<PAGE>



                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   ----------

                                   FORM 10-Q

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


               For the quarterly period ended March 31, 2001


                         Commission file number 0-29281


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

                                   ----------


            Delaware                                   58-2330270
  (State or other jurisdiction                      (I.R.S. Employer
of incorporation or organization)                  Identification No.)


                       Fifteen Piedmont Center, Suite 100
                               Atlanta, GA 30305
          (Address of principal executive offices, including zip code)


                                 (404) 869-2500
              (Registrant's telephone number, including area code)



                  (Former name, if changed since last report)

                                   ----------


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 [ ]


                      APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:

The number of shares of common stock outstanding at May 1, 2001 was 49,201,000.


                                                                          PAGE 1
<PAGE>




                  Cypress Communications, Inc. and Subsidiaries

                          QUARTERLY REPORT ON FORM 10-Q
                   For the Three Months Ended March 31, 2001

                                TABLE OF CONTENTS


                                                                            Page
                                                                            ----

                         PART I - FINANCIAL INFORMATION

Item 1.   Financial Statements.                                               3

          Balance Sheets as of December 31, 2000 and March 31, 2001
          (Unaudited)                                                         3

          Statements of Operations (Unaudited) for the three months
          ended March 31, 2000 and 2001                                       4

          Statements of Cash Flows (Unaudited) for the three months
          ended March 31, 2000 and 2001                                       5

          Notes to Interim Financial Statements (Unaudited) for
          the three months ended March 31, 2000 and 2001                      6

Item 2.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations.                                          9

Item 3.   Quantitative and Qualitative Disclosures About Market Risk.        12

                          PART II - OTHER INFORMATION

Item 1.       Legal Proceedings.                                             13

Item 2.       Changes in Securities and Use of Proceeds.                     13

Item 3.       Defaults Upon Senior Securities.                               13

Item 4.       Submission of Matters to a Vote of Security Holders.           13

Item 5.       Other Information.                                             13

Item 6.       Exhibits and Reports on Form 8-K.                              13

Signatures                                                                   14

                                                                          PAGE 2


<PAGE>

PART I.  FINANCIAL INFORMATION


Item 1.  Financial Statements.


                  CYPRESS COMMUNICATIONS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                           DECEMBER 31,                MARCH 31,
                                                                               2000                       2001
                                                                         ---------------            -------------
<S>                                                                       <C>                       <C>
                  ASSETS                                                                              (UNAUDITED)

CURRENT ASSETS:
 Cash and cash equivalents                                                  $ 28,108,000                 $ 16,986,000
 Short-term investments                                                       67,809,000                   45,167,000
 Accounts receivable, net                                                      2,499,000                    2,931,000
 Other accounts receivable                                                       397,000                      781,000
 Prepaid expenses and other                                                      606,000                      885,000
                                                                            -------------               -------------
        Total current assets                                                  99,419,000                   66,750,000
                                                                            -------------               -------------
PROPERTY AND EQUIPMENT, net of accumulated depreciation of
  $11,737,000 and $15,455,000 in 2000 and 2001, respectively                 101,368,000                   99,369,000
                                                                            -------------               -------------

OTHER ASSETS:
 Real estate access rights, net                                               121,117,000                  91,102,000
 Other intangible assets, net                                                   6,743,000                   6,516,000
 Other                                                                          2,758,000                   2,712,000
                                                                            -------------               -------------
        Total other assets                                                    130,618,000                 100,330,000
                                                                            -------------               -------------
        Total assets                                                        $ 331,405,000               $ 266,449,000
                                                                            =============               =============

   LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
 Accounts payable                                                           $   4,081,000                 $ 3,644,000
 Accrued expenses                                                              21,403,000                  16,362,000
 Current portion of capital lease obligations                                     195,000                     416,000
                                                                            -------------               -------------
        Total current liabilities                                              25,679,000                  20,422,000

LONG-TERM PORTION OF CAPITAL LEASE OBLIGATIONS                                    235,000                     733,000
                                                                            -------------               -------------
        Total liabilities                                                      25,914,000                  21,155,000
                                                                            -------------               -------------


STOCKHOLDERS' EQUITY:
 Common stock, $.001 par value; 150,000,000 shares authorized in 2000
  and 2001; 48,540,000 and 49,201,000 shares issued and outstanding
  in 2000 and 2001, respectively                                                   49,000                      49,000
Additional paid-in capital                                                    395,399,000                 388,010,000
 Warrants outstanding                                                         185,187,000                 185,187,000
 Deferred compensation                                                        (19,663,000)                (11,518,000)
 Other comprehensive income                                                       345,000                     (50,000)
 Accumulated deficit                                                         (255,826,000)               (316,384,000)
                                                                            -------------               -------------
        Total stockholders' equity                                            305,491,000                 245,294,000
                                                                            -------------               -------------
        Total liabilities and stockholders' equity                           $331,405,000                $266,449,000
                                                                            =============               =============
</TABLE>


              The accompanying notes are an integral part of these
                          consolidated balance sheets.

                                                                          PAGE 3
<PAGE>




                  CYPRESS COMMUNICATIONS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (UNAUDITED)

               FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 2001

<TABLE>
<CAPTION>
                                                                       2000                    2001
                                                                ------------------      ------------------
REVENUES                                                             $ 2,531,000             $ 4,657,000
                                                                ------------------      ------------------
<S>                                                             <C>                     <C>
OPERATING EXPENSES:
 Cost of services                                                      2,354,000               8,168,000
 Sales and marketing, including noncash compensation
  expense of $273,000 and $170,000 in 2000 and 2001,
  respectively                                                         2,425,000               3,703,000
 General and administrative, including noncash
  compensation expense of $1,090,000 and $587,000 in
  2000 and 2001, respectively                                          7,825,000              10,954,000
 Amortization of real estate access rights                             2,382,000               3,433,000
 Depreciation and other amortization                                   1,032,000               4,188,000
 Restructuring and other unusual and infrequent charges                        0              35,910,000
                                                                ------------------      ------------------
        Total operating expenses                                      16,018,000              66,356,000
                                                                ------------------      ------------------
OPERATING LOSS                                                       (13,487,000)            (61,699,000)

INTEREST INCOME, net                                                   2,057,000               1,141,000
                                                                ------------------      ------------------
LOSS BEFORE INCOME TAXES                                             (11,430,000)            (60,558,000)

INCOME TAX BENEFIT                                                             0                       0
                                                                ------------------      ------------------
NET LOSS                                                             (11,430,000)            (60,558,000)

NET LOSS PER COMMON SHARE:
 Basic and diluted                                                       $ (0.41)                $ (1.24)
                                                                ==================      ==================

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
 Basic and diluted                                                    27,746,000              48,904,000
                                                                ==================      ==================
</TABLE>


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

                                                                          PAGE 4
<PAGE>


                  CYPRESS COMMUNICATIONS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (UNAUDITED)

               FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 2001
<TABLE>
<CAPTION>

                                                                                         2000           2001
                                                                                      -----------    ----------
<S>                                                                                   <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss                                                                            $(11,430,000)  $(60,558,000)
 Adjustments to reconcile net loss to net cash used in operating
   activities:
   Depreciation and other amortization                                                  3,414,000      7,621,000
   Amortization of deferred compensation                                                1,363,000        757,000
   Restructuring and other unusual and infrequent charges                                       0     35,049,000
   Other non-cash items                                                                         0        165,000
   Changes in operating assets and liabilities:
     Accounts receivable, net                                                             (64,000)      (432,000)
     Prepaid expenses and other current assets                                           (407,000)       (48,000)
     Other assets                                                                        (128,000)       (15,000)
     Accounts payable and accrued expenses                                              1,266,000     (4,419,000)
                                                                                     ------------    -----------
     Net cash used in operating activities                                             (5,986,000)   (21,880,000)
                                                                                     ------------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment                                                 (19,630,000)    (8,754,000)
  Sale of short-term investments                                                                0     22,105,000
  Other                                                                                  (252,000)             0
                                                                                     ------------    -----------
      Net cash (used in) provided by investing activities                             (19,882,000)    13,351,000
                                                                                     ------------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Return of investment in Cypress Canada                                                         0     (2,333,000)
 Proceeds from exercise of stock options                                                  191,000              0
 Principal payments on capital lease obligations                                          (57,000)       (83,000)
 Proceeds from initial public offering, net of offering costs                         180,604,000              0
                                                                                     ------------    -----------
     Net cash provided by (used in) financing activities                              180,738,000     (2,416,000)
                                                                                     ------------    -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                         0       (177,000)
                                                                                     ------------    -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                      154,870,000    (11,122,000)
CASH AND CASH EQUIVALENTS, beginning of period                                         69,475,000     28,108,000
                                                                                     ------------    -----------
CASH AND CASH EQUIVALENTS, end of period                                             $224,345,000    $16,986,000
                                                                                     ============    ===========
SUPPLEMENTAL DISCLOSURES:
  Assets acquired under capital leases                                               $          0    $   802,000
                                                                                     ============    ===========

</TABLE>
              The accompanying notes are an integral part of these
                            consolidated statements.

                                                                          PAGE 5
<PAGE>


                  CYPRESS COMMUNICATIONS, INC. AND SUBSIDIARIES

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

                             MARCH 31, 2000 AND 2001

1. ORGANIZATION AND NATURE OF BUSINESS

    Cypress Communications, Inc. and its subsidiaries ("Cypress Communications"
or the "Company") provide a full range of broadband communications services to
businesses in multi-tenant office buildings located in select major metropolitan
markets within the United States. These communications services include high
speed Internet access and data services, local and long distance voice services,
feature rich digital telephone systems, digital satellite business television,
voicemail, e-mail, website hosting, security/monitoring services and other
advanced communications services. The Company delivers these services over
state-of-the-art fiber-optic, digital and broadband networks that Cypress
Communications designs, constructs, owns and operates inside large- and
medium-sized office buildings. In addition, in January 2001, the Company began
offering wholesale services to other communications providers using our existing
fiber-optic and copper network infrastructure.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

    The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) necessary to present fairly the information set
forth therein have been included. The accompanying condensed consolidated
financial statements should be read in conjunction with the financial statements
and footnotes included in the Annual Report on Form 10-K of Cypress
Communications for the year ended December 31, 2000. Operating results for the
three-month period ended March 31, 2001 are not necessarily an indication of the
results that may be expected for the year ended December 31, 2001.


3. CAPITAL TRANSACTIONS

STOCK OPTION REPRICING

    On February 16, 2001, the Company's board of directors approved a plan to
reprice certain existing stock options having an exercise price of greater
than $2.52 per share. Pursuant to the plan, options to purchase 1,566,788
shares of common stock, having an original weighted average exercise price of
$10.25 per share, were repriced to an exercise price of $1.28 per share. In
addition, options to purchase 1,619,500 shares of common stock held by
certain executive officers of the Company, having an original weighted
average exercise price of $5.01 per share, were converted into (i) options to
purchase 910,000 shares of common stock at $1.28 per share, and (ii) 496,700
shares of restricted common stock. The Company recorded deferred compensation
of $528,000 for the restricted stock, which is being amortized over the three
year vesting period. The vesting schedules applicable to the employee stock
options affected by this repricing and conversion did not change. The Company
accounted for the repriced stock options under the variable accounting
method. For the three-month period ending March 31, 2001, Cypress
Communications was not required to record any incremental compensation
expense related to the repriced options, as the fair value of the Company's
common stock was below $1.28 per share as of March 31, 2001.

                                                                         PAGE 6

<PAGE>

4. EXECUTIVE COMPENSATION

    On February 16, 2001, Cypress Communications granted 165,000 shares of
restricted common stock under an executive compensation agreement with its Chief
Executive Officer and, in connection therewith, recorded deferred compensation
expense of $175,000, which is being amortized over a 51-month vesting period.
According to the terms of the agreement, one-half of the shares would vest if
and when the Company's management established and the Company's board of
directors approved a fully funded business plan. The vesting of the remaining
half of the shares will be accelerated if the Company's closing sales price of
common stock exceeds six dollars per share adjusted for stock split, stock
dividend, or recapitalization. On March 21, 2001, one-half of the shares vested
as a result of the Company's board of director's approval of the Company's
fully-funded business plan.

For the three-months ended March 31, 2001, the Company recorded amortization
expense of $90,000 for these restricted shares.

5. CYPRESS CANADA

    In September 2000, Cypress Communications and e-ffinity properties, inc.
("e-ffinity") formed Cypress Canada Communications Inc. to provide in-building
communications services in Canada. Cypress Communications and e-ffinity owned
51% and 49%, respectively, of Cypress Canada. Cypress Canada was originally
capitalized with a total of $5 million in cash contributed by Cypress
Communications and e-ffinity based on each party's respective ownership
percentage.

    In January 2001, Cypress Communications and e-ffinity agreed to cease the
operations of Cypress Canada and for Cypress Communications to return
e-ffinity's original investment in the joint venture. In March 2001, Cypress
Communications returned $2.3 million to e-ffinity representing e-ffinity's
initial investment in Cypress Canada plus interest earned.

6. RESTRUCTURING AND OTHER UNUSUAL AND INFREQUENT CHARGES

    In December 2000, the Company's board of directors committed the Company to
a revised business plan that included several initiatives that were designed to
extend the Company's need for additional funding into the second quarter of
2002. The revised plan included the Company's exit from several markets, as well
as cost reductions through employee reduction and other measures. This plan
would focus the Company's retail operations in the following markets: Atlanta,
Boston, Chicago, Dallas, Denver, Houston, New Orleans, Phoenix, San Francisco,
Seattle, Southern California (Los Angeles and Orange County), South Florida and
Washington DC. The Company had originally targeted 28 metropolitan retail
markets. The Company also decided to implement wholesale operations in all 28
markets where it had constructed in-building networks whereby the Company would
sell access to its in-building networks to other communications providers. In
December 2000, the Company recorded a special charge of $64.7 million related to
this restructuring.

   In the December 2000 restructuring charge, the Company recorded a
$2,056,000 accrual for office space lease commitments in markets in which the
Company suspended retail services, net of estimated sublease revenues. This
accrual was based upon company estimates which were considered most likely at
the time. In March 2001, the Company revised this estimate based on changes
in expected sublease revenues and lease termination charges. This resulted in
a change in estimate of the December 2000 charge related to office space
commitments. The restructuring accrual for such commitments was reduced to
$526,000, requiring the reversal of $1,530,000 of the accrual in March 2001.

    On March 21, 2001, the Company's board of directors approved a revised
business plan under which Cypress Communications will concentrate its retail
efforts on seven major metropolitan markets. In Atlanta, Boston, Chicago,
Dallas, Houston, and Southern California (Los Angeles and Orange County), the
Company intends to continue to offer its comprehensive voice and data services.
In Seattle, the Company intends to offer its data services only.

                                                                          PAGE 7
<PAGE>

    In connection with the revised business plan, the Company announced a
reduction of its workforce by 187 employees across all functional areas during
the three-months ending March 31, 2001. The Company recorded certain
restructuring and other unusual and infrequent charges in March 2001. A detail
of these charges is as follows:
<TABLE>
<CAPTION>
                                                                                  AMOUNT
                                                                                  ------
<S>                                                                               <C>
         Impaired real estate access rights.....................................$26,583,000
         Impaired property and equipment........................................  4,858,000
         Circuit termination charges............................................  1,968,000
         Office space leases....................................................  2,556,000
         Employee severance.....................................................  1,475,000
                                                                                ------------

         Total..................................................................$37,440,000
                                                                                -----------
</TABLE>


    The Company recorded an impairment charge in accordance with SFAS No. 121 to
write off the net book value of real estate access rights in the markets in
which the Company has suspended retail services.

    The Company also recorded an impairment charge in accordance with SFAS No.
121 related to i) property and equipment that the Company has not placed in
service, no longer plans to use, and expects to sell at a discount from its net
book value, and ii) property and equipment deployed in markets in which the
Company does not plan to provide retail services and that the Company believes
has no salvage value. Property and equipment expected to be sold was written
down to its estimated fair value based upon third party quotes to purchase such
property and equipment.

    Restructuring charges include the Company's estimate of costs it may
incur to terminate contracts it has with communications service providers to
purchase circuits and connectivity, as well as charges for office space lease
commitments in markets where the Company has exited retail operations, net of
an estimate for sublease rentals. The restructuring charge also includes
employee severance for employees terminated in the three-months ending March
31, 2001. Restructuring costs were accrued in accordance with EITF 94-3.

7.  COMMITMENTS

    Certain communication license agreements include the requirement to pay the
property owner or operator a base fee. As of March 31, 2001, the aggregate
minimum obligation under these agreements was approximately $2.2 million per
year for approximately the next seven years.

    In 2001, the Company entered into additional capital lease agreements to
finance the purchase of computer hardware related to the implementation of its
operational support system. As of March 31, 2001, future minimum lease
obligations under these new agreements were $239,000, $319,000 and $319,000 for
2001, 2002 and 2003 respectively.

    The Company currently has contracts with several communications providers
with minimum purchase obligations for leased transport under terms typically
ranging from two to five years. As of March 31, 2001, approximate future minimum
purchase commitments were as follows:
<TABLE>
<CAPTION>
<S>                                                                             <C>
         2001...................................................................$  5,725,000
         2002...................................................................   3,474,000
         2003...................................................................     984,000
         2004...................................................................     461,000
         2005...................................................................     177,000
                                                                                ------------
                                                                                $ 10,821,000
                                                                                ============
</TABLE>
                                                                          PAGE 8
<PAGE>
         SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

     This report contains forward-looking statements within the meaning of
the Federal securities laws. Forward-looking statements include all
statements, estimates, projections, expectations or predictions about future
events and often include words such as "estimate," "projects," "will,"
"targets," "expects," "believe," "is designed to" and other words or
expressions indicating statements about the future. Without limiting the
foregoing, forward-looking statements in this report include statements
relating to the company's plans, objectives, expectations and prospects under
"Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations." Reliance should not be placed on forward-looking
statements because they involve known and unknown risks and uncertainties
which may cause the actual results, performance or achievements of the
company to differ materially from anticipated future results, performance or
achievements expressed or implied by such forward-looking statements. These
risks and uncertainties, include, among other things whether the company will
achieve targeted cost reductions and greater operational efficiencies as a
result of its revised business plan, the effects of focusing on a limited
number of markets, whether the company will be successful in implementing its
wholesale strategy, the company's ability to manage its restructuring, the
amount and timing of restructuring charges, the ability to successfully sell
voice and data services, whether the company will be successful in improving
its operations, provisioning and other core processes, the effect of new
regulations governing communications access and services, and other risks and
uncertainties detailed from time to time in the company's Securities and
Exchange filings. The company disclaims any obligation to update any of the
forward-looking statements contained herein to reflect future events or
developments.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

Overview

    We provide a full range of broadband communication services to businesses
located in commercial office buildings in select major metropolitan markets in
the United States. These services include high speed Internet access and data
services, local and long distance voice services, feature rich digital telephone
systems, digital satellite business television, voicemail, e-mail, website
hosting, security/monitoring services and other advanced communications
services. In addition, in January 2001, we began offering wholesale services to
other communications providers using our existing fiber-optic and copper network
infrastructure.

    We began providing communications services and operating in-building
networks in Atlanta, Georgia in June of 1996. As of March 31, 2001, we had
constructed in-building networks in 562 buildings representing approximately 164
million rentable square feet in 28 major metropolitan markets. Overall, as of
March 31, 2001, we had license agreements giving us the right to operate our
networks in over 1,000 buildings representing more than 250 million rentable
square feet.

    In January 2001, in an effort to conserve existing capital, refine core
business practices, streamline operations, increase productivity and shorten the
time needed to achieve positive cash flow, we reduced the scope of our retail
business to 13 markets. In connection with this restructuring, we recorded a
$64.7 million charge in the fourth quarter of 2000 related to the impairment of
certain fixed assets, the impairment of real estate access rights in markets in
which we suspended retail services for the foreseeable future, the estimated
cash costs of disconnecting circuits and terminating office leases prior to the
expiration of applicable communications agreements and office leases and cash
severance payments to terminated employees.

     On March 21, 2001, we suspended retail business in six additional markets
to concentrate our retail operations on the following metropolitan areas:
Atlanta, Boston, Chicago, Dallas, Houston, Seattle, and Southern California (Los
Angeles and Orange County). On March 21, 2001, we also announced plans to reduce
our workforce from approximately 400 employees on March 1, 2001, to
approximately 200 employees by mid-2001. In connection with this further
restructuring, we recorded a $35.9 million charge in the first quarter of 2001
related to the impairment of certain fixed assets, the impairment of real estate
access rights in the six additional markets in which we suspended retail
operations for the foreseeable future, the estimated cash costs of disconnecting
circuits and terminating office leases prior to the expiration of applicable
communications agreements and office leases and cash severance payments to
terminated employees (see Note 6 to our financial statements for further
information). We expect to incur additional restructuring charges in 2001
related to the personnel reductions announced in March 2001.

Results of Operations

Three Months Ended March 31, 2001 Compared to the Three Months Ended March 31,
2000

    Revenues. Revenues for the three months ended March 31, 2001 increased 84%
to $4.7 million from $2.5 million for the same period in the prior year. $2.0
million of the increase in revenues relates to the addition of new customers and
providing additional services to existing customers. $0.2 million of the
increase relates to the acquisition of the assets and customers of SiteConnect
in April 2000.

    Cost of services. Cost of services for the three months ended March 31, 2001
increased 247% to $8.2 million from $2.4 million for the same period in the
prior year. The increase in cost of services was due to an increase in the
number of our active in-building networks and the greater volume of voice and
data traffic. As of March 31, 2001, we had installed active networks in 418
buildings versus 200 buildings installed at March 31, 2000. Active networks
include constructed in-building networks that are connected to local, long
distance and Internet providers for the provision of voice and/or data
communication services.
                                                                          PAGE 9

<PAGE>

    Sales and marketing expenses. Sales and marketing expenses for the three
months ended March 31, 2001 increased 53% to $3.7 million from $2.4 million for
the same period in the prior year. $0.9 million of this increase in expenses was
due to an increase in the number of sales and marketing personnel and their
related compensation and expenses; $0.4 million of this increase was due to
increased revenue sharing payments made to property owners with whom we have
license agreements

    General and administrative expenses. General and administrative expenses for
the three months ended March 31, 2001 increased 40% to $11.0 million from $7.8
million for the same period in the prior year. The increase in general and
administrative expenses was due to a $2.2 million increase in salaries, benefits
and other expenses related to the hiring of additional personnel, a $1.1 million
increase in office space rent, a $0.9 million increase in accounting, consulting
and legal fees. This increase was offset by a $0.5 million decrease in non-cash
compensation related to the issuance of stock options at exercise prices lower
than fair value on their dates of grant due to employee turnover, a $0.2 million
decrease in recruiting fees and a $0.3 million decrease in various operating
expenses as the company continues to restructure operations and reduce costs.

    Amortization of Real Estate Access Rights. Amortization of real estate
access rights for the three months ended March 31, 2001 increased 44% to $3.4
million from $2.4 million for the same period in the prior year. The
amortization of real estate access rights represents the amortization of the
value of warrants issued to property owners or operators over the terms of
the related license agreements, which are generally ten years.

    Depreciation and other amortization. Depreciation and other amortization
for the three months ended March 31, 2001 increased 306% to $4.2 million from
$1.0 million for the same period in the prior year. $2.4 million of this
increase was due to increased capital expenditures related to deploying our
in-building networks and related equipment; $0.6 million of this increase was
due to depreciation of computers and other back-office equipment; and $0.2
million of this increase was due to depreciation and amortization of tangible
and intangible assets obtained through the acquisition of SiteConnect.

  Restructuring and other unusual and infrequent charges. In the first quarter
of 2001, we recorded a $37.4 million restructuring charge related to the
impairment of certain fixed assets, the impairment of real estate access rights,
the estimated cash costs of disconnecting circuits and terminating office leases
prior to the expiration of applicable communication agreements and office leases
and cash severance payments to terminated employees. We also revised our fourth
quarter 2000 estimate of terminating office leases by ($1.5 million) based on
more favorable results than expected in negotiating the termination or
subleasing of several office space leases in April and May 2001 (see Note 6 to
our financial statements).

    Interest income, net. Interest income, net for the three months ended March
31, 2001 decreased to $1.1 million from $2.1 million for the same period in the
prior year. The decrease in interest income, net was due to decreased
investments in short-term interest bearing investments as our operations have
generated a net cash outflow due to the rate at which we have grown. Interest
expense was nominal in both periods.

    Liquidity and Capital Resources

    Cash, cash equivalents and short-term investments were $95.9 million and
$62.2 million at December 31, 2000 and March 31, 2001, respectively.

    The results of our operations have generated a net cash outflow due to the
rate at which we have grown. Cash flow from operations totaled ($6.0 million)
and ($21.9 million) for the three months ended March 31, 2000 and 2001,
respectively. The expansion of our operating, sales and marketing, and
administrative personnel, the growth of our leased network, office space costs,
and other growth-driven operating expenses were the principal contributors to
the increase in the net cash outflow between the periods. We expect this outflow
to decrease as we reduce the scope of our operations.

                                                                         PAGE 10

<PAGE>

    Cash (used in) provided by investing activities was ($19.9 million) and
$13.4 million for the three months ended March 31, 2000 and 2001,
respectively. During the three months ended March 31, 2001, cash provided by
investing activities was due to the sale of $22.1 million in short-term
investments, offset by capital expenditures of $8.8 million related primarily
to construction of in-building networks completed as of December 31, 2000 and
the implementation of our operational support system. During the three months
ended March 31, 2000, cash used in investing activities was primarily related
to the construction of our in-building networks. As of March 31, 2001, we had
made capital expenditures of $123.3 million since inception. We expect future
capital expenditures to decrease as we reduce the scope of our operations.

    Cash (used in) provided by financing activities was $180.7 million and
($2.4 million) for the three months ending March 31, 2000 and 2001,
respectively. Cash used by financing activities during the three months ended
March 31, 2001 was primarily for the repayment of e-ffinity's original
investment in the joint venture of Cypress Canada Communications Inc. During
the three months ended March 31, 2000, cash provided by financing activities
was primarily from our initial public offering in which we sold 11,500,000
shares of our common stock at $17 per share, netting proceeds of
approximately $179.6 million.

    As of March 31, 2001, we had $1,149,000 in capital lease obligations
outstanding. These capital lease obligations relate to back-office equipment
used for our operational support system and communications equipment. Our
capital lease obligations contain no provisions that would limit our future
borrowing ability.

    We currently have contracts with several communications providers with
minimum purchase obligations for leased voice and data transport, equipment
colocation, and other services under terms typically ranging from one to five
years. As of March 31, 2001, these minimum purchase commitments totaled
approximately $10.8 million through 2005.

    As of March 31, 2001, we had operating lease commitments, primarily
related to office space, which totaled $37.7 million.

    Under our license agreements with property owners and/or operators of
several office buildings, we are obligated to pay approximately $2.2 million in
commissions per year for the next seven years (see Note 7 to our financial
statements). Some of these payments relate to buildings that are located in
markets where we have suspended our retail operations but maintain certain
continuing contractual obligations.

    In September 2000, e-ffinity and Cypress Communications formed Cypress
Canada Communications Inc. to provide in-building communications services in
Canada. In January 2001, we agreed to repay all of our joint venture partner's
interest in the subsidiary, having decided to cease retail operations in Canada,
except for potential wholesale operations relating to Cypress Canada's existing
networks in four buildings in Toronto, Canada. In March 2001, we paid e-ffinity
$2.3 million as redemption of their original investment plus interest earned.

     As of March 31, 2001, we had constructed in-building networks in 562
buildings representing approximately 164 million rentable square feet in 28
major metropolitan areas. In January, 2001, we reduced the scope of our retail
business to 13 markets, and on March 21, 2001, we suspended retail operations in
6 additional markets, having determined to concentrate our retail business in
Atlanta, Boston, Chicago, Dallas, Houston, Seattle (data products and services
only) and Southern California (Los Angeles and Orange County). In connection
with our December 2000 restructuring, we recorded a $64.7 million charge in
December 2000 related to the impairment of real estate access rights in markets
in which we will not provide retail services for the forseeable future and
certain fixed assets, the estimated cash costs of disconnecting circuits and
terminating office leases prior to the expiration of applicable connection
agreements and office leases, and cash severance payments to terminated
employees. Of the $64.7 million charge, approximately $57.3 million is related
to the impairment of fixed assets and real estate access rights, which should
not adversely affect our current or future cash position.

                                                                         PAGE 11

<PAGE>

   In March 2001, we revised the December 2000 estimate for office leases based
on changes in expected sublease revenues and lease termination charges. This
resulted in a change in estimate of the December 2000 charge related to office
space commitments. The restructuring accrual for such commitments was reduced to
$526,000, requiring the reversal of $1,530,000 of the accrual in first quarter
of 2001.

 In connection with our March 2001 restructuring, we recorded a $37.4 million
charge in the first quarter of 2001 related to the impairment of certain fixed
assets, the impairment of real estate access rights in the six additional
markets in which we suspended retail operations for the foreseeable future, the
cash costs of disconnecting circuits and terminating office leases prior to the
expiration of applicable communications agreements and office leases and cash
severance payments to terminated employees (see Note 6 to our financial
statements for further information). Of the $37.4 million charge, approximately
$31.4 million is related to the impairment of fixed assets and real estate
access rights, which should not adversely affect our current or future cash
position. We expect to incur additional restructuring charges in 2001 related to
specifically identifying on-going reductions in personnel as announced in March
2001.

   The actual amount and timing of our future capital requirements may differ
materially from our estimates as a result of many factors, some of which we
cannot control. These factors include:

-  obtaining favorable prices for circuits and transport;

-  our ability to develop, acquire and integrate the necessary operational
   support systems;

-  the cost of network development in each of our markets;

-  demand for our services;

-  the nature and penetration of new services that we may offer;

-  the timing and extent of future acquisitions or investments, if any, and our
   ability to integrate these acquisitions or investments;

-  ability to cease operations in markets where the Company has exited retail
   operations in a timely and cost efficient manner;

-  regulatory changes;

-  changes in technology and competitive developments beyond our control; and

-  our ability to recruit, hire and retain qualified personnel.

Recent Accounting Pronouncements

    We adopted Securities and Exchange Commission SAB No. 101, "Revenue
Recognition in Financial Statements" in 2000. This did not have a material
effect on our financial statements. SFAS No. 133, "Accounting for Derivatives,"
which is effective January 1, 2001 for the Company, did not have a material
effect on our financial statements.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

     Our exposure to financial market risk, including changes in interest rates
and marketable equity security prices, relates primarily to our investment
portfolio. We typically do not attempt to reduce or hedge the market exposure on
our investment securities because a substantial majority of our investments are
in fixed-rate, short-term securities. We do not have any derivative instruments.
As of March 31, 2001, a 100 basis point increase or decrease in the average
interest rates earned on our investments would impact the fair value of our
investment portfolio or related yearly income by approximately $450,000. As of
March 31, 2001, we had no debt outstanding, other than capital leases.

                                                                         PAGE 12
<PAGE>

PART II.  OTHER INFORMATION


Item 1.  Legal Proceedings.

     We are not currently involved in any pending legal proceedings that are
expected to have a material adverse effect on our business.


Item 2.  Changes in Securities and Use of Proceeds.

     Consistent with the description of the use of proceeds set forth in the
prospectus contained in the Registration Statement, during the first quarter of
2001 we used approximately $33.8 million in proceeds from the initial public
offering for the construction of in-building networks, the purchase of
communications equipment and working capital and general corporate purposes. To
date we have used approximately $117.8 million in proceeds from the initial
public offering for the construction of in-building networks, the purchase of
communications equipment and working capital and general corporate purposes.


Item 3.  Defaults Upon Senior Securities.

     None.


Item 4.  Submission of Matters to a Vote of Security Holders.

     None.


Item 5.  Other Information.

     None.


Item 6.  Exhibits and Reports on Form 8-K.


      (a)  Exhibits


             None.


      (b)  Reports on Form 8-K

On March 19, 2001, the Company filed a Form 8-K (Commission File Number
0-29281).

                                                                         PAGE 13
<PAGE>


                                   SIGNATURES

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


                                        CYPRESS COMMUNICATIONS, INC.



Date:  May 15, 2001             By:     /s/ W. Frank Blount
                                        -------------------------------
                                        W. Frank Blount
                                        Chairman and Chief Executive Officer


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