of certain events may differ
significantly from the results discussed in the forward-looking statements. "Factors that might cause or contribute to such a discrepancy include, but are not limited to, those discussed under the
heading "Factors That May Affect Future Results". The following discussion provides information and analysis of our results of operations for the three and six months ended June 30,
2000, and our liquidity and capital resources. You should read the following discussion in conjunction with our consolidated financial statements and the related notes included elsewhere in this
quarterly report as well as the reports we file with the Securities and Exchange Commission.

Overview

We commenced operations on October 2, 1997 for the purpose of facilitating the provisioning, installation and servicing of dedicated communications
circuits for service providers who buy network capacity and transport suppliers who sell network capacity. To date, we have derived substantially all of our revenues from providing ongoing, dedicated
circuit access. Monthly recurring circuit revenues are generated under client contracts with terms ranging from 12 to 60 months, with an average length of 26 months. Contracts with our
clients may be terminated by the client at any time, subject to additional payments. Circuit charges are billed monthly in advance, and circuit revenues are recognized in the month that service is
provided. Amounts billed in advance are recorded on the balance sheet as accounts receivable and unearned revenue. At June 30, 2000, unearned revenue was $3.5 million.

These
access revenues include bundled charges for provisioning, network management and maintenance services. Additional monthly recurring revenues are generated from leasing space in
our UTX facilities. UTX billing and revenue recognition policies are the same as those described above for circuit access revenues.

At
July 31, 2000, we had seven completed UTX facilities, two of which had been placed into operations. In addition to the seven constructed UTX facilities, we expect to
complete construction of eight additional facilities during the remainder of 2000, for a total of 15 UTX facilities. Construction, equipment and facility leasing costs incurred in
connection with the construction of a UTX facility are capitalized until the facility is placed into operations. Once the facility is placed into operations, these costs are amortized over the lesser
of the term of the lease, ranging from seven to 15 years, or the estimated useful life of the equipment. At June 30, 2000, for the 15 facilities, we had capitalized UTX
construction costs of $19.3 million, and had entered into outstanding UTX commitments of approximately $9.8 million and facility costs of approximately $42.4 million.

Our
clients are communications service providers and transport suppliers, such as Internet service providers, competitive local exchange carriers, incumbent telecommunication service
providers and other application and network service providers. Our two largest clients represented approximately 42% of total revenues for the quarter ended June 30, 1999. Our three largest
clients represented approximately 49% of total revenues for the quarter ended June 30, 2000.

To
date, cost of revenues primarily consist of amounts paid to transport suppliers for circuits. We have negotiated volume discounts and network route-specific discounts under
contracts with the majority of our suppliers. These contracts generally have terms ranging from three to ten years and include minimum

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monthly purchase commitments that begin anywhere from six to twelve months after we enter into the contract. At June 30, 2000, these minimum purchase commitments totaled approximately $320,000
per month. However, actual purchases under these contracts, which totaled approximately $5.8 million for the quarter ended June 30, 2000, have exceeded these minimum purchase
commitments. In addition, we are party to contracts that will impose additional minimum purchase commitments that we anticipate will total approximately $2.5 million per month by
December 2000.

Operations
and administration costs consist of salaries and employee benefits, costs associated with the development, expansion and maintenance of our Universal Information Exchange
("UIX") databases, and costs associated with sales, marketing, operations, administration and facilities.

In
each quarter since our inception, we have incurred operating losses and net losses, and experienced negative cash flows from operations. At June 30, 2000, we had an
accumulated deficit of $41.3 million.

|                                                                                            |  | Three Months Ended
June 30, |        | Six Months Ended
June 30, |  
|------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | ------------------------- | -
|
|
|Net loss                                                                                    |  | $                           | (2,221 | )                         | $
|Dividends on redeemable and nonredeemable cumulative convertible preferred stock            |  |                             | (226   | )                         |  
|                                                                                            |  |                             |        |                           |  
|Net loss applicable to common stockholders                                                  |  | $                           | (2,447 | )                         | $
|                                                                                            |  |                             |        |                           |  
|Basic and diluted net loss per share                                                        |  | $                           | (0.08  | )                         | $
|Basic and diluted net loss per share (excluding non-cash stock option compensation expense) |  | $                           | (0.07  | )                         | $
|Shares used in computing net loss per share                                                 |  |                             | 30,600 |                           |  

Results of Operations

Revenues

Comparison of Three Months and Six Months Ended June 30, 1999 and June 30, 2000

Revenues
increased from $2.7 million for the quarter ended June 30, 1999 to $9.5 million for the quarter ended June 30, 2000. Revenues increased from
$4.3 million for the six months ended June 30, 1999 to $16.8 million for the six months ended June 30, 2000. Substantially all of our revenues consisted of circuit revenues
in each of these periods. UTX revenues represented less than 1% of revenues for the quarter and six months ended June 30, 1999 and 4.2% of revenues for the quarter and six months ended
June 30, 2000. Revenues derived from the operations acquired during 1999 from Pacific Crest Networks, Inc. and Stuff Software, Inc. represented 4.2% of revenues for the quarter
ended June 30, 2000 and 4.3% of revenues for the six months ended June 30, 2000. The increase in revenues was primarily attributable to an increase in the volume of circuits sold due to
an increase in the number of clients and additional sales to existing clients.

Cost of Revenues

Comparison of Three Months and Six Months Ended June 30, 1999 and June 30, 2000

Cost
of revenues increased from $2.3 million for the quarter ended June 30, 1999 to $7.5 million for the quarter ended June 30, 2000. Cost of revenues
increased from $3.6 million for the six months ended June 30, 1999 to $13.4 million for the six months ended June 30, 2000. Substantially all of our cost of revenues
consisted of circuit access costs in each of these periods. As a percentage of total revenues, cost of revenues decreased from 85% for the quarter ended June 30, 1999 to 79% for the quarter
ended June 30, 2000. As a percentage of total revenues, cost of revenues decreased from 85% for the six months

10

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ended June 30, 1999 to 80% for the six months ended June 30, 2000. The increase in cost of revenues in absolute dollars was primarily attributable to an increase in the volume of
circuits sold due to an
increase in the number of clients and additional sales to existing clients. The decrease in cost of revenues as a percentage of total revenues was primarily attributable to volume pricing efficiencies
on circuit access costs as well as the high margin revenues from the acquired operations of Pacific Crest Networks, Inc. and Stuff Software, Inc.

Operations and Administration (Excluding Stock Option Plan Compensation)

Comparison of Three Months and Six Months Ended June 30, 1999 and June 30, 2000

Operations
and administration expenses increased $11.0 million from $2.5 million to $13.5 million in the quarters ending June 30, 1999 and 2000,
respectively. Operations and administration expenses increased $19.7 million from $3.6 million to $23.3 million in the six months ending June 30, 1999 and 2000,
respectively. This increase was primarily attributable to significant increases in personnel, continued expansion of our UIX databases and the build-out of our corporate infrastructure, including
facilities, sales and marketing.

The
number of employees increased from 47 at June 30, 1999 to 305 at June 30, 2000. The cost of UIX development personnel as well as non-capitalized development costs
associated with the UIX increased $311,000 for the quarter ended June 30, 2000 as compared to June 30, 1999. Facilities costs, including rent and utilities for corporate offices and
sales offices increased $1.6 million for the quarter ended June 30, 2000 as compared to June 30, 1999. Finally, sales and marketing costs for tradeshows, advertising and
promotions increased $831,000 for the quarter ended June 30, 2000. The cost of UIX development personnel as well as non-capitalized development costs associated with the UIX increased $574,000
for the six months ended June 30, 2000 as compared to June 30, 1999. Facilities costs, including rent and utilities for corporate offices and sales offices increased $2.4 million
for the six months ended June 30, 2000 as compared to June 30, 1999. Finally, sales and marketing costs for tradeshows, advertising and promotions increased $1.7 million for the
six months ended June 30, 2000.

We
expect total operations and administration expenses to continue to increase in both absolute dollars and as a percentage of revenue as we continue to increase personnel, expand the
UIX databases and build-out corporate infrastructure. Ultimately, we expect operations and administration expense to significantly decrease as a percentage of revenue as we fully leverage our
operating systems, our UIX databases and our infrastructure.

Operations and Administration (Stock Option Plan Compensation)

During fiscal years 1998 and 1999, we granted stock options to employees and non-employees with per share exercise prices deemed to be below the fair market
value of our common stock at the date of grant. These stock option issuances have resulted in stock option plan compensation charges, which are initially deferred and subsequently amortized over the
vesting period of the related options.

Comparison of Three Months and Six Months Ended June 30, 1999 and June 30, 2000

Amortization
expense totaled $156,000 for the quarter ended June 30, 1999 and $918,000 for the quarter ended June 30, 2000. Amortization expense totaled $251,000 and
$1.8 million for the six months ended June 30, 1999 and 2000, respectively. The substantial increase in stock option plan compensation charges between periods primarily relates to the
increase in stock options outstanding from 7,035,500 at June 30, 1999 to 12,037,732 at June 30, 2000. We expect to recognize additional stock option plan compensation charges of
approximately $1.7 million for the remainder of fiscal 2000 and $8.5 million over the next four years as these options vest.

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Depreciation and Amortization

Depreciation expense includes depreciation of furniture, fixtures and equipment at our office facilities and of equipment at our UTX facilities. We expect
depreciation expense to increase substantially in the future as we continue to place our UTX facilities into service.

Amortization
expense relates to intangible assets acquired in connection with the purchases of Pacific Crest Networks, Inc. and Stuff Software, Inc. in July 1999 and
November 1999, respectively.

Other Income (Expense)

Other income increased to $2.8 million and $3.5 million for the three months and six months ended June 30, 2000, respectively. The
increase was attributable to our investment of substantially all of the proceeds from our issuance of Series E Cumulative Convertible Preferred Stock offering as well as the proceeds from our
public stock offering, in cash equivalents with original maturities of less than three months and marketable securities with original maturities of between three to six months. Interest income for the
quarter ended June 30, 2000 was partially offset by interest expense on notes payable and capital lease obligations.

Income Taxes

From our inception through September 27, 1998, we elected to be treated as a subchapter S-corporation for income tax purposes. On September 27,
1998, we converted to a C-corporation. At December 31, 1999, we had approximately $12,551,000 of federal and state net operating loss carryforwards. These carryforwards may be available to
offset future taxable income. Our federal and state net operating loss carryforwards expire at various dates beginning in 2018. Due to the uncertainty that we will generate future earnings sufficient
to enable us to realize the benefit of these net operating loss carryforwards, we have recorded a valuation allowance for the full amount of our deferred tax asset. As a result, no income tax benefit
has been recorded in our statement of operations. We assess the realizability of our deferred tax asset on an ongoing basis and adjust the valuation allowance based on this assessment. Additionally,
Section 382 of the Internal Revenue Code of 1986, as amended, imposes annual limitations on the use of net operating loss carryforwards if there is a change in ownership, as defined, within any
three year period. The utilization of certain net operating loss carryforwards may be limited due to our capital stock transactions.

Liquidity and Capital Resources

On March 17, 2000 we completed an initial public offering of our common stock that resulted in the issuance of 12,650,000 shares of common stock at an
offering price of $14.00 per share. Net proceeds related to this offering totaled $162.4 million. Until the time of our initial public offering, we had financed our operations primarily through
private placements as well as through borrowings from stockholders and financial institutions. Since inception through December 31, 1999, we have raised $63.4 million in capital through
private placements of common and convertible preferred stock and common and preferred stock warrants. Our principal uses of cash are to fund operating losses, working
capital requirements and capital expenditures. At June 30, 2000, we had $118.9 million in cash and cash equivalents and $48.7 million in short-term investments with original
maturities of six months or less.

In
March 2000, we entered into a lease commitment for office space located in Chicago, Illinois which will serve as our new corporate headquarters. This commitment will result
in lease payments of $1.2 million during fiscal 2000 and an additional $73.5 million of annual lease payments through July 2012.

In
March 1999, we entered into a credit agreement with a bank under which we may request the bank to issue letters of credit or we may borrow up to a total of
$4.0 million. The agreement provides that outstanding borrowings bear interest at the bank's prime rate. This agreement expired in April 2000 and

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we do not intend to renew this line of credit. The collateral cash balance in the amount of our outstanding letters of credit of $500,000 was outstanding as of June 30, 2000.

In
December 1999, we entered into a credit agreement with a bank and borrowed $3.3 million. Outstanding borrowings bear interest at approximately 15% and are secured by
specifically identified assets. The agreement expires in November 2002 and requires that we maintain an unrestricted cash balance of at least $15.0 million. As of June 30, 2000, the
outstanding balance of this loan was $1.8 million.

In
June 2000, we entered into a credit agreement with a bank under which we may request the bank to issue letters of credit or we may borrow up to a total of
$18.0 million. The agreement expires in June 2001 and supercedes the credit agreement entered into in September 1999. The agreement consists of Part A and Part B.
Under Part A of the agreement we may request the bank to issue letters of credit or we may borrow up to a total of $12.0 million. Part A requires that we maintain a cash balance
in a custodial account in an amount equal to the amount of borrowings and letters of credit outstanding up to $12.0 million. Letters of credit totaling $7.6 million were outstanding
under Part A of the agreement as of June 30, 2000 and a $6.7 million cash balance was in a custodial account as of June 30, 2000. The remaining letter of credit commitments
of $900,000 were transferred to the custodial account in July 2000.

Under
Part B of the agreement we may request the bank to issue letters of credit or we may borrow up to a total of $6.0 million. Outstanding borrowings under the
agreement bear interest at the bank's prime
rate and are secured by substantially all of our assets. Part B of the agreement requires that we maintain specified covenants. We were in compliance with all covenants at June 30, 2000.
Letters of credit totaling $2.1 million were outstanding under Part B of the agreement as of June 30, 2000.

Net
cash used in operating activities increased from $2.9 million for the six months ended June 30, 1999 to $16.1 million for the six months ended June 30,
2000. The increase in net cash used was primarily due to increased net losses, partially offset by increases in non-cash stock option compensation charges. We anticipate that we will continue to
require cash to support our future operating activities.

Net
cash used in investing activities increased from $675,000 for the six months ended June 30, 1999 to $59.6 million for the six months ended June 30, 2000. The
increase in net cash used in investing activities relates to the purchases of property and equipment, primarily for the construction of our UTX facilities, and short-term investments. We expect to
substantially increase our investments in equipment in the near term as we increase our number of UTX facilities.

At
July 31, 2000 we had seven completed UTX facilities, two of which had been placed into operations. In addition to these facilities we intend to complete construction on
eight additional facilities during the remainder of 2000, for a total of 15 UTX facilities.

We
plan to spend approximately $51.2 million on capital expenditures for the remainder of 2000, $37.1 million on the construction of eight additional UTX facilities,
which includes $10.0 million for UTX power equipment, which will provide greater capacity per circuit, approximately $8.2 million for the expansion of corporate facilities and the
remainder of which will be used to fund the build-out of our corporate infrastructure. We will use part of the proceeds from our public stock offering for these capital expenditures. We expect capital
expenditures for our UTX facilities to continue at this level for the foreseeable future due in part to costs associated with meeting the power requirements of our UTX customers.

Net
cash provided by financing activities increased from $23.8 million for the six months ended June 30, 1999 to $156.5 million for the six months ended June 30,
2000. The increase was primarily due to the receipt of net proceeds of $162.4 million from the public issuance of our common stock on March 17, 2000. We have invested these proceeds
primarily in cash equivalents, with original maturities of less than three months, and marketable securities, with original maturities of between three and six months. We intend to continue investing
surplus cash in similar securities.

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On July 1, 2000, the Company acquired substantially all of the assets and liabilities of Tri-Quad Enterprises, Inc., including its LATTIS database in exchange for
$3.2 million in cash and 169,949 shares of common stock. The acquisition allows the Company to extend the reach of the UIX databases and provide carriers and ISP customers with expanded
worldwide pricing data and speed-to-market.

Our
future capital requirements will depend on a number of factors, including market acceptance of our services, the resources we devote to developing, selling and marketing our
services and the rate at which we expand our UTX facilities. In addition, we plan to continue to evaluate possible investments in complementary businesses, products and technologies. Although we
believe that the net proceeds from our initial public offering in March 2000, together with existing cash balances, will be sufficient to fund our operations for at least the next twelve
months, we may require additional financing within this time frame. Additional funding may not be available on terms acceptable to us, or at all.

FACTORS THAT MAY AFFECT FUTURE RESULTS

In addition to the factors discussed elsewhere in this Form 10-Q and the Company's other reports filed with the SEC, the following are important factors
which could cause actual results or events to differ materially from those contained in any forward-looking statements made by or on behalf of the Company.

We have incurred substantial losses since our inception, and if we fail to increase our revenues, we will be unable to achieve and maintain profitability.

We have incurred significant losses since inception and expect to continue to incur losses in the future. As of June 30, 2000, we had an accumulated
deficit of $41.3 million. Although our revenues have grown from $2.7 million in the quarter ended June 30, 1999 to $9.5 million in the quarter ended June 30, 2000,
we cannot be certain that our revenues will continue to grow, or that we will achieve sufficient revenues to achieve profitability. We expect to continue to incur significant and increasing expenses
in order to:



As
a result, we will need to generate significantly higher revenues to achieve and maintain profitability. If we fail to generate higher revenues, we may continue to incur operating
losses and net losses.

Our limited operating history makes forecasting difficult.

We have a limited operating history and, therefore, limited meaningful historical financial data upon which to base our planned operating expenses.
Specifically, our UTX business model is relatively new, and we have not operated our UIX databases in conjunction with our UTX facilities long enough to accurately predict trends in our business.
Moreover, we have not built out enough UTX facilities to be able to test whether our strategy to utilize these facilities will work. Accordingly, we are subject to all of the risks that are associated
with companies in an emerging industry and in an early stage of development, including:



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For
example, from time to time we enter into long-term agreements with communications transport suppliers for the supply and installation of communications network capacity. These
agreements generally provide for monthly minimum revenue commitments from us, which we must negotiate based on forecasts of our future network capacity requirements. As of June 30, 2000, we
were party to contracts that will impose minimum purchase commitments that we anticipate will total approximately $2.5 million per month by December 2000. If we fail to forecast our
network capacity requirements accurately or fail to accurately forecast other aspects of our business, it will be difficult for us to become profitable.

We have an unproven business model, and we cannot be sure that clients will widely accept our services.

Our business strategy is unproven. To be successful, we must convince prospective clients to entrust their network capacity data and transport requirements to
a company without a long and proven track record. We are not aware of any companies that have a directly comparable business, and we cannot be
sure that clients will widely accept our services. Our ability to expand our client base may be limited by the following factors:



We
may not be able to execute our business model if the markets for our services fail to develop or grow more slowly than anticipated, if competitors enter the market or if we are
unable to expand our client base.

Our ability to implement and maintain our UIX databases is unproven. If we cannot increase the scope and accuracy of these databases as planned, our ability to cost-effectively
facilitate the obtaining of circuits for our clients will be at risk.

To be successful, we must increase and update information about pricing, capacity, availability and location of circuits contained in our databases. Our
ability to cost effectively facilitate the supplying of circuits and to provide ongoing dedicated line circuit access depends upon the information we collect from our transport suppliers regarding
their networks, which we include in our UIX databases. Our suppliers are not obligated to provide us with this information and could decide to stop providing this information to us at any time.
Moreover, we cannot be certain that the information that our suppliers share with us is completely accurate or current. If we cannot continue to maintain and expand our UIX databases as planned, we
may be unable to increase our revenues or to cost-effectively facilitate the supplying of the circuits, and we may never achieve profitability.

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The market for our UTX services is new and unproven, and we have limited experience providing our UTX services.

The market for our UTX services is new and unproven. Our ability to generate revenues will suffer if the market for these services fails to develop, or
develops more slowly than we expect. The growth of this market depends on several uncertain events or occurrences including:



To
date, we have derived substantially all of our revenues from providing on-going circuit access, and we have only limited experience providing our UTX services. At
July 31, 2000, we had operational UTX facilities in Chicago and Santa Clara, and completed UTX sites in San Francisco, Los Angeles, Miami, Dallas and Washington, D.C. and nine UTX
clients. However, these clients may terminate their UTX contracts at any time, and our ability to generate revenues will suffer if we fail to maintain our existing clients and to attract new clients
for our UTX services.

One
of our key strategies is to expand our business by opening additional UTX facilities in geographically diverse locations. In addition to our seven completed or operational UTX
facilities, we expect to construct eight additional UTX facilities in the United States during the remainder of 2000, for a total of 15 completed UTX sites. Construction of UTX facilities is expensive
and time-consuming and will cause a significant strain on the capital resources and operation of our business. If we are unable to generate sufficient cash flows or raise sufficient funds, we may have
to delay or abandon some or all of our development and expansion plans. A delay in the expansion of our UTX facilities may make it more difficult for us to respond to competitive pressures and
establish our presence in the market.

It
usually takes us at least six months to select an appropriate location for a new UTX facility, construct the facility, install equipment and communications network infrastructure
and hire operations and sales personnel. We must incur these costs before we have clients who purchase our services to be delivered from the UTX facilities. If the demand does not develop as we
anticipate, we will have fixed costs without corresponding revenue and our business will be harmed. Once a UTX facility becomes operational, we expect it to experience losses for at least one year.

Our ability to open UTX facilities is subject to a number of risks, including the following:



In
addition, our costs will increase as we continue to open UTX facilities. These increased costs include:



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An
inability to establish additional UTX facilities as planned, to effectively manage our expansion or to attract sufficient clients to our UTX facilities would harm our ability to
generate revenues.

If we cannot successfully implement our network operations center, we will be unable to provide monitoring, maintenance and restoration services to our clients.

One of our primary business objectives is to provide our clients with network monitoring, maintenance and restoration services 24 hours a day, seven
days a week through a network operations center. However, we have not fully developed this capacity and currently provide network management services through an outsourcing arrangement with a third
party, until our own facility becomes operational. We recently acquired and upgraded a network operations facility. However, we have not finished hiring and training employees to operate this
facility, and we have only limited experience implementing services of this type. As a consequence, we cannot be sure that our efforts to provide these services will be successful. Our ability to
implement this strategy will depend on many factors, including our ability to hire, train and manage employees.

If
we fail to successfully implement a network operations center, we may not be able to monitor network operations effectively or troubleshoot circuits in a cost-effective manner,
which would cause us to lose clients and make it difficult for us to attract new clients.

Although we plan to expand international operations, we have limited experience operating internationally.

An important component of our strategy is to expand into international markets, such as Europe, Asia and South America. However, we have limited experience
operating internationally. The risks inherent in conducting our business internationally include:



In
addition, in order to expand internationally, we may enter into joint ventures or outsourcing agreements with third parties, acquire complementary businesses or operations, or
establish and maintain

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new operations outside of the United States. We may not control or manage some or all of these operations. As a result, we may be required to depend on third parties for the management of these
international operations. If these foreign operations are not successful, they could significantly damage our reputation, which would harm our ability to attract new clients and retain existing
clients.

Competition in our industry is intense and growing, and we may be unable to compete effectively.

The market for the services we provide is highly fragmented. In addition, the market in which we operate is new, rapidly evolving and highly competitive. We
believe that at this time no single competitor competes directly with us with respect to all of the services we offer; however, we currently or potentially compete with a variety of companies,
including some of our transport suppliers, with respect to our products and services individually, including:



We
expect to face additional competition from new market entrants in the future as there are few substantial barriers to entry in our market. Significant new competitors could arise
from increased consolidation and strategic alliances in the telecommunications industry. Other new entrants could enter the market with a business model similar to ours. Our target markets may support
only a limited number of competitors. Operations in such markets with multiple competitive providers may be unprofitable for one or more of such providers. Prices in both the long distance business
and the data transmission business have declined significantly in recent years and are expected to continue to decline.

Moreover,
while recent regulatory initiatives allow carriers such as us to interconnect with incumbent local exchange carrier facilities and to obtain unbundled network elements from
incumbent local exchange carriers, certain initiatives also provide increased pricing flexibility for, and relaxation of regulatory oversight of, the incumbent local exchange carrier. This may present
incumbent local exchange carriers with an opportunity to subsidize services that compete with our services with revenues generated from non-competitive services. This would allow incumbent local
exchange carriers to offer competitive services at lower prices. Existing laws also restrict the regional Bell operating companies from fully competing with us in the market for interstate and
international long distance telecommunications services, but also permit the Federal Communications Commission, the FCC, to lessen or remove some restrictions. If FCC decisions under existing law, or
future amendments to Federal telecommunications laws, permit the regional Bell operating companies to compete fully with us in this market, our revenues from these services could be reduced if these
companies are able to attract a substantial portion of our customers.

We
must distinguish ourselves through the quality of our client service, our service offerings and brand name recognition. We may not be successful in doing this.

Many
of our potential competitors have certain advantages over us, including: substantially greater financial, technical, marketing and other resources, including brand or corporate
name recognition;



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Our
competitors may be able to use these advantages to:



If
we are unable to compete successfully against our current and future competitors, our gross margins could decline and we could lose market share, either of which could materially
and adversely affect our business.

If we have difficulties or delays in delivering circuits to our clients, our ability to generate revenue will suffer and we may lose existing and potential new clients.

It typically takes 30 to 90 days to supply a circuit for a client, and we do not begin to recognize revenue until a circuit has been installed and
accepted by the client. Once we agree to facilitate the supply of a circuit for a client, we negotiate with one or more transport suppliers and manage the personnel and field technicians of multiple
vendors. A client can withdraw its order with minimal liability at any time
before accepting the circuit. We may experience difficulties in facilitating the supply of circuits if our transport suppliers run out of capacity, forcing us to look for alternative sources of
capacity at the last minute. If we are unable to facilitate the supply of a circuit in a timely manner or fail to obtain client acceptance of the circuit, we will be unable to recognize access
revenues for that circuit, and our operating results would be adversely affected. Furthermore, the ability of our clients to cancel orders at any time before accepting the circuit may make it
difficult for us to forecast revenue and plan our expenses accordingly.

The unpredictability of our quarterly results may adversely affect the trading price of our common stock.

Our revenues and operating results will vary significantly from quarter to quarter due to a number of factors, many of which we cannot control and any of which
may cause our stock price to fluctuate. These factors include the following:



In
addition, we depend on decisions by our clients to expand their Internet infrastructure, which decisions in turn depend upon the success and expected demand for the services these
clients offer.

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We expect our operating expenses to increase significantly in future periods. Our operating expenses are largely based on anticipated revenue trends, and a high percentage of our
expenses are, and will continue to be, fixed in the short term due in large part to our construction of our UTX facilities. As a result, fluctuations in our revenue for the reasons set forth above, or
for any other reason, could cause significant variations in our operating results from quarter to quarter and could result in substantial operating losses.

Because
of these factors, we believe that quarter-to-quarter comparisons of our operating results are not, and will not be, a good indication of our future performance. It is likely
that, in some future quarters, our operating results may not meet the expectations of public market analysts and investors. In that event, the price of our common stock may fall.

Our facilities and the networks on which we depend may fail, which would interrupt the circuit access we provide and make it difficult for us to retain and attract clients.

Our clients depend on our ability to provide ongoing dedicated circuit access. The operation of these circuits depends on the networks of third party transport
suppliers, such as MCI WorldCom or Williams Communications. The networks of transport suppliers and clients who may use our UTX facilities may be interrupted by failures in or damage to these
facilities. Our facilities and the ongoing circuit access we provide may be interrupted as a result of various events, many of which we cannot control, including:



We
may be subject to legal claims and be liable for losses suffered by our clients for disruptions to circuits or damage to client equipment resulting from failures at our facilities
or on the networks of third party providers. In addition, we may be subject to legal claims and be liable for losses suffered by clients and carriers who use our UTX facilities. Our contracts with our
clients and with carriers who use our UTX facilities attempt to eliminate our liability for consequential or punitive damages and for damage to client equipment not caused by our gross negligence or
willful acts. However, those provisions may not protect us from being held liable for those damages. We generally provide outage credits to our clients if circuit disruptions occur. If our circuit
failure rate is high, we may incur significant expenses related to circuit outage credits, which would reduce our revenues. We would also have to incur significant expenses in investigating and
addressing the causes of such circuit failures, which would divert resources from the expansion of our services and cause our business to suffer. Clients may seek to terminate their contracts with us
if there is a circuit failure. In addition, if our circuit failure rate is high, our reputation could be harmed, which would make it difficult for us to retain and attract clients.

We depend on several large clients, and the loss of one or more of these clients, or a significant decrease in total revenues from any of these clients, could significantly
reduce our revenue and income.

Historically, a substantial portion of our revenues has come from a limited number of clients. For example, for the quarter ended June 30, 1999, our two
largest clients accounted for approximately 42% of our total revenues, and for the quarter ended June 30, 2000, our three largest clients accounted for approximately 49% of our total revenues.
We have a number of significant revenue contracts with these

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customers. These contracts expire on various dates between August 2000 and September 2004. If we lose one or more large clients, or if one or more of our large clients reduces the
services they purchase from us and we fail to add new clients, our revenues could decline and our results of operations would suffer.

Our clients may fail to pay or be unable to pay their obligations to us in a timely manner or at all.

Some of our clients may have limited operating histories and may have inadequate financial resources to meet all of their obligations. We recorded a
substantial bad debt expense during the year ended December 31, 1999 primarily in connection with the failure by one of our clients to pay its bills. If other of our clients are unable to meet
their obligations to us, we may incur additional bad debt expenses, which could harm our cash flows and results of operations.

The regulatory framework under which we operate and new regulatory requirements or new interpretations of existing regulatory requirements could require substantial time and
resources for compliance, which could make it difficult for us to operate our business.

Our communications services are subject to both federal and state regulation. In providing our interstate and international communications services, we must
comply with federal telecommunications laws and regulations prescribed by the FCC. At the state level, we are subject to state laws and to regulation by state public utility commissions. As we expand
internationally, we will also become subject to regulation by foreign authorities and, in some markets, supra-national authorities, such as the European Union.

These
laws and regulations are subject to frequent changes and different interpretations, and therefore, it is difficult for us to assess the impact of these factors on our
operations. The current domestic and international trend is toward deregulation of telecommunications and Internet services. However, we cannot be certain that this trend will continue, and it is
possible that changes in regulatory policies could limit our ability to compete in some markets. The implementation, modification, interpretation and enforcement of laws and regulations vary and can
limit our ability to provide many of our services.

We
will need to obtain authorization from the FCC and many state public utilities commissions to offer particular types of telecommunications services. Once we receive this
authorization, we will have to comply with a variety of regulatory obligations on an ongoing basis. We cannot assure you that the FCC or state commissions will grant the required authority (or do so
in a timely manner), or refrain from taking action against us if we are found to have violated any requirements of their rules. If authority is not obtained or if our schedules of prices, terms, and
conditions are not filled, or are not updated, or otherwise do not fully comply with the rules of the FCC or state regulatory agencies, third parties or regulators could challenge our ability
to offer our services. Such challenges could cause us to incur substantial legal and administrative expenses.

Required regulatory approvals may interfere with or delay corporate transactions.

As a regulated company, we are required to obtain the approval of the FCC and certain state regulators before engaging in certain types of transactions,
including mergers, acquisitions of other regulated companies, sales of all or substantial parts of our business, issuance of stock, and incurrence of debt obligations. The particular types of
transactions that require approval differ in each jurisdiction. In several states, any transaction that results in a transfer of 10% or more of our voting stock may require prior approval. If we
cannot obtain the required approvals, or if we encounter substantial delays in obtaining them, we may not be able to enter into transactions on favorable terms and our flexibility in operating our
business will be limited. If our flexibility is limited, we may not be able to optimize our operating results.

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Telecommunications regulations of other countries may restrict our operations.

We will be subject to the regulatory regimes in each of the countries in which we conduct business. Local regulations range from permissive to restrictive,
depending upon the country. Changes to existing regulations of foreign countries may decrease the opportunities that are available for us to enter into
those markets, or may increase our legal, administrative or operational costs, or may constrain our activities in other ways that we cannot necessarily anticipate. Any of these developments could
impair our efforts to develop foreign operations.

We expect to incur operational and management inefficiencies when we acquire new businesses.

Part of our expansion strategy includes acquiring businesses and technologies that we believe will complement our existing business. For example, in 1999 we
acquired two companies, in July 2000 we completed our third acquisition, and we may acquire additional companies in the future. These acquisitions will likely involve some or all of the
following risks:



We
may need to complete these transactions in order to remain competitive. We cannot be sure that we will be able to obtain required financing for these transactions or that these
transactions will occur.

We expect to require additional third-party financing, and if we cannot obtain this financing on commercially reasonable terms, our ability to expand our business will suffer.

Our ability to meet our planned growth will require substantial cash resources. We expect that the anticipated expansion of our UTX facilities, construction of
eight additional facilities during the year 2000 (at an estimated average cost of $3.2 million to $5.0 million per facility), and our anticipated funding of negative cash flow from operating
activities, will require substantial capital. In addition, part of our expansion strategy includes acquiring complementary businesses and technology, which may require us to raise additional funds. We
do not expect to generate significant cash flow from operations in the near term. Accordingly, our ability to meet our additional future capital needs will depend upon our ability to renegotiate,
extend or replace our credit facilities, obtain supplemental financing or raise additional capital. Additional debt financing may limit our financial and operating flexibility. We may not be able to
renegotiate or replace our credit and equipment lease facilities on a timely basis, on acceptable terms or at all. Additional equity financing may not be available or may be dilutive to existing
stockholders. If we are unable to obtain future financing when needed or on acceptable terms we may have to delay or abandon our development and expansion plans, which could materially adversely
affect our growth and ability to compete.

We must expand our marketing and sales operations substantially to increase market awareness and sales of our services.

Our services require a sophisticated sales effort that targets key people within our prospective clients' organizations. This sales effort requires the efforts
of select personnel as well as specialized system and consulting engineers within our organization. We have recently expanded our sales force and plan to hire

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additional marketing and sales personnel, and system and consulting engineers, particularly individuals with experience in the telecommunications industry. Competition for these individuals is
intense, and we may not be able to hire the number of qualified sales personnel and system and consulting engineers we need. In addition, we may substantially increase our budget as part of our
marketing program. If we are unable to expand our marketing and sales operations, we may not be able to increase market awareness or sales of our products and services, which may prevent us from
achieving and maintaining profitability.

If we do not continue to expand our client support organization substantially, clients may significantly reduce purchases of our services.

We recently hired a number of additional personnel for our client support organization and will need to continue to increase our staff to support new clients
and the expanding needs of existing clients. Our client support organization is responsible for providing our clients with technical and operational support, and for identifying and developing
opportunities to provide additional services to our existing clients. Competition for qualified client support personnel is intense because few people have the necessary level of technical skills and
experience in telecommunications provisioning and network management. If we fail to further expand our client support organization, we may be limited in our ability to gain more business from existing
clients, and we may be unable to obtain or maintain current information regarding our clients' and suppliers' communications networks, which could limit our ability to provision future circuits for
our clients.

If we do not establish and maintain key client relationships, our revenues may decline.

Our success will depend upon our ability to develop and manage key client relationships in order to generate additional revenues from existing clients. Our
ability to develop and manage our client relationships depends on, among other things:



If
we fail to establish and maintain these client relationships, our revenues may stagnate or decline.

If we fail to manage expansion effectively, our ability to increase our services and client base could suffer.

Our ability to successfully offer our services and implement our business plan in a rapidly evolving market requires an effective planning and management
process. We continue to increase the scope of our operations and have substantially increased the number of our employees. At December 31, 1997, we had a total of five employees and at
June 30, 2000, we had approximately 305 full-time employees. In addition, we plan to continue to hire a significant number of employees. This growth has placed, and our anticipated growth in
future operations will continue to place, a significant strain on our management systems and resources. We expect that we will need to continue to improve our financial and managerial controls,
reporting systems and procedures, and will need to continue to expand, train and manage our work force. Furthermore, we expect that we will be required to manage multiple relationships with various
clients, suppliers and other third parties. We cannot be sure that we will be able to manage our expansion effectively.

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If we fail to successfully complete the implementation of our management information systems, we may not be able to operate or manage our business effectively.

We
are in the process of augmenting our management information systems to facilitate management of client orders, client service, billing and financial applications. Our ability to
manage our business could be harmed if we fail to successfully and promptly:



In
addition, our ability to efficiently operate our business could suffer if the software which runs our information systems malfunctions.

We depend on our key personnel to manage our business effectively in a rapidly changing market, and our ability to generate revenues will suffer if we are unable to retain our
key personnel and hire additional personnel.

Our future success depends upon the continued services of our executive officers and other key sales, marketing and support personnel. We do not have key
person" life insurance policies covering any of our employees. In addition, we depend on the ability of a relatively new management team to effectively execute our strategies. We recently hired
several of our key employees. Because some members of our management team have worked together only for a short period of time, we need to integrate these officers into our operations.

We
will need to hire additional personnel in our communications provisioning, sales, marketing and support areas in the future, and we believe our success depends, in large part, upon
our ability to attract and retain these key employees. Competition for these persons is intense, especially in the communications provisioning area. In particular, we have experienced difficulty in
hiring qualified network engineers, and we may not be successful in attracting and retaining these individuals. The loss of the services of any of our key employees, the inability to attract or retain
qualified personnel in the future, or delays in hiring required personnel could limit our ability to generate revenues.

Because we have no patented technology and have limited ability to protect our proprietary information, competitors may more easily enter our market and harm our ability to
generate revenues.

We have no patented technology that would preclude or inhibit competitors from entering our market. We rely on a combination of copyright, trademark, service
mark and trade secret laws and contractual restrictions to establish and protect our intellectual property. We have no federally registered trademarks or service marks, although we have applied for
registration of certain of our service marks. Even if registration is granted, we may be limited in the scope of services for which we may exclusively use our service marks. We enter into
confidentiality agreements with our employees, consultants and partners, and we control access to, and distribution of, our proprietary information. Our intellectual property may be misappropriated or
a third party may independently develop similar intellectual property. Moreover, the laws of certain foreign countries may not protect our intellectual property rights to the same extent as do

24

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the laws of the United States. Unauthorized use of any of our proprietary information could expose us to competition, which would harm our ability to attract new and existing clients and generate
revenues.

Certain stockholders will continue to have substantial control over Universal Access, Inc. and could delay or prevent a change in corporate control.

Internet Capital Group, Inc., funds affiliated with ComVentures and other stockholders, directors and officers, in the aggregate, beneficially own
approximately 54% of our outstanding common stock. These stockholders, acting alone or together, would be able to influence significantly all matters requiring approval by our stockholders, including
the election of directors and the approval of mergers or other business combination transactions.

Provisions of our charter documents may have anti-takeover effects that could prevent a change in corporate control.

Provisions of our amended and restated certificate of incorporation, bylaws, and Delaware law could make it more difficult for a third party to acquire us,
even if doing so would be a benefit to our stockholders.

There may be sales of a substantial amount of our common stock that could cause our stock price to fall.

Our current stockholders hold a substantial number of shares of our common stock, which they will be able to sell in the public market in the near future.
Sales of a substantial number of shares of our common stock or market expectations that these sales may occur could cause our stock price to fall. In addition, the sale of these shares could impair
our ability to raise capital by selling additional common stock.

We expect to experience volatility in the trading of our stock, which could negatively affect its value.

The market price of our common stock may fluctuate significantly in response to a number of factors, some of which are beyond our control, including:



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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we may invest in may be subject to market risk. This means that a change in prevailing interest rates may cause the principal amount
of the investment to fluctuate. For example, if we hold a security that was issued with a fixed interest rate at the then-prevailing rate and the prevailing interest rate later rises, the principal
amount of our investment will probably decline. To minimize this risk in the future, we intend to maintain our portfolio of cash equivalents and short-term investments in a variety of securities,
including commercial paper, money market funds, government and non-government debt securities. In general, money market funds are not subject to market risk because the interest paid on such funds
fluctuates with the prevailing interest rate. As of June 30, 2000, all of our investments were in cash equivalents and short-term investments.

We
have operated primarily in the United States and all sales to date have been made in U.S. dollars. Accordingly, we have not had any material exposure to foreign currency rate
fluctuations.

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## 

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

In February 2000, a complaint was filed in the Superior Court of California, County of Santa Clara, against us, certain of our directors and officers
and other parties by Point West Ventures, LP, previously known as Fourteen Hill Capital, LP and certain other shareholders in Vaultline Incorporated. The claim arises out of a letter of intent that we
entered into in December 1998 relating to our potential acquisition of Vaultline. The letter stated that it was not binding on the parties except with respect to a $250,000 advance to be made
by us and certain obligations of Vaultline. The letter contemplated that we would undertake a due diligence investigation of Vaultline. After performing the due diligence, we determined not to
complete the transaction and entered into a mutual settlement agreement and release. Subsequently, Vaultline ceased doing business. The claimants contend that the mutual settlement agreement executed
by the president of Vaultline was unauthorized. They allege that we, certain of our officers and directors and others conspired to deprive them of their interests in Vaultline. They are seeking
damages in excess of $10,000,000. We believe all of our legal obligations were satisfied and intend to vigorously contest any claims asserted against us relating to this matter. On May 4, 2000,
the Superior Court granted our petition to compel arbitration and to stay proceedings pending arbitration. On July 17, 2000, the Superior Court granted the petition made by certain of our
directors and officers to compel arbitration and to stay proceedings pending arbitration.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

(a) On July 28, 2000, pursuant to a Preferred Stock Rights Agreement (the "Rights Agreement") between the Company and Wells Fargo, as Rights
Agent (the "Rights Agent"), the Company's Board of Directors declared a dividend of one right (a "Right") to purchase one one-thousandth share of the Company's Series A Participating Preferred
Stock ("Series A Preferred") for each outstanding share of common stock. The dividend is payable on September 1, 2000 (the "Record Date"), to shareholders of record as of the close of
business on that date. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Preferred at an exercise price of $225 (the "Purchase
Price"), subject to adjustment.

(b) see
item (a) above.

(d) The
effective date of the Registration Statement filed on Form S-1 under the Securities Act of 1933, as amended (File No. 333-93039), was March 16, 2000. The class
of securities registered was Common Stock. The offering commenced on March 16, 2000. The managing underwriters for the offering were Goldman, Sachs & Co., Chase Securities Inc. and FleetBoston
Robertson Stephens Inc. Pursuant to the Registration Statement, 12,650,000 shares of the Company's Common Stock were sold. After deducting approximately $12,397,000 in underwriting discounts and
commissions and approximately $2,342,000 in other expenses related to the offering, the net proceeds to the Company were approximately $162,361,000.

The
Company invested the proceeds from the offering in short-term investment grade, interest-bearing securities and intends to use the proceeds for working capital and general
corporate purposes, including expenditures for construction of additional UTX facilities, sales channel development and other corporate purposes. In addition, we may use a portion of the net proceeds
to acquire businesses, products or technologies that are complementary to our current or future business and product lines. The use of proceeds from the offering does not represent a material change
in the use of proceeds described in the prospectus for the offering.

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ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)
List of Exhibits

|Exhibit
Number |  | Description of Document                                                                                                                                                                                                                                                
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1**          |  | Certificate of Incorporation of the Company.                                                                                                                                                                                                                           
|3.1.1          |  | Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock                                                                                                                                                             
|3.2**          |  | Amended and Restated Bylaws of the Company.                                                                                                                                                                                                                            
|4.1**          |  | Form of Company's Common Stock certificate.                                                                                                                                                                                                                            
|4.2**          |  | Form of warrant to purchase shares of Common Stock of the Company issued to Internet Capital Group.                                                                                                                                                                    
|4.3**          |  | Amended and Restated Registration and Informational Rights Agreement, dated June 28, 1999.                                                                                                                                                                             
|4.4**          |  | Amended and Restated Registration and Informational Rights Agreement, dated June 30, 1999.                                                                                                                                                                             
|4.5**          |  | Registration Rights Agreement, dated November 10, 1999.                                                                                                                                                                                                                
|4.6**          |  | Form of warrant to purchase shares of Common Stock of the Company issued to Advanced Equities.                                                                                                                                                                         
|4.7*           |  | Preferred Stock Rights Agreement, dated as of July 31, 2000, between Universal Access, Inc. and Wells Fargo, including the Certificate of Designation, the form of Rights Certificate and the Summary of Rights
attached thereto as Exhibits A, B, and C, respectively.
|4.8            |  | Registration Rights Agreement dated July 1, 2000.                                                                                                                                                                                                                      
|10.1**         |  | Form of Indemnification Agreement entered into by the Company with each of its directors and executive officers.                                                                                                                                                       
|10.2**         |  | Amended 1998 Employee Stock Option Plan and forms of agreements thereunder.                                                                                                                                                                                            
|10.3**         |  | 1999 Stock Plan and forms of agreements thereunder.                                                                                                                                                                                                                    
|10.4**         |  | 1999 Director Option Plan and forms of agreements thereunder.                                                                                                                                                                                                          
|10.5**         |  | 1999 Employee Stock Purchase Plan.                                                                                                                                                                                                                                     
|10.6**         |  | Form of Private Line Service Contract.                                                                                                                                                                                                                                 
|10.7**         |  | Master Loan and Security Agreement with Charter Financial, Inc. dated December 15, 1999.                                                                                                                                                                               
|10.8**         |  | Lease Agreement with One Hundred North Riverside, Inc., dated October 30, 1998.                                                                                                                                                                                        
|10.8.1**       |  | Amended Lease Agreement with One Hundred North Riverside, Inc., dated July 26, 1999.                                                                                                                                                                                   
|10.9**         |  | Sublease Agreement with Morton International, Inc. dated May 15, 1999, for property located at 100 N. Riverside Plaza, 22nd Floor-East, Chicago, Illinois.                                                                                                             
|10.9.1**       |  | First Amendment to Sublease Agreement with Morton International, Inc. dated January 25, 2000, for property located at 100 N. Riverside Plaza, Chicago, Illinois.                                                                                                       
|10.10**        |  | Lease Agreement with Dallas Carrier Associates, Ltd. dated May 20, 1999, for property located at 400 S. Akard Street, Dallas, Texas.                                                                                                                                   
|10.11**        |  | Lease Agreement with Telecom Center LA, LLC dated March 31, 1999, for property located at 530 W. Sixth Street, Los Angeles, California.                                                                                                                                
|10.11.1***     |  | Amendment to Lease with Telecom Center LA, LLC dated September 30, 1999 for property located at 530 W. Sixth Street, Los Angeles, California.                                                                                                                          
|10.12**        |  | Lease Agreement with EWE Office Investments II, Ltd., as amended on July 20, 1999, for property located at 200 S.E. First Street, Miami, Florida.                                                                                                                      
|10.13**        |  | Lease Agreement with Lafayette Business Park, LLC dated April 1, 1999, for property located at 1900 Lafayette Street, Santa Clara, California.                                                                                                                         

28

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|10.14**     |  | Lease Agreement with The Cambay Group Inc. dated March 19, 1999, for property located at 200 Paul Avenue, San Francisco, California.                                                                                                             
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.15**     |  | Lease Agreement with 1120 Vermont Avenue Associates dated March 19, 1999, for property located at 1120 Vermont Avenue, N.W., Washington, D.C.                                                                                                    
|10.16**     |  | Lease Agreement with 601 West Associates LLC dated September 23, 1999, for property located at 601 W. 26th Street, New York, New York.                                                                                                           
|10.17**     |  | License Agreement for Use of Telecommunications Conduit and Conduit Interconnection Room with One Wilshire Arcade Imperial, Ltd. dated July 6, 1999, for property located at One Wilshire Building, 624 S. Grand
Avenue, Los Angeles, California.
|10.18      |  | Master Service Agreement with Broadwing Communications Services, Inc. dated June 23, 2000.                                                                                                                                                       
|10.19**    |  | Carrier Services Agreement with Williams Communications, Inc. d/b/a Williams Network Services, dated June 29, 1998.                                                                                                                              
|10.19.1**  |  | Amendment No. 1, dated March 12, 1999, to Carrier Services Agreement.                                                                                                                                                                            
|10.19.2**  |  | Amendment No. 2, dated July 1, 1999, to Carrier Services Agreement.                                                                                                                                                                              
|10.19.3    |  | Amendment No. 3, dated December 21, 1999, to Carrier Services Agreement.                                                                                                                                                                         
|10.19.4    |  | Amendment No. 4, dated May 1, 2000 to Carrier Services Agreement.                                                                                                                                                                                
|10.20**    |  | Capacity Agreement with GTE Telecom Incorporated dated August 20, 1999.                                                                                                                                                                          
|10.20.1    |  | First Amendment to Capacity Agreement with GTE Telecom Incorporated dated August 8, 2000.                                                                                                                                                        
|10.21**     |  | Employment Agreement with Patrick C. Shutt, dated September 15, 1998.                                                                                                                                                                            
|10.21.1**   |  | Amendment to Employment Agreement with Patrick C. Shutt, dated February 8, 1999.                                                                                                                                                                 
|10.21.2**   |  | Amendment to Employment Agreement with Patrick C. Shutt, dated February 1, 2000.                                                                                                                                                                 
|10.22**     |  | Employment Agreement with Robert J. Pommer, Jr., dated September 15, 1998.                                                                                                                                                                       
|10.22.1**   |  | Amendment to Employment Agreement with Robert J. Pommer, Jr., dated February 8, 1999.                                                                                                                                                            
|10.22.2**   |  | Amendment to Employment Agreement with Robert J. Pommer, Jr., dated February 1, 2000.                                                                                                                                                            
|10.22.3***  |  | Amendment to Employment Agreement with Robert J. Pommer, Jr. dated April 28, 2000.                                                                                                                                                               
|10.23**     |  | Employment Agreement with Donna M. Shore, dated November 16, 1998.                                                                                                                                                                               
|10.23.1**   |  | Amendment to Employment Agreement with Donna M. Shore, dated February 1, 2000.                                                                                                                                                                   
|10.24       |  | Employment Agreement with Beth Tarter, dated July 1, 2000.                                                                                                                                                                                       
|10.25**     |  | Employment Agreement with Kenneth A. Napier, dated July 1, 1999.                                                                                                                                                                                 
|10.25.1**   |  | Amendment to Employment Agreement with Kenneth A. Napier, dated February 1, 2000.                                                                                                                                                                
|10.26**     |  | Employment Agreement with Mark A. Dickey, dated November 16, 1998.                                                                                                                                                                               
|10.26.1**   |  | Amendment to Employment Agreement with Mark A. Dickey dated February 1, 2000.                                                                                                                                                                    
|10.26.2 *** |  | Amendment to Employment Agreement with Mark A. Dickey dated April 14, 2000.                                                                                                                                                                      
|10.27**     |  | Employment Agreement with Scott D. Fehlan, dated September 9, 1999.                                                                                                                                                                              
|10.27.1**   |  | Amendment to Employment Agreement with Scott D. Fehlan, dated February 1, 2000.                                                                                                                                                                  
|10.27.2***  |  | Amendment to Employment Agreement with Scott D. Fehlan, dated April 14, 2000.                                                                                                                                                                    
|10.28**     |  | Employment Agreement with George A. King, dated August 27, 1999.                                                                                                                                                                                 
|10.28.1**   |  | Amendment to Employment Agreement with George A. King, dated February 1, 2000.                                                                                                                                                                   
|10.29**     |  | Promissory Note held by the Registrant for Robert Pommer dated May 28, 1999.                                                                                                                                                                     
|10.30**     |  | Lease Agreement with Lafayette Business Park, LLC dated August 31, 1999, for property located at 1940 Lafayette Street, Santa Clara, California.                                                                                                 

29

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|10.31**    |  | Terms and Conditions for Delivery of Service with Level 3 Communications, LLC dated November 17, 1999.                                                                                                                                               
|---------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.31.1** |  | Addendum, dated November 17, 1999, to Terms and Conditions for Delivery of Service.                                                                                                                                                                  
|10.32**   |  | Global Services Agreement with MCI WorldCom Communications, Inc. dated December 14, 1999.                                                                                                                                                            
|10.32.1   |  | First Amendment to Global Services Agreement dated May 8, 2000                                                                                                                                                                                       
|10.33     |  | Amended and Restated AT&T Master Carrier Agreement with AT&T Corp. dated May 31, 2000.                                                                                                                                                               
|10.34**    |  | Lease Agreement with La Salle National Bank as Trustee under Trust Agreement dated April 14, 1978, dated December 13, 1999, for property located at 600-780 South Federal Street, 76 West Polk Street and 75 West
Harrison Street, Chicago, Illinois.
|10.35**    |  | Lease Agreement with Peachtree Kessler Lofts, L.L.C. d/b/a/ Telecom Towers, dated December 14, 1999, for property located at 56 Marrieta Street, Atlanta, Georgia.                                                                                   
|10.35.1**  |  | Amended Lease Agreement with Peachtree Kessler Lofts, L.L.C. dated March 1, 2000.                                                                                                                                                                    
|10.36**    |  | Amended and Restated Promissory Note with Patrick Shutt dated December 6, 1999.                                                                                                                                                                      
|10.37**    |  | Amended and Restated Promissory Note with Robert Pommer dated December 6, 1999.                                                                                                                                                                      
|10.38**    |  | Amended and Restated Promissory Note with Donna Shore dated December 6, 1999.                                                                                                                                                                        
|10.39      |  | Employment Agreement with James B. Kearns, dated July 28, 2000.                                                                                                                                                                                      
|10.40**    |  | Employment Agreement with Robert E. Rainone, Jr. dated February 28, 2000.                                                                                                                                                                            
|10.40.1*** |  | Amendment to Employment Agreement with Robert E. Rainone, Jr. dated April 28, 2000.                                                                                                                                                                  
|10.41***   |  | Lease Agreement with TH Tower Leasing L.L.C., dated March 10, 2000, for property located at 233 South Wacker Drive, Chicago, Illinois.                                                                                                               
|10.41.1*** |  | License Agreement with TH Tower Leasing L.L.C., dated April 21, 2000 for property located at 233 South Wacker Drive, Chicago, Illinois.                                                                                                              
|10.42***   |  | Lease Agreement with Herndon Lincoln I L.L.C., dated April 27, 2000, for property located at 13900 Lincoln Park Drive, Herndon, Virginia.                                                                                                            
|11.1**     |  | Statement Re: Computation of Unaudited Net Loss Per Share and Pro Forma Net Loss Per Share.                                                                                                                                                          
|21.1***    |  | Subsidiaries of Company.                                                                                                                                                                                                                             
|27.1       |  | Financial Data Schedule.                                                                                                                                                                                                                             

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(b)
Reports on Form 8-K: The Company did not file any reports on Form 8-K during the quarter ended June 30, 2000.

30

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## 

SIGNATURES

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

|                     |  | UNIVERSAL ACCESS, INC.(Registrant)
|-------------------- |  | ----------------------------------
|Date August 10, 2000 |  | By                                

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