<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2002
                                       OR

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

Commission File No.                 000-49899
                   -------------------------------------------------------------

                            ATX COMMUNICATIONS, INC.
             (Exact name of registrant as specified in its charter)

            Delaware                                      13-4078506
--------------------------------------------------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

50 Monument Road, Bala Cynwyd, Pennsylvania                 19004
--------------------------------------------------------------------------------
(Address of principal executive offices)                  (Zip Code)

                                 (610) 668-3000
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $0.01 per share

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. | |

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]

The aggregate market value of the registrant's common stock held by
non-affiliates as of the last business day of the registrant's most recently
completed second quarter is: N/A - see Item 5 to Part II of this Annual Report
entitled, "Market for Registrant's Common Equity and Related Stockholder
Matters."

The number of shares outstanding of the issuer's common stock as of March 31,
2003 was 30,000,054.


<PAGE>


SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Certain statements contained herein constitute "forward-looking statements" as
that term is defined under the Private Securities Litigation Reform Act of 1995.
When used herein, the words "believe," "anticipate," "plan," "will," "expects,"
"estimates," "projects," "positioned," "strategy," and similar expressions
identify such forward-looking statements. All references in this Safe Harbor
legend to the Company shall be deemed to include ATX Communications and its
subsidiaries and affiliates. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from those contemplated, projected, forecasted, estimated
or budgeted, whether expressed or implied, by such forward-looking statements.
Such factors include the following: the Company's ability to obtain trade
credit, shipments and terms with vendors and service providers for current
orders; the Company's ability to maintain contracts that are critical to its
operations; potential adverse developments with respect to the Company's
liquidity or results of operations; adverse developments in commercial disputes
or legal proceedings, including the pending and any future litigation with
Verizon, SBC or others; the Company's ability to fund and execute its business
plan; the Company's ability to attract, retain and compensate key executives and
employees; the Company's ability to attract and retain customers; general
economic and business conditions; industry trends; technological developments;
the Company's ability to continue to design and build its network, install
facilities, obtain and maintain any required governmental licenses or approvals
and finance construction and development, all in a timely manner, at reasonable
costs and on satisfactory terms and conditions; assumptions about customer
acceptance, churn rates, overall market penetration and competition from
providers of alternative services; the impact of restructuring and integration
actions; the impact of new business opportunities requiring significant up-front
investment; interest rate fluctuations; and availability, terms and deployment
of capital. The Company assumes no obligation to update the forward-looking
statements contained herein to reflect actual results, changes in assumptions or
changes in factors affecting such statements.


<PAGE>



                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                             PAGE
<S>                                                                          <C>
PART I
ITEM 1.  BUSINESS ........................................................     1
ITEM 2.  PROPERTIES ......................................................    37
ITEM 3.  LEGAL PROCEEDINGS ...............................................    38
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .............    42

PART II
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
         STOCKHOLDER MATTERS .............................................    43
ITEM 6.  SELECTED FINANCIAL DATA .........................................    44
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
         OPERATIONS AND FINANCIAL CONDITION ..............................    46
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
         MARKET RISK .....................................................    63
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .....................    64
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE .............................    66

PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ..............    67
ITEM 11. EXECUTIVE COMPENSATION ..........................................    70
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT AND RELATED SECURITY HOLDERS .........................    73
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ..................    74
ITEM 14. CONTROLS AND PROCEDURES .........................................    75

PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
         FORM 8-K ........................................................    76

SIGNATURES ...............................................................    77
CERTIFICATIONS ...........................................................    78
EXHIBIT INDEX ............................................................   E-1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL
                STATEMENT SCHEDULES ......................................   F-1
</TABLE>



<PAGE>



                                     PART I

ITEM 1. BUSINESS

GENERAL

ATX Communications, Inc., (formerly CoreComm Holdco, Inc.), was formed in May
1998 as a Bermuda corporation and was domesticated under the laws of Delaware in
July 1999. Until December 2001, ATX Communications, Inc. was a direct,
wholly-owned subsidiary of CCL Historical, Inc. (formerly CoreComm Limited),
referred to as CCL. As a result of the recapitalization transactions completed
on July 1, 2002, known as the ATX recapitalization, CCL has been merged into a
wholly-owned subsidiary of ATX Communications, Inc. Prior to the ATX
recapitalization, CCL operated the same businesses that we currently operate. As
used herein, "ATX," the "Company," "we," "our" and similar terms include ATX
Communications, Inc. and its subsidiaries, unless the context indicates
otherwise.

From 1998 to 2000, we were in the process of building infrastructure to support
a national roll-out according to our original business plan. This business plan
required significant capital to fund capital expenditures, operating expenses
and debt service. As a result, we historically experienced substantial operating
and net losses. In early 2001, we still required significant funds to complete
our business plan as originally intended. However, adverse conditions in the
capital markets, particularly in the telecommunications sector, made it
extremely difficult to raise new capital, and we could no longer finance our
original business plan. As a result, in 2001, we significantly revised our
business plan to focus on our most profitable businesses and geographic areas,
and reduce our operational costs and need for capital.

EXECUTION OF REVISED BUSINESS PLAN

We began to implement our revised business plan in early 2001. Since that time,
we have been executing a variety of strategies, projects and initiatives,
including areas such as: customer and geographic focus, network efficiency and
other cost reductions, and reduction of indebtedness. These initiatives have led
to the improvements in our overall financial results from 2000 through 2002.

   Customer and Geographic Focus

In 2001 and 2002, we streamlined our strategy and operations to focus on our two
most successful and promising lines of business. The first is integrated
communications products and other high bandwidth/data/web-oriented services for
the business market. These products combine a variety of telecommunications
services into a consolidated package of services that are designed specifically
for the needs of the business customer. One of our most successful examples of
this is our CoreConnect product. Through CoreConnect, we offer a single, simple
solution - local, long distance, toll, data and Internet access services bundled
over a multi-purpose broadband connection. By combining all of a business'
essential communications over the same facilities, we are able to offer an
integrated access tool that enables higher speed, greater bandwidth, and
significant cost savings, all from a single source.

The second is bundled local telephony and Internet products for the residential
market. Similar to our business products, these offerings combine several
telecommunications services into a combined package that is both convenient for
the customer and a more profitable service for us. Our bundled offerings include
local telephone, including dial tone, local features and local calling, long
distance telephone, and Internet access. In addition, we focus on using Internet
interfaces, as well as our call centers, to efficiently sell, install our
products and service our customers.


                                       1
<PAGE>


By bundling these types of services together, we believe that we gain advantages
such as: greater product acceptance and increased sales, reduced overall costs
of service delivery, more efficient customer service and billing, and better
customer retention rates. Since 2001, we have successfully improved our product
and customer mix by increasing both the number and proportion of customers
subscribing to the services described above.

   Network Efficiency and Other cost savings

We have also implemented a variety of strategies designed to improve the margins
attained by the products we deliver. In addition to shifting the overall mix
toward more profitable services, we have also modified our network strategies to
deliver such services in a more efficient fashion. We have reduced network costs
and capital expenditures by converting many of our local access lines to more
profitable Unbundled Network Element - Platform pricing from Total Service
Resale pricing, which provides higher margins. In addition, we were able to
reduce the number of facilities established without substantially affecting our
service area by leasing enhanced extended local loops from the incumbent local
exchange carriers. We also have concentrated our geographic focus into our most
profitable territories and, as a result, we are now focused primarily in the
Mid-Atlantic and Mid-West regions of the United States.

We have implemented additional cost savings through a variety of means,
including facility consolidation, efficiency improvements, vendor negotiations,
network optimization, and headcount reduction. We have also improved our
operating efficiency through improved pricing terms and the elimination of
duplicative or unnecessary network facilities. While reducing expenses in all
areas of our business, we implemented new low cost revenue initiatives, which
were designed to grow our subscriber base without incurring significant
marketing expenses.

The following table shows the improvement in our operating and selling, general
and administrative expenses between the fourth quarter of 2000 and the fourth
quarter of 2002 as a result of these cost savings. These improvements amounted
to a total savings of approximately $158 million on an annualized basis.

<TABLE>
<CAPTION>
(in thousands)                                       THREE MONTHS ENDED
                                                     ------------------           AMOUNT OF      PERCENTAGE
                                                DECEMBER 31,    DECEMBER 31,     IMPROVEMENT     IMPROVEMENT
                                                    2002            2000         Q4'00-Q4'02     Q4'00-Q4'02
                                                    ----            ----         -----------     -----------
<S>                                             <C>             <C>              <C>             <C>
Operating Expenses                                $ 47,125        $ 65,002        $ 17,877              28%
Selling, General & Administrative Expenses          16,892          38,414          21,522              56%
                                                  --------        --------        --------        --------
    Total                                         $ 64,017        $103,416        $ 39,399              38%
                                                  ========        ========        ========        ========
</TABLE>

   Reduction of Indebtedness

In addition to the many significant improvements made to our operations, we have
also been successful reducing our indebtedness, and thereby further improving
our cash flow. In 2001 and 2002, we completed the ATX recapitalization. In this
transaction, we eliminated approximately $600 million of debt and preferred
stock, including: $105.7 million of Senior Unsecured Notes of CCL, $26.1 million
of 10.75% Unsecured Convertible PIK Notes, $160.4 million 6% Convertible
Subordinated Notes of CCL, and $301 million of preferred stock of CCL. In July
2002, we completed a second phase of the ATX recapitalization in which the
former stockholders of CCL received direct ownership in ATX Communications,
Inc., the newly recapitalized company, through public exchange offers.


                                       2
<PAGE>


This transaction resulted in a significant reduction of our interest expense. As
a result of completing the ATX recapitalization, our interest expense was
reduced to $16.4 million from $25.6 million in 2001.

The Company has recently taken additional steps to improve the terms of its
indebtedness and improve cash flow. On March 31, 2003, the Company entered into
an amendment to its Senior Secured Credit Facility. Under this amendment, the
senior lenders agreed to defer interest and principal payments during 2003 on
the outstanding loans until February 2, 2004. The Company intends to utilize the
increased liquidity afforded by the amendment to invest in several areas of its
core operations.

   Overall Impact on Financial Results

The strategies and initiatives that we have implemented through our revised
business plan have led to improvements in our financial results in 2002 as
compared to 2000, as illustrated by the cash flow measurements indicated the
table below:

<TABLE>
<CAPTION>
(IN THOUSANDS)                                                                  YEAR ENDED
--------------                                                                  ----------
                                                                       DECEMBER 31,     DECEMBER 31,
                                                                          2002             2000
                                                                          ----             ----
<S>                                                                    <C>              <C>
Net cash used in operating activities                                   $  (3,750)       $(136,412)
Net cash used in investing activities                                     (10,857)        (166,534)
% Reduction in Net cash used in operating activities (2000 - 2002)             97%
% Reduction in Net cash used in investing activities (2000 - 2002)             93%
</TABLE>

BUSINESS STRATEGY

We are an integrated communications provider that offers local exchange carrier
and interexchange carrier telephone, Internet and high-speed data services to
business and residential customers in targeted markets throughout the
Mid-Atlantic and Midwest regions of the United States. We operate three business
divisions: business services, residential services and Internet services. We are
exploiting the convergence of telecommunications and information services
through our network strategy, which involves the ownership of telephone
switching equipment and the purchase of local exchange carrier services that
connect to homes and businesses, combined with the leasing of a national and
international network that carries Internet traffic. This configuration of
locally and regionally owned and leased facilities allows us to deliver a wide
range of communications services over a wide geography within our regions. We
currently offer services to business and residential customers located
principally in Pennsylvania, Ohio, New Jersey, Michigan, Wisconsin, Maryland,
Illinois, New York, Virginia, Delaware, Washington, D.C. and Indiana. In local
exchange services, we compete against the established local telephone service
provider that was the service provider in a region prior to the opening of local
telephone service to competition, as well as other local exchange carriers.

In 2002, we streamlined our strategy and operations to focus on our two most
successful and promising lines of business. The first is integrated
communications products and other high bandwidth/data/web-oriented services for
the business market. The second is bundled local telephony and Internet products
for the residential market, with a focus on Internet-centric interfaces as well
as our call centers, to efficiently sell, install our products and service our
customers. Our strategy is to attractively bundle telephony and data services in
our target markets in order to compete with the ILECs and gain market share.


                                       3
<PAGE>


As of December 31, 2002, we had approximately 285,800 local telephone access
lines in service. The following table details our customer base:

<TABLE>
<CAPTION>
                                                              AS OF DECEMBER 31,
                                                                     2002
                                                                     ----
<S>                                                           <C>
Business Local Access Lines                                         236,200
Residential Local Access Lines                                       49,600
Toll-related Access Line Equivalents                                510,100
Internet Subscribers                                                277,000
Other Data Customers (1)                                             29,600
</TABLE>

----------

(1)   Other data customers included Point-to-Point data, Frame Relay, Web
      Development, Web Hosting, E-Commerce, Co-location and other related
      customers.

In 2002, our revenues were attributable to the following service categories:

<TABLE>
<CAPTION>
                                                               YEAR ENDED
                                                              DECEMBER 31,
                                                                  2002
                                                                  ----
<S>                                                           <C>
Local Exchange Services                                              35%
Internet, Data and Web-related Services                              31%
Toll-related Telephony Services                                      24%
Other Revenue (1)                                                    10%
                                                                    ---
     Total                                                          100%
                                                                    ===
</TABLE>

----------

(1)   Other includes carrier access billing, reciprocal compensation, wireless,
      paging and information services.

We have engaged in significant efforts to increase the profitability of our
services. We have capitalized on opportunities such as converting customers from
Total Service Resale, where we resell services as purchased from the incumbent
local exchange carrier, to the more profitable Unbundled Network Element --
Platform or (UNE-P) and Enhanced Extended Loops (or EEL) in order to reduce our
existing network costs and capital expenditures and to increase our gross
margins. Under UNE-P, we lease all of the Unbundled Network Elements needed to
provide service to a customer from an incumbent local exchange carrier so that
we do not need to use any of our own network facilities to provide the service.
With UNE-P, we pay the total cost to lease each network element, which generally
provides us a greater gross margin than total service resale. By using EEL, we
are able to lease a combination of local network elements and facilities from
the incumbent local exchange carrier to extend the reach of our regional
networks to service customers that are outside of service areas of our network.
This allows us to put more traffic on our regional networks without building
additional infrastructure.

Over the past two years, many of our business and residential local access lines
have been converted to these more profitable services from total service resale.
We also plan to continue to connect telephony customers onto our owned and
leased networks where we have facilities in place, while also taking advantage
of UNE-P and EEL to expand our service areas.


                                       4
<PAGE>


The following is a description of our three business divisions, as well as a
description of our network technology and proprietary systems.

BUSINESS SERVICES

Through our business services division, we offer customers a full range of
high-speed communications services including local exchange carrier and
interexchange carrier telephony services, network services such as network data
integration, Internet access and Web consulting, development and hosting, and
other related services. In addition, we offer Advanced Communications Solutions
products tailored to meet the needs of our business customers, such as
conference calling, travel services, pre-paid calling, enhanced fax and PC-based
billing. Customers are billed on a single, consolidated invoice, delivered by
traditional means or through near real time Web-based billing that allows the
customer to, for example, sort the information to detail calling patterns. Our
target markets are the Mid-Atlantic region throughout the New York-Virginia
corridor and Midwest markets, including: Cleveland, Ohio; Columbus, Ohio;
Chicago, Illinois; and other markets in the Great Lakes region.

   Business Products and Services

Our business division offers customers a full range of broadband communications
services, including:

      CoreConnect. We offer a single, simple solution for all of a customer's
      communications needs - local, long distance, toll, data and Internet
      access services bundled over a multi-purpose broadband connection. By
      combining all of a business' essential communications over the same
      facilities, we are able to offer an integrated access tool that enables
      higher speed, greater bandwidth, and significant cost savings, all from a
      single source. Through this integrated product, we are also able to offer
      custom-tailored bandwidth-intensive data solutions such as internal
      network connectivity, dedicated point-to-point circuits, frame relay to
      the Internet, and specialized connections for multimedia applications. We
      also offer these products on a stand-alone basis.

      Local Telephony Services. Local telephony services include local dial tone
      and a set of custom calling features that business customers can tailor to
      meet their local telephony needs. A sample of some of the most popular
      local features include alternate answer, automatic callback, busy line
      transfer, call blocking, call forwarding, call trace, call waiting, caller
      ID with name, multi-ring service, repeat dialing, remote access call
      forwarding, and speed calling.

      Toll-related Telephony Services. Toll-related telephony services include
      inbound/outbound service, international, 800 or 888 service and calling
      card telephone service. We currently provide intrastate and interstate
      long distance services nationwide and international termination worldwide.
      We also offer a full line of Advanced Communications Solutions along with
      our toll-related services, such as Internet-based call management,
      traveling calling cards, fax broadcasting, voicemail, conference calling
      and enhanced call routing services.

      Network Services. We also offer complete high-speed network solutions to
      our customers. These services include private line and frame relay
      services.


                                       5
<PAGE>


      Internet Services. We utilize a state-of-the-art network to deliver
      Internet access designed for business use, ensuring high-speed and stable
      connectivity to a global resource of information. Our customers are
      connected via high-speed dedicated lines, from 56K up to DS3.

      Web Services/E-commerce. We are able to facilitate many aspects of
      establishing and maintaining an interactive global presence in Web
      services. The various segments of Web services include Web design,
      development and hosting, electronic commerce, Intranet development,
      database integration, Internet marketing and Internet security.

      Consulting Services, Local Area Network/Wide Area Network Data
      Integration. Our network services and integration unit assists
      organizations in the design, construction, implementation and management
      of practical local and wide area networks. This business unit manages
      local area network/wide area network data integration for private line
      services, Internet network and integrated services digital network, as
      well as professional consulting services and hardware/software sales. We
      develop solutions while educating clients on specific business
      applications and the technology that make them possible. Consulting
      services include wide area network architecture and implementation, router
      and consumer premise equipment configuration, local area network
      switching, electronic commerce, cabling and virtual local area network
      design and set-up.

      Wireless Services. We also offer wireless services primarily as a customer
      retention tool, consisting of both cellular and paging service. We offer
      digital and analog cellular services as well as ESMR service, which is
      two-way radio and digital cellular service through Nextel.

   Business Sales and Marketing

Our sales model is based on our consultative sales approach, our proprietary
marketing and training tools, the experience of our sales force, our training
and career development program, and our shared vision and incentive structure to
reward individual and team performance objectives. Each sale begins with a
consultation that investigates the needs of the customer. The sales consultant
then designs a tailored, integrated and cost-effective platform that addresses
the specific customer's communications needs. We have an experienced and
long-tenured sales force. Over 25% of our senior sales force professionals have
been with us for more than five years, and approximately 80% of the sales
management team has been promoted from within our organization.

RESIDENTIAL SERVICES

We offer residential customers voice, data and other telecommunications
services, primarily in Ohio, Illinois, Michigan, Wisconsin and Pennsylvania and
Internet access services over a wider area in the Midwest and Mid-Atlantic
regions of the United States. Customers who purchase multiple services are
billed for their services on a single consolidated bill. Customers in the
Midwest region can also choose to access their billing information and pay their
bills online, or they may select automatic bill payment via credit or debit
card.


                                       6
<PAGE>


   Residential Products and Services

Our residential strategy is to bundle telephony and Internet products and
services in convenient and simple ways that are attractive to the customer and
distinctive in the marketplace. In general, we currently offer the following
voice, data and Internet services to residential customers in our markets:

      Local Telephony Services -- including standard dial tone, local calling,
      Emergency 911 services, operator assisted calling, access to the long
      distance network, and other related services.

      Custom Calling Features -- including call waiting, call forwarding, caller
      ID, voice mail, conference calling, multi-ring, speed calling and other
      enhanced features.

      Toll-related Telephony Services -- local, long-distance, international
      calls, 800/888/877 toll free services, calling cards and other related
      services.

We typically offer a package of our most popular services and then create ways
for customers to purchase other services easily and conveniently. In our current
residential offering, which may change over time, we offer a package of local
and long distance phone service and Internet access, which is called the
CoreComm Unlimited Premium service. Although the details of the offerings vary
somewhat by region, the package typically includes:

      -     Local dial tone;

      -     Local calls;

      -     Call waiting;

      -     Caller-ID with name;

      -     Personal 800 number;

      -     Premium Internet service;

      -     56K unlimited Internet access;

      -     Three e-mail addresses;

      -     10 megabytes of personal web space;

      -     Long distance service; and

      -     Bundled minutes of long distance.

Additional options and features, such as voice mail, three-way calling, an
additional line, and additional web site space, can be easily and flexibly added
by the customer. The pricing for CoreComm Unlimited Premium varies by region,
but in all areas the price compares favorably to prices offered by the incumbent
telephone company and other providers of these services.


                                       7
<PAGE>


   Residential Sales and Marketing

We focus on a marketing approach that combines targeted direct marketing with
partnerships and local organizations. We utilize local media and partner with
civic organizations to develop the recognition of the brand and to create a
captive potential base of customers. We also target customers in our service
area via direct mail, e-mail and telemarketing. All of our sales efforts are
designed to drive revenue growth by capitalizing on low cost opportunities in
our current markets.

In addition to efforts designed to acquire new customers, we continually engage
in efforts to sell additional services to existing customers. For example, we
are currently in the process of upselling our bundled local and toll-related
telephony and Internet products to our Internet-only customers.

While residential customers can purchase our services by calling our toll-free
number, our residential marketing efforts are intended to drive potential
customers to our website, www.core.com. At this website, customers can sign up
for service in a fully online process at a low transaction cost for us. Our
product offerings are designed to be simple and flexible, so that potential
customers can easily understand the value provided.

INTERNET SERVICES

Our Internet services division provides Internet access and high-speed data
communications services to residential and business subscribers. Services
include dial-up Internet access, dedicated telecommunications services to
business, cable modem access, Web-hosting, electronic commerce, and co-location
services. We operate one of the largest dial-up Internet networks in the Midwest
in terms of geographic coverage, with approximately 161 points of presence in
Michigan, Wisconsin, Ohio, Illinois, Indiana, Minnesota, Pennsylvania and New
York.

In April 2001, we announced that we were evaluating strategic alternatives for
our selected non-CLEC assets and businesses and have retained advisors for the
purpose of conducting this review.

   Internet Products and Services

   Internet Access Services

We offer Internet access services to residential subscribers and dedicated, web
hosting, and dial-up Internet access to business customers. By selecting between
the various types of access services and pricing plans available, subscribers
can select services that fit their specific needs. A majority of our residential
subscribers pay their monthly fee automatically by a pre-authorized monthly
charge to their credit card. Our Internet access options include:

      Dial-up Access. Our residential access services are designed to provide
      subscribers with reliable Internet access through standard dial-up modems.

      Dedicated Access. We offer high-speed dedicated connections to both
      business and residential subscribers at a range of speeds using
      traditional telecommunications lines and frame relay communications
      services for those customers requiring greater speed and reliability.

      Cable Modems. Through a reseller arrangement with Millennium Digital Media
      Systems, LLC, we offer high-speed Internet access in some locations
      through the use of modems integrated with local cable television networks
      and provide the technical and billing support to this fast-growing segment
      of the Internet access business.


                                       8
<PAGE>


   Web Services

Our Web services help organizations and individuals implement their Web site and
e-commerce goals. We offer various Web hosting and other services that enable
customers to establish a Web site presence without maintaining their own Web
servers and connectivity to the Internet.

      Web Hosting. We offer a diverse range of shared, dedicated and co-location
      Web hosting services for small and medium businesses. Our Web hosting
      service includes state-of-the-art Web servers, high-speed connections to
      the Internet at our network operations centers, and registration of our
      customers' domain name and Internet address. We also offer Web page
      design, development, maintenance and traffic reporting and consulting
      services.

      Co-location. We offer co-location services, providing telecommunications
      facilities for customer-owned Web servers for customers who prefer to own
      and have physical access to their servers but require the reliability,
      security and performance of our on-site facilities. Co-location customers
      house their equipment at our secure network operating centers and receive
      direct high-speed connections to the Internet.

      E-commerce. We provide a suite of Web hosting and e-commerce solutions
      that enable businesses to easily and affordably create Web sites and sell
      their products and services over the Internet. The product suite includes
      EasyWeb, which allows a business to quickly create a Web site online
      through a series of menu-driven screens and templates, and EasyShop, a
      comprehensive e-commerce solution, which allows businesses to accept
      real-time credit card purchases via their Web site.

      Local Content. Our portal is a web site including personalized local news
      and weather, sports, entertainment, finance, stock quotes, shopping,
      classifieds and chat services for our customers. Content is automatically
      tailored to individual customers using a database driven process that
      presents customers with location-specific information. Customers can also
      customize the layout and specific content options available to them.
      Content is made available through revenue sharing and co-branding
      agreements with organizations including CMGI Inc.'s MyWay.com,
      Wizshop.com, Amazon.com, and local media.

   Other Services and Offerings

We also offer other enhanced communications services to meet the one-stop
shopping demands of residential and business customers.

      Virtual Private Networks. Our custom virtual private networks solutions
      provide our customers a secure, managed network over the public Internet.
      This service is targeted towards organizations that desire a secure
      wide-area network between locations without building dedicated network
      infrastructure between such locations.

      Long Distance and other Telecommunications. We currently resell long
      distance telecommunications services as well as a toll-free service,
      calling cards and prepaid cards to our Internet customers through our
      VoyagerLink operations. We currently offer this interstate and intrastate
      long-distance service to our customers at a fixed rate per minute, with no
      set-up or monthly charges.


                                       9
<PAGE>


   Internet Sales and Marketing

Marketing. Our marketing philosophy is based on the belief that a consumer's
selection of an Internet service provider is often strongly influenced by a
personal referral. Accordingly, we believe that the customer satisfaction of our
subscriber base has led to significant word-of-mouth referrals. Our referral
incentive program awards subscribers one month of free service for every
customer referred. As a result, a majority of new sign-ups come from existing
subscriber referrals. Our proprietary customer care and billing system
automatically tracks and credits the subscriber's account, thus providing
valuable marketing information and flexibility with this program. We also market
services through strategic relationships with value added resellers in the local
communities, such as trade associations, unions, Web development companies,
local area network administrators and retail stores which represent and promote
us on a commission basis. These relationships are a significant source of new
Internet customers. We do not use mass marketing media as a major source of
acquiring new customers, but instead believe that by providing superior customer
service and developing strong relationships within local communities,
particularly in small- and medium-sized markets, we can continue to grow with
very low costs per new customer acquired.

Free CDs and Diskettes. Upon the request of prospective customers, we distribute
free software via CD and diskettes that contain software configured to
facilitate installation and connection to our service.

Business Sales and Support. We have a business sales and support team dedicated
to selling and providing customized support to our growing small- and
medium-sized business customers. The business teams include support personnel
located throughout our target region.

NETWORK AND TECHNOLOGY

Network Strategy. Our network strategy combines the ownership of telephone
switching equipment and the leasing of the local telephone lines that run
directly to homes and businesses, combined with the leasing of a regional
network that carries Internet traffic. This configuration of locally and
regionally owned and leased facilities allows us to deliver a wide range of
communications services over a wide geography within our regions.

Telephony Network Infrastructure. We currently have six Class 5 switches, which
are operating in Philadelphia, PA; Columbus, OH; Cleveland, OH; Chicago, IL and
Herndon, VA. A Class 5 switch connects local calls to a public switched
telephone network. These switches are connected via leased local transport to
the incumbent local exchange carrier. We minimize the number of co-locations we
establish with the incumbent local exchange carrier in each market by utilizing
Enhanced Extended Loops that allow us to virtually extend our networks to
service customers well outside of our network area. We also utilize Unbundled
Network Element - Platform and Total Service Resale to service our customers. We
also operate seven Class 4 switches that are responsible for connecting
toll-related calls.


                                       10
<PAGE>


Internet Network Infrastructure. We designed and built our Internet network to
specifically service Internet traffic. Our network is comprised primarily of
Cisco Systems and Juniper Networks routing and switching equipment, which
provides a common platform for increased flexibility and maintenance while
allowing for the use of advanced routing protocols to quickly and dependably
deliver customer traffic. We have two Internet network operating centers to
oversee traffic flows and general network operations which helps ensure a secure
and reliable network. Our dial-in points of presence primarily utilize digital
access servers manufactured by 3Com Corporation and Lucent Technologies, Inc.
These servers allow for a variety of customer connections. Our network has been
reconfigured to include redundant data circuits, which will generally be able to
automatically re-route customer traffic in the event of a failure, and our
network topology offers high levels of performance and security.

Our Internet points of presence are linked to regional network points, or hubs,
which are our two Internet-dedicated network operating centers. These network
points are linked to the Internet by fiber optic connections and employ
asynchronous transfer mode, frame relay and other methods of handling traffic
efficiently. Through various relationships with competitive local exchange
carriers, we have been able to reduce our overall number of points of presence
by consolidating several of them into SuperPOPs with expanded calling areas. The
SuperPOP allows us to consolidate equipment into one large modem bank and
eliminate various telecommunication links from our points of presence back to
the network operating center, thereby creating enhanced network reliability and
reducing telecommunication costs.

Network Operations Centers. We currently have four network operations centers
localized to manage network traffic. These network operations centers are
located in Philadelphia, PA, Cleveland, OH, East Lansing, MI and New Berlin, WI.
Each network operations center is monitored 24 hours per day, seven days per
week, in order to provide the highest level of network performance.

Peering Relationships. Peering is the act of exchanging data across networks,
typically at specific, discrete locations. By allowing separate networks to
exchange data, users on a particular Internet service provider's network are
able to access information and communicate with users on another provider's
network. We have relationships at multiple points with several different
organizations, including Verio, Inc., NAP.net and MCI and Savvis, thus building
network redundancy that allows for better connectivity for our customers.

We are continuously attempting to improve our network infrastructure and reduce
connectivity costs.

ELECTRONIC BONDING AND PROPRIETARY SYSTEMS

We are currently bonded electronically with Ameritech and Verizon. Bonding is an
electronic interface that establishes an electronic link between our operating
support systems and those of Ameritech and Verizon. Electronic bonding enables
us to service customers more timely and accurately. Bonding also allows
real-time access to customer information while facilitating order entry and
confirmation.


                                       11
<PAGE>


We provide service to customers through our proprietary systems, which are
designed to interface with the incumbent local exchange carriers' systems
through a variety of delivery mechanisms. Our system and processes have been
developed to decrease the risk of human error associated with establishing
service to customers by manual keying or fax. Our systems also allows for
flexibility to accommodate an expanding customer base, efficient entry into new
markets, switch-based services, and rapid development of additional
functionality. Our proprietary systems handle all pre-ordering activities,
including obtaining customer service records, finding and reserving telephone
numbers, verifying customer addresses, validating due dates, searching the
incumbent local exchange carrier's switches for feature availability, and yellow
page listings.

Our recent and ongoing enhancements to our information systems include the
following:

      -     Improving the performance and scalability of our rating and billing
            engines.

      -     Enhancing our provisioning systems for the Ameritech region to
            support Ameritech's five state region. Our service order management
            system has been enhanced to allow for validation in real time of the
            feature availability, the electronic generation of service order
            data, and automated switch activation software, all within a single
            system.

      -     Automating the migration processes to move customers from resold
            networks to our networks and from Total Service Resale to Unbundled
            Network Element -- Platform.

      -     Purchasing a platform for our call centers which has introduced
            skills-based routing of inbound calls with an automated attendant
            allowing us to service our customers better by ensuring that a call
            is delivered to a customer service representative with the skills
            necessary to assist the customer.

      -     Integrating an auto-dialer with our collections system, which has
            significantly increased collection agent productivity and
            effectiveness.

We have invested in the construction of a series of proprietary software
applications and an extensive corporate Intranet in our efforts to achieve a
paperless work environment in which all job critical information is readily
available online. Our employees use the corporate Intranet to access detailed
product and corporate information, industry research and updates, competitive
intelligence files, online training and certification, calendars, a personnel
directory, community activities, philanthropic organizations, and other
important content from the convenience of their desktops. Online forms and
sophisticated e-mail applications have further increased productivity by
enhancing communications.

We currently utilize internally developed proprietary systems for integrated
order management and provisioning, as well as for customer relations management.
For billing, we use a combination of proprietary software and an external
service bureau.


                                       12
<PAGE>


We provide customer service and technical support through three call centers
located in Columbus, OH, Philadelphia, PA and East Lansing, MI. We provide 100%
of our customer care internally and do not outsource any customer operations to
third party providers. We have upgraded our phone systems to route calls, track
important call-in data, automatically answer questions and move customers
quickly through the call-in process. Our comprehensive staff training program
and incentive compensation program linked to customer satisfaction has led to
significant improvements in the time required to move subscribers through the
various calling queues. In addition to using our call centers, customers can
also e-mail questions directly to technical support staff, as well as find
solutions online through the use of the tutorials found at our Web site.

COMPETITION

The telecommunications industry and all of its segments are highly competitive
and many of our existing and potential competitors have greater financial,
marketing, technical and other resources than we do. Competition for products
and services is based on price, quality, network reliability, service features
and responsiveness to customers' needs.

COMPETITIVE LOCAL EXCHANGE CARRIER

In each of our markets, we face competition from incumbent local exchange
carriers, including Verizon and Ameritech, as well as other providers of
telecommunications services, other competitive local exchange carriers and cable
television companies. In the local exchange markets, our principal competitor is
the incumbent local exchange carrier. We also face competition or prospective
competition from one or more competitive local exchange carriers. For example,
the following companies have each begun to offer local telecommunications
services in major U.S. markets: AT&T, MCI WorldCom, McLeod USA, Choice One
Communications, XO Communications and Sprint.

Some of our competitors, including AT&T, MCI WorldCom and Sprint, have entered
into interconnection agreements with Verizon and Ameritech in states in which we
operate. These competitors either have begun or in the near future likely will
begin offering local exchange service in those states. In addition to these long
distance service providers and existing competitive local exchange carriers,
entities that currently offer or are potentially capable of offering switched
telecommunications services include:

      -     wireless telephone system operators;

      -     large customers who build private networks;

      -     cable television companies; and

      -     other utilities.


                                       13
<PAGE>


Competition in our competitive local exchange carrier business will continue to
intensify in the future due to the increase in the size, resources and number of
market participants. Many facilities-based competitive local exchange carriers
have committed substantial resources to building their networks or to purchasing
competitive local exchange carriers or inter-exchange carriers with
complementary facilities. By building or purchasing a network or entering into
interconnection agreements or resale agreements with incumbent local exchange
carriers, including regional Bell operating companies and inter-exchange
carriers, a provider can offer single source local and long distance services
similar to those offered by us. Additional alternatives may provide competitors
with greater flexibility and a lower cost structure than ours. Some of these
competitive local exchange carriers and other facilities-based providers of
local exchange service are acquiring or being acquired by inter-exchange
carriers. These combined entities may provide a bundled package of
telecommunications products, including local and long distance telephony, that
is in direct competition with the products offered or planned to be offered by
us.

INTERNET

The Internet services market is also extremely competitive. We compete directly
or indirectly with the following categories of companies:

      -     established online services, such as America Online, the Microsoft
            Network and Prodigy;

      -     local, regional and national Internet service providers, such as
            Earthlink, United Online and Internet America;

      -     national telecommunications companies, such as AT&T and MCI;

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

      -     computer hardware and software and other technology companies that
            provide Internet connectivity with their products, including IBM and
            Microsoft Corporation;

      -     regional Bell operating companies, such as Verizon and Ameritech,
            and local telephone companies;

      -     cable operators, including AT&T, Comcast and Time Warner Cable;

      -     nonprofit or educational Internet service providers;

      -     online cable services, such as Roadrunner;

      -     satellite-based online providers, such as DIRECTV and EchoStar.


                                       14
<PAGE>


We believe that the primary competitive factors determining success as an
Internet service provider are:

      -     accessibility and performance of service;

      -     quality customer support;

      -     price;

      -     access speed;

      -     brand awareness;

      -     ease of use; and

      -     scope of geographic coverage.

Many of the major cable companies and some other Internet access providers offer
Internet connectivity through the use of cable modems and wireless terrestrial
and satellite-based service technologies. In addition, several competitive local
exchange carriers and other Internet access providers have launched national or
regional digital subscriber line programs providing high speed Internet access
using the existing copper telephone infrastructure. Several of these competitive
local exchange carriers have announced strategic alliances with local, regional
and national Internet service providers to provide broadband Internet access. We
also believe that manufacturers of computer hardware and software products,
media and telecommunications companies and others will continue to enter the
Internet services market, which will also intensify competition. Any of these
developments could materially and adversely affect our business, operating
results and financial condition.

Competition will increase as large diversified telecommunications and media
companies acquire Internet service providers and as Internet service providers
consolidate into larger, more competitive companies. Diversified competitors may
bundle other services and products with Internet connectivity services,
potentially placing us at a significant competitive disadvantage. As a result,
our businesses may suffer.

CUSTOMER DEPENDENCE AND SEASONALITY

We do not depend upon any single customer for any significant portion of our
business. Neither our business nor the telecommunications industry are generally
characterized as having a material seasonal element, and we do not expect our
business or the industry to become seasonal in the foreseeable future.

EMPLOYEES

As of December 31, 2002, we had an aggregate of approximately 1,250 employees.
None of our employees are represented by any labor organization. We believe that
our relationship with our employees is excellent.


                                       15
<PAGE>


FACTORS THAT MAY AFFECT FUTURE RESULTS

The following risk factors and other information included in our Form 10-K
should be carefully considered. The risks and uncertainties described below are
not the only ones we face. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial also may impair our business
operations. If any of the following risks occur, our business, financial
condition, operating results and cash flows could be materially adversely
affected.

RISK FACTORS RELATING TO OUR COMMON STOCK AND CORPORATE CONTROL:

   Our anti-takeover defense provisions may deter potential acquirers and may
   depress our stock price.

Delaware corporate law, our restated certificate of incorporation and our
amended bylaws contain provisions that could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of us. These provisions include the following:

      -     we may issue preferred stock with rights senior to those of our
            common stock;

      -     we have a classified board of directors with terms that do not
            expire for three years from reelection;

      -     our charter prohibits action by written consent of stockholders; and

      -     we require advance notice for nomination of directors and for
            stockholder proposals.

In addition, under our stockholder rights plan, holders of our common stock are
entitled to one right to purchase 1/1000 of a share of our Series A junior
participating preferred stock for each outstanding share of common stock they
hold, exercisable under defined circumstances involving a potential change of
control. The preferred stock purchase rights have the anti-takeover effect of
causing substantial dilution to a person or group that attempts to acquire us on
terms not approved by our board of directors. Those provisions could have a
material adverse effect on the premium that potential acquirers might be willing
to pay in an acquisition or that investors might be willing to pay in the future
for shares of our common stock.

   Our significant stockholders, some of whom have the right to maintain
   specified ownership percentages of our voting securities and a contractual
   right to representation on our board of directors, may have interests that
   conflict with our interests and the interests of our other stockholders.

Michael Karp, together with the Florence Karp Trust, currently owns 34.0% of our
common stock. Booth American Company currently owns 20.6% of our common stock.
Thomas Gravina, who is our CEO, President and a director, currently owns 11.4%
of our common stock. Debra Buruchian currently owns 11.1% of our common stock.
Subject to the terms of our stockholder rights plan, each of the above
stockholders has the right, together with their affiliates and their associates,
to increase their percentage ownership of our voting securities each year by the
amount equal to 0.0735 times his, her or its original percentage ownership of
our common stock. Under the terms of the exchange agreement, in no event are any
of the above stockholders permitted to own more than 39.0% of our voting
securities. As a result of their ownership of large amounts of our common stock,
these stockholders are able to significantly influence all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions.


                                       16
<PAGE>


This concentration of ownership may also have the effect of delaying or
preventing a change in control of ATX. Michael Karp has a contractual right to
designate that number of directors to our board of directors so that his
representation on our board of directors is proportionate to his, together with
his affiliates' and associates', ownership percentage of our common stock.
Likewise, Booth American Company has the right to designate one director to our
board of directors. Booth American Company has designated Ralph H. Booth, II to
the board. As of March 31, 2003, Michael Karp had not nominated any directors.

   Our officers and directors own a significant portion of our outstanding
   common stock and may be able to control the outcome of corporate actions that
   require stockholder approval.

As of March 31, 2003, our directors and officers as a group own 10,739,078
shares, representing 35.8% of the outstanding shares of ATX common stock. Our
directors and officers obtained all of these shares in the first phase of the
ATX recapitalization. As a result of this significant ownership interest, our
directors and officers are able to exercise significant control over matters
requiring stockholder approval, including the election of directors or a change
in control of ATX.

   We may issue additional common stock or preferred stock, which could dilute
   your interests.

Our charter does not limit the issuance of additional common stock or preferred
stock, up to the number of authorized shares of each class. We have issued
options to purchase 7.1 million shares of our common stock outstanding as of
December 31, 2002. In addition, upon completion of the ATX recapitalization, the
public notes and warrants of CCL became convertible or exercisable, as the case
may be, into shares of ATX common stock. We cannot predict the extent to which
this potential dilution, the availability of a large amount of shares for sale,
and the possibility of additional issuances and sales of our common stock and/or
preferred stock will negatively affect the trading price or the liquidity of our
common stock.

   Our ability to pay dividends is restricted.

We have never paid cash dividends on our common stock and are currently
restricted from doing so by the terms of our senior secured credit facility. We
do not presently contemplate paying cash dividends and believe that it is
extremely unlikely that we will pay cash dividends in the foreseeable future due
to our current financial condition.

   The delisting of our common stock from the NASDAQ National Market could,
   among other things, have a negative impact on the trading activity and price
   of our common stock and could make it more difficult for us to raise capital
   in the future.

The market price of our common stock could fluctuate widely in response to
numerous factors and events, including the lack of trading history and the
delisting of our common stock from the Nasdaq National Market. Since our common
stock no longer trades on Nasdaq, we cannot predict the extent to which
investors' interest in us will lead to the development of a trading market in
our common stock or how liquid the market might become. We cannot assure you
that our common stock will trade at the same levels as the stock of other
telecommunications companies.

Our shares trade on the Over-the-Counter Bulletin Board. The Over-the-Counter
Bulletin Board is not considered an exchange. Shares that trade on the
Over-the-Counter Bulletin Board do not enjoy the same liquidity as shares that
trade on the Nasdaq or a national securities exchange and obtaining timely and
accurate quotations is more difficult.


                                       17
<PAGE>


   Sales of large amounts of our common stock or the perception that sales could
   occur may depress our stock price.

We issued an aggregate of 26,056,806 shares of our common stock to former
holders of other securities as part of the ATX recapitalization. These shares
represent approximately 87% of our outstanding common stock. None of these
shares are subject to any lock up restrictions and may be sold at any time,
except that some shares issued in accordance with the exchange agreement may
only be transferred in specified manners.

Sales in the public market of the securities acquired in connection with the ATX
recapitalization could lower our stock price and impair our ability to raise
funds in additional stock offerings. Future sales of a substantial number of
shares of our common stock in the public market, or the perception that these
sales could occur, could adversely affect the prevailing market price of our
common stock and could make it more difficult for us to raise funds through a
public offering of our equity securities.

RISK FACTORS RELATING TO OUR BUSINESS:

   We are at risk of not being able to meet our near term cash requirements.

At December 31, 2002, our current liabilities exceed our current assets by
approximately $101 million. Our operating losses and capital expenditures
currently result in negative cash flow. We cannot assure you that:

      1)    we will be able to generate sufficient cash from operations to meet
            capital requirements, debt service and other obligations when
            required;

      2)    actual costs will not exceed the amounts estimated or that
            additional funding will not be required;

      3)    we will be able to access this cash flow;

      4)    we will be able to sell assets or businesses;

      5)    we will not be adversely affected by interest rate fluctuations; or

      6)    we will be able to secure additional financing.

These factors may affect our ability to meet our cash requirements, which may
have an adverse effect on us, and potentially our viability as an ongoing
business.

   We may not continue to maintain compliance with all required ratios and
   covenants contained in our Senior Secured Credit Facility.

On March 31, 2003, we entered into an amendment to our senior secured credit
facility, under which the lenders agreed to waive and/or amend certain financial
covenants set forth in the credit agreement until January 31, 2004. The
amendment revised and added financial covenants, in order to better reflect our
current operations. We cannot assure you that we will be able to maintain
compliance with the requirements of those agreements. In addition it is likely
that we will not be in compliance with the requirements of those agreements as
of January 31, 2004, the date on which the waivers and amendments described
above expire.


                                       18
<PAGE>


   To develop our business, fund our capital commitments and service our
   indebtedness and other obligations, we will require a significant amount of
   cash.

Our strategy will require capital to build and maintain our network, including
potentially building through acquisitions. In addition, our businesses that
resell services provided by larger, facilities based companies will require
additional capital to acquire new customers and to finance the support of these
new customers. Our businesses will also require additional billing, customer
service and other back-office expenditures. In addition, we will require
significant amounts of capital to meet all of our debt service and other
obligations as they become due. We currently have debt, which consists of a
$156.1 million senior secured credit facility, approximately $18 million in
principal amount of 10.75% Unsecured Convertible PIK Notes due 2011,
approximately $9.5 million of capital leases and approximately $4.4 million of
CCL's 6% Convertible Subordinated Notes. We estimate that our aggregate debt
service and capital expenditures will amount to approximately $20.6 million
during 2003 and approximately $43.9 million during 2004. We anticipate that we
and our subsidiaries will not generate sufficient cash flow from operations to
repay at maturity the entire principal amount of our outstanding indebtedness.
In addition, based on our current business plan, we do not expect that we will
have the cash available to fund the required deferred interest and principal
payments on the senior secured credit facility on or before February 2, 2004,
the date on which such payments become due.

We intend to fund our requirements from cash and cash equivalents on hand, funds
internally generated by operations and future issuances of both public and
private debt and equity. We cannot give you any assurance that we will be able
to meet our obligations, including the repayment of our present and future
indebtedness, with the resources currently on hand or the cash that may be
generated by our operations in the future. We also cannot assure you that we
will be able to raise capital through equity or debt financings.

If we are unable to repay our present or future indebtedness, we may be required
to consider a number of measures, including:

      -     limiting or eliminating business projects;

      -     refinancing all or a portion of our debt;

      -     seeking modifications of the terms of our debt;

      -     seeking additional debt financing, which may be subject to obtaining
            existing lender consents;

      -     seeking additional equity financing; or

      -     a combination of these measures.

We cannot assure you that any of these possible measures can be accomplished, or
can be accomplished in sufficient time to allow us to make timely payments with
respect to our indebtedness. In addition, we cannot assure you that any measures
can be accomplished on terms, which will be favorable to us and our
subsidiaries.

   We have an accumulated deficit and expect to incur net losses for some time.

We have incurred significant losses since we began doing business. As of
December 31, 2002, we had an accumulated deficit of $1.2 billion and our
shareholders' equity was a deficit of $136.2 million. We had a net loss of
$154.2 million and negative operating cash flows of $3.8 million for the year
ended December 31, 2002.


                                       19
<PAGE>


We expect to incur future operating losses and cannot assure you that we will
achieve or sustain profitability in the future. If we fail to become profitable
or to generate positive cash flow, it could adversely affect our ability to
sustain our operations, to raise additional required funds, and to make the
required payments on our indebtedness.

   Uncertainties regarding our financial condition may adversely impact our
   ability to obtain trade credit and vendor financing, and may adversely affect
   our relationships with creditors and vendors.

Our financial difficulties and our anticipated cash flow and liquidity problems
led to our decision to consummate the ATX recapitalization. In addition, we
negotiated favorable settlements for less than the full amount owed to many of
our trade creditors. These events may cause trade creditors and vendors to view
our business prospects with a heightened level of uncertainty, and as a result:

   -  our existing trade creditors and vendors may be less willing to advance
      trade credit and vendor financing on the terms or at the levels previously
      provided; and

   -  we may have difficultly in securing trade credit and vendor financings
      from new sources.

If we experience difficulty in obtaining new trade credit and vendor financing,
or if the terms of financing become less favorable than those previously
provided, our future revenues, cash flows and profitability may be adversely
affected, and we may not have sufficient cash to fund our current operations
unless we locate alternative sources of financing, which may not be possible on
acceptable terms or at all.

   Our substantial indebtedness could adversely affect our financial health.

At December 31, 2002, we had $188 million in outstanding debt obligations as
follows: a $156.1 million senior secured credit facility; approximately $18
million of 10.75% Unsecured Convertible PIK Notes due 2011; approximately $4.4
million of CCL's 6% Convertible Subordinated Notes and approximately $9.5
million in capital leases. In addition, we had approximately $118.8 million in
trade payables and accrued expenses outstanding. This substantial amount of
debt, cash interest due from time to time under the senior secured credit
facility and any other trade payables and other debt, which we may incur, may
have important consequences to you. For example, it could:

      -     limit our ability to obtain additional financing, which may be
            needed for working capital, capital expenditures, acquisitions, debt
            service requirements or other purposes;

      -     increase our vulnerability to adverse economic and industry
            conditions;

      -     require us to dedicate a substantial portion of our cash flow from
            operations to payments on our debt, thereby reducing funds available
            for operations, future business opportunities or other purposes;

      -     increase our sensitivity to interest rate fluctuations;


                                       20
<PAGE>


      -     limit our flexibility in planning for, or reacting to, changes in
            our business and the industry in which we compete; and

      -     place us at a competitive disadvantage compared to our competitors
            that may have less debt.

   Our employment agreements with our senior executive officers represent a
   significant cash obligation.

We have significant compensation obligations to our President/Chief Executive
Officer and Chief Operating Officer/Chief Financial Officer. These compensation
obligations are higher than we have paid our senior executives in the past.
Although a significant portion of these compensation obligations are tied to
performance, we are committed to paying these senior executives substantial base
salaries regardless of our performance. Our compensation obligations to these
senior executives represent a significant cash obligation regardless of whether
such results are achieved.

   Restrictions imposed by our debt agreements may significantly limit our
   ability to execute our business strategy and increase the risk of default
   under our debt obligations.

The credit agreement governing our senior secured credit facility contains a
number of covenants, which may significantly limit our or our subsidiaries'
ability to, among other things:

      -     borrow additional money;

      -     make capital expenditures and other investments;

      -     pay dividends;

      -     merge, consolidate or dispose of our assets;

      -     enter into transactions with related entities;

      -     incur additional liens; and

      -     refinance junior indebtedness.

It is an event of default under our senior secured credit facility if we
experience change of control events including the acquisition by a person or
group of more than 35% of our voting power in the circumstances set forth in the
senior secured credit facility. In addition, the senior secured credit agreement
contains financial and operational maintenance covenants. If we fail to comply
with these covenants, we will be in default under that credit agreement. A
default, if not waived, could result in acceleration of our indebtedness, in
which case the debt would become immediately due and payable. If this were to
occur today, we would not be able to repay our debt and may not be able to
borrow sufficient funds to refinance it. Even if new financing were available,
it may not be on terms that are acceptable to us or in sufficient amounts to
enable us to continue our operations. In addition, complying with these
covenants may cause us to take actions that we otherwise would not take, or not
take actions that we otherwise would take.


                                       21
<PAGE>


   We are a holding company that is dependent upon cash flow from our
   subsidiaries to meet our obligations - our ability to access that cash flow
   may be limited in some circumstances.

We are a holding company with no independent operations or significant assets
other than investments in and advances to our subsidiaries. We depend upon the
receipt of sufficient funds from our subsidiaries to meet our obligations. The
terms of existing and future indebtedness of our subsidiaries and the laws of
the jurisdictions under which our subsidiaries are organized generally limit the
payment of dividends, repayment of loans and other distributions to them,
subject in some cases to exceptions that allow them to service indebtedness in
the absence of specified defaults. Our senior secured credit facility contains
covenants that restrict our ability and the ability of our subsidiaries to
declare dividends and to issue new indebtedness.

   We have material disputes with vendors and other parties that could expose us
   to material breach of contract and other commercial claims.

We purchase goods and services from a wide variety of vendors under contractual
and other arrangements that sometimes give rise to litigation in the ordinary
course of business. We also provide goods and services to a wide range of
customers under arrangements that sometimes lead to disputes over payment,
performance and other obligations. Some of these disputes, regardless of their
merit, could subject us to costly litigation and divert our technical and/or
management personnel. Additionally, any litigation liability that is not covered
by our insurance or exceeds our coverage could have a negative effect on our
business, financial condition and/or operating results.

   Our reliance on incumbent local exchange carriers and other facilities-based
   providers of telecommunications services, and changes to our agreements with
   these providers, could have a material adverse effect on us.

We depend upon our agreements with the incumbent local exchange carriers, who
also compete with us in our existing and targeted markets. There are two primary
types of agreements that we enter into with these providers:

      -     interconnection agreements, which specify how we connect our network
            with, and purchase unbundled elements of, the network of the
            incumbent local exchange carriers in each of our markets; and

      -     resale agreements, through which we provide telecommunications
            services on a resale basis.


                                       22
<PAGE>


The termination of any of our contracts with our carriers or a reduction in the
quality, or increase in cost, of their services could have a material adverse
effect on our financial condition and results of operations. Similarly, the
failure or refusal by the incumbent local exchange carriers to comply with their
obligations under our interconnection agreements or resale agreements could
result in customer dissatisfaction and the loss of existing and potential
customers. In light of our ongoing litigation with the local exchange carriers,
on which we depend for certain services, from time to time, those carriers have
and will likely continue to threaten service disruptions or terminations. Any
service disruptions or terminations, if actually implemented, could have a
material adverse effect on our business. In addition, the rates charged to us
under the interconnection agreements or resale agreements may limit our
flexibility to price our services at rates that are low enough to attract a
sufficient number of customers and permit us to operate profitably. Further,
many of our agreements with our suppliers require us to purchase a minimum
commitment of services, which we may not be able to resell in a manner which
allows us to recover our expenses. The outcome of regulatory or judicial rulings
with respect to these agreements could have a material adverse effect on our
financial condition and results of operations.

We rely on telecommunications carriers to transmit our traffic over local and
long distance networks. Our dependence on other facilities-based carriers means
that we depend on the quality and condition of their networks, which could cause
interruption in service and/or reduced capacity for our customers.

We may not be able to obtain the facilities and services we require at
satisfactory quality levels, deployment levels, rates, or terms and conditions,
which could delay the buildout of our networks, degrade the quality of service
to our subscribers, effect the pricing of our products and services and thus
have materially adverse effects on our operating results. Further, several of
our telecommunications suppliers have sought the protection of the bankruptcy
courts or have indicated that they may not be able to continue operations. It is
possible that the failure or liquidation of one or more of our suppliers may
negatively impact our ability to provide services to our customers.

In addition, we depend upon suppliers of network services, hardware and
software. If these suppliers fail to provide network services, equipment or
software in the quantities, at the quality levels or at the times required, or
if we cannot develop alternative sources of supply, it will be difficult, if not
impossible, for us to provide our services.

   Our lack of sufficient network capacity to accommodate new users, to maintain
   network reliability or to maintain network security could have a material
   adverse effect on our ability to attract and retain customers.

Success in our businesses depends, in part, on the capacity, reliability and
security of our network infrastructure. Network capacity constraints may occur
in the future, both at the local and national levels. These capacity constraints
could result in slowdowns, delays or inaccessibility when members try to use a
particular service. Poor network performance could cause customers to
discontinue service with us. Reducing the incidence of these problems requires
constantly expanding and improving our infrastructure, which could be very
costly and time consuming.


                                       23
<PAGE>


Our Internet services network infrastructure is composed of a complex system of
routers, switches, transmission lines and other hardware used to provide
Internet access and other services. This network infrastructure will require
continual upgrades and adaptation as the number of customers and the amount and
type of information they wish to transmit over the Internet increases. This
development of network infrastructure will require substantial financial,
operational and managerial resources. We cannot be certain that we will be able
to upgrade or adapt our network infrastructure to meet additional demand or
changing customer requirements on a timely basis and at a commercially
reasonable cost, or at all. If we fail to upgrade our network infrastructure on
a timely basis or adapt it to an expanding customer base, changing customer
requirements or evolving industry standards, our business could be adversely
affected.

We also have to protect our infrastructure against fire, power loss,
telecommunications failure, computer viruses, security breaches and similar
events. While we currently maintain multiple network operations centers with
fail-over capability, our network is vulnerable to disruption if any of our
operation centers or other network components are impaired. A significant
portion of our computer equipment, including critical equipment dedicated to our
telephone network and Internet access services, is presently located at four
network operating centers: Philadelphia, Pennsylvania; Cleveland, Ohio; East
Lansing, Michigan; and New Berlin, Wisconsin. A natural disaster or other
unanticipated occurrence at our switch or co-location facilities, network
operations center or points-of-presence through which members connect to the
Internet, in the networks of telecommunications carriers we use, or in the
Internet backbone in general could cause interruptions to our Internet services.


                                       24
<PAGE>


GOVERNMENT REGULATION OF THE TELECOMMUNICATIONS SERVICES BUSINESS

OVERVIEW

The telecommunications services we provide are subject to regulation by federal,
state and local government agencies. The following summary does not purport to
describe all current and proposed regulations and laws affecting the
telecommunications industry, but rather is intended to present a general
overview of significant regulatory regimes and developments. Federal and state
regulations and legislation are the subject of ongoing administrative,
legislative and judicial proceedings, the outcome of which could affect in
varying degrees the manner in which we operate. Neither the outcome of these
proceedings nor their impact on the telecommunications industry generally or our
businesses in particular can be predicted at this time. Future federal or state
regulation, legislation or judicial decisions could be less favorable to us than
current regulation, legislation or judicial decisions and could have a material
adverse impact on our businesses, financial prospects and results of operations.
In addition, we may expend significant financial and managerial resources to
participate in proceedings relating to laws affecting the telecommunications
industry and our businesses, without necessarily achieving a favorable result.

At the federal level, the FCC has jurisdiction over interstate and international
services. Interstate services are communications that originate in one state and
terminate in another. Intrastate services are communications that originate and
terminate in a single state and both the FCC and state public service
commissions exercise jurisdiction over such services. Municipalities and other
local government agencies may also regulate limited aspects of our business,
such as use of government-owned rights-of-way and construction permits. Our
network is also subject to numerous local regulations such as building codes,
franchise and right-of-way licensing requirements.

TELECOMMUNICATIONS ACT OF 1996

The federal Telecommunications Act, enacted in 1996, has resulted and will
continue to result in substantial changes in the marketplace for
telecommunications services. Among its more significant provisions, the
Telecommunications Act:

      -     removes legal barriers to entry into telecommunications services,
            such as long distance and local exchange services;

      -     requires incumbent local exchange carriers such as Verizon or SBC,
            which we sometimes refer to as ILECs, to interconnect with and
            provide services for resale by competitors, which we sometimes refer
            to as CLECs, and to provide unbundled access to select portions of
            the ILEC's local network;

      -     permits ILECs, including regional Bell operating companies, to enter
            into new markets, such as long distance and cable television, under
            certain conditions;

      -     relaxes regulation of telecommunications services provided by ILECs
            and all other telecommunications service providers; and

      -     directs the FCC to establish an explicit subsidy mechanism for the
            preservation of universal service.


                                       25
<PAGE>


REMOVAL OF ENTRY BARRIERS

The provisions of the Telecommunications Act should enable us to provide a full
range of telecommunications services in any state in which we have obtained the
necessary authorization from the state regulatory commission to provide such
services. The provisions of the Telecommunications Act also reduce the barriers
to entry for other potential competitors and therefore could increase the level
of competition that we face in markets affected by the Telecommunications Act.
The following requirements of the Telecommunications Act were designed to
facilitate competition in local markets and are the principal provisions that
enable us to provide competitive local telecommunications services to customers
in our target markets:

      -     Unbundled Access to ILEC Network Elements. ILECs must offer to any
            requesting telecommunications carrier access to various unbundled
            elements of the ILEC's network for the provision of
            telecommunications services. This requirement allows us and other
            competitors to purchase at cost-based rates elements of an ILEC's
            network without which we would be impaired in our ability to provide
            telecommunications service to our customers.

      -     Interconnection. ILECs must provide, for the facilities and
            equipment of any requesting telecommunications carrier,
            interconnection with the ILEC's network for the transmission and
            routing of exchange service and exchange access service at any
            technically feasible point within the ILEC's network, all at
            cost-based rates. This requirement allows us to interconnect our
            network in a particular market with that of the ILEC so that our
            respective customers can place and receive calls between one another
            over our respective networks.

      -     Dialing Parity. All local exchange carriers (both ILECs and CLECs)
            must provide dialing parity, which means that local customers cannot
            be required by their local carrier to dial more digits to connect
            with any other carrier than is required for a comparable call
            originating and terminating on the serving carrier's network.

      -     Telephone Number Portability. All local exchange carriers must
            provide telephone number portability, which enables a customer to
            keep the same telephone number when the customer switches local
            exchange carriers.

      -     Reciprocal Compensation. The duty to provide reciprocal compensation
            means that local exchange carriers must terminate calls that
            originate on competing networks in exchange for a given level of
            compensation, and that they are entitled to termination of calls
            that originate on their network, for which they must pay a given
            level of compensation.

      -     Resale. Local exchange carriers may not prohibit or place
            unreasonable restrictions on the resale of their services to
            end-user customers. In addition, ILECs must offer to sell their
            retail local exchange services to competitive carriers at a
            wholesale rate that is less than the retail rate charged by the ILEC
            so that competitive carriers can resell such services to their own
            end-user customers.

      -     Collocation. Subject to space, equipment use and other limitations,
            ILECs must permit CLECs to install and maintain some types of their
            own network equipment in ILECs' central offices and remote terminals
            at cost-based rates.


                                       26
<PAGE>


      -     Access to Private Rights of Way. ILECs, CLECs and certain other
            utilities must allow telecommunications carriers to purchase access
            to poles, ducts, conduits and rights-of-way on a reasonable,
            nondiscriminatory basis.

      -     Good Faith Negotiations. ILECs are required to negotiate in good
            faith with other carriers that request any or all of the
            arrangements discussed above. If a requesting carrier is unable to
            reach agreement with the ILEC within a prescribed period of time,
            either carrier may request arbitration by the applicable state
            commission.

      -     Rates. The FCC has determined that the rates charged by ILECs for
            interconnection and Unbundled Network Elements must be calculated
            using a forward-looking, cost-based methodology, and state
            regulatory authorities have been charged with applying that
            methodology in order to establish the rates that may be charged by
            ILECs in a particular state. As a result, the rates charged by ILECs
            may vary greatly from state-to-state and are typically established
            only after a lengthy and expensive negotiation, arbitration and/or
            review process. Recurring and non-recurring charges for unbundled
            telephone lines and other Unbundled Network Elements may change from
            time-to-time based on the rates proposed by ILECs and approved by
            state regulatory commissions. This regulatory construct creates a
            certain degree of uncertainty about how rates for interconnection
            and Unbundled Network Element will be determined in the future,
            although rate changes typically occur gradually over time after
            extensive scrutiny and debate.

While the Telecommunications Act generally requires ILECs to offer
interconnection, Unbundled Network Elements and resold services to CLECs, many
of these items are sold by ILECs under interconnection agreements with the
purchasing CLECs. ILEC-to-CLEC interconnection agreements are typically of
limited duration, requiring the parties to renegotiate various terms of the
agreements on a periodic basis. Additionally, ILECs may not provide timely
installation or adequate service quality, thereby impairing a CLEC's operations,
revenue streams and reputation with customers who can often easily switch back
to the ILEC. We have experienced this kind of conduct and, as a result, have
initiated litigation against certain ILECs seeking damages for breach of
contract, violations of the antitrust laws and other bad acts. We have also
initiated litigation against certain ILECs before federal and state regulators.
Please refer to the section entitled "Outstanding Litigation" for more
information about our litigation with the ILECs.

CURRENT REGULATORY ISSUES

The following regulatory issues are currently before the FCC and various courts
and, if resolved in a manner that is not favorable to us and other competitive
carriers, could have an adverse impact on our business, financial condition
and/or results of operations.


                                       27
<PAGE>


RECIPROCAL COMPENSATION

In March 2000, the U.S. Court of Appeals for the D.C. Circuit overturned the
FCC's previous determination that calls bound for Internet service providers
that originate on the network of one carrier and terminate on the network of
another carrier are not local, and thus not subject to the reciprocal
compensation requirements of the Telecommunications Act. In response to this
court ruling, in April 2001 the FCC once again determined that calls placed to
ISPs for access to the Internet are not subject to reciprocal compensation. The
FCC adopted a three-year graduated scheme for ISP-bound traffic in which (1) the
compensation rates for ISP-bound traffic decrease on a yearly basis; and (2) the
amount of compensable traffic is limited under certain conditions. In addition,
the FCC initiated a proceeding to comprehensively review all intercarrier
compensation schemes, in which the FCC suggested moving to a bill-and-keep
regime for all intercarrier payments. The interim graduated rate regime for
ISP-bound traffic will remain in place until the later of the expiration of the
three-year period or until the FCC concludes its review of all intercarrier
compensation schemes. In May 2002, the U.S. Court of Appeals for the D.C.
Circuit once again found the FCC's analysis faulty and remanded the case back to
the FCC, although the Court did not vacate the rules at issue. The FCC has not
yet initiated its remand proceeding.

Our existing interconnection agreements with Verizon and SBC have expired and,
to the extent that we are purchasing services under such agreements rather than
wholesale tariffs, we are doing so under extension arrangements pending the
negotiation or adoption of new agreements. In connection with such agreements,
we will be required to negotiate new reciprocal compensation rates and
arrangements covering the scope of traffic covered by such arrangements. A
reduction in the rates payable for the termination of traffic originating on
networks of the ILECs or other carriers could have an adverse effect on our
future revenues from this kind of service. However, reciprocal compensation
represents only a small portion of our revenues, so we do not anticipate that
such a change would have a material adverse affect on our financial condition or
results of operations.

COLLOCATION

The FCC has adopted rules requiring incumbent local exchange carriers to provide
collocation to competitive local exchange carriers for the purpose of
interconnecting their competing networks. In a July 2001 decision, the FCC
concluded that collocating equipment is necessary for interconnection or access
to Unbundled Network Elements if an inability to deploy that equipment would, as
a practical, economic, or operational matter, preclude the requesting carrier
from obtaining interconnection or access to Unbundled Network Elements. In
addition, the FCC found that multifunctional equipment satisfies the necessary
standard only if the equipment's primary purpose and function is to provide the
requesting carrier with equal in quality interconnection or nondiscriminatory
access to UNEs. Finally, the FCC determined that ILECs are no longer required to
permit competitors to construct and maintain cross-connects outside the physical
collocation space of the ILEC's premises. However, ILECs must provision
cross-connects between collocated carriers upon reasonable request. In June
2002, the U.S. Court of Appeals for the D.C. Circuit rejected the ILECs'
challenges to the FCC decision. In subsequent FCC decisions on collocation
matters, the FCC clarified certain aspects of its rules, largely confirming
CLECs' rights to collocate on reasonable terms. The terms and conditions of
providing collocation and any proposed changes by ILECs are subject to both FCC
and state regulatory oversight.


                                       28
<PAGE>


TRIENNIAL REVIEW

In February 2003, the FCC adopted its Triennial Review Order, in which it
reviewed and altered the list of elements deemed subject to the unbundling
requirement. In doing so, the FCC indicated that consideration was being given
to a decision by the U.S. Court of Appeals for the D.C. Circuit that had
overturned a prior FCC decision establishing certain network elements as subject
to the unbundling requirement.

While the FCC has issued a press release describing its actions, it has not yet
released the official text of its decision. The press release is not an official
document that has any binding effect under the law. Although the press release
provides a general overview of the FCC's Order, it is possible that the actual
text of the Order may include provisions that differ from how they have been
described in the press release. Furthermore, it is likely that the Order, once
published, will be challenged in the courts and/or modified by the FCC itself in
response to various requests for reconsideration. These challenges and
modifications could materially change the FCC's order.

Consequently, it is not possible to know at this time what impact the decision
will ultimately have on the Company's operations. Although some of the aspects
of the decision as described in the press release appear to be favorable to the
Company's lines of business, the final detailed text and therefore the actual
impact could differ from the general descriptions in the press release. Although
certain significant aspects of the decision, as described in the FCC's press
release, are described below, it must be emphasized that no reasonably certain
assessment of the FCC's decision can be made until the full text of the Order is
published.

      -     UNE-P. The Unbundled Network Element Platform, known as UNE-P,
            enables CLECs to provide services to end-users at competitive rates.
            Because each network element comprising the platform is required to
            be sold by the ILECs at rates that have been established consistent
            with the FCC's forward-looking cost methodology, the rates that
            CLECs must pay for access to the platform are substantially lower
            than those that they would have to pay if they were simply reselling
            the ILEC's retail services. UNE-P also enables CLECs to offer new
            and different packages of services at more attractive price points,
            and to bill and collect compensation from other telecommunication
            carriers for providing access to the CLEC's UNE-P network. As a
            result, UNE-P generally enables competitors to operate with more
            favorable margins than on a resale basis, and to market to customers
            over a broader geographic area without incurring the up-front costs
            of deploying a network in that area. Our CLEC subsidiaries use UNE-P
            extensively to serve customers in areas where we do not maintain
            network facilities.


                                       29
<PAGE>


            According to the press release, the FCC has established a
            presumption in favor of preserving the unbundling requirements for
            all network elements necessary for UNE-P to the extent such elements
            are used to serve residential and smaller business customers,
            sometimes referred to as mass-market customers. At the same time,
            the FCC has indicated that its Order will set out specific economic
            and operational criteria that must be employed by state regulators
            to assess on a "granular" basis whether the removal of one or more
            elements necessary for UNE-P would impair the ability of CLECs to
            serve mass market customers in a particular geographic market. To
            the extent that impairment is found in a particular market, UNE-P
            would remain available in that market. Upon a finding that
            impairment does not exist in a particular market, the FCC's press
            release indicates that UNE-P would be phased out in that market over
            a three-year transition period. The press release indicates that
            state proceedings to consider this issue must be completed within
            nine months of the date that the FCC releases the full text of its
            Order.

            As for larger business customers, namely those served by
            high-capacity loops at DS-1 levels and above, the FCC's press
            release indicates that the FCC has established a presumption against
            requiring ILECs to provide unbundled local switching - an essential
            element of UNE-P - based on a generalized finding of no impairment.
            Again, the FCC has given the states the discretion to rebut this
            presumption and preserve UNE-P for these kinds of customers in
            particular geographic markets, but the states have been directed to
            complete any such proceedings within 90 days of the FCC's Order.
            (For customers of this type, we utilize our own switch facilities to
            provide local services, and therefore do not rely on UNE-P for this
            customer segment in any material way.)

      -     Loops. Loops are the part of the telephone network that connect the
            end-user's premises with the ILEC's central office. The FCC's
            decision appears to address the loop unbundling obligations of the
            ILECs by delineating the types of transmission facilities and
            technologies used along with the types of customers they serve. For
            example, the press release states that all copper loops remain
            subject to the unbundling requirements, including voice-grade loops,
            such as those used for a residential customer, and certain higher
            capacity loops using copper such as DS-1s and DS-3s upon which the
            Company relies to provide services to business customers. The FCC
            appears to have decided to remove from the unbundling requirement
            certain other types of loops, including so-called "greenfield" loops
            used to serve entirely new areas like new subdivisions, certain
            types of "brownfield" loops where the ILEC is overbuilding existing
            facilities, and certain aspects of hybrid loops that combine both
            copper and fiber to serve customers over a single facility.

      -     Network Modifications (the "No Facilities" issue) The press release
            indicates that the FCC has taken action to prevent ILECs from
            rejecting orders from competitors on the basis that "no facilities"
            are available to service the customer, even though the ILEC would
            perform the work necessary to service the line if an order was
            placed by one of its own end-user customers. Apparently, the new
            rules will require ILECs to make routine network modifications to
            UNEs used by CLECs where the requested facility has already been
            constructed. This includes deploying multiplexers to existing loop
            facilities and other activities that the ILEC would undertake to
            connect its own retail customers.


                                       30
<PAGE>


      -     Special Access circuit to Enhanced Extended Loop Conversions. An
            Enhanced Extended Loop, also known as an EEL, is a combination of
            Unbundled Network Elements typically comprised of a loop, unbundled
            switching and local transport that may be used a CLEC to provide
            service to end-user customers. Although EELs generally involve the
            same serving arrangements as special access circuits that are sold
            by ILECs to customers on a retail basis, the FCC's rules require
            ILECs to sell EELs to CLECs at cost-based rates so long as they are
            used to carry a substantial amount of local calling traffic. In an
            earlier order, the FCC established rules that allowed ILECs to deny
            orders for EELs where a portion of the circuit comprising an EEL
            would be commingled with other portions of a circuit that carried a
            substantial amount of interstate calling traffic, or where the EEL
            would be combined with a product or service that the ILEC was
            providing only under a retail tariff. These restrictions had the
            effect of limiting the use of EELs by competitive carriers, and also
            increased the propensity for ILECs to improperly reject legitimate
            orders for EEL circuits. The press release indicates that the FCC's
            new rules will prohibit ILECs from refusing to provision EEL
            circuits based on these justifications.

      -     Transport. The press release indicates that state regulators have
            been given the authority to remove certain kinds of the local
            transport element from the list of elements that must be unbundled
            by ILECs, including dark fiber, DS-1 and DS-3 transport upon certain
            findings. The press release indicates that shared transport could be
            removed as an element in tandem with the decision-making regarding
            unbundled local switching, as discussed in the section regarding
            UNE-P above.

      -     Interconnection Agreements. The press release indicates that the FCC
            will open a further notice of proposed rulemaking to seek comment on
            whether to modify the FCC's interpretation of Section 252(i) of the
            Act - the FCC' s so-called "pick-and-choose" rule. That provision,
            as currently interpreted, allows competitive carriers to select
            portions of other interconnection agreements to which they are not a
            party and insist that they be incorporated into newly negotiated
            agreements. Our interconnection agreements with the ILEC's have
            expired and we are currently operating under extension periods
            pending the negotiation or adoption of new agreements under Section
            252 of the Telecommunications Act. It is not possible at this time
            to predict how such a proceeding could affect our ability to obtain
            favorable successor agreements, if at all.

      -     Rates. The press release indicates that the FCC has determined to
            clarify certain aspects of its methodology for setting rates that
            may be charged by ILECs for interconnection and access to Unbundled
            Network Elements.


                                       31
<PAGE>


LOCAL EXCHANGE CARRIER ENTRY INTO NEW MARKETS

Section 271 Entry. Our principal competitor in each market is the ILEC. Some of
these carriers, known as the Regional Bell Operating Companies or RBOCs, are
permitted to provide long distance services to customers outside of their local
service areas and in conjunction with their mobile telephone services, but were
historically prohibited from providing long distance services that originate in
a state where they provide local telephone service, which is referred to as
in-region long distance service. Section 271 of the Telecommunications Act
established procedures under which RBOCs can provide in-region long distance
services in a state after receiving approval from the FCC. To obtain approval,
the RBOC must comply with a competitive checklist that incorporates, among other
things, the interconnection requirements discussed above.

Approval from the FCC under Section 271 enables an RBOC to provide customers
with a full range of local and long distance telecommunications services. The
provision of landline long distance services by RBOCs is expected to reduce the
market share of the major long distance carriers, which may be significant
customers of our local exchange services. Consequently, the entry of the RBOCs
into the long distance market may have adverse consequences on the ability of
CLECs both to generate access revenues from the inter-exchange carriers and to
compete in offering a package of local and long distance services. The FCC has
approved Section 271 applications for more than one half of the states, with
additional states the subject of applications pending before the FCC. More
specifically, Verizon has obtained approval for all of its territory except for
Maryland, West Virginia, and the District of Columbia and an application for
these last three jurisdictions is currently pending before the FCC. SBC has
obtained approval to provide in-region long distance services in numerous
states, although it does not have such approval for any states in the former
Ameritech region where we compete with SBC. SBC's Section 271 application for
Michigan is pending before the FCC. We anticipate that the ILECs will soon
initiate similar proceedings to obtain long distance service authority in every
other state in which we operate.


                                       32
<PAGE>


ACCESS CHARGES

In addition to charging other carriers reciprocal compensation for terminating
local traffic, we also collect access charges from carriers for originating and
terminating inter-exchange traffic on our network. Federal law requires that
these charges be just and reasonable. Some inter-exchange carriers, referred to
as IXCs, have challenged the switched access rates of some competitive local
exchange carriers, asserting that the charges of these carriers for switched
access services are higher than those of the ILEC serving the same territory,
and are therefore unjust and unreasonable. These IXCs have refused to pay CLEC
access charges in excess of the corresponding ILEC rate. In response, the FCC
adopted an order in April 2001, which gradually aligns competitors' access
charge rates more closely with those of the ILECs. Specifically, during the
first year of the FCC's order, from June 20, 2001 through June 19, 2002, the FCC
established a benchmark rate of 2.5 cents per minute, or the rate of the
corresponding ILEC of the study area of the relevant end-user customer,
whichever is higher. From the period between June 20, 2002 through June 19,
2003, the benchmark rate has been dropped to 1.8 cents per minute, or the ILEC
rate, whichever is higher. As of June 20, 2003 the benchmark rate will drop to
1.2 cents per minute, or the ILEC rate, whichever is higher. Finally, as of June
20, 2004, the benchmark rate will drop to the switched access rate of the
competing ILEC. Competitors have the option to tariff their access rates, for
those areas where they have previously offered service, at either the benchmark
rate or the rate of the corresponding ILEC in the study area of the relevant
end-user customer, whichever is higher. Any CLEC access charges above the
benchmark will be mandatorily detariffed, although CLECs may negotiate higher
rates with inter-exchange carriers. In our capacity as a provider of long
distance services, these reductions in access charge rates will help to reduce
our costs of carrying long distance calls of customers that originate or
terminate on the local exchange networks of competitive carriers. Conversely, in
our capacity as a CLEC, these changes will reduce the amount of revenues that we
collect from IXCs for providing exchange access services. Certain carriers have
asked the FCC to reconsider various elements of its decision and those petitions
are now under consideration. The FCC's decision will also be subject to review
by a federal appellate court once the FCC acts on reconsideration.

In May 2000, the FCC issued an order adopting an integrated interstate access
reform and universal service proposal put forth by a coalition of incumbent
local exchange carriers and inter-exchange carriers. In September 2001, the U.S.
Court of Appeals for the Fifth Circuit upheld the FCC Order but remanded the
FCC's decision on two of the issues appealed. The FCC is currently seeking
comment on the remand. These reforms have been largely revenue neutral for the
incumbent local exchange carriers, and have reduced the amount of access charges
the long distance companies have had to pay. It is too early to assess what
impact, if any, they will have on us. In addition, the FCC has pending an
open-ended proceeding to consider broad based reforms for all inter-carrier
compensation, including access charges.

UNIVERSAL SERVICE

Universal service obligations under the Telecommunications Act apply to all
telecommunications carriers that provide interstate telecommunications services.
Under FCC rules, all telecommunications carriers providing interstate
telecommunications services, including us, are required to contribute to
universal service support for high cost and low-income areas, for schools and
libraries, and for rural health care programs. Our contribution to the federal
support funds is calculated based on a percentage of its gross end-user
interstate and international telecommunications revenue. The amount of our
required contribution may be passed on to end-users on a pro rata basis. In
December 2002, the FCC adopted interim measures to reform universal service
arrangements. These interim changes require the use of projected revenues,
rather than historical revenues, as the basis for calculating universal service
contribution percentages.


                                       33
<PAGE>


The current arrangements for federal universal service support may not be
sustainable over the long term. The FCC is currently seeking comment on whether
it should change the manner in which it assesses contributions, such as moving
from revenue-based to per end user connection assessment.

Most state public service commissions have adopted rules to preserve universal
service for intrastate services, requiring additional contributions based on
intrastate revenues. Certain states are reviewing those rules, and it cannot be
predicted at this time how any changes to the rules might affect our business,
revenues or results of operations, if at all.

RELAXATION OF REGULATION

FORBEARANCE

The Telecommunications Act gives the FCC authority to forebear from regulating
carriers if it believes regulation would not serve the public interest. The FCC
is charged with reviewing its regulations for continued relevance on a regular
basis. As a result of this mandate, a number of regulations that apply to CLECs
have been, and others may in the future be, eliminated. We cannot, however,
guarantee that any regulations that are now or will in the future be applicable
to us will be eliminated.

DOMINANCE/NON-DOMINANCE

Through a series of proceedings, the FCC has established different levels of
regulation for dominant carriers and non-dominant carriers. As a non-dominant
carrier, we are subject to relatively limited regulation by the FCC. However, at
a minimum, we must offer interstate services at just and reasonable rates in a
manner that is not unreasonably discriminatory. One goal of the
Telecommunications Act is to increase competition for telecommunications
services and thus reduce the need for regulation of these services. To this end,
the Telecommunications Act requires the FCC to streamline its regulation of
ILECs and permits the FCC to forbear from regulating particular classes of
telecommunications services or providers. In fact, the FCC is currently
considering whether to deem ILECs non-dominant in the provision of broadband
services. Since we are a non-dominant carrier and, therefore, are not heavily
regulated by the FCC, the potential for regulatory forbearance likely will be
more beneficial in the long run to the ILECs than to us. Additionally, any
forbearance that gives the ILECs greater pricing flexibility in respect of
services that they sell in competition with us could increase or decrease our
revenues, depending on whether the ILEC raises prices or lowers them.

DETARIFFING

The Telecommunications Act requires all common carriers, including our
subsidiaries that provide telecommunications services, to charge just and
reasonable rates for their services and to file schedules of these rates with
the FCC unless the FCC forbears from the filing requirement. These schedules are
known as tariffs and they represent a contract between a carrier and its
customers. The FCC has used its forbearance authority to eliminate the filing of
tariffs in several instances. Most non-dominant carriers must detariff for their
interstate and international inter-exchange services, with minor exception.


                                       34
<PAGE>


Non-dominant carriers must now post their rates, terms and conditions for
interexchange services in a publicly available form, such as on a website.
Furthermore, as explained above, the FCC adopted detariffing requirements for
the access charges that CLECs may levy on IXCs for completing calls to or from
their customers. This rule is permissive for switched access charges at or below
the benchmark rate or comparable ILEC rates, but mandatory for rates above those
levels. For special access charges (flat fees based on capacity rather than per
minute), CLECs are also subject to permissive detariffing. The FCC's preclusion
of non-dominant interstate carriers from filing tariffs may increase our
exposure to litigation. Currently, tariffs contain provisions limiting the
liability of providers on a variety of issues. In the absence of filed tariffs,
carriers must rely on contracts with customers to provide these liability
limitations. These problems could also arise if the FCC were to decide to change
permissive detariffing into mandatory detariffing.

In addition to requiring the ILECs to open their networks to competitors and
reducing the level of regulation applicable to competitive local exchange
carriers, the Telecommunications Act also reduces the level of regulation that
applies to the ILECs, thereby increasing their ability to respond quickly in a
competitive market. For example, the FCC has applied streamlined tariff
regulation for introduction of new services by the ILECs, which shortens the
requisite waiting period before which tariff changes may take effect. These
developments enable the ILECs to change rates more quickly in response to
competitive pressures. As noted above, ILECs have been given pricing flexibility
for some services, including certain services that we purchase from the ILEC as
well as services provided by the ILEC in competition with our various
telecommunications subsidiaries. If exercised by the ILECs, this flexibility may
decrease our ability to compete effectively with these carriers in certain
markets and/or increase our costs of doing business.

LOCAL GOVERNMENT AUTHORIZATIONS

Many jurisdictions where we provide services require license or franchise fees
based on a percentage of revenues. Because the Telecommunications Act
specifically allows municipalities to charge fees for use of the public
rights-of-way, it is likely that jurisdictions that do not currently impose fees
will seek to impose fees in the future. The amount and basis of these fees have
been challenged by several telecommunications service providers. Federal courts
have taken different approaches to the appropriate standard for imposing fees
associated with access to public rights-of-way. Some courts have struck down
municipal ordinances that: 1) do not relate the fees imposed under the ordinance
to the extent of a provider's use of the rights-of-way; 2) do not relate the
fees imposed under the ordinance to the costs incurred by the local government
in maintaining the rights-of-way; or 3) seek to impose fees based on a concept
of the value of the use to the provider by relating the fees to provider
revenues. Other courts have upheld fees that were based on factors other than
the costs incurred by the local government in managing the right-of-way or the
extent of usage of the right-of-way by a service provider. These inconsistent
decisions could create additional costs for competitive service providers,
including the Company. Additionally, because the Telecommunications Act requires
jurisdictions to charge non-discriminatory fees to all telecommunications
providers, telecommunications providers are challenging municipal fee structures
that excuse other companies, particularly the ILECs, from paying license or
franchise fees, or allow them to pay fees that are materially lower than those
that are required from new competitors such as us. A number of these decisions
have been appealed and, in any event, it is uncertain how quickly particular
jurisdictions will respond to the court decisions without a specific legal
challenge to the fee structure at issue.


                                       35
<PAGE>


REGULATION OF RESELLERS

The FCC has defined resale as any activity in which a party, the reseller,
subscribes to the services or facilities of a facilities-based provider, or
another reseller, and then re-offers communications services to the public for
profit, with or without adding value. Resellers are common carriers generally
subject to all rules and regulations placed on providers of the underlying
services by either the FCC or the states in which they operate. The FCC has held
that prohibitions on the resale of some common carrier services are unjust,
unreasonable, and unlawfully discriminatory in violation of the
Telecommunications Act. However, the FCC has decided not to impose resale
requirements on mobile wireless carriers. The Although it is not clear whether
the FCC would apply this obligation to all carriers in the future, most
especially non-dominant carriers, resale has been a significant revenue stream
for certain facilities-based carriers, especially long distance carriers, and
will likely be available even absent regulatory requirements for some services.

INTERNET REGULATION

The FCC currently does not regulate the provision of Internet service, although
it does regulate common carriers that provide elements of the networks on which
the Internet is based. Similarly, state public utility commissions generally do
not regulate Internet service, except in some limited circumstances where
incumbent local exchange carriers provide Internet services. The FCC and some
states, however, are monitoring the development of the Internet and the types of
services that are provided through it. For example, if the FCC should determine
that an Internet service provider offers a service that is an exact substitute
for long distance telephone service with the sole distinction that the Internet
service is based on a packet-switched network rather than a circuit-switched
network, the FCC could determine that it should impose similar regulation on the
new services. Voice services using Internet protocol, known as IP telephony,
potentially raise this issue. To the extent that IP telephony is widely
successful in removing traffic from the public switched network, the FCC will
face increasing pressure to confront this issue in order to preserve revenue
streams from carriers that the FCC generally believes are necessary to protect
and improve the universal availability of access to telephone service over the
public switched network. Additionally, at least one state is considering whether
to regulate IP telephony in the same manner as traditional voice services, and
others have expressed interest in possibly doing so.

Furthermore, other aspects of our operations may be subject to state or federal
regulation, such as regulations relating to the confidentiality of data and
communications, copyright issues, online content, user privacy, taxation of
services, universal serving funding, and licensing. Congress has adopted
legislation regulating several of these areas and legislation currently pending
in Congress and state legislatures could prohibit or restrict advertising or
sale of certain products and services on the Internet, which may have the effect
of raising the cost of doing business on the Internet generally. Similarly,
changes in the legal and regulatory environment relating to the Internet
connectivity market, including regulatory changes that affect telecommunications
costs or that may increase the likelihood of competition from ILECs or other
telecommunications companies, could increase our costs of providing service.

STATE REGULATION GENERALLY

Most states require companies to be certified or authorized by the state's
public utility commission in order to provide intrastate common carrier or
telecommunications services. These certifications generally require a showing
that the carrier has adequate financial, managerial and technical resources to
offer the proposed services in a manner consistent with the public interest.


                                       36
<PAGE>


In addition to obtaining certification in each state, we must negotiate terms of
interconnection with the incumbent local exchange carrier before we can begin
providing switched services. State public utility commissions are required to
approve interconnection agreements before they become effective and must
arbitrate disputes among the parties upon request. We have already entered into
interconnection agreements with Ameritech, which is now a part of SBC, and
Verizon, but these agreements have expired and we are currently operating under
extensions pending the negotiation or adoption of new agreements. Additionally,
regulatory changes such as the FCC's Triennial Review Order could require
renegotiation of relevant portions of existing interconnection agreements, or
require additional court and regulatory proceedings. We are not presently
subject to state-initiated price regulation based on costs or earnings. Most
states require competitive local exchange carriers to file tariffs setting forth
the terms, conditions and prices for intrastate services. Some states permit
tariffs to list a rate range or set prices on an individual case basis. Other
state requirements may include filing of periodic reports, the payment of
regulatory fees and surcharges and compliance with service standards and
consumer protection rules. These requirements as they may change from
time-to-time could increase our costs of doing business by imposing additional
operating and financial requirements.

Several states provide incumbent local exchange carriers with flexibility for
their rates, special contracts, selective discounting, and tariffs, particularly
for services that are considered to be competitive. This pricing flexibility
increases the ability of the ILEC to compete with us and constrains the rates we
may charge for our services. States may grant ILECs additional pricing
flexibility. At the same time, some ILECs may request increases in local
exchange rates to offset revenue losses due to competition. Some states require
prior approvals or notification for some transfers of assets, customers or
ownership of a competitive local exchange carrier and for issuance of bonds,
notes or other evidence of indebtedness or securities of any nature. Delays in
receiving required regulatory approvals may occur, thus limiting our ability to
expand our product offerings and modify our rates in response to competitive
pressures.

ITEM 2. PROPERTIES.

We do not own or lease any property. Some of our subsidiaries lease switch
buildings, ILEC collocations and office space in those areas of the Mid-Atlantic
and Midwestern United States where they maintain their operations. We believe
our facilities are adequate to serve our present business operations and needs
for the foreseeable future. For information concerning our lease commitments,
see Note 14 to our consolidated financial statements included in Item 8 of Part
II to this Annual Report entitled, "Financial Statements and Supplementary
Data."


                                       37
<PAGE>


ITEM 3. LEGAL PROCEEDINGS.

Through our various operating subsidiaries, we purchase goods and services from
a wide variety of vendors under contractual and other arrangements that
sometimes give rise to litigation in the ordinary course of business. Our
subsidiaries also provide goods and services to a wide range of customers under
arrangements that sometimes lead to disputes over payment, performance and other
obligations. Some of these disputes, regardless of their merit, could subject us
to costly litigation and the diversion of technical and/or management personnel.
In light of our ongoing litigation with the local exchange carriers, on which we
depend for certain services, from time to time, those carriers have and will
likely continue to threaten service disruptions or terminations. Any service
disruptions or terminations, if actually implemented, could have a material
adverse effect on our business. Additionally, liabilities from litigation that
are not covered by insurance or that exceed such coverage could have a material
adverse effect on our business, financial condition and/or operating results.

Currently, we have the following outstanding matters, which if resolved
unfavorably to us, could have a material adverse effect on us:

-     On August 12, 2002, Verizon Communications, Inc. and several of its
      subsidiaries filed a complaint in the United States District Court for the
      District of Delaware against the Company and several of its indirect
      wholly-owned subsidiaries, referred to as the defendants, seeking payment
      of approximately $37 million allegedly owed to Verizon under various
      contracts and state and federal law. Verizon also asked the Court to issue
      a declaratory ruling that it has not violated the antitrust laws.

      The defendants believe that they have meritorious defenses to the
      complaint, and further, that the amounts owed are substantially less than
      the amounts claimed by Verizon. For example, defendants believe the figure
      specified in the complaint includes payments that have been made by the
      defendants to Verizon (including in excess of $14 million paid soon after
      the filing of the complaint), credits that Verizon has issued to the
      Company since the filing of the complaint, and additional disputes for
      which Verizon owes credits to the defendants. The defendants have filed an
      answer to Verizon's complaint denying Verizon's claims, in part, and have
      asserted various counterclaims against Verizon, including claims seeking
      damages for breach of contract and treble damages for violating the
      antitrust laws. Defendants have also moved to dismiss Verizon's request
      for declaratory ruling on the antitrust claims, which Verizon has opposed.

      On November 18, 2002, Verizon filed a motion to dismiss defendants'
      antitrust counterclaims, relying heavily on a decision by the United
      States Court of Appeals for the 7th Circuit in Goldwasser v. Ameritech
      Corp., 222 F.3d 390 (7th Cir. 2000) dismissing antitrust claims brought on
      behalf of a class of consumers who had purchased services from Ameritech
      in Illinois. On January 9, 2003, defendants filed their opposition to
      Verizon's motion, noting not only that the Goldwasser case is
      distinguishable from defendants' antitrust claims here, but also that the
      appellate court's rationale in Goldwasser had been effectively repudiated
      by the appellate courts of the 2nd and 11th circuits, as well as by a
      federal trial court in the antitrust claim raised by the Company against
      SBC/Ameritech in the United States District Court for the Northern
      District of Ohio.


                                       38
<PAGE>


      Oral argument on the parties' respective motions was originally scheduled
      for March 31, 2003. However, on March 20, 2003, the court issued an order
      postponing oral argument and denying the motions without prejudice to
      renew, pending a decision by the United States Supreme Court in Verizon
      Communications, Inc. vs. Law Office of Curtis Trinko, LLP, Supreme Court
      Docket No. 02-682 (cert. granted March 10, 2002). Defendants intend to
      pursue all available remedies and counterclaims and to defend themselves
      vigorously; however, the defendants cannot be certain how or when these
      matters will be resolved or the outcome of the litigation.

-     On March 7, 2002, CoreComm Massachusetts, Inc., an indirect wholly-owned
      subsidiary of the Company, initiated litigation against Verizon New
      England d/b/a Verizon Massachusetts in the Suffolk Superior Court,
      Massachusetts, alleging breach of contract and seeking a temporary
      restraining order against Verizon Massachusetts. Verizon has filed its
      answer to CoreComm Massachusetts' complaint and filed counterclaims
      seeking payment of approximately $1.2 million allegedly owed by CoreComm
      Massachusetts under the parties' interconnection agreement and Verizon's
      tariffs. During the course of discovery, Verizon conceded that it had
      over-billed CoreComm Massachusetts by approximately $800,000. As a result,
      CoreComm Massachusetts amended its complaint to include claims against
      Verizon for unfair and deceptive acts or practices in violation of
      Massachusetts' fair trade practice laws. Verizon subsequently amended its
      complaint to specify a revised claim of $1.1 million. CoreComm
      Massachusetts ceased providing telephone services in Massachusetts on or
      about December 2002. The Company's withdrawal from providing telephone
      services in Massachusetts has not had material adverse affect on the
      Company's consolidated business.

-     On April 4, 2003, we received a notice from Verizon claiming that Verizon
      is owed approximately $8.4 million by one of our subsidiaries, CoreComm
      New York, Inc., for services allegedly purchased in the state of New York.
      Although it has not yet fully reviewed Verizon's claims, CoreComm New
      York, Inc. has the right to dispute charges that are not owed and intends
      to fully dispute any charges that are incorrect or without merit. CoreComm
      New York, Inc. intends to pursue all remedies available to it and defend
      itself vigorously, however, it is not presently possible to predict how
      these matters will be resolved. The operations of CoreComm New York, Inc.
      do not represent a material component of our revenue, profits or
      operations.

-     The Company and CoreComm Newco, Inc., an indirect, wholly-owned subsidiary
      of the Company, are currently in litigation with SBC Corp., Ameritech Ohio
      and other SBC subsidiaries over various billing and performance issues,
      including SBC/Ameritech's alleged violation of the antitrust laws and the
      adequacy of SBC/Ameritech's performance under a 1998 contract between
      CoreComm Newco and Ameritech Ohio. This litigation began in June 2001 when
      Ameritech threatened to stop processing new orders following CoreComm
      Newco's exercise of its right under the contract to withhold payments for
      Ameritech's performance failures. On October 9, 2001, Ameritech filed an
      amended complaint in the United States District Court, Northern District
      of Ohio seeking a total of approximately $14,400,000 in alleged
      outstanding charges.

      On December 26, 2001, CoreComm Newco filed its answer to Ameritech's
      amended complaint and simultaneously filed three counterclaims against SBC
      Corp., Ameritech Ohio and certain of their respective subsidiaries and
      affiliates, alleging breach of contract, antitrust violations, and
      fraudulent or negligent misrepresentation claims. On July 25, 2002, the
      district court issued a decision denying a motion to dismiss from
      Ameritech and upholding CoreComm Newco's right to proceed with its
      antitrust, breach of contract and misrepresentation claims against all
      counter-defendants. On January 21, 2003, CoreComm Newco amended its
      complaint to include the Company and other affiliates as additional
      claimants and to add additional allegations supporting its claims, and on
      February 17, 2003, SBC/Ameritech filed its answer to the amended
      complaint.


                                       39
<PAGE>


      The Company believes that CoreComm Newco has meritorious defenses to
      Ameritech's amended complaint that could reduce the amount currently in
      dispute. For example, the figure specified in Ameritech's complaint may
      not account for various amounts that have been properly disputed by
      CoreComm Newco as a result of billing errors and other improper charges,
      various refunds that Ameritech contends it has already credited to
      CoreComm Newco's accounts since the filing of the complaint, and payments
      that were made by CoreComm Newco in the ordinary course after the time of
      Ameritech's submission. However, the Company cannot be certain how or when
      the matter will be resolved. The Company also believes that, to the extent
      Ameritech prevails with respect to any of its claims, Ameritech's award
      may be offset in whole or in part by amounts that the Company and CoreComm
      Newco are seeking to obtain from SBC/Ameritech under their counterclaims.
      The Company and CoreComm Newco intend to pursue all available remedies and
      to defend themselves vigorously. However, it is impossible at this time to
      predict the outcome of the litigation.

-     On December 3, 2001, General Electric Capital Corp., referred to as GECC,
      filed a civil lawsuit in the Circuit Court of Cook County, Illinois
      against CCL and MegsINet, Inc., an indirect subsidiary of the Company,
      seeking approximately $8 million in allegedly past due amounts and the
      return of equipment under a capital equipment lease agreement between
      Ascend and MegsINet.

      Thereafter, GECC filed a second complaint in the Circuit Court of Cook
      County, Illinois against MegsINet, CCL and the Company seeking a court
      order allowing it to take repossession of its alleged equipment. On
      September 24, 2002, the Court issued an order granting GECC's request for
      repossession of the equipment. MegsINet has allowed GECC to take
      possession of the equipment, which has not had any material impact on the
      Company's business or operations. Defendants intend to defend themselves
      vigorously and to pursue all available claims and defenses. However, it is
      impossible at this time to predict the outcome of the litigation. MegsINet
      does not represent a material component of our revenue, profits or
      operations, and MegsINet is an obligor under our $156 million senior
      secured credit facility.

-     On May 25, 2001, KMC Telecom, Inc. and some of its operating subsidiaries
      filed an action in the Supreme Court of New York for New York County
      against CCL, Cellular Communications of Puerto Rico, Inc., CoreComm New
      York, Inc. and MegsINet. KMC contends that it is owed approximately $2
      million, primarily in respect of alleged early termination liabilities,
      under a services agreement and a co-location agreement with MegsINet. The
      defendants have denied KMC's claims and have asserted that the contracts
      at issue were signed without proper authorization, that KMC failed to
      perform under the alleged contracts, and that the termination penalties
      are not enforceable. On March 27, 2002, certain of the defendants
      initiated litigation against several former principals of MegsINet seeking
      indemnification and contribution against KMC's claims for breach of
      various representations and warranties made under the merger agreement
      pursuant to which MegsINet became a subsidiary of the Company. Defendants
      have also initiated coverage under an insurance policy designed to protect
      against such claims; the insurance carrier has initially declined coverage
      and it may be necessary to pursue litigation to obtain coverage in the
      event of a loss under the policy.


                                       40
<PAGE>


-     On September 24, 2002, GATX Technologies, Inc., known as GATX, filed an
      action in the Thirteenth Judicial Circuit in Florida against
      CoreComm-Voyager, Inc., an indirect wholly-owned subsidiary of the
      Company, seeking recovery of amounts allegedly owed under an equipment
      lease totaling approximately $150,000. On October 21, 2002,
      CoreComm-Voyager moved to dismiss GATX's action for lack of jurisdiction.
      The motion is now pending with the Court. On October 28, 2002, 3Com
      Corporation, known as 3Com, filed an action against the Company in the
      Court of Common Pleas, Montgomery County, Pennsylvania seeking payment of
      approximately $900,000 under an equipment lease. Should either action
      proceed further, the defendants will defend themselves vigorously and
      pursue all available claims. However, it is not possible at this time to
      predict how or when either of these matters will be resolved.

-     On March 1, 2002, Easton Telecom Services, LLC initiated litigation in the
      Northern District of Ohio against CoreComm Internet Group, Inc. seeking
      payment of approximately $4.9 million, primarily in respect of alleged
      early termination penalties for telecommunications services purportedly
      provided under alleged contracts. On August 23, 2002, the Court issued an
      order dismissing approximately $4 million of Easton's claims as invalid.
      Upon the conclusion of a jury trial that ended on November 8, 2002, Easton
      obtained a judgment against CoreComm Internet Group, Inc., Voyager
      Information Networks, Inc. and MegsINet in the total amount of $1,085,000.
      On February 4, 2003, the defendants filed an appeal in this matter with
      the United States Court of Appeals for the Sixth Circuit, and the
      plaintiff has filed a cross-appeal. Plaintiff is currently pursuing
      discovery in aid of execution on its judgment against defendants. All of
      the assets of the Company and its subsidiaries, including those of the
      defendants, are subject to a first priority security interest in favor of
      the senior lenders under the $156,100,000 senior credit facility.

-     On June 7, 2002, the Board of Revenue and Finance of the Commonwealth of
      Pennsylvania issued an order granting in part and denying in part a
      petition for review of a decision by a lower administrative authority
      relating to the Company's alleged liability for sales and use tax for the
      period September 1, 1997 through July 31, 2000. Pursuant to the June 7
      order, the Company has been assessed sales and use tax for the period at
      issue in the amount of $631,429, which has been accrued for in the
      Company's consolidated financial statements. On July 8, 2002, the Company
      filed a petition for review of the board's order in the Commonwealth Court
      of Pennsylvania seeking a further reduction of the assessment. The Company
      believes that it has meritorious defenses and that the assessment should
      be reduced; however it is not possible to predict how this matter will be
      resolved.

-     On January 3, 2003, we and our indirect subsidiary, MegsINet, Inc., filed
      a complaint against Broadwing in the U.S. District Court for the Eastern
      District of Pennsylvania seeking the return of approximately $700,000 in
      taxes billed by Broadwing in alleged violation of two Master Service
      Agreements. On February 24, 2003, Broadwing filed a motion to stay the
      action pending their request to arbitrate the matter before the American
      Arbitration Association. The matter is still pending before the court, and
      plaintiffs intend to pursue their claims vigorously.

-     On February 28, 2003, Focal Communications Corp. and certain of its
      subsidiaries initiated adversarial proceedings in Focal's Chapter 11 case
      under the U.S. Bankruptcy laws against the Company and certain of its
      subsidiaries seeking payment of approximately $802,687 in charges for
      interstate and intrastate switch access services allegedly provided by
      Focal's subsidiaries in Illinois, Pennsylvania, Delaware and New York. The
      defendants are currently reviewing Focal's claims and intend to defend
      themselves vigorously and pursue all available counterclaims, including
      claims for any amounts owed by Focal to any of the defendants. However, it
      is not possible at this time to predict how or when this matter will be
      resolved.


                                       41
<PAGE>


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

An Annual Meeting of Stockholders was held on November 5, 2002 to act on the
following matters:

1. The election of three Class I directors to serve until our 2005 annual
meeting of stockholders and until their successors have been elected and
qualified or until their earlier resignation, death or removal. The votes cast
for and withheld for the election of Ralph H. Booth, II were 17,257,513 and
11,477, respectively. The votes cast for and withheld for the election of Thomas
J. Gravina were 17,255,495 and 13,495, respectively. The votes cast for and
withheld for the election of Michael A. Peterson were 17,255,972 and 13,018,
respectively. Warren Potash continues to serve as a Class II Director, with a
term expiring in 2003. Barclay Knapp and Alan J. Patricof continue to serve as
Class III Directors, with terms expiring in 2004.

2. A proposal to ratify the reappointment of Ernst & Young LLP as the
independent auditors of the Company for the year ending December 31, 2002. The
votes cast for and against this action were 17,249,351 and 14,567, respectively,
with 5,072 votes abstaining.

Based on the voting results, each of the foregoing actions was approved and the
nominated directors were elected to the board of directors of the Company.


                                       42
<PAGE>


                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Following the ATX recapitalization, our common stock began trading on the Nasdaq
National Market under the symbol COMM on July 3, 2002. We did not maintain
minimum bid price and the minimum market value of publicly held share
requirements for continued listing. On August 15, 2002, the Nasdaq Listing
Qualifications Panel issued its decision to delist our common stock. On August
16, 2002, our common stock began trading on the Over-the-Counter Bulletin Board.
The following table sets forth, for the period indicated, the high and low bid
price as reported on the Nasdaq National Market and the Over-the-Counter
Bulletin Board. The over the counter market quotation reflects inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.

<TABLE>
<CAPTION>
                                                                  BID PRICE
                                                                  ---------
                                                             HIGH           LOW
                                                             ----           ---
<S>                                                          <C>           <C>
2002
Third Quarter (from July 3, 2002)                            $3.02         $0.37
Fourth Quarter                                               $0.95         $0.35
First Quarter                                                $0.50         $0.32
</TABLE>

As of March 31, 2003, there were approximately 314 record holders of our common
stock. This figure does not reflect beneficial ownership of shares held in
nominee names.

We have never paid cash dividends on our common stock and are currently
restricted from doing so by the terms of our senior credit facility. We do not
contemplate paying cash dividends and believe that it is extremely unlikely that
we will be paying cash dividends in the foreseeable future.

The following table sets forth the number of shares of our common stock
authorized for issuance under our equity compensation plans and other individual
compensation arrangements as of December 31, 2002:

<TABLE>
<CAPTION>
                                                                                                    NUMBER OF SECURITIES
                                                                                                  REMAINING AVAILABLE FOR
                                          NUMBER OF SECURITIES TO       WEIGHTED-AVERAGE           FUTURE ISSUANCE UNDER
                                          BE ISSUED UPON EXERCISE       EXERCISE PRICE OF        EQUITY COMPENSATION PLANS
                                          OF OUTSTANDING OPTIONS,      OUTSTANDING OPTIONS,        (EXCLUDING SECURITIES
                                            WARRANTS AND RIGHTS        WARRANTS AND RIGHTS         REFLECTED IN COLUMN (A))
PLAN CATEGORY                                       (A)                         (B)                          (C)
---------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>                          <C>                       <C>
Equity compensation plans
approved by security holders:
   2001 Stock Option Plan                         7,179,000                     $1.00                      1,521,000
   Warrants                                         279,000                     20.24                             --

Equity compensation plans not
approved by security holders:                        None.                      None.                        None.
</TABLE>

For information about our 2001 Stock Option Plan and our outstanding warrants,
see Note 17 to our consolidated financial statements included in Item 8 of Part
II to this Annual Report entitled, "Financial Statements and Supplementary
Data."


                                       43
<PAGE>


ITEM 6. SELECTED FINANCIAL DATA.

The following selected financial data of ours and our predecessor, OCOM
Corporation Telecoms Division, referred to as OCOM, should be read in
conjunction with our historical financial statements and notes thereto included
elsewhere in this Form 10-K. Our selected financial data as of December 31,
2002, 2001, 2000, 1999 and 1998, and for the years ended December 31, 2002,
2001, 2000 and 1999, and for the period from April 1, 1998 to December 31, 1998,
have been derived from our historical consolidated financial statements. The
selected financial data for the period from January 1, 1998 to May 31, 1998 has
been derived from the historical financial statements of OCOM. The selected
historical financial data relates to OCOM as it was operated prior to its
acquisition by us.

In 2002, in connection with the ATX recapitalization, we completed an exchange
offer whereby we issued 3,610,624 shares of our common stock to all holders of
CCL common stock and holders of 6% Convertible Subordinated Notes due 2006 of
CCL for their CCL common stock and their notes. Following the exchange offer, we
transferred the shares of CCL common stock that we received in the exchange
offer to a wholly-owned subsidiary. We then merged this subsidiary into CCL,
with CCL surviving the merger as a wholly-owned subsidiary of the Company.

In 2001, we borrowed $65 million under the senior secured credit facility and
issued $25 million aggregate principal amount of unsecured convertible notes.
Additionally, in connection with the ATX recapitalization, we completed the
exchange of shares of our common stock for substantial amounts of indebtedness
and preferred stock of the Company and CCL.

In 2000, we completed two significant acquisitions. We acquired ATX
Telecommunications Services, Inc. and Voyager.net, Inc. In addition, we entered
into a senior secured credit facility and CCL issued approximately $108.7
million aggregate principal amount of senior unsecured notes to the former
stockholders of ATX.

In 1999, we acquired 100% of the capital stock of MegsINet, Inc. and some of the
assets of USN Communications, Inc.

In 1998, we were formed to succeed the businesses and assets that were operated
by OCOM. Our operations commenced in April 1998. We acquired the operating
assets and related liabilities of OCOM on June 1, 1998.


                                       44
<PAGE>


<TABLE>
<CAPTION>
                                                                                                       FOR THE
                                                                                                     PERIOD FROM        OCOM
                                                                                                    APRIL 1, 1998       ----
                                                                                                        (DATE         FOR THE
                                                                                                     OPERATIONS     PERIOD FROM
                                                          YEAR ENDED DECEMBER 31,                   COMMENCED) TO    JANUARY 1
                                             -------------------------------------------------       DECEMBER 31,    TO MAY 31,
                                             2002           2001          2000            1999           1998           1998
                                             ----           ----          ----            ----           ----           ----
                                                                             (IN THOUSANDS)
<S>                                       <C>            <C>            <C>            <C>          <C>             <C>
INCOME STATEMENT DATA:
Revenues                                  $ 293,721      $ 292,681      $ 131,526      $  57,151      $   6,713      $   1,452
Costs and expenses
Operating                                   191,848        224,807        142,323         57,551          5,584            772
Selling, general and administrative          77,941         96,854        109,197         72,821         11,940          3,205
Corporate                                     5,053          5,648         11,224          6,686          2,049             --
Non-cash compensation                            --         21,638         43,440          1,056             --             --
Recapitalization costs                        5,835             --             --             --             --             --
Other charges                                    --         39,553         12,706             --             --             --
Charges for impaired assets (2)(3)          118,530        368,288         35,920             --             --             --
Depreciation and amortization (2)(3)         32,411        145,364         73,037         19,546            980            257
                                          ---------      ---------      ---------      ---------      ---------      ---------
                                            431,618        902,152        427,847        157,660         20,553          4,234
                                          ---------      ---------      ---------      ---------      ---------      ---------
Operating loss                             (137,897)      (609,471)      (296,321)      (100,509)       (13,840)        (2,782)
Other income (expense)
Interest income and other, net                  285          1,799          1,134             55             46             --
Interest expense                            (16,376)       (25,647)        (5,929)        (2,624)           (21)            --
                                          ---------      ---------      ---------      ---------      ---------      ---------
Loss before income taxes and
  extraordinary item                       (153,988)      (633,319)      (301,116)      (103,078)       (13,815)        (2,782)
Income tax provision                           (250)           (94)          (125)          (102)            --             --
                                          ---------      ---------      ---------      ---------      ---------      ---------
Loss before extraordinary item             (154,238)      (633,413)      (301,241)      (103,180)       (13,815)            --
Gain from extinguishment of debt                 --         39,498             --             --             --             --
                                          ---------      ---------      ---------      ---------      ---------      ---------
Net loss                                  $(154,238)     $(593,915)     $(301,241)     $(103,180)     $ (13,815)     $  (2,782)
                                          =========      =========      =========      =========      =========      =========

Basic and diluted net loss per
  common share:
Loss before extraordinary item            $   (5.17)     $  (22.15)     $  (10.55)     $   (3.62)     $   (0.48)     $   (0.10)
Extraordinary item                               --           1.38             --             --             --             --
                                          ---------      ---------      ---------      ---------      ---------      ---------
Net loss                                  $   (5.17)     $  (20.77)     $  (10.55)     $   (3.62)     $   (0.48)     $   (0.10)
                                          =========      =========      =========      =========      =========      =========
Weighted average shares (1)                  29,834         28,599         28,542         28,542         28,542         28,542
                                          =========      =========      =========      =========      =========      =========
</TABLE>

<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                             ----------------------------------------------------------------
                                             2002           2001           2000           1999           1998
                                             ----           ----           ----           ----           ----
<S>                                       <C>            <C>            <C>            <C>            <C>
BALANCE SHEET DATA:
Working capital (deficiency)              $(100,759)     $ (83,794)     $(100,684)     $ (43,279)     $   1,695
Fixed assets, net                            37,861         86,722        179,379         90,347          3,581
Total assets                                179,063        316,620        896,606        216,877         44,596
Long-term debt                              163,441        160,487        109,990         18,882            501
Shareholders' equity (deficiency)          (136,211)        10,783        599,304        129,990         36,278
</TABLE>

(1)   After giving retroactive effect to the 6,342.944-for-1 stock split in
      December 2001 and the 3-for-1 stock split by way of a stock dividend on
      April 12, 2002.

      We have never declared or paid any cash dividends.

(2)   In June 2001, the Financial Accounting Standards Board (referred to as
      FASB) issued Statement of Financial Accounting Standards (referred to as
      SFAS) No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 ends
      the amortization of goodwill and indefinite-lived assets. Instead, these
      assets must be reviewed annually (or more frequently under certain
      conditions) for impairment in accordance with this statement. We adopted
      SFAS No. 142 on January 1, 2002. We performed our annual test to evaluate
      whether or not our goodwill was impaired as of October 1, 2002. This
      evaluation resulted in a goodwill impairment charge of $77,409,000.
      Additionally, as a result of SFAS No. 142, the amortization of goodwill
      ceased as of January 1, 2002.

(3)   In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment
      or Disposal of Long Lived Assets to be Disposed Of" and other related
      guidance. We adopted SFAS No. 144 on January 1, 2002. We recorded an asset
      impairment charge of $41,121,000 in accordance with the provisions of SFAS
      No. 144.

                                       45
<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
        FINANCIAL CONDITION

RESULTS OF OPERATIONS

Until December 2001, we were a direct, wholly-owned subsidiary of CCL. As a
result of the recapitalization transactions completed in December 2001 and on
July 1, 2002, CCL has been merged into a wholly-owned subsidiary of ATX. Prior
to the ATX recapitalization, CCL operated the same businesses that we currently
operate.

From 1998 to 2000, we were in the process of building infrastructure to support
a national roll-out according to our original business plan. This business plan
required significant capital to fund capital expenditures, operating expenses
and debt service. As a result, we historically experienced substantial operating
and net losses. In early 2001, we still required significant funds to complete
our business plan as originally intended. However, adverse changes in the
capital markets, particularly in the telecommunications sector, made it
extremely difficult to raise new capital, and we could no longer finance our
original business plan. As a result, in 2001, we significantly revised our
business plan to focus on our most profitable businesses and geographic areas,
and reduce our operational costs and need for capital.

In 2001 and 2002, we streamlined our strategy and operations to focus on our two
most successful and promising lines of business. The first is integrated
communications products and other high bandwidth/data/web-oriented services for
the business market. The second is bundled local telephony and Internet products
for the residential market, with a focus on using Internet interfaces, as well
as our call centers, to efficiently sell, install our products and service our
customers. As a result of these changes, we are now focused primarily in the
Mid-Atlantic and Mid-West regions of the U.S.

We have implemented cost savings through a variety of means, including facility
consolidation, efficiency improvements, vendor negotiations, network
optimization, and headcount reduction. We have improved our operating efficiency
through improved pricing terms and the elimination of duplicative or unnecessary
network facilities. We have also reduced network costs and capital expenditures
by converting many of our local access lines to more profitable Unbundled
Network Element - Platform pricing from Total Service Resale pricing, which
provides higher margins. In addition, we were able to reduce the number of
facilities established without substantially affecting our service area by
leasing enhanced extended local loops from the incumbent local exchange
carriers.

The following table shows the improvement in our operating and selling, general
and administrative expenses between the fourth quarter of 2000 and the fourth
quarter of 2002 as a result of these cost savings. These improvements amounted
to a total savings of approximately $158 million on an annualized basis.

<TABLE>
<CAPTION>
(in thousands)                                    THREE MONTHS ENDED
                                                  ------------------       AMOUNT OF     PERCENTAGE
                                              DECEMBER 31,  DECEMBER 31,  IMPROVEMENT   IMPROVEMENT
                                                  2002          2000      Q4'00-Q4'02   Q4'00-Q4'02
                                                  ----          ----      -----------   -----------
<S>                                           <C>           <C>           <C>           <C>
Operating Expenses                              $ 47,125      $ 65,002      $ 17,877            28%
Selling, General & Administrative Expenses        16,892        38,414        21,522            56%
                                                --------      --------      --------      --------
    Total                                       $ 64,017      $103,416      $ 39,399            38%
                                                ========      ========      ========      ========
</TABLE>


                                       46
<PAGE>


While reducing expenses in all areas of our business, we implemented new low
cost revenue initiatives, which were designed to grow our subscriber base
without incurring significant marketing expense.

In addition, the ATX recapitalization resulted in a reduction of our interest
expense. As a result of completing the ATX recapitalization, our interest
expense was reduced to $16.4 million from $25.6 million in 2001.

The many strategies and initiatives that we have implemented through our revised
business plan have led to significant improvements in our financial results in
2002 as compared to 2000, as illustrated by the cash flow measurements indicated
the table below:

<TABLE>
<CAPTION>
(in thousands)                                                                  YEAR ENDED
--------------                                                                  ----------
                                                                       DECEMBER 31,     DECEMBER 31,
                                                                          2002             2000
                                                                          ----             ----
<S>                                                                    <C>              <C>
Net cash used in operating activities                                   $  (3,750)       $(136,412)
Net cash used in investing activities                                     (10,857)        (166,534)
% Reduction in Net cash used in operating activities (2000 - 2002)             97%
% Reduction in Net cash used in investing activities (2000 - 2002)             93%
</TABLE>

Although we continue to engage in efforts to increase our profitability, we are
also investigating other ways to generate cash for our business. In April 2001,
we commenced a process to potentially sell selected assets and businesses that
are not directly related to our competitive local exchange carrier, referred to
as CLEC, business, and retained advisors for the purpose of conducting this
sale. Our CLEC assets and businesses include our local and toll-related
telephone services that compete with the ILECs, and other carriers.

YEARS ENDED DECEMBER 31, 2002 AND 2001

The increase in revenues to $293,721,000 from $292,681,000 is primarily due to
increases in revenues derived from carrier access billing and reciprocal
compensation offset by decreases in toll-related telephony services and consumer
Internet services. Revenue related to carrier access billing was $15,230,000 and
$4,170,000 for the years ended December 31, 2002 and 2001, respectively. Revenue
related to reciprocal compensation was $1,461,000 for the year ended December
31, 2002; we did not bill nor recognize any revenue for reciprocal compensation
during 2001. Revenue for toll-related telephony services and consumer Internet
services was $150,124,000 and 158,651,000 for the years ended December 31, 2002
and 2001, respectively. In 2002, we continued to reduce or eliminate less
profitable services and increase our customer base in more profitable segments.

Operating costs include direct cost of sales, network costs and salaries and
related expenses of network personnel. Operating costs decreased to $191,848,000
from $224,807,000 due to a decrease in costs as a result of optimization of our
network, reduced headcount and reduction of our facilities.

Selling, general and administrative expenses decreased to $77,941,000 from
$96,854,000 as a result of reduced headcount, reduction of our facilities and a
revision in our marketing strategies. During 2002, we reduced our estimate of
potential sales and use tax, which had the effect of reducing selling, general
and administrative expenses by $2,586,000. In addition, we reached various
settlements with vendors, which had the effect of reducing selling, general and
administrative expenses by $1,310,000 during 2002.


                                       47
<PAGE>


Corporate expenses include the costs of compensation for some of our officers
and corporate staff, the costs of operating the corporate office, professional
fees and costs incurred for strategic planning and evaluation of business
opportunities. Corporate expenses decreased to $5,053,000 from $5,648,000 due to
settlements, which had the effect of reducing corporate expense by $3,465,000
during 2002. This reduction was offset by increased costs of corporate
activities.

During 2002, we incurred additional costs, which consist primarily of employee
incentives, legal fees, accounting fees and printing fees, in connection with
our recapitalization of $5,835,000.

The following table summarizes the reorganization charges incurred and utilized
during each of the three years ended December 31, 2002. As indicated in the
table, of the approximately $4 million of reorganization charges incurred in
2000 and approximately $38.7 million incurred in 2001, $38.1 million have been
paid or otherwise utilized, and $4.5 million remains accrued as of
December 31, 2002. These charges that remain as a balance represent charges that
we have incurred on our statement of operations, but that have not yet been
paid or otherwise utilized:

<TABLE>
<CAPTION>
                                EMPLOYEE
                                SEVERANCE                                  FIXED ASSETS
                               AND RELATED    LEASE EXIT     AGREEMENT         AND
                                 COSTS          COSTS       TERMINATIONS    PREPAYMENTS      TOTAL
                                 -----          -----       ------------    -----------      -----
                                                           (IN THOUSANDS)
<S>                            <C>            <C>           <C>            <C>              <C>
Charged to expense              $  2,089       $  1,917       $     --       $     --       $  4,006
Utilized                            (775)        (1,396)            --             --         (2,171)
                                --------       --------       --------       --------       --------
Balance, December 31, 2000         1,314            521             --             --          1,835
Charged to expense                 3,409          6,928          6,572         21,772         38,681
Utilized                          (4,214)        (4,343)        (2,914)       (21,772)       (33,243)
                                --------       --------       --------       --------       --------
Balance, December 31, 2001           509          3,106          3,658             --          7,273
Utilized                            (509)        (1,722)          (500)            --         (2,731)
                                --------       --------       --------       --------       --------
Balance, December 31, 2002      $     --       $  1,384       $  3,158             $-       $  4,542
                                ========       ========       ========       ========       ========
</TABLE>

As of October 1, 2002, in accordance with SFAS No. 142, we performed our annual
review of the recoverability of our goodwill and intangible assets. As a result
of this analysis, we recorded an asset impairment charge, related to a
write-down of goodwill, of $77,409,000 in the fourth quarter of 2002.

As a result of the continued weakness in the telecommunications industry, we
reviewed the carrying value of our long-term assets during the fourth quarter of
2002 for possible impairment in accordance with SFAS No. 144. We have determined
that the estimated future cash flow attributable to certain assets would not
exceed the carrying value of those assets. This determination was based on an
independent valuation and comprehensive evaluation of other long-term assets,
which were based on our projections and which gave effect to the continuing
slowdown in the telecommunications sector. We recognized an asset impairment
charge for long-lived assets of $41,121,000 primarily related to
telecommunications and related equipment. This charge was recognized in our
results of operations to reflect the difference between the estimated fair value
of the assets on a discounted cash flow basis and their current carrying value.
Included in this impairment charge, we provided for the elimination of certain
intangible assets related to our LMDS licenses and customer lists as well as a
write-down of deposits related to long-term telecommunications contracts. There
is no assurance that we will meet our new projections and, therefore, it is
possible that we will be required to take further impairment charges in future
periods.

                                       48
<PAGE>


During 2001, we also performed a review of the recoverability of our goodwill
and long-lived assets, which indicated that the carrying value of certain assets
would not be recoverable. During 1999 and 2000, acquisitions were made against a
background of increasing consolidation and record valuations in the
telecommunications industry. Asset impairments in 2001 include write-downs of
goodwill of $353,759,000 and a write-down of fixed assets of $14,529,000 as a
result of this evaluation.

Depreciation expense decreased to $32,160,000 from $47,976,000 primarily as a
result of the adoption of SFAS No. 144 and SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
respectively.

Amortization expense decreased to $251,000 from $97,388,000 due to the reduction
in the carrying value of our intangible assets as of December 31, 2001 as
determined by a fair value analysis performed in accordance with adoption of
SFAS No. 142, "Goodwill and Other Intangible Assets" on January 1, 2002, which
required us to cease amortizing goodwill. Amortization expense on our goodwill
and workforce during 2001 was $97,025,000. Our net loss and our basic and
diluted net loss per common share would have been $496,890,000 and $17.38,
respectively, had SFAS No. 142 been in effect during 2001.

Interest income and other, net, decreased to $285,000 from $1,799,000 primarily
due to the reduction of interest bearing securities such as cash, cash
equivalents and marketable securities.

Interest expense decreased to $16,376,000 from $25,647,000 due primarily to a
reduction in the effective interest rate on our senior secured credit facility
and a reduction in our outstanding indebtedness from the completion of the ATX
recapitalization. The average effective interest rate on our senior secured
credit facility for the year ended December 31, 2002 and 2001 was 6.64% and
8.89%, respectively.

The income tax provisions of $250,000 in 2002 and $94,000 in 2001 are for state
and local income tax.

YEARS ENDED DECEMBER 31, 2001 AND 2000

Following the completion of the acquisitions of ATX and Voyager in September
2000, we consolidated the results of operations of these businesses from the
dates of acquisition. The results of these businesses are not included in the
2000 results of operations prior to October 1, 2000.

The increase in revenues to $292,681,000 from $131,526,000 is due to the
acquisitions in 2000, which accounted for $166,737,000 of the increase. This
increase is offset by a decline in revenue attributed to the customer base
associated with the acquisition of assets from USN Communications, Inc. to
$21,340,000 from $28,174,000. USN Communications, Inc. was a competitive local
exchange carrier that operated on a resale basis. The revenues from the USN
customer based peaked in the third quarter of 1999 after our acquisition in May
1999 and, as expected, declined thereafter.

Operating costs include direct cost of sales, network costs and salaries and
related expenses of network personnel. Operating costs increased to $224,807,000
from $142,323,000 due to the acquisitions in 2000, which accounted for
$111,878,000 of the increase. This increase is offset by a decrease in costs of
$29,394,000 in 2001 primarily as a result of the implementation of our modified
business plan.

Selling, general and administrative expenses decreased to $96,854,000 from
$109,197,000 primarily as a result of the implementation of our modified
business plan. These expenses decreased by $64,791,000 in 2001. This decrease
was offset by the increase due to the acquisitions in 2000, which amounted to
$52,448,000.


                                       49
<PAGE>


Corporate expenses include the costs of compensation for officers and
headquarters staff, the costs of operating the headquarters and costs incurred
for strategic planning and evaluation of business opportunities. Corporate
expenses decreased to $5,648,000 from $11,224,000 primarily as a result of the
implementation of our modified business plan.

In accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees," in April 2000, we recorded a non-cash compensation expense of
approximately $29.0 million and a non-cash deferred expense of approximately
$31.3 million due to the issuance of options to employees in 2000 at an exercise
price of $14.55 which was less than the fair value of CCL's common stock on the
date of the grant. From April 2000 to December 31, 2001, the deferred non-cash
compensation was charged to expense, including $21.6 million and $9.7 million in
the years ended December 31, 2001 and 2000, respectively. Also in 2000, non-cash
compensation includes $4.7 million related to option rescissions.

Other charges in 2001 include reorganization charges of $37,372,000 and an
adjustment to the reserve for notes receivable from former officers of Voyager
of $2,181,000. The reorganization charges relate to CCL's announcements in May
and July 2001 that it was taking additional actions to reorganize, resize and
reduce operating costs and create greater efficiency in various areas of its
business. A total of $21,386,000 of these costs were for equipment and other
assets that did not and will not require any future cash outlays. The employee
severance and related costs in 2001 were for approximately 630 employees to be
terminated, none of whom were still employed by us as of December 31, 2001. The
major actions involved in the 2001 reorganization included: (1) consolidation of
functions such as network operations, customer service and finance, (2)
initiatives to increase gross margins and (3) agreements with vendors to reduce
or eliminate purchase commitments. The consolidation of functions resulted in
employee terminations and the closing of offices. Employee severance and related
costs, lease exit costs and fixed assets and prepayment write-downs include
charges related to these actions. Initiatives to increase gross margins resulted
in consolidation of network assets and elimination of redundant and less
profitable facilities. Charges for these actions include employee severance and
related costs, lease exit costs and fixed assets and prepayment write-downs.
Finally, reductions or elimination of purchase commitments resulted in agreement
termination charges. All of these actions commenced in 2001 and were completed
during 2002. Fixed assets and prepayments written-off in 2001 include $5.3
million related to vacated offices, $13.4 million for network assets in
abandoned markets and $2.7 million for prepayments in respect of ILEC facilities
in abandoned markets.

Other charges in 2000 include a reserve of $8,700,000 for notes receivable from
former officers of Voyager, and reorganization charges of $4,006,000. The
employee severance and related costs in 2000 were for approximately 250
employees to be terminated, none of whom were still employed by us as of
December 31, 2000.


                                       50
<PAGE>


We performed a review of the recoverability of our goodwill and long-lived
assets in 2001, which indicated that the carrying value of certain assets would
not be recoverable. During 1999 and 2000, acquisitions were made against a
background of increasing consolidation and record valuations in the
telecommunications industry. Asset impairments in 2001 include a write-down of
goodwill of $186,160,000 and a write-down of fixed assets of $14,529,000 in the
fourth quarter of 2001 prior to the deconsolidation as a result of this
evaluation. In addition, at March 31, 2001, we reduced the carrying amount of
goodwill related to the Voyager and MegsINet acquisitions by $167,599,000. In
connection with the re-evaluation of our business plan and the decision to sell
our non-CLEC assets and businesses, we were required to report all long-lived
assets and identifiable intangibles to be disposed of at the lower of carrying
amount or estimated fair value less cost to sell. The carrying amount of
goodwill related to these acquisitions is eliminated before reducing the
carrying amounts of the other assets. The estimated fair value of these
businesses was determined based on information provided by the investment bank
retained for the purpose of conducting this sale.

At December 31, 2000, we wrote-off the carrying amount of intangible assets from
certain business combinations, and reduced the carrying amount of our LMDS
licenses. Asset impairments in 2000 include goodwill of $6,690,000, workforce of
$577,000 and customer lists of $7,517,000. These assets were primarily related
to the Company's resale CLEC business, which was acquired in 1999. The
underlying operations, customer relationships and future revenue streams had
deteriorated significantly since the acquisition. These were indicators that the
carrying amount of the resale-related assets was not recoverable. We estimated
that the fair value of these assets was zero due to the lack of potential
buyers, the overall deterioration of the resale CLEC business environment and
because of the negative cash flow of these resale businesses for the foreseeable
future. Also at December 31, 2000, in connection with the reevaluation of its
business plan announced in April 2001, we reduced the carrying amount of its
LMDS licenses by $21,136,000 to reflect their estimated fair value. The
estimated fair value was determined based on an analysis of sales of other LMDS
licenses.

Depreciation expense increased to $47,976,000 from $30,641,000 primarily as a
result of an increase in fixed assets due to acquisitions in 2000.

Amortization expense increased to $97,388,000 from $42,936,000 due to the
amortization of goodwill from the acquisitions in 2000. We adopted of SFAS No.
142 on January 1, 2002, which required us to cease amortizing goodwill.
Amortization expense on our goodwill and workforce during 2001 and 2000 was
$97,025,000 and $39,862,000, respectively. Our net loss and our basic and
diluted net loss per common share would have been $496,890,000 and $261,379,000
and $17.38 and $9.15, respectively, had SFAS No. 142 been in effect during 2001
and 2000.

Interest income and other, net, increased to $1,799,000 from $1,134,000
primarily due to interest income on our cash, cash equivalents and marketable
securities.

Interest expense increased to $25,647,000 from $5,929,000 primarily due to
increased borrowings to fund our acquisitions and operations.

The income tax provision of $94,000 in 2001 and $125,000 in 2000 are for state
and local income tax.

Extraordinary gains in 2001 of $39,498,000 relate to the completion of the ATX
recapitalization transactions completed during December 2001, as well as the
successful settlement of various equipment and working capital notes, capital
leases and other liabilities for less than the outstanding balance.


                                       51
<PAGE>


CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements of the company and related financial
information are based on the application of generally accepted accounting
principles, referred to as GAAP. GAAP requires the use of estimates,
assumptions, judgments and subjective interpretations of accounting principles
that have an impact on the assets, liabilities, revenue and expense amounts
reported, as well as disclosures about contingencies, risk and financial
condition. The following critical accounting policies have the potential to have
a more significant impact on the Company's financial statements, either because
of the significance of the financial statement item to which they relate, or
because they require more judgment and estimation due to the uncertainty
involved in measuring, at a specific point in time, transactions which are
continuous in nature.

      -     We have provided estimated allowances for bad debts based on
            estimates of collectibility of our accounts receivable. These
            allowances were provided based on both the age of outstanding
            receivable balances and specific identification of customers. We
            identify customer payment histories and determine if additional
            allowances are required. Since we have a limited operating history,
            our estimates are based on reviewing current customer balances and
            economic conditions on a monthly basis. In addition, we write-off
            customer balances generally upon bankruptcy or other events where
            customer receipts are unlikely. We require security deposits in the
            normal course of business if customers do not meet the criteria we
            have established for offering credit. If the financial condition of
            our customers were to deteriorate resulting in an impairment in
            their ability to make payments, additions to the allowance may be
            required.

            The activity of our allowances for bad debts for each of the three
            years ended December 31, 2002 is as follows:

<TABLE>
<CAPTION>
                                                                                                                          AVERAGE
                                     ALLOWANCE    ADDITIONS TO                   ADDITIONS TO                ALLOWANCE   ALLOWANCE
                                      FOR BAD      ALLOWANCE                      ALLOWANCE     ALLOWANCE       AS A       AS A
                                      DEBT AT       BASED ON     UNCOLLECTIBLE      FROM         FOR BAD     PERCENTAGE  PERCENTAGE
                                     BEGINNING   COLLECTIBILITY     ACCOUNTS       BUSINESS    DEBT AT END  OF ACCOUNTS  OF ANNUAL
              DESCRIPTION            OF PERIOD     ESTIMATES      WRITTEN-OFF   COMBINATIONS    OF PERIOD    RECEIVABLE   REVENUE
              -----------            ---------     ---------      -----------   ------------    ---------    ----------   -------
<S>                                 <C>          <C>             <C>            <C>            <C>          <C>          <C>
     Year ended December 31, 2002   $ 9,759,000    $6,696,000     $(7,700,000)                 $ 8,755,000       20%        3.2%
     Year ended December 31, 2001    11,034,000     7,143,000      (8,418,000)                   9,759,000       23%        3.6%
     Year ended December 31, 2000     3,949,000     7,130,000      (9,269,000)    9,224,000     11,034,000       24%        5.7%
</TABLE>

      -     Our determination of the treatment of contingent liabilities in the
            financial statements is based on a view of the expected outcome of
            the applicable contingency. Legal counsel is consulted on matters
            related to litigation. Experts both within and outside the Company
            are consulted with respect to other matters that arise in the
            ordinary course of business. Examples of matters that are based on
            assumptions, judgments and estimates are the amount to be paid to
            terminate some agreements included in reorganization costs, the
            amounts to be paid to settle some toll and interconnection
            liabilities, the amount to be paid as a result of some sales and use
            tax audits and potential liabilities arising from other sales tax
            matters. A liability is accrued if the likelihood of an adverse
            outcome is probable of occurrence and the amount is estimable. At
            December 31, 2002, the aggregate amount of our pending contingent
            liabilities was approximately $9.3 million.


                                       52
<PAGE>


      -     We review long-lived assets and goodwill for impairment as described
            in the Notes to Consolidated Financial Statements. In analyzing
            potential impairments, projections of future cash flows from the
            asset are used. The projections are based on assumptions, judgments
            and estimates of growth rates for the related business, anticipated
            future economic, regulatory and political conditions, the assignment
            of discount rates relative to risk and estimates of terminal values.
            Changes to these variables in the future may necessitate impairment
            charges to reduce the carrying value to fair value.

      -     Fixed assets and intangible assets are assigned useful lives, which
            impacts the annual depreciation and amortization expense. The
            assignment of useful lives involves significant judgments and the
            use of estimates. Changes in technology or changes in intended use
            of these assets may cause the estimated useful life to change.

      -     In 2001, reorganization charges were recorded as a result of
            additional actions to reorganize, resize and reduce operating costs
            and create greater efficiency in various areas. These charges, for
            both severance and exit costs, required the use of estimates. Actual
            results could differ from those estimated for reorganization.

RECENT ACCOUNTING PRONOUNCEMENTS

On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure", which is effective for the year ended
December 31, 2002. The Statement amends the disclosure provisions of SFAS No.
123 "Accounting for Stock-Based Compensation". SFAS No. 148 also provides
alternative methods of transition to SFAS No. 123's fair value method of
accounting for stock based employee compensation. The adoption of this new
standard had no significant effect on our results of operations, financial
condition or cash flows.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." Effective for the Company on January 1, 2003.
SFAS 146 addresses the accounting and reporting for costs associated with exit
or disposal activities. The adoption of this new standard is not expected to
have a significant effect on our results of operations, financial condition or
cash flows.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,"
effective for the Company on January 1, 2003. This Statement rescinds FASB
Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an
amendment of that Statement, FASB Statement No. 64, Extinguishments of Debt Made
to Satisfy Sinking-Fund Requirements. This Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The adoption
of this standard will require the Company to reclassify its gain from
extinguishment of debt from extraordinary to continuing operations. The
Company's loss before income taxes for the year ended December 31, 2001 will be
$593,915,000 upon adoption of SFAS No. 145. The adoption of SFAS No. 145 will
not change the Company's net loss for year ended December 31, 2001.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," effective for us on January 1, 2002. This
statement supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" and other related accounting
guidance. The adoption of this new standard did not materially effect the amount
of the $41,121,000 impairment charge recorded by the Company in the fourth
quarter of 2002, however, the charge was calculated in accordance with the
provisions of this pronouncement.


                                       53
<PAGE>


In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," effective for us on January 1, 2003. This statement addresses
financial accounting and reporting for obligations associated with the
retirement of tangible fixed assets and the associated asset retirement costs.
The adoption of this new standard did not have a significant effect on our
results of operations, financial condition or cash flows.

In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and No.
142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Use of the pooling-of-interests method is no longer
permitted. SFAS No. 141 also includes guidance on the initial recognition and
measurement of goodwill and other intangible assets acquired in a business
combination that is completed after June 30, 2001. SFAS No. 142 ends the
amortization of goodwill and indefinite-lived intangible assets. Instead, these
assets must be reviewed annually, or more frequently under some conditions, for
impairment in accordance with this statement. This impairment test uses a fair
value approach to determine whether or not impairment exists rather than the
undiscounted cash flow approach previously required by SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." We adopted SFAS No. 142 on January 1, 2002.

We performed our first evaluation for impairment of goodwill as of January 1,
2002, and determined that no impairment charge was required at that time. We
performed our annual test of impairment on October 1, 2002 and determined that
our goodwill was impaired. As a result we have recorded an asset impairment
charge of $77,409,000.

The following table shows our loss before extraordinary item and net loss had
SFAS No. 142 been in effect during the two years ended December 31, 2001 and
2000. Additionally, the table presents the effect on our basic and diluted loss
per share before extraordinary item and basic and diluted net loss per share:

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                     ----------------------------------------
                                                     2002              2001              2000
                                                     ----              ----              ----
<S>                                               <C>               <C>               <C>
Loss before extraordinary item - as reported      $  (154,238)      $  (633,413)      $  (301,241)
Goodwill amortization                                      --            96,973            39,330
Workforce amortization                                     --                52               532
                                                  -----------       -----------       -----------
Loss before extraordinary item - as adjusted      $  (154,238)      $  (536,388)      $  (261,379)
                                                  ===========       ===========       ===========
Net loss - as reported                            $  (154,238)      $  (593,915)      $  (301,241)
Goodwill amortization                                      --            96,973            39,330
Workforce amortization                                     --                52               532
                                                  -----------       -----------       -----------
Net loss - as adjusted                            $  (154,238)      $  (496,890)      $  (261,379)
                                                  ===========       ===========       ===========
Basic and diluted per share information:
Loss before extraordinary item - as reported      $     (5.17)      $    (22.15)      $    (10.55)
Goodwill amortization                                      --              3.39              1.38
Workforce amortization                                     --                --              0.02
                                                  -----------       -----------       -----------
Loss before extraordinary item - as adjusted      $     (5.17)      $    (18.76)      $     (9.15)
                                                  ===========       ===========       ===========
Net loss - as reported                            $     (5.17)      $    (20.77)      $    (10.55)
Goodwill amortization                                      --              3.39              1.38
Workforce amortization                                     --                --              0.02
                                                  -----------       -----------       -----------
Net loss - as adjusted                            $     (5.17)      $    (17.38)      $     (9.15)
                                                  ===========       ===========       ===========
</TABLE>


                                       54
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Based on our current business plan, we anticipate that we will have sufficient
cash and cash equivalents on hand to fund our operations, capital expenditures
and debt service in 2003. Our ability to raise additional capital in the future
will be dependent on a number of factors, such as our results of operations, the
amount of our indebtedness, and also general economic and market conditions,
which are beyond our control. If we are unable to obtain additional financing or
to obtain it on favorable terms, we may be required to further reduce our
operations, forego business opportunities, or take other actions, which could
adversely affect our business, results of operations and financial condition. In
addition, we are also involved in litigation, which if resolved unfavorably to
us, could have a material adverse effect on our business, financial condition
and results of operations, including our ability to fund our operations.

As of December 31, 2002, we had long-term debt, which consists of a $156.1
million senior secured credit facility, approximately $18.0 million in principal
amount of 10.75% Unsecured Convertible PIK Notes due 2011, and approximately
$9.5 million of capital leases. In addition, as of December 31, 2002, CCL had
$4.4 million of 6% Convertible Subordinated Notes outstanding.

On March 31, 2003, we entered into an amendment to our senior secured credit
facility. Under this amendment, the lenders under the facility agreed to defer
interest payments on the outstanding loans during the period beginning March 12,
2003 until February 2, 2004, during which time the loans will accrue interest at
a rate of approximately 9.75%. In addition, the required principal payments
originally scheduled for 2003, which totaled $1.95 million, were deferred until
February 2, 2004. The lenders have also agreed to waive and/or amend certain
financial covenants set forth in the credit agreement until February 2, 2004,
and also added other financial and operating covenants during 2003, in order to
better reflect our current operations. As of the effective date of this
amendment, we are in compliance with all of the required ratios and covenants
contained in our agreement. We intend to utilize the increased liquidity
afforded by the amendment to invest in several areas of our core operations. In
addition, during this period, we intend to seek and consider strategic
alternatives in order to reduce our overall indebtedness, including amounts
under the senior secured credit facility. Such strategic alternatives may
include, among other things, debt or equity financings or refinancings,
recapitalizations, restructurings, mergers and acquisitions or other
transactions. It is likely that any of such transactions, if implemented, would
result in material dilution to common stockholders.

Although the amendment has been designed to provide us with significant relief
from cash obligations under the senior secured credit facility until February
2, 2004, we cannot assure you that we will be able to maintain compliance with
the requirements of those agreements. In addition, it is likely that we will
not be in compliance with the requirements of those agreements as of January
31, 2004, the date on which the waivers and amendments described above expire.
Accordingly, there can be no assurance that there will not be an event of
default under the credit facility at that time, or that we will be able to
enter into additional amendments to the senior secured credit facility by that
time.

                                       55
<PAGE>


Taking the amendment into effect, debt service on the senior secured credit
facility includes approximately $1.7 million in cash interest expense due in
2003, $23.0 million in 2004 and $8.6 million in 2005, on an annualized basis,
based on current interest rates, as well as quarterly amortization and principal
reductions which total $0 in 2003, $11.7 million in 2004, and $25.4 million in
2005. We made cash interest payments of approximately $10.6 million under our
senior secured credit facility during the year ended December 31, 2002. The
10.75% Unsecured Convertible PIK Notes due 2011 have no cash interest payments,
and are not due until 2011. As of December 31, 2002, our current liabilities
exceed our current assets by approximately $101 million.

We continue to have significant expected capital expenditures under our current
business plan. Under this revised business plan, capital expenditures have been
significantly reduced from prior levels. Total actual capital expenditures for
the year ended December 31, 2002, described as cash used to purchase fixed
assets in our cash flow statement, were approximately $11.3 million. According
to our current plans, capital expenditures are expected to be approximately $8.9
million in 2003 and 2004, and $10.2 million in 2005. These future capital
expenditures will depend on a number of factors relating to our business, in
particular the growth level, geographic location and services provided to new
customers added during these years. Capital expenditures in future years will
also depend on the availability of capital and the amount of cash, if any,
generated by operations, which may impact our capital decisions relating to
initiatives such as, for example, network expansion and the implementation of
upgrades to our information services platforms.

For the year ended December 31, 2002, net cash used in operations was
approximately $3.8 million. If we are unable to generate cash from operations
and/or raise additional financing, it may affect our ability to meet our cash
requirements, which may have an adverse affect on us, and potentially our
viability as an ongoing business.

Our capital requirements in 2003 and thereafter will depend on the success of
the continued execution of our business plan, and the amount of capital required
to fund future capital expenditures and other working capital requirements that
exceed net cash provided by operating activities. We anticipate that we will not
generate sufficient cash flow from operations to repay at maturity the entire
principal amount of our outstanding indebtedness. In addition, based on our
current business plan, we do not expect that we will have the cash available to
fund the required deferred interest and principal payments on or before February
2, 2004, the date on which such payments become due. In addition, we anticipate
that we may be required to raise additional capital in the future in order to
fund the capital expenditures and other working capital requirements that exceed
net cash provided by operating activities.


                                       56
<PAGE>


Accordingly, we may be required to consider a number of measures, including: (1)
seeking modifications or waivers to certain provisions of the terms of our
indebtedness, (2) refinancing all or a portion of our indebtedness, (3) seeking
additional debt financing, which may be subject to obtaining necessary lender
consents, (4) seeking additional equity financing, (5) completing a
recapitalization or restructuring of our indebtedness (6) a combination of the
foregoing. The consideration, timing and implementation of such measures will
depend upon the success of the execution of our business plan, the amount of
capital required to fund our operations in the future, and the terms of any
financings or other transactions that we may consider.

In addition, we cannot assure you that:

      (a)   actual costs will not exceed the amounts estimated in our business
            plan or that additional funding will not be required;

      (b)   we will prevail in our material litigation matters as described in
            Item 3 of Part I on this Annual Report on Form 10-K entitled " Legal
            Proceedings.";

      (c)   we and our subsidiaries will be able to generate sufficient cash
            from operations to meet capital requirements, debt service and other
            obligations when required;

      (d)   we will be able to continue to be in compliance with all required
            ratios and covenants contained in agreements governing our
            outstanding indebtedness, or that we will be able to modify the
            requirements or terms of such indebtedness;

      (e)   we will be able to refinance our indebtedness as it comes due;

      (f)   we will be able to sell assets or businesses (the net proceeds from
            a sale may be required to be used to repay certain indebtedness);

      (g)   we will not be adversely affected by interest rate fluctuations; or

      (h)   we will be able to access the cash flow of our subsidiaries.


                                       57
<PAGE>


The following table shows our aggregate cash interest expense and principal
payments on our existing long-term debt, anticipated estimated capital
expenditures, payments on capital leases and other debt, as well as the sources
of funds that we expect to use to meet these cash requirements through 2005.

<TABLE>
<CAPTION>
                                        FOR THE YEAR ENDED DECEMBER 31,
                                        -------------------------------
                                          2003       2004       2005                  SOURCE OF FUNDS
                                          ----       ----       ----                  ---------------
                                               (IN MILLIONS)
<S>                                      <C>        <C>        <C>        <C>
Cash interest expense on                 $ 2.2      $23.3      $ 8.9      For 2003: cash and cash equivalents on hand
  existing long-term debt (1)                                             and cash from operations; for 2004 and
                                                                          2005: cash and cash equivalents on hand,
                                                                          cash from operations and, if required,
                                                                          refinancing or other sources of financing
                                                                          (4)

Estimated capital expenditures (2)         8.9        8.9       10.2      Cash and cash equivalents on hand and cash
                                                                          from operations

Principal payments on existing              --       11.7       25.4      Cash and cash equivalents on hand, cash
  long-term debt (3)                                                      from operations and, if required,
                                                                          refinancing or other sources of financing
                                                                          (4)

Payments on Capital Leases                 9.5         --         --      Approximately $8.1 million of these capital
                                                                          leases are obligations of our subsidiary
                                                                          MegsINet, Inc. and are not obligations of
                                                                          the Company. The source of funds for the
                                                                          remaining amounts: cash and cash
                                                                          equivalents on hand and cash from
                                                                          operations (5)
                                         -----      -----      -----
                                         $20.6      $43.9      $44.5
                                         =====      =====      =====
</TABLE>

(1)   Our only long-term debt that requires cash interest expense is our $156.1
      million senior secured credit facility and CCL's $4.4 million 6%
      Convertible Subordinated Notes of CCL. The interest expense on our senior
      secured credit facility is based on current interest rates and assumes
      principal reductions as required in the amended facility. The cash
      interest expense for 2003 reflects actual interest payments made through
      March 31, 2003, the date of the amendment.

(2)   Future capital expenditures will depend on a number of factors relating to
      our business, in particular the growth level, geographic location and
      services provided to new customers added during these years.

(3)   Principal payments indicated are amortization and principal reductions
      under our senior secured credit facility. The 2003 amount excludes the
      outstanding $4.4 million 6% Convertible Subordinated Notes due 2006 of
      CCL. CCL is in default on such notes.

(4)   Refinancing sources may include, for example, a new bank facility used to
      repay these amounts; other sources of financing may include capital raised
      through new debt or equity financing or asset sales. There can be no
      assurance that we will be able to refinance our indebtedness or raise the
      required funds.

(5)   Approximately $8.1 million of the capital lease and other debt obligations
      of MegsINet, Inc. are the subject of current litigation, as described in
      Item 3 of Part I to this Annual Report on Form 10-K entitled " Legal
      Proceedings."


                                       58
<PAGE>


Although we believe that our plans, intentions and expectations as reflected in
or suggested by these forward-looking statements are reasonable as of the date
of this annual report, we can give no assurance that our plans, intentions and
expectations will be achieved in a timely manner if at all.

In addition, we are a holding company with no significant assets other than cash
and securities and investments in, and advances to, our subsidiaries. We are,
therefore, likely to be dependent upon receipt of funds from our subsidiaries to
meet our own obligations. However, our subsidiaries' debt agreements prevent the
payment of dividends, loans or other distributions to us, except in limited
circumstances. However, the limited permitted circumstances of distributions
from our subsidiaries may be sufficient for our operations, because nearly all
of the uses of funds described above are cash requirements of our subsidiaries.

Our outstanding indebtedness is described in further detail in the subsequent
paragraphs.

In April 2001, CCL and the Company entered into a $156.1 million Amended and
Restated Credit Agreement that amended and restated the term loan facility and
revolving credit facility that closed in September 2000. The Agreement was
amended most recently on March 31, 2003. As of December 31, 2002, there was
$106.1 million outstanding under the term loan facility and $50.0 million
outstanding under the revolving credit facility. The term loan facility will
amortize in quarterly installments of principal commencing on February 2, 2004
with a final maturity on September 22, 2008. The revolving credit facility shall
be automatically and permanently reduced in increasing installments of principal
commencing on February 2, 2004 with a termination date on September 22, 2008.
Total annual principal payments are as follows: $11,700,000 (2004); $25,350,000
(2005); $50,700,000 (2006); $39,000,000 (2007) and $29,350,000 (2008). In the
event the remaining $4.4 million principal amount Convertible Notes held by
third parties has not been converted or refinanced on or prior to April 1, 2006,
then the facilities become payable in full on April 1, 2006. The interest rate
on both the term loan facility and the revolving credit facility is, at our
option, either 3.5% per annum plus the base rate (which is the higher of the
prime rate, or the federal funds effective rate plus 0.5% per annum), or the
reserve-adjusted London Interbank Offered Rate plus 4.5% per annum. As a result
of the amendment entered into on March 31, 2003, the loans will accrue interest
at a rate of approximately 9.75% during the period beginning March 12, 2003
until February 2, 2004. Interest is payable monthly on the facility. The
commitment fee on the unused portion of the commitments is 1.25% per annum
payable quarterly, subject to reduction to 1% per annum based upon the amount
borrowed under the facilities.

In April 2001, we and CCL issued, as joint and several obligors, to NTL
Incorporated, a convertible note in the aggregate principal amount of $15
million. This note will mature in April 2011. Interest on the note is at an
annual rate of 10.75% payable semiannually on October 15 and April 15 of each
year, commencing October 15, 2001. Following the restructuring of NTL, this note
is now held by NTL Europe, Inc.


                                       59
<PAGE>


The interest is payable in kind by the issuance of additional unsecured
convertible notes in principal amount equal to the interest payment that is then
due. Additional unsecured convertible PIK notes, dated October 15, 2001, April
15, 2002, and October 15, 2002 were issued in the principal amount of
approximately $0.8 million, $0.9 million, and $0.9 million respectively, as
interest payments. The additional notes issued for interest will have an initial
conversion price equal to the greater of $38.90 or 120% of the weighted average
closing price of our common stock for a specified period. The April 2001 note,
the October 2001 note, the April 2002 and the October 2002 note are each
convertible into CCL common stock prior to maturity at a conversion price of
$38.90 per share, subject to adjustment. Pursuant to letter agreements between
us, NTL and CCL, at the completion of the exchange offers on July 1, 2002, the
convertibility feature of these notes was altered so that rather than the notes
being convertible into shares of CCL common stock, they are convertible into
shares of our common stock. At that time, the conversion prices of these notes
was equitably adjusted by applying the exchange ratio in the exchange offer for
CCL common stock, which resulted in a new conversion price of $38.90 per share
of our common stock for each of these notes. These notes are redeemable, in
whole or in part, at our option, at any time after April 12, 2003, at a
redemption price of 103.429% that declines annually to 100% in April 2007, in
each case together with accrued and unpaid interest to the redemption date.

In October 1999, CCL issued $175 million principal amount of 6% Convertible
Subordinated Notes, and received net proceeds of $168.5 million. In April 2001,
$10,250,000 aggregate principal amount of these notes was converted into
approximately 374,000 shares of CCL's common stock. As part of the ATX
recapitalization, on December 17, 2001, $160 million principal amount of the 6%
Convertible Subordinated Notes were exchanged for 1,456,806 common shares of our
common stock and the payment of the October 2001 interest payment of
approximately $4.8 million. As part of the public exchange offer that was
launched in February 2002, on July 1, 2002, $392,000 principal amount of the 6%
Convertible Subordinated Notes were exchanged for 3,569 shares of our common
stock and a cash payment of approximately $12,000, representing the past-due
interest payment that was due on the notes on April 1, 2002. The April 1 and
October 1, 2002 interest payments on the outstanding 6% Convertible Subordinated
Notes of $4.358 million have not been paid and CCL is in default under the these
notes. As such, the notes and the accrued interest thereon are currently due and
payable in full. These notes are an obligation of CCL and not an obligation of
the Company.

ATX RECAPITALIZATION

On December 28, 2001, we completed the exchange of shares of our common stock
for substantial amounts of the outstanding indebtedness and preferred stock of
the Company and CCL. This exchange was completed under exchange agreements with
CCL and

      (1)   holders of the $164,750,000 6% Convertible Subordinated Notes due
            2006 of CCL in the principal amount of $160,000,000 (an additional
            $392,000 of such notes were exchanged in 2002),

      (2)   holders of 10.75% Unsecured Convertible PIK Notes due 2011 and
            10.75% Senior Unsecured Convertible PIK Notes due 2010, which were a
            joint obligation of the Company and CCL, in the initial principal
            amounts of $10,000,000 and $16,100,000, respectively,


                                       60
<PAGE>


      (3)   holders of Senior Unsecured Notes due September 29, 2003 of CCL in
            the principal amount of $105.7 million, and

      (4)   holders of all of the preferred stock of CCL, with respect to the
            initial liquidation preference of $301 million.

On February 8, 2002, we launched registered public exchange offers whereby we
offered to exchange our shares of common stock to all holders of CCL common
stock and all remaining holders of 6% Convertible Subordinated Notes due 2006 of
CCL for their CCL common stock and their notes, respectively. We completed the
exchange offer on July 1, 2002, and issued 3,610,624 shares of common stock to
the former holders of CCL common stock and holders of 6% Convertible
Subordinated Notes due 2006 of CCL. Following the exchange offer, we transferred
the shares of CCL common stock that we received in the exchange offer to a
wholly-owned subsidiary. We then merged this subsidiary into CCL, with CCL
surviving the merger as our wholly-owned subsidiary.

Following the ATX recapitalization, on July 2, 2002, Nasdaq transferred CCL's
listing on The Nasdaq National Market to us. On August 15, 2002, the Nasdaq
Listing Qualifications Panel issued its decision to delist our common stock. On
August 16, 2002, the Company's Common stock began trading on the OTC Bulletin
Board. We had requested a review of the Panel's decision by the NASDAQ listing
and Hearing Review Council and on October 26, 2002, the Listing Council affirmed
the Panel's decision to delist our common stock.

The delisting of our common stock from the Nasdaq National Market, could, among
other things, have a negative impact on the trading activity and price of the
common stock and could make it more difficult for us to raise equity capital in
the future.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

On January 22, 2002, the Securities and Exchange Commission issued FR-61,
Commission Statement about Management's Discussion and Analysis of Financial
Condition and Results of Operations. The release sets forth views of the
Securities and Exchange Commission regarding disclosure that should be
considered by registrants. Our contractual obligations and commercial
commitments are summarized below, and are fully disclosed in our Notes to
Consolidated Financial Statements.

The following table includes aggregate information about our contractual
obligations as of December 31, 2002 and the periods in which payments are due:

<TABLE>
<CAPTION>
                                                             PAYMENTS DUE BY PERIOD
                                          -------------------------------------------------------------
                                                      LESS THAN       1-3           4-5         AFTER 5
CONTRACTUAL OBLIGATIONS                   TOTAL        1 YEAR        YEARS         YEARS         YEARS
-----------------------                   -----        ------        -----         -----         -----
<S>                                     <C>           <C>           <C>           <C>           <C>
                                                                 (IN THOUSANDS)
Long-Term Debt (1)                      $178,417      $  4,358      $ 37,050      $ 89,700      $ 47,309
Capital Lease Obligations                  9,534         9,534            --            --            --
Operating Leases                          27,128         7,522         9,376         5,755         4,475
Unconditional Purchase Obligations            --            --            --            --            --
Other Long-Term Obligations                   --            --            --            --            --
                                        --------      --------      --------      --------      --------
Total Contractual Cash Obligations      $215,079      $ 21,414      $ 46,426      $ 95,455      $ 51,784
                                        ========      ========      ========      ========      ========
</TABLE>

(1)   Long-term debt includes the senior secured credit facility of
      $156,100,000, 10.75% Unsecured Convertible PIK Notes due April 2011 of
      $17,959,000, including accrued PIK interest, and CCL's 6% Convertible
      Subordinated Notes due 2006 of $4,358,000. The Convertible Subordinated
      Notes due 2006 of $4,358,000 have been reflected as due in less than one
      year because CCL is currently in default of this obligation.


                                       61
<PAGE>


The following table includes aggregate information about our commercial
commitments as of December 31, 2002 and the periods in which payments are due.
Commercial commitments are items that we could be obligated to pay in the
future. They are not required to be included in the consolidated balance sheet.

<TABLE>
<CAPTION>
                                                AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
                                      --------------------------------------------------------------
                                                  LESS THAN       1 - 3         4 - 5         OVER 5
OTHER COMMERCIAL COMMITMENTS          TOTAL         1 YEAR        YEARS         YEARS         YEARS
----------------------------          -----         ------        -----         -----         -----
<S>                                   <C>         <C>             <C>           <C>           <C>
                                                              (IN THOUSANDS)
Guarantees                            $   --        $   --        $   --        $   --        $   --
Lines of Credit                           --            --            --            --            --
Standby Letters of Credit              3,590         3,590            --            --            --
Standby Repurchase Obligations            --            --            --            --            --
Other Commercial Commitments           4,975         4,975            --            --            --
                                      ------        ------        ------        ------        ------
Total Commercial Commitments          $8,565        $8,565        $   --        $   --        $   --
                                      ======        ======        ======        ======        ======
</TABLE>

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended December 31, 2002, cash used in operating activities
decreased to $3,750,000 from $36,773,000 in the year ended December 31, 2001
primarily due to significant efforts to reduce expenses and other efforts to
improve cash flow.

For the year ended December 31, 2002, cash used to purchase fixed assets
increased to $11,327,000 from $5,221,000 in the year ended December 31, 2001,
which reflected increased purchases of operating equipment.

For the year ended December 31, 2002, cash used in financing activities
decreased to $400,000 from cash provided by financing activities of $41.5
million for the year ended December 31, 2001. During 2001 we received proceeds
from borrowings, net of financing costs, of $88,679,000 from the borrowings
under the senior secured credit facility in January 2001 and April 2001 and the
issuance of the 10.75% senior unsecured convertible notes in April 2001. These
proceeds were partially offset by capital distribution and principal payments on
long-term debt and capital lease obligations.


                                       62
<PAGE>


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The SEC's rule related to market risk disclosure requires that we describe and
quantify our potential losses from market risk sensitive instruments
attributable to reasonably possible market changes. Market risk sensitive
instruments include all financial or commodity instruments and other financial
instruments, such as investments and debt, that are sensitive to future changes
in interest rates, currency exchange rates, commodity prices or other market
factors. We are not exposed to market risks from changes in foreign currency
exchange rates or commodity prices. We do not hold derivative financial
instruments nor do we hold securities for trading or speculative purposes. Under
our current policies, we do not use interest rate derivative instruments to
manage our exposure to interest rate changes.

The fair-market value of long-term fixed interest rate debt is subject to
interest rate risk. Generally the fair market value of fixed interest rate debt
will increase as interest rates fall and decrease as interest rates rise. The
carrying amount of the variable rate senior secured credit facility approximates
the fair value. The fair value of our other notes payable are estimated using
discounted cash flow analyses, based on our current incremental borrowing rates
for similar types of borrowing arrangements.

                            INTEREST RATE SENSITIVITY
                             AS OF DECEMBER 31, 2002

                      PRINCIPAL AMOUNT BY EXPECTED MATURITY
                              AVERAGE INTEREST RATE

<TABLE>
<CAPTION>
                                         FOR THE YEARS ENDING DECEMBER 31,
                            ----------------------------------------------------------                                      FAIR
                            2003          2004          2005         2006         2007      THEREAFTER        TOTAL         VALUE
                          --------      --------      --------     --------     --------    ----------      --------      --------
<S>                       <C>           <C>           <C>          <C>          <C>         <C>              <C>          <C>
Long-term debt,
  including current
  portion:
Fixed rate                $  4,358      $     --      $     --     $     --     $     --     $ 47,525(a)     $ 51,883     $ 19,471
Average interest rate         6.00%                                                             10.75%
Variable rate             $     --      $ 11,700      $ 25,350     $ 50,700     $ 39,000     $ 29,350        $156,100     $156,100

Average interest rate
                          Libor +       Libor +       Libor +       Libor +     Libor +      Libor +
                          4.5% or       4.5% or       4.5% or       4.5% or     4.5% or      4.5% or
                          base rate     base rate     base rate     base rate   base rate    base rate
                          + 3.5%(b)     + 3.5%(b)     + 3.5%        + 3.5%      + 3.5%       + 3.5%
</TABLE>

(a)   Represents the value at maturity of 10.75% Unsecured Convertible PIK Notes
      due April 2011.

(b)   On March 31, 2003, we entered into an amendment to our senior secured
      credit facility. Under this amendment, the lenders under the facility
      agreed to defer interest payments on the outstanding loans during the
      period beginning March 12, 2003 until February 2, 2004, during which time
      the loans will accrue interest at the base rate plus 5.5%.


                                       63
<PAGE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Financial Statements are included herein commencing on page F-1.

The following is the unaudited quarterly results of operations for the years
ended December 31, 2002 and 2001. We believe that the following information
reflects all normal recurring adjustments necessary for a fair presentation on
the information for the period presented. The operating results for any quarter
are not necessarily indicative of results for any future period.

<TABLE>
<CAPTION>
                                                                                2002
                                                                     FOR THE THREE MONTHS ENDED
                                               ----------------------------------------------------------------------
                                               DECEMBER 31,       SEPTEMBER 30,          JUNE 30,           MARCH 31,
                                               ------------       -------------          --------           ---------
<S>                                           <C>                 <C>                 <C>                 <C>
REVENUES                                      $  70,779,000       $  73,422,000       $  75,209,000       $  74,311,000

COSTS AND EXPENSES
Operating                                        47,125,000          47,927,000          48,758,000          48,038,000
Selling, general and administrative              16,892,000          18,512,000          20,224,000          22,313,000
Corporate                                          (191,000)          1,930,000           1,616,000           1,698,000
Recapitalization costs                               10,000             373,000           4,270,000           1,182,000
Charges for impaired assets (1)                 118,530,000                  --                  --                  --
Depreciation                                      5,244,000           8,895,000           9,140,000           8,881,000
Amortization                                             --              84,000              83,000              84,000
                                              -------------       -------------       -------------       -------------
                                                187,610,000          77,721,000          84,091,000          82,196,000
                                              -------------       -------------       -------------       -------------
Operating loss                                 (116,831,000)         (4,299,000)         (8,882,000)         (7,885,000)

OTHER INCOME (EXPENSE)
Interest income and other, net                      (64,000)            115,000             100,000             134,000
Interest expense                                 (4,233,000)         (4,503,000)         (3,737,000)         (3,903,000)
                                              -------------       -------------       -------------       -------------
Loss before income taxes                       (121,128,000)         (8,687,000)        (12,519,000)        (11,654,000)
Income tax benefit (provision)                     (342,000)             92,000                  --                  --
                                              -------------       -------------       -------------       -------------
Net loss                                      $(121,470,000)      $  (8,595,000)      $ (12,519,000)      $ (11,654,000)
                                              =============       =============       =============       =============
Basic and diluted net loss per share (2)      $       (4.09)      $       (0.29)      $       (0.42)      $       (0.39)
                                              =============       =============       =============       =============
Weighted average number of shares                29,667,000          29,667,000          30,000,000          30,000,000
                                              =============       =============       =============       =============
</TABLE>

(1)  For additional information about the charges for impaired assets, see Note
     7 to our consolidated financial statements included herein.

(2)  The sum of quarterly per share amounts may not equal per share amounts
     reported for year-to-date periods. This is due to changes in the number of
     weighted average shares outstanding and the effects of rounding for each
     period.


                                       64
<PAGE>



<TABLE>
<CAPTION>
                                                                               2001
                                                                    FOR THE THREE MONTHS ENDED
                                              ----------------------------------------------------------------------
                                              DECEMBER 31,       SEPTEMBER 30,          JUNE 30,           MARCH 31,
                                              ------------       -------------          --------           ---------
<S>                                          <C>                 <C>                 <C>                 <C>
REVENUES                                     $  72,572,000       $  74,172,000       $  73,126,000       $  72,811,000

COSTS AND EXPENSES
Operating                                       48,865,000          54,760,000          57,662,000          63,520,000
Selling, general and administrative             21,833,000          20,907,000          23,319,000          30,795,000
Corporate                                        1,794,000             944,000             812,000           2,098,000
Non-cash compensation                           11,936,000           3,234,000           3,234,000           3,234,000
Other charges                                    2,158,000           3,910,000          33,366,000             119,000
Charges for impaired assets                    200,689,000                  --                  --         167,599,000
Depreciation                                    13,425,000          10,972,000          11,567,000          12,012,000
Amortization                                    21,998,000          20,784,000          23,097,000          31,509,000
                                             -------------       -------------       -------------       -------------
                                               322,698,000         115,511,000         153,057,000         310,886,000
                                             -------------       -------------       -------------       -------------
Operating loss                                (250,126,000)        (41,339,000)        (79,931,000)       (238,075,000)

OTHER INCOME (EXPENSE)
Interest income and other, net                     (76,000)            555,000             656,000             664,000
Interest expense                                (7,180,000)         (6,943,000)         (7,383,000)         (4,141,000)
                                             -------------       -------------       -------------       -------------
Loss before income taxes and
     extraordinary item                       (257,382,000)        (47,727,000)        (86,658,000)       (241,552,000)
Income tax provision                              (127,000)                 --              33,000                  --
                                             -------------       -------------       -------------       -------------
Loss before extraordinary item                (257,509,000)        (47,727,000)        (86,625,000)       (241,552,000)
Gain from extinguishment of debt                37,282,000           2,216,000                  --                  --
                                             -------------       -------------       -------------       -------------
Net loss                                     $(220,227,000)      $ (45,511,000)      $ (86,625,000)      $(241,552,000)
                                             =============       =============       =============       =============
Basic and diluted net loss per share(1)
Loss before extraordinary item               $       (8.58)      $       (1.67)      $       (3.04)      $       (8.46)
Extraordinary item                                    0.80                0.08                  --                  --
                                             -------------       -------------       -------------       -------------
Net loss                                     $       (7.34)      $       (1.59)      $       (3.04)      $       (8.46)
                                             =============       =============       =============       =============
Weighted average number of shares               30,000,000          28,542,000          28,542,000          28,542,000
                                             =============       =============       =============       =============
</TABLE>

(1)   The sum of quarterly per share amounts may not equal per share amounts
      reported for year-to-date periods. This is due to changes in the number of
      weighted-average shares outstanding and the effects of rounding for each
      period.


                                       65
<PAGE>


DISCUSSION OF OPERATIONS - QUARTER ENDED DECEMBER 31, 2002

Corporate expenses decreased to a benefit of $191,000 from an expense of
$1,794,000 due to settlements and adjustments, which had the effect of reducing
corporate expense by $3,468,000 during the fourth quarter of 2002. This
reduction was offset by increased costs of corporate activities, which consist
primarily of compensation expense.

We performed a review of the recoverability of our goodwill and long-lived
assets, which indicated that the carrying value of certain assets would not be
recoverable. Asset impairments during the fourth quarter of 2002 include a
write-down of goodwill of $77,409,000 and a write down of long-lived assets of
$41,121,000. Asset impairments during the fourth quarter of 2001 include a
write-down of goodwill of $186,160,000 and a write-down of fixed assets of
$14,529,000.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

Not applicable.


                                       66
<PAGE>


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The following table sets forth certain information concerning the persons who
serve as directors and executive officers:

<TABLE>
<CAPTION>
       NAME                          AGE                              TITLE
       ----                          ---                              -----
<S>                                  <C>        <C>
       Barclay Knapp                 46         Chairman of the Board
       Thomas J. Gravina             41         President, Chief Executive Officer and Director
       Michael A. Peterson           33         Executive Vice President -- Chief Operating Officer,
                                                Chief Financial Officer and Director

       Jeffrey Coursen               40         Senior Vice President -- Chief Operating Officer
                                                Commercial Division
       Timothy Allen                 39         Senior Vice President -- Sales
       Christopher Holt              38         Senior Vice President -- Chief Counsel for Legal
                                                And External Affairs and Secretary

       Christopher Michaels          36         Senior Vice President -- Chief Technical Officer
       Neil Peritz                   39         Senior Vice President -- Controller and Treasurer
       Ralph H. Booth, II            49         Director
       Alan J. Patricof              68         Director
       Warren Potash                 71         Director
</TABLE>

Our charter provides for a classified board of directors consisting of three
classes directors with overlapping three-year terms. One class of directors is
to be elected each year with terms expiring on the third succeeding annual
meeting after such election. The term of the Class II Directors, which is
comprised of Warren Potash, terminates on the date of the 2003 annual meeting of
stockholders; the term of the Class III Directors, which are comprised of
Barclay Knapp and Alan J. Patricof, terminates on the date of the 2004 annual
meeting of stockholders; and the term of the Class I Directors, which are
comprised of Thomas J. Gravina, Ralph H. Booth, II and Michael A. Peterson,
terminates on the date of the 2005 annual meeting of stockholders. Mr.
Blumenthal resigned as one of our directors as of December 23, 2002. The
following is a brief description of the present and past business experience of
each of the persons who serve as our directors and executive officers.

Barclay Knapp is currently our Chairman and was our President, Chief Executive
Officer, Chief Financial Officer and director from March 1998 until January
2002. Mr. Knapp had various executive positions including Executive Vice
President, Chief Operating Officer, Chief Financial Officer and was a director
of Cellular Communications, Inc. (referred to as CCI) from 1981 until its sale
in 1996. He is currently President, Chief Executive Officer and a director of
NTL Incorporated (referred to as NTL) and a director of NTL's affiliates. Mr.
Knapp was also an executive officer and director of CCI spinoffs, Cellular
Communications of Puerto Rico, Inc. and Cellular Communications International,
Inc. from their inception in February 1992 and July 1991, respectively, and
until their sale in 1999 and 1998, respectively.

Thomas J. Gravina is currently our President and Chief Executive Officer and
serves as one of our directors. Mr. Gravina was our Executive Vice President and
Chief Operating Officer until January 2002. Mr. Gravina has been employed by us
and/or our affiliates since the acquisition by CCL of ATX Telecommunications
Services, Inc. in September 2000. Prior to the acquisition, Mr. Gravina served
as Co-Chief Executive Officer and a partner of ATX Telecommunication Services,
Inc., a position he had held since 1987. Mr. Gravina serves as a director of the
Eastern Technology Council and the Junior Achievement of America.


                                       67
<PAGE>


Michael A. Peterson is currently our Executive Vice President -- Chief Operating
Officer, Chief Financial Officer and serves as one of our directors. Mr.
Peterson had served as our Vice President -- Corporate Development since June
2000 and, until that time, had served as our Director -- Corporate Development
since our inception. He has worked for us and our related historical affiliates
since 1996. He was also Director -- Corporate Development at NTL from 1996 to
2002. Prior to joining NTL, he was in the investment banking division at
Donaldson, Lufkin & Jenrette, specializing in the communications industry.

Jeffrey Coursen is currently our Senior Vice President -- Chief Operating
Officer of the Commercial Division and was the Vice President of Strategic
Development for us and our historical affiliates from the date of the
acquisition of ATX Telecommunications Services, Inc. in September 2000 until May
2001. Prior to the acquisition, Mr. Coursen served as Vice President of
Strategic Development of ATX Telecommunications Services, Inc. from January 1999
to September 2000 and, until that time, served as Director of Strategic
Development from 1993 to 1999.

Timothy Allen is currently our Senior Vice President -- Sales and was the Vice
President of Sales and Marketing for us and our historical affiliates from the
date of the acquisition of ATX Telecommunications Services, Inc. in September
2000 until May 2001. Prior to the acquisition, Mr. Allen served as Vice
President of Sales and Marketing of ATX Telecommunications Services, Inc. from
January 1999 to September 2000 and served as Director of Sales and Marketing
from 1988 to 1999.

Christopher Holt is currently our Senior Vice President -- Chief Counsel for
Legal and External Affairs and Secretary and was the Vice President and
Assistant General Counsel - Regulatory and Corporate Affairs for us and our
historical affiliates from September 1998 until May 2001. Prior to joining the
Company, Mr. Holt was an attorney in the Communications Law and Litigation group
of Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C. from November 1994 until
September 1998 and an attorney at the Law firm of Mullin, Rhyme, Emmons & Topel,
P.C. from September 1989 until November 1994. Mr. Holt is a member of the Bars
of the District of Columbia, Pennsylvania (inactive status), the U.S. Supreme
Court, and the U.S. District Court for the District of Columbia, as well as the
Federal Communications Bar Association.

Christopher Michaels is currently our Senior Vice President -- Chief Technical
Officer and was the Vice President and Chief Technical Officer for us and our
historical affiliates from the date of the acquisition of Voyager.net in
September 2000 until May 2001. Prior to the acquisition, Mr. Michaels served as
Vice President of Technology of Voyager.net since October 1998. For several
years prior, Mr. Michaels was the principal of NetLink Systems, LLC, a startup
Internet service provider, which was acquired by Voyager.net in 1995.

Neil C. Peritz is currently our Senior Vice President - Controller and Treasurer
and was the Senior Vice President of Finance for us and our historical
affiliates from May 2001 until October 2002. Mr. Peritz is a certified public
accountant and served as Chief Financial Officer of ATX Telecommunications
Services, Inc. from May 1999 until its acquisition in September 2000. Mr. Peritz
was previously the Chief Financial Officer of University City Housing Co. and
prior to that was an auditor with BDO Seidman LLP.


                                       68
<PAGE>


Ralph H. Booth, II has been a director since January 2002, and has been the
Chairman and Chief Executive Officer of Booth American Company, a private
investment concern, since 1995. Prior to that time and beginning in 1981, he was
the President and Chief Financial Officer for Booth American Company when it
owned and operated both a cable television and a radio broadcasting division.
Mr. Booth is a co-founder of and has been a principal in ECE Management
International, LLC since 1989. Mr. Booth is also a director of B/G
Communications, LLC, B/G Enterprises, LLC, B/G Properties, LLC and Grupo Clarin,
S.A.

Alan J. Patricof has been a director since March 1998. Mr. Patricof is Vice
Chairman of APAX Partners, formerly known as Patricof & Co. Ventures, Inc., a
venture capital firm he founded in 1969. Mr. Patricof serves as a director
Boston Properties, Inc., which is publicly held, and Johnny Rockets Group, Inc.,
which is a privately held company.

Warren Potash has been a director since March 1998. Mr. Potash retired in 1991
as President and Chief Executive Officer of the Radio Advertising Bureau, a
trade association, a position he held since 1989. Prior to that time, and
beginning in 1986, he was President of New Age Communications, Inc., a
communications consultancy firm. Until his retirement in 1986, Mr. Potash was a
Vice President of Capital Cities/ABC Broadcasting, Inc., a position he held
since 1970.

In addition to these individuals, our board of directors has approved the
expansion of the board and the nomination and appointment of three additional
directors to be designated by Michael Karp, which expansion and appointments are
to become effective once the board is informed of the identity of the nominees.
Michael Karp is currently our largest stockholder, and participated in the ATX
recapitalization by tendering notes and preferred stock he held in exchange for
shares of our common stock. Mr. Karp, together with the Florence Karp Trust,
presently holds 34.0% of our common stock. The Board of Directors has not yet
been informed of the individuals whom Mr. Karp intends to nominate. Mr. Karp's
right to nominate these directors was included in the exchange agreement that he
signed with CCL and ATX as part of the ATX recapitalization.

The Board of Directors has an Audit Committee and a Compensation and Option
Committee (referred to as the Compensation Committee). Mr. Booth, Mr. Patricof
and Mr. Potash serve as members of the Audit Committee and the Compensation
Committee. The Audit Committee oversees the financial reporting process and the
Compensation Committee reviews and makes recommendations regarding annual
compensation for our officers, both on behalf our Board of Directors.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires that the Company's directors and executive officers, and persons
who own more than 10% of a registered class of the Company's equity securities
file with the Securities and Exchange Commission (the "SEC"), and with each
exchange on which the Common Stock trades, initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Officers, directors and greater than 10% beneficial owners are
required by the SEC's regulations to furnish the Company with copies of all
Section 16(a) forms they file.

To the Company's knowledge, based solely on review of the copies of such reports
furnished to the Company and written representations that no other reports were
required during the fiscal year ended December 31, 2002, all Section 16(a)
filing requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with other than with respect to one sales
transaction by George S. Blumenthal that occurred on December 19, 2002 but which
was not reported on a Form 4 filed with the SEC pursuant to Section 16(a) until
January 8, 2003.


                                       69
<PAGE>


ITEM 11. EXECUTIVE COMPENSATION.

The following tables discloses information on compensation received, options
granted and options exercised by our Chief Executive Officers and the four other
most highly paid executive officers for the years ended December 31, 2002, 2001
and 2000.

                           SUMMARY COMPENSATION TABLE*

<TABLE>
<CAPTION>
                                                                                                  LONG-TERM
                                                        ANNUAL COMPENSATION                  COMPENSATION AWARDS
                                            ---------------------------------------------   ---------------------
    NAME AND PRINCIPAL                                                    OTHER ANNUAL          COMMON STOCK          ALL OTHER
     POSITION IN 2002              YEAR     SALARY ($)     BONUS ($)     COMPENSATION ($)   UNDERLYING OPTIONS(#)   COMPENSATION ($)
     ----------------              ----     ----------     ---------     ----------------   ---------------------   ----------------
<S>                                <C>      <C>            <C>           <C>                <C>                     <C>
Barclay Knapp (1)                  2002            --             --               --                    --
   Chairman                        2001       104,870             --               --                    --                  --
                                   2000       121,917             --               --                    --                  --

Thomas J. Gravina (2)              2002       900,000      1,248,872           43,403(5)            967,500             700,000(6)
  President and Chief              2001       248,077      1,300,000           12,185(5)                 --                  --
  Executive Officer

Michael A. Peterson (3)            2002       500,000        624,436           27,675(5)          1,485,000             365,015(6)
  Executive Vice President -       2001         2,400        750,000               --                    --                  --
  Chief Operating Officer and      2000         2,400             --               --                    --                  --
  Chief Financial Officer

Jeffrey Coursen (4)
  Senior Vice President -          2002       203,846         60,474          104,394(5)            377,400             110,000(6)
  Chief Operating Officer
  Commercial Division

Timothy Allen (4)                  2002       150,000         15,000          108,382(5)            311,355              50,000(6)
  Senior Vice President - Sales

Christopher S. Michaels (4)
  Senior Vice President - Chief    2002       205,000         30,115            3,906(5)            184,862              25,000(6)
  Technical Officer
</TABLE>

----------

*     The amounts in the table above represent the amounts directly paid by us
      to the named executives. Historically, we shared resources with NTL
      related to corporate activity, including a corporate office and corporate
      employees. In conjunction with this arrangement, some employees of NTL
      provided management, financial, legal and technical services to us. Under
      this arrangement, NTL charged us the salaries of these employees and other
      expenses of the shared resources, such as an office expense. These charges
      are not included in the above table. For additional information about our
      relationship with NTL, see Item 13 to Part III of this Annual Report
      entitled "Certain Relationships and Related Transactions".

(1)   In January 2002, Mr. Knapp became Chairman. Prior to becoming Chairman,
      Mr. Knapp was our President, Chief Executive Officer and Chief Financial
      Officer. During 2002, 2001 and 2000, Mr. Knapp received salary from NTL
      and spent portions of his time providing executive management to us.

(2)   In January 2002, Mr. Gravina became President and Chief Executive Officer.
      Mr. Gravina was our Executive Vice President and Chief Operating Officer
      from February 2001 until January 2002.

(3)   In January 2002, Mr. Peterson became Executive Vice President -- Chief
      Operating Officer and Chief Financial Officer. During 2001 and 2000, Mr.
      Peterson received salary from NTL and spent portions of his time providing
      executive management to us.

(4)   In October 2002, Mr. Coursen, Mr. Allen and Mr. Michaels became executive
      officers.

(5)   Other annual compensation represents car allowances and/or life insurance
      premiums. Additionally, other annual compensation also includes
      commissions paid to each of Mr. Coursen and Mr. Allen in the amount of
      $97,677.

(6)   Other compensation consists of one-time bonuses associated with the
      successful completion of the ATX recapitalization. Additionally, other
      compensation includes moving expenses in the amount of $15,015 reimbursed
      to Mr. Peterson.


                                       70
<PAGE>


                               OPTION GRANTS TABLE

<TABLE>
<CAPTION>

                               NUMBER OF          % OF
                              SECURITIES      TOTAL OPTIONS
                              UNDERLYING       GRANTED TO        EXERCISE OR
                                OPTIONS       EMPLOYEES IN       BASE PRICE       EXPIRATION
NAME                          GRANTED (#)      FISCAL YEAR         ($/SH)            DATE             5% ($)          10% ($)
----                          -----------      -----------         ------         ----------          ------          -------
<S>                           <C>             <C>                <C>              <C>               <C>              <C>
Barclay Knapp                         --               --                --               --               --               --

Thomas J. Gravina                967,500            12.38%             1.00        1/11/2012          609,000        1,542,000

Michael A. Peterson            1,485,000            19.00%             1.00        1/11/2012          934,000        2,367,000

Jeffrey Coursen                  377,400             4.83%             1.00        1/11/2012          237,000          602,000

Timothy Allen                    311,355             3.98%             1.00        1/11/2012          196,000          496,000

Christopher S. Michaels          184,862             2.37%             1.00        1/11/2012          116,000          295,000
</TABLE>

                    OPTION EXERCISES AND YEAR-END VALUE TABLE

<TABLE>
<CAPTION>
                                                                    NUMBER OF
                                                                   SECURITIES
                                                                   UNDERLYING
                                                                   UNEXERCISED       VALUE OF UNEXERCISED
                                                                     OPTIONS             IN-THE-MONEY
                               SHARES                            AT FY - END (#)     OPTIONS AT FY-END ($)
                             ACQUIRED ON           VALUE          EXERCISABLE(E)/       EXERCISABLE(E)/
     NAME                    EXERCISE (#)         REALIZED        UNEXERCISABLE(U)      UNEXERCISABLE(U)
     ----                    ------------        ----------      ----------------      ----------------
<S>                            <C>               <C>             <C>                 <C>
Barclay Knapp                       --                 --                 --                  --

Thomas J. Gravina                                                    648,225(E)
                                    --                 --            319,275(U)               --

Michael A. Peterson                                                  994,950(E)
                                    --                 --            490,050(U)               --

Jeffrey Coursen                                                      252,858(E)
                                    --                 --            124,542(U)               --

Timothy Allen                                                        208,608(E)
                                    --                 --            102,747(U)               --

Christopher S. Michaels                                              123,858(E))
                                    --                 --             61,004(U))              --
</TABLE>

EMPLOYMENT AGREEMENTS

As of January 1, 2002, the Company and a subsidiary of the Company entered into
an employment agreement with Mr. Gravina providing for his employment as
President and Chief Executive Officer. The agreement provides for a term of
three years, which may be extended automatically for unlimited additional
one-year periods, unless either party provides at least six months' prior notice
of its intent not to renew the agreement. The agreement provides for
compensation consisting of a base salary of $900,000 and certain fringe and
other employee benefits that are made available to the senior executives of the
Company. As additional incentive compensation, Mr. Gravina is entitled to
receive (i) three quarterly bonus awards of $300,000 for 2002, and quarterly
bonus awards of $225,000 for each calendar year after 2002, both of which are
based on the Company meeting financial targets as set forth in the agreement;
(ii) options to acquire 967,500 shares of common stock at an exercise price of
$1.00 per share; and (iii) additional incentives commensurate with his position,
performance and awards to other senior executives.


                                       71
<PAGE>


As of January 1, 2002, the Company and a subsidiary of the Company entered into
an employment agreement with Mr. Peterson providing for his employment as
Executive Vice President, Chief Operating Officer and Chief Financial Officer.
The agreement provides for a term of three years, which may be extended
automatically for unlimited additional one-year periods, unless either party
provides at least six months' prior notice of its intent not to renew the
agreement. The agreement provides for compensation consisting of a base salary
of $500,000 and certain fringe and other employee benefits that are made
available to the senior executives of the Company. As additional incentive
compensation, Mr. Peterson is entitled to receive (i) three quarterly bonus
awards of $150,000 for 2002, and quarterly bonus awards of $112,500 for each
calendar year after 2002, both of which are based on the Company meeting
financial targets as set forth in the agreement; (ii) options to acquire
1,485,000 shares of common stock at an exercise price of $1.00 per share; and
(iii) additional incentives commensurate with his position, performance and
awards to other senior executives.

The employment agreements with Mr. Gravina and Mr. Peterson (each an
"Executive") provide that (i) in the event that employment is terminated for any
reason other than death, disability, or "cause" (as defined in their respective
agreements), the Executive is entitled to receive a minimum of one year but no
more than two years bonus and salary payable upon termination and options
scheduled to become vested within two years shall become vested and exercisable;
(ii) in the event of disability, the Company will continue to pay the
Executive's annualized base salary as of the time of termination for a period of
six months and thereafter an annualized rate of $300,000 subject to certain
reductions, until the earliest of (A) his death, (B) he attains age 65, or (C)
he ceases to be disabled such that he is able to work as a senior executive
(with or without reasonable accommodation); and (iii) upon a change in control
(as defined in their respective agreements), the Executive will receive an
amount equal to base salary plus his annual incentive award times the number of
whole and partial months remaining on his employment contract (but not less than
24 months) divided by 12, plus full vesting of his options.

In 1998, a subsidiary of the Company, which was acquired in 2000, entered into
an employment agreement with Mr. Michaels. The agreement provides for a term of
two years, which may be extended automatically for unlimited additional one-year
terms unless either party gives written notice to the other not less than sixty
days prior to its intent not to renew the agreement. The agreement provides for
compensation consisting of a base salary, which is currently $205,000, subject
to discretionary increases from time to time and other employee benefits that
are made available to the senior executives of the Company. As additional
incentive compensation, Mr. Michaels is entitled to a bonus which is equal to
twenty percent of the salary then in effect, which is payable in two semi-annual
installments.

Directors are reimbursed for out-of-pocket expenses incurred in attending
meetings of the Board of Directors and the Committees. Mr. Patricof and Mr.
Potash were each granted options to purchase 48,000 shares of our common stock
in January 2002. Directors who are not officers are paid a fee of $250 for each
Board of Directors meeting and each committee meeting that they attend.


                                       72
<PAGE>


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED SECURITY HOLDERS.

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of March 31, 2003 by (i) each executive officer
and director of the Company, (ii) all directors and executive officers as a
group and (iii) stockholders holding 5% or more of the Common Stock.

<TABLE>
<CAPTION>
                                                               AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
                                               --------------------------------------------------------------------------
                                                                   PRESENTLY
                                                                  EXERCISABLE
EXECUTIVE OFFICERS, DIRECTORS                  COMPANY            OPTIONS AND
AND PRINCIPAL STOCKHOLDERS (1)                 STOCK              WARRANTS (2)             TOTAL              PERCENT (3)
------------------------------                 -----              ------------             -----              -----------
<S>                                          <C>                  <C>                    <C>                  <C>
J. Barclay Knapp                              1,080,932                    --             1,080,932                  3.60%
Thomas J. Gravina (4)                         3,429,475               648,225             4,077,700                 13.30%
Michael A. Peterson                              27,764               994,950             1,022,714                  3.30%
Timothy Allen                                     1,300               208,608               209,908                     *
Jeffrey D. Coursen                                  543               252,858               253,401                     *
Christopher A. Holt                                  --                64,592                64,592                     *
Christopher S. Michaels (5)                       1,975               123,858               125,833                     *
Neil C. Peritz                                       --                48,321                48,321                     *
Ralph H. Booth, II (6)                        6,193,000                    --             6,193,000                 20.64%
Alan J. Patricof                                     --                32,160                32,160                     *
Warren Potash                                     4,089                32,160                36,249                     *

All directors and officers as a
group (11 in number)                         10,739,078             2,405,732            13,144,810                 40.56%

Michael Karp (7)                             10,200,000                    --            10,200,000                 34.00%
   c/o University City
   Housing Co.
   1062 East Lancaster Ave
   Suite 30B
   Rosemont, PA  19010

Booth American Company (6)                    6,193,000                    --             6,193,000                 20.64%
   333 West Fort Street, 12th Fl
   Detroit, MI  48226
Debra Buruchian (8)                           3,312,880                50,250             3,363,130                 11.19%
</TABLE>

----------

*     Represents less than one percent

(1)   Unless otherwise noted, the business address of each person is 50 Monument
      Road, Bala Cynwyd, PA 19004.

(2)   Includes shares of Common Stock issuable upon the exercise of options and
      warrants which are exercisable or become exercisable in the next 60 days.

(3)   Includes Common Stock and shares of Common Stock issuable upon the
      exercise of options and warrants, which are exercisable or become
      exercisable in the next 60 days.

(4)   Includes 2,469 shares of Common Stock held by Mr. Gravina's minor
      children, of which shares Mr. Gravina disclaims beneficial ownership.

(5)   The business address of Mr. Michaels is c/o ATX Communications, Inc., 4660
      S. Hagadorn Road, Suite 320 East Lansing, MI 48823.

(6)   Ralph H. Booth, II, our director, is an affiliate of Booth American
      Company. Accordingly, Mr. Booth may claim beneficial ownership of all of
      the shares held by Booth American Company. Booth American Company is the
      record owner of all 6,193,000 shares set forth, opposite Ralph H. Booth,
      II's name in the table.

(7)   Includes 591,303 shares of Common Stock held by the Florence Karp Trust,
      of which shares Mr. Karp disclaims beneficial ownership.

(8)   Includes 33,057 shares of Common Stock held by Ms. Buruchian's minor
      child, of which shares Ms. Buruchian disclaims beneficial ownership.


                                       73
<PAGE>


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

We have entered into several transactions with related parties as described
below. In management's opinion, each of these transactions is at least as
favorable to us as could be obtained with an unrelated third party.

NTL INCORPORATED

Some of our directors are or were also directors of NTL Incorporated, referred
to as NTL. In April 2001, CCL and the Company as co-obligors issued to NTL $15
million aggregate principal amount of 10.75% Unsecured Convertible PIK Notes Due
April 2011. At December 31, 2002, and December 31, 2001 the total amount of the
notes outstanding, less the unamortized discount of $327,000 and $367,000, was
$17,632,000 and $15,807,000, respectively.

Until 2002, NTL provided us with management, financial, legal and technical
services, access to office space and equipment and use of supplies. We were
charged by NTL amounts that consist of salaries and direct costs allocated to us
where identifiable, and a percentage of the portion of NTL's corporate overhead,
which cannot be specifically allocated to NTL. Effective January 1, 2001, the
percentage used to allocate estimated corporate overhead was reduced. It is not
practicable to determine the amounts of such expenses that would have been
incurred had we operated as an unaffiliated entity. The estimated allocations
exceeded the actual costs incurred by approximately $2.8 million, of which $2.2
million was provided for as a reduction of our corporate expenses in the quarter
ended December 31, 2002. Taking this into effect, for the year ended December
31, 2002, corporate expenses were reduced by $2,064,000. For the years ended
December 31, 2001 and 2000, expenses related to NTL were $446,000 and
$1,186,000, respectively, which is included in corporate expenses.

Until 2001, we provided NTL with access to office space and equipment and the
use of supplies. In the fourth quarter of 1999, we began charging NTL a
percentage of our office rent and supplies expense. It is not practicable to
determine the amounts of these expenses that would have been incurred had we
operated as an unaffiliated entity. In the opinion of management, this
allocation method is reasonable. In 2001 and 2000, we charged NTL $121,000 and
$267,000, respectively, which reduced corporate expenses.

One of our subsidiaries provides billing and software development services to
subsidiaries of NTL. During the third quarter of 2002, we began recording the
billings for these services as revenue, which totaled $1,438,000 for the year
ended December 31, 2002. We historically recorded these billings as a reduction
of general and administrative expenses. Expenses were reduced by $1,508,000 and
$1,883,000 for the year ended December 31, 2002 and 2001, respectively, as a
result of billing for these services.

In 2001, we entered into a license agreement with NTL, whereby NTL was granted
an exclusive, irrevocable, perpetual license to certain billing software
developed by us for telephony rating, digital television events rating, fraud
management and other tasks. The sales price was cash of $12.8 million. The
billing software was being used by NTL at the time of this agreement, and was
being maintained and modified by us under an ongoing software maintenance and
development outsourcing arrangement between the companies. We recorded the $12.8
million as deferred revenue to be recognized over a period of three years, which
was the estimated amount of time we expected to provide service under this
arrangement. We recognized $4.3 million and $2.5 million of this revenue in 2002
and 2001, respectively.


                                       74
<PAGE>


In March 2000, we announced that we had entered into an agreement with NTL to
link our networks in order to create an international Internet backbone that
commenced operations in February 2001. We recognized revenue of $327,000 for the
network usage in the year ended December 31, 2001.

We lease office space from entities controlled by an individual who owns 32% of
the outstanding shares of our common stock. Rent expense for these leases for
the year ended December 31, 2002 and 2001 was approximately $1.4 million and
$1.6 million, respectively.

During 2002, we engaged B/G Enterprises, LLC, a company affiliated with one of
our Directors, to provide travel related services. These services totaled
$33,000 during 2002.

ITEM 14. CONTROLS AND PROCEDURES

(a)   EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer, we have
evaluated the effectiveness of the Company's disclosure controls and procedures
(as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) as of a date within 90
days prior to the filing date of this annual report (the "Evaluation Date").
Based on such evaluation, such officers have concluded that, as of the
Evaluation Date, the Company's disclosure controls and procedures are effective
in alerting them on a timely basis to material information relating to the
Company (including its consolidated subsidiaries) required to be included in the
Company's reports filed or submitted under the Exchange Act.

(b)   CHANGES IN INTERNAL CONTROLS

Since the Evaluation Date, there have not been any significant changes in the
Company's internal controls or in other factors that could significantly affect
such controls.


                                       75
<PAGE>


                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)   (1)   Financial Statements--See list of Financial Statements on page F-1.
      (2)   Financial Statement Schedules--See list of Financial Statement
            Schedules on page S-1.
      (3)   Exhibits--See Exhibit Index on page E-1.

(b)   Reports on Form 8-K:

      During the quarter ended December 31, 2002, the Company filed the
      following reports on Form 8-K:

      (1)   Report dated October 2, 2002, reporting under Item 5, Other Events,
            that ATX Communications, Inc. issued a press release announcing that
            it has promoted five members of its existing Senior Management to be
            Executive Officers of the Company.

      (2)   Report dated November 14, 2002, reporting under Item 7, that ATX
            Communications, Inc. announced its operating results for the quarter
            ended September 30, 2002.

      (3)   Report dated November 14, 2002, reporting under Item 9, that ATX
            Communications, Inc. announced that it has submitted the CEO and CFO
            certifications with respect to the Company's quarterly report for
            the quarter ended September 30, 2002 pursuant to Section 906 of the
            Sarbanes-Oxley Act.

(c)   Exhibits--the response to Item 15(c) is submitted as a separate section of
      this report.

(d)   Financial Statement Schedules--see list of Financial Statement Schedules
      on page F-1.


                                       76
<PAGE>


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Dated: April 9, 2003

                                  ATX COMMUNICATIONS, INC.

                                  By: /s/ Thomas J. Gravina
                                  ----------------------------------------------
                                  Thomas J. Gravina
                                  President and Chief Executive Officer
                                    (Principal Executive Officer)

                                  By: /s/ Michael A. Peterson
                                  ----------------------------------------------
                                  Michael A. Peterson
                                  Executive Vice President, Chief Operating
                                    Officer and Chief Financial Officer
                                    (Principal Financial Officer)

                                  By: /s/ Neil Peritz
                                  ----------------------------------------------
                                  Neil Peritz
                                  Senior Vice President, Controller and
                                    Treasurer (Principal Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.

<TABLE>
<CAPTION>
      SIGNATURE                               TITLE                                        DATE
      ---------                               -----                                        ----
<S>                             <C>                                                    <C>
/s/ Barclay Knapp               Chairman; Director                                     April 9, 2003
Barclay Knapp

/s/ Thomas Gravina              President and Chief Executive Officer                  April 9, 2003
Thomas Gravina                  (Principal Executive Officer); Director

/s/ Michael A. Peterson         Executive Vice President  - Chief Operating            April 9, 2003
Michael A. Peterson             Officer and Chief Financial Officer (Principal
                                Financial Officer); Director

/s/ Ralph H. Booth II           Director                                               April 9, 2003
Ralph H. Booth II

/s/ Warren Potash               Director                                               April 9, 2003
Warren Potash

/s/ Alan J. Patricof            Director                                               April 9, 2003
Alan J. Patricof
</TABLE>


                                       77
<PAGE>


    CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER REQUIRED BY SEC RULE 13a-14
             (17 CFR 240.13a-14) OR RULE 15d-14 (17 CFR 240.15d-14)

I, Thomas J. Gravina, certify that:

      1.    I have reviewed this annual report on Form 10-K of ATX
            Communications, Inc.;

      2.    Based on my knowledge, this annual report does not contain any
            untrue statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this annual report;

      3.    Based on my knowledge, the financial statements, and other financial
            information included in this annual report, fairly present in all
            material respects the financial condition, results of operations and
            cash flows of the registrant as of, and for, the periods presented
            in this annual report;

      4.    The registrant's other certifying officers and I are responsible for
            establishing and maintaining disclosure controls and procedures (as
            defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
            and have:

            a)    designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

            b)    evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

            c)    presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

      5.    The registrant's other certifying officers and I have disclosed,
            based on our most recent evaluation, to the registrant's auditors
            and the audit committee of registrant's board of directors (or
            persons performing the equivalent functions):

            a)    all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

            b)    any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and


                                       78
<PAGE>




      6.    The registrant's other certifying officers and I have indicated in
            this annual report whether there were significant changes in
            internal controls or in other factors that could significantly
            affect internal controls subsequent to the date of our most recent
            evaluation, including any corrective actions with regard to
            significant deficiencies and material weaknesses.



Date: April 9, 2003

                                           By: /s/ Thomas J. Gravina
                                           -------------------------------------
                                           Thomas J. Gravina
                                           President - Chief Executive Officer


                                       79
<PAGE>

    CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER REQUIRED BY SEC RULE 13a-14
             (17 CFR 240.13a-14) OR RULE 15d-14 (17 CFR 240.15d-14)

I, Michael A. Peterson, certify that:

      1.    I have reviewed this annual report on Form 10-K of ATX
            Communications, Inc.;

      2.    Based on my knowledge, this annual report does not contain any
            untrue statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this annual report;

      3.    Based on my knowledge, the financial statements, and other financial
            information included in this annual report, fairly present in all
            material respects the financial condition, results of operations and
            cash flows of the registrant as of, and for, the periods presented
            in this annual report;

      4.    The registrant's other certifying officers and I are responsible for
            establishing and maintaining disclosure controls and procedures (as
            defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
            and have:

            a)    designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

            b)    evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

            c)    presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

      5.    The registrant's other certifying officers and I have disclosed,
            based on our most recent evaluation, to the registrant's auditors
            and the audit committee of registrant's board of directors (or
            persons performing the equivalent functions):

            a)    all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

            b)    any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and


                                       80
<PAGE>


      6.    The registrant's other certifying officers and I have indicated in
            this annual report whether there were significant changes in
            internal controls or in other factors that could significantly
            affect internal controls subsequent to the date of our most recent
            evaluation, including any corrective actions with regard to
            significant deficiencies and material weaknesses.


Date: April 9, 2003

                                           By: /s/ Michael A. Peterson
                                           -------------------------------------
                                           Michael A. Peterson
                                           Executive Vice President, Chief
                                              Operating Officer and Chief
                                              Financial Officer


                                       81
<PAGE>


                                  EXHIBIT INDEX

EXHIBIT                                 DESCRIPTION
-------                                 -----------

2.1         Exchange Agreement, dated as of December 14, 2001, by and among
            CoreComm Holdco, Inc., CoreComm Limited and each of the parties set
            forth under the heading "Security Holders" on the signature pages
            thereto (incorporated by reference to Exhibit 2.1 to CoreComm
            Holdco, Inc.'s registration statement on Form S-1, file no.
            333-82402)

2.2         Agreement and Plan of Merger by and among CoreComm Limited, CoreComm
            Group Sub I, Inc., and Voyager.net, Inc., dated as of March 12, 2000
            (incorporated by reference to Exhibit 2.1 to CoreComm Limited's
            registration statement on Form S-4, file no. 333-44028)

2.3         Amendment No. 1 to Agreement and Plan of Merger by and among
            CoreComm Limited, CoreComm Group Sub I, Inc. and Voyager.net, Inc.,
            dated as of August 10, 2000 (incorporated by reference to Exhibit
            2.2 to CoreComm Limited's registration statement on Form S-4, file
            no. 333-44028)

2.4         Recapitalization Agreement and Plan of Merger by and among ATX
            Telecommunications Services, Inc., Thomas Gravina, Debra Buruchian,
            Michael Karp, The Florence Karp Trust and CoreComm Limited, dated as
            of March 9, 2000 (incorporated by reference to Exhibit 2.3 to
            CoreComm Limited's registration statement on Form S-4, file no.
            333-44028)

2.5         Amendment No. 1 to Recapitalization Agreement and Plan of Merger by
            and among ATX Telecommunications Services, Inc., Thomas Gravina,
            Debra Buruchian, Michael Karp, The Florence Karp Trust, CoreComm
            Limited, ATX Merger Sub, Inc. and CoreComm Merger Sub, Inc., dated
            as of April 10, 2000 (incorporated by reference to Exhibit 2.4 to
            CoreComm Limited's registration statement on Form S-4, file no.
            333-44028)

2.6         Amendment No. 2 to Recapitalization Agreement and Plan of Merger by
            and among ATX Telecommunications Services, Inc., Thomas Gravina,
            Debra Buruchian, Michael Karp, The Florence Karp Trust, CoreComm
            Limited, ATX Merger Sub, Inc. and CoreComm Merger Sub, Inc., dated
            as of July 10, 2000 (incorporated by reference to Exhibit 2.5 to
            CoreComm Limited's registration statement on Form S-4, file no.
            333-44028)

2.7         Amendment No. 3 to Recapitalization Agreement and Plan of Merger by
            and among ATX Telecommunications Services, Inc., Thomas Gravina,
            Debra Buruchian, Michael Karp, The Florence Karp Trust, CoreComm
            Limited, ATX Merger Sub, Inc. and CoreComm Merger Sub, Inc., dated
            as of July 31, 2000 (incorporated by reference to Exhibit 2.6 to
            CoreComm Limited's registration statement on Form S-4, file no.
            333-44028)

2.8         Agreement and Plan of Merger by and among CoreComm Limited, CoreComm
            Acquisition Sub, Inc., and MegsINet Inc., dated as of February 17,
            1999 (incorporated by reference to Exhibit 99.1 to CoreComm
            Limited's, a Bermuda corporation and predecessor to CoreComm
            Limited, report on Form 8-K, filed on February 24, 1999)


                                      E-1
<PAGE>


2.9         First Amendment to Agreement and Plan of Merger by and among
            CoreComm Limited, CoreComm Acquisition Sub, Inc., and MegsINet Inc.,
            dated as of May 3, 1999 (incorporated by reference to Exhibit 2.1 to
            CoreComm Limited's, a Bermuda corporation and predecessor to
            CoreComm Limited, registration statement on S-4/A, file no.
            333-74801)

2.10        Asset Purchase Agreement by and among CoreComm Limited, USN
            Communications, Inc. and several subsidiaries of USN Communications,
            Inc., dated as of February 19, 1999 (incorporated by reference to
            Exhibit 99.3 to CoreComm Limited's, a Bermuda corporation and
            predecessor to CoreComm Limited, report on Form 8-K, filed on
            February 24, 1999)

2.11        Stock Exchange Agreement by and among Voyager Holdings, Inc. and the
            stockholders listed on Schedule A thereto, dated as of September 23,
            1998 (incorporated by reference to Exhibit 2.1 to Voyager.net,
            Inc.'s registration statement on Form S-1, file no. 333-77917)

2.12        Stock Purchase Agreement by and among Voyager Holdings, Inc. and the
            investors listed on Exhibit A thereto, dated as of September 23,
            1998 (incorporated by reference to Exhibit 2.2 to Voyager.net,
            Inc.'s registration statement on Form S-1, file no. 333-77917)

3.1         Restated Certificate of Incorporation of CoreComm Holdco, Inc.
            (incorporated by reference to Exhibit 3.1 to ATX Communications,
            Inc.'s registration statement on Form S-1, file no. 333-82402)

3.2         Certificate of Amendment to the Restated Certificate of
            Incorporation of CoreComm Holdco, Inc. (incorporated by reference to
            Exhibit 3.2 to ATX Communications, Inc.'s registration statement on
            Form S-1, file no. 333-82402)

3.3         Certificate of Correction to the Certificate of Amendment to the
            Restated Certificate of Incorporation of CoreComm Holdco, Inc.
            (incorporated by reference to Exhibit 3.3 to ATX Communications,
            Inc.'s registration statement on Form S-1, file no. 333-82402)

3.4         Certificate of Amendment to the Restated Certificate of
            Incorporation of CoreComm Holdco, Inc. filed with the Secretary of
            State of the State of Delaware on July 15, 2002

3.5         Amended By-laws of CoreComm Holdco, Inc. (incorporated by reference
            to Exhibit 3.4 to ATX Communications, Inc.'s registration statement
            on Form S-1, file no. 333-82402)

4.1         Specimen CoreComm Holdco common stock certificate (incorporated by
            reference to Exhibit 4.1 to ATX Communications, Inc.'s registration
            statement on Form S-1, file no. 333-82402)

4.2         Rights Agreement, dated as of December 17, 2001, by and between
            CoreComm Holdco, Inc. and Continental Stock Transfer & Trust
            Company, including form of rights certificate (incorporated by
            reference to Exhibit 4.2 to ATX Communications, Inc.'s registration
            statement on Form S-1, file no. 333-82402)

4.3         Warrant of CoreComm Limited, dated December 15, 2001 (incorporated
            by reference to Exhibit 4.12 to CoreComm Limited's annual report
            filed on Form 10-K for the year ended December 31, 2000, file no.
            000-31359)


                                      E-2
<PAGE>


4.4         Warrant No. CCL-2A of CoreComm Limited, dated April 12, 2001
            (incorporated by reference to Exhibit 4.13 to CoreComm Limited's
            annual report filed on Form 10-K for the year ended December 31,
            2000, file no. 000-31359)

4.5         Warrant No. CCL-3B of CoreComm Limited, dated July 13, 2001
            (incorporated by reference to Exhibit 4.19 to CoreComm Limited's
            annual report filed on Form 10-K for the year ended December 31,
            2001, file no. 000-31359)

4.6         Warrant No. CCL-4A of CoreComm Limited, dated July 13, 2001
            (incorporated by reference to Exhibit 4.20 to CoreComm Limited's
            annual report filed on Form 10-K for the year ended December 31,
            2001, file no. 000-31359)

4.7         CoreComm Holdco assumption of Warrant No. CCL-2A

4.8         CoreComm Holdco assumption of Warrant No. CCL-3B

4.9         CoreComm Holdco assumption of Warrant No. CCL-4A

4.10        CoreComm Holdco assumption of Warrant No. CCL-4A

10.1        2001 Stock Option Plan of CoreComm Holdco, Inc.(incorporated by
            reference to Exhibit 10.1 to ATX Communications, Inc.'s registration
            statement on Form S-1, file no. 333-82402)

10.2        Exchange Agreement, dated as of December 14, 2001, by and between
            CoreComm Holdco, Inc. and CoreComm Limited (incorporated by
            reference to Exhibit 10.2 to ATX Communications, Inc.'s registration
            statement on Form S-1, file no. 333-82402)

10.3        First Amendment to Exchange Agreement, entered into as of April 5,
            2002, by and between CoreComm Limited and CoreComm Holdco, Inc.
            (incorporated by reference to Exhibit 10.63 to CoreComm Limited's
            annual report filed on Form 10-K for the year ended December 31,
            2001, file no. 000-31359)

10.4        Credit Agreement, dated as of September 28, 2000, as amended and
            restated on April 11, 2001, among CoreComm Limited, CoreComm
            Communications, Inc., CoreComm Holdco, Inc., the lenders party
            thereto and Administrative Agent and Collateral Agent party thereto
            (incorporated by reference to Exhibit 10.52 to CoreComm Limited's
            registration statement on Form S-1, file no. 333-47984)

10.5        First Amendment and Waiver dated as of October 31, 2001 to the
            Credit Agreement, dated as of September 28, 2000, as amended and
            restated on April 11, 2001, among CoreComm Limited, CoreComm
            Communications, Inc., CoreComm Holdco, Inc., the lenders party
            thereto the Administrative Agent and Collateral Agent party thereto
            (incorporated by reference to Exhibit 10.5 to ATX Communications,
            Inc.'s registration statement on Form S-1, file no. 333-82402)


                                      E-3
<PAGE>


10.6        Second Amendment dated as of December 14, 2001 to the Credit
            Agreement, dated as of September 28, 2000, as amended and restated
            on April 11, 2001, and amended by the First Amendment and Waiver
            dated as of October 31, 2001, among CoreComm Limited, CoreComm
            Communications, Inc., CoreComm Holdco, Inc., the lenders party
            thereto and the Administrative Agent and Collateral Agent party
            thereto (incorporated by reference to Exhibit 10.6 to ATX
            Communications, Inc.'s registration statement on Form S-1, file no.
            333-82402)

10.7        Third Amendment dated as of March 29, 2002 to the Credit Agreement,
            dated as of September 28, 2000, as amended and restated on April 11,
            2001, and amended by the First Amendment and Waiver dated as of
            October 31, 2001 and by the Second Amendment dated as of December
            14, 2001, among CoreComm Limited, CoreComm Communications, Inc.,
            CoreComm Holdco, Inc., the lenders party thereto and the
            Administrative Agent and Collateral Agent party thereto
            (incorporated by reference to Exhibit 10.55 to CoreComm Limited's
            annual report filed on Form 10-K for the year ended December 31,
            2001, file no. 000-31359)

10.8        Fourth Amendment and Waiver dated as of March 31, 2003 to the Credit
            Agreement dated as of September 28, 2000, as amended and restated as
            of April 11, 2001, and amended by the First Amendment dated as of
            October 31, 2001, the Second Amendment dated as of December 14, 2001
            and the Third Amendment dated as of March 29, 2002 among CoreComm
            Limited, CoreComm Holdco, Inc. CoreComm Communications, Inc., the
            lenders party thereto and the Administrative Agent and Collateral
            Agent party thereto

10.9        Lease Agreement by and between Monument Road Associates and ATX
            Telecommunications Services, Inc., dated as of January 18, 1994
            (incorporated by reference to Exhibit 10.2 to CoreComm Limited's
            registration statement on Form S-4, file no. 333-44028)

10.10       Addendum, dated as of January 25, 1996, to Lease Agreement, dated as
            of January 18, 1994, by and between Monument Road Associates and ATX
            Telecommunications Services, Inc. (incorporated by reference to
            Exhibit 10.3 to CoreComm Limited's registration statement on Form
            S-4, file no. 333-44028)

10.11       Addendum, dated as of January 1, 1998, to Lease Agreement, dated as
            of January 18, 1994, by and between Monument Road Associates and ATX
            Telecommunications Services, Inc. (incorporated by reference to
            Exhibit 10.4 to CoreComm Limited's registration statement on Form
            S-4, file no. 333-44028)

10.12       Addendum, dated as of October 1, 1998, to Lease Agreement, dated as
            of January 18, 1994, by and between Monument Road Associates and ATX
            Telecommunications Services, Inc. (incorporated by reference to
            Exhibit 10.5 to CoreComm Limited's registration statement on Form
            S-4, file no. 333-44028)

10.13       Addendum, dated as of November 1, 1999, to Lease Agreement, dated as
            of January 18, 1994, by and between Monument Road Associates and ATX
            Telecommunications Services, Inc. (incorporated by reference to
            Exhibit 10.6 to CoreComm Limited's registration statement on Form
            S-4, file no. 333-44028)


                                      E-4
<PAGE>


10.14       Lease Agreement by and between Walnut Bridge Associates and ATX
            Telecommunications Services, Inc., dated as of January 2, 1993
            (incorporated by reference to Exhibit 10.7 to CoreComm Limited's
            registration statement on Form S-4, file no. 333-44028)

10.15       Addendum, dated as of July 1, 1995, to Lease Agreement, dated as of
            January 2, 1993, by and between Walnut Bridge Associates and ATX
            Telecommunications Services, Inc. (incorporated by reference to
            Exhibit 10.8 to CoreComm Limited's registration statement on Form
            S-4, file no. 333-44028)

10.16       Addendum, dated as of November 1, 1999, to Lease Agreement, dated as
            of January 2, 1993, by and between Walnut Bridge Associates and ATX
            Telecommunications Services, Inc. (incorporated by reference to
            Exhibit 10.9 to CoreComm Limited's registration statement on Form
            S-4, file no. 333-44028)

10.17       Addendum, dated as of March 1, 2000, to Lease Agreement, dated as of
            January 2, 1993, by and between Walnut Bridge Associates and ATX
            Telecommunications Services, Inc. (incorporated by reference to
            Exhibit 10.10 to CoreComm Limited's registration statement on Form
            S-4, file no. 333-44028)

10.18       Letter of Credit, dated July 30, 1993 (incorporated by reference to
            Exhibit 10.11 to CoreComm Limited's registration statement on Form
            S-4, file no. 333-44028)

10.19       Letter of Credit, dated October 14, 1997 (incorporated by reference
            to Exhibit 10.12 to CoreComm Limited's registration statement on
            Form S-4, file no. 333-44028)

10.20       Letter of Credit, dated October 19, 1999 (incorporated by reference
            to Exhibit 10.13 to CoreComm Limited's registration statement on
            Form S-4, file no. 333-44028)

10.21       Letter of Credit, dated October 30, 1998 (incorporated by reference
            to Exhibit 10.14 to CoreComm Limited's registration statement on
            Form S-4, file no. 333-44028)

10.22       Summary of loan by ATX Telecommunications Services, Inc. to Thomas
            Gravina and Debra Buruchian (incorporated by reference to Exhibit
            10.22 to CoreComm Limited's registration statement on Form S-4, file
            no. 333-44028)

10.23       Summary of indebtedness of ATX Telecommunications Services, Inc. to
            Michael Karp (incorporated by reference to Exhibit 10.16 to CoreComm
            Limited's registration statement on Form S-4, file no. 333-44028)

10.24       Employment Agreement by and between Voyager Information Networks,
            Inc. and Christopher Michaels, made as of October 2, 1998, effective
            September 30, 1998 (incorporated by reference to Exhibit 10.10 to
            Voyager.net, Inc.'s registration statement on Form S-1/A, file no.
            333-77917)

10.25       Employment Agreement by and between Voyager Information Networks,
            Inc. and David Shires, made as of October 2, 1998, effective
            September 30, 1998 (incorporated by reference to Exhibit 10.11 to
            Voyager.net, Inc.'s registration statement on Form S-1, file no.
            333-77917)


                                      E-5
<PAGE>


10.26       Employee Non-Competition Agreement by and between Voyager
            Information Networks, Inc. and Christopher Michaels, dated as of
            October 2, 1998 (incorporated by reference to Exhibit 10.18 to
            Voyager.net, Inc.'s registration statement on Form S-1, file no.
            333-7917)

10.27       10.75% Unsecured Convertible PIK Note due 2011, dated as of April
            12, 2001, issued to NTL Incorporated and made jointly by CoreComm
            Holdco, Inc. and CoreComm Limited (incorporated by reference to
            Exhibit 10.3 to CoreComm Limited's Form 8-K, filed April 13, 2001)

10.28       10.75% Unsecured Convertible PIK Note due 2011, dated April 15, 2002
            and issued by CoreComm Limited and CoreComm Holdco, Inc. as joint
            obligors, to NTL Incorporated.

10.29       Letter agreement, dated February 5, 2002, amending certain
            conversion provisions of 10.75% Unsecured Convertible PIK Note due
            2011, dated October 15, 2001 and issued to NTL Incorporated.

10.30       Letter agreement, dated February 5, 2002, amending certain
            conversion provisions of 10.75% Unsecured Convertible PIK Note due
            2011, dated April 15, 2002 and issued to NTL Incorporated.

10.31       Employment Agreement between ATX Communications, Inc. and Thomas J.
            Gravina dated July 31, 2002 effective as of January 1, 2002
            (incorporated by reference to Exhibit 10.1 to ATX Communications,
            Inc.'s Quarterly Report on Form 10-Q, file no.000-49899)

10.32       Employment Agreement between ATX Communications, Inc. and Michael A.
            Peterson dated July 31, 2002 effective as of January 1, 2002
            (incorporated by reference to Exhibit 10.1 to ATX Communications,
            Inc.'s Quarterly Report on Form 10-Q, file no.000-49899)

11.1        Statement re computation of per share earnings

21.1        Subsidiaries of ATX Communications, Inc.

23.1        Consent of Ernst & Young LLP

99.1        Certification dated April 9, 2003 pursuant to 18 U.S.C. Section 1350
            as of CEO and CFO pursuant to 18 U.S.C. Section 1350 as adopted
            pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Thomas
            J. Gravina, Chief Executive Officer, and Michael A. Peterson,
            Executive Vice President, Chief Operating Officer and Chief
            Financial Officer


                                      E-6
<PAGE>


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULES


<TABLE>
<S>                                                                                          <C>
The following consolidated financial statements of ATX Communications, Inc. are
included in Item 15(a):

Report of Ernst & Young LLP, Independent Auditors ........................................   F-2
Consolidated Balance Sheets - December 31, 2002 and 2001 .................................   F-3
Consolidated Statements of Operations - Years Ended December 31, 2002, 2001 and 2000 .....   F-4
Consolidated Statements of Shareholders' Equity (Deficiency) - Years Ended
         December 31, 2002, 2001 and 2000 ................................................   F-5
Consolidated Statements of Cash Flows - Years Ended December 31, 2002, 2001 and 2000 .....   F-6
Notes to Consolidated Financial Statements ...............................................   F-7

The following consolidated financial statement schedules of ATX Communications,
Inc. are included in Item 15(a):

Schedule I - Condensed Financial Information of Registrant ...............................   F-42
Schedule II - Valuation and Qualifying Accounts ..........................................   F-48
</TABLE>

All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.


                                      F-1
<PAGE>



                         REPORT OF INDEPENDENT AUDITORS


Shareholders and Board of Directors
ATX Communications, Inc.

We have audited the consolidated balance sheets of ATX Communications, Inc. as
of December 31, 2002 and 2001, and the related consolidated statements of
operations, shareholders' equity (deficiency) and cash flows for each of the
three years in the period ended December 31, 2002. Our audits also included the
financial statement schedules listed in the index at item 15(a). These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ATX
Communications, Inc. at December 31, 2002 and 2001, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 2002, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.

As discussed in Note 4 to the consolidated financial statements, in 2002 the
Company changed its method of accounting for goodwill and its related
amortization.

                                         /s/ Ernst & Young LLP

Philadelphia, Pennsylvania
April 7, 2003


                                      F-2
<PAGE>

                            ATX COMMUNICATIONS, INC.

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                  DECEMBER 31,
                                                                            -------------------------
                                                                            2002                 2001
                                                                            ----                 ----
<S>                                                                   <C>                  <C>
ASSETS
Current assets:
  Cash and cash equivalents .....................................     $     9,959,000      $    24,966,000
  Accounts receivable -- trade, less allowance for
     doubtful accounts of $8,755,000 (2002) and $9,759,000 (2001)          35,150,000           32,261,000
  Due from CCL Historical, Inc. .................................                  --              646,000
  Due from NTL Incorporated .....................................           1,120,000                   --
  Other .........................................................           4,845,000            3,683,000
                                                                      ---------------      ---------------
Total current assets ............................................          51,074,000           61,556,000
Fixed assets, net ...............................................          37,861,000           86,722,000
Investment in CCL Historical, Inc. ..............................                  --            3,863,000
Goodwill ........................................................          79,558,000          147,380,000
Intangible assets, net ..........................................                  --            5,706,000
Other, net of accumulated amortization of $1,871,000 (2002)
  and $1,045,000 (2001) .........................................          10,570,000           11,393,000
                                                                      ---------------      ---------------
                                                                      $   179,063,000      $   316,620,000
                                                                      ===============      ===============

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
  Accounts payable ..............................................     $    65,799,000      $    37,348,000
  Accrued expenses ..............................................          53,060,000           67,766,000
  Due to NTL Incorporated .......................................                  --              917,000
  Current portion of long-term debt .............................           1,512,000               33,000
  Current portion of capital lease obligations ..................           9,534,000            9,634,000
  Deferred revenue ..............................................          21,928,000           29,652,000
                                                                      ---------------      ---------------
Total current liabilities .......................................         151,833,000          145,350,000
Long-term debt, less unamortized discount .......................         145,809,000          144,413,000
Notes payable to related parties, less unamortized discount .....          17,632,000           15,807,000
Capital lease obligations .......................................                  --              267,000
Commitments and contingent liabilities
Shareholders' equity (deficiency):
  Series A preferred stock -- $.01 par value, authorized
     10,000,000 shares; issued and outstanding none .............                  --                   --
  Common stock -- $.01 par value; authorized 250,000,000
     shares; issued and outstanding 30,000,000 (2002) and
     30,000,000 (2001) shares ...................................             300,000              300,000
  Additional paid-in capital ....................................       1,030,613,000        1,022,634,000
  (Deficit) .....................................................      (1,166,389,000)      (1,012,151,000)
                                                                      ---------------      ---------------
                                                                         (135,476,000)          10,783,000
Treasury stock at cost, 333,000 .................................            (735,000)                  --
                                                                      ---------------      ---------------
                                                                         (136,211,000)          10,783,000
                                                                      ---------------      ---------------
                                                                      $   179,063,000      $   316,620,000
                                                                      ===============      ===============
</TABLE>


                             See accompanying notes.


                                      F-3
<PAGE>



                            ATX COMMUNICATIONS, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                         ------------------------------------------
                                                         2002               2001               2000
                                                         ----               ----               ----
<S>                                                 <C>                <C>                <C>
REVENUES ......................................     $ 293,721,000      $ 292,681,000      $ 131,526,000
COSTS AND EXPENSES
Operating .....................................       191,848,000        224,807,000        142,323,000
Selling, general and administrative ...........        77,941,000         96,854,000        109,197,000
Corporate .....................................         5,053,000          5,648,000         11,224,000
Non-cash compensation .........................                --         21,638,000         43,440,000
Recapitalization costs ........................         5,835,000                 --                 --
Other charges .................................                --         39,553,000         12,706,000
Charges for impaired assets ...................       118,530,000        368,288,000         35,920,000
Depreciation ..................................        32,160,000         47,976,000         30,641,000
Amortization ..................................           251,000         97,388,000         42,396,000
                                                    -------------      -------------      -------------
                                                      431,618,000        902,152,000        427,847,000
                                                    -------------      -------------      -------------
Operating loss ................................      (137,897,000)      (609,471,000)      (296,321,000)
OTHER INCOME (EXPENSE)
Interest income and other, net ................           285,000          1,799,000          1,134,000
Interest expense ..............................       (16,376,000)       (25,647,000)        (5,929,000)
                                                    -------------      -------------      -------------
Loss before income taxes and extraordinary item      (153,988,000)      (633,319,000)      (301,116,000)
Income tax provision ..........................          (250,000)           (94,000)          (125,000)
                                                    -------------      -------------      -------------
Loss before extraordinary item ................      (154,238,000)      (633,413,000)      (301,241,000)
Gain from extinguishment of debt ..............                --         39,498,000                 --
                                                    -------------      -------------      -------------
Net loss ......................................     $(154,238,000)     $(593,915,000)     $(301,241,000)
                                                    =============      =============      =============
Basic and diluted net loss per share:
Loss before extraordinary item ................     $       (5.17)     $      (22.15)     $      (10.55)
Extraordinary item ............................                --               1.38                 --
                                                    -------------      -------------      -------------
Net loss ......................................     $       (5.17)     $      (20.77)     $      (10.55)
                                                    =============      =============      =============
Weighted average number of shares outstanding .        29,834,000         28,599,000         28,542,000
                                                    =============      =============      =============
</TABLE>


                             See accompanying notes.


                                      F-4
<PAGE>




                            ATX COMMUNICATIONS, INC.

          CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)

<TABLE>
<CAPTION>

                                 COMMON STOCK                             DEFERRED                           TREASURY STOCK
                                 ------------          ADDITIONAL         NON-CASH                           --------------
                               SHARES       PAR      PAID-IN CAPITAL    COMPENSATION      (DEFICIT)        SHARES     AMOUNT
                               ------       ---      ---------------    ------------      ---------        ------     ------
<S>                          <C>          <C>        <C>                <C>             <C>                <C>       <C>
Balance, December 31, 1999   28,542,000   $285,000   $   246,700,000              --    $  (116,995,000)        --          --

Capital contributions ....           --         --       792,193,000              --                 --         --          --

Deferred non-cash
  compensation ...........           --         --                --    $(31,338,000)                --         --          --

Non-cash compensation
  expense ................           --         --                --       9,700,000                 --         --          --

Net loss .................           --         --                --              --       (301,241,000)        --          --
                             ----------   --------   ---------------    ------------    ---------------    -------   ---------
Balance, December 31, 2000   28,542,000    285,000     1,038,893,000     (21,638,000)      (418,236,000)        --          --

Capital distributions ....           --         --       (23,164,000)             --                 --         --          --

Shares issued in ATX
  recapitalization .......    1,458,000     15,000         1,413,000              --                 --         --          --

Shares held by CoreComm
  Limited issued in ATX
  recapitalization .......           --         --         5,492,000              --                 --         --          --

Non-cash compensation
  expense ................           --         --                --      21,638,000                 --         --          --

Net loss .................           --         --                --              --       (593,915,000)        --          --
                             ----------   --------   ---------------    ------------    ---------------    -------   ---------
Balance, December 31, 2001   30,000,000    300,000     1,022,634,000              --     (1,012,151,000)        --          --

Exchange of shares .......           --         --         7,979,000              --                 --         --          --

Common stock acquired
  upon merger with CCL
  Historical, Inc. .......           --         --                --              --                 --    333,000   $(735,000)

Net loss .................           --         --                --              --       (154,238,000)        --          --
                             ----------   --------   ---------------    ------------    ---------------    -------   ---------
Balance, December 31, 2002   30,000,000   $300,000   $ 1,030,613,000    $         --    $(1,166,389,000)   333,000   $(735,000)
</TABLE>




                             See accompanying notes.


                                      F-5
<PAGE>


                            ATX COMMUNICATIONS, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                          YEAR ENDED DECEMBER 31,
                                                                                   --------------------------------------
                                                                                   2002             2001             2000
                                                                                   ----             ----             ----
<S>                                                                           <C>              <C>              <C>
OPERATING ACTIVITIES
Net loss ..................................................................   $(154,238,000)   $(593,915,000)   $(301,241,000)
Adjustments to reconcile net loss to net cash used in operating activities:
    Depreciation and amortization .........................................      32,411,000      145,364,000       73,037,000
    Gain from extinguishment of debt ......................................              --      (39,498,000)              --
    Reorganization charges ................................................              --       26,932,000               --
    Non-cash compensation .................................................              --       21,638,000       43,440,000
    Amortization of debt discount .........................................       2,729,000        6,256,000               --
    Amortization deferred financing costs .................................         826,000          774,000          211,000
    Provision for losses on accounts receivable ...........................       6,696,000        7,143,000        7,130,000
    Charges for impaired assets ...........................................     118,530,000      368,288,000       35,920,000
    Accretion of interest on marketable securities ........................              --          (51,000)          24,000
    Interest accrued on PIK Notes .........................................       1,785,000               --               --
    Other .................................................................              --       (2,473,000)         996,000
Changes in operating assets and liabilities, net of effect from business
    acquisitions:
    Accounts receivable ...................................................      (9,585,000)      (5,174,000)      (7,405,000)
    Due from affiliates ...................................................      (1,292,000)      18,140,000      (17,349,000)
    Other current assets ..................................................      (1,533,000)       2,369,000          576,000
    Other assets ..........................................................         705,000       11,999,000       (1,460,000)
    Accounts payable ......................................................      21,654,000      (25,594,000)      17,574,000
    Accrued expenses ......................................................     (14,714,000)      21,073,000       (5,078,000)
    Deferred revenue ......................................................      (7,724,000)         (44,000)      17,213,000
                                                                              -------------    -------------    -------------
Net cash used in operating activities .....................................      (3,750,000)     (36,773,000)    (136,412,000)
INVESTING ACTIVITIES
Purchase of fixed assets ..................................................     (11,327,000)      (5,221,000)     (65,211,000)
Acquisitions, net of cash acquired ........................................              --               --      (98,613,000)
Purchase of marketable securities .........................................              --               --       (2,710,000)
Proceeds from sale of marketable securities ...............................              --        2,737,000               --
Other .....................................................................         470,000               --               --
                                                                              -------------    -------------    -------------
Net cash used in investing activities .....................................     (10,857,000)      (2,484,000)    (166,534,000)
FINANCING ACTIVITIES
Capital (distributions) contributions .....................................              --      (28,614,000)     232,472,000
Proceeds from borrowings, net of financing costs ..........................              --       88,679,000      103,503,000
Principal payments on long-term debt ......................................         (33,000)     (10,508,000)      (5,936,000)
Principal payments of capital lease obligations ...........................        (367,000)      (8,107,000)     (15,568,000)
                                                                              -------------    -------------    -------------
Net cash (used in) provided by financing activities .......................        (400,000)      41,450,000      314,471,000
                                                                              -------------    -------------    -------------
Net (decrease) increase in cash and cash equivalents ......................     (15,007,000)       2,193,000       11,525,000
Cash and cash equivalents at beginning of period ..........................      24,966,000       22,773,000       11,248,000
                                                                              -------------    -------------    -------------
Cash and cash equivalents at end of period ................................   $   9,959,000    $  24,966,000    $  22,773,000
                                                                              =============    =============    =============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest ....................................................   $  10,807,000    $  13,197,000    $   4,008,000
Income taxes paid .........................................................              --               --          159,000
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
  ACTIVITIES
Capital contributions of non-cash net assets ..............................   $          --    $   5,450,000    $ 559,721,000
Liabilities incurred to acquire fixed assets ..............................         386,000        6,595,000       35,626,000
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING
  ACTIVITIES
Shares issued in the ATX recapitalization .................................   $          --    $   6,905,000    $          --
Shares issued to acquire CCL Historical, Inc. .............................       7,979,000               --               --
</TABLE>


                             See accompanying notes.


                                      F-6
<PAGE>

                            ATX COMMUNICATIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1. ORGANIZATION AND BUSINESS

ORGANIZATION

ATX Communications, Inc. (formerly CoreComm Holdco, Inc.), referred to as the
Company, was formed in May 1998 as a Bermuda corporation. It was a wholly-owned
subsidiary of CCL Historical, Inc. (formerly CoreComm Limited), referred to as
CCL, until December 2001. In July 1999, the Company was domesticated under the
laws of Delaware.

CCL, formerly a wholly-owned subsidiary of Cellular Communications of Puerto
Rico, Inc., referred to as CCPR, was formed in March 1998 in order to succeed to
the businesses and assets that were operated by OCOM Corporation. Operations
commenced in April 1998. In September 1998, CCPR made a cash contribution to CCL
of $150,000,000 and distributed 100% of the outstanding shares of CCL on a
one-for-one basis to CCPR's shareholders.

BUSINESS

The Company provides integrated local and toll-related telephone, Internet and
high-speed data services to business and residential customers located
principally in Pennsylvania, Ohio, New Jersey, Michigan, Wisconsin, Maryland,
Illinois, New York, Virginia, Delaware, Massachusetts, Washington, D.C. and
Indiana. The Company does not rely on any one customer for a significant portion
of its revenue.

LIQUIDITY

The Company's financial statements have been prepared assuming the Company can
meet its obligations as they become due in the ordinary course of business. On
March 31, 2003, the Company entered into an amendment to its senior secured
credit facility, under which the lenders agreed to waive and/or amend certain
financial covenants set forth in the credit agreement until February 2, 2004,
during which time the loans will accrue interest at a rate of approximately
9.75%. However, based on its current business plan, the Company does not expect
that it will have the cash available to fund the required deferred interest and
principal payments on its senior secured credit facility on or before February
2, 2004, the date on which such payments become due. The Company intends to seek
and consider strategic alternatives in order to reduce its overall indebtedness,
including amounts under the senior secured credit facility. Such strategic
alternatives may include, among other things, debt or equity financings or
refinancings, recapitalizations, restructurings, mergers and acquisitions or
other transactions.


                                      F-7
<PAGE>


                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 1. ORGANIZATION AND BUSINESS (CONTINUED)

There can be no assurance that: (1) actual costs will not exceed the amounts
estimated or that additional funding will not be required, (2) the Company and
its subsidiaries will be able to generate sufficient cash from operations to
meet capital requirements, debt service and other obligations when required, (3)
the Company will be able to continue to be in compliance with all required
ratios and covenants contained in agreements governing its outstanding
indebtedness, or that the Company will be able to modify the requirements or
terms of such indebtedness, (4) the Company will be able to refinance its
indebtedness as it comes due, (5) the Company will be able to sell assets or
businesses (the net proceeds from a sale may be required to be used to repay
certain indebtedness), or (6) the Company will not be adversely affected by
interest rate fluctuations, (7) the Company will be able to access the cash flow
of its subsidiaries or (8) the Company will be successful in identifying or
implementing one or more strategic alternatives to reduce its indebtedness.

The Company's future capital requirements will depend on the success of the
continued execution of the Company's business plan, and the amount of capital
required to fund future capital expenditures and other working capital
requirements that exceed net cash provided by operating activities.

The Company and its subsidiaries may not generate sufficient cash flow from
operations to repay at maturity the entire principal amount of its outstanding
indebtedness. Accordingly, the Company may be required to consider a number of
measures, including: (1) refinancing all or a portion of such indebtedness, (2)
seeking modifications to the terms of such indebtedness, (3) seeking additional
debt financing, which may be subject to obtaining necessary lender consents, (4)
seeking additional equity financing, (5) sales of assets or businesses or (6) a
combination of the foregoing.

The Company's ability to raise additional capital in the future will be
dependent on a number of factors, such as general economic and market
conditions, which are beyond its control. If the Company is unable to obtain
additional financing or obtain it on favorable terms, it may be required to
further reduce its operations, forego attractive business opportunities, or take
other actions, which could adversely affect its business, results of operations
and financial condition.

NOTE 2. ATX RECAPITALIZATION

In April 2001, the Company and CCL completed a reevaluation of their business
plans in light of market conditions and made significant modifications to the
plans. The Company streamlined its strategy and operations to focus on its two
most successful and promising lines of business. The first is integrated
communications products and other high bandwidth/data/web-oriented services for
the business market. The second is bundled local telephony and Internet products
for the residential market, with a focus on using Internet interfaces, as well
as call centers, to efficiently sell and install products and services for
customers.

Also in April 2001, the Company and CCL commenced a process to potentially sell
selected assets and businesses (now owned by the Company) that are not directly
related to their competitive local exchange carrier, referred to as CLEC,
business, and retained advisors for the purpose of conducting this sale. The
Company's CLEC assets and businesses include its local and toll-related
telephone services that compete with the incumbent local exchange carrier,
referred to as ILEC, and other carriers.


                                      F-8
<PAGE>

                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 2. ATX RECAPITALIZATION (CONTINUED)

In October 2001, the Company and CCL commenced the ATX recapitalization. In the
first phase of the ATX recapitalization, which was completed in December 2001,
the Company and CCL entered into agreements with holders of approximately $600
million of outstanding indebtedness and preferred stock whereby the holders
agreed, among other things, to exchange their debt and preferred stock for
approximately 87% of the Company's common stock. In addition, the holders of
CCL's 6% Convertible Subordinated Notes due 2006 received the amount of an
October 1, 2001 interest payment of $4.8 million in the aggregate.

The following summarizes the indebtedness and preferred stock that was exchanged
for shares of the Company's common stock in December 2001:

<TABLE>
<CAPTION>
                                                                                                               PRINCIPAL
                                                                                                               AMOUNT OR
                                                                                                             STATED VALUE
DESCRIPTION                                                    DATE ISSUED                ISSUER              WHEN ISSUED
-----------                                                    -----------                ------              -----------
<S>                                                           <C>                  <C>                      <C>
10.75% Unsecured Convertible PIK Notes due 2011               April 2001           CCL and the Company      $10.0 million
10.75% Senior Unsecured Convertible PIK Notes Due 2010        December 2000        CCL and the Company      $16.1 million
Senior Unsecured Notes Due September 29, 2003                 September 2000       CCL                      $108.7 million
6% Convertible Subordinated Notes Due 2006                    October 1999         CCL                      $175.0 million(1)
Series A and Series A-1 Preferred Stock                       September 2000       CCL                      $51.1 million
Series B Preferred Stock                                      September 2000       CCL                      $250.0 million
</TABLE>

(1)   $164.75 million was outstanding as of December 31, 2001, of which $160
      million was exchanged.

The Company exchanged the approximately $10.8 million principal and accrued
interest of 10.75% Unsecured Convertible PIK Notes Due 2011 and the
approximately $18.0 million principal and accrued interest of 10.75% Senior
Unsecured Convertible PIK Notes Due 2010 for shares of its common stock. The
Company recorded an extraordinary gain of $25.7 million from the extinguishment
of these notes, and incurred costs of $2.7 million in 2001 in connection with
the ATX recapitalization. This gain is based on the fair value of $0.9797 per
share on December 31, 2001 for the shares issued by the Company in exchange for
the notes.

The shareholders and noteholders who exchanged their shares and notes,
respectively, received shares of common stock of the Company and no longer hold
securities of CCL.

Following the completion of the first phase of the ATX recapitalization on
December 28, 2001 (but prior to the completion of the second phase on July 1,
2002), approximately 87% of the Company's outstanding shares, or 26,056,806
shares, were owned by the former holders of indebtedness and preferred stock of
the Company and CCL, and approximately 13% of the Company's outstanding shares,
or 3,943,248 shares, were held by CCL.


                                      F-9
<PAGE>

                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 2. ATX RECAPITALIZATION (CONTINUED)

As a result of the completion of the first phase of the ATX recapitalization,
the Company held $160 million principal amount of CCL's 6% Convertible
Subordinated Notes due 2006, approximately $105.7 million principal amount of
CCL's Senior Unsecured Notes due September 29, 2003, approximately 51,000 shares
of CCL's Series A preferred stock and 250,000 shares of CCL's Series B preferred
stock. As of December 31, 2001, prior to the consummation of the second phase of
the ATX recapitalization, the Company's investment in CCL notes and preferred
stock was $3,863,000.

In the second phase of the ATX recapitalization, the Company offered to all
holders of CCL common stock and all remaining holders of 6% Convertible
Subordinated Notes due 2006 of CCL to exchange shares of the Company's common
stock for their CCL common stock and their notes, respectively. The Company
completed the exchange offer on July 1, 2002, and issued 3,610,624 shares of
common stock to the former holders of CCL common stock and the holders of 6%
Convertible Subordinated Notes due 2006 of CCL. The common stock issued under
the exchange offer was valued at $7,979,000 based on the average price per share
for the five trading days following the completion of the recapitalization,
which was based on the estimated fair value of the Company's common stock.
Following the exchange offer, the Company transferred the shares of CCL common
stock that it received in the exchange offer to a wholly owned subsidiary. The
Company then merged this subsidiary into CCL, with CCL surviving the merger as a
wholly owned subsidiary of the Company.

CCL has surrendered to the Company all of the shares of the Company's common
stock that CCL held at the completion of the exchange offers, excluding 332,624
shares, of which 39,678 shares are being held for holders of the 6% Convertible
Subordinated Notes who did not participate in the exchange offer and 292,946
shares are reserved for holders of CCL's warrants, 14,473 of which expired in
May 2002. In exchange for CCL surrendering such shares of the Company's common
stock, CCL and the Company have agreed to waivers and amendments to delay CCL
from having to make any payments with respect to the CCL securities held by the
Company through April 2003. Also, as part of the exchange agreement between the
Company and CCL, the due date of CCL's Senior Unsecured Notes was extended until
September 29, 2023.

In connection with the second phase of the ATX recapitalization, on July 1, 2002
the Company converted all of the 6% Convertible Subordinated Notes Due 2006 of
CCL and all of the shares of Series A and B preferred stock of CCL that it owned
into shares of CCL common stock. All of these shares of CCL were tendered in the
exchange offer, and subsequently, all of the shares received by the Company in
the exchange offer were cancelled. The Company continues to hold approximately
$105.7 million principal amount of CCL's Senior Unsecured Notes.

The Company incurred additional costs in connection with the ATX
recapitalization, which consist primarily of employee incentives, legal fees,
accounting fees and printing fees of $5,835,000 during the twelve months ended
December 31, 2002.

The merger with CCL has been accounted for as a purchase, and, accordingly the
net assets and results of operations of CCL have been included in the
consolidated financial statements from July 1, 2002. The aggregate purchase
price of $11,842,000 exceeded the estimated fair value of net tangible assets
acquired by $9,587,000, which was allocated to goodwill.


                                      F-10
<PAGE>

                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 2. ATX RECAPITALIZATION (CONTINUED)

The pro forma unaudited consolidated results of operations for the years ended
December 31, 2002 and 2001, assuming consummation of the acquisition as of
January 1, 2002 is as follows:

<TABLE>
<Caption>
                                                                 Year Ended December 31,
                                                           ----------------------------------
                                                                 2002               2001
                                                           ----------------------------------
<S>                                                        <C>                  <C>
         Total revenue                                     $ 293,972,000        $ 293,207,000
         Net loss                                           (155,497,000)        (619,590,000)
         Basic and diluted net loss per share                      (5.21)              (21.66)
</TABLE>

In connection with the ATX recapitalization, on July 2, 2002, Nasdaq transferred
CCL's listing on the Nasdaq National Market to the Company. On August 15, 2002,
the Nasdaq Listing Qualifications Panel issued its decision to delist the
Company's common stock. On August 16, 2002, the Company's common stock began
trading on the Over-the-Counter Bulletin Board. The Company had requested a
review of the Panel's decision by the Nasdaq Listing and Hearing Review Council
and on October 28, 2002, the Listing Council affirmed the Panel's decision to
delist the Company's common stock. The delisting of the Company's common stock
from the Nasdaq National Market, could, among other things, have a negative
impact on the trading activity and price of the common stock and could make it
more difficult for the Company to raise equity capital in the future.

NOTE 3. SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Such estimates and assumptions impact, among others, the following: the amount
of uncollectible accounts receivable, the amount to be paid to terminate certain
agreements included in reorganization costs, the amount to be paid to settle
certain toll and interconnection liabilities, the amount to be paid as a result
of certain sales and use tax audits, potential liabilities arising from other
sales tax matters and estimates related to the value of long-lived assets,
goodwill and other intangible assets. Actual results could differ from those
estimates.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.

CASH EQUIVALENTS

Cash equivalents are short-term highly liquid investments purchased with a
maturity of three months or less. Cash equivalents were approximately $4.8
million and $24.3 million at December 31, 2002 and 2001, respectively, and
consisted of corporate commercial paper.


                                      F-11
<PAGE>

                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company records estimated allowances for uncollectible accounts receivable
based on estimates of the collectibility of its receivables. These allowances
were provided based on both the age of outstanding receivable balances and
specific identification of customers. The Company identifies customer payment
histories to determine if additional allowances are required. Since the Company
has a limited operating history, the estimates are based on reviewing current
customer balances and economic conditions on a monthly basis. In addition, the
Company writes-off customer balances generally upon bankruptcy or other events
where customer receipts are unlikely. The Company also requires security
deposits in the normal course of business if customers do not meet its criteria
established for offering credit. If the financial condition of the Company's
customers were to deteriorate resulting in an impairment in their ability to
make payments, additions to the allowance may be required.

The activity of allowances for bad debts for the three years ended December 31,
2002 is as follows:

<TABLE>
<CAPTION>
                                                                                                            ALLOWANCE      AVERAGE
                                 ALLOWANCE     ADDITIONS TO                    ADDITIONS TO    ALLOWANCE       AS A       ALLOWANCE
                                  FOR BAD       ALLOWANCE                       ALLOWANCE       FOR BAD     PERCENTAGE       AS A
                                  DEBT AT        BASED ON     UNCOLLECTIBLE       FROM          DEBT AT         OF       PERCENTAGE
                                 BEGINNING    COLLECTIBILITY    ACCOUNTS         BUSINESS       END OF       ACCOUNTS     OF ANNUAL
       DESCRIPTION               OF PERIOD      ESTIMATES      WRITTEN-OFF     COMBINATIONS     PERIOD      RECEIVABLE     REVENUE
       -----------               ---------      ---------      -----------     ------------     ------      ----------     -------
<S>                             <C>           <C>             <C>              <C>            <C>           <C>          <C>
Year ended December 31, 2002    $ 9,759,000     $6,696,000     $(7,700,000)     $       --    $ 8,755,000       20%          3.2%

Year ended December 31, 2001     11,034,000      7,143,000      (8,418,000)             --      9,759,000       23%          3.6%

Year ended December 31, 2000      3,949,000      7,130,000      (9,269,000)      9,224,000     11,034,000       24%          5.7%
</TABLE>

FIXED ASSETS

Fixed assets are stated at cost. Fixed assets are assigned useful lives, which
impacts the annual depreciation expense. The assignment of useful lives involves
significant judgments and the use of estimates. Changes in technology or changes
in intended use of these assets may cause the estimated useful life to change.
Depreciation is computed by the straight-line method over the estimated useful
lives of the assets. Estimated useful lives are as follows: operating equipment
-- 3 to 5 years, computer hardware and software -- 3 or 5 years and other
equipment -- 2 to 7 years, except for leasehold improvements for which the
estimated useful lives are the term of the lease.


                                      F-12
<PAGE>

                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. In
analyzing potential impairments, projections of future cash flows from the asset
are used. If the sum of the expected future undiscounted cash flows is less than
the carrying amount of the asset, a loss is recognized for the difference
between the fair value and carrying value of the asset. The projections are
based on assumptions, judgments and estimates of growth rates for the related
business, anticipated future economic, regulatory and political conditions, the
assignment of discount rates relative to risk and estimates of terminal values.
Changes to these variables in the future may necessitate impairment charges to
reduce the carrying value to fair value.

GOODWILL

Goodwill is the excess of the purchase price over the fair value of net assets
acquired in business combinations accounted for as purchases. Goodwill is
amortized on a straight-line basis over the period benefited, which is estimated
to be five to seven years. The Company continually evaluates whether events and
circumstances warrant revised estimates of useful lives or recognition of an
impairment to the carrying amounts. The recoverability of goodwill is assessed
at a reporting unit level whereby the carrying value of goodwill is adjusted to
the present value of the future operating cash flows if the undiscounted cash
flows analysis indicates it cannot be recovered over its remaining life. The
present value of the future operating cash flows is calculated using a discount
rate that is equivalent to the rate that would be required for a similar
investment with like risks. The projections of future operating cash flow are
based on assumptions, judgments and estimates of growth rates for the related
business, anticipated future economic, regulatory and political conditions, the
assignment of discount rates relative to risk and estimates of terminal values.
Changes to these variables in the future may necessitate impairment charges to
reduce the carrying value to fair value. If a portion or separable group of
assets of an acquired company is being disposed of, goodwill would be allocated
to the assets to be disposed of based on the relative fair values of those
assets at the date of acquisition, unless another method of allocation is more
appropriate.

LMDS LICENSE COSTS

The costs incurred to acquire the Local Multipoint Distribution Service,
referred to as LMDS, licenses from the Federal Communications Commission,
referred to as the FCC, were deferred and were being amortized on a
straight-line basis over the term of the licenses upon the commencement of
operations. The Company continually reviewed the recoverability of the carrying
value of LMDS licenses using the same methodology that it uses for the
evaluation of its other long-lived assets and upon such evaluation, the Company
determined that the remaining carrying value was impaired as of October 1, 2002.


                                      F-13
<PAGE>

                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INTANGIBLE ASSETS

Intangible assets include workforce and customer lists. These are
acquisition-related assets, which are stated at their cost as of the date
acquired less accumulated amortization. Amortization is recorded on a
straight-line basis over estimated useful lives of two and seven years. The
Company continually reviews the recoverability of the carrying value of the
intangible assets using the same methodology that it uses for the evaluation of
its other long-lived assets and upon such evaluation, the Company determined
that the remaining carrying value was impaired as of October 1, 2002.

OTHER ASSETS

Other assets include deferred financing costs, certificates of deposit
collateralizing letters of credit, and other non-current assets. Deferred
financing costs were incurred in connection with the issuance of debt and are
charged to interest expense over the term of the related debt.

CONTINGENT LIABILITIES

The Company's determination of the treatment of contingent liabilities is based
on a view of the expected outcome of the applicable contingency. The Company's
legal counsel is consulted on matters related to litigation. Experts both within
and outside the Company are consulted with respect to other matters that arise
in the ordinary course of business. Examples of matters that are based on
assumptions, judgments and estimates are the amount to be paid to terminate some
agreements included in reorganization costs, the amounts to be paid to settle
some toll and interconnection liabilities, the amount to be paid as a result of
some sales and use tax audits and potential liabilities arising from other sales
tax matters. A liability is accrued if the likelihood of an adverse outcome is
probable of occurrence and the amount is estimable.

NET LOSS PER SHARE

The Company reports its basic and diluted net loss per share in accordance with
Financial Accounting Standards Board, referred to as FASB, Statement of
Financial Accounting Standards, referred to as SFAS, No. 128, "Earnings Per
Share." The weighted average shares used in the computation of net loss per
share reflects the stock split in 2001 on a retroactive basis


                                      F-14
<PAGE>

                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

REVENUE RECOGNITION AND CERTAIN COST CLASSIFICATIONS

Revenues are recognized at the time the service is rendered to the customer or
the performance of the service has been completed. Charges for services that are
billed in advance are deferred and recognized when earned.

Operating costs includes direct costs of sales and network costs. Direct cost of
sales includes the costs directly incurred primarily with other
telecommunications carriers in order to render services to customers. Network
costs include the costs of fiber and access, points of presence, repairs and
maintenance, rent, utilities and property taxes of the telephone, Internet and
data network, as well as salaries and related expenses of network personnel.

ADVERTISING EXPENSE

The Company charges the cost of advertising to expense as incurred. Advertising
costs for the years ended December 31, 2002, 2001 and 2000 were $2,203,000,
$3,581,000 and $8,683,000, respectively.

REORGANIZATION CHARGES

In 2001, reorganization charges were recorded as a result of additional actions
to reorganize, re-size and reduce operating costs and create greater efficiency
in various areas. These charges, for both severance and exit costs, required the
use of estimates. Actual results could differ from those estimated for
reorganization.

STOCK-BASED COMPENSATION

The Company's employees participate in the ATX stock option plan. ATX applies
APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations. When applying APB Opinion No. 25, compensation expense for
compensatory plans is measured based on "intrinsic value" (i.e., the excess of
the market price of the stock over the exercise price on the measurement date).
Under the intrinsic value method, compensation is determined on the measurement
date; that is, the first date on which both the number of shares the employee is
entitled to receive and the exercise price, if any, are known. Compensation
expense, if any, generally is recognized over the equity award's vesting period.
Compensation expense associated with awards that immediately are vested or
attributable to past services is recognized when granted. Prior to the
completion of the ATX recapitalization, the Company's employees participated in
the CCL stock option plans.


                                      F-15
<PAGE>

                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting periods. Following is the
Company's pro forma information for the year ended December 31, 2002:

<TABLE>
<S>                                                                  <C>
            Net loss - as reported                                   $  (154,238,000)
            Stock based compensation expenses under SFAS No. 123          (3,582,000)
                                                                     ---------------
            Pro forma net loss                                       $  (157,820,000)
                                                                     ===============
            Basic and diluted per share information:
            Net loss - as reported                                   $         (5.17)
            Stock based compensation expenses under SFAS No. 123                (.12)
                                                                     ---------------
            Pro forma net loss per share                             $         (5.29)
                                                                     ===============
</TABLE>

NOTE 4. RECENT ACCOUNTING PRONOUNCEMENTS

On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure", which is effective for the year ended
December 31, 2002. The Statement amends the disclosure provisions of SFAS No.
123 "Accounting for Stock-Based Compensation". SFAS No. 148 also provides
alternative methods of transition to SFAS No. 123's fair value method of
accounting for stock based employee compensation. The adoption of this new
standard had no significant effect on the Company's results of operations,
financial condition or cash flows.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." Effective for the Company on January 1, 2003.
SFAS 146 addresses the accounting and reporting for costs associated with exit
or disposal activities. The adoption of this new standard is not expected to
have a significant effect on the Company's results of operations, financial
condition or cash flows.

In April 2002, the FASB issued SFAS, No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,"
effective for the Company on January 1, 2003. This Statement rescinds FASB
Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an
amendment of that Statement, FASB Statement No. 64, Extinguishments of Debt Made
to Satisfy Sinking-Fund Requirements. SFAS No. 145 also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The adoption
of this standard will require the Company to reclassify its gain from
extinguishment of debt from extraordinary to continuing operations. The
Company's loss before income taxes for the year ended December 31, 2001 will be
$593,915,000, upon adoption of SFAS No. 145. The adoption of SFAS No. 145 will
not change the Company's net loss for the year ended December 31, 2001.


                                      F-16
<PAGE>

                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 4. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," effective for the Company on January 1, 2002.
This Statement supercedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and other related
accounting guidance. The standard did not materially affect the amount of the
$41,121,000 impairment charge recorded by the Company in the fourth quarter of
2002. However, the charge was calculated in accordance with the provisions of
this pronouncement resulted in asset impairment charges of $41,121,000 during
the fourth quarter of 2002.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," effective for the Company on January 1, 2003. This Statement
addresses financial accounting and reporting for obligations associated with the
retirement of tangible fixed assets and the associated asset retirement costs.
The adoption of this new standard is not expected to have a significant effect
on the results of operations, financial condition or cash flows of the Company.

In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and No.
142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Use of the pooling-of-interests method is no longer
permitted. SFAS No. 141 also includes guidance on the initial recognition and
measurement of goodwill and other intangible assets acquired in a business
combination that is completed after June 30, 2001. SFAS No. 142 ends the
amortization of goodwill and indefinite-lived intangible assets. Instead, these
assets must be reviewed annually (or more frequently under certain conditions)
for impairment in accordance with this statement. This impairment test uses a
fair value approach to determine whether or not impairment exists rather than
the undiscounted cash flow approach previously required by SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The Company adopted SFAS No. 142 on January 1, 2002.

Upon the adoption of SFAS No. 142, the Company also performed an evaluation for
impairment of its goodwill as of January 1, 2002, and determined that no
impairment charge was required. The Company performed its annual test to
evaluate whether or not its goodwill was impaired as of October 1, 2002. This
evaluation resulted in a goodwill impairment charge of $77,409,000.


                                      F-17
<PAGE>

                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 4. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

The following table shows the Company's loss before extraordinary item and net
loss had SFAS No. 142 been in effect during the two years ended December 31,
2001. Additionally, the table presents the effect on the Company's basic and
diluted loss per share before extraordinary item and basic and diluted net loss
per share.

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                       ----------------------------------------------
                                                       2002                 2001                 2000
                                                       ----                 ----                 ----
<S>                                              <C>                  <C>                  <C>
Loss before extraordinary item- as reported      $  (154,238,000)     $  (633,413,000)     $  (301,241,000)
Goodwill amortization                                         --           96,973,000           39,330,000
Workforce amortization                                        --               52,000              532,000
                                                 ---------------      ---------------      ---------------
Loss before extraordinary item - as adjusted     $  (154,238,000)     $  (536,388,000)     $  (261,379,000)
                                                 ===============      ===============      ===============
Net loss - as reported                           $  (154,238,000)     $  (593,915,000)     $  (301,241,000)
Goodwill amortization                                         --           96,973,000           39,330,000
Workforce amortization                                        --               52,000              532,000
                                                 ---------------      ---------------      ---------------
Net loss --  as adjusted                         $  (154,238,000)     $  (496,890,000)     $  (261,379,000)
                                                 ===============      ===============      ===============

Basic and diluted per share information:
Loss before extraordinary item- as reported      $         (5.17)     $        (22.15)     $        (10.55)
Goodwill amortization                                         --                 3.39                 1.38
Workforce amortization                                        --                   --                 0.02
                                                 ---------------      ---------------      ---------------
Loss before extraordinary item - as adjusted     $         (5.17)     $        (18.76)     $         (9.15)
                                                 ===============      ===============      ===============
Net loss per share - as reported                 $         (5.17)              (20.77)     $        (10.55)
Goodwill amortization                                         --                 3.39                 1.38
Workforce amortization                                        --                   --                 0.02
                                                 ---------------      ---------------      ---------------
Net loss per share --  as adjusted               $         (5.17)     $        (17.38)     $         (9.15)
                                                 ===============      ===============      ===============
</TABLE>

NOTE 5. CERTAIN RISKS AND UNCERTAINTIES

The Company's performance is affected by, among other things, its ability to
implement expanded interconnection and collocation with the facilities of ILECs
and develop efficient and effective working relationships with the ILECs and
other carriers. The Company has installed its own switches and related equipment
in certain of its markets. The Company will continue to lease the unbundled
local loop needed to connect its customers to its switches. The Company
purchases capacity from the ILECs on a wholesale basis pursuant to contracts and
sells it at retail rates to its customers. The Company depends upon the ILECs to
maintain the quality of their service to the Company's customers. Also, the
Company depends upon the ILECs for accurate and prompt billing information in
order for the Company to bill certain of its customers.


                                      F-18
<PAGE>

                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 5. CERTAIN RISKS AND UNCERTAINTIES (CONTINUED)

The Company's business is highly competitive, which results in pricing pressure
and increasing customer acquisition costs. The competition in the local exchange
business includes the larger, better capitalized ILECs as well as other CLECs,
other providers of telecommunications services and cable television companies.
The competition in the Internet services market includes established online
services, such as AOL and the Microsoft Network, the ILECs, cable television
companies and other local, regional and national Internet service providers. The
competitive environment may result in price reductions in the Company's fees for
services, increased spending on marketing and product development, a reduction
in the Company's ability to increase revenues and gross margin from its core
businesses, a limit on the Company's ability to grow its customer base or
attrition in the Company's customer base. The Company's operating results and
cash flows would be negatively impacted by any of these events.

The Company's business is subject to regulations by federal, state and local
government agencies. These regulations are the subject of judicial proceedings,
legislative hearings and administrative proposals, which could change in varying
degrees the manner in which the telecommunications industry operates. Future
regulations and legislation may be less favorable to the Company than current
regulations or legislation and therefore could have a materially adverse effect
on its financial condition or results of operations

NOTE 6. REVENUES

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                --------------------------------------
                                                2002             2001             2000
                                                ----             ----             ----
<S>                                         <C>              <C>              <C>
Local Exchange Services ...............     $104,247,000     $ 95,272,000     $ 62,960,000
Internet, Data and Web-related Services       90,048,000       93,997,000       34,157,000
Toll-related Telephony Services .......       69,390,000       77,169,000       27,952,000
Other(a) ..............................       30,036,000       26,243,000        6,457,000
                                            ------------     ------------     ------------
                                            $293,721,000     $292,681,000     $131,526,000
                                            ============     ============     ============
</TABLE>

----------

(a)   Other includes carrier access billing, reciprocal compensation, wireless,
      paging and information services.

NOTE 7. CHARGES FOR IMPAIRED ASSETS

As of October 1, 2002, the Company performed an analysis of the carrying value
of its long-lived assets, goodwill and other intangibles. During 1999
and 2000, the Company made acquisitions against a background of increasing
consolidation and record valuations in the telecommunications industry.
Additionally, during the same time period, the Company paid high prices for
telecommunications equipment in an effort to rapidly expand its network. This
analysis was initiated because of the overall decline in value for companies and
for equipment within the telecommunications industry. The fair value of the
Company's assets was determined by discounting the Company's estimates of the
expected future cash flows related to these assets when the non-discounted cash
flows indicated that the long-lived assets would not be recoverable. The Company
recorded a write-down of goodwill of $77,409,000 and a write-down of fixed
assets of $28,494,000 in the fourth quarter of 2002 as result of this analysis
and review.



                                      F-19
<PAGE>

                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 7. CHARGES FOR IMPAIRED ASSETS (CONTINUED)

Also at October 1, 2002, in connection with the fair value analysis of the
Company's long-lived assets, the Company wrote-down the carrying amount of its
LMDS licenses, customer lists and certain deposits related to long-term
telecommunications contracts by $4,230,000, $1,225,000 and $5,400,000
respectively to reflect their fair value.

As of December 31, 2001, the Company performed an analysis of the carrying
values of its long-lived assets including goodwill. This analysis was initiated
because of the decline in CCL's stock price and significantly lower valuations
for companies within its industry. Additionally, at the time of the Company's
analysis, the book value of the Company's net assets significantly exceeded its
market capitalization. Accordingly, the Company performed an analysis of the
recoverability of its long-lived assets and associated goodwill. The fair value
of the Company's assets was determined by discounting the Company's estimates of
the expected future cash flows related to these assets when the non-discounted
cash flows indicated that the long-lived assets would not be recoverable. The
Company recorded a write-down of goodwill of $186,160,000 and a write-down of
fixed assets of $14,529,000 in the fourth quarter of 2001 as result of this
analysis and review.

At March 31, 2001, the Company reduced the carrying amount of goodwill related
to two of its acquisitions by $167,599,000. In connection with the reevaluation
of its business plan and the decision to sell its non-CLEC assets and business
announced in April 2001, the Company was required to report all long-lived
assets and identifiable intangibles to be disposed of at the lower of carrying
amount or estimated fair value less cost to sell. The carrying amount of
goodwill related to these acquisitions was eliminated before reducing the
carrying amounts of other assets. The estimated fair value of these businesses
was determined based on information provided by the investment bank retained for
the purpose of conducting this sale.

At December 31, 2000, the Company wrote-off the carrying amount of intangible
assets from certain business combinations. The aggregate write-off of
$14,784,000 included goodwill of $6,690,000, workforce of $577,000 and customer
lists of $7,517,000. These assets were primarily related to the Company's resale
CLEC business, which was acquired in 1999. The underlying operations, customer
relationships and future revenue streams had deteriorated significantly since
the acquisition. These were indicators that the carrying amount of the
resale-related assets was not recoverable. The Company estimated that the fair
value of these assets was zero due to the lack of potential buyers, the overall
deterioration of the resale CLEC business environment and because of the
negative future cash flow of these resale businesses projected at that time for
the foreseeable future. The goodwill had useful lives of 5 and 10 years, and the
other intangibles had useful lives of 3 and 5 years.

Also at December 31, 2000, in connection with the reevaluation of its business
plan announced in April 2001, the Company reduced the carrying amount of its
LMDS licenses by $21,136,000 to $4,230,000 to reflect their estimated fair
value. The estimated fair value was determined based on an analysis of sales of
other LMDS licenses by third parties.


                                      F-20
<PAGE>

                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 8. ACQUISITIONS

On September 29, 2000, the CCL completed two significant acquisitions. CCL
acquired ATX Telecommunications Services, Inc., referred to as ATX Services, a
CLEC providing integrated voice and high-speed data services, including long
distance, local, wireless and network services through the use of telephone
switching equipment and other physical facilities in the New York -- Virginia
corridor. ATX Services was acquired for approximately $39.4 million in cash,
approximately $108.7 million principal amount of CCL's senior unsecured notes
due 2003, 12,398,000 shares of CCL's common stock and 250,000 shares of CCL's
Series B preferred stock with a stated value of $250.0 million. The common stock
was valued at $178.7 million, the fair value at the time of the third amendment
to the ATX Services merger agreement on July 31, 2000. The senior unsecured
notes and the Series B preferred stock were valued at $94.0 million and $67.3
million, respectively, the fair value on the date of issuance. In addition, CCL
incurred acquisition related costs of approximately $9.7 million.

CCL also acquired Voyager.net, Inc., referred to as Voyager, a large independent
Internet communications company focused on the Midwestern United States. Voyager
was acquired for approximately $36.1 million in cash and 19,435,000 shares of
CCL's common stock. The common stock was valued at $154.6 million, the fair
value at the time of the closing of the transaction. In addition, CCL incurred
acquisition related costs of approximately $9.4 million and repaid approximately
$24.0 million of Voyager debt including accrued interest.

The assets of ATX Services and Voyager were contributed to subsidiaries of the
Company.

These acquisitions have been accounted for as purchases, and, accordingly the
net assets and results of operations of the acquired businesses have been
included in the consolidated financial statements from the date of acquisition.
The aggregate purchase price of $613.2 million exceeded the estimated fair value
of net tangible assets acquired by $585.8 million, which was allocated to
goodwill.

NOTE 9. FIXED ASSETS

Fixed assets consist of:

<TABLE>
<CAPTION>
                                                         DECEMBER 31,
                                                    -----------------------
                                                    2002               2001
                                                    ----               ----
<S>                                            <C>                <C>
Operating equipment ..............             $  26,528,000      $ 102,529,000
Computer hardware and software....                13,121,000         53,313,000
Other equipment ..................                 3,010,000         12,956,000
Construction-in-progress .........                   446,000                 --
                                               -------------      -------------
                                                  43,105,000        168,798,000
                                               -------------      -------------
Accumulated depreciation .........                (5,244,000)       (82,076,000)
                                               -------------      -------------
                                               $  37,861,000      $  86,722,000
                                               =============      =============
</TABLE>


                                      F-21
<PAGE>
                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 10. ACCRUED EXPENSES

Accrued expenses consist of:

<TABLE>
<CAPTION>
                                                          DECEMBER 31,
                                                     ------------------------
                                                     2002                2001
                                                     ----                ----
<S>                                              <C>                 <C>
Payroll and related ....................         $ 5,792,000         $ 7,517,000
Professional fees ......................           1,185,000             935,000
Taxes, including income taxes ..........          11,473,000          16,534,000
Accrued equipment purchases ............           1,414,000             385,000
Toll and interconnect ..................          23,016,000          28,668,000
Reorganization costs ...................           4,542,000           7,273,000
Other ..................................           5,638,000           6,454,000
                                                 -----------         -----------
                                                 $53,060,000         $67,766,000
                                                 ===========         ===========
</TABLE>

NOTE 11. LONG-TERM DEBT

Long-term debt consists of:

<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                                                      -----------------------
                                                                      2002               2001
                                                                      ----               ----
<S>                                                              <C>                <C>
Senior secured credit facility, less unamortized discount of
  $10,291,000 (2002) and $11,687,000 (2001) ................     $ 145,809,000      $ 144,413,000
6% Convertible Notes, less unamortized discount of
  $2,846,000 (2002) ........................................         1,512,000                 --
Other ......................................................                --             33,000
                                                                 -------------      -------------
                                                                   147,321,000        144,446,000
Less current portion .......................................        (1,512,000)           (33,000)
                                                                 -------------      -------------
                                                                 $ 145,809,000      $ 144,413,000
                                                                 =============      =============
</TABLE>

In September 2000, subsidiaries of the Company entered into a senior secured
credit facility. CCL and the Company have unconditionally guaranteed payment
under the facility. The facility was amended and restated in April 2001. The
senior secured credit facility provides for both a term loan facility and a
revolving credit facility. The aggregate amount available was amended to $156.1
million, of which the term loan facility is $106.1 million and the revolving
credit facility is $50 million. As of April 2001, the entire amount available
under the senior secured credit facility had been borrowed. The senior secured
credit facility is collateralized by substantially all of the Company's assets.


                                      F-22
<PAGE>

                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 11. LONG-TERM DEBT (CONTINUED)

On March 31, 2003, the Company entered into an amendment to its senior secured
credit facility. Under this amendment, the lenders under the facility agreed to
defer interest payments on the outstanding loans during the period beginning
March 12, 2003 until February 2, 2004, during which time the loans will accrue
interest at a rate of 5.5% per annum plus the base rate, which is the higher of
the prime rate or the federal funds effective rate plus 0.5% per annum. This
rate will be approximately 9.75%. In addition, the required principal payments
originally scheduled for 2003, which totaled $1.95 million, were deferred to
February 2, 2004. The lenders have also agreed to waive and/or amend certain
financial covenants set forth in the credit agreement until January 31, 2004,
and added other financial covenants, in order to better reflect the Company's
current operations.

The term loan facility will amortize in quarterly installments of principal
commencing on February 2, 2004 with a final maturity on September 22, 2008. The
revolving credit facility shall be automatically and permanently reduced in
increasing quarterly installments of principal commencing on February 2, 2004
with a termination date on September 22, 2008. In the event CCL's remaining
approximately $4.358 million principal amount of 6% Convertible Subordinated
Notes have not been converted or refinanced on or prior to April 1, 2006, then
the facilities become payable in full on April 1, 2006.

The interest rate on the senior secured credit facility was initially, at the
Company's option, either 3.25% per annum plus the base rate, which is the higher
of the prime rate or the federal funds effective rate plus 0.5% per annum; or
the reserve-adjusted London Interbank Offered Rate plus 4.25% per annum. In
April 2001 the interest rate was amended to, at the Company's option, 3.5% per
annum plus the base rate or the reserve-adjusted London Interbank Offered Rate
plus 4.5% per annum. Interest is payable monthly on the facility and, as noted
above, the interest rate was adjusted further on March 31, 2003 in conjunction
with the amendment signed on that date. The unused portion of the facility is
subject to a commitment fee equal to 1.25% per annum payable quarterly, subject
to reduction to 1.00% per annum based upon the amount borrowed under the
facility. At December 31, 2002 and 2001, the effective interest rate on the
amounts outstanding was 6.22% and 6.86%, respectively.

In addition, in connection with the financing in April 2001, CCL issued warrants
to purchase shares of its common stock. The estimated value of the warrants plus
the excess of other commitments over their estimated fair value to the Company
aggregating $12,454,000 was recorded as a debt discount in April 2001.


                                      F-23
<PAGE>

                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 11. LONG-TERM DEBT (CONTINUED)

The Company's consolidated balance sheet includes $4,358,000 aggregate principal
amount of CCL's 6% Convertible Subordinated Notes upon the completion of the
merger of CCL on July 1, 2002. The Company recorded the notes at $219,000, their
fair value as of the acquisition date. The resulting discount of $4,139,000 is
being amortized to interest expense over the remaining life of the notes, which
are due October 1, 2006. The Company recorded amortization expense of $1,293,000
during 2002. Under the terms of the exchange offer in 2002, the holder of the
notes could convert each $1,000 in aggregate principal amount into 9.1047 shares
of common stock and $30.00 in cash. There are 39,678 shares of common stock
reserved for issuance upon conversion of the notes. The interest payments that
were due under the outstanding notes on April 1 and October 1, 2002 have not
been made and CCL is in default under these notes. As such, the notes and the
accrued interest thereon are currently due and payable in full. These notes are
obligations of CCL and do not represent obligations of the Company.

In 1998, MegsINet entered into a working capital promissory note and a note
payable for operating equipment. MegsINet was required to make monthly principal
and interest payments through January 2002 for the working capital note and
through September 2001 for the equipment note. In 2001, the holders of these
notes agreed to accept cash of $400,000 and $800,000 in full settlement of all
amounts due under the working capital note and certain capital leases and the
equipment note, respectively. Extraordinary gains aggregating $4,067,000 were
recorded as a result of these settlements.

In May 2001, the Company entered into an agreement with one of its equipment
vendors whereby $17,166,000 due to the vendor was originally to be paid in three
payments in January, May and August 2002. In December 2001, the Company and the
vendor agreed to a modification of this arrangement in which the Company paid
$2,000,000 and returned certain of the equipment in full settlement of the
amount due. The Company recorded an extraordinary gain of $7,628,000 as a result
of this transaction.

In April 2001, the Company and CCL as co-obligators issued to Booth American
Company $10 million aggregate principal amount of 10.75% Unsecured Convertible
PIK Notes Due April 2011. Interest on the notes was at an annual rate of 10.75%
payable semiannually on October 15 and April 15 of each year, commencing October
15, 2001. The interest was payable in kind by the issuance of additional 10.75%
Unsecured Convertible PIK Notes due April 2011 in such principal amount as shall
equal the interest payment that was then due. The notes were convertible into
CCL's common stock prior to maturity at a conversion price of $1.00 per share,
subject to adjustment. Additional notes issued for interest had an initial
conversion price equal to 120% of the weighted average closing price of CCL's
common stock for a specified period. All of the outstanding 10.75% Unsecured
Convertible PIK Notes Due April 2011 were exchanged for shares of the Company in
December 2001.


                                      F-24
<PAGE>

                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 11. LONG-TERM DEBT (CONTINUED)

The Company exchanged the approximately $10.8 million principal and accrued
interest of 10.75% Unsecured Convertible PIK Notes Due 2011 and the
approximately $18.0 million principal and accrued interest of 10.75% Senior
Unsecured Convertible PIK Notes Due 2010 (that were included in notes payable to
related parties) for shares of its common stock. The Company recorded an
extraordinary gain of $25,677,000 from the extinguishment of these notes. During
2001, costs of $2,655,000 were incurred in connection with the ATX
recapitalization, which were included as an offset to the extraordinary gain. In
addition, the Company recorded an extraordinary gain of $4,781,000 in 2001
related to the settlement of other liabilities.

The senior secured credit facility restricts the payment of cash dividends and
loans to the Company.

As of December 31, 2002, the aggregate principal amounts of long-term debt
scheduled for repayment are as follows:

<TABLE>
<CAPTION>
<S>                                                                 <C>
              Year Ending December 31,
                2003 ....................................           $  4,358,000
                2004 ....................................             11,700,000
                2005 ....................................             25,350,000
                2006 ....................................             50,700,000
                2007 ....................................             39,000,000
              Thereafter ................................             29,350,000
                                                                    ------------
                                                                    $160,458,000
                                                                    ============
</TABLE>


                                      F-25
<PAGE>

                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTES 12. OTHER CHARGES

Other charges in 2001 include reorganization charges of $37,372,000 and an
adjustment to the reserve for notes receivable from former officers of Voyager
of $2,181,000. The reorganization charges relate to the Company's announcements
in May and July 2001 that it was taking additional actions to reorganize,
re-size and reduce operating costs and create greater efficiency in various
areas of the Company. A total of $21,386,000 of these costs are for equipment
and other assets that will not require any future cash outlays. The employee
severance and related costs in 2001 were for approximately 630 employees to be
terminated, none of whom were still employed by the Company as of December 31,
2001. The major actions involved in the 2001 reorganization included: (1)
consolidation of functions such as network operations, customer service and
finance, (2) initiatives to increase gross margins and (3) agreements with
vendors to reduce or eliminate purchase commitments. The consolidation of
functions resulted in employee terminations and the closing of offices. Employee
severance and related costs, lease exit costs and fixed assets and prepayment
write-downs include charges related to these actions. Initiatives to increase
gross margins resulted in consolidation of network assets and elimination of
redundant and less profitable facilities. Charges for these actions include
lease exit costs and fixed assets and prepayment write-downs. Finally,
reductions or elimination of purchase commitments resulted in agreement
termination charges. All of these actions were completed during 2002 and the
remaining accrued expenses are anticipated to be paid over the next 36 months.
Fixed assets and prepayments written-off include $5,300,000 related to vacated
offices, $13,400,000 for network assets in abandoned markets and $2,700,000 for
prepayments in respect of ILEC facilities in abandoned markets.

Other charges in 2000 include a reserve of $8,700,000 for notes receivable from
former officers of Voyager, and reorganization charges of $4,006,000. The
employee severance and related costs in 2000 were for approximately 250
employees to be terminated, none of whom were still employed by the Company as
of December 31, 2000.

The following table summarizes the reorganization charges incurred and utilized
in during the three years ended December 31, 2002:

<TABLE>
<CAPTION>
                               EMPLOYEE
                               SEVERANCE      LEASE                     FIXED ASSETS
                              AND RELATED      EXIT        AGREEMENT        AND
                                 COSTS        COSTS      TERMINATIONS    PREPAYMENTS    TOTAL
                                 -----        -----      ------------    -----------    -----
                                                        (IN THOUSANDS)
<S>                           <C>            <C>         <C>            <C>            <C>
Charged to expense .......     $  2,089      $  1,917      $     --       $     --     $  4,006
Utilized .................         (775)       (1,396)           --             --       (2,171)
                               --------      --------      --------       --------     --------
Balance, December 31, 2000        1,314           521            --             --        1,835
Charged to expense .......        3,409         6,928         6,572         21,772       38,681
Utilized .................       (4,214)       (4,343)       (2,914)       (21,772)     (33,243)
                               --------      --------      --------       --------     --------
Balance, December 31, 2001          509         3,106         3,658             --        7,273
Utilized .................         (509)       (1,722)         (500)            --       (2,731)
                               --------      --------      --------       --------     --------
Balance, December 31, 2002     $     --      $  1,384      $  3,158       $     --     $  4,542
                               ========      ========      ========       ========     ========
</TABLE>


                                      F-26
<PAGE>

                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 13. FAIR VALUES OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:

Cash and cash equivalents: The carrying amounts reported in the consolidated
balance sheets approximate fair value because of their liquid nature.

Accounts receivable and payable: The carrying amounts reporting in the
consolidated balance sheets are deemed to approximate fair value because of
their short-term nature.

Long-term debt: The carrying amount of the variable rate senior secured credit
facility approximates the fair value because the effective interest rates are
deemed to be representative of rates the Company could obtain under current
market conditions. The fair value of the Company's other notes payable are
estimated using discounted cash flow analyses, based on the Company's
incremental borrowing rates for similar types of borrowing arrangements.

The carrying amounts and fair values of the Company's financial instruments are
as follows:

<TABLE>
<CAPTION>
                                         DECEMBER 31, 2002         DECEMBER 31, 2001
                                         -----------------         -----------------
                                       CARRYING       FAIR       CARRYING       FAIR
                                        AMOUNT       VALUE        AMOUNT        VALUE
                                        ------       -----        ------        -----
                                                      (IN THOUSANDS)
<S>                                    <C>          <C>          <C>          <C>
Cash and cash equivalents ........     $  9,959     $  9,959     $ 24,966     $ 24,966
Long-term debt:
  Senior secured credit facility .      145,809      156,100      144,413      156,100
  Notes payable to related parties       17,632       17,959       15,807       16,174
  Other ..........................        1,512          146           33           33
</TABLE>

NOTE 14. LEASES

The Company has capital leases for certain of its operating equipment. Leased
property included in operating equipment consists of:

<TABLE>
<CAPTION>
                                                        DECEMBER 31,
                                                 --------------------------
                                                 2002                  2001
                                                 ----                  ----
<S>                                          <C>                   <C>
Operating equipment ................         $ 623,000             $ 29,108,000
Accumulated depreciation ...........          (104,000)             (14,963,000)
                                             ---------             ------------
                                             $ 519,000             $ 14,145,000
                                             =========             ============
</TABLE>

Depreciation expense for operating equipment acquired by capital lease totaled
$3,619,000, $6,487,000 and $1,394,000 for the years ended December 31, 2002,
2001 and 2000, respectively.


                                      F-27
<PAGE>

                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 14. LEASES (CONTINUED)

Future minimum annual payments under these leases at December 31, 2002 are as
follows:

<TABLE>
<S>                                                                           <C>
Total minimum lease payments due during the year ending December 31, 2003     $ 9,558,000
Less amount representing interest (at rates ranging from 5.8% to 23.4%)           (24,000)
                                                                              -----------
Present value of net minimum obligations                                      $ 9,534,000
                                                                              ===========
</TABLE>

As of December 31, 2002, the Company had leases for office space and equipment,
which extend through 2013. Total rent expense for the years ended December 31,
2002, 2001 and 2000 under operating leases was $8,035,000, $8,791,000 and
$7,764,000 respectively.

Future minimum annual lease payments under noncancellable operating leases at
December 31, 2002 are as follows: $7,522,000 (2003); $5,146,000 (2004);
$4,229,000 (2005); $3,026,000 (2006) $2,729,000 (2007) and $4,475,000
thereafter.

NOTE 15. RELATED PARTY TRANSACTIONS

Notes payable to related parties consists of:

<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                                   --------------------
                                                                   2002            2001
                                                                   ----            ----
<S>                                                             <C>             <C>
10.75% Unsecured Convertible PIK Notes Due April 2011, plus
  accrued interest, less unamortized discount of $327,000
  (2002) and $367,000 (2001) ..............................     $17,632,000     $15,807,000
                                                                ===========     ===========
</TABLE>

Some of the directors of the Company were or are officers or directors of NTL
Incorporated, referred to as NTL. In April 2001, CCL and the Company as
co-obligors issued to NTL $15 million aggregate principal amount of 10.75%
Unsecured Convertible PIK Notes Due April 2011. In addition, in April 2001, CCL
issued warrants to NTL, and CCL and the Company entered into a network and
software agreement with NTL. The estimated value of the warrants of $397,000 was
recorded as a debt discount in April 2001. Pursuant to the network and software
agreement with NTL, the Company will provide U.S. network access for U.K.
Internet traffic from NTL's U.K. customers for three years, as well as a royalty
free license to use certain provisioning software and know-how.


                                      F-28
<PAGE>

                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 15. RELATED PARTY TRANSACTIONS (CONTINUED)

Interest on the 10.75% Unsecured Convertible PIK Notes Due April 2011 is at an
annual rate of 10.75% payable semiannually on October 15 and April 15 of each
year, which commenced on October 15, 2001. The interest is payable in kind by
the issuance of additional unsecured convertible notes in principal amount equal
to the interest payment that is then due. Additional unsecured convertible PIK
notes, dated October 15, 2001, April 15, 2002, and October 15, 2002 were issued
in the principal amount of approximately $0.8 million, $0.9 million, and $0.9
million respectively, as interest payments. The additional notes issued for
interest will have an initial conversion price equal to the greater of $38.90 or
120% of the weighted average closing price of the Company's common stock for a
specified period. The April 2001 note, the October 2001 note, the April 2002 and
the October 2002 note were each convertible into CCL common stock prior to
maturity at a conversion price of $38.90 per share, subject to adjustment.
Pursuant to letter agreements between the Company, NTL and CCL, at the
completion of the exchange offers on July 1, 2002, the convertibility feature of
these notes was altered so that rather than the notes being convertible into
shares of CCL common stock, they are convertible into shares of the Company's
common stock. At that time, the conversion prices of these notes was equitably
adjusted by applying the exchange ratio in the exchange offer for CCL common
stock, which resulted in a new conversion price of $38.90 per share of the
Company's common stock for each of these notes. These notes are redeemable, in
whole or in part, at the Company's option, at any time after April 12, 2003, at
a redemption price of 103.429% that declines annually to 100% in April 2007, in
each case together with accrued and unpaid interest to the redemption date.

Until 2002, NTL provided the Company with management, financial, legal and
technical services, access to office space and equipment and use of supplies.
Amounts charged to the Company by NTL consist of salaries and direct costs
allocated to the Company where identifiable, and a percentage of the portion of
NTL's corporate overhead, which cannot be specifically allocated to NTL.
Effective January 1, 2001, the percentage used to allocate estimated corporate
overhead was reduced. It is not practicable to determine the amounts of these
expenses that would have been incurred had the Company operated as an
unaffiliated entity. The estimated allocations exceeded the actual costs
incurred by approximately $2.8 million, of which $2.2 million was provided for
as a reduction of corporate expenses in the quarter ended December 31, 2002.
Taking this into effect for the year ended December 31, 2002, corporate expenses
were reduced by $2,064,000. For the years ended December 31, 2001 and 2000,
expenses related to NTL were $446,000 and $1,186,000, respectively, which is
included in corporate expenses.

Until 2001 the Company provided NTL with access to office space and equipment
and the use of supplies. In the fourth quarter of 1999, the Company began
charging NTL a percentage of the Company's office rent and supplies expense. It
is not practicable to determine the amounts of these expenses that would have
been incurred had the Company operated as an unaffiliated entity. In the opinion
of management, this allocation method is reasonable. In 2001 and 2000, the
Company charged NTL $121,000 and $267,000, respectively, which reduced corporate
expenses.


                                      F-29
<PAGE>
                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 15. RELATED PARTY TRANSACTIONS (CONTINUED)

A subsidiary of the Company provides billing and software development services
to subsidiaries of NTL. During the third quarter of 2002, the Company began
recording the billings for these services as revenue, which totaled $1,438,000
for the year ended December 31, 2002. The Company historically recorded these
billings as a reduction of general and administrative expenses. Expenses were
reduced by $1,508,000 and $1,883,000 for the year ended December 31, 2002 and
2001, respectively, as a result of billing for these services.

In 2001, the Company and NTL entered into a license agreement whereby NTL was
granted an exclusive, irrevocable, perpetual license to use certain billing
software developed by the Company for telephony rating, digital television
events rating, fraud management and other tasks. The sales price was cash of
$12.8 million. The billing software was being used by NTL at the time of this
agreement, and was being maintained and modified by the Company under an ongoing
software maintenance and development outsourcing arrangement between the
companies. The Company recorded the $12.8 million as deferred revenue to be
recognized over a period of three years, which was the estimated amount of time
the Company expected to provide service under this arrangement. The Company
recognized $4.3 million and $2.5 million of this revenue in 2002 and 2001,
respectively

In March 2000, the Company and NTL announced that they had entered into an
agreement to link their networks in order to create an international Internet
backbone that commenced operations in February 2001. The Company recognized
revenue of $327,000 for the network usage in the year ended December 31, 2001.

The Company leases office space from entities controlled by an individual who
owns 32% of the outstanding shares of the Company's common stock. Rent expense
for these leases for the year ended December 31, 2002 and 2001 was approximately
$1.4 million and $1.6 million, respectively.

During 2002, the Company engaged B/G Enterprises, LLC, a company affiliated with
a Director of the Company, to provide travel related services. These services
totaled $33,000 during 2002.

NOTES 16. 401(k) PLAN

The Company, through one of its subsidiaries, sponsors a 401(k) Plan in which
all full-time employees who have completed 90 days of employment and are 21
years of age may participate. The Company's matching contribution is determined
annually by the Board of Directors. Participants may make salary deferral
contributions of 1% to 25% of their compensation not to exceed the maximum
allowed by law. The expense for the years ended December 31, 2002, 2001 and 2000
was $281,000, $380,000 and $486,000, respectively.


                                      F-30
<PAGE>
                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 17. SHAREHOLDERS' EQUITY

STOCK SPLITS

The Company declared a 6,342.944-to-1 stock split which was effective on
December 17, 2001. The Company's outstanding shares increased from 1,500 to
9,514,416 as a result of this stock split. On April 12, 2002, the Company
declared a 3-for-1 stock split by way of a stock dividend, which was paid on the
declaration date. The Company's outstanding shares increased from 9,514,416 to
28,543,248. The consolidated financial statements and the notes thereto give
retroactive effect to the stock split.

NON-CASH COMPENSATION

In June 2001, CCL's Board of Directors approved the repricing of certain CCL
stock options granted to employees of the Company. All of these options have
since been cancelled. George Blumenthal, the then Chairman of the Board of
Directors of CCL, Barclay Knapp, the then President of CCL, and the members of
the Board of Directors of CCL did not participate in the repricing. Options to
purchase an aggregate of approximately 10.2 million shares of CCL's common stock
with an average exercise price of $10.70 per share were repriced to $.25, $.75
or $1.25 per share of CCL, depending upon the original exercise price. The
Company recognized non-cash compensation expense for the difference between the
quoted market price of the common stock and the exercise price of the repriced
options. The CCL Board of Directors took this action in 2001 to continue to
provide the appropriate performance incentives to those affected.

In April 2000, the compensation and option committee of the CCL Board of
Directors approved the issuance of options to purchase approximately 2,747,000
shares of CCL's common stock to employees of the Company at an exercise price of
$14.55, which was less than the fair market value of CCL's common stock on the
date of the grant. All of these options have since been cancelled. In accordance
with APB Opinion No. 25, in April 2000, the Company recorded non-cash
compensation expense of approximately $29.0 million and a non-cash deferred
expense of approximately $31.3 million. From April 2000 to December 31, 2000,
$9.7 million of the deferred non-cash compensation was charged to expense. In
2001, the remaining $21.6 million of the deferred non-cash compensation was
charged to expense.

In November 2000, the Board of Directors of CCL approved the rescission of
certain previously exercised employee stock options. CCL issued notes to
employees of the Company for the repurchase of the 671,000 shares of CCL's
common stock for an aggregate of $6,803,000, which exceeded the fair market
value of CCL's common stock on the date of repurchase. The notes earned interest
at a rate of 4.5% and were redeemed by CCL in December 2000. The Company
recorded non-cash compensation of $4.7 million from these transactions.


                                      F-31
<PAGE>
                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 17. SHAREHOLDERS' EQUITY (CONTINUED)

STOCKHOLDER RIGHTS PLAN

The Company adopted a stockholder rights plan in December 2001. In connection
with the stockholder rights plan, the Board of Directors declared and paid a
dividend of one preferred share purchase right for each share of common stock
outstanding on December 17, 2001. Each right entitles the holder, under certain
potential takeover events, to purchase from the Company one one-thousandth of a
share of Series A Junior Participating Preferred Stock, referred to as Series A
Preferred Stock, at an initial exercise price of $8.82 as determined on July 10,
2002. The exercise price is subject to future adjustment. The rights expire on
December 17, 2011 unless an exchange or redemption or the completion of a merger
occurs first. There are 1,000,000 shares of Series A Preferred Stock authorized
for issuance under the plan. No shares of Series A Preferred Stock are issued or
outstanding.

If any shares of Series A Preferred Stock are issued they will be entitled to a
minimum preferential quarterly dividend payment of an amount equal to the
greater of $.01 per share or 1,000 times the aggregate per share amount of all
dividends declared on the Company's common stock. If any shares of Series A
Preferred Stock are issued they will be entitled to a minimum preferential
quarterly dividend payment of an amount equal to the greater of $.01 per share
or 1,000 times the aggregate per share amount of all dividends declared on the
Company's common stock since the immediately preceding dividend payment date. In
the event of liquidation, the holders of Series A Preferred Stock will be
entitled to a liquidation payment of $1 per share plus accrued and unpaid
dividends. Each share of Series A Preferred Stock will have 1,000 votes on all
matters and will vote as a single class with the holders of the Company's common
stock.

WARRANTS

In connection with the amendment and restatement of the senior secured credit
facility in April 2001, CCL issued to its lenders warrants to purchase
approximately 10.6 million shares of its common stock at an exercise price of
$.01 per share that expire in April 2011. Warrants to purchase an aggregate of
approximately 1.4 million shares of CCL common stock issued in December 2000 and
January 2001 were canceled upon the issuance of these new warrants.

Warrants issued by CCL in 1999 to purchase an aggregate of 563,000 shares of CCL
common stock at $13.33 per share expired in May 2002.

Upon the completions of the exchange offer on July 1, 2002 all of then
outstanding warrants of CCL were exercisable into common shares of the Company
on an as-converted basis, subject to the exchange ratio in the exchange offer of
1/38.9. The Company has the following warrants outstanding as of December 31,
2002:

<TABLE>
<CAPTION>
  YEAR OF ISSUE           NUMBER OF SHARES           EXERCISE PRICE          EXPIRATION DATE
  -------------           ----------------           --------------          ---------------
<S>                       <C>                        <C>                     <C>
       1999                      1,000                    $534.88             August 2008
       1999                      6,000                    $864.36                May 2004
       2001                    272,000                      $0.39              April 2011
</TABLE>


                                      F-32
<PAGE>
                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 17. SHAREHOLDERS' EQUITY (CONTINUED)

CCL STOCK OPTIONS

As of the completion of the exchange offer, on July 1, 2002, CCL had
approximately 22.2 million options and distribution warrants outstanding.
Distribution warrants were warrants issued by CCL in connection with the
distribution of CCL to CCPR shareholders. As of December 2001, all of the
outstanding options and distributions warrants were fully vested and exercisable
into CCL common shares. Effective November 15, 2002, the CCL Board of Directors
cancelled all of the outstanding options and distribution warrants to acquire
shares of CCL common stock.

ATX STOCK OPTIONS

In December 2001, the Company adopted a new stock option plan for its employees.
A total of 8.7 million shares of common stock were reserved for issuance under
the plan, which represents 22.5% of the total fully diluted shares of the
Company. During 2002, the Board of Directors approved grants of options to
purchase an aggregate of approximately 7.8 million shares of the Company's
common stock, representing approximately 20% of the total fully diluted shares.
The exercise price of these options is $1.00 per share. The number of shares
available under the plan and the number of shares into which each option is
exercisable are subject to adjustment in the event of stock splits and other
similar transactions.

The Company's option plan provides that incentive stock options be granted at
the fair market value of the Company's common stock on the date of grant, and
nonqualified stock options be granted at a price determined by the Compensation
and Option Committee of the Company's Board of Directors. Options are generally
exercisable as to 34% of the shares subject thereto on the date of grant and
become exercisable as to an additional 33% of the shares subject thereto on each
January 1 thereafter, while the option holder remains an employee of the Company
or its affiliates. Options will expire ten years after the date of the grant.

Pro forma information regarding net loss and net loss per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for 2002: risk-free interest rate of 4.81%, dividend yield of 0%,
volatility factor of the expected market price of the Company's common stock of
1.743 and a weighted-average expected life of the options of 10 years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its distribution warrants and stock options.


                                      F-33
<PAGE>
                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 17. SHAREHOLDERS' EQUITY (CONTINUED)

A summary of the Company's stock option activity and related information for the
year ended December 31, 2002 is as follows:

<TABLE>
<CAPTION>
                                                                       WEIGHTED-
                                                                       AVERAGE
                                                      NUMBER OF        EXERCISE
                                                       OPTIONS          PRICE
                                                       -------          -----
<S>                                                    <C>            <C>
Granted .........................................      7,816,000      $     1.00
Exercised .......................................         (4,000)           1.00
Forfeited .......................................       (633,000)           1.00
                                                      ----------      ----------
Outstanding, December 31, 2002 ..................      7,179,000      $     1.00
                                                      ==========      ==========
Exercisable, December 31, 2002 ..................      2,441,000      $     1.00
                                                      ==========      ==========
</TABLE>

Weighted-average fair value of options, calculated using the Black-Scholes
option pricing model, granted during 2002 is $1.00. The weighted average
remaining contractual life of the Company's options is 9.0 years

SHARES RESERVED FOR FUTURE ISSUANCE

At December 31, 2002, the Company had reserved the following shares of common
stock for future issuance:

<TABLE>
<S>                                                                    <C>
          Common stock options outstanding                             7,179,000
          Common stock options available to grant                      1,521,000
          Common stock warrants                                          279,000
          6% Convertible Notes                                            40,000
                                                                       ---------
                                                                       9,019,000
                                                                       =========
</TABLE>


                                      F-34
<PAGE>
                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 18. INCOME TAXES

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
                                               YEAR ENDED DECEMBER 31,
                                        --------------------------------------
                                        2002             2001             2000
                                        ----             ----             ----
<S>                                   <C>              <C>              <C>
Current:
  Federal ...................         $     --         $     --         $     --
  State and local ...........          250,000           94,000          125,000
                                      --------         --------         --------
Total current ...............          250,000           94,000          125,000
                                      --------         --------         --------
Deferred:
  Federal ...................               --               --               --
  State and local ...........               --               --               --
                                      --------         --------         --------
Total deferred ..............               --               --               --
                                      --------         --------         --------
                                      $250,000         $ 94,000         $125,000
                                      ========         ========         ========
</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets are as follows:

<TABLE>
<CAPTION>
                                                          DECEMBER 31,
                                                     -----------------------
                                                     2002               2001
                                                     ----               ----
<S>                                             <C>                <C>
Deferred tax assets:
  Depreciation ............................     $  11,682,000      $   8,503,000
  Net operating losses ....................        93,393,000         95,932,000
  Allowance for doubtful accounts and               7,428,000          7,435,000
   other ..................................
  Amortization of goodwill ................         2,731,000         11,140,000
  Accrued expenses ........................         9,446,000         17,336,000
  Asset impairments .......................        51,708,000         16,737,000
  Other ...................................           (82,000)           562,000
                                                -------------      -------------
                                                  176,306,000        157,645,000
Valuation allowance for deferred tax assets      (176,306,000)      (157,645,000)
                                                -------------      -------------
Net deferred tax assets ...................     $          --      $          --
                                                =============      =============
</TABLE>


                                      F-35
<PAGE>
                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 18. INCOME TAXES (CONTINUED)

The deferred tax assets have been fully offset by a valuation allowance due to
the uncertainty of realizing such tax benefit. The deferred tax assets include
$38 million, which, if realized, would be accounted for as a reduction of
goodwill or an increase in equity.

Due to the completion of the debt cancellation in the first phase of the ATX
recapitalization in December 2001, CCL realized for tax purposes approximately
$265 million of income, most of which is not subject to tax as a result of an
exception set forth in the Internal Revenue Code. To the extent that such amount
is excluded from taxable income, taxable attributes of the Company and
subsidiaries, consisting of net operating loss, referred to as NOL,
carryforwards are subject to reduction. After reduction, NOL carryforwards at
December 31, 2002 are $226 million, which include 2002 net operating losses of
$167 million. These NOL carryforwards expire in various years through 2022.
Furthermore, the ATX recapitalization caused an ownership change pursuant to
section 382 of the Internal Revenue Code, which imposes an annual limitation on
the utilization of NOL carryforwards. Utilization of the Company's remaining NOL
carryforwards through December 28, 2001 will be significantly restricted by the
section 382 limitation triggered by the ownership change.

The reconciliation of income taxes computed at U.S. federal statutory rates to
income tax expense is as follows:

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                                 ------------------------------------------
                                                 2002               2001               2000
                                                 ----               ----               ----
<S>                                          <C>               <C>                <C>
Benefit at federal statutory rate (35%)      $(53,896,000)     $(207,837,000)     $(105,391,000)
State and local income taxes ...........          250,000             94,000            125,000
Expenses not deductible for tax purposes       29,285,000        135,313,000         33,619,000
Valuation allowance ....................       24,611,000         72,524,000         71,772,000
                                             ------------      -------------      -------------
                                             $    250,000      $      94,000      $     125,000
                                             ============      =============      =============
</TABLE>


                                      F-36
<PAGE>
                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 19. COMMITMENTS AND CONTINGENT LIABILITIES

As of December 31, 2002, the Company had purchase commitments of approximately
$4,975,000 outstanding, of which all are due during 2003. Additionally, the
Company has standby letters of credit of approximately $3,590,000 outstanding as
of December 31, 2002, which are fully collateralized by certificates of deposit.

The Company is involved in various disputes, arising in the ordinary course of
its business, which may result in pending or threatened litigation. None of
these matters are expected to have a material adverse effect on the Company's
financial position, results of operations or cash flows. Some of these disputes,
regardless of their merit, could subject the Company to costly litigation and
the diversion of technical and/or management personnel. In light of the
Company's ongoing litigation with the local exchange carriers, on which the
Company depends for certain services, from time to time, those carriers have and
will likely continue to threaten service disruptions or termination. Any service
disruptions or terminations, if actually implemented, could have a material
adverse effect on the Company's business.

Currently, the Company has the following outstanding matters, which if resolved
unfavorably, could have a material adverse effect:

-     On August 12, 2002, Verizon Communications, Inc. and several of its
      subsidiaries filed a complaint in the United States District Court for the
      District of Delaware against the Company and several of its indirect
      wholly-owned subsidiaries, referred to as the defendants, seeking payment
      of approximately $37 million allegedly owed to Verizon under various
      contracts and state and federal law. Verizon also asked the Court to issue
      a declaratory ruling that it has not violated the antitrust laws.

      The defendants believe that they have meritorious defenses to the
      complaint, and further, that the amounts owed are substantially less than
      the amounts claimed by Verizon. For example, defendants believe the figure
      specified in the complaint includes payments that have been made by the
      defendants to Verizon (including in excess of $14 million paid soon after
      the filing of the complaint), credits that Verizon has issued to the
      Company since the filing of the complaint, and additional disputes for
      which Verizon owes credits to the defendants. The defendants have filed an
      answer to Verizon's complaint denying Verizon's claims, in part, and have
      asserted various counterclaims against Verizon, including claims seeking
      damages for breach of contract and treble damages for violating the
      antitrust laws. Defendants have also moved to dismiss Verizon's request
      for declaratory ruling on the antitrust claims, which Verizon has opposed.

      On November 18, 2002, Verizon filed a motion to dismiss defendants'
      antitrust counterclaims, relying heavily on a decision by the United
      States Court of Appeals for the 7th Circuit in Goldwasser v. Ameritech
      Corp., 222 F.3d 390 (7th Cir. 2000) dismissing antitrust claims brought on
      behalf of a class of consumers who had purchased services from Ameritech
      in Illinois. On January 9, 2003, defendants filed their opposition to
      Verizon's motion, noting not only that the Goldwasser case is
      distinguishable from defendants' antitrust claims here, but also that the
      appellate court's rational in Goldwasser had been effectively repudiated
      by the appellate courts of the 2nd and 11th circuits, as well as by a
      federal trial court in the antitrust claim raised by the Company against
      SBC/Ameritech in the United States District Court for the Northern
      District of Ohio.


                                      F-37
<PAGE>
                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 19. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

      Oral argument on the parties' respective motions was originally scheduled
      for March 31, 2003. However, on March 20, 2003, the court issued an order
      postponing oral argument and denying the motions without prejudice to
      renew, pending a decision by the United States Supreme Court in Verizon
      Communications, Inc. vs. Law Office of Curtis Trinko, LLP, Supreme Court
      Docket No. 02-682 (cert. granted March 10, 2002). Defendants intend to
      pursue all available remedies and counterclaims and to defend themselves
      vigorously; however, the defendants cannot be certain how or when these
      matters will be resolved or the outcome of the litigation.

-     On March 7, 2002, CoreComm Massachusetts, Inc., an indirect wholly-owned
      subsidiary of the Company, initiated litigation against Verizon New
      England d/b/a Verizon Massachusetts in the Suffolk Superior Court,
      Massachusetts, alleging breach of contract and seeking a temporary
      restraining order against Verizon Massachusetts. Verizon has filed its
      answer to CoreComm Massachusetts' complaint and filed counterclaims
      seeking payment of approximately $1.2 million allegedly owed by CoreComm
      Massachusetts under the parties' interconnection agreement and Verizon's
      tariffs. During the course of discovery, Verizon conceded that it had
      over-billed CoreComm Massachusetts by approximately $800,000. As a result,
      CoreComm Massachusetts amended its complaint to include claims against
      Verizon for unfair and deceptive acts or practices in violation of
      Massachusetts' fair trade practice laws. Verizon subsequently amended its
      complaint to specify a revised claim of $1.1 million. CoreComm
      Massachusetts ceased providing telephone services in Massachusetts on or
      about December 2002. The Company's withdrawal from providing telephone
      services in Massachusetts has not had material adverse affect on the
      Company's consolidated business.

-     On April 4, 2003, the Company received a notice from Verizon claiming that
      Verizon is owed approximately $8.4 million by one of the Company's
      subsidiaries, CoreComm New York, Inc., for services allegedly purchased in
      the state of New York. Although it has not yet fully reviewed Verizon's
      claims, CoreComm New York, Inc. has the right to dispute charges that are
      not owed and intends to fully dispute any charges that are incorrect or
      without merit. CoreComm New York, Inc. intends to pursue all remedies
      available to it and defend itself vigorously, however, it is not presently
      possible to predict how these matters will be resolved. The operations of
      CoreComm New York, Inc. do not represent a material component of the
      Company's revenue, profits or operations.

-     The Company and CoreComm Newco, Inc., an indirect, wholly-owned subsidiary
      of the Company, are currently in litigation with SBC Corp., Ameritech Ohio
      and other SBC subsidiaries over various billing and performance issues,
      including SBC/Ameritech's alleged violation of the antitrust laws and the
      adequacy of SBC/Ameritech's performance under a 1998 contract between
      CoreComm Newco and Ameritech Ohio. This litigation began in June 2001 when
      Ameritech threatened to stop processing new orders following CoreComm
      Newco's exercise of its right under the contract to withhold payments for
      Ameritech's performance failures. On October 9, 2001, Ameritech filed an
      amended complaint in the United States District Court, Northern District
      of Ohio seeking a total of approximately $14,400,000 in alleged
      outstanding charges.


                                      F-38
<PAGE>
                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 19. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

      On December 26, 2001, CoreComm Newco filed its answer to Ameritech's
      amended complaint and simultaneously filed three counterclaims against SBC
      Corp., Ameritech Ohio and certain of their respective subsidiaries and
      affiliates, alleging breach of contract, antitrust violations, and
      fraudulent or negligent misrepresentation claims. On July 25, 2002, the
      district court issued a decision denying a motion to dismiss from
      Ameritech and upholding CoreComm Newco's right to proceed with its
      antitrust, breach of contract and misrepresentation claims against all
      counter-defendants. On January 21, 2003 CoreComm Newco amended its
      complaint to include the Company and other affiliates as additional
      claimants and to add additional allegations supporting its claims, and on
      February 17, 2003, SBC/Ameritech filed its answer to the amended
      complaint.

      The Company believes that CoreComm Newco has meritorious defenses to
      Ameritech's amended complaint that could reduce the amount currently in
      dispute. For example, the figure specified in Ameritech's complaint may
      not account for various amounts that have been properly disputed by
      CoreComm Newco as a result of billing errors and other improper charges,
      various refunds that Ameritech contends it has already credited to
      CoreComm Newco's accounts since the filing of the complaint, and payments
      that were made by CoreComm Newco in the ordinary course after the time of
      Ameritech's submission. However, the Company cannot be certain how or when
      the matter will be resolved. The Company also believes that, to the extent
      Ameritech prevails with respect to any of its claims, Ameritech's award
      may be offset in whole or in part by amounts that the Company and CoreComm
      Newco are seeking to obtain from SBC/Ameritech under their counterclaims.
      The Company and CoreComm Newco intend to pursue all available remedies and
      to defend themselves vigorously. However, it is impossible at this time to
      predict the outcome of the litigation.

-     On December 3, 2001, General Electric Capital Corp., referred to as GECC,
      filed a civil lawsuit in the Circuit Court of Cook County, Illinois
      against CCL and MegsINet, Inc., an indirect subsidiary of the Company,
      seeking approximately $8 million in allegedly past due amounts and the
      return of equipment under a capital equipment lease agreement between
      Ascend and MegsINet.


                                      F-39
<PAGE>
                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 19. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

      Thereafter, GECC filed a second complaint in the Circuit Court of Cook
      County, Illinois against MegsINet, CCL and the Company seeking a court
      order allowing it to take repossession of its alleged equipment. On
      September 24, 2002, the Court issued an order granting GECC's request for
      repossession of the equipment. MegsINet has allowed GECC to take
      possession of the equipment, which has not had any material impact on the
      Company's business or operations. Defendants intend to defend themselves
      vigorously and to pursue all available claims and defenses. However, it is
      impossible at this time to predict the outcome of the litigation. MegsINet
      does not represent a material component of the Company's revenue, profits
      or operations, and MegsINet is an obligor under the Company's $156 million
      senior secured credit facility.

-     On May 25, 2001, KMC Telecom, Inc. and some of its operating subsidiaries
      filed an action in the Supreme Court of New York for New York County
      against CCL, Cellular Communications of Puerto Rico, Inc., CoreComm New
      York, Inc. and MegsINet. KMC contends that it is owed approximately $2
      million, primarily in respect of alleged early termination liabilities,
      under a services agreement and a co-location agreement with MegsINet. The
      defendants have denied KMC's claims and have asserted that the contracts
      at issue were signed without proper authorization, that KMC failed to
      perform under the alleged contracts, and that the termination penalties
      are not enforceable. On March 27, 2002, certain of the defendants
      initiated litigation against several former principals of MegsINet seeking
      indemnification and contribution against KMC's claims for breach of
      various representations and warranties made under the merger agreement
      pursuant to which MegsINet became a subsidiary of the Company. Defendants
      have also initiated coverage under an insurance policy designed to protect
      against such claims; the insurance carrier has initially declined coverage
      and it may be necessary to pursue litigation to obtain coverage in the
      event of a loss under the policy.

-     On September 24, 2002, GATX Technologies, Inc., known as GATX, filed an
      action in the Thirteenth Judicial Circuit in Florida against
      CoreComm-Voyager, Inc., an indirect wholly-owned subsidiary of the
      Company, seeking recovery of amounts allegedly owed under an equipment
      lease totaling approximately $150,000. On October 21, 2002,
      CoreComm-Voyager moved to dismiss GATX's action for lack of jurisdiction.
      The motion is now pending with the Court. On October 28, 2002, 3Com
      Corporation, known as 3Com, filed an action against the Company in the
      Court of Common Pleas, Montgomery County, Pennsylvania seeking payment of
      approximately $900,000 under an equipment lease. Should either action
      proceed further, the defendants will defend themselves vigorously and
      pursue all available claims. However, it is not possible at this time to
      predict how or when either of these matters will be resolved.


                                      F-40
<PAGE>
                            ATX COMMUNICATIONS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 19. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

-     On March 1, 2002, Easton Telecom Services, LLC initiated litigation in the
      Northern District of Ohio against CoreComm Internet Group, Inc. seeking
      payment of approximately $4.9 million, primarily in respect of alleged
      early termination penalties for telecommunications services purportedly
      provided under alleged contracts. On August 23, 2002, the Court issued an
      order dismissing approximately $4 million of Easton's claims as invalid.
      Upon the conclusion of a jury trial that ended on November 8, 2002, Easton
      obtained a judgment against CoreComm Internet Group, Inc., Voyager
      Information Networks, Inc. and MegsINet in the total amount of $1,085,000.
      On February 4, 2003, the defendants filed an appeal in this matter with
      the United States Court of Appeals for the Sixth Circuit, and the
      plaintiff has filed a cross-appeal. Plaintiff is currently pursuing
      discovery in aid of execution on its judgment against defendants. All of
      the assets of the Company and its subsidiaries, including those of the
      defendants, are subject to a first priority security interest in favor of
      the senior lenders under the $156,100,000 senior credit facility.

-     On June 7, 2002, the Board of Revenue and Finance of the Commonwealth of
      Pennsylvania issued an order granting in part and denying in part a
      petition for review of a decision by a lower administrative authority
      relating to the Company's alleged liability for sales and use tax for the
      period September 1, 1997 through July 31, 2000. Pursuant to the June 7
      order, the Company has been assessed sales and use tax for the period at
      issue in the amount of $631,429, which has been accrued for in the
      Company's consolidated financial statements. On July 8, 2002, the Company
      filed a petition for review of the board's order in the Commonwealth Court
      of Pennsylvania seeking a further reduction of the assessment. The Company
      believes that it has meritorious defenses and that the assessment should
      be reduced; however it is not possible to predict how this matter will be
      resolved.

-     On January 3, 2003, the Company and its indirect subsidiary MegsINet, Inc.
      filed a complaint against Broadwing in the U.S. District Court for the
      Eastern District of Pennsylvania seeking the return of approximately
      $700,000 in taxes billed by Broadwing in alleged violation of two Master
      Service Agreements. On February 24, 2003, Broadwing filed a motion to stay
      the action pending their request to arbitrate the matter before the
      American Arbitration Association. The matter is still pending before the
      court, and plaintiffs intend to pursue their claims vigorously.

-     On February 28, 2003, Focal Communications Corp. and certain of its
      subsidiaries initiated adversarial proceedings in Focal's Chapter 11 case
      under the U.S. Bankruptcy laws against the Company and certain of its
      subsidiaries seeking payment of approximately $802,687 in charges for
      interstate and intrastate switch access services allegedly provided by
      Focal's subsidiaries in Illinois, Pennsylvania, Delaware and New York. The
      defendants are currently reviewing Focal's claims and intend to defend
      themselves vigorously and pursue all available counterclaims, including
      claims for any amounts owed by Focal to any of the defendants. However, it
      is not possible at this time to predict how or when this matter will be
      resolved.


                                      F-41
<PAGE>



   SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF ATX COMMUNICATIONS, INC.

                            CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                            -------------------------
                                                            2002                 2001
                                                            ----                 ----
<S>                                                   <C>                  <C>
ASSETS
Current assets:
Prepaid expense .................................     $       929,000      $       476,000
                                                      ---------------      ---------------
Total current assets ............................             929,000              476,000

Investment in and loans to subsidiaries .........                  --           21,151,000
Investment in CCL Historical, Inc. ..............                  --            3,863,000
Other ...........................................           1,115,000            1,100,000
                                                      ---------------      ---------------
                                                      $     2,044,000      $    26,590,000
                                                      ===============      ===============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Notes payable to related parties ................          17,632,000           15,807,000
Commitments and contingent liabilities
Shareholders' equity (deficiency):
 Common stock ...................................             300,000              300,000
 Additional paid-in capital .....................       1,030,613,000        1,022,634,000
 (Deficit) ......................................      (1,046,501,000)      (1,012,151,000)
                                                      ---------------      ---------------
                                                          (15,588,000)          10,783,000
                                                      ---------------      ---------------
                                                      $     2,044,000      $    26,590,000
                                                      ===============      ===============
</TABLE>


                             See accompanying notes.


                                      F-42
<PAGE>



    SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF ATX COMMUNICATIONS, INC.

                       CONDENSED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                  ------------------------------------------
                                                  2002               2001               2000
                                                  ----               ----               ----
<S>                                          <C>                <C>                <C>
COSTS AND EXPENSES
Corporate ..............................     $     758,000      $          --      $          --
                                             -------------      -------------      -------------
Operating loss .........................          (758,000)                --                 --
OTHER INCOME (EXPENSE)
Interest income and other, net .........            18,000          4,025,000          2,787,000
Interest expense .......................        (1,827,000)        (3,767,000)           (70,000)
                                             -------------      -------------      -------------
Income before equity in net loss of
     subsidiaries and extraordinary item        (2,567,000)           258,000          2,717,000
                                             -------------      -------------      -------------
Equity in net loss of subsidiaries .....       (31,783,000)      (619,850,000)      (303,958,000)
                                             -------------      -------------      -------------
Loss before extraordinary item .........       (34,350,000)      (619,592,000)      (301,241,000)
Gain from extinguishment of debt .......                --         25,677,000                 --
                                             -------------      -------------      -------------
Net loss ...............................     $ (34,350,000)     $(593,915,000)     $(301,241,000)
                                             =============      =============      =============
</TABLE>


                             See accompanying notes.


                                      F-43
<PAGE>

    SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF ATX COMMUNICATIONS, INC.

                       CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                                ------------------------------------------
                                                                2002               2001               2000
                                                                ----               ----               ----
<S>                                                        <C>                <C>                <C>
Net cash provided by (used in) operating activities ..     $ (32,993,000)     $   4,712,000      $     539,000

INVESTING ACTIVITIES
Acquisitions, net of cash acquired ...................                --                 --        (98,613,000)
Purchase of marketable of securities .................                --                 --         (1,343,000)
Proceeds from the sale of marketable securities ......                --          1,343,000                 --
Decrease in investments in and loans to subsidiaries .        32,993,000        (14,089,000)      (144,909,000)
                                                           -------------      -------------      -------------
Net cash provided by (used in) investing activities ..        32,993,000        (12,746,000)      (244,865,000)

FINANCING ACTIVITIES
Capital contributions (distributions) ................                --        (23,164,000)       232,472,000
Proceeds from borrowings, net of financing costs .....                --         25,000,000         16,170,000
                                                           -------------      -------------      -------------
Net cash provided financing activities ...............                --          1,836,000        248,642,000
                                                           -------------      -------------      -------------
Net cash increase (decrease) in cash equivalents .....                --         (6,198,000)         4,316,000
Cash and cash equivalents at beginning of period .....                --          6,198,000          1,882,000
                                                           -------------      -------------      -------------
Cash and cash equivalents at end of period ...........     $          --      $          --      $   6,198,000
                                                           =============      =============      =============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES
Capital contributions of non-cash net assets .........     $          --      $          --      $ 559,721,000
Shares issued to acquire CCL Historical, Inc. ........     $   7,979,000      $          --      $          --
</TABLE>


                             See accompanying notes.


                                      F-44
<PAGE>


   SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF ATX COMMUNICATIONS, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS


NOTE 1. ORGANIZATION

ATX Communications, Inc., referred to as the Company, was formed in May 1998 as
a Bermuda corporation. It was a wholly-owned subsidiary of CCL Historical Inc.,
referred to as CCL, until December 2001. In July 1999, the Company was
domesticated under the laws of Delaware.

NOTE 2. BASIS OF PRESENTATION

In the Company's condensed financial statements, the Company's investment in
subsidiaries is stated at cost plus equity in the undistributed earnings of the
subsidiaries. The Company's share of net loss of its subsidiaries is included in
net loss using the equity method of accounting. The condensed financial
statements should be read in conjunction with the Company's consolidated
financial statements.

NOTE 3. ATX RECAPITALIZATION

In the second phase of the ATX recapitalization, the Company offered to all
holders of CCL common stock and all remaining holders of 6% Convertible
Subordinated Notes due 2006 of CCL to exchange shares of the Company's common
stock for their CCL common stock and their notes, respectively. The Company
completed the exchange offer on July 1, 2002, and issued 3,610,624 shares of
common stock to former holders of CCL common stock and holders of 6% Convertible
Subordinated Notes due 2006 of CCL. The common stock issued under the exchange
offer was valued at $7,979,000, which was based on the estimated fair value of
the Company's common stock. Following the exchange offer, the Company
transferred the shares of CCL common stock that it received in the exchange
offer to a wholly owned subsidiary. The Company then merged this subsidiary into
CCL, with CCL surviving the merger as a wholly owned subsidiary of the Company.


                                      F-45
<PAGE>


   SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF ATX COMMUNICATIONS, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS


NOTE 4. NOTES PAYABLE

Notes payable to related parties consists of:

<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                                   --------------------
                                                                   2002            2001
                                                                   ----            ----
<S>                                                             <C>             <C>
10.75% Unsecured Convertible PIK Notes Due April 2011, plus
  accrued interest, less unamortized discount of $327,000
  (2002) and $367,000 (2001) ..............................     $17,632,000     $15,807,000
                                                                ===========     ===========
</TABLE>

Some of the officers and directors of the Company are also officers or directors
of NTL Incorporated, referred to as NTL. In April 2001, CCL and the Company as
co-obligors issued to NTL $15 million aggregate principal amount of 10.75%
Unsecured Convertible PIK Notes Due April 2011. In addition, in April 2001, CCL
issued warrants to NTL, and CCL and the Company entered into a network and
software agreement with NTL. The estimated value of the warrants of $397,000 was
recorded as a debt discount in April 2001.

Interest on the 10.75% Unsecured Convertible PIK Notes Due April 2011 is at an
annual rate of 10.75% payable semiannually on October 15 and April 15 of each
year, which commenced on October 15, 2001. The interest is payable in kind by
the issuance of additional unsecured convertible notes in principal amount equal
to the interest payment that is then due. Additional unsecured convertible PIK
notes, dated October 15, 2001, April 15, 2002, and October 15, 2002 were issued
in the principal amount of approximately $0.8 million, $0.9 million, and $0.9
million respectively, as interest payments. The additional notes issued for
interest will have an initial conversion price equal to the greater of $38.90 or
120% of the weighted average closing price of the Company's common stock for a
specified period. The April 2001 note, the October 2001 note, the April 2002 and
the October 2002 note were each convertible into CCL common stock prior to
maturity at a conversion price of $38.90 per share, subject to adjustment.
Pursuant to letter agreements between the Company, NTL and CCL, at the
completion of the exchange offers on July 1, 2002, the convertibility feature of
these notes was altered so that rather than the notes being convertible into
shares of CCL common stock, they are convertible into shares of the Company's
common stock. At that time, the conversion prices of these notes was equitably
adjusted by applying the exchange ratio in the exchange offer for CCL common
stock, which resulted in a new conversion price of $38.90 per share of the
Company's common stock for each of these notes. These notes are redeemable, in
whole or in part, at the Company's option, at any time after April 12, 2003, at
a redemption price of 103.429% that declines annually to 100% in April 2007, in
each case together with accrued and unpaid interest to the redemption date.


                                      F-46
<PAGE>


   SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF ATX COMMUNICATIONS, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS


NOTE 5. GUARANTEES OF THE REGISTRANT

In September 2000, subsidiaries of the Company entered into a senior secured
credit facility. The facility was amended and restated in April 2001. As of
April 2001, the entire amount available under the senior secured credit facility
of $156.1 million has been borrowed. The Company has unconditionally guaranteed
payment under the facility.

NOTE 6. OTHER

No cash dividends were paid to the registrant by subsidiaries from January 1,
1999 through December 31, 2002.

On April 12, 2002, ATX Communications declared a 3-for-1 stock split by way of a
stock dividend. The condensed financial statements and the notes thereto give
retroactive effect to the stock split.


                                      F-47
<PAGE>

                            ATX COMMUNICATIONS, INC.

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
           COL. A                     COL. B                   COL. C                  COL. D             COL. E
           ------                     ------                   ------                  ------             ------
                                                             ADDITIONS
                                                     -------------------------
                                                        (1)            (2)
                                                                    CHARGED TO
                                     BALANCE AT      CHARGED TO        OTHER                              BALANCE
                                    BEGINNING OF     COSTS AND       ACCOUNTS-      DEDUCTIONS-          AT END OF
         DESCRIPTION                  PERIOD         EXPENSES        DESCRIBE        DESCRIBE              PERIOD
         -----------                  ------         --------        --------        --------              ------
<S>                                 <C>             <C>             <C>             <C>                 <C>
Year ended December 31, 2002:
Allowance for doubtful accounts     $ 9,759,000     $ 6,696,000     $        --     $(7,700,000)(a)     $ 8,755,000
Year ended December 31, 2001:
Allowance for doubtful accounts      11,034,000       7,143,000              --      (8,418,000)(a)       9,759,000
Year ended December 31, 2000:
Allowance for doubtful accounts       3,949,000       7,130,000              --         (45,000)(b)      11,034,000
</TABLE>

(a)   Uncollectible accounts written-off, net of recoveries.

(b)   Uncollectible accounts written-off, net of recoveries, of $9,269,000
      offset by $9,224,000 allowance for doubtful accounts as of acquisition
      date from business combinations.

(c)   Uncollectible accounts written-off, net of recoveries, of $24,688,000
      offset by $24,654,000 allowance for doubtful accounts as of acquisition
      date from business combinations.


                                      F-48