UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2004

OR

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

For the transition period from to

Commission File Number: 000-28-559

Universal Access Global Holdings Inc.

(Exact name of registrant as specified in its charter)

Delaware		36-4408076
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

233 S. Wacker Drive, Suite 600 Chicago, Illinois		60606
(Address of principal executive offices)		(Zip Code)

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

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

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

The number of shares outstanding of the issuer’s common stock, par value $0.01, as of April 30, 2004 was 11,474,388 shares.

Universal Access Global Holdings Inc.

Form 10-Q

Table of Contents

Part I Financial Information

Item 1.	Condensed Consolidated Financial Statements

	Condensed Consolidated Balance Sheets at March 31, 2004 and December 31, 2003 (Unaudited)

	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2004 and 2003 (Unaudited)

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2003 (Unaudited)

	Notes to Condensed Consolidated Financial Statements (Unaudited)

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

Item 3.	Quantitative and Qualitative Disclosures about Market Risk

Item 4.	Controls and Procedures

Part II Other Information

Item 1.	Legal Proceedings

Item 6.	Exhibits and Reports on Form 8-K

Signatures

Certifications

Note Regarding Forward-looking Statements

This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. These forward-looking statements involve a number of risks and uncertainties, including those identified in the section of this Form 10-Q entitled “Factors That May Affect Future Operating Results,” which may cause actual results to differ materially from those discussed in the forward-looking statements. The forward-looking statements in this Form 10-Q are identified by words such as “believes,” “anticipates,” “expects,” “intends,” “may,” “will” and other similar expressions. However, these words are not the only way we identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that could occur after the filing of this Form 10-Q. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC for a discussion of some of the risks and factors that may affect our business.

PART I. FINANCIAL INFORMATION

ITEM I. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNIVERSAL ACCESS GLOBAL HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)

	March 31, 2004			December 31, 2003
ASSETS
Current assets:
Cash and cash equivalents	$	12,268		$	16,740
Accounts receivable, less allowance for doubtful accounts of $360 and $507	5,500			5,293
Prepaid expenses and other current assets	2,237			2,717
Total current assets	20,005			24,750
Restricted cash	1,036			1,738
Property and equipment, net	6,566			7,944
Other long-term assets	692			651
Total assets	$	28,299		$	35,083

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	1,923		$	2,556
Non-income taxes payable	1,361			1,285
Accrued carrier expenses	10,603			12,230
Accrued expenses and other current liabilities	1,874			1,729
Unearned revenue	8,758			9,178
Short-term restructuring liability	200			710
Total current liabilities	24,719			27,688
Notes payable	1,800			1,763
Security deposits payable	2,010			2,038
Restructuring liability	856			3,566
Total liabilities	29,385			35,055
Commitments and contingent liabilities (Note 7)
Stockholders’ equity (deficit):
Common stock, $.01 par value; 1,000,000,000 shares authorized; 11,473,111 and 11,465,611 shares issued and outstanding	115			115
Common stock warrants	540			540
Additional paid-in-capital	294,757			294,803
Deferred stock compensation	(504		)	(721		)
Accumulated deficit	(296,031		)	(294,747		)
Accumulated other comprehensive income	37			38
Total stockholders’ equity (deficit)	(1,086		)	28
Total liabilities and stockholders’ equity (deficit)	$	28,299		$	35,083

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

UNIVERSAL ACCESS GLOBAL HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended March 31,
	2004			2003

Revenues	$	14,943		$	19,151
Costs and operating expenses:
Cost of circuit access (exclusive of depreciation of $276 and $1,260 in 2004 and 2003 respectively, shown below)	9,726			12,753
Operations & administration	7,564			9,219
Restructuring charges/(credits)	(2,398		)	—
Depreciation & amortization	1,339			2,479

Total costs and operating expenses	16,231			24,451

Operating loss	(1,288		)	(5,300		)
Other income, net	4			92

Net loss	$	(1,284	)	$	(5,208	)

Basic and diluted net loss per share	$	(0.11	)	$	(1.06	)
Weighted average shares used in computing basic and diluted net loss per share	11,473			4,933

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

UNIVERSAL ACCESS GLOBAL HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2004			2003

Cash flows from operating activities:
Net cash used for operating activities	$	(5,171	)	$	(4,270	)
Cash flows from investing activities:
Capital expenditures, net	(2		)	243

Net cash provided/(used) by investing activities	(2		)	243
Cash flows from financing activities:
Release of restriction on cash balance	702			1,842
Issuance of common stock	1			1
Proceeds of notes receivable—employee	—			4

Net cash provided/(used) by financing activities	703			1,847
Effect of exchange rate changes on cash	(2		)	—
Net increase/(decrease) in cash and cash equivalents	(4,472		)	(2,180		)
Cash and cash equivalents, beginning of period	16,740			12,353

Cash and cash equivalents, end of period	$	12,268		$	10,173

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

UNIVERSAL ACCESS GLOBAL HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1—Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by Universal Access Global Holdings Inc. (“Holdings”) and its subsidiaries (collectively, “the Company” or “we”), and reflect all adjustments, consisting only of normal recurring adjustments, which in the opinion of management are necessary to state fairly the financial position and the results of operations for the interim periods. The statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. These statements should be read in conjunction with the Financial Statements and Notes thereto included in our 2003 Annual Report on Form 10-K. Results for fiscal 2004 interim periods are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2004. All numbers presented are in thousands, except share and per share amounts and where otherwise indicated.

Note 2—Liquidity

The consolidated financial statements have been prepared assuming the company will continue as a going concern. The company has experienced recurring losses from operations, negative operating cash flows, decreasing revenues, a net working capital deficiency, and has negative stockholders’ equity. Our ability to continue in the normal course of business is dependent upon our access to additional capital and the success of our future operations. We are actively soliciting possible investors and strategic partners; however, there can be no assurance that we will be successful in our efforts to obtain additional capital or improve our operating results and, therefore, that we will continue our operations in the normal course. Further, there can be no assurance that any such required funds will be available on attractive terms or that they will not have a significantly dilutive effect on the Company’s existing shareholders. We are actively discussing termination agreements with the landlords of facilities where the company is not recognizing any significant economic benefit to eliminate the rent payments. Beginning in February 2004 we stopped making certain rent payments in order to expedite the negotiating process. The monthly amount of rent payments that we are not making as of March 31, 2004 is approximately $248 thousand (including estimated operating expenses and taxes). We are also in discussions with various parties to sell all remaining UTX assets (including associated liabilities) to raise additional cash and reduce our monthly rent expense. In addition, we are actively researching the potential migration of our existing traffic at the remaining UTX sites to new facilities, as part of the effort to terminate the leases for the remaining UTX sites. There can be no assurance we will either sell the remaining UTX assets or reach termination agreements with the landlords of these sites.

Note 3—Property and Equipment

Property and equipment consist of the following:

	March 31, 2004			December 31, 2003
Furniture and fixtures	$	1,083		$	1,083
Leasehold improvements	1,441			1,441
UTX equipment	8,636			8,636
Computer hardware and software	21,470			21,465
Other equipment	625			625
Property and equipment, gross	33,255			33,250
Less: Accumulated depreciation and amortization	(26,689		)	(25,306		)
Property and equipment, net	$	6,566		$	7,944

Accumulated amortization related to capitalized software and website assets was $5.3 million and $4.8 million at March 31, 2004 and December 31, 2003, respectively.

Note 4—Other Long-term Assets

The Company has security deposits receivable classified as long-term totaling $692 thousand and $651 thousand at March 31, 2004 and December 31, 2003, respectively. These security deposits are paid to carriers, landlords and utility companies in the ordinary course of business.

Note 5—Restructuring

The restructuring program is substantially complete due to termination agreements that we have negotiated with the landlords. On March 10, 2004, we entered into a lease termination agreement with one of our landlords for $216 thousand in cash of which $141 thousand was restricted as a security deposit. On April 28, 2004, we entered into a lease termination agreement with one of our landlords under which the leases for two sites were terminated in consideration for $712 thousand in cash of which $512 thousand was restricted as a security deposit along with a $1 million promissory note. The promissory note is due in April 2006 with no interest and is convertible into a maximum of 400,000 shares of common stock if certain conditions are met in the future. As a result of these successful negotiations, the restructuring reserve was reduced by $2.4 million in the first quarter 2004. In the second quarter 2004, we will reduce the remaining $1.1 million in total restructuring reserves upon payment of the $200 thousand and issuance of the $1 million convertible note.

The following summarizes the significant components of the restructuring reserve from December 31, 2003 to March 31, 2004:

	Balance at December 31, 2003		Incurred Cash Payments			Adjustments			Balance at March 31, 2004
Facility exit costs, net of estimated sublease recoveries	$	4,276	$	(822	)	$	(2,398	)	$	1,056

Note 6—Term Loans

Pursuant to the terms of the Purchase Agreement with CityNet, on July 23, 2003, we assumed certain liabilities of CityNet. In particular, we assumed $2 million in principal amount of a promissory note executed by CityNet and made to Electro Banque. The note is secured by the fiber optic ring in Albuquerque, New Mexico transferred to us from CityNet. The note matures in a single installment on December 31, 2007 and does not bear interest until January 1, 2006; thereafter, it bears interest at 8% per annum. During the third quarter of 2003, we discounted the face value of the note using an imputed interest rate and recorded the book value of $1.7 million. Due to the imputed interest, we recognized interest expense of $36 thousand in the first quarter of 2004.

Note 7—Commitments and Contingencies

In November 2001, a complaint captioned In re: Initial Public Offering Securities Litigation was filed in federal district court for the Southern District of New York on behalf of a purported class of persons who purchased our stock between March 16, 2000 and December 6, 2000. The complaint generally alleges that various underwriters engaged in improper and undisclosed activities related to the allocation of shares in our initial public offering of securities. The complaint brings claims for violation of several provisions of the federal securities laws against the underwriters of our IPO, and also against us and certain of our former directors and officers under the Securities Act of 1933 and the Exchange Act of 1934. Similar lawsuits concerning more than 300 other companies’ initial public offerings were filed in 2001, all of which were consolidated into a single coordinated proceeding in the Southern District of New York. We believe that the allegations against us are without merit. On June 30, 2003, the litigation committee of our board of directors conditionally approved a proposed partial settlement with the plaintiffs in this matter. The settlement would provide, among other things, a release of us and of the individual defendants for the conduct alleged in the action to be wrongful in the complaint. We would agree to undertake other responsibilities under the partial settlement, including agreeing to assign away, not assert, or release certain potential claims we may have against our

underwriters. Our insurers are expected to bear any direct financial impact of the proposed settlement. The committee agreed to approve the settlement subject to a number of conditions, including the participation of a substantial number of other issuer defendants in the proposed settlement, the consent of our insurers to the settlement, and the completion of acceptable final settlement documentation. Furthermore, the settlement is subject to a hearing on fairness and approval by the Court overseeing the litigation.

We and certain of our former directors and officers are defendants in an action pending in the United States District Court for the Eastern District of Texas, Frandsen v. Universal Access, Inc., et al., No. 9:02CV103 (E.D. Tex.). This case is also captioned as In re: Universal Access, Inc. Securities Litigation Civil Action No. 9:02CV103. The complaint alleged causes of action for securities fraud in connection with public disclosures made by our officers between 2000 and 2002. We believe that the allegations against us are without merit. On March 7, 2003, the court granted a motion to dismiss the complaint and granted plaintiffs the opportunity to replead the complaint with respect to a minority of the alleged misstatements. On May 27, 2003, plaintiffs filed a second amended consolidated complaint. Pursuant to the Court’s September 17, 2003 order, on October 1, 2003, plaintiffs filed a revised second amended consolidated complaint. On February 23, 2004, the Court heard arguments on our motion to dismiss. On April 9, 2004, the court denied our motion to dismiss other than with respect to two of the defendants. Plaintiffs are seeking $34.5 million.

In August 2003, Genuity Telecom Inc. filed a complaint against us in the United States Bankruptcy Court for the Southern District of New York. The caption of this case is Genuity Telecom Inc. v. Universal Access, Inc. No. 03-06928. In its complaint, Genuity alleges that we did not purchase the minimum amount of telecommunications services specified by the parties’ contract. Genuity seeks damages against us of nearly $1.6 million, plus costs and interest, representing the difference between the purported minimum purchase commitment and the amount of telecommunications services we purchased. We believe that Genuity’s claims are without merit. We answered Genuity’s complaint and asserted several defenses to Genuity’s claims. We also filed a motion seeking to stay the action and to compel arbitration of the matter in accordance with the mandatory arbitration provision in the contract. Genuity assigned the contract to Level 3 Communications, LLC on February 4, 2003 as part of Genuity’s bankruptcy proceeding and reorganization efforts. The amount sought by Genuity in its complaint relates to our actions prior to February 4, 2003.

In March 2004, the landlord of our New York office space filed an action against us captioned 330 Madison Company LLC against Universal Access, Inc., Civil Court of the City of New York, County of New York: Non-Housing Part 52, Index No. 063274/2004. In its complaint, the landlord seeks the payment of approximately $73 thousand representing rent the landlord claims is unpaid, plus interest and attorneys’ fees, and the issuance of a warrant to remove us from the premises. We will attempt to resolve this matter with the landlord. As noted in the section entitled “Factors That May Affect Future Operating Results,” other landlords may file complaints against us seeking payment of unpaid rents, and this landlord may file future complaints against us seeking additional relief.

In May 2004, AboveNet, Inc. filed a complaint against us in the United States Bankruptcy Court for the Southern District of New York, In re AboveNet, Inc. v Universal Access Global Holdings, Inc. In its complaint AboveNet seeks the payment of approximately $3.8 million plus interest, representing amounts allegedly paid to us in the 90 day period prior to the commencement date of AboveNet’s bankruptcy. AboveNet asserts it is entitled to the recovery under several theories, including that the payments were preferential transfers, fraudulent transfers, and fraudulent conveyances. We believe that AboveNet’s claims are without merit.

In connection with a lease buyout agreement completed in September 2002, we entered into a new lease for a reduced amount of office space at our principal offices. The new lease required us to deliver a letter of credit in the amount of $2.5 million to secure our obligations under the new lease by October 1, 2003. Delivering this letter of credit would reduce our cash and cash equivalents, and increase our restricted cash balance, by $2.5 million. We are currently under negotiations with the landlord concerning the $2.5 million deposit and have not paid this amount.

The Company leases UTX facilities, office facilities and certain equipment over periods ranging from two to fifteen years. Through March 31, 2004, the Company completed buyout agreements for certain leased office facilities and terminated early certain office facility leases, eliminating aggregate lease obligations of approximately $8.5 million. Rent expense for the three months ended March 31, 2004 and 2003 was approximately $1.8 million and $2.0 million, respectively. Future rentals for non-cancelable operating leases, inclusive of amounts in our restructuring liability, are as follows as of March 31, 2004 adjusted for the lease termination signed in April 2004:

2004	$	4,757
2005	5,838
2006	5,719
2007	5,883
2008	6,082
Thereafter	18,088
Total minimum lease payments	$	46,367

Additionally, the Company has entered into agreements with various telecommunications vendors to purchase minimum amounts of network services within a defined period, such as on a monthly basis. The Company paid vendors with minimum purchase commitments a total of $3.5 million and $5.5 million for the three months ended March 31, 2004 and 2003, respectively. Additionally, we have entered into agreements with certain of our suppliers that obligate us to purchase a defined percentage of our actual circuit orders from them if they meet certain pricing and other terms and conditions. The total amount of remaining purchase commitments at March 31, 2004 is as follows:

2004	$	15,348
2005	17,025
2006	1,750
2007	—
2008	—
Thereafter	—
Total minimum purchase commitments	$	34,123

The Company has standby letters of credit, which have been issued on its behalf totaling $1.0 million, collateralizing performance of certain contracts with carriers, state regulators, and landlords. These letters of credit directly relate to the operating leases, carrier agreements, and state requirements, which they secure, and expire according to the terms and conditions of these agreements.

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

Note 8—Stock-Based Compensation Plans

Effective for 2003, we adopted the disclosure requirements under Statement of Financial Standards (“SFAS”) No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” as an amendment of SFAS No. 123. Stock-based employee compensation, including stock options, is accounted for under the intrinsic value method as prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” No compensation expense is recognized for these options when they are issued at fair market value at date of grant. If options are granted at an exercise price below fair market value to employees, stock plan compensation expense is deferred for an amount equal to the intrinsic value on the grant date and recognized over the respective vesting period.

If we were to recognize compensation expense over the relevant service period under the fair-value method of SFAS No. 123 with respect to stock options granted and employee stock purchases for the three months ended March 31, 2004 and all prior periods, net loss would have increased, resulting in pro forma net losses and losses per share as presented below:

	Three Months Ended March 31,
	2004			2003
Net loss, as reported	$	(1,284	)	$	(5,208	)
Less: Stock-based compensation expense determined under fair value method for all awards, net of related taxes	(652		)	(264		)
Pro forma net loss	$	(1,936	)	$	(5,472	)

Basic and Diluted net loss per share:
As reported	$	(0.11	)	$	(1.06	)
Pro forma	$	(0.17	)	$	(1.11	)

Note 9—Related Party Transactions

In July 2003, in connection with the closing under the CityNet Purchase Agreement, we entered into a lease maintenance agreement, whereby we agreed beginning in July 2003, to reimburse CityNet for office rent totaling approximately $20 thousand per month for three years. On April 25, 2004, we entered into an Idemnification Agreement with CityNet as a result of requesting CityNet to not pay the monthly rent in an attempt to negotiate the termination of the lease with the landlord.

Note 10 – Net income/(loss) per share

Basic net income/(loss) per share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted income/(loss) per share does not differ from basic income/(loss) per share since potential common shares from conversion of stock options and warrants are anti-dilutive for all periods presented.

Note 11 – Subsequent Events

On April 15, we received a letter from the Nasdaq notifying us that we did not meet its minimum market capitalization, shareholders’ equity or net income requirements and seeking additional information on our plans for regaining compliance. We sent a response on April 28, 2004, in which we described our plan for regaining compliance with the relevant Nasdaq requirements and requested that Nasdaq re-revaluate our status in 90 days. For additional risks associated with a loss of our Nasdaq compliance, please see the section of this report entitled “Factors That May Affect Future Operating Results.”

On April 28, 2004, we entered into a lease termination agreement with one of our landlords under which the leases for two sites were terminated in consideration of the payment of $200 thousand in cash and $512 thousand in restricted cash along with a $1 million promissory note. The promissory note is due in April 2006 with no interest and is convertible into a maximum of 400,000 shares of common stock if certain conditions are met in the future. As a result of these successful negotiations, the restructuring reserve was reduced by $2.6 million in the first quarter 2004. Please refer to Note 5 of the financial statements for additional information.

In May 2004, AboveNet, Inc. filed a complaint against us in the United States Bankruptcy Court for the Southern District of New York, In re AboveNet, Inc. v. Universal Access Global Holdings, Inc. In its complaint, AboveNet seeks the payment of approximately $3.8 million plus interest, representing amounts allegedly paid to us in the 90 day period prior to the commencement date of AboveNet’s bankruptcy. AboveNet asserts it is entitled to recovery under several theories, including that the payments were preferential transfers, fraudulent transfers, and fraudulent conveyances. We believe that AboveNet’s claims are without merit.

As of May 10, 2004, we have reached a verbal agreement to settle outstanding disputes totaling $3.2 million with one of our vendors. This settlement required us to make cash payments totaling $800 thousand in May 2004. In addition, we are required to pay an additional $1.1 million in cash over seven months. As of March 31, 2004, these amounts were accrued for in accrued carrier expenses.

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

Our business consists of analyzing, designing, planning and provisioning private line telecommunications circuits for U.S. and international telecom carriers, cable companies, system integrators, and government entities. Substantially all of our revenue is from the provision of dedicated circuit access, under contracts having terms ranging from twelve to sixty months. Our most significant operating expense is the cost of circuit access, which consists of amounts paid to transport suppliers for circuits. Our contracts with suppliers generally have terms ranging from three to ten years and often include minimum purchase commitments that begin anywhere from six to twelve months after we enter into the contract.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2004 Compared to three months ended March 31, 2003

Overview

Our continued rate of cash usage and decline in revenues raises doubt regarding our ability to continue as a going concern, as noted by our independent auditor in its report on our financial statements for the twelve months ended December 31, 2003. Our revenues continued to decline in 2004 primarily as a result of terminations of circuit contracts exceeding new circuit sales. Price compression and excess capacity in the telecommunications marketplace also contributed to this decline. Beginning in February 2004, we did not pay certain lease payments where we were not realizing significant economic benefits in an attempt to terminate those leases. In April 2004, we signed a termination agreement with a landlord to eliminate approximately $70 thousand in monthly lease payments in exchange for a payment of $200 thousand and $1 million promissory note that is convertible to stock if certain conditions are met in the future. As a result of this lease termination, we recognized a credit to restructuring expense in the first quarter 2004 of $2.4 million.

Summary of Selected Operations Data for Three Months Ended March 31, 2004 and 2003

	(In Millions)
	Three Months Ended March 31, 2004			Three Months Ended March 31, 2003
						Change from 2004 to 2003
						$			%
Revenues	$	14.9		$	19.2	$	(4.3	)	-22	%
Cost of Circuit Access	9.7			12.8		(3.1		)	-24	%
Operations and Administration Expenses	7.6			9.2		(1.6		)	-17	%
Depreciation & Amortization	1.3			2.5		(1.2		)	-44	%
Restructuring and Other Nonrecurring Charges (Credits)	(2.4		)	—		(2.4		)	-100	%

Revenues

The decrease in revenues in first quarter 2004 compared to the first quarter 2003 was attributable to circuit disconnections, lengthening new sales cycles, and price compression.

Cost of Circuit Access

The decrease in cost of circuit access in the first quarter 2004 compared to the first quarter 2003 was primarily attributable to the decrease in circuit revenues. As a percentage of total revenues, cost of circuit access decreased for the first quarter 2004 to 65% from 67% for the first quarter 2003.

Operations and Administration

The decrease in operations and administration expense in the first quarter 2004 compared the first quarter 2003 primarily resulted from the restructuring of personnel and rent. Employee compensation and related payroll taxes decreased to $2.5 million in first quarter 2004 from $2.8 million in the first quarter 2003. Our average number of employees decreased to 110 in 2004 compared to 115 in 2003. We expect headcount to remain relatively flat for 2004. Consulting fees decreased to $484 thousand in the first quarter 2004 compared to $999 thousand in the first quarter 2003 due to fees incurred in relation to the CityNet transaction along with fees incurred for services provided

by our former interim CEO, Lance Boxer. Similarly, rent for corporate offices and sales offices decreased to $1.8 million in the first quarter 2004 from $2.0 million in the first quarter 2003, due primarily to termination of leases in 2003.

Depreciation and Amortization

Depreciation expense includes depreciation of furniture, fixtures, leasehold improvements and equipment at our office and UTX facilities. The decrease in depreciation in the first quarter 2004 compared to the first quarter 2003 was primarily attributable to impairment of UTX assets in 2002 and 2003.

Restructuring and Other Nonrecurring Charges

In the first quarter 2004, a restructuring liability of $2.4 million was reversed as a result of favorable lease negotiations for three restructured sites as described in Note 5.

LIQUIDITY AND CAPITAL RESOURCES

Although we are currently able to pay our debts as they become due, we may not have sufficient cash to satisfy our liquidity needs for the upcoming twelve months. As a result of our financial condition, our independent auditor has included an explanatory paragraph in its report on our financial statements for the twelve months ended December 31, 2003, expressing substantial doubt regarding our ability to continue as a going concern. This means that the auditor questions whether we can continue in business. Investors in our securities should carefully review the report prepared by our auditor. Our ability to continue in the normal course of business is dependent upon our access to additional capital and the success of our future operations. As of May 10, 2004, our unrestricted cash balance is approximately $11.5 million and our stockholders’ equity is negative. The success of our future operations is dependent on our ability to sell new services, manage our disconnect rate to a low level, negotiate with our carriers on outstanding billing disputes and purported purchase commitment shortfalls while avoiding large payments to maintain service, and to negotiate with landlords to lower our rent expense. We are actively soliciting possible investors and strategic partners, however, there can be no assurance we will raise additional capital or improve our operating results. If we are unable to access additional capital or improve operating results, we may not be able to continue our operations and we may be forced to seek bankruptcy protection. Furthermore, if we are required to sell equity to obtain additional capital, our shareholders would experience significant dilution; alternatively, if we obtain debt financing, our liabilities and future cash commitments will increase. There can be no assurance that we will be successful in our efforts to obtain additional capital and, therefore, that we will continue our operations in the normal course.

As a result of continued negative sales and disconnect trends in 2003 and 2004, we decided in 2004 to stop paying monthly rent under certain leases where we are not recognizing any economic benefit (although we are currently able to pay our debts as they become due). We are actively discussing termination agreements with the landlords of these premises to eliminate these monthly cash payments. The monthly amount of lease payments that we are not paying as of May 10, 2004 is approximately $248 thousand (including estimated operating expenses and taxes). As of May 10, 2004, we have not paid approximately $741 thousand in total rents. In 2004, our landlords received payments of approximately $653 thousand that were restricted as security deposits due to non-payment of our leases and lease termination agreements. On March 10, 2004, we terminated leases that will save us approximately $65 thousand a month, in exchange for a cash payment of $216 thousand of which $141 thousand was restricted as a security deposit. We also signed an agreement with a different landlord on April 28, 2004 terminating two leases. As a result, we eliminated approximately $72 thousand in monthly rent payments in exchange for a cash payment of $712 thousand of which $512 thousand was restricted as a security deposit along with a $1 million promissory note that is convertible into 400,000 shares of common stock if certain conditions are met in the future.

We are in also in discussions with various parties to assign or sell the remaining UTX assets (including associated liabilities) to raise additional cash and/or reduce our monthly rental expense. In addition, if we are unsuccessful in assigning or selling the remaining UTX assets, we are actively researching migrating our existing traffic at the these sites to new facilities in an effort to terminate the leases for the remaining UTX sites. Terminating these leases would further reduce our cash payments. There can be no assurance we will either assign or sell the

remaining UTX assets or reach termination agreements with the landlords of these sites. If we are not able to reach termination agreements, we would likely face claims from landlords for nonpayment of rent.

We are also in discussions with several vendors to settle outstanding billing disputes. We anticipate that we will have to make payments of at least $2 million over the next several months to settle these disputes. As of May 10, 2004, we have reached a verbal agreement to settle outstanding disputes totaling $3.2 million with one of our vendors. This settlement required us to make cash payments totaling $800 thousand in May 2004. In addition, we are required to pay an additional $1.1 million in cash over seven months.

The following summarizes our contractual obligations at March 31, 2004 adjusted for the lease termination signed in April 2004, and the effect such obligations are expected to have on our liquidity and cash flow in future periods.

	Non-Cancelable Operating Leases (incl. restructured facilities)		Non Cancelable Purchase Commitments		Total
2004	$	4,757	$	15,348	$	20,105
2005	5,838		17,025		22,863
2006	5,719		1,750		7,469
2007	5,883		—		5,883
2008	6,082		—		6,082
Thereafter	18,088		—		18,088
Total	$	46,367	$	34,123	$	80,490

Our principal uses of cash are to fund operating losses, working capital requirements and some limited capital expenditures. Our capital expenditures will be limited to the enhancement of selected elements of our IT tools to help us achieve our sales objectives and we will continue to seek out new data resources relating to the provisioning of circuits.

Restricted cash was $1.0 million at March 31, 2004, declining approximately $700 thousand from a balance of $1.7 million at December 31, 2003. In 2004, certain landlords have received payments of $653 thousand that were restricted as security deposits due to non-payment of our leases and lease termination agreements. Restricted cash consists of letters of credit issued to real estate landlords, a credit card company, a telephone company and state regulators.

Cash used by operating activities in the first quarter 2004 was $5.2 million, compared to $4.3 million for the first quarter 2003. The increase in cash used by operating activities was due primarily to the payments incurred to settle long term leases discussed in Note 5. Cash used by investing activities was $2 thousand in the first quarter 2004 compared to cash provided of $243 thousand in the first quarter 2003. The decrease is the result of higher fixed asset sales in the first quarter of 2003.

Cash provided by financing activities was $700 thousand in the first quarter 2004 compared to $1.8 million in the first quarter 2003. The decrease is the result of movement of restricted cash to unrestricted cash due to non-payment of our leases and lease termination agreements .

FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

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

We may not have sufficient cash to satisfy our liquidity needs. Consequently, our independent auditor has expressed substantial doubt in our ability to continue as a going concern.

Although we are currently able to pay our debts as they become due, we may not have sufficient cash to satisfy our liquidity needs for the upcoming twelve months. As a result of our financial condition, our independent auditor has included an explanatory paragraph in its report on our financial statements for the period ended December 31, 2003, with respect to our ability to continue as a going concern. This means that the auditor questions whether we can continue in business. Investors in our securities should carefully review the report prepared by our auditor. Our ability to continue in the normal course of business is dependent upon the success of our future operations and/or our access to additional capital. We are actively soliciting possible investors and strategic partners, however, there can be no assurance we will raise additional capital or improve our operating results. Uncertainties as to these matters raised substantial doubt about our ability to continue as a going concern at the date of our auditor’s report. If we are unable to access additional capital or improve operationally, we may not be able to continue our operations and may be forced to seek bankruptcy protection. Furthermore, if we are required to sell equity to obtain additional capital, our shareholders could experience significant dilution; alternatively, if we obtain debt financing, our liabilities and future cash commitments will increase. There can be no assurance that we will be successful in our efforts to obtain additional capital and, therefore, that we will be able to continue our operations in the normal course.

Our independent auditor’s report regarding our ability to continue as a going concern could have a material adverse effect on our business, financial condition, and trading price of our common stock.

The issuance by our independent auditor of its report concerning our ability to continue as a going concern could have a material adverse effect on our business, financial condition and stock price. For example, among other things, as a result of concerns regarding our financial viability, prospective and existing customers may not desire to entrust us with their network capacity requirements, thus making it difficult for us to increase or maintain our revenues. Additionally, our carrier suppliers may demand security deposits or accelerated payment terms as a condition to providing services to us, thus increasing our costs of operations. If any of these events or similar events occurs, it may have a material adverse effect on our business, financial condition and trading price of our common stock. For a more detailed discussion of these risks, see the risk factors below.

If our financial condition continues to deteriorate, our carrier suppliers may demand security deposits or accelerated payment terms.

Certain of our carrier suppliers might claim the right to demand a security deposit or accelerated payment terms from us due to our financial condition. Our carrier suppliers may further seek to bill us for purported failure to meet purchase commitments or purported under billings or other billings notwithstanding factual or legal disputes regarding any such purported failure. If we are required to pay any of these amounts, our cash resources could be materially diminished. Alternatively, if we do not make these payments, carrier suppliers may be unwilling to continue to do business with us. Some of these failures may be claimed by incumbent local exchange carriers, which historically have been reluctant to engage in negotiations on such matters and if they do engage in negotiations, often refuse to significantly reduce the amounts they claim we owe. Such disputes may also affect the willingness of suppliers to provide us with capacity or other services, which would reduce our operating flexibility and ability to deliver services to existing or potential customers. If the supplier in any such dispute enters a bankruptcy or similar proceeding, our business relationship with the supplier could be disrupted, which would impair our ability to negotiate. As of March 31, 2004, we had $18.9 million in open billing disputes with carriers.

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

We have incurred significant losses since inception and expect to continue to incur losses in the future. As of March 31, 2004, we had an accumulated deficit of $296 million. Our revenues have decreased to $14.9 million in the first quarter of 2004 from $19.1 million in the first quarter of 2003. We cannot be certain that we will be successful in reducing our costs, that we will be able to significantly increase our revenues, or that we will achieve sufficient revenues in order to become profitable. We expect to continue to incur expenses in order to:

• Develop and sell new service offerings, such as software or information based products;

• Expand sales and marketing channels, including our government markets group;

• Enhance our UIX database and develop other intellectual property; and

• Continue operating our UTX facilities.

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

In an effort to reduce our operating expenses, we have chosen not to pay certain landlords and seek agreements to terminate leases with those landlords.

Although we are currently able to pay our debts as they become due, in an effort to reduce our operating expenses, we have chosen not to pay certain landlords and seek agreements to terminate leases with these landlords. One of these landlords has filed suit against us seeking to evict us from the facility and requiring us to pay unpaid rent amounts. If we are unsuccessful in negotiating lease termination agreements, other landlords may also file lawsuits against us seeking to evict us, terminate the lease, or require payment of amounts due under all or a portion of the remainder of the term of the lease. If we are unable to reach agreements to terminate these leases, or the landlords file lawsuits against us, we may be required to file for protection under bankruptcy law. If a landlord terminates a lease for non-payment or we are evicted from our facilities, it may adversely affect our operations, limit our ability to increase our revenues, and increase our cost of operating.

Our business has been unprofitable, and we may be unable to profitably manage and market our services to customers.

Our business has been unprofitable. To be successful, we must convince prospective customers to entrust their network capacity requirements to us. Due to our financial condition, it may be difficult for us to obtain this trust from prospective customers. If customers do not widely accept our services, our client base and revenues will not increase. Our ability to expand our client base and, therefore, to increase our revenues may be limited by the following factors:

• Our perceived financial viability, including with respect to our independent auditor’s report for the period ending December 31, 2003;

• The speed, reliability and cost effectiveness of our services;

• The willingness of customers to outsource the obtaining of circuits;

• The financial viability of customers and prospective customers;

• The financial viability of our suppliers;

• Our ability to market our services effectively; and

• The growth of the Internet and demand for telecommunications services.

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

Our efforts to develop new service offerings and expand marketing channels may not be successful.

In an effort to increase our revenues, we may invest significant resources to develop and sell new service offerings, such as software or information based products, and to expand marketing channels, including our government markets group. These initiatives may require significant expenditures, which would reduce resources available to maintain and develop our traditional lines of business. Whether new service offerings or expanded marketing efforts succeed depends on factors we control, such as coordinating our internal financial, engineering, marketing, information technology and sales personnel, and on factors we cannot control, including whether customers will pay for these offerings and whether our vendors will provide the goods and services we need. There can be no assurance we will be successful in these efforts. If we do not successfully develop and sell new service offerings and expand marketing channels, we may not increase our revenues and could incur substantial losses that would harm our existing business.

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

We operate in a highly concentrated, high-risk market that has experienced a general deterioration of credit quality. Credit-quality concerns, which have historically affected smaller network service providers and subsequently smaller telecommunications providers, have more recently impacted, and continue to impact, larger telecommunications providers and carriers. Several of our significant customers have filed for reorganization or liquidation under the bankruptcy laws. As a result of the decline in credit quality and these bankruptcies, some of our customers may have inadequate financial resources to meet all of their obligations and may seek to reject or renegotiate their purchase agreements with us. If either significant customers or a significant number of smaller customers are unable to meet their obligations to us, reject their contracts or renegotiate their contracts, we may not be able to recognize future revenues and we may also incur additional bad debt expenses and experience reduced opportunities for growth. If a customer fails to pay us, we may remain obligated to third parties for the cost of circuits previously provided to the customer. Certain current or former customers who are bankrupt have filed and additional customers might file preference actions to try to recover amounts that they previously paid us. These events would harm our cash flow, results of operations and financial condition, as would future deterioration in market conditions in our industry or in the creditworthiness of our significant customers or a significant number of smaller customers.

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

Our common stock may be de-listed from the Nasdaq Small Cap Market, which would reduce the liquidity in the market for our common stock and make capital raising and other transactions more difficult.

In 2002, we moved from the Nasdaq National Market System to the NASDAQ Small Cap Market. As a result, future capital raising activities and acquisitions may be more difficult due to increased state securities laws compliance obligations. The Nasdaq Small Cap Market requires a minimum bid price of $1.00 for continued listing. On June 3, 2003, we received a Nasdaq Staff Determination indicating that we had failed to comply with the $1.00 per share minimum bid price requirement for continued listing set forth in Marketplace Rule 4310(c)(4) and that our securities were, therefore, subject to delisting from the Nasdaq SmallCap Market. On July 21, 2003, our stockholders approved a reverse stock split in an effort to increase our stock price. On July 24, 2003, we had a hearing before a Nasdaq Listing Qualifications Panel to review the Staff Determination. On August 11, 2003, our stock began trading on a post split basis. On August 22, 2003, the Panel granted our request for continued listing. On April 15, 2004, we received a letter from the Nasdaq notifying us that we did not meet its minimum market capitalization, shareholder’s equity or net income requirements and seeking additional information on our plans for regaining compliance. We sent a response on April 28, 2004, in which we described our plan for regaining compliance with the relevant Nasdaq requirements and requested that Nasdaq re-revaluate our status in 90 days.

If we fail to regain the minimum requirements for Nasdaq listing in the future and we are de-listed from the Nasdaq Small Cap Market, our common stock would trade, if it traded at all, in the over-the-counter market, which

most investors view as a less desirable, less liquid marketplace. Among other things, this would place increased regulatory burden upon brokers, making them less likely to make a market in our stock. Loss of our Nasdaq Small Cap Market status would likely make it more difficult for us to raise capital in the future. If we lose our Nasdaq Small Cap Market status, stockholders may find it more difficult to dispose of, or to obtain accurate quotations as to the price of our common stock thereby reducing the liquidity of our stock, making it difficult for a stockholder to buy or sell our stock at competitive market prices, or at all. In addition, we may lose support from institutional investors, brokerage firms and market makers that may currently buy and may sell our stock and provide information to investors about us. Delisting could also cause the price of our stock to decrease further.

If we fail to manage our cost reduction efforts and future expansion effectively, our ability to operate and to increase our services and customer base could suffer.

Our ability to successfully offer our services and implement our business plan in a rapidly evolving market requires effective planning and management of our operations, including our workforce. At December 31, 1997, we had five employees. By the first quarter 2001, we had over 400 full-time employees. Since that time, we have reduced our headcount to approximately 110 full-time employees as of March 31, 2004. These periods of growth and headcount reductions and potential growth in future operations will continue to place a significant strain on our management systems and resources. We cannot be sure that our reduced workforce will be sufficient for us to identify and take advantage of market opportunities and manage multiple relationships with various customers, suppliers and other third parties. If our operations and headcount grow in the future, we expect that we will need to improve our financial and managerial controls, reporting systems and procedures, and expand, train and manage our workforce, and we cannot be sure that will be able to manage this potential expansion effectively.

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

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

We may need to hire additional personnel in the future, and we believe our success depends, in large part, upon our ability to attract and retain our key employees. Attracting and retaining key employees is becoming more difficult due to recent negative publicity regarding our industry, our low stock market capitalization, our limited financial resources and our recent workforce reductions. The loss of the services of any of our key employees, the inability to attract or retain qualified personnel in the future, or delays in hiring required personnel could limit our ability to generate revenues and to operate our business.

Conditions in our industry make forecasting difficult.

Our results have been affected by bankruptcies of our suppliers and customers, credit problems in the telecommunications industry and circuit disconnections. These industry conditions make it difficult for us to accurately predict trends in our business. Accordingly, we are subject to all of the risks that are associated with companies in such an industry, including:

• Undercapitalization;

• Cash shortages;

• Controlling our expenses and cash expenditures;

• The new and unproven nature of the market for some of our services;

• The need to make significant expenditures and incur significant expenses as we develop our business, infrastructure and operations;

• The lack of sufficient customers and revenues to sustain our operations and growth without additional financing;

• Difficulties in managing growth; and

• Limited experience in providing some of the services that we offer or plan to offer.

For example, from time to time we enter into long-term agreements with communications transport suppliers for the supply and installation of communications network capacity. These agreements may generally provide for minimum revenue commitments from us, which we must negotiate based on forecasts of our future network capacity requirements. At March 31, 2004, these minimum purchase commitments totaled approximately $1.8 million per month. Our aggregate actual purchases under these contracts, which averaged approximately $1.2 million per month in the first quarter 2004, have not exceeded these minimum purchase commitments for certain vendors. When our actual purchases fall short of contractual commitments, we may seek to negotiate alternate arrangement with these suppliers. In the event that these negotiations are unsuccessful, we may be left with a shortfall that could affect our operating margins or result in a dispute or litigation with the supplier. If we fail to forecast our network capacity requirements accurately or fail to accurately forecast other aspects of our business, it will be difficult for us to meet these minimum purchase commitments or to become profitable. In addition, it may be difficult for us to meet these minimum purchase commitments if our customers refuse to use capacity provided by a supplier that has filed for bankruptcy protection or is otherwise financially distressed. Management believes we are adequately reserved for any commitment shortfalls.

Recent legal proceedings may adversely affect our results and financial position.

We are party to several legal proceedings, including two securities class action lawsuits that are pending against us. Management believes that these lawsuits are without merit, and we intend to defend these actions vigorously unless a settlement is reached. Because of the complexity of certain of the transactions underlying these lawsuits, as well as the inherent uncertainty of litigation, however, it is possible that the outcome of one or more of these cases may be adverse to us. In addition, the resources required to defend these cases, including the management time and attention required to adequately defend our position, and the costs of potential settlements, or any judgment award may adversely affect our results of operations and financial position.

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

It typically takes 30 to 90 days to supply a circuit for a client, and we do not begin to recognize revenue until a circuit has been installed and accepted by the customer. Once we agree to facilitate the supply of a circuit for a client, we negotiate with one or more transport suppliers and manage the personnel and field technicians of multiple vendors. A client can withdraw its order with minimal liability at any time before accepting the circuit. We may experience difficulties in facilitating the supply of circuits if our transport suppliers run out of capacity, which would force us to look for alternative sources of capacity on short notice. In addition, credit concerns, billing or other disputes with our suppliers may adversely affect their willingness to provide capacity in a timely manner. If we are unable to facilitate the supply of a circuit in a timely manner or fail to obtain client acceptance of the circuit, we would be unable to recognize revenues for that circuit and may incur financial liability to our supplier for that circuit, and our operating results would be adversely affected. Furthermore, because our customers may cancel orders at any time before accepting the circuit, we may find it difficult to forecast revenue and plan our expenses accordingly.

Our ability to implement and maintain our UIX database is a critical business requirement, and if we cannot maintain precise data, we might be unable to cost-effectively facilitate obtaining circuits for our customers.

To be successful, we must increase and update information about pricing, capacity, availability and location of circuits contained in our UIX database. Our ability to cost effectively facilitate the supplying of circuits, to provide ongoing support and to develop new software or information-based products or services depends upon the information we collect from our transport suppliers regarding their networks, which we include in our UIX database. Our suppliers are not obligated to provide us with this information and could decide to stop providing this information to us at any time. Moreover, we cannot be certain that the information that our suppliers share with us is accurate or

current. If we cannot continue to maintain and expand our UIX database as planned, we may be unable to increase our revenues, develop new products or services, or cost-effectively facilitate the supplying of the circuits.

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

One of our primary business objectives is to provide our customers with network monitoring, maintenance and restoration services 24 hours a day, seven days a week through a network operations center. While we currently operate our own network operations facility, our experience in this regard is limited both by the amount of time we have been in business and our providing this service on our own as well as by the technical limitations of managing circuits and services on the networks of other providers. As a consequence, we cannot be sure that our efforts to provide these services will be successful. Our ability to operate a network operations center will depend on many factors, including our ability to train, manage and retain employees. If we fail to successfully operate a network operations center, we may not be able to monitor network operations effectively or troubleshoot circuits in a cost-effective manner, which would cause us to lose customers and make it difficult for us to attract new customers.

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

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

• National and local carriers, such as AT&T, Level 3, Broadwing, Qwest, Sprint, MCI (formerly WorldCom) and WilTel;

• Companies that provide collocation facilities, such as Switch & Data, AT&T and Equinix;

• Competitive access providers and local exchange carriers, such as AT&T, ICG Communications, MCI, XO Communications and FiberNet; and

• Incumbent local exchange carriers, such as Verizon, BellSouth and SBC Communications.

Our industry is expected to consolidate, which would increase the size and scope of our competitors. Competitors could benefit from assets acquired from distressed carriers or strategic alliances in the telecommunications industry. New entrants could enter the market with a business model similar to ours. Our target markets may support only a limited number of competitors. Operations in such markets with multiple competitive providers may be unprofitable for one or more of such providers. Prices in both the long-distance business and the data transmission business have declined significantly in recent years and are expected to continue to decline. In particular, companies that have reduced their debt or other obligations through bankruptcy or other restructurings may have significantly lower cost structures that allow them to offer services at significantly reduced prices. This downward pressure on prices has caused us to lower our prices and margin percentages to remain competitive. As a result, our gross margin percentages have decreased, making it more difficult for us to achieve profitability.

Moreover, while recent regulatory initiatives allow carriers such as us to interconnect with incumbent local exchange carrier facilities and to obtain unbundled network elements from incumbent local exchange carriers, certain initiatives also provide increased pricing flexibility for, and relaxation of regulatory oversight of, incumbent local exchange carriers. This may permit incumbent local exchange carriers to use revenues generated from non-competitive services to subsidize services that compete with our services, allowing them to offer competitive services at lower prices. Existing laws also restrict the Regional Bell Operating Companies from fully competing with us in the market for interstate and international long-distance telecommunications services, but also permit the FCC to lessen or remove some restrictions. Recently the Bell companies have received FCC permission to offer long-distance services to customers in a majority of states. These FCC decisions under existing law, or future amendments to Federal telecommunications laws permitting the regional Bell operating companies to compete fully with us in this market may result in a reduction to our revenues from these services if these companies are able to attract substantial business from our customers.

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

Many of our potential competitors have certain advantages over us, including:

• Substantially greater financial, technical, marketing and other resources, including brand or corporate name recognition;

• Substantially lower cost structures, including cost structures of facility-based providers who have significantly reduced debt and other obligations through bankruptcy or other restructuring proceedings;

• Larger client bases;

• Longer operating histories; and

• More established relationships in the industry.

Our competitors may be able to use these advantages to:

• Expand their offerings more quickly;

• Adapt to new or emerging technologies and changes in client requirements more quickly;

• Take advantage of acquisitions and other opportunities more readily;

• Enter into strategic relationships to rapidly grow the reach of their networks and capacity;

• Devote greater resources to the marketing and sale of their services; and

• Adopt more aggressive pricing and incentive policies, which could drive down margins.

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

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

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

• Uncertainty regarding timing for supplying circuits or failure to obtain client acceptance of circuits;

• Decisions by existing customers not to renew services on a timely basis when existing client contracts terminate;

• Decisions by existing customers operating under bankruptcy protection to reject agreements with us or to try to recover from us in preference actions amounts that they previously paid us;

• The amount of unused circuit capacity that we hold;

• Costs related to acquisitions of technology or businesses;

• Costs related to defending and settling litigation;

• General economic conditions as well as those specific to the telecommunications, Internet and related industries;

• Payment obligations to our suppliers under service agreements in situations in which our client is not able to meet its obligations with us or is not liable to us; and

• Internet growth and demand for Internet infrastructure and telecommunications services.

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

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

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

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

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

• The one-for-twenty reverse split of our common stock completed in August 2003;

• Our independent auditor’s report for the period ended December 31, 2003, which indicates that the auditor has substantial doubts about our ability to continue as a going concern;

• Variations in our operating results;

• Changes in financial estimates or coverage by securities analysts;

• Reduced liquidity resulting from our transfer from the Nasdaq National Market to the Nasdaq SmallCap Market, or the actual or potential delisting of our stock from the Nasdaq SmallCap Market;

• Changes in market valuations of telecommunications and Internet-related companies;

• Announcements by our competitors or us of new products and services or of significant acquisitions, strategic partnerships or joint ventures;

• Any loss or bankruptcy of a major client or supplier;

• Additions or departures of key personnel;

• Any deviations in net revenues or in losses from levels expected by securities analysts;

• Future sales of common stock or other capital raising efforts; and

• Volume fluctuations in the trading of our common stock, which are particularly common among highly volatile securities of telecommunications and Internet-related companies.

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

Our customers depend on our ability to provide ongoing dedicated circuit access and indefeasible rights of use (“IRU’s”). The operation of these circuits depends on the networks of third party transport suppliers. The networks of transport suppliers and customers who may use our UTX facilities may be interrupted by failures in or damage to these facilities. Our facilities and the ongoing circuit and IRU access we provide may be interrupted as a result of various events, many of which we cannot control, including fire, human error, earthquakes and other natural disasters, disasters along communications rights-of-way, power loss, telecommunications failures, sabotage or vandalism, or the financial distress or other events adversely affecting our suppliers, such as bankruptcy or liquidation.

We may be subject to legal claims and be liable for losses suffered by customers and carriers for disruptions to circuits or IRU’s or damage to client or carrier equipment or other property resulting from failures at our facilities or on the networks of third party providers. Unless caused by an event excused under our contract, such as a “force majeure” event, we generally provide outage credits to our customers if service disruptions occur. If our service failure rate is high, we may incur significant expenses related to service outage credits, which would reduce our

revenues and gross margins. We would also incur significant expenses in investigating and addressing the causes of such service failures, which would divert resources from the maintenance or expansion of our services and cause our business to suffer. In addition, we may lack the resources to investigate and address any such failures in as timely a manner as our customers may expect, which may damage our business relationship with those customers and reduce our ability to obtain future business. Customers may seek to terminate their contracts with us if there is a service failure. In addition, if our service failure rate is high, our reputation could be harmed.

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

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

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

Historically, a substantial portion of our revenues has come from a limited number of customers. For example, our three largest customers accounted for approximately 56%, 39%, and 31% of our total revenues in 2001, 2002, and 2003, respectively. In the first quarter of 2004, our three largest clients accounted for approximately 32% of our total revenues compared to approximately 38% in the first quarter of 2003. Although the percentage of our revenues derived from our three largest customers has declined over the three past years, we continue to have a significant number of contracts with these customers and derive a significant portion of our revenues from these customers. These contracts expire on various dates between now and March 2005. If, through a bankruptcy proceeding or otherwise, we lose one or more large customers, or if one or more of our large customers reduces the services they purchase from us or otherwise renegotiates the terms on which they purchase services from us and we fail to add new customers, our revenues could decline and our results of operations would suffer.

We have assumed indebtedness that could restrict our future operating activities.

In April 2004, we entered into a lease termination agreement with one of our landlords under which the leases for two sites were terminated in consideration of a cash payment along with a $1 million promissory note. The promissory note is due in two years with no interest and is convertible into a maximum of 400,000 shares of common stock if certain conditions are met in the future. In addition, in connection with the closing of the Purchase Agreement with CityNet in July 2003, we assumed $2 million in principal amount of a promissory note executed by CityNet and made to Electro Banque. The note is secured by the fiber optic ring located in Albuquerque, New Mexico and related assets, matures in a single installment on December 31, 2007 and does not bear interest until January 1, 2006; thereafter, it bears interest at 8% per annum. The loan documents provide that we will not sell the fiber optic ring unless we make certain payments to Electro Banque. This restriction might prevent us from pursuing potentially advantageous business opportunities. In addition, our ability to repay the above described indebtedness when due will depend upon our ability to generate sufficient revenue, or to renegotiate or replace a portion of the indebtedness on terms and conditions favorable to us, if at all. There can be no assurance that we will generate sufficient revenue or be able to renegotiate or replace the indebtedness on terms and conditions favorable to us.

Operating our UTX facilities causes us to incur significant costs and expenses. To date, the market for our UTX services has been unprofitable.

We have incurred significant costs and expenses in developing our UTX facilities, and we continue to incur costs and expenses related to these facilities in connection with: leasing real estate; hiring, training and managing employees; maintaining power and redundancy systems; maintaining multiple communications connections; and

depreciation of equipment. To date, the market for our UTX services has been unprofitable and has been developing more slowly than we had expected. We have derived substantially all of our revenues from providing on-going circuit access and have only limited experience providing our UTX services. While management believes that some of our UTX facilities have significant value to our business, we have tested and impaired our UTX sites in 2002 and in 2003 in compliance with SFAS No. 144. If the market for our UTX services does not increase significantly, we will not generate revenues to offset the costs we incur in connection with such facilities, and therefore, we will suffer losses. In addition, we are actively seeking termination agreements with the landlords of certain UTX sites and may seek to terminate additional leases in the future. Please see the above risk factor that describes these efforts.

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

Our U.S. communications services are subject to both federal and state regulation. In providing our interstate and international communications services, we must comply with applicable telecommunications laws and regulations prescribed by the FCC and applicable foreign regulatory authorities. At the state level, we are subject to state laws and to regulation by state public utility commissions. Our international services are subject to regulation by foreign authorities and, in some markets, multi-national authorities, such as the European Union.

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

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

Because we purchase telecommunications services from other carriers (including both long-distance and local telephone companies) for resale to our customers, our costs of doing business can be affected by changes in regulatory policies affecting these other carriers. For example, the FCC has recently announced decisions that may increase the costs of some dedicated transmission services offered by the local telephone companies. We cannot control and often cannot predict these types of decisions or their impact on our business operations.

Changes to existing regulations in particular markets may decrease the opportunities that are available for us to enter into those markets, or may increase our legal, administrative or operational costs, or may constrain our activities in other ways that we cannot necessarily anticipate.

Required regulatory approvals may interfere with or delay corporate transactions.

As a regulated company, we may be required to obtain the approval of the FCC and certain state and foreign regulators before engaging in certain types of transactions, including some mergers or acquisitions of other regulated companies, sales of all or substantial portions of our business, issuances of stock, and incurrence of debt obligations. The particular types of transactions that require approval differ in each jurisdiction. If we cannot obtain the required approvals, or if we encounter substantial delays in obtaining them, we may not be able to enter into transactions on favorable terms, if at all, and our flexibility in operating our business will be limited. If our flexibility is limited, we may not be able to optimize our operating results.

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

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

• Difficulty of assimilating acquired operations and personnel and information systems;

• Potential disruption of our ongoing business;

• Possibility that we may not realize an acceptable return on our investment in these acquired companies or assets;

• Diversion of resources;

• Possible inability of management to maintain uniform standards, controls, procedures and policies;

• Risks of entering markets in which we have little or no experience; and

• Potential impairment of relationships with employees, suppliers or customers.

We may need to complete these transactions in order to generate revenues, obtain needed capital, and to continue our business strategies. We cannot be sure that we will be able to obtain any required financing for these transactions or that these transactions will occur.

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

Our services require a sophisticated sales and marketing effort that targets key people within our prospective customers’ organizations. This sales effort requires the efforts of select personnel as well as specialized system and consulting engineers within our organization. Our ability to execute our sales and marketing initiatives depends on many factors, including our ability to train, manage and retain employees. If we are unable to effectively staff our marketing and sales operations, or our marketing efforts are not successful, we may not be able to increase market awareness or sales of our products and services, which may prevent us from achieving and maintaining profitability.

If we do not continue to train, manage and retain our employees, customers may significantly reduce purchases of our services.

Our employees are responsible for providing our customers with technical and operational support, and for identifying and developing opportunities to provide additional services to our existing customers. If we fail to train, manage and retain our employees, we may be limited in our ability to gain more business from existing customers, and we may be unable to obtain or maintain current information regarding our customers’ and suppliers’ communications networks, which could limit our ability to provision future circuits for our customers or sell and/or develop new service offerings.

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

Our ability to manage our business could be harmed if we fail to successfully and promptly maintain and upgrade our management information systems as necessary. In addition, our ability to efficiently operate our business could suffer if the software that runs our information systems malfunctions.

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

We have no patented technology that would preclude or inhibit competitors from replicating our business. We rely on a combination of copyright, trademark, service mark and trade secret laws and contractual restrictions to establish and protect our intellectual property. We have applied for registration of certain of our service marks in the United States and in other countries, and have obtained registrations for certain of our service marks in the United States, Canada, the European Union, Australia, Korea, Indonesia, Mexico, Thailand, Switzerland, New Zealand, Taiwan, and Singapore. Even if additional registrations are granted, we may be limited in the scope of services for

which we may exclusively use our service marks. We enter into confidentiality agreements with our employees, consultants and partners, and we control access to, and distribution of, our proprietary information. Our intellectual property may be misappropriated or a third party may independently develop similar intellectual property. Moreover, the laws of certain foreign countries may not protect our intellectual property rights to the same extent as do the laws of the United States. Unauthorized use of any of our proprietary information could expose us to competition, which would harm our ability to attract new and existing customers and generate revenues.

CityNet owns a majority of our outstanding common stock, which may discourage third party offers to acquire us.

CityNet has significant control over us. CityNet owns approximately 55% of our outstanding common stock on a fully-diluted basis (excluding those options and warrants outstanding at July 23, 2003 having an exercise price above $20.00 per share). In addition, CityNet has designated five of the members of our board of directors, including the chairman. The extent of CityNet’s control over us may have the effect of discouraging third party offers to acquire us.

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

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

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

A small number of our current stockholders hold a substantial number of shares of our common stock. Pursuant to the terms of the Purchase Agreement we entered into with CityNet on July 23, 2003, we also concurrently entered into a stockholders agreement with CityNet, ICG Holdings, Inc., ComVentures and two of our former executives. Under this agreement, these stockholders, including CityNet, among other things, have agreed to limitations on their ability to dispose of shares of Common Stock until July 23, 2004, which is twelve months after the closing under the purchase agreement, except as otherwise agreed to by the vote of a majority of our board. These stockholders beneficially own approximately 75% of our outstanding common stock. Sales of a substantial number of shares of our common stock or market expectations that these sales may occur could cause our stock price to fall. In addition, the sale of these shares could make it difficult for us to raise necessary capital by issuing additional common stock.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments without significantly increasing risk. Some of the securities that we may invest in may be subject to market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. For example, if we hold a security that was issued with a fixed interest rate at the then-prevailing rate and the prevailing interest rate later rises, the principal amount of our investment will probably decline. To minimize this risk, we maintain our portfolio of cash equivalents in a variety of securities, including commercial paper, money market funds, government and non-government debt securities. In general, money market funds are not subject to market risk because the interest paid on such funds fluctuates with the prevailing interest rate. As of March 31, 2004, all of our investments were in cash and cash equivalents.

Interest Rate Sensitivity

We maintain our cash equivalents primarily in a portfolio comprised of commercial paper, money market funds, and investment grade debt securities. As of March 31, 2004, all of our investments had maturities of less than three months. Accordingly, we do not believe that our investments have significant exposure to interest rate risk.

Exchange Rate Sensitivity

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

ITEM 4. CONTROLS AND PROCEDURES

Our management, including our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of our disclosure controls and procedures (as defined in Rule 15d-14(c) under the Securities Exchange Act of 1934, as amended) as of the filing date of this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that we had sufficient procedures for recording, processing, summarizing, and reporting information that is required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended. Our controls were designed by our management.

There have not been any significant changes to our internal controls or in other factors that could significantly affect these controls subsequent to the date of this evaluation.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On April 9, 2004, in a matter pending against us and some of our former officers and directors in the United States District Court for the Southern District of Texas and captioned In re: Universal Access, Inc. Securities Litigation Civil Action No. 9:02LV103, the court denied our motion to dismiss other than with respect to two of the defendants. The complaint in this matter alleges causes of action for securities fraud in connection with public disclosures made by our officers between 2000 and 2002.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) List of Exhibits

Exhibit Number		Description of Document
2.1		Agreement and Plan of Merger among the Company, Migration Corporation and Universal Access, Inc. dated July 18, 2001.(1)
2.2		Stock Purchase Agreement with CityNet Telecommunications, Inc. dated April 7, 2003.(2)
2.3		Letter agreement with CityNet Telecommunications, Inc. dated April 7, 2003.(2)
2.4		Letter agreement with CityNet Telecommunications, Inc. dated July 23, 2003.(3)
3.1		Restated Certificate of Incorporation of the Company.(4)
3.1.1		Amendment to the Restated Certificate of Incorporation of the Company.(3)
3.2		Amended and Restated Bylaws of the Company.(1)
4.1		Form of the Company’s Common Stock certificate.(3)
4.2		Amended and Restated Registration and Informational Rights Agreement dated June 28, 1999.(5)
4.3		Amended and Restated Registration and Informational Rights Agreement dated June 30, 1999.(5)
4.4		Registration Rights Agreement dated November 10, 1999.(5)
4.5		Registration Rights Agreement dated July 1, 2000.(6)
4.6		Registration Rights Agreement with CityNet Telecommunications, Inc. dated July 23, 2003.(3)
4.7		Form of warrant to purchase shares of Common Stock of the Company issued to Advanced Equities.(5)
4.8		Preferred Stock Rights Agreement, dated as of July 31, 2000, between Universal Access, Inc. and Wells Fargo, including the Certificate of Designation, the form of Rights Certificate and the Summary of Rights attached thereto as Exhibits A, B, and C, respectively.(7)
4.8.1		Assumption of and Amendment to the Universal Access, Inc. Preferred Stock Rights Agreement

		dated July 13, 2001.(1)
4.8.2		Second Amendment to the Universal Access Global Holdings Inc. Preferred Stock Rights Agreement dated April 7, 2003.(2)
4.9		Stockholders Agreement dated July 23, 2003.(3)
4.10		Warrant to purchase shares of Common Stock of the Company issued to Broadmark Capital, Inc. dated July 23, 2003.(3)
10.20		Indemnification Agreement with CityNet Telecommunications, Inc. dated April 25, 2004.
10.21		Convertible Promissory Note with Lafayette Business Park, LLC dated April 28, 2004.
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1) Filed with the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2001.

(2) Filed with the Company’s Current Report on Form 8-K dated April 11, 2003.

(3) Filed with the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2003.

(4) Filed with the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2002.

(5) Filed with the Company’s Registration Statement on Form S-1 (No. 333-93039) filed with the Securities and Exchange Commission by the Company in connection with its initial public offering that became effective March 16, 2000.

(6) Filed with the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2000.

(7) Filed with the Company’s Registration Statement on Form 8-A, filed with the Securities and Exchange Commission on August 9, 2000.

† Confidential treatment requested for certain portions of this Exhibit that portions have been omitted and filed separately with the Securities and Exchange Commission.

(b) Reports on Form 8-K:

On January 7, 2004, the Company filed with the SEC a report on Form 8-K, which was furnished pursuant to Item 5 of Form 8-K and which announced that Carolyn F. Katz had resigned from the Board of Directors of the Company, effective December 31, 2003.

On January 27, 2004, the Company filed with the SEC a report on Form 8-K, which was furnished pursuant to Item 5 of Form 8-K and which announced that Les W. Hankinson had resigned as Senior Vice President, Sales of the Company, effective January 20, 2004.

On February 5, 2004, the Company filed with the SEC a report on Form 8-K, which was furnished pursuant to Item 5 of Form 8-K and which announced that the Company had appointed Valerie R. Ianieri as its Senior Vice President and Chief Sales Officer, effective January 28, 2004.

SIGNATURES

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

	UNIVERSAL ACCESS GLOBAL HOLDINGS INC.
	(Registrant)


Dated: May 14, 2004	By:	/s/ BRIAN W. CODERRE
		Name: Brian W. Coderre
		Title: Chief Financial Officer
		(Principal Financial and Accounting Officer)