---

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

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FORM 10-Q

|(Mark One)                                        |                                                                                         
|------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                 | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the quarterly period ended September 30, 2002
|OR                                               
|o                                                 | 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: 000-28-559

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

|Delaware                                                                                 |  | 36-4408076                          
|---------------------------------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization)                           |  | (I.R.S. Employer Identification No.)
|233 S. Wacker Drive, Suite 600
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 ý    No o

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of
1934). Yes o    No ý

The
number of shares outstanding of the issuer's common stock, par value $0.01, as of October 31, 2002 was 99,371,463 shares.

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Universal Access Global Holdings Inc.  Form 10-Q  Table of Contents

|                                |                |                                                                                                                                    |                                                                                       | Page
|------------------------------- | -------------- | ---------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ----
|Part I    Financial Information |                |                                                                                                                                   
|                                | Item 1.        |                                                                                                                                    | Condensed Consolidated Financial Statements                                           |     
|                                |                | Condensed Consolidated Balance Sheets at September 30, 2002 and December 31, 2001 (Unaudited)                                      |                                                                                       | 3   
|                                |                | Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2002 and 2001 (Unaudited) |                                                                                       | 4   
|                                |                | Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001 (Unaudited)                  |                                                                                       | 5   
|                                |                | Notes to Condensed Consolidated Financial Statements (Unaudited)                                                                   |                                                                                       | 6   
|                                | Item 2.        |                                                                                                                                    | Management's Discussion and Analysis of Financial Condition and Results of Operations |     
|                                | Item 4.        |                                                                                                                                    | Controls and Procedures                                                               |     
|                                | Item 7A.       |                                                                                                                                    | Quantitative and Qualitative Disclosures about Market Risk                            |     
|Part II    Other Information    |                |                                                                                                                                   
|                                | Item 1.        |                                                                                                                                    | Legal Proceedings                                                                     |     
|                                | Item 2.        |                                                                                                                                    | Changes in Securities and Use of Proceeds                                             |     
|                                | Item 5.        |                                                                                                                                    | Other Information                                                                     |     
|                                | Item 6.        |                                                                                                                                    | Exhibits and Reports on Form 8-K                                                      |     
|                                | Signatures     |                                                                                                                                    | 36                                                                                   
|                                | Certifications |                                                                                                                                    | 37                                                                                   

2

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PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNIVERSAL ACCESS GLOBAL HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)
(unaudited)

|                                                        |                                                                                                                                                                                   | September 30,
2002         |                                            | December 31,
2001 |       
|------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ----------------- | ------
|ASSETS                                                  |                                                                                                                                                                                   |                            |                                            |                   |       
|Current assets:                                         |                                                                                                                                                                                   |                            |                                            |                   |       
|                                                        | Cash and cash equivalents                                                                                                                                                         |                            | $                                          | 11,382            |       
|                                                        | Short-term investments                                                                                                                                                            |                            |                                            |                  |       
|                                                        | Accounts receivable, less allowance for doubtful accounts of $5,538 and $2,483                                                                                                    |                            |                                            | 8,815             |       
|                                                        | Accounts receivable related parties, net                                                                                                                                          |                            |                                            |                  |       
|                                                        | Other receivables                                                                                                                                                                 |                            |                                            | 199               |       
|                                                        | Prepaid expenses and other current assets                                                                                                                                         |                            |                                            | 2,391             |       
|                                                        |                                                                                                                                                                                   |                            |                                            |                   |       
|                                                        |                                                                                                                                                                                   | Total current assets       |                                            |                   | 22,787
|Restricted cash                                         |                                                                                                                                                                                   |                            | 5,964                                      |                   |       
|Property and equipment, net                             |                                                                                                                                                                                   |                            | 31,995                                     |                   |       
|Goodwill                                                |                                                                                                                                                                                   |                            |                                           |                   |       
|Intangible assets, net                                  |                                                                                                                                                                                   |                            |                                           |                   |       
|Other long-term assets                                  |                                                                                                                                                                                   |                            | 3,044                                      |                   |       
|                                                        |                                                                                                                                                                                   |                            |                                            |                   |       
|                                                        |                                                                                                                                                                                   | Total assets               |                                            | $                 | 63,790
|                                                        |                                                                                                                                                                                   |                            |                                            |                   |       
|LIABILITIES AND STOCKHOLDERS' EQUITY                    |                                                                                                                                                                                   |                            |                                            |                   |       
|Current liabilities:                                    |                                                                                                                                                                                   |                            |                                            |                   |       
|                                                        | Accounts payable                                                                                                                                                                  |                            | $                                          | 2,808             |       
|                                                        | Taxes payable                                                                                                                                                                     |                            |                                            | 1,184             |       
|                                                        | Accrued compensation                                                                                                                                                              |                            |                                            | 67                |       
|                                                        | Accrued carrier expenses                                                                                                                                                          |                            |                                            | 14,758            |       
|                                                        | Accrued expenses                                                                                                                                                                  |                            |                                            | 2,047             |       
|                                                        | Other current liabilities                                                                                                                                                         |                            |                                            | 180               |       
|                                                        | Unearned revenue                                                                                                                                                                  |                            |                                            | 10,587            |       
|                                                        | Current portion of term loans                                                                                                                                                     |                            |                                            | 222               |       
|                                                        | Current obligation under capital leases                                                                                                                                           |                            |                                            |                  |       
|                                                        | Restructuring liability                                                                                                                                                           |                            |                                            | 2,786             |       
|                                                        |                                                                                                                                                                                   |                            |                                            |                   |       
|                                                        |                                                                                                                                                                                   | Total current liabilities  |                                            |                   | 34,639
|Obligations under capital leases net of current portion |                                                                                                                                                                                   |                            |                                           |                   |       
|Security deposits payable                               |                                                                                                                                                                                   |                            | 1,782                                      |                   |       
|Restructuring liability                                 |                                                                                                                                                                                   |                            | 4,460                                      |                   |       
|                                                        |                                                                                                                                                                                   |                            |                                            |                   |       
|                                                        |                                                                                                                                                                                   | Total liabilities          |                                            |                   | 40,881
|Stockholders' equity:                                   |                                                                                                                                                                                   |                            |                                            |                   |       
|                                                        | Common stock, $.01 par value; 1,000,000,000 shares authorized; 99,291,469 and 100,492,778 shares issued and outstanding at September 30, 2002 and December 31, 2001, respectively |                            |                                            | 993               |       
|                                                        | Common stock warrants                                                                                                                                                             |                            |                                            | 129               |       
|                                                        | Additional paid-in-capital                                                                                                                                                        |                            |                                            | 283,914           |       
|                                                        | Deferred stock plan compensation                                                                                                                                                  |                            |                                            | (4,264            | )     
|                                                        | Accumulated deficit                                                                                                                                                               |                            |                                            | (257,213          | )     
|                                                        | Accumulated other comprehensive income                                                                                                                                            |                            |                                            | 22                |       
|                                                        | Notes receivableemployees, net                                                                                                                                                   |                            |                                            | (672              | )     
|                                                        |                                                                                                                                                                                   |                            |                                            |                   |       
|                                                        |                                                                                                                                                                                   | Total stockholders' equity |                                            |                   | 22,909
|                                                        |                                                                                                                                                                                   |                            |                                            |                   |       
|                                                        |                                                                                                                                                                                   |                            | Total liabilities and stockholders' equity |                   | $     
|                                                        |                                                                                                                                                                                   |                            |                                            |                   |       

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

3

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UNIVERSAL ACCESS GLOBAL HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

|                                                     |                                                                 | Three Months Ended
September 30, |         | Nine Months Ended
September 30, |       
|---------------------------------------------------- | --------------------------------------------------------------- | -------------------------------- | ------- | ------------------------------- | ------
|
|Revenues                                             |                                                                 | $                                | 27,036  |                                 | $     
|Costs and expenses:                                  |                                                                 |                                  |         |                                 |       
|                                                     | Cost of circuit access (exclusive of depreciation shown below)  |                                  |         | 17,172                          |       
|                                                     | Operations & administration (excluding stock plan compensation) |                                  |         | 10,730                          |       
|                                                     | Operations & administration (stock plan compensation)           |                                  |         | 729                             |       
|                                                     | Impairment of property, plant & equipment                       |                                  |         |                                |       
|                                                     | Impairment of goodwill                                          |                                  |         |                                |       
|                                                     | Depreciation & amortization                                     |                                  |         | 3,082                           |       
|                                                     | Restructuring Charges                                           |                                  |         | (9,625                          | )     
|                                                     |                                                                 |                                  |         |                                 |       
|                                                     |                                                                 | Total costs and expenses         |         |                                 | 22,088
|                                                     |                                                                 |                                  |         |                                 |       
|                                                     |                                                                 | Operating Income (loss)          |         |                                 | 4,948 
|                                                     |                                                                 |                                  |         |                                 |       
|Other income (expense), net                          |                                                                 |                                  | (482    | )                               |       
|                                                     |                                                                 |                                  |         |                                 |       
|Net income (loss)                                    |                                                                 |                                  | 4,466   |                                 |       
|                                                     |                                                                 |                                  |         |                                 |       
|Basic net income (loss) per weighted average share   |                                                                 | $                                | 0.05    |                                 | $     
|Diluted net income (loss) per weighted average share |                                                                 | $                                | 0.04    |                                 | $     
|Weighted average shares, basic                       |                                                                 |                                  | 98,460  |                                 |       
|Weighted average shares, diluted                     |                                                                 |                                  | 100,885 |                                 |       

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

4

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UNIVERSAL ACCESS GLOBAL HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

|                                               |                                                        | Nine Months Ended September 30,                  |       
|---------------------------------------------- | ------------------------------------------------------ | ------------------------------------------------ | ------
|
|Cash flows from operating activities:          |                                                        |                                                  |       
|                                               | Net cash used for operating activities                 |                                                  | $     
|                                               |                                                        |                                                  |       
|Cash flows from investing activities:          |                                                        |                                                  |       
|                                               | Net capital expenditures                               |                                                  |       
|                                               | Increase in notes receivable                           |                                                  |       
|                                               | Sale of short-term investments                         |                                                  |       
|                                               |                                                        |                                                  |       
|                                               |                                                        | Net cash provided/(used) by investing activities |       
|                                               |                                                        |                                                  |       
|Cash flows from financing activities:          |                                                        |                                                  |       
|                                               | (Payments)/Proceeds on capital lease obligations       |                                                  |       
|                                               | Payment of long-term and short-term obligations        |                                                  |       
|                                               | Proceeds of notes from employees                       |                                                  |       
|                                               | Restriction on cash balance                            |                                                  |       
|                                               | Issuance of common stock                               |                                                  |       
|                                               |                                                        |                                                  |       
|                                               |                                                        | Net cash provided/(used) by financing activities |       
|                                               |                                                        |                                                  |       
|Effect of exchange rate changes on cash        |                                                        |                                                  | 43    
|Net decrease in cash and cash equivalents      |                                                        |                                                  | (9,376
|Cash and cash equivalents, beginning of period |                                                        |                                                  | 20,758
|                                               |                                                        |                                                  |       
|Cash and cash equivalents, end of period       |                                                        |                                                  | 11,382
|                                               |                                                        |                                                  |       
|Non-Cash Financing Activities:                 |                                                        |                                                  |       
|                                               | Issuance of restricted stock                           |                                                  |       
|                                               | Redemption of notes receivable using outstanding stock |                                                  |       

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

5

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UNIVERSAL ACCESS GLOBAL HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts and where otherwise indicated)

(unaudited)

Note 1Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by Universal Access Global Holdings Inc. ("Holdings") and its
subsidiaries (collectively, "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 (the
"SEC"). Certain information and footnote disclosures 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 2001 Annual Report on Form 10-K. Results for
fiscal 2002 interim periods are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2002. All numbers presented are in thousands, except share and per
share amounts and where otherwise indicated.

Note 2Investments

The Company's short-term investments have original maturities between three and twelve months, are classified as
held-to-maturity and are stated at amortized cost. Investments consist of the following at September 30, 2002 and December 31, 2001, respectively:

September 30,
2002

December 31,
2001Commercial paper



$
11,665Corporate notes




5,896Government agencies




8,738Total investments



$
26,299


Note 3Property and Equipment, Net

Property and equipment consists of the following, stated at cost or fair market value, as appropriate, at September 30, 2002 and December 31, 2001,
respectively:

September 30,
2002

December 31,
2001Furniture and fixtures

$
4,577

$
5,420Leasehold improvements


1,429


1,826UTX equipment


22,611


65,014Computer hardware and software


21,409


19,580Other equipment


1,899


1,787Construction in progress





7,973Property and Equipment, gross


51,925


101,600Less: Accumulated depreciation and amortization


(19,930
)

(17,033
)Property and equipment, net

$
31,995

$
84,567


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

6

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Note 4Impairment of Goodwill and Other Intangible Assets

The Company evaluates the recoverability of its goodwill in accordance with Financial Accounting Standards Board Statement of Financial Accounting Standard
("SFAS") No. 142,Goodwill and Other Intangible Assets.

Under
SFAS No. 142, goodwill is no longer amortized but must be tested for impairment under a two-step process. Under SFAS No. 142, goodwill of reporting units
must be tested for impairment on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its
carrying amount. In addition, within six months of adopting the accounting standard, a transitional test must be completed. Impairment exists under SFAS No. 142 when the carrying amount of
goodwill exceeds its estimated fair value. The two-step impairment test is used to identify potential goodwill impairment and measure the amount of a goodwill impairment loss to be
recognized. The Company performed the transitional test of the fair value of its reporting units as of January 1, 2002 and concluded there was no impairment to goodwill. Fair value was
determined based upon the public market value of the Company's common stock.

The
Company performed its annual impairment test as of June 30, 2002. Based on the continuing deterioration and financial condition of the telecommunications industry and the
decline in the Company's stock price, we determined that goodwill we recorded in connection with our acquisition of Tri-Quad Enterprises, Inc. ("Tri-Quad") was impaired.
Applying the two-step impairment test described above, we recorded a $4.5 million charge to reduce the carrying value of the goodwill to zero.

The
aggregate amortization expense related to goodwill was $0 and $201 for the three months ended September 30, 2002 and 2001, respectively, and $0 and $603 for the nine months
ended September 30, 2002 and 2001, respectively. Assuming goodwill amortization had been discontinued at January 1, 2001, the comparable net loss and net loss per share for the prior
year period would have been a loss of $64.3 million and $(0.70) for the three months ended September 30, 2001 and a loss of $93.8 million and $(1.02) for the nine months ended
September 30, 2001.

Note 5Impairment of Long-Lived Assets

The Company continually evaluates the recoverability of its long-lived assets in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. Under SFAS No. 144, an impairment review must be performed if events
occur or circumstances change indicating that the carrying amount of long-lived assets might not be recoverable. Circumstances that could trigger an impairment review include, but are not
limited to, a significant decrease in the market value, a significant adverse change in legal factors or in the business climate, a current period operating or cash flow loss combined with a history
of operating or cash flow losses or a projection or forecast showing continuing losses, and a current expectation that more-likely-than-not a long-lived
asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. If any of the impairment indicators are present or if other circumstances indicate
that an impairment may exist, the Company must then determine whether an impairment loss should be recognized. An impairment loss, however, is recognized only if the undiscounted cash flows used to
test for recoverability are less than the carrying value.

Based
on impairment reviews performed at June 30, 2002, the Company recognized a $46.0 million impairment charge, of which $3.0 million related to ATM equipment,
$1.0 million related to its

7

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web-based pricing, quoting and provisioning software tool (Project Gemini), and $42.0 million related to UTX assets. The Company's plan to provide ATM services was discontinued for
economic reasons, and the equipment has been offered for sale. In the three months ended September 30, 2002, the Company found potential buyers for a portion of the ATM equipment and expects to
collect a nominal amount from the sale. The Company has ceased development activities on Project Gemini for economic reasons. Due to a projected decline in industry conditions and demand in certain
markets, the carrying values of the Company's UTX facilities were deemed to be impaired except for facilities in Chicago, San Francisco and Los Angeles. The fair value of the UTX assets was determined
by the greater of the present value of discounted future cash flows or the current estimated salvage value for the assets. The assumptions supporting future cash flows and the discount rate were
determined using the Company's best estimates and with the assistance of a third-party expert. In the three months ended September 30, 2002, based on an evaluation of undiscounted cash flows of
the Chicago, San Francisco and Los Angeles facilities that were not impaired in the three months ended June 30, 2002, the Company determined that no impairment existed.

Note 6Commitments and Contingencies

On November 5, 2001, a complaint was filed in federal court for the Southern District of New York on behalf of a purported class of persons who purchased
the Company's stock between March 16, 2000 and December 6, 2000. The complaint generally alleges that various underwriters engaged in improper and undisclosed activities related to the
allocation of shares in our initial public offering of securities. The complaint brings claims for violation of several provisions of the federal securities laws against those underwriters and also
against the Company and certain of its present and former directors and officers. In October 2002, the present and former directors and officers named in the complaint were dismissed from the
litigation without prejudice. The Company believes that the allegations are without merit and intends to defend the litigation vigorously. Accordingly, no amount has been accrued as a liability.

On
March 15, 2002, Aleron, Inc. ("Aleron") filed for protection under Chapter 11 of the bankruptcy code in the United States Bankruptcy Court for the Eastern District of
Virginia. Before the bankruptcy, we provided telecommunications services to Aleron. We believe that we validly terminated any and all agreements between the Company and Aleron before Aleron's
bankruptcy. Under an agreement approved by the bankruptcy court, we then provided services to Aleron at a reduced level. Upon the subsequent acquisition of the assets of Aleron by a third party, we
have continued to provide a reduced level of service to the acquiring party. We believe that we have claims against Aleron, and Aleron has listed in its bankruptcy filings potential claims against us
arising out of the agreements. On August 6, 2002, the court converted the Aleron case to a proceeding under Chapter 7 of the bankruptcy code. In light of Aleron's financial position, we cannot
predict whether we will realize any value from our claims, nor are we in a position to predict the outcome in the bankruptcy court of the potential claim Aleron cites in its filing. On June 11,
2002, Qwest brought a claim against Aleron and the Company in the Aleron bankruptcy proceeding asserting that either the Company or Aleron owes Qwest approximately $3.5 million for services
provided by Qwest. On August 29, 2002, Level 3 brought a claim against Aleron and the Company in the Aleron bankruptcy proceeding asserting that either the Company or Aleron owes Level 3 for
services provided by Level 3. We believe that the claims of Qwest and Level 3 against us are without merit and intend to defend the actions vigorously. We have not accrued any amount as a liability in
respect of these claims.

8

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Since
April 2002, seven complaints alleging violations of the Securities Act of 1934 were filed in the Eastern District of Texas and the Northern District of Illinois against the
Company and certain of its present and former directors and officers. On September 17, 2002, plaintiffs voluntarily withdrew the five complaints filed in the Northern District of Illinois. On
October 4, 2002 an amended complaint was filed in the remaining two actions consolidated in the Eastern District of Texas on behalf of a purported class of persons who purchased the Company's
stock between December 4, 2000 and March 22, 2002. The complaint alleges that the Company's financial statements and related announcements were false and misleading and that certain
officers sold Company stock on the basis of non-public information in violation of the federal securities laws. The Company believes that the allegations are without merit and filed a
motion to dismiss on October 24, 2002. We have not accrued any amount as a liability in respect to this claim.

We
have settled the adversary proceeding filed against us by Sphera Optical Networks, Inc. and Sphera Optical Networks N.A., Inc. (collectively, "Sphera"). On
August 22, 2002, the United States Bankruptcy Court for the District of New Jersey authorized and approved a settlement agreement (the "Sphera Settlement Agreement") entered into by the
Company, Sphera and certain other parties. Pursuant to the Sphera Settlement Agreement, as described below under "Operations and Administration (Excluding Stock Plan Compensation)", the suit filed by
Sphera has been dismissed and the Company has received and expects to receive certain payments.

In
February 2002, we agreed to issue warrants for the purchase of 750,000 shares of our common stock to certain stakeholders of Sphera. In November 2002, we entered into a
settlement agreement whereby we paid $25 to the stakeholders and the parties agreed that the warrants were not, by their terms, exercisable at any time.

In
November 2002, a placement agent engaged by the Company in 2001 filed a complaint in the Central District of California against the Company claiming that the placement agent is
entitled to certain amounts in connection with a credit facility purportedly entered into by the Company. The Company believes that the allegations are without merit and intends to defend the action
vigorously. We have not accrued any amount as a liability in respect to this claim.

The
Company is a party to certain litigation for which the claimants are seeking damages arising out of a letter of intent that the Company entered into in December 1998 relating
to the potential acquisition of a business. Management believes that this litigation is without merit, and no amount has been accrued as a liability.

The
Company leases UTX facilities, office facilities and certain equipment over periods ranging from two to fifteen years. Through October 31, 2002, the Company completed buyout
agreements for certain leased office facilities and terminated early certain office facility leases, eliminating aggregate

9

---

lease obligations of $46.2 million. Future rentals for non-cancelable operating leases, inclusive of amounts in our restructuring liability disclosed in Note 8, are as
follows as of September 30, 2002:

2002

$
2,0302003


8,2562004


8,4132005


7,632Thereafter


44,748Total minimum lease payments

$
71,079


Additionally,
the Company has entered into agreements with various telecommunications vendors to purchase minimum amounts of network services within a defined period, such as on a
monthly basis. As of July 31, 2002, the Company reached a settlement whereby the Company paid a telecommunications vendor the sum of $1.4 million to satisfy outstanding billing disputes
and eliminate an aggregate minimum purchase commitment of $66.0 million. The total amount of remaining purchase commitments at September 30, 2002 is as follows:

2002

$
6,2792003


25,1102004


24,1392005


23,519Thereafter


41,254Total minimum purchase commitments

$
120,301


Note 7Comprehensive Income

Comprehensive income, which includes net income and all other non-owner changes in equity during a period, is as follows for the three months ended
September 30, 2002 and nine months ended September 30, 2002:

Three Months
Ended September 2002

Nine Months
Ended September 2002Net income (loss)

$
4,466

$
(80,256
)Foreign currency translation adjustments


61


40Comprehensive net income (loss)

$
4,527

$
(80,216
)


Note 8Restructuring

In the third quarter of 2001, we implemented a restructuring program to reduce our cost structure and focus on achieving corporate financial objectives. As a
result of the program, we incurred restructuring charges of $40.9 million. The restructuring charges consisted of $2.6 million for employee termination benefits, $3.4 million
related to the impairment of long-lived assets, $32.0 million for facility exit costs, $2.2 million to write-down certain investments and $719 related to
equipment leases and other exit costs. In the fourth quarter of 2001, the restructuring charge for facility exit costs was reduced by $4.1 million, primarily as a result of favorable lease
negotiations with a landlord. In the three months ended September 30, 2002, the restructuring charge was reduced for facility exit costs by

10

---

$13.0 million due to further successful lease negotiations with landlords and the reversal of previously accrued rent on a facility. This reduction in restructuring charge was partially offset
by an additional restructuring charge of $3.4 million incurred in the third quarter 2002 for the lease of an abandoned facility and leasehold improvements no longer in use.

The
restructuring program is substantially complete, except for facility exit costs and operating lease payments for office equipment. The ability to sublet facilities at the rates
contemplated by the restructuring charge will depend on market conditions. Amounts relating to facilities will be paid over the respective lease terms through 2013 and will be net of any sublease
recoveries, while operating lease payments for office equipment will be paid through 2003.

The
following summarizes the significant components of the restructuring reserve at September 30, 2002:

Balance at
December 31, 2001

Incurred Cash
Payments

Adjustments

Balance at
September 30, 2002Severance and benefits

639

(240
)
(399
)
0Facility exit costs, net of estimated sublease recoveries

26,529

(10,345
)
(8,983
)
7,201Other

554

(266
)
(243
)
45Total

27,722

(10,851
)
(9,625
)
7,246


Note 9Executive Notes

For the three months ended June 30, 2002, we recorded a charge of $1.7 million related to notes receivable from certain of our current and former
executives. The notes evidence loans made in part to cover exercise price and payroll tax obligations in connection with the exercise of options to acquire our common stock. Each note allows the
executive to satisfy the outstanding principal balance thereof by returning a fixed number of shares of our common stock. The charge reduced the value of the notes receivable to the total amount we
would have received if the notes had been satisfied by the return of shares of our common stock, based on the closing price of our common stock on June 30, 2002. We may reverse this charge in
future periods or record additional expense as our stock price changes to reflect the value of the notes receivable as of the balance sheet date. For the three months ended September 30, 2002,
no charge was recorded because the aggregate market value of the shares assumed to be returned for purposes of calculating the charge did not change materially from June 30, 2002.

Note 10Subsequent Events

On November 13, 2002, we announced that our Board of Directors has appointed Lance Boxer as Interim Chief Executive Officer, effective November 13,
2002, and has also appointed him to the Board as a Class I director. We further announced that founder Patrick Shutt has resigned as Chairman, President and Chief Executive Officer but
will remain on the Board. We have commenced a search for a new Chief Executive Officer and will elect a new Chairman.

11

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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 month and nine month periods ended
September 30, 2002 and 2001 and of 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 SEC. Amounts are in thousands, except for items otherwise indicated and per share amounts.

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 generally ranging from 12 to 60 months. We expect that average lengths will decline as we
install new circuits with shorter terms, and most new contracts are for 12 month terms. Contracts with our clients may be terminated by the client at any time, subject to additional payments.

Due
to the restructuring reversal, third quarter net income was $4.5 million or $0.04 per diluted share. Excluding the reversal, the third quarter net loss would have been ($5.2 million)
or ($0.05) per share.

The
Company's results have been affected by bankruptcies and credit problems in the telecommunications industry. In the nine months ending September 30, 2002, we experienced
bankruptcy filings by five of our large clients, as well as circuit disconnections and lengthening new business closing cycles. As a result of these bankruptcy filings and general deterioration of
credit in the industry, we increased bad debt reserves during the nine months ended September 30, 2002. In addition, we have provided and currently provide services to several clients that are
in bankruptcy. Although these services generally are entitled to priority as post-bankruptcy services, there can be no assurance that there will not be service interruptions or
collectibility issues with respect to services provided to these clients. When collectibility of a receivable is not assured in the month service is provided, we recognize revenue when payment is
received, not at the time the receivable is recorded.

Circuit
revenues include bundled charges for provisioning, network management and maintenance services.

Our
clients primarily consist of communications service providers and transport suppliers, such as competitive access providers, incumbent telecommunication service providers and other
application and network service providers. Our three largest clients represented approximately 38% of total revenues for the quarter ended September 30, 2002. Our three largest clients
represented approximately 62% of total revenues for the quarter ended September 30, 2001. The decrease in client concentration was primarily the result of large disconnections by clients
operating under bankruptcy protection.

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To
date, cost of circuit access has primarily consisted of amounts paid to transport suppliers for circuits. We have negotiated volume discounts and network route-specific discounts
under contracts with many of our suppliers. These contracts generally have terms ranging from three to ten years and sometimes include minimum purchase commitments that begin anywhere from six to
twelve months after we enter into the contract. At September 30, 2002, these minimum purchase commitments totaled approximately $2.4 million per month. Our aggregate actual purchases
under these contracts, which averaged approximately $2.6 million per month for the quarter ended September 30, 2002, have exceeded these minimum purchase commitments. However, our actual
purchases from certain individual suppliers have at times been less than our purchase commitments with those suppliers. If our actual purchases fall short of contractual commitments, we may seek to
negotiate alternate arrangements with these suppliers, but in the event that these negotiations are unsuccessful, we may be left with a shortfall that would affect our operating margins. Management
believes we are adequately reserved for any commitment shortfalls.

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

In
each year since our inception, we have incurred operating losses and net losses, and have experienced negative cash flows from operations. At September 30, 2002, we had an
accumulated deficit of $257 million.

|                                                     |  | Three Months Ended
September 30, |         | Nine Months Ended
September 30, |  
|---------------------------------------------------- |  | -------------------------------- | ------- | ------------------------------- | -
|
|Net income (loss)                                    |  | $                                | 4,466   |                                 | $
|Basic net income (loss) per weighted average share   |  | $                                | 0.05    |                                 | $
|Diluted net income (loss) per weighted average share |  | $                                | 0.04    |                                 | $
|Weighted average shares, basic                       |  |                                  | 98,460  |                                 |  
|Weighted average shares, diluted                     |  |                                  | 100,885 |                                 |  

Results of Operations

Comparison of Three Months and Nine Months Ended September 30, 2002 to Three Months and Nine Months Ended September 30, 2001

Revenues

Revenues decreased to $27 million for the quarter ended September 30, 2002 from $30.7 million for the quarter ended September 30,
2001. Revenues for the nine months ended September 30, 2002 decreased to $80.2 million from $86.7 million for the nine months ended September 30, 2001. Substantially all of
our revenues consisted of circuit revenues in each of these periods. The decreases in revenues for the quarter ended and nine months ended September 30, 2002 compared to the quarter ended and
nine months ended September 30, 2001 were attributable to circuit disconnections and lengthening new business cycles. Additionally, one large client who filed for bankruptcy in the second
quarter of 2002 rejected contracts underlying a significant amount of circuit revenue in the third quarter 2002. The decreases in revenues were partly offset by two non-recurring
settlement transactions with a client. The client terminated certain circuit and sublease contracts with the Company, resulting in one-time termination revenues of $1.3 million and
$1.4 million, respectively, in the third quarter of 2002. We expect that continued negative trends in the telecommunications industry will continue to adversely affect our revenues.

When
collectibility of a receivable is not assured in the month service is provided, we recognize the revenues when payment is received, not at the time the receivable is recorded.

13

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Cost of Circuit Access

Cost of circuit access decreased to $17.2 million for the quarter ended September 30, 2002 from $20.7 million for the quarter ended
September 30, 2001. Cost of circuit access for the nine months ended September 30, 2002 decreased to $58.5 million compared to $58.8 million for the nine months ended
September 30, 2001. As a percentage of total revenues, cost of circuit access decreased to 64% for the quarter ended September 30, 2002 from 67% for the quarter ended
September 30, 2001, and increased for the nine months ended September 30, 2002 to 73% from 68% for the nine months ended September 30, 2001. The decrease in cost of circuit access
in absolute dollars in the quarter was primarily attributable to a decrease in circuit sales to clients and the accompanying decline in the underlying circuits required to be maintained. The increase
in circuit cost as a percentage of total revenues for the nine months ended September 30, 2002 was primarily attributable to maintaining circuits for bankrupt customers for which no revenue was
recognized. These costs are eliminated as the circuits related to bankrupt clients are disconnected following the termination of service by the client.

Operations and Administration (Excluding Stock Plan Compensation)

Operations and administration expenses (excluding stock plan compensation) decreased $6.9 million to $10.7 million in the quarter ended
September 30, 2002 from $17.6 million in the quarter ended September 30, 2001. Operations and administration expenses (excluding stock plan compensation) decreased
$14.8 million to $46 million for the nine months ended September 30, 2002 from $60.8 million for the nine months ended September 30, 2001. These decreases were
primarily attributable to significant decreases in personnel and restructuring of facilities.

The
number of employees decreased to 139 at September 30, 2002 from 274 at September 30, 2001, and we expect headcount to remain relatively flat or lower for the remainder
of 2002. Employee compensation and related payroll taxes decreased $4.7 million for the quarter ended September 30, 2002 as compared to the quarter ended September 30, 2001.
Similarly, rent for corporate offices and sales offices decreased $2.3 million for the quarter ended September 30, 2002 as compared to September 30, 2001 due in part to the
restructuring and the related charge recorded in the third quarter of 2001 as well as subleasing of space.

The
Company recorded income of $300 for the quarter ended September 30, 2002 due to a reduction in bad debt expense compared to an expense of $741 for the quarter ended
September 30, 2001. The income in the quarter ended September 30, 2002 resulted from favorable collections on previously reserved accounts receivable.

The
Company performed its annual goodwill impairment test as of June 30, 2002. Based on the continuing deterioration and financial condition of the telecommunications industry and
the decline in the Company's stock price, we determined that the goodwill we recorded in connection with our acquisition of Tri-Quad was impaired. Based on the applicable
two-step impairment test, we recorded a $4.5 million impairment charge to reduce the carrying value of goodwill to zero.

Based
on impairment reviews performed at June 30, 2002, the Company recognized a $46.0 million impairment charge to reduce the carrying value of ATM equipment, a
web-based pricing, quoting and provisioning software tool (Project Gemini), and UTX assets.

During
the first quarter of 2002, the Company loaned $1.1 million to Sphera under the Company's post-petition loan agreement with Sphera. In addition, during the three
months ended June 30, 2002, the Company disbursed additional amounts totaling $1.0 million to Sphera and to a trust account established by the counsel for the official unsecured
creditors' committee. Based on the net amounts the Company believes to be ultimately recoverable under the Sphera Settlement Agreement, the Company has expensed $1.8 million of the
$2.1 million disbursed under the loan agreement.

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Operations and Administration (Stock Plan Compensation)

During fiscal year 1999 and the first quarter of 2000, 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 dates 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. Stock plan compensation expense decreased $11.7 million for the quarter ended September 30, 2002 as compared to the
quarter ended September 30, 2001. The decrease in stock plan compensation between periods primarily relates to the repurchase of nonvested restricted stock and the grant of options with an
exercise price below the fair market value of our common stock on the date of grant during the third quarter of 2001.

There
were 6,540,281 and 12,615,926 stock options outstanding at September 30, 2002 and 2001, respectively. The lower number of options outstanding reflects the lower number of
employees at September 30, 2002, the number of options that were forfeited by departing employees and the approximately 4.8 million options that were exchanged for restricted shares of
our common stock in the fourth quarter of 2001. Unearned deferred compensation decreased $3.0 million for the three months ended September 30, 2002, of which $1.7 million was due
to forfeiture of restricted shares granted to employees.

Depreciation and Amortization

Depreciation expense includes depreciation of furniture, fixtures and equipment at our office facilities and of equipment at our UTX facilities. Depreciation
expense was $3.0 million in the three months ended September 30, 2002, compared to $3.8 million in the three months ended September 30, 2001. Depreciation expense for the
nine months ended September 30, 2002 increased to $12.8 million compared to $8.2 million for the nine months ended September 30, 2001. The increase in depreciation is
primarily attributable to the timing of the Company placing into service UTX facilities during 2001 and capital expenditures related to UIX database development.

Amortization
expense, which decreased $226 to $42 in the quarter ended September 30, 2002, compared with the quarter ended September 30, 2001, relates to intangible assets
acquired in the connection with the purchase of Stuff Software, Inc. ("Stuff Software") in November 1999. Amortization expense decreased $709 to $169 in the nine months ended
September 30, 2002, compared to the nine months ended September 30, 2001. We sold Stuff Software in the third quarter 2002 for nominal consideration, and wrote off the related
unamortized intangible assets of $550.

Restructuring

In the third quarter of 2001, we implemented a restructuring program to reduce our cost structure and focus on achieving corporate financial objectives. As a
result of the program, we incurred restructuring charges of $40.9 million. The restructuring charges consisted of $2.6 million for employee termination benefits, $3.4 million
related to the impairment of long-lived assets, $32.0 million for facility exit costs, $2.2 million to write-down certain investments and $719 related to
equipment leases and other exit costs. In the fourth quarter of 2001, the restructuring charge for facility exit costs was reduced by $4.1 million, primarily as a result of favorable lease
negotiations with a landlord. In the three months ended September 30, 2002, the restructuring charge was reduced for facility exit costs by $13.0 million due to further successful lease
negotiations with landlords and the reversal of previously accrued rent on a facility. This reduction in restructuring charge was partially offset by an additional restructuring charge of
$3.4 million incurred in the third quarter 2002 for the lease of an abandoned facility and leasehold improvements no longer in use.

The
restructuring program is substantially complete, except for facility exit costs and operating lease payments for office equipment. The ability to sublet facilities at the rates
contemplated by the

15

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restructuring charge will depend on market conditions. Amounts relating to facilities will be paid over the respective lease terms through 2013 and will be net of any sublease recoveries, while
operating lease payments for office equipment will be paid through 2003.

The
following summarizes the significant components of the restructuring reserve at September 30, 2002:

Balance at
December 31, 2001

Incurred Cash
Payments

Adjustments

Balance at
September 30, 2002Severance and benefits

639

(240
)
(399
)
0Facility exit costs, net of estimated sublease recoveries

26,529

(10,345
)
(8,983
)
7,201Other

554

(266
)
(243
)
45Total

27,722

(10,851
)
(9,625
)
7,246


Other Income (Expense)

Other income (expense) decreased $1 million to $(482) in the quarter ended September 30, 2002 from $522 for the quarter ended
September 30, 2001. Other income for the nine months ended September 30, 2002 decreased $3.2 million to $18 compared to $3.2 million for the nine months ended
September 30, 2001. The decrease in other income was primarily attributable to a reduction in interest income, reflecting lower balances of cash and investments held by the Company, and the
sale of Stuff Software for a loss of $585 in the third quarter 2002.

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 September 30, 2002, we had approximately $184 million of federal and state net operating loss carry forwards.
These carry forwards may be available to offset future taxable income. Our federal and state net operating loss carry forwards 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 carry forwards, 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 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 carry forwards if there is a change in
ownership, as defined, within any three-year period. The utilization of certain net operating loss carry forwards may be limited due to our capital stock transactions.

Liquidity and Capital Resources

Our consolidated financial statements have been prepared assuming we will continue as a going concern. However, our net financial position (cash and cash
equivalents and short-term investments net of term loans and capital lease obligations) has declined from $47.1 million as of December 31, 2001 to $11.4 million as of
September 30, 2002. We continue to focus on minimizing our cash burn rate and preserving cash and cash equivalents and have reduced the rate at which we use cash. We have accomplished this over
the nine-month period ending September 30, 2002, by:



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These
reductions in cash use were offset a decrease in revenues for the first nine months of 2002 compared to revenues for the first nine months of 2001. While there can be no assurance,
assuming cash receipts remain stable and we continue to control uses of cash, we estimate that our $11.4 million of cash and equivalents and short-term investments on hand as of
September 30, 2002 should be sufficient to fund our current operations until we become cash flow positive. However, unexpected events adversely effecting our cash resources, including declines
in collections due to client bankruptcies or deteriorating industry conditions, security deposits requirements, accelerated vendor payment terms, payments required to settle disputes or adversely
determined litigation, may create a need for us to obtain funding from external sources in order to continue operations. Raising additional capital may be difficult for us, and even if we are able to
raise additional capital, our operational and financial flexibility may be limited and any financing would likely be dilutive to existing stockholders.

Our
principal uses of cash are to fund operating losses, working capital requirements and capital expenditures. Our capital expenditures will be centered on the enhancement of our two
primary service elements, information and facilities. For information, we will continue to seek out new data resources relating to the provisioning of circuits. For facilities, we will continue to
enhance our UTX and metropolitan connectivity facilities so as to create a competitive advantage in terms of service delivery, cost and pricing. We expect to incur approximately $800 in expenditures
in the fourth quarter of 2002 to complete build-out of our Denver UTX.

Cash
and cash equivalents and short-term investments were $11.4 million September 30, 2002, a decrease of approximately $35.7 million from
December 31, 2001. The Company's cash position was adversely affected by unfavorable conditions that impacted revenues and by amounts paid to retire a capital lease.

In
September 2002, we completed negotiations with three different landlords:



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In
general, our obligations under certain real estate leases are secured by letters of credit issued to the landlord. Each of these letters of credit is secured by restricted cash that
we have pledged to the bank issuing the letter of credit. In the past, we have completed negotiations with certain of our landlords to reduce our future lease obligations in exchange for consideration
including the release to the landlord of funds under letters of credit. We expect to continue these types of negotiations in the future. If these negotiations to reduce our lease obligations are
successful, then we expect our restricted cash balance will decline further. In addition, after the anticipated return to us in the first quarter 2003 of a $900 letter of credit in connection with the
lease buyout agreement described above, we expect $900 to be released from restricted cash and moved to cash and cash equivalents and short-term investments.

Cash
used by operating activities for the nine months ended September 30, 2002 was $30.1 million, compared to $34.5 million for the nine months ended
September 30, 2001. The change was primarily due to a decrease in compensation and payroll tax payments, offset in part by a decrease in circuit margin. Additionally, the Company received
approximately $3.2 million in security deposits and prepayments in first nine months of 2002 to offset potential credit risks.

Cash
provided by investing activities was $17.8 million for the nine months ended September 30, 2002, compared to $9.5 million of cash used by investing activities
for the nine months ended September 30, 2001. The increase is primarily due to a reduction in the purchase of property, plant, and equipment to support the business and the sale of
short-term investments used to fund operations.

Cash
provided by financing activities was $3.7 million for the nine months ended September 30, 2002, compared to cash provided by financing activities of
$1.7 million for the nine months ended September 30, 2001. The increase was primarily due to the draw down of $7.5 million in restricted cash to complete the lease buyout
agreement discussed above. This increase was partially offset by cash payments of $3.5 million to retire capital lease obligations.

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FACTORS THAT MAY AFFECT FUTURE RESULTS

In addition to the factors discussed elsewhere in this Form 10-Q and our 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 us.

Industry conditions and further deterioration in credit quality may affect our clients' ability to pay their obligations to us in a timely manner or at all and may affect the
ability of our carrier suppliers to provide reliable service.

We operate in a highly concentrated, high-risk market that has recently experienced a general deterioration of credit quality. Credit-quality
concerns, which have historically affected smaller network service providers and subsequently smaller telecommunications providers, have more recently impacted, and continue to impact, larger
telecommunications providers and carriers. In 2002, several of our significant clients, including WorldCom, Teleglobe, Group Telecom and Abovenet/MFN, have filed for reorganization or liquidation
under the bankruptcy laws. As a result of the decline in credit quality and these bankruptcies, some of our clients may have inadequate financial resources to meet all of their obligations and may
seek to reject or renegotiate their purchase agreements with us. If either significant clients or a significant number of smaller clients are unable to meet their obligations to us, reject their
contracts or renegotiate their contracts, we may not be able to recognize future revenues and we may also incur additional bad debt expenses and experience reduced opportunities for growth. In
addition, if a client fails to pay us, we may remain obligated to third parties for the cost of circuits previously provided to the client. These events would harm our cash flow, results of operations
and financial condition, as would future deterioration in market conditions in our industry or in the creditworthiness of our significant clients or a significant number of smaller clients.

In
addition, some of our carrier suppliers, including WorldCom, may have inadequate financial resources to provide reliable service or to meet their other obligations to us. If a carrier
supplier is unable to meet its obligations to us, we could be required to purchase replacement services on less favorable terms or experience disruptions in service, which could impair our ability to
retain or attract clients. Disruptions in service could require us to issue outage credits to our clients, which would reduce our revenue and gross margins.

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

Our ability to meet our planned growth and any changes in circumstances from our current expectations may require additional cash resources. For example,
unexpected declines in cash resources due to client bankruptcies, deteriorating industry conditions, security deposit requirements, accelerated vendor payment terms, payments required to settle
disputes, adversely determined litigation, or other reasons may create a need for us to obtain funding from external sources in order to continue operations. In addition, we may, as part of our growth
strategy, acquire complementary businesses and technologies, which may require us to raise additional funds. We expect to supplement our cash flow from operations with additional capital in order to
meet our planned cash capital requirements and retain prudent cash balances. Our ability to do this 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 facilities on a
timely basis, on acceptable terms or at all. Additional equity financing may not be available or, if available, such financing would likely be dilutive to existing stockholders. If we are unable to
obtain future financing when needed or on acceptable terms, we may have to curtail our operations, delay or abandon our development and expansion plans or take further actions to strengthen our cash
position, which could materially adversely affect our ability to compete, grow and continue our operations.

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

We have incurred significant losses since inception and expect to continue to incur losses in the future. As of September 30, 2002, we had an accumulated
deficit of $257 million. Our revenues have decreased to $27 million in the three months ended September 30, 2002 from $30.7 million in the three months ended
September 30, 2001. We cannot be certain that we will be successful in reducing our costs, that we will be able to increase our revenues or that we will achieve sufficient revenues to become
profitable. We expect to continue to incur expenses in order to:



As
a result, we will need to generate significantly higher revenues to achieve and maintain profitability. If we fail to significantly reduce our costs or to generate higher revenues, we
may continue to incur operating losses and net losses and may be unable to continue our operations.

If we fail to manage our cost reduction efforts and future expansion effectively, our ability to operate and 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 effective planning and management of our
operations, including our workforce. At December 31, 1997, we had five employees. By the first quarter 2001, we had over 400 full-time employees. Since that time, we have reduced
our headcount to approximately 139 full-time employees. These periods of growth and headcount reductions and potential growth in future operations will continue to place a significant
strain on our management systems and resources. We cannot be sure that our reduced workforce will be sufficient to identify and take advantage of market opportunities and manage multiple relationships
with various clients, suppliers and other third parties. If our operations and headcount grow in the future, we expect that we will need to improve our financial and managerial controls, reporting
systems and procedures, and expand, train and manage our workforce. We cannot be sure that will be able to manage this potential expansion effectively.

Our cash resources and operating flexibility may diminish if our relationships with our carrier suppliers deteriorate.

Certain of our carrier suppliers might claim the right to demand a security deposit or accelerated payment terms from us due to our financial condition or payment
history. Our carrier suppliers may further seek to bill us for purported failure to meet purchase commitments, for amounts purportedly incurred but not previously billed by the supplier or for amounts
previously billed but challenged by us, notwithstanding factual or legal disputes regarding any such matter. If we are required to pay any of these amounts, our cash resources could be materially
diminished. Some of these failures may be claimed by incumbent local exchange carriers, which historically have been reluctant to engage in negotiations on such matters and if they do engage in
negotiations, often refuse to significantly reduce the amounts they claim we owe. Such disputes may also affect the willingness of suppliers to provide us with capacity or other services, which would
reduce our operating flexibility and ability to deliver services to existing or potential clients. If the supplier in any such dispute enters a bankruptcy or similar proceeding, our business
relationship with the supplier could be disrupted, which would impair our ability to negotiate. As of September 30, 2002, the Company had $16 million in open billing disputes with carriers.
Historically, when billing disputes have been resolved, we have on average avoided charges or payment for over 90% of the resolved amounts. Although past performance is no

20

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indicator of future performance, we believe we are adequately reserved for any potential lost billing disputes.

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 database in conjunction with our UTX facilities long enough to accurately predict trends in our business. Moreover, we have
not operated UTX facilities for a long enough period of time 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 evolving industry and in an early stage of development, including:



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
sometimes provide for monthly minimum revenue commitments from us, which we must negotiate based on forecasts of our future network capacity requirements. At September 30, 2002, these minimum
purchase commitments totaled approximately $2.4 million per month. 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 meet these minimum purchase commitments or to become profitable. In addition, it may be difficult for us to meet these minimum purchase commitments if prices
for our carriers' services decline in the future or if our clients refuse to use capacity provided by a supplier that has filed for bankruptcy protection or is otherwise financially distressed.

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:



21

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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 competition in our industry intensifies or if we
are unable to expand our client base.

Recent legal proceedings may affect our results and financial position.

We are party to several legal proceedings. Certain of these proceedings relate to transactions that we have entered into with companies that are currently in
bankruptcy. In addition, securities class action lawsuits are pending against us. Management believes that these lawsuits are without merit, and we intend to defend these actions vigorously. Because
of the complexity of certain of the transactions underlying these lawsuits, as well as the inherent uncertainty of litigation, however, it is possible that the outcome of one or more of these cases
may be adverse to the Company. In addition, the resources required to defend these cases, including the management time and attention required to adequately defend the Company's position, may affect
our results of operations and financial position.

We may be obligated to purchase an underlying service for a longer period of time than a client purchases services from us, which may cause us to incur costs without associated
revenues.

If our clients terminate circuits prior to the expiration of our commitment to purchase the required underlying services from our carrier suppliers, we might
incur early termination charges or other charges from our carrier suppliers or might be unable to terminate the underlying services, which would cause us to incur expense without associated circuit
revenue. Although we seek to pass such expenses through to the client when we have the right to do so under our contract with the client, we do not always have the right to do so and may not be
successful when we seek to enforce such rights.

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, which would force us to look for alternative sources of capacity on short notice. In addition, billing or other disputes with our suppliers may adversely effect their willingness to
provide capacity in a timely manner. 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 would be unable to recognize
revenues for that circuit, may incur financial liability to our supplier for that circuit, and our operating results would be adversely affected. Furthermore, because our clients may cancel orders at
any time before accepting the circuit, we may find it difficult to forecast revenue and plan our expenses accordingly.

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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 some of our
key employees. For example, on November 13, 2002, our Board of Directors appointed Lance Boxer as Interim Chief Executive Officer. 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
may need to hire additional personnel in the future, and we believe our success depends, in large part, upon our ability to attract and retain our key employees. Attracting and
retaining key employees is becoming more difficult due to recent negative publicity regarding our industry, our low stock market capitalization, our limited financial resources and our recent
workforce reductions. 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 and to operate our business.

If we cannot successfully aggregate circuits, our ability to increase our margins could be limited.

We plan to actively manage circuits through our UTX facilities to deliver circuits to clients more quickly and to increase margins. We plan to achieve this by
physically aggregating circuits on the same route. In order to physically aggregate circuits, we have, on a limited basis, deployed optical switches that allow circuits to be optically switched
between networks. We may face delays in installing optical switches. In addition, we cannot be sure that there will be enough circuits on routes between existing UTX facilities to allow us to
cost-effectively aggregate these circuits. If we cannot successfully deploy optical switches or physically aggregate circuits, our ability to increase our margins could be limited.

Our ability to implement and maintain our UIX database is unproven. If we cannot increase the scope and accuracy of this database 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 UIX database. 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 database. 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 accurate or current. If we cannot continue to maintain and expand our UIX database as planned, we may be unable
to increase our revenues or to cost-effectively facilitate the supplying of the circuits.

If we cannot successfully operate 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. While we currently operate our own network operations facility, our experience in this regard is limited both by the amount of time we have been in business
and providing this service on our own as well as by the technical limitations of managing circuits and services on the networks of other providers. As a consequence, we cannot be sure that our efforts
to provide these services will be

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successful. Our ability to operate a network operations center will depend on many factors, including our ability to train, manage and retain employees. If we fail to successfully operate 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.

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

The market in which we operate is 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:



Our
industry is expected to consolidate, which would increase the size and scope of our competitors. Competitors could benefit from assets acquired from distressed carriers or strategic
alliances in the telecommunications industry. 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. In particular, companies that have reduced their debt or other obligations through bankruptcy or other restructurings
may have significantly lower cost structures that allow them to offer services at significantly reduced prices.

Moreover,
while recent regulatory initiatives allow competing telecommunications carriers 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, incumbent local exchange carriers. 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, or FCC, to lessen or remove some restrictions. Verizon,
BellSouth and SBC, three of the four Bell companies, have received FCC permission to offer long-distance services to customers in a number of states, and the FCC is expected to consider
several additional requests for this relief in the near future. 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 substantial business from our clients.

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:



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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.

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

Our revenues and operating results may 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 and telecommunications infrastructure, which in turn depend upon the success and expected demand for the
services these clients offer.

We
expect our operating expenses to remain relatively constant or decline moderately 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 maintenance

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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 continued Nasdaq SmallCap Market listing is not assured, which could reduce the liquidity in the market for our stock and make capital raising and other transactions more
difficult.

We recently moved from the Nasdaq National Market System to the Nasdaq SmallCap Market. As a result, future capital raising activities and acquisitions may be
more difficult due to increased state securities laws compliance obligations. The Nasdaq SmallCap Market requires a minimum bid price of $1.00 for continued listing. On November 8, 2002, the
closing price for our Common Stock on the Nasdaq SmallCap Market was $0.39. We have until December 3, 2002 to demonstrate compliance with the $1.00 per share requirement, although the Nasdaq
SmallCap Market may extend that deadline by 180 days if we meet certain criteria, which we expect to satisfy. If we are de-listed from the Nasdaq SmallCap Market, our common stock
would trade, if it traded at all, in the over-the-counter market, which is viewed by most investors as a less desirable, less liquid marketplace. Among other things, this would
place increased regulatory burden upon brokers, making them less likely to make a market in the stock. Loss of our Nasdaq SmallCap Market status would likely make it more difficult for us to raise
capital or complete acquisitions.

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

The market price of our common stock has fluctuated significantly since our initial public offering. The market price of our common stock may in the future
fluctuate significantly in response to a number of factors, some of which are beyond our control, including:



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. The networks of transport

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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 lack of resources necessary to maintain and manage our facilities, fire, human error, earthquakes and other natural disasters,
disasters along communications rights-of-way, power loss, telecommunications failures, sabotage or vandalism, or the financial distress or other event adversely affecting our
suppliers, such as bankruptcy or liquidation.

We
may be subject to legal claims and be liable for losses suffered by clients and carriers for disruptions to circuits or damage to client or carrier equipment resulting from failures
at our facilities or on the networks of third party providers. 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 and gross margins. We would also incur significant expenses in investigating and addressing the causes of such
circuit or other service failures, which would divert resources from the maintenance or expansion of our services and cause our business to suffer. In addition, we may lack the resources to
investigate and address any such failures in as timely a manner as our clients may expect, which may damage our business relationship with those clients and reduce our ability to obtain future
business. Clients may seek to terminate their contracts with us if there is a circuit or other service failure. In addition, if our circuit failure rate is high, our reputation could be harmed.

Terrorist attacks and threats or actual war may negatively impact our business, financial condition and results of operations.

Our business is affected by general economic conditions which can decline as a result of numerous factors outside of our control, such as terrorist attacks and
acts of war. Recent terrorist attacks against the United States, as well as events occurring in response to or in connection with them, including future terrorist attacks against U.S. targets, rumors
or threats of war, actual conflicts involving the United States or its allies, or military or trade disruptions impacting our suppliers or our clients, may adversely impact our operations. As a
result, there could be delays or losses in the delivery of our service, decreased sales of our services and extension of time for payment of accounts receivable from our clients. Strategic targets
such as communications networks and the Sears Tower may be at greater risk of future terrorist attacks than other targets in the United States. This occurrence could have an adverse impact on our
operations. It is possible that any or a combination of these occurrences could have a material adverse effect on our business, financial condition and results of operations.

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 year ended December 31, 2000, our four
largest clients accounted for approximately 74% of our total revenues, and for the year ended December 31, 2001, our three largest clients accounted for approximately 55% of our total revenues.
For the quarter ended September 30, 2002, our three largest clients accounted for approximately 38% of our total revenues. We have a number of significant contracts with these clients under
which we derive a significant amount of our revenues.
These contracts expire on various dates between now and March 2005. If, through a bankruptcy proceeding or otherwise, we lose one or more large clients, or if one or more of our large clients
reduces the services they purchase from us or otherwise renegotiates the terms on which they purchase services from us and we fail to add new clients, our revenues could decline and our results of
operations would suffer.

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

The market for our UTX services is unproven. 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. Our ability to generate revenues from UTX services will suffer if the market for these services fails to develop or develops more slowly than
we expect.

One
of our key strategies has been to expand our business by opening additional UTX facilities in geographically diverse locations. Because we have suspended this strategy, the resulting
delays 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.

Operating UTX facilities causes us to incur significant costs and expenses.

Our UTX facilities cause us to incur significant costs and expenses. If the demand for UTX services from these facilities does not develop as we anticipate, we
will have certain costs and expenses without corresponding revenue and our business will be harmed. These costs and expenses include:



An
inability to attract sufficient clients to our UTX facilities would harm our ability to generate revenues.

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 U.S. communications services are subject to both federal and state regulation. In providing our interstate and international communications services, we must
comply with applicable telecommunications laws and regulations prescribed by the FCC and applicable foreign regulatory authorities. At the state level, we are subject to state laws and to regulation
by state public utility commissions. Our international services are subject to regulation by foreign authorities and, in some markets, multi-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
have been required to obtain authorization from the FCC, many state public utilities commissions and foreign regulatory authorities to offer particular types of telecommunications
services. Pursuant to these authorizations, we have to comply with a variety of regulatory obligations on an ongoing basis. We cannot assure you that the FCC, state commissions or foreign authorities
will grant us required authority (or do so in a timely manner), or refrain from taking action against us if we are found to have violated any applicable requirements. If authority is not obtained or
if our schedules of

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prices, terms and conditions are not filed, or are not updated, or otherwise do not fully comply with the rules of the FCC or state or foreign 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.

Changes
to existing regulations in particular markets 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.

Required regulatory approvals may interfere with or delay corporate transactions.

As a regulated company, we may be required to obtain the approval of the FCC and certain state and foreign regulators before engaging in certain types of
transactions, including some mergers, acquisitions of other regulated companies, sales of all or substantial parts of our business, issuances of stock, and incurrence of debt obligations. The
particular types of transactions that require approval differ in each jurisdiction. 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.

Regulatory changes may affect our costs and ability to compete effectively.

The telecommunications circuits we provide often consist of both inter-city and local loop components. The local loop is the circuit connection between a carrier
facility within a city and a customer premise in the same city. On most inter-city routes, several different carriers offer capacity, and pricing is generally competitive; but for local loop routes,
in many cases the incumbent local exchange carrier is the only provider of underlying facilities. Under the Telecommunications Act of 1996, competing carriers have been able to obtain access to the
facilities of the incumbent local exchange carriers, thereby creating some competition for local loop circuits. The prices that incumbent local exchange carriers charge to us for local loop circuits
are directly regulated by the FCC or State regulatory agencies. The prices that competing carriers charge are not directly regulated but are affected by the regulated rates that these carriers pay for
access to incumbent local exchange carrier facilities. Therefore, any changes in the regulatory regime that affect the rates charged by the incumbent local exchange carriers, or affect the terms on
which competing carriers gain access to incumbent local exchange carrier facililties, may have a material impact on our cost of operations and our ability to offer competitive pricing for complete
circuits.

Currently,
the FCC is conducting a review of its rules requiring incumbent local exchange carriers to provide competing carriers unbundled access to network elements, including local
loop circuits. It is not possible for us to predict the outcome of this proceeding, which is expected to be completed by the FCC in late 2002 or early 2003, but will likely be subject to court appeals
after that. Changes in the FCC's network element rules as a result of this proceeding, or other legislative or regulatory changes, may affect our ability to obtain local loop circuits at competitive
prices.

We may incur operational and management inefficiencies if we acquire new businesses.

To further our strategy, we may seek to acquire businesses and technologies which we believe will complement our existing business. Any such acquisitions would
likely involve some or all of the following risks:



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

We must continue our marketing and sales initiatives to increase market awareness and sales of our services.

Our services require a sophisticated sales and marketing 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. Our ability to execute our sales and marketing initiatives depends on many factors,
including our ability to train, manage and retain employees. If we are unable to effectively staff our marketing and sales operations, or our marketing efforts are not successful, 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.

Our efforts to develop new service offerings may not be successful.

We may choose to invest significant sales and management resources to developing and selling new service offerings. There may be significant
out-of-pocket expenses associated with these investments, which in turn would reduce resources available to develop our traditional lines of business. The success of potential
new service offerings is uncertain and would depend on our ability to successfully coordinate our internal financial, engineering and sales personnel and on many factors outside of our control,
including the willingness of our clients to pay for these offerings and the willingness of our vendors to provide the goods and services that these new service offerings require. If we are
unsuccessful in developing and selling our new service offerings, our growth could be adversely affected.

If we do not continue to train, manage and retain employees in our client support organization, clients may significantly reduce purchases of our services.

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. If we fail to train, manage and retain employees in 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.

Failure to successfully maintain and upgrade our management information systems could harm our ability to operate or manage our business effectively.

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

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

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

We have no patented technology that would preclude or inhibit competitors from replicating our business. 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 applied for registration of certain of our service marks in the United States and in
other countries, and have obtained registrations for certain of our service marks in the United States, the European Union, Australia, Korea, Indonesia, Mexico, Thailand, Switzerland, New Zealand and
Singapore. Even if additional registrations are 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 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 the Company 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 46.2% 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 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, substantially all of which they are able to sell in the public market. 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 necessary capital through the issuance of additional common stock.

ITEM 4. CONTROLS AND PROCEDURES

Within the 90-day period prior to the filing of this report, an evaluation was carried out under the supervision and with the participation of the Company's
management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in
Rule 13a-14(c) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the

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design and operation of these disclosure controls and procedures were effective. No significant changes were made in our internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.

ITEM 7A. 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, we 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 September 30, 2002, all of our investments were in cash and cash equivalents.

Interest Rate Sensitivity

We maintain our cash equivalents and short-term investments primarily in a portfolio comprised of commercial paper, money market funds, and investment
grade debt securities. As of September 30, 2002, all of our investments had maturities of less than six months. Accordingly, we do not believe that our investments have significant exposure to
interest rate risk.

Exchange Rate Sensitivity

We currently operate primarily in the United States, and substantially all of our revenues and expenses to date have been in U.S. dollars. Accordingly, we have
had no material exposure to foreign currency rate fluctuations.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On November 5, 2001, a complaint was filed in federal court for the Southern District of New York on behalf of a purported class of persons who purchased
the Company's stock between March 16, 2000 and December 6, 2000. The complaint generally alleges that various underwriters engaged in improper and undisclosed activities related to the
allocation of shares in our initial public offering of securities. The complaint brings claims for violation of several provisions of the federal securities laws against those underwriters and also
against the Company and certain of its present and former directors and officers. In October 2002, the present and former directors and officers named in the complaint were dismissed from the
litigation without prejudice. The Company believes that the allegations are without merit and intends to defend the litigation vigorously.

On
March 15, 2002, Aleron filed for protection under Chapter 11 of the bankruptcy code in the United States Bankruptcy Court for the Eastern District of Virginia. Before the
bankruptcy, we provided telecommunications services to Aleron. We believe that we validly terminated any and all agreements between the Company and Aleron before Aleron's bankruptcy. Under an
agreement approved by the bankruptcy court, we then provided services to Aleron at a reduced level. Upon the subsequent acquisition of the assets of Aleron by a third party, we have continued to
provide a reduced level of service to the acquiring party. We believe that we have claims against Aleron, and Aleron has listed in its bankruptcy filings potential claims against us arising out of the
agreements. On August 6, 2002, the court converted the Aleron case to a proceeding under Chapter 7 of the bankruptcy code. In light of Aleron's financial position, we cannot predict whether we
will realize any value from our claims, nor are we in a position to predict the outcome in the bankruptcy court of the potential claim Aleron cites in its filing. On June 11, 2002, Qwest
brought a claim against Aleron and the Company in the Aleron bankruptcy proceeding asserting that either the Company or Aleron owes Qwest approximately $3.5 million for services provided by
Qwest. On August 29, 2002, Level 3 brought a claim against Aleron and the Company in the Aleron bankruptcy proceeding asserting that either the Company or Aleron owes Level 3 for services
provided by Level 3. We believe that the claims of Qwest and Level 3 against us are without merit and intend to defend the actions vigorously.

Since
April 2002, seven complaints alleging violations of the Securities Act of 1934 were filed in the Eastern District of Texas and the Northern District of Illinois against the
Company and certain of its present and former directors and officers. On September 17, 2002, plaintiffs voluntarily withdrew the five complaints filed in the Northern District of Illinois. On
October 4, 2002 an amended complaint was filed in the remaining two actions consolidated in the Eastern District of Texas on behalf of a purported class of persons who purchased the Company's
stock between December 4, 2000 and March 22, 2002. The complaint alleges that the Company's financial statements and related announcements were false and misleading and that certain
officers sold Company stock on the basis of non-public information in violation of the federal securities laws. The Company believes that the allegations are without merit and filed a
motion to dismiss on October 24, 2002.

We
have settled the adversary proceeding filed against us by Sphera. On August 22, 2002, the United States Bankruptcy Court for the District of New Jersey authorized and approved
the Sphera Settlement Agreement, as described above under "Operations and Administration (Excluding Stock Plan Compensation)", pursuant to which the suit filed by Sphera has been dismissed and the
Company has received and expects to receive certain payments.

In
February 2002, we agreed to issue warrants for the purchase of 750,000 shares of our common stock to certain stakeholders in Sphera. In November 2002, we entered into a
settlement agreement whereby we paid $25 to the stakeholders and the parties agreed that the warrants were not, by their terms, exercisable at any time.

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In
November 2002, a placement agent engaged by the Company in 2001 filed a complaint in the Central District of California against the Company claiming that the placement agent is
entitled to certain amounts in connection with a credit facility purportedly entered into by the Company. The Company believes that the allegations are without merit and intends to defend the action
vigorously.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

(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 sales channel development and other corporate purposes. In addition, we may
use a portion of the net proceeds to acquire 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.

ITEM 5. OTHER INFORMATION

On November 13, 2002, we announced that our Board of Directors has appointed Lance Boxer as Interim Chief Executive Officer, effective November 13,
2002, and has also appointed him to the Board as a Class I director. We further announced that founder Patrick Shutt has resigned as Chairman, President and Chief Executive Officer but will
remain on the Board. We have commenced a search for a new Chief Executive Officer and will elect a new Chairman.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

|Exhibit
Number |  | Description of Document                                                                                                 
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------
|2.1            |  | Agreement and Plan of Merger among the Company, Migration Corporation and Universal Access, Inc. dated July 18, 2001.(1)
|3.1            |  | Restated Certificate of Incorporation of the Company.(2)                                                                
|3.2            |  | Amended and Restated Bylaws of the Company.(1)                                                                          
|4.1            |  | Form of the Company's Common Stock certificate.(3)                                                                      
|4.2            |  | Amended and Restated Registration and Informational Rights Agreement, dated June 28, 1999.(4)                           
|4.3            |  | Amended and Restated Registration and Informational Rights Agreement, dated June 30, 1999.(4)                           
|4.4            |  | Registration Rights Agreement, dated November 10, 1999.(4)                                                              
|4.5            |  | Registration Rights Agreement dated July 1, 2000.(5)                                                                    
|4.6            |  | Form of warrant to purchase shares of Common Stock of the Company issued to Advanced Equities.(4)                       
|               |  |                                                                                                                         

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|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.(6)
|------- | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.7.1   |   | Assumption of and Amendment to the Universal Access, Inc. Preferred Stock Rights Agreement dated
July 13, 2001.(1)                                                                                                                                                        
|10.15.1 |   | Amended and Restated AT&T Master Carrier Agreement dated July 1, 2002.                                                                                                                                                                                                    
|10.20.3 |  | Amendment 3 dated July 31, 2002 to the Carrier Global Services Agreement with MCI WorldCom Communications, Inc.                                                                                                                                                           

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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 GLOBAL HOLDINGS INC.
(Registrant)
|------------------------ |  | --------------------------------------------------
|Dated: November 13, 2002 |  | By:                                               

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CERTIFICATIONS

I,
Patrick C. Shutt, certify that:





|Date: November 13, 2002 |  | /s/PATRICK C. SHUTT[Signature]
Chairman, President and Chief Executive Officer
|----------------------- |  | ------------------------------------------------------------------------------

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CERTIFICATIONS

I,
Randall R. Lay, certify that:





|Date: November 13, 2002 |  | /s/RANDALL LAY[Signature]
Chief Financial Officer (Principal Financial and Accounting Officer)
|----------------------- |  | ----------------------------------------------------------------------------------------------

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