<PAGE>   1


    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 3, 2000

                                                      REGISTRATION NO. 333-87043
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                        PRE-EFFECTIVE AMENDMENT NO. 5 TO

                            ------------------------

                                    FORM S-1
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933

                            ------------------------


                             INTELLESALE.COM, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<CAPTION>
                DELAWARE                                      5961                                     52-2137650
<S>                                         <C>                                         <C>
    (State or other jurisdiction of               (Primary Standard Industrial            (I.R.S. Employer Identification No.)
     incorporation or organization)               Classification Code Number)
                                                        510 RYERSON ROAD
                                                 LINCOLN PARK, NEW JERSEY 07035
                                                         (973) 686-9100
                                               (Address, including zip code, and
                                             telephone number, including area code,
                                              of registrant's principal executive
                                                            offices)
</TABLE>

                            ------------------------

                               CHARLES D. NEWMAN
                            EXECUTIVE VICE PRESIDENT
                                510 RYERSON ROAD
                         LINCOLN PARK, NEW JERSEY 07035
                                 (973) 686-9100
           (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
                   INCLUDING AREA CODE, OF AGENT FOR SERVICE)

                            ------------------------


                        COPIES OF ALL CORRESPONDENCE TO:


<TABLE>
<S>                                         <C>                                         <C>
          Michael Krawitz, Esq.                     Denis P. McCusker, Esq.                        Paul Jacobs, Esq.
         Intellesale.com, Inc.                           Bryan Cave LLP                           Roy L. Goldman, Esq.
            510 Ryerson Road                        One Metropolitan Square                   Fulbright & Jaworski L.L.P.
     Lincoln Park, New Jersey 07035              211 North Broadway, Suite 3600                     666 Fifth Avenue
             (973) 686-9100                      St. Louis, Missouri 63102-2750                 New York, New York 10103
          (973) 694-1166 (fax)                           (314) 259-2000                              (212) 318-3000
                                                      (314) 259-2020 (fax)                        (212) 752-5958 (fax)
</TABLE>

                            ------------------------

    Approximate date of commencement of proposed sale to public: As soon as
practicable after this registration statement becomes effective.

    If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

    If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

    If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

    If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

    If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

                            ------------------------


                        CALCULATION OF REGISTRATION FEE


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
                                                                PROPOSED MAXIMUM
                   TITLE OF EACH CLASS OF                           AGGREGATE             AMOUNT OF
                SECURITIES TO BE REGISTERED                     OFFERING PRICE(1)    REGISTRATION FEE(2)
--------------------------------------------------------------------------------------------------------
<S>                                                             <C>                  <C>
Common Stock, $0.0001 par value per share...................       $65,550,000             $18,223
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee
    pursuant to Rule 457(o) under the Securities Act of 1933 and includes shares
    that may be purchased by the underwriters to cover over-allotments, if any.

(2) Previously paid.
                            ------------------------

    THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2

     THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
     CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
     FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
     PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE
     NOT SOLICITING ANY OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE
     OFFER OR SALE IS NOT PERMITTED.


                  PRELIMINARY PROSPECTUS DATED JANUARY 3, 2000


PROSPECTUS

                                5,700,000 SHARES


                               [INTELLESALE LOGO]

                                  COMMON STOCK


                      ------------------------------------

     This is the initial public offering of Intellesale.com, Inc. Intellesale is
offering 4,000,000 shares, and the selling stockholder, Applied Digital
Solutions, Inc., is offering 1,700,000 shares. In addition, the underwriters may
purchase up to 600,000 additional shares from Intellesale and 255,000 additional
shares from Applied Digital Solutions to cover over-allotments. Upon completion
of this offering, Applied Digital Solutions will beneficially own approximately
49.9% of our common stock. Applied Digital Solutions has agreed to vote its
shares in proportion to the votes of the other stockholders. We will not receive
any proceeds from shares of common stock sold by the selling stockholder.


     Prior to this offering, there has been no public market for our common
stock. We currently estimate that the initial public offering price of the
shares will be between $8.00 and $10.00 per share. We have applied for inclusion
of our common stock on the Nasdaq National Market under the symbol "SALE."


      SEE "RISK FACTORS" STARTING ON PAGE 7 TO READ ABOUT MATERIAL RISKS YOU
SHOULD CONSIDER BEFORE YOU PURCHASE SHARES OF OUR COMMON STOCK.

                      ------------------------------------


     NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.


                      ------------------------------------

<TABLE>
<CAPTION>
                                                                PER SHARE     TOTAL
                                                                ---------    -------
<S>                                                             <C>          <C>
Initial public offering price...............................     $           $
Underwriting discounts and commissions......................     $           $
Proceeds to Intellesale, before expenses....................     $           $
Proceeds to selling stockholder, before expenses............     $           $
</TABLE>

                      ------------------------------------


     The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about           ,
2000.


LADENBURG THALMANN & CO. INC.                             PUNK, ZIEGEL & COMPANY


                      ------------------------------------



                     Prospectus dated                , 2000

<PAGE>   3


DESCRIPTION OF PICTURES AND ARTWORK APPEARING ON THE INSIDE FRONT AND BACK COVER
PAGES:



     Inside front cover page:



     Three sample screens from Intellesale's website appear vertically on the
page. Above the first screen, the following text appears: "Easy navigation and
simple graphics allow for fast loading and access to purchasing pages." The
words "Easy navigation" and "access to purchasing pages" are in larger type size
than the other words.



     To the left of the second screen, the following text appears: "Our 'Make Us
An Offer' feature allows our customers to pick their own price." The words
" 'Make Us An Offer' " are in larger type size than the other words.



     Below the third screen, the following text appears: " 'Shop Your Way' lets
customers shop by brand, price and speed." The words " 'Shop Your Way' " are in
larger type size than the other words.



     The following text appears below the screens: "Intellesale sells
refurbished and new computer equipment through our website and through
traditional channels. We are migrating most of our business to the internet. We
launched www.intellesale.com in January 1999 and, for the first nine months of
1999, 37% of our revenue, pro forma for acquisitions, was from sales through the
internet and 63% was through traditional channels."



     The Intellesale.com logo appears below the screens and behind the last
paragraph of text. Underneath the Intellesale.com logo is our website address,
"www.intellesale.com".



     Inside back cover page:



     Included on the inside back cover artwork is a 3/4 view photo of our
headquarters building. Below the photo is the following caption: "Our 144,000
square foot corporate headquarters and East Coast distribution facility located
in Lincoln Park, New Jersey".



     The Intellesale.com logo is set forth on the bottom half of the page.
Underneath the Intellesale.com logo are the words "THE INTELLIGENT CHOICE".

<PAGE>   4

                                    SUMMARY


     The information below is only a summary of more detailed information
included in other sections of this prospectus. The other information is
important, so please read this entire prospectus carefully. Unless otherwise
stated, the information contained in this prospectus assumes that the
underwriters' over-allotment option to purchase a total of 855,000 shares of
common stock from us and from Applied Digital Solutions is not exercised and
that we issue 1,629,889 shares of common stock to the sellers of businesses we
previously acquired as described under "Certain Relationships and Related
Transactions -- Acquisition of Minority Interests."



                             INTELLESALE.COM, INC.


OUR BUSINESS


     Intellesale sells refurbished and new computer equipment and related
products. We sell products online through our website at www.Intellesale.com and
through other Internet companies, as well as through traditional channels, which
include sales made by our sales force and through products advertised via
catalogs and other conventional media advertising. Our business consists of the
operations of 14 businesses acquired by Applied Digital Solutions from 1995
through 1999 that have been operated by our senior management as a separate
operating unit of Applied Digital Solutions. These predecessor businesses
acquired by Applied Digital Solutions were combined into Intellesale in July
1999 in anticipation of this offering.



     We began offering products on the Internet in the second quarter of 1998
with our acquisition of Data Path Technologies, one of our predecessor
companies. We established the Intellesale.com website in January 1999 and began
to focus our business on, and migrate our business to, the Internet. The
Internet is our fastest growing sales channel, and we believe that the Internet
will be the basis for our future growth. In addition to selling products on our
website, we distribute products over the Internet through arrangements with
other online companies.


     In addition to our Internet retail business, we buy and remarket computer
equipment and components to traditional wholesalers, retailers and value-added
resellers, as well as individual and corporate end users, and provide
integration and consulting services, computer recycling, parts-on-demand
services and transportation services for computer and other equipment. We are
transitioning this traditional commerce business to the Internet to the extent
feasible.


     We offer a wide range of refurbished and new products, including laptop and
desktop computers, monitors, disk drives, modems, printers, scanners, memory,
expansion boards, cables and connectors. The majority of the products we offer
are brand name Intel Pentium(R) class or equivalent products manufactured by
IBM, Toshiba, Sony, Fujitsu, Compaq, Hewlett-Packard and other major
manufacturers. We offer our customers complete packages including monitors,
regularly-featured specials and the ability to purchase selected merchandise on
an auction basis. We provide a minimum six-month warranty for most products not
covered by manufacturer warranties. In addition, we offer our customers the
opportunity to purchase an extended warranty, which is priced on the basis of
the selling price of the item covered.

<PAGE>   5

     We are not aware of any major online retailers currently focusing
principally on refurbished computer equipment. We believe the demand for
refurbished brand name computer equipment is growing as consumers realize they
can purchase refurbished products that can serve their needs at substantial
discounts to the price of new merchandise. At the same time, shorter product
cycles result in frequent replacement of equipment. This leads to increased
quantities of off-lease and excess inventory computer equipment which vendors
and leasing companies need to dispose of in large quantities without adversely
affecting their lease or sale of new products. We offer such vendors and leasing
companies the ability to conveniently sell all their products in a single
transaction. We believe that our ability to acquire many different types of
equipment in large quantities through our established vendor relationships
provides us with a significant competitive advantage both with consumers and
vendors.

     According to International Data Corporation, a market research firm, the
number of people making purchases over the Internet will increase from
approximately 31 million in 1998 to approximately 183 million in 2003. According
to Jupiter Communications, another market research firm, the second largest
category of e-commerce spending is computer hardware and software, which Jupiter
projects will grow from approximately $3.1 billion in 1998 to approximately
$15.8 billion in 2003.

     Our goal is to become the website of choice for consumers and businesses
seeking refurbished and new computer equipment. Our strategy to achieve our goal
includes the following:


     Increase Brand Awareness.  Although we have not devoted significant
resources to the marketing and promotion of our brand, for the first nine months
of 1999 our Internet revenues represented 35.8% of our total revenues. We intend
to use a portion of the proceeds from this offering to increase our marketing
and promotional efforts in order to increase our brand awareness. We believe
that a strong brand name is critical to differentiating Intellesale and
attracting a high level of customer traffic and purchases.



     Increase Cooperative Relationships.  We have established cooperative
relationships with several online companies, including Egghead.com (formerly
OnSale) which hosts auctions of our products in exchange for a commission. We
also advertise on, and sell our products through, other Internet portals and
websites. We intend to expand our existing programs and establish new programs
under which other online companies will promote our products on their websites
and in their other customer communications.


     Continue Improving Our Website.  We intend to expand our Internet sales
through continued upgrading and improvements to our website. We plan to add new
features to our website and improve its design on an ongoing basis.

     Migrate Other Parts of Our Business to the Internet.  We believe most of
our products can be marketed more effectively through our website. As we expand
our Internet presence, we have begun to migrate the traditional commerce segment
of our business to the Internet to the extent feasible, which should allow us to
expand our customer base, increase efficiency and reduce our operating costs.


     Expand and Improve Procurement Sources.  In order to be able to offer
attractive prices to customers yet maintain our margins, we must be able to
acquire a sufficient amount of product at favorable prices. In order to continue
and expand our procurement capability, we intend to maintain and enhance our
existing relationships with leasing companies, manufacturers and other sources
of equipment and to pursue new relationships.

                                        2
<PAGE>   6

ABOUT US


     We were incorporated in Delaware in December 1998 by our parent
corporation, Applied Digital Solutions, Inc., and in July 1999 we combined the
predecessor businesses operated by our senior management as a separate operating
unit of Applied Digital Solutions into Intellesale. When we refer to "we" or
"us" in describing our business or operations, we are referring to these
businesses and operations which have been combined to make up Intellesale.



     Applied Digital Solutions, which currently owns approximately 80% of our
outstanding stock and is the selling stockholder in this offering, is
principally engaged in the communications industry and is publicly traded on the
Nasdaq National Market. Following completion of this offering Applied Digital
Solutions will beneficially own approximately 49.9% of our common stock. Applied
Digital Solutions has agreed to vote its shares in proportion to the votes of
the other stockholders.


     Our principal offices are located at 510 Ryerson Road, Lincoln Park, New
Jersey 07035, and our telephone number is (973) 686-9100. Our website is
www.Intellesale.com. The information on our website is not incorporated by
reference into this prospectus.

RISK FACTORS


     See "Risk Factors," starting on page 7, to read about factors you should
consider before you purchase shares of our common stock. These factors include
the following:


     - We have transacted business over the Internet for only a short period of
       time and our business model is unproven;

     - We may have difficulty integrating and successfully operating the 14
       companies which Applied Digital Solutions acquired since the beginning of
       1995 and combined to form Intellesale, including Bostek, Inc. and its
       affiliate which were acquired in June 1999;

     - We must develop a strong brand identity in order for our business to
       continue to grow;

     - We may not be successful in establishing and maintaining relationships
       with other online companies;

     - The level of business we conduct with other companies may fluctuate
       significantly, and we may lose customers, through disputes or otherwise;

     - If we need additional financing and cannot obtain it, we may not be able
       to achieve our strategic business objectives;

     - In our industry, we face intense competition in each area of our
       business;

     - We may be subject to Internet service disruptions, which could harm our
       business and damage our reputation and credibility;

     - Future sales of our common stock could adversely affect the market price
       of our common stock; and

     - There will be immediate and substantial dilution to new investors as a
       result of this offering.
                                        3
<PAGE>   7


                                  THE OFFERING


Common stock offered

  By Intellesale................    4,000,000 shares


  By Applied Digital
  Solutions.....................    1,700,000 shares


Number of shares outstanding
after the offering..............    20,644,889 shares


Use of proceeds we will
receive.........................    - Repay $17.0 million of our outstanding
                                       indebtedness;



                                    - Pay a total of $5.5 million to various
                                      persons in connection with the settlement
                                      of their earn-out payment rights and the
                                      purchase of minority interests in our
                                      subsidiaries; and



                                    - Increase advertising and other marketing
                                      efforts in connection with the further
                                      development of our Internet business and
                                      the migration of other parts of our
                                      business to the Internet, which we
                                      anticipate will entail expenditures of
                                      approximately $10.0 million during the 12
                                      months following the offering.


Proposed Nasdaq National Market
  symbol........................    "SALE"

     You should be aware that the total shares outstanding after this offering:

     - include 1,629,889 shares of common stock to be issued immediately
       following this offering to the sellers of businesses we acquired, based
       on an assumed initial public offering price of $9.00 per share; and

     - do not include

        -- 2,335,000 shares reserved for issuance under our 1999 Flexible Stock
           Plan;

        -- 5,600,000 shares reserved for issuance under outstanding options; and

        -- 600,000 shares issuable by us if the underwriters exercise their
           over-allotment option.

     The shares offered by Applied Digital Solutions do not include 255,000
shares that it will sell if the underwriters exercise their over-allotment
option.
                                        4
<PAGE>   8


                             SUMMARY FINANCIAL DATA



     The following table summarizes certain financial information about our
business. The pro forma data give effect to our acquisition of Bostek, Inc. and
an affiliate of Bostek as if it had been completed on January 1, 1998. Operating
results prior to 1999 represent the combined statements of the predecessor
companies to Intellesale. Because Intellesale was not formed until December
1998, no historical earnings per share information is provided for periods ended
on or before December 31, 1998. See Note 1 to our financial statements for
additional information. Because of our rapid growth through acquisitions,
including Bostek, and our recent shift to transacting business on the Internet,
the historic information reflected below may not be a good basis for evaluating
our current and future performance. For a more detailed explanation of this
data, see "Selected Financial Data," "Pro Forma Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Management's Discussion and Analysis of Pro Forma Results of
Operations" and our financial statements located elsewhere in this prospectus.



<TABLE>
<CAPTION>
                                 ACTUAL              PRO FORMA                ACTUAL                PRO FORMA
                       --------------------------   ------------   ----------------------------   -------------
                                                                    PREDECESSOR
                         PREDECESSOR COMPANIES                       COMPANIES
                             TO INTELLESALE         INTELLESALE    TO INTELLESALE   INTELLESALE    INTELLESALE
                       --------------------------   ------------   --------------   -----------   -------------
                                                                                                   NINE MONTHS
                               YEAR ENDED            YEAR ENDED         NINE MONTHS ENDED             ENDED
                              DECEMBER 31,          DECEMBER 31,          SEPTEMBER 30,           SEPTEMBER 30,
                       --------------------------   ------------   ----------------------------   -------------
                        1996     1997      1998         1998            1998           1999           1999
                       ------   -------   -------   ------------   --------------   -----------   -------------
                                               (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                    <C>      <C>       <C>       <C>            <C>              <C>           <C>
Total revenues.......  $1,993   $39,445   $60,743     $127,848        $43,041         $87,875       $121,275
Cost of goods sold...     851    33,202    47,623      105,386         33,891          68,536         98,132
Gross profit.........   1,142     6,243    13,120       22,462          9,150          19,339         23,143
Depreciation and
  amortization.......     110       342       774        5,397            551           2,530          3,844
Operating income.....     397     2,123     3,621          520          2,564           3,145          2,211
Net income (loss)....  $  168   $   841   $ 1,453     $ (2,815)       $ 1,111         $   593       $   (759)
Earnings (loss) per
  common share --
  basic..............      --        --        --     $   (.19)            --         $  . 04       $   (.05)
Earnings (loss) per
  common share --
  diluted............      --        --        --     $   (.19)            --         $   .03       $   (.05)
Weighted average
  common shares
  outstanding --
  basic..............      --        --        --       15,000             --          15,000         15,000
Weighted average
  common shares
  outstanding --
  diluted............      --        --        --       15,000             --          17,392         15,000
</TABLE>


                                        5
<PAGE>   9


     The following balance sheet data give effect to our sale of 4,000,000
shares of common stock in this offering at an assumed initial public offering
price of $9.00 per share, after deducting the estimated underwriting discounts
and commissions and estimated offering expenses, and the application of the
estimated net proceeds from this offering and on a pro forma as adjusted basis
to further reflect the issuance of 1,111,111 shares to the sellers of Bostek and
the issuance of 518,778 shares and the payment of $5,521,000 in cash in
settlement of earn-out obligations and the acquisition of minority interests in
our subsidiaries. The assumed initial public offering price is the midpoint of
the estimated range of the initial public offering price. See "Use of Proceeds."



<TABLE>
<CAPTION>
                                                               INTELLESALE
                                                            SEPTEMBER 30, 1999
                                                  --------------------------------------
                                                                              PRO FORMA
                                                   ACTUAL     AS ADJUSTED    AS ADJUSTED
                                                  --------    -----------    -----------
                                                             ($ IN THOUSANDS)
<S>                                               <C>         <C>            <C>
BALANCE SHEET DATA
Cash and cash equivalents.....................    $    910     $ 16,445       $ 10,924
Working capital(1)............................     (16,952)      15,583         20,062
Goodwill, net.................................      32,742       32,742         42,322
Total assets..................................      89,017      104,552        108,611
Due to parent company(2)......................      34,173       17,173         17,173
Due to stockholders of Bostek.................      15,000       15,000          5,000
Stockholders' equity..........................      18,408       50,943         65,612
</TABLE>


-------------------------

(1) Actual working capital includes amounts owed to Applied Digital Solutions.


(2) At the closing of this offering we expect to have our own line of credit in
    place, which will replace the line of credit which Applied Digital Solutions
    is now providing to us. We intend to use $17.0 million of the proceeds of
    this offering and borrowings under this facility to repay all amounts we owe
    to Applied Digital Solutions, which aggregated $36.0 million at December 21,
    1999.

                                        6
<PAGE>   10


                                  RISK FACTORS



     You should carefully consider the risk factors listed below and the other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Any or all of the
risks listed below could have a material adverse effect on our business, our
quarterly and annual operating results or financial condition, which could cause
substantial volatility in our stock price and/or cause the market price of our
stock to decline, in which event you could lose your investment in our common
stock. You should also keep these risk factors in mind when you read
forward-looking statements. We have identified all of the material risks which
we believe may affect our business and the principal ways in which we anticipate
that they may affect our business or financial condition.


RISKS RELATING TO OUR BUSINESS

BECAUSE WE HAVE TRANSACTED BUSINESS OVER THE INTERNET ONLY SINCE APRIL 1998 AND
OUR BUSINESS MODEL IS THEREFORE UNPROVEN, YOU HAVE ONLY A LIMITED BASIS ON WHICH
TO EVALUATE OUR BUSINESS AND PROSPECTS

     Our Internet business began with our acquisition of Data Path Technologies
in the second quarter of 1998. In January 1999, we shifted our business emphasis
to the Internet and away from traditional commerce. We expect that expanding our
Internet business will continue to be the major focus of our strategy for the
foreseeable future and that the Internet will be the basis for our future
growth. We cannot be certain that we will be successful in implementing the
changes required to carry out our business model, or that we will be able to
compete successfully in this highly competitive area. For calendar year 1998 and
the first nine months of 1999, on a pro forma basis, Internet revenues, in which
we sell refurbished and new computer products on a retail basis through our
website, represented $26.5 million, or 20.7% of total revenues, and $44.7
million, or 36.8% of total revenues, respectively. On an actual basis, Internet
revenues were $31.4 million, or 35.8% of total revenues, for the nine months
ended September 30, 1999 compared with $4.5 million, or 10.6% of total revenues,
for the nine months ended September 30, 1998.

     Because of our recent shift to focus on direct Internet sales, we have had
only a limited operating history selling products on the Internet. As a result,
you have only limited historical information on which to evaluate our business
and prospects as an e-commerce company.

WE MAY HAVE DIFFICULTY INTEGRATING OUR RECENT ACQUISITIONS


     Since the beginning of 1997, we have completed 12 acquisitions, including
the Bostek acquisition, which was completed effective June 1, 1999. On a pro
forma basis, these acquisitions accounted for approximately 95.3% of our
revenues for the year ended December 31, 1998. In the Bostek transaction, we
acquired Bostek, Inc. and its affiliate, Micro Components International,
Incorporated, which are engaged in the business of acquiring excess inventory
and refurbished computer equipment and selling such equipment, primarily over
the Internet. We expect this acquisition will be a major part of our Internet
business. On a pro forma basis, Bostek represents 47.5% of our revenues for the
year ended December 31, 1998 and 55.1% for the nine months ended September 30,
1999.


                                        7
<PAGE>   11


     Our success will depend in large part on our ability to fully integrate the
operations and management of these recently acquired entities, particularly
Bostek. A successful integration requires, among other things, the integration
of product offerings, including offerings on our website, sales and marketing
and financial reporting. The difficulties of integration may be increased by the
necessity of coordinating geographically separated organizations, integrating
personnel with disparate business backgrounds and combining different corporate
cultures. We cannot assure you that we will accomplish the integration
successfully or that we will realize the anticipated benefits of these
acquisitions. The success of the integration will require the dedication of
management and other personnel resources which may distract their attention from
our day-to-day business.


GOODWILL WRITE-OFFS WILL REDUCE OUR EARNINGS


     As a result of all of the acquisitions described in this prospectus and the
purchases of related minority interests to occur at the closing of this
offering, we will amortize approximately $6.6 million of goodwill annually,
which will reduce our earnings per share. Our historical results of operations
and earnings do not fully reflect these goodwill charges. Goodwill is being
amortized over 7 years. As required by Statement of Financial Accounting
Standards No. 121, we will periodically review our goodwill for impairment based
on expected future discounted cash flows. If we determine that there is such
impairment, we would be required to write down the amount of goodwill
accordingly, which would also reduce our earnings.


WE MAY HAVE DIFFICULTY MANAGING OUR FUTURE GROWTH


     If we are unable to manage our growth effectively, our business will
suffer. Our business has been growing rapidly; the number of our employees has
increased from 114 to 371 between the beginning of 1999 and November 30, 1999,
and our revenues increased from $43.0 million for the nine months ended
September 30, 1998 to $87.9 million for the nine months ended September 30,
1999. Our business plan calls for continued substantial growth. To manage such
growth in a rapidly evolving market requires an effective planning and
management process. This will place a significant strain on our management,
information systems and financial resources. Our future success will depend on
our ability to address potential growth in the number of customers, to expand
our product and service offerings and to pursue other market opportunities. We
expect that we will need to expand existing operations, particularly those
relating to customer service and product acquisition. We expect that we will
also need to continue to improve our operational, financial and inventory
systems, procedures and controls, and will need to expand, train and manage our
workforce. Furthermore, we will need to continue to manage multiple
relationships with various suppliers, freight companies, websites, Internet
service providers and other third parties to keep control over our strategic
direction as our e-commerce business evolves.


UNLESS WE DEVELOP A STRONG BRAND IDENTITY, OUR BUSINESS MAY NOT CONTINUE TO GROW
AND OUR FINANCIAL RESULTS MAY SUFFER

     We believe that developing our brand name and Internet presence will be
critical to achieving widespread acceptance of our products and services.
Promoting and positioning our brand will depend largely on the success of our
marketing efforts, our ability to provide high quality products and services at
attractive prices and our relationships with other Internet companies. In order
to promote our brand, we will need to continue to increase our marketing budget
and otherwise increase our financial commitment to creating and

                                        8
<PAGE>   12


maintaining brand loyalty among users. We plan to use approximately $10 million
of the proceeds of this offering for marketing over the next 12 months,
primarily for advertising on other websites and print advertisements in
magazines. We expect to spend approximately 40% on each of these activities and
expect that the remaining 20% will be divided approximately evenly among outdoor
advertising, radio advertising and promotional advertising. Brand promotion
activities may not yield increased revenues, and if they do, any increased
revenues may not offset the expenses we incur in building our brand. Even if we
do attract new customers, they may not return to our website to conduct
additional transactions. If we fail to establish a strong brand identity or
incur substantial expenses in an unsuccessful attempt to establish a strong
brand identity, our business could be harmed.


WE RELY ON MERCHANDISE VENDORS AS SOURCES FOR OUR PRODUCTS


     The availability of off-lease and excess inventory computer equipment is
unpredictable. We have no long-term arrangements with our vendors that assure
the availability of merchandise. We purchase products from more than 250
different vendors, although we have no formal commitments with any of them. We
cannot assure you that our current vendors will continue to sell merchandise to
us as they have in the past, or that we will be able to establish new vendor
relationships that ensure merchandise will be available to us in sufficient
quantities and at favorable prices. If we are unable to obtain sufficient
quantities of products at favorable prices, our business will be adversely
affected.


     In addition, we may become obligated to deliver specified types of computer
equipment in a short time period and, in some cases, at specified prices, as has
been the case with our arrangement with FlashNet. Because we have no formal
relationships with vendors, we may not be able to obtain the required equipment
in sufficient quantities in a timely manner, which could adversely affect our
ability to fulfill these obligations.

IF WE ARE UNABLE TO ESTABLISH AND MAINTAIN OUR RELATIONSHIPS WITH OTHER ONLINE
COMPANIES, OUR BUSINESS COULD BE HARMED


     We depend to a great extent on relationships with other online companies,
including Egghead.com, Inc. (formerly OnSale, Inc.), a company which hosts
auctions of our products in exchange for a commission, for marketing and
building our brand, and a key element of our strategy is to establish additional
sales and advertising relationships. These relationships may include agreements
for joint product offerings, anchor tenancy, promotional placements,
sponsorships and banner advertisements. These arrangements require us to make
payments or provide services, which may be material, and generally are
short-term, non-exclusive or do not provide for guaranteed renewal. The risks of
depending on these types of arrangements include:


     - the uncertainty that significant spending on these relationships will
       increase our revenues;

     - the possibility that expected revenue increases resulting from such
       spending will not occur within the time periods we expect or at all;

     - the possibility that space on other websites or the same sites may
       increase in price;

     - the possibility that a competitor will purchase exclusive rights to
       attractive space on one or more key sites;

                                        9
<PAGE>   13

     - the possibility that, if these relationships are successful, we may not
       be able to obtain adequate amounts of merchandise to meet the increased
       demand that is generated;

     - the possibility that we will not be able to renew the arrangements on
       successful websites on reasonable terms or at all; and

     - the possibility that online companies with which we have established
       relationships may exercise their right to terminate such relationships,
       which generally can be done without any significant advance notice.


     Under a program we established with FlashNet Communications, Inc. in June
1999, FlashNet paid us to provide a free refurbished personal computer to each
FlashNet customer who agreed to a 24 to 36 month service agreement to use the
FlashNet Internet service. We recognized approximately $9.9 million in revenues
from this program through September 30, 1999. FlashNet discontinued its program
of offering a free refurbished personal computer to its customers in November
1999. We have agreed with FlashNet to terminate our arrangement with them as
part of a settlement of litigation initiated by FlashNet against us relating to
the program, which litigation and settlement are described under
"Intellesale.com, Inc. -- Legal Proceedings." Under the settlement, FlashNet has
agreed to include an Intellesale promotional disk and/or pamphlet to its
customers who receive a computer we have agreed to provide to FlashNet. We have
agreed to compensate FlashNet for this promotion at the rate of $300 per
computer shipped. We cannot assure you that the FlashNet advertising program,
which will involve the expenditure of up to $1.5 million, will be an effective
use of our marketing funds.


     Any termination of our arrangements with these online companies could have
a material adverse effect on our business. In addition, obtaining and
maintaining these relationships could disrupt our ongoing business, distract our
management and employees and increase our expenses.

WE ARE SUBJECT TO RISKS THAT THE VALUE OF OUR INVENTORY MAY DECLINE BEFORE WE
SELL IT OR THAT WE MAY NOT BE ABLE TO SELL THE INVENTORY AT THE PRICES WE
ANTICIPATE

     We purchase and warehouse inventory, much of which is refurbished or excess
inventory of personal computer equipment. As a result, we assume inventory risks
and price erosion risks for these products. These risks are especially
significant because personal computer equipment generally is characterized by
rapid technological change and obsolescence. These changes affect the market for
refurbished or excess inventory equipment. Our success will depend on our
ability to purchase inventory at attractive prices relative to its resale value
and our ability to turn our inventory rapidly through sales. If we pay too much
or hold inventory too long, we may be forced to sell our inventory at a discount
or at a loss or write down its value, and our business could be materially
adversely affected.

DECLINING PRICES FOR NEW COMPUTER EQUIPMENT COULD REDUCE DEMAND FOR OUR PRODUCTS

     The cost of new computer equipment, particularly personal computers, has
declined dramatically in recent years. As the price of new computer products
declines, consumers may be less likely to purchase refurbished computer
equipment unless there is a substantial discount to the price of the new
equipment. Accordingly, in selling refurbished equipment, we must offer products
at a substantial discount to the price of new products. As prices of

                                       10
<PAGE>   14

new products continue to decrease, our revenue, profit margins and earnings
could be adversely affected. There can be no assurance that we will be able to
maintain a sufficient pricing differential between new products and our
refurbished products to avoid adversely affecting our revenues, profit margins
and earnings.

OUR HISTORICAL REVENUES AND OPERATING RESULTS ARE NOT INDICATIVE OF FUTURE
PERFORMANCE AND ARE DIFFICULT TO FORECAST, AND POTENTIAL FLUCTUATIONS IN OUR
QUARTERLY AND ANNUAL FINANCIAL RESULTS MAY CAUSE VOLATILITY IN OUR STOCK PRICE


     Because we have grown rapidly through acquisition and have only recently
begun to transact business on the Internet, we do not have historical data for a
significant number of periods upon which to forecast quarterly revenues and
results of operations. As a result, although our revenues from e-commerce have
grown in recent quarters and will increase significantly as a result of the
Bostek acquisition, we believe that you should not rely on period to period
comparisons of our operating results as indicators of future performance. In
addition, our quarterly results can be affected by changes in our business
relationships. For example, our arrangement with FlashNet, which accounted for
approximately 31% of our Internet revenue and approximately 37% of the increase
in our Internet revenue during the nine months ended September 30, 1999, has
terminated. We base our current and future expenditures on our plans and
estimates of future revenues. Many of our expenses are fixed, and will not
decrease if the level of our business and revenues decrease. This limits our
ability to reduce our spending if we experience an unexpected shortfall in our
revenues.



     We expect that our future quarterly and annual operating results will
fluctuate significantly because of many factors, some of which we do not
control.



WE DEPEND ON OUR SMALL TEAM OF SENIOR MANAGEMENT, PARTICULARLY MARC SHERMAN,
EDWARD L. CUMMINGS AND CHARLES D. NEWMAN, AND WE MAY HAVE DIFFICULTY ATTRACTING
AND RETAINING ADDITIONAL PERSONNEL



     Our future success is highly dependent upon the continued services and
performance of our senior management and other key personnel. We are organized
with a small senior management team, consisting of Marc Sherman, our President,
Edward L. Cummings, our Chief Financial Officer, and Charles D. Newman, our
Chief Operating Officer. If we were to lose the services of this management
team, our overall operations could be adversely affected. In addition, our
future success depends on our ability to identify, attract, hire, train, retain
and motivate other highly skilled technical, managerial, marketing, purchasing
and customer service personnel when we need them. Competition for these
individuals is intense. Although we are not currently seeking additional
personnel, we cannot assure you that we will be able to successfully attract,
integrate or retain sufficiently qualified personnel when the need arises. Our
failure to attract and retain the necessary technical, managerial, marketing,
purchasing and customer service personnel could have a material adverse effect
on our business.


                                       11
<PAGE>   15

IF WE NEED ADDITIONAL FINANCING FOR UNANTICIPATED WORKING CAPITAL NEEDS OR TO
FINANCE ACQUISITIONS, WE MAY NOT BE ABLE TO OBTAIN SUCH CAPITAL, WHICH COULD
ADVERSELY AFFECT OUR ABILITY TO ACHIEVE OUR BUSINESS OBJECTIVES.

     We expect that the proceeds of this offering, together with our available
cash resources, will be sufficient to meet our cash requirements for at least
the next 12 months. However, we may need to raise additional funds to:

     - finance unanticipated working capital requirements; or

     - acquire complementary businesses.

     We do not yet have lending commitments from banks or other third parties,
and, until and unless we arrange for such commitments, we will rely on advances
from Applied Digital Solutions. Applied Digital Solutions has no obligation to
advance funds to us and, even if willing to do so, may not have funds available.

     We cannot assure you that additional financing will be available on
favorable terms or at all. If funds are not available when required for our
working capital needs or other transactions, our ability to carry out our
business plan could be adversely affected, and we may be required to scale back
our growth and operations to reflect the extent of available funding. If we are
able to arrange for credit facilities from other lenders, the debt instruments
will probably include limitations on our ability to incur other indebtedness, to
pay dividends, to create liens, to sell or purchase our capital stock, to sell
assets or to make acquisitions or enter into other transactions. Such
restrictions may adversely affect our ability to finance our future operations
or capital needs or to engage in other business activities. If we raise
additional funds by issuing equity or convertible debt securities, the
percentage ownership of our stockholders will be reduced. These securities may
have rights, preferences or privileges senior to those of our common
stockholders.

IF WE EXPERIENCE PROBLEMS IN OUR DISTRIBUTION OPERATIONS, WE COULD LOSE
CUSTOMERS


     In addition to merchandise vendors, we depend on several other third
parties over which we have limited control, including, in particular, Federal
Express and United Parcel Service, for delivery of products to and from our
distribution facility and to our customers. We have no long-term relationships
with any of those parties. We are therefore subject to risks, including risks of
employee strikes and inclement weather, which could result in failures by such
carriers to deliver products to our customers in a timely manner, which could
damage our reputation and brand.



IF THE SOFTWARE WE LICENSE FROM THIRD PARTIES IS DEFECTIVE OUR BUSINESS MAY BE
ADVERSELY AFFECTED


     Most of the accounting, inventory management and transaction processing
software which we use was developed and produced by and is licensed from third
parties. We have from time to time discovered errors and defects in the software
and rely in part on our third-party providers to correct these errors and
defects in a timely manner. If such errors or defects are not corrected in a
timely manner, we could lose customers.

                                       12
<PAGE>   16

FAULTY OR DELAYED CREDIT CARD PROCESSING SERVICES FROM THIRD PARTIES MAY
ADVERSELY AFFECT OUR BUSINESS AND CUSTOMER RELATIONSHIPS

     We depend on credit card processing services of third parties. If these
third parties do not properly provide these services, it may adversely affect
our ability to complete transactions with our customers, our ability to receive
payments on credit card transactions or our relationships with customers who may
be dissatisfied with such services.

THE INDUSTRY IN WHICH WE COMPETE IS HIGHLY COMPETITIVE

     While we are not aware of another company which operates in all of our
business areas, we face intense competition in each area of our business, and
many of our competitors have greater resources and a more established market
position than we have. As we focus our efforts on building our Internet
business, we expect to face increased competition from other companies that
already have an established Internet presence and from other companies which are
expanding into e-commerce that are selling their products on the Internet. Our
primary competitors include:

     - major manufacturers of computer equipment such as Compaq Computer
       Corporation, Dell Computer Corporation and IBM, which offer both
       refurbished and new equipment through their websites;

     - traditional store-based computer retailers, such as Best Buy Co., Inc.,
       Circuit City(R) Stores, Inc., CompUSA and Gateway Country; and


     - other online competitors, such as the Boston Computer Exchange, Buy.com
       Inc., Cyberian Outpost, Inc., Egghead.com (formerly OnSale), Fairmarket,
       Inc., uBid and Value America, Inc.


     In addition, our Internet wholesale business, in which we sell to other
online retailers, allows others to compete with our Internet retail business.

     Many traditional store-based and online competitors have longer operating
histories, larger customer or user bases, greater brand recognition and
significantly greater financial, marketing and other resources than we do. Many
of these competitors already have an established brand and can devote
substantially more resources to website development, increasing brand
recognition and product acquisition than we can. In addition, larger,
well-established and well-financed entities may join with online competitors or
computer manufacturers or suppliers as the use of the Internet and other online
services increases. The online companies who cooperate with us in offering our
products also face intense competition, and if they are unable to successfully
respond to such competition our business could suffer.

     Our competitors may be able to secure products from vendors on more
favorable terms, fulfill customer orders more efficiently or adopt more
aggressive price or inventory availability policies than we can. Traditional
store-based retailers also enable customers to see and test products in a manner
that is not possible over the Internet.

     Our product offerings must compete with other new computer equipment and
related products offered by our competitors. That competition will intensify if
prices for new computers continue to decrease.

                                       13
<PAGE>   17

     We expect competition to intensify in the future because current and new
competitors can enter our market with little difficulty and can launch new
websites at a relatively low cost.

IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLESALE.COM DOMAIN NAME AND TRADENAME
AND RELATED PROPRIETARY RIGHTS, OUR BRAND AND REPUTATION COULD BE IMPAIRED AND
WE COULD LOSE CUSTOMERS


     We are the registered owner of our Intellesale.com domain name and
trademark and rely on the right to use this name to operate our Internet
business. This right, and related service marks, as well as our trade secrets,
are important to establishing and maintaining our brand. We intend to use a
significant portion of the proceeds of this offering to promote the
Intellesale.com brand name. However, the steps we take to protect our
proprietary rights may be inadequate. Effective protection may not be available
in all of the countries where we sell our products online. Furthermore, the
relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is unclear. Therefore, we may be
unable to prevent third parties from acquiring domain names that are similar to,
infringe upon or otherwise decrease the value of our tradename and other
proprietary rights. Use of "Intellesale.com" or similar names by others could
dilute our brand identity and confuse the market, which could adversely affect
our business.



     Moreover, other parties may assert infringement or unfair competition
claims against us. We believe that we and other participants in our markets may
be subject to infringement claims as the number of services and competitors in
our industry grows. We previously made a change in a name under which we
formerly conducted business in response to an objection from another company.
Any future similar claim affecting the names under which we do business, whether
meritorious or not, could be time-consuming, result in costly litigation, damage
our reputation, cause service upgrade delays or require us to enter into royalty
or licensing agreements. These royalty or licensing agreements may not be
available on favorable terms or at all. As a result, any claim like this could
harm our business.


THE LEVEL OF BUSINESS WE CONDUCT WITH OTHER COMPANIES MAY FLUCTUATE
SIGNIFICANTLY, AND WE MAY LOSE CUSTOMERS, THROUGH DISPUTES OR OTHERWISE


     Our programs and relationships with other websites and other customers
generally do not include fixed purchase commitments or other ongoing
undertakings from our customers. The volume of business with any particular
customer may fluctuate significantly from period to period, and we may lose
relationships with customers which represent a significant portion of our
business in a given period, because of disputes or otherwise. For example, under
a program we established with FlashNet Communications, Inc. in June 1999,
FlashNet paid us to provide a free personal computer to each FlashNet customer
who agreed to a 24 to 36 month service agreement to use the FlashNet Internet
service. We recognized approximately $9.9 million in revenues from this program
through September 30, 1999. FlashNet has discontinued this program and initiated
litigation against us relating to this program, which has subsequently been
settled, as described under "Intellesale.com, Inc. -- Legal Proceedings."


                                       14
<PAGE>   18

THE EXPENSE AND EFFORT WE INCUR IN DEALING WITH WARRANTY CLAIMS AND OTHER
CUSTOMER SERVICE MATTERS MAY BE SIGNIFICANT


     Our principal product is refurbished personal computer equipment, which we
acquire from leasing companies on expiration or termination of leases or which
has otherwise been previously used. We generally provide a minimum six month
warranty for products not covered by factory warranty, although we will from
time to time offer longer warranties. In our program with FlashNet we provided a
three year warranty to the approximately 35,000 FlashNet customers who received
computers under that program. Litigation relating to that program, which has
been settled, is described under "Intellesale.com, Inc. -- Legal Proceedings."


     During the nine months ended September 30, 1999, approximately 3% of the
products we shipped to customers have been returned to us with some type of
damage or defect. Approximately one-third of those returns were based on
shipping damage for which the shipper compensates us.

     If our products have an increased incidence of defects or if we do not
successfully deal with customer returns and other customer service matters, our
results of operations may be adversely affected. We cannot assure you that
future expenses related to warranty claims will not have a material adverse
effect on our business.

YEAR 2000 FAILURES MAY ADVERSELY IMPACT OUR OPERATIONS


     Some computers, software and other equipment include programming code in
which calendar year data is abbreviated to only two digits. As a result, some of
these systems could fail to operate or fail to produce correct results if "00"
is interpreted to mean 1900, rather than 2000. These problems are commonly
referred to as the "Millennium Bug" or "Year 2000 problem."



     As a company engaged in e-commerce, we rely on computer programs and
systems in connection with our internal and external communications networks and
systems (including transmissions of information over the Internet), the
operation of our website, order processing and fulfillment, accounting and
financial systems and other business functions. If any of our systems are not
Year 2000 compliant or if our customers or suppliers fail to achieve Year 2000
compliance, we may experience the following adverse consequences:


     - system failures that may require significant efforts by us or our
       customers to prevent or alleviate material business disruptions; or

     - a significant number of operational inconveniences and inefficiencies for
       us and our customers that may divert management's time and attention and
       financial and human resources from our ordinary business activities.


     We may incur significant additional expenses addressing Year 2000 issues.



     The ability of third parties with whom we do business to address adequately
their Year 2000 issues is outside our control. The most reasonably likely
worst-case scenario for us resulting from Year 2000 issues is that third party
noncompliance would disrupt, reduce or eliminate for a period of time the
ability of customers to connect with and purchase products at our website. If
such occurrences are frequent or long in duration, they could materially
adversely affect our business.


                                       15
<PAGE>   19


     In addition, because we sell refurbished computer systems, consumers may be
unwilling to purchase systems which they believe are not Year 2000 compliant.


RISKS RELATED TO THE INTERNET AND THE INTERNET INDUSTRY

IF WE CANNOT RESPOND TO RAPIDLY CHANGING TECHNOLOGY, OUR BUSINESS COULD BE
HARMED

     To be competitive as an Internet marketer, we must continue to enhance and
improve the responsiveness, functionality and features of our website. The
e-commerce market is characterized by rapidly changing technology, evolving
industry standards, frequent new service and product introductions and
enhancements embodying new technologies and changing customer requirements and
preferences. Our future success will depend on our ability to adapt to rapidly
changing technologies, to adapt our services to evolving industry standards and
to continually improve the performance, features and reliability of our service.
If we delay or fail to adapt to such changes customers may not use our services
and may instead use those of our competitors. In addition, the widespread
adoption of new Internet, networking or telecommunications technologies or other
technological changes could require substantial expenditures to modify or adapt
our services or infrastructure.

WITHOUT THE CONTINUED DEVELOPMENT AND MAINTENANCE OF THE INTERNET, OUR BUSINESS
MAY NOT SUCCEED

     Our market is new and rapidly evolving. Our business could suffer if
Internet usage does not continue to grow. Internet usage may be inhibited for a
number of reasons, including:

     - inadequate network infrastructure;

     - security concerns;

     - inconsistent quality of service;

     - lack of availability of cost-effective and high-speed service; and

     - changes in government regulation of the Internet.

     If Internet usage grows, the Internet infrastructure might not be able to
support the demands placed on it by this growth or its performance and
reliability may decline. In addition, future outages and other interruptions
occurring throughout the Internet could lead to decreased use of our website and
would therefore harm our business.

WE MAY BE SUBJECT TO INTERNET SERVICE DISRUPTIONS, WHICH COULD HARM OUR BUSINESS
AND DAMAGE OUR REPUTATION AND CREDIBILITY

     We do not own our own gateway to the Internet, but instead rely on our
Internet service provider to connect our current website to the Internet. In
addition, we contract the hosting of our Internet servers to Cube Computer
Corporation. From time to time, we may experience interruptions in our website
connections and our telecommunications. Continuous or prolonged interruptions in
our website connections or in our telecommunications access, or slow response
times from our website, could have a material adverse effect on our business.

                                       16
<PAGE>   20

     We will need to continually enhance and expand our transaction processing
systems, network infrastructure, delivery and shipping systems and other
technologies to accommodate the substantial increase in the volume of traffic on
our website which we hope to develop. We cannot assure you that we will be
successful in these efforts or that we will be able to accurately project the
rate or timing of increases, if any, in traffic to our website or to expand and
upgrade our systems and infrastructure on a timely basis to accommodate such
increases.

     We cannot assure you that the network of our Internet service provider will
be able to achieve or maintain sufficiently high capacity of data transmission,
especially if the customer usage of our website increases. Failure to achieve or
maintain high capacity data transmission could significantly reduce customer
demand for our services and have a material adverse effect on our business.

REGULATION OF THE INTERNET COULD HARM OUR BUSINESS

     The laws governing Internet transactions remain largely unsettled. Today
there are relatively few laws specifically directed toward online services.
However, due to the increasing popularity and use of the Internet and online
services, it is likely that laws and regulations will be adopted with respect to
the Internet or online services. These laws and regulations could cover issues
such as online contracts, user privacy, freedom of expression, pricing, fraud,
content and quality of products and services, taxation, advertising,
intellectual property rights and information security. It may take years to
determine whether and how existing laws governing issues such as property
ownership, copyrights and other intellectual property issues, taxation, libel,
obscenity and personal privacy apply to the Internet. The vast majority of these
laws were adopted prior to the advent of the Internet and related technologies
and, as a result, do not contemplate or address the unique issues of the
Internet and related technologies. Those laws that do reference the Internet
have not yet been widely interpreted by the courts, and their applicability and
reach are therefore uncertain. Because of the rapidly evolving and uncertain
regulatory environment, we cannot predict how such laws and regulations might
affect our business. In addition, these uncertainties make it difficult to
ensure compliance with laws governing the Internet. These laws could harm us by
subjecting us to liability or forcing us to change how we do business.

CONCERNS OVER AND PROBLEMS RELATED TO INTERNET COMMERCE SECURITY AND
CREDIT CARD FRAUD COULD HARM OUR BUSINESS

     An important characteristic of Internet commerce is the secure transmission
of confidential information over public networks. We rely on encryption and
authentication technology licensed from third parties to provide the security
and authentication necessary to effect secure transmission of confidential
information. While to date we are not aware of any breaches in the security of
our transmission of confidential data, if a compromise of our security measures
were to occur, it could have a material adverse effect on our business.

     Any party that is able to circumvent our security measures could
misappropriate confidential information or cause interruptions in our
operations. We may be required to expend significant capital and other resources
to protect against security breaches or to alleviate problems caused by such
breaches. Concerns over the security of Internet transactions and the privacy of
users may also inhibit the growth of the Internet generally,

                                       17
<PAGE>   21

especially as a means of conducting Internet commerce transactions. To the
extent that activities of Intellesale or third-party contractors involve the
storage and transmission of proprietary information, such as credit card
numbers, security breaches could expose us to a risk of loss or litigation and
possible liability. We cannot assure you that our security measures will prevent
security breaches or that failure to prevent such security breaches will not
have a material adverse effect on our business.

RISKS RELATED TO OUR AFFILIATION WITH APPLIED DIGITAL SOLUTIONS

THE INTERESTS OF APPLIED DIGITAL SOLUTIONS, OUR PRINCIPAL STOCKHOLDER, MAY
CONFLICT WITH THOSE OF OTHER STOCKHOLDERS AND US


     Following the offering, Applied Digital Solutions will own approximately
49.9% of our outstanding common stock. Of our seven directors, one, Constance
Weaver, is a director of Applied Digital Solutions; one, David Loppert, is an
executive officer of Applied Digital Solutions; and one, Garrett A. Sullivan, is
both a director and executive officer of Applied Digital Solutions. In addition
to the relationships these three directors have with Applied Digital Solutions,
our Chief Executive Officer, Marc Sherman, was Senior Vice President of Applied
Digital Solutions until August 1999. We have entered into agreements with
Applied Digital Solutions relating to voting and sales of our common stock,
registration rights relating to our common stock, and tax allocation and
sharing. In participating in decisions on the exercise or waiver of rights under
existing or future agreements between Applied Digital Solutions and us or in
other situations where our interests may diverge with the interests of Applied
Digital Solutions, these persons could have conflicts of interest because they
will owe duties to both Applied Digital Solutions and to us.


     Subject to the voting agreement referred to below, Applied Digital
Solutions and its affiliates may be able to:

     - elect our entire board of directors;

     - control our management and policies;

     - prevent or cause a change in control of us; and

     - determine other matters submitted to our stockholders for approval,
       including acquisitions, mergers, consolidations and the sale of all or
       substantially all of our assets.

     We also currently rely on Applied Digital Solutions for financing and may
continue to do so in the future to the extent we are unable to establish our own
line of credit.

     Applied Digital Solutions has entered into an agreement with Intellesale
under which Applied Digital Solutions has agreed to vote its shares on matters
presented to our stockholders in the same proportions as the other stockholders
vote their shares.


     Our common stock owned by Applied Digital Solutions will represent a
significant portion of Applied Digital Solutions' assets, and our results of
operations will have a significant impact on Applied Digital Solutions' results
of operations. Accordingly, subject to the limitations of the voting agreement
referred to above, Applied Digital Solutions, which is itself publicly traded,
and its representatives on our board of directors may cause us to take actions
which benefit its financial condition and results of operations regardless of
its effect on our business. For example, Applied Digital Solutions has the right
to require us to register its shares for sale under the Securities Act, which
could adversely


                                       18
<PAGE>   22

affect the price of our common stock. In addition, we have no agreement with
Applied Digital Solutions that would prevent it from competing with us.

UNTIL WE ESTABLISH OUR SEPARATE SOURCES OF FUNDING, WE WILL DEPEND ON APPLIED
DIGITAL SOLUTIONS FOR FINANCING FOR OUR BUSINESS


     We currently rely on advances from Applied Digital Solutions to finance our
business operations. The availability of funds from Applied Digital Solutions
will depend on its ability to borrow under its line of credit, which in turn
depends on the financial performance of Applied Digital Solutions. Accordingly,
there can be no assurance that funds will continue to be available from Applied
Digital Solutions. Although we have received a non-binding letter of intent from
an unaffiliated lending institution to provide us with an aggregate of $50
million in revolving credit financing for working capital and other purposes, we
cannot assure you that we will be able to complete this financing.


RISKS ASSOCIATED WITH THE OFFERING

FUTURE SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR
COMMON STOCK

     If a substantial number of shares of our common stock, including shares
issuable upon exercise of outstanding options, are sold in the public market
after this offering, or investors become concerned that substantial sales might
occur, the market price of our common stock could decrease. Such a decrease
could make it difficult for us to raise capital by selling stock or to pay for
acquisitions using stock.


     There will be 20,644,889 shares of common stock outstanding immediately
after this offering after giving effect to the issuance of shares to the sellers
of businesses we acquired, assuming an initial public offering price of $9.00
per share, which are to be issued within 30 days after the date of this
offering, and 5,600,000 shares issuable upon exercise of outstanding options, of
which 2,425,000 were granted to our executive officers.



     Our executive officers, directors and stockholders have agreed that they
will not sell, directly or indirectly, any common stock without the consent of
Ladenburg Thalmann & Co. Inc. for a period of 180 days after the date of this
prospectus. However, Ladenburg Thalmann may release any or all of the shares
subject to lock-up agreements at any time without notice. Beginning 180 days
after the date of this prospectus, 13,300,000 of the shares subject to these
lock-up agreements could be sold immediately in the public market, subject to
volume limitations and other restrictions. The remaining 1,644,889 shares
subject to these lock-up limitations could be sold at various times beginning
January 2001, subject to volume limitations and other restrictions.


     After the 180-day lock-up period expires, we expect to file registration
statements covering all of the shares of the common stock issuable upon exercise
of options and other grants pursuant to our equity incentive plans.

     In addition, we may issue additional shares:

     - to employees;

     - in connection with corporate alliances;

     - in connection with acquisitions; and

                                       19
<PAGE>   23

     - to raise capital.


     Applied Digital Solutions, Marc Sherman, our President and Chief Executive
Officer, and Edward L. Cummings, our Executive Vice President and Chief
Financial Officer, are entitled to registration rights with respect to the
15,300,000 shares they will beneficially own after this offering, which includes
shares issuable pursuant to stock options. Those stockholders have the right to
include shares of common stock they own any time we register our stock for sale
beginning six months following the date of this offering, other than in
connection with registering shares related to an employee benefit plan or a
merger or consolidation. In addition, Applied Digital Solutions and Mr. Sherman
have up to five demand registration rights. Sales of shares of our common stock
pursuant to these agreements may dilute the value of the common stock offered
hereby or cause its market value to drop.


BECAUSE STOCKHOLDERS WILL NOT RECEIVE DIVIDENDS FOR THE FORESEEABLE FUTURE,
STOCKHOLDERS MUST RELY ON STOCK APPRECIATION FOR ANY RETURN ON THEIR INVESTMENT
IN THE COMMON STOCK


     We do not anticipate that we will pay dividends on our common stock in the
foreseeable future. We intend to use any earnings which may be generated to
finance the growth of our businesses. In addition, it is likely that any debt
financing agreements we enter into will restrict our ability to pay dividends.
As a result, appreciation, if any, of the price of the common stock will provide
the only return to investors in this offering.


THERE WILL BE IMMEDIATE AND SUBSTANTIAL DILUTION TO NEW INVESTORS AS A RESULT OF
THIS OFFERING


     The initial public offering price of our common stock will be substantially
higher than the pro forma tangible book value per share of our outstanding
common stock. At an assumed initial public offering price of $9.00 per share,
purchasers of our common stock will incur immediate and substantial dilution of
$7.87 per share in the pro forma net tangible book value of their purchased
shares. The shares of our common stock owned by existing stockholders will
receive a material increase in the pro forma net tangible book value per share.
Investors may also experience additional dilution if we issue common stock in
connection with future business acquisitions and as a result of the issuance and
exercise of employee stock options. As a result of this dilution, investors
purchasing stock in this offering may receive significantly less than the full
purchase price that they paid for the shares purchased in this offering in the
event of a liquidation.



PROVISIONS IN OUR CORPORATE DOCUMENTS AND EMPLOYMENT AGREEMENTS AND DELAWARE LAW
COULD DELAY OR PREVENT A CHANGE IN CONTROL OF US OR LIMIT THE PRICE THAT
INVESTORS MIGHT BE WILLING TO PAY IN THE FUTURE FOR SHARES OF OUR COMMON STOCK


     Provisions in our certificate of incorporation and bylaws and Delaware law
could, together or separately:

     - discourage potential acquisition proposals;

     - delay or prevent a change in control; and

     - discourage proxy contests and make it more difficult for you and other
       stockholders to elect directors and take other corporate actions.

                                       20
<PAGE>   24


     As a result, these provisions could limit the price that investors might be
willing to pay in the future for shares of our common stock.



     In particular, our board of directors may authorize the issuance of up to
5,000,000 shares of preferred stock with rights and privileges that might be
senior to those of our common stock without the consent of the holders of the
common stock. Our certificate of incorporation and bylaws provide that
stockholders may not take actions by written consent and that special meetings
of stockholders may only be called by our board of directors or our chief
executive officer. We are also subject to Section 203 of the Delaware General
Corporation Law, which generally prohibits a Delaware corporation from engaging
in any of a broad range of business combinations with any interested stockholder
for a period of three years following the date on which the stockholder became
an interested stockholder.


     In addition, a change in control will trigger payment obligations under
employment agreements we have with our four senior executives, which could
discourage a change in control of us both because of the amount involved and the
fact that senior management has an incentive to leave following a change in
control to collect these payments. These payments would be equal to three times
the employee's average annual compensation for the previous five years, minus
$1.00, subject to reduction if their payment would result in an additional
special tax to the executive.

                                       21
<PAGE>   25


                                USE OF PROCEEDS



     Our net proceeds from the sale of the 4,000,000 shares of common stock
offered by us are estimated to be approximately $32.5 million, or $37.6 million
if the underwriters' over-allotment option is exercised in full, after deducting
the estimated underwriting discounts and commissions and estimated offering
expenses we will pay. We will not receive any proceeds from shares of common
stock sold by the selling stockholder.


     We plan to use the net proceeds as follows:


     - We plan to repay $17.0 million of our outstanding indebtedness to Applied
       Digital Solutions. As of December 21, 1999, we had outstanding borrowings
       from Applied Digital Solutions of $36.0 million, and at that date the
       interest rate on these borrowings was 7.5%. Our outstanding indebtedness
       to Applied Digital Solutions includes $14.5 million borrowed in June 1999
       to pay a portion of the purchase price for Bostek and to refinance
       Bostek's outstanding indebtedness.



      We have received a non-binding letter of intent for a line of credit from
      an unaffiliated lending institution, which would provide us with an
      aggregate of $50.0 million in revolving credit financing for working
      capital and other purposes, but we cannot assure you that we will be able
      to complete this financing. We intend to use borrowings under this line of
      credit to repay all amounts owed to Applied Digital Solutions.


     - We plan to pay a total of $5.5 million to former owners of businesses
       which we acquired, in connection with the settlement of their earn-out
       payment rights and, in some cases, the purchase of minority interests in
       our non wholly-owned subsidiaries.

     - We plan to spend a portion of the proceeds for advertising and other
       marketing efforts, which we anticipate will total approximately $10.0
       million during the 12 months following this offering.


If the underwriters' over-allotment option is exercised, we plan to use any
remaining proceeds of the offering for general corporate purposes, including
working capital.


     Pending such uses, we intend to invest the net proceeds in short-term,
investment grade, interest bearing securities. Our management will retain broad
discretion in the allocation of these proceeds.


                                DIVIDEND POLICY


     Holders of our common stock are entitled to receive such dividends as may
be declared by our board of directors. We have not paid any dividends on our
common stock and we do not anticipate that we will pay dividends in the
foreseeable future. Any payments of future dividends will be at the discretion
of our board of directors after taking into account various factors, such as our
financial condition, operating results, current and anticipated cash needs and
plans for expansion and restrictions in our credit documents or other
agreements. It is likely that any credit arrangement we enter into in the future
will limit our ability to pay dividends.

                                       22
<PAGE>   26


                                 CAPITALIZATION


     The following table sets forth our capitalization at September 30, 1999:

     - on a historical basis;

     - as adjusted to reflect our sale of 4,000,000 shares of common stock
       offered in the offering, assuming the underwriters' over-allotment option
       is not exercised, at an assumed initial public offering price of $9.00
       per share, after deducting the estimated underwriting discounts and
       commissions and estimated offering expenses and applying the estimated
       net proceeds as described under "Use of Proceeds"; and

     - pro forma as adjusted basis to further reflect the issuance of 1,629,889
       shares of our common stock to the sellers of businesses we have acquired
       at an assumed initial public offering price of $9.00 per share.

     All of our outstanding debt is currently classified as short-term debt.

     You should read this table in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements and the notes thereto included elsewhere in this
prospectus.


<TABLE>
<CAPTION>
                                                                      AS OF SEPTEMBER 30, 1999
                                                                -------------------------------------
                                                                                           PRO FORMA
                                                                ACTUAL     AS ADJUSTED    AS ADJUSTED
                                                                -------    -----------    -----------
                                                                          ($ IN THOUSANDS)
<S>                                                             <C>        <C>            <C>
Cash........................................................    $   910      $16,445        $10,924
Due to parent company(1)....................................     34,173       17,173         17,173
Due to stockholders of Bostek(2)............................     15,000       15,000          5,000
Minority interest(3)........................................        610          610             --
                                                                =======      =======        =======
Stockholders' equity
  Preferred Stock, $.01 par value; 5,000,000 shares
    authorized; no shares outstanding, actual, as adjusted
    and pro forma as adjusted...............................    $    --      $    --        $    --
  Common stock, $.0001 par value; 30,000,000 shares
    authorized, 15,000,000 shares issued and outstanding,
    actual; 19,000,000 shares issued and outstanding, as
    adjusted; 20,629,889 shares issued and outstanding, pro
    forma as adjusted(4)....................................          1            2              2
Additional paid-in capital..................................     17,814       50,348         65,017
Retained earnings...........................................        593          593            593
                                                                -------      -------        -------
  Total stockholders' equity................................     18,408       50,943         65,612
                                                                -------      -------        -------
  Total capitalization......................................    $18,408      $50,943        $65,612
                                                                =======      =======        =======
</TABLE>


-------------------------


(1) At the closing of this offering, we expect to have our own line of credit in
    place, which will replace the line of credit which Applied Digital Solutions
    is now providing to us. We intend to use $17,000,000 of the proceeds of this
    offering and borrowings under this facility to repay all amounts we owe to
    Applied Digital Solutions, which aggregated $36,000,000 at December 21,
    1999.



(2) Consists of: $10,000,000 to be paid to the stockholders of Bostek and its
    affiliate, Micro Components, in shares of our common stock, based on the
    initial public offering price in this offering, within 30 days after the
    closing of this offering; and $5,000,000 to be paid to the stockholders of
    Bostek and its affiliate, Micro Components, in January 2000, which will be
    paid from borrowings from Applied Digital Solutions or under the credit
    facility.



(3) In connection with this offering, we will acquire the minority interests in
    our non wholly-owned subsidiaries and buy out earn-out arrangements for cash
    totaling $5,521,000 and the issuance of 518,778 shares, assuming an initial
    public offering price of $9.00 per share.


(4) Does not include (a) options to purchase 5,450,000 shares of our common
    stock issued under our 1997 Non-Qualified Stock Option Plan and outstanding
    as of September 30, 1999 or (b) 2,500,000 shares of our common stock
    reserved for issuance as of September 30, 1999 upon exercise of options and
    other stock awards which may be granted under our 1999 Flexible Stock Option
    Plan.

     The balance in goodwill, net of amortization, at September 30, 1999 is as
follows: Actual: $32,742,000; As Adjusted: $32,742,000; and Pro Forma As
Adjusted: $42,322,000.

                                       23
<PAGE>   27


                                    DILUTION



     Our net tangible book value, as of September 30, 1999, was $(14,334,000),
or $(0.96) per share of common stock. Net tangible book value per share
represents the amount of total tangible assets less total liabilities and
minority interests divided by the number of shares of common stock outstanding
at that date. After giving effect to our sale of the 4,000,000 shares of common
stock being offered hereby at an assumed initial public offering price of $9.00
per share, and the issuance of 1,629,889 shares of our common stock to the
sellers of businesses we have acquired assuming an initial public offering price
of $9.00 per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses, our pro forma net tangible book
value as of September 30, 1999 would have been $23,290,000, or $1.13 per share.
This represents an immediate increase in pro forma net tangible book value of
$2.09 per share to existing stockholders, and an immediate dilution of $7.87 per
share to new investors. The following table illustrates this per share dilution:



<TABLE>
<S>                                                             <C>       <C>
Assumed initial public offering price per share.............              $9.00
  Net tangible book value per share at September 30,
     1999...................................................    $(0.96)
  Increase per share attributable to new investors..........      2.09
                                                                ------
Pro forma net tangible book value per share after this
  offering..................................................               1.13
                                                                          -----
Dilution per share to new investors.........................              $7.87
                                                                          =====
</TABLE>


     The following table summarizes, on a pro forma basis, as of September 30,
1999, the differences between the number of shares of common stock purchased
from Intellesale, the total consideration paid and the average price per share
paid by existing stockholders, by sellers of businesses we have acquired, and by
the new investors purchasing shares in this offering (at an assumed initial
public offering price of $9.00 per share and before deducting estimated
underwriting discounts and commissions and estimated offering expenses):

<TABLE>
<CAPTION>
                                  SHARES PURCHASED          TOTAL CONSIDERATION        AVERAGE
                               -----------------------      --------------------      PRICE PER
                                 NUMBER        PERCENT      AMOUNT       PERCENT        SHARE
                               ----------      -------      -------      -------      ---------
                                           ($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                            <C>             <C>          <C>          <C>          <C>
Existing stockholders(1).....  15,000,000        72.7%      $17,815        26.0%        $1.19
Business acquisition
  stockholders(2)............   1,629,889         7.9        14,669        21.4          9.00
New investors(1).............   4,000,000        19.4        36,000        52.6          9.00
                               ----------       -----       -------       -----
  Total......................  20,629,889       100.0%      $68,484       100.0%
                               ==========       =====       =======       =====
</TABLE>

-------------------------

(1) Sales by Applied Digital Solutions in this offering will cause the number of
    shares held by existing stockholders to be reduced to 13,300,000, or 64.5%
    of the total number of shares outstanding after the offering, and will
    increase the number of shares held by new investors to 5,700,000, or 27.6%
    of the total number of our shares outstanding after this offering.

(2) Represents shares issued to the sellers of businesses we have acquired,
    assuming an initial public offering price of $9.00 per share.

     If the underwriters exercise their over-allotment option in full, the
number of shares of common stock held by existing stockholders will be reduced
to 13,045,000 shares, or

                                       24
<PAGE>   28


61.4% of the total number of shares of common stock to be outstanding
immediately after this offering. In addition, the number of shares of common
stock held by the new investors will be increased to 6,555,000, or 30.9% of the
total number of shares of common stock to be outstanding immediately after this
offering. The foregoing discussion and tables assume no exercise of any
outstanding stock options. As of January 3, 2000, there were outstanding options
to purchase 5,600,000 shares of common stock, of which 5,350,000 have an
exercise price of $0.85 per share and the remaining 250,000 have an exercise
price equal to the initial public offering price. In addition, as of January 3,
2000, there were 2,335,000 shares reserved for future grants or purchases
pursuant to our 1999 Flexible Stock Plan, and the amounts available for issuance
could increase to as many as 7,335,000 shares under the terms of the plan. To
the extent that any shares reserved for issuance under our stock plans are
issued, there will be further dilution to new investors.


                                       25
<PAGE>   29


                            SELECTED FINANCIAL DATA


     The selected financial data set forth below for the periods ended December
31, 1996, 1997 and 1998 has been derived from our audited consolidated and
combined financial statements included elsewhere in this prospectus. The
information as of and for the periods ended December 31, 1995 and September 30,
1998 and 1999 is unaudited and, in our opinion, includes all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the information. Operating results prior to 1999 represent the
combined statements of the predecessor companies to Intellesale. As Intellesale
was not formed until December 1998, no historical earnings per share information
is provided for periods ending on or before December 31, 1998. See Note 1 to our
financial statements for additional information. Our results for the nine months
ended September 30, 1999 are not necessarily indicative of the results we may
achieve for the full year. Because of our rapid growth through acquisitions,
including Bostek, and our recent shift to transacting business on the Internet,
the historic information reflected below may not be a good basis for evaluating
our current and future performance. You should read this information together
with the financial statements and related notes included in this prospectus and
the information under the headings "Pro Forma Financial Information" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in this prospectus.

<TABLE>
<CAPTION>
                                                        ACTUAL                      PRO FORMA
                                       -----------------------------------------   ------------

                                         PREDECESSOR COMPANIES TO INTELLESALE      INTELLESALE
                                       -----------------------------------------   ------------
                                       FOUR MONTHS
                                          ENDED                                     YEAR ENDED
                                       DECEMBER 31,    YEAR ENDED DECEMBER 31,     DECEMBER 31,
                                       ------------   --------------------------   ------------
                                         1995(1)       1996     1997      1998         1998
                                       ------------   ------   -------   -------   ------------
                                               (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                    <C>            <C>      <C>       <C>       <C>
SUMMARY OF OPERATIONS
Revenues:
Internet and Internet wholesaling....      $ --       $   --   $    --   $ 7,334     $ 26,486
Traditional commerce.................       645        1,993    39,445    53,409      101,362
                                           ----       ------   -------   -------     --------
Total revenues.......................       645        1,993    39,445    60,743      127,848
Cost of goods sold...................       232          851    33,202    47,623      105,386
                                           ----       ------   -------   -------     --------
Gross profit.........................       413        1,142     6,243    13,120       22,462
Selling, general and administrative
 expense.............................       183          635     3,778     8,725       16,545
Depreciation and amortization........         2          110       342       774        5,397
                                           ----       ------   -------   -------     --------
Operating income (loss)..............       228          397     2,123     3,621          520
Interest income......................        --            1         1        45          440
Interest expense.....................        (9)         (10)     (152)     (341)      (1,663)
                                           ----       ------   -------   -------     --------
Income before provision for income
 taxes and minority interest.........       219          388     1,972     3,325         (703)
Provision for income taxes...........        83          190       884     1,646        1,876
Income before minority interest......       136          198     1,088     1,679       (2,579)
Minority interest....................        --           30       247       226          236
                                           ----       ------   -------   -------     --------
Net income...........................      $136       $  168   $   841   $ 1,453     $ (2,815)
                                           ====       ======   =======   =======     ========
Earnings per common share -- basic...        --           --        --        --     $   (.19)
Earnings per common
 share -- diluted....................        --           --        --        --     $   (.19)
Weighted average common shares
 outstanding basic...................        --           --        --        --       15,000
Weighted average common shares
 outstanding -- diluted..............        --           --        --        --       15,000

<CAPTION>
                                                  ACTUAL                PRO FORMA
                                       ----------------------------   -------------
                                        PREDECESSOR
                                         COMPANIES
                                       TO INTELLESALE   INTELLESALE    INTELLESALE
                                       --------------   -----------   -------------
                                                                       NINE MONTHS
                                            NINE MONTHS ENDED             ENDED
                                              SEPTEMBER 30,           SEPTEMBER 30,
                                       ----------------------------   -------------
                                          1998(2)          1999          1999(3)
                                       --------------   -----------   -------------
                                         (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                    <C>              <C>           <C>
SUMMARY OF OPERATIONS
Revenues:
Internet and Internet wholesaling....     $ 4,549         $31,448       $ 44,659
Traditional commerce.................      38,492          56,427         76,616
                                          -------         -------       --------
Total revenues.......................      43,041          87,875        121,275
Cost of goods sold...................      33,891          68,536         98,132
                                          -------         -------       --------
Gross profit.........................       9,150          19,339         23,143
Selling, general and administrative
 expense.............................       6,035          13,664         17,088
Depreciation and amortization........         551           2,530          3,844
                                          -------         -------       --------
Operating income (loss)..............       2,564           3,145          2,211
Interest income......................          27             126            126
Interest expense.....................        (263)           (869)        (1,324)
                                          -------         -------       --------
Income before provision for income
 taxes and minority interest.........       2,328           2,402          1,013
Provision for income taxes...........       1,050           1,723          1,686
Income before minority interest......       1,278             679           (673)
Minority interest....................         167              86             86
                                          -------         -------       --------
Net income...........................     $ 1,111         $   593       $   (759)
                                          =======         =======       ========
Earnings per common share -- basic...          --         $   .04       $   (.05)
Earnings per common
 share -- diluted....................          --         $   .03       $   (.05)
Weighted average common shares
 outstanding basic...................          --          15,000         15,000
Weighted average common shares
 outstanding -- diluted..............          --          17,392         15,000
</TABLE>


                                       26
<PAGE>   30


<TABLE>
<CAPTION>
                                                                        PREDECESSOR
                               PREDECESSOR COMPANIES      INTELLESALE    COMPANIES    INTELLESALE
                             --------------------------   -----------   -----------   -----------
                                        AS OF DECEMBER 31,                 AS OF SEPTEMBER 30,
                             ----------------------------------------   -------------------------
                             1995(1)    1996     1997        1998          1998          1999
                             -------   ------   -------   -----------   -----------   -----------
<S>                          <C>       <C>      <C>       <C>           <C>           <C>
BALANCE SHEET DATA
Cash and cash
  equivalents..............   $ 66     $    9   $   615     $   571       $   681      $    910
Working capital............    452        927     2,158         267         3,905       (16,952)
Goodwill, net..............     --         --     2,727       7,864         3,610        32,742
Total assets...............    784      1,996    11,127      21,363        15,406        89,017
Due to parent company......      0        178     1,242       6,022         4,506        34,173
Due to stockholders of
  Bostek...................     --         --        --          --            --        15,000
Stockholders' equity.......    155        352     4,987       9,140         8,212        18,408
</TABLE>


-------------------------

(1) Consists of Elite Computer Services, Inc. which was acquired by Applied
    Digital Solutions effective September 1, 1995.

(2) Gives effect to (a) the acquisition of Bostek and the financing of that
    acquisition and (b) the acquisition of Blue Star Electronics, Inc.,
    Consolidated Micro Components, Inc., Data Path Technologies, Inc., Service
    Transport Company and Fiscal Advantage, Inc., as if such acquisitions had
    occurred at January 1, 1998. Does not give effect to purchase of minority
    interests in our subsidiaries or buyout of earn-out payments from holders of
    minority interests.

(3) Gives effect to the acquisition of Bostek and the financing of that
    acquisition as if such transactions had occurred at January 1, 1998. The
    actual September 30, 1999 balance sheet data includes Bostek. Does not give
    effect to purchase of minority interests in our subsidiaries or buyout of
    earn-out payments from holders of minority interests.

                                       27
<PAGE>   31


     The following table sets forth certain financial data for our predecessor
companies, Elite Computer Services, Inc., which Applied Digital Solutions
acquired effective September 1, 1995, and Universal Commodities Corp., of which
Applied Digital Solutions acquired 80% effective November 1, 1996. The selected
financial data for the periods ended December 31, 1994 and 1995 and August 31,
1995 has been derived from unaudited statements. The selected financial data for
Universal Commodities for the 10 months ended October 31, 1996 has been derived
from the audited financial statements included elsewhere in this prospectus. The
selected financial data for Universal Commodities as of and for the year ended
December 31, 1994 are not presented because it commenced operations in late
December 1994. As of December 31, 1994, Universal Commodities had nominal assets
and no revenue.



<TABLE>
<CAPTION>
                                      ELITE PREDECESSOR BUSINESS                UCC PREDECESSOR BUSINESS
                                --------------------------------------   ---------------------------------------
                                   YEAR ENDED       EIGHT MONTHS ENDED      YEAR ENDED        TEN MONTHS ENDED
                                DECEMBER 31, 1994    AUGUST 31, 1995     DECEMBER 31, 1995    OCTOBER 31, 1996
                                -----------------   ------------------   -----------------    ----------------
                                                                 (IN THOUSANDS)
<S>                             <C>                 <C>                  <C>                 <C>
SUMMARY OF OPERATIONS
Revenues:
  Internet.....................      $   --               $   --              $   --               $   --
  Traditional commerce.........       2,021                1,255               3,591                4,575
                                     ------               ------              ------               ------
Total revenues.................       2,021                1,255               3,591                4,575
Cost of goods sold.............       1,274                  563               2,834                3,689
                                     ------               ------              ------               ------
Gross profit...................         747                  692                 757                  886
Selling, general and
  administrative expense.......         748                  726                 605                  936
Depreciation and
  amortization.................           4                   --                  14                   --
                                     ------               ------              ------               ------
Operating income (loss)........          (5)                 (34)                138                  (50)
Interest income................          --                   --                  --                   --
Interest expense...............          (2)                  (1)                 (1)                 (13)
                                     ------               ------              ------               ------
Income before provision for
  income taxes and minority
  interest.....................          (7)                 (35)                137                  (63)
Provision for income taxes.....          --                   --                  --                   --
                                     ------               ------              ------               ------
Income before minority
  interest.....................          (7)                 (35)                137                  (63)
Minority interest..............          --                   --                  --                   --
                                     ------               ------              ------               ------
Net income.....................      $   (7)              $  (35)             $  137               $  (63)
                                     ======               ======              ======               ======
</TABLE>


                                       28
<PAGE>   32

<TABLE>
<CAPTION>
                                      ELITE PREDECESSOR BUSINESS                 UCC PREDECESSOR BUSINESS
                                ---------------------------------------   --------------------------------------
                                AS OF DECEMBER 31,    AS OF AUGUST 31,    AS OF DECEMBER 31,   AS OF OCTOBER 31,
                                ------------------   ------------------   ------------------   -----------------
                                       1994                 1995                 1995                1996
                                ------------------   ------------------   ------------------   -----------------
<S>                             <C>                  <C>                  <C>                  <C>
BALANCE SHEET DATA
Cash and cash equivalents......       $    8               $  (30)              $   60              $   12
Working capital................         (129)                 336                  289                 107
Goodwill, net..................           --                   --                   --                  --
Total assets...................          466                  607                  537                 785
Due to parent company..........           --                   --                   --                  --
Stockholders' equity...........          (41)                 (75)                 138                 107
</TABLE>

                                       29
<PAGE>   33


                        PRO FORMA FINANCIAL INFORMATION


     The following pro forma unaudited condensed consolidated statement of our
operations for the nine months ended September 30, 1999 reflects the effects of
(1) our acquisition of Bostek and the financing of that acquisition (other than
$5.0 million which will be paid in January 2000 without interest), (2) this
offering and the application of the estimated net proceeds to repay indebtedness
and (3) the purchase of the outstanding minority interests and settlement of
earn-out obligations of our non wholly-owned subsidiaries, as if those
transactions had occurred at January 1, 1998.

     The following pro forma unaudited condensed combined statement of our
operations for the year ended December 31, 1998 reflects the effects of (1) the
acquisition of Bostek (other than $5.0 million which will be paid in January
2000 without interest), which was completed effective June 1, 1999, and the
financing of that acquisition, (2) the acquisitions of Blue Star Electronics,
Inc., Consolidated Micro Components, Inc., Data Path Technologies, Inc., GDB
Software Services, Inc., Service Transport Company and Fiscal Advantage, Inc.
completed in 1998, (3) this offering and the application of the estimated net
proceeds to repay indebtedness and (4) the purchase of the outstanding minority
interests and settlement of earn-out obligations of our non wholly-owned
subsidiaries, as if those transactions had occurred at January 1, 1998. The
acquisitions completed in 1998 were accounted for under the purchase method and
are discussed under the section captioned "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Overview -- Our History."
The Bostek acquisition was accounted for under the purchase method and is
discussed under the section captioned "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Bostek -- Acquisition by
Intellesale."

     The following pro forma unaudited condensed consolidated balance sheet at
September 30, 1999 reflects the effects of (1) the issuance by us of 4,000,000
shares of common stock pursuant to this offering and the application of the
estimated net proceeds to repay indebtedness and (2) the issuance of 1,629,889
shares of common stock to former owners of our subsidiaries in connection with
our purchase of Bostek, our purchase of minority interests in our subsidiaries
and the settlement of earn-out obligations we owe former owners of our
subsidiaries.


     This pro forma unaudited financial information does not purport to
represent (1) what our actual results of operations would have been had the
acquisitions occurred on the dates assumed or (2) what we expect our results of
operations to be in the future. They do not reflect any estimates of cost
savings or other efficiencies that may be achieved from the integration of
Bostek or the other companies acquired. In addition, they do not reflect an
adjustment for services we receive from Applied Digital Solutions as they
approximate the cost that will be incurred as a stand-alone company. We believe
that the assumptions used in preparing the pro forma unaudited condensed
consolidated statements of operations provide a reasonable basis for presenting
all of the significant effects of the acquisition of Bostek and the companies
acquired in 1998 and this offering.



     You should read the pro forma unaudited condensed consolidated and combined
statements of operations and the accompanying notes together with the historical
financial statements of the predecessor companies of Intellesale and of
Intellesale and Bostek, including the notes thereto, and other financial
information pertaining to Intellesale and Bostek, including the information set
forth under "Use of Proceeds," "Capitalization," "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Management's Discussion and Analysis of Pro Forma Results of
Operations" included elsewhere in this prospectus.


                                       30
<PAGE>   34

                             INTELLESALE.COM, INC.

       PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                        BOSTEK, INC.
                                            AND
                         INTELLESALE     AFFILIATE      PRO FORMA      PRO FORMA       OFFERING       PRO FORMA
                          ACTUAL(1)      ACTUAL(2)     ADJUSTMENTS    CONSOLIDATED    ADJUSTMENTS    AS ADJUSTED
                         -----------    ------------   -----------    ------------    -----------    -----------
<S>                      <C>            <C>            <C>            <C>             <C>            <C>
Revenues..............     $87,875        $33,400        $    --        $121,275        $    --       $121,275
Cost of goods sold....      68,536         29,596             --          98,132             --         98,132
                           -------        -------        -------        --------        -------       --------
Gross profit..........      19,339          3,804             --          23,143             --         23,143
Selling, general and
  administrative
  expenses............      13,664          3,424             --          17,088             --         17,088
Depreciation and
  amortization........       2,530             10          1,304(a)        3,844          1,054(e)       4,898
                           -------        -------        -------        --------        -------       --------
Operating income
  (loss)..............       3,145            370         (1,304)          2,211         (1,054)         1,157
Interest and other
  income..............         126             --             --             126             --            126
Interest expense......        (869)          (151)          (304)(b)      (1,324)          (961)(f)     (2,285)
                           -------        -------        -------        --------        -------       --------
Income before
  provision for income
  taxes and minority
  interest............       2,402            219         (1,608)          1,013         (2,015)        (1,002)
Provision (benefit)
  for income tax......       1,723             74           (111)(c)       1,686            413(g)       2,099
                           -------        -------        -------        --------        -------       --------
Income (loss) before
  minority interest...         679            145         (1,497)           (673)        (2,428)        (3,101)
Minority interest.....          86             --             --              86            (86)(h)         --
                           -------        -------        -------        --------        -------       --------
Net income (loss).....     $   593        $   145        $(1,497)       $   (759)       $(2,342)      $ (3,101)
                           =======        =======        =======        ========        =======       ========
Earnings per common
  share -- diluted....     $   .03(d)     $    --        $    --        $   (.05)(d)    $    --       $   (.15)(d)
Weighted average
  common shares
  outstanding --
  diluted(3)..........      17,392             --             --          15,000          5,630(i)      20,630
                           =======        =======        =======        ========        =======       ========
</TABLE>


-------------------------

(1) Includes four months of Bostek's operations. We acquired Bostek effective
    June 1, 1999.

(2) For the five month period ended May 31, 1999.

(3) For loss periods no common equivalent shares are included in computing
    diluted shares outstanding.

                                       31
<PAGE>   35

               THE PREDECESSOR COMPANIES OF INTELLESALE.COM, INC.

         PRO FORMA UNAUDITED CONDENSED COMBINED STATEMENT OF OPERATIONS
                      FOR THE YEAR ENDED DECEMBER 31, 1998
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                     PREDECESSOR                                                 BOSTEK, INC.,
                                     ENTITIES OF                                                      AND
                                     INTELLESALE        1998          PRO FORMA                    AFFILIATE      PRO FORMA
                                      ACTUAL(1)    ACQUISITIONS(2)   ADJUSTMENTS      SUBTOTAL     ACTUAL(3)     ADJUSTMENTS
                                     -----------   ---------------   -----------      --------   -------------   -----------
<S>                                  <C>           <C>               <C>              <C>        <C>             <C>
Revenues..........................     $60,743         $6,333          $    --        $67,076       $60,772        $    --
Cost of goods sold................      47,623          4,397               --         52,020        53,366             --
                                       -------         ------          -------        -------       -------        -------
Gross profit......................      13,120          1,936               --         15,056         7,406             --
Selling, general and
  administrative expenses.........       8,725          2,145                          10,870         5,675             --
Depreciation and amortization.....         774(4)          13            1,481(j)       2,268            46          3,083(m)
                                       -------         ------          -------        -------       -------        -------
Operating income (loss)...........       3,621           (222)          (1,481)         1,918         1,685         (3,083)
Interest and other income.........          45              3               --             48           392             --
Interest expense..................        (341)           (18)              --           (359)         (353)          (951)(n)
                                       -------         ------          -------        -------       -------        -------
Income (loss) before provision for
  income taxes and minority
  interest........................       3,325           (237)          (1,481)         1,607         1,724         (4,034)
Provision (benefit) for income
  tax.............................       1,646             --             (102)(k)      1,544            28            304(o)
                                       -------         ------          -------        -------       -------        -------
Income (loss) before minority
  interest........................       1,679           (237)          (1,379)            63         1,696         (4,338)
Minority interest.................         226             --               10(l)         236            --             --
                                       -------         ------          -------        -------       -------        -------
Net income (loss).................     $ 1,453         $ (237)         $(1,389)       $  (173)      $ 1,696        $(4,338)
                                       =======         ======          =======        =======       =======        =======
Earnings per common
  share -- diluted................          --             --               --             --            --             --
Weighted average common shares
  outstanding -- diluted(5).......          --             --               --             --            --             --
                                       =======         ======          =======        =======       =======        =======

<CAPTION>

                                                  OFFERING         PRO FORMA
                                    PRO FORMA    ADJUSTMENTS      AS ADJUSTED
                                    ---------    -----------      -----------
<S>                                 <C>          <C>              <C>
Revenues..........................  $127,848       $    --         $127,848
Cost of goods sold................   105,386            --          105,386
                                    --------       -------         --------
Gross profit......................    22,462            --           22,462
Selling, general and
  administrative expenses.........    16,545            --           16,545
Depreciation and amortization.....     5,397         1,443(p)         6,840
                                    --------       -------         --------
Operating income (loss)...........       520        (1,443)            (923)
Interest and other income.........       440            --              440
Interest expense..................    (1,663)        1,530(q)          (133)
                                    --------       -------         --------
Income (loss) before provision for
  income taxes and minority
  interest........................      (703)           87             (616)
Provision (benefit) for income
  tax.............................     1,876           658(r)         2,534
                                    --------       -------         --------
Income (loss) before minority
  interest........................    (2,579)         (571)          (3,150)
Minority interest.................       236          (236)(s)           --
                                    --------       -------         --------
Net income (loss).................  $ (2,815)      $  (335)        $ (3,150)
                                    ========       =======         ========
Earnings per common
  share -- diluted................  $  (0.19)           --         $  (0.15)(d)
Weighted average common shares
  outstanding -- diluted(5).......    15,000         5,630(i)      $ 20,630
                                    ========       =======         ========
</TABLE>


-------------------------

(1) Reflects 1998 operating results of all predecessor entities owned by Applied
    Digital Solutions and includes the results of operations of the companies
    acquired in 1998 from their respective dates of acquisition.

(2) Represents the historical unaudited combined condensed results of Blue Star
    Electronics, Inc., Consolidated Micro Components, Inc., Data Path
    Technologies, Inc., GDB Software Services, Inc. and Service Transport
    Company, each through March 31, 1998, and Fiscal Advantage, Inc. through
    September 30, 1998.

(3) Represents Bostek's historical condensed combined results for the year ended
    December 31, 1998.

(4) Includes $251 of fixed asset depreciation.

(5) For loss periods no common equivalent shares are included in computing
    diluted shares outstanding.

                                       32
<PAGE>   36

                             INTELLESALE.COM, INC.

            PRO FORMA UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
                               SEPTEMBER 30, 1999
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                            INTELLESALE    OFFERING                          OTHER          PRO FORMA
                              ACTUAL      ADJUSTMENTS       AS ADJUSTED   ADJUSTMENTS      AS ADJUSTED
                            -----------   -----------       -----------   -----------      -----------
<S>                         <C>           <C>               <C>           <C>              <C>
Current Assets
  Cash and cash
    equivalents...........    $   910      $ 15,535(t)       $ 16,445      $ (5,521)(v)     $ 10,924
  Accounts receivable.....     26,981            --            26,981            --           26,981
  Inventories.............     23,154            --            23,154            --           23,154
  Notes receivable........         62            --                62            --               62
  Notes
    receivable -- related
    parties...............        264            --               264            --              264
  Prepaid expenses and
    other current
    assets................      1,659            --             1,659            --            1,659
                              -------      --------          --------      --------         --------
    Total Current
       Assets.............     53,030        15,535            68,565        (5,521)          63,044
Equipment & leasehold
  improvements, net.......      1,886            --             1,886            --            1,886
Notes
  receivable -- related
  parties.................        880            --               880            --              880
Goodwill, net.............     32,742            --            32,742         9,580(v)        42,322
Other Assets..............        479            --               479            --              479
                              -------      --------          --------      --------         --------
                              $89,017      $ 15,535          $104,552      $  4,059         $108,611
                              =======      ========          ========      ========         ========
Current Liabilities
  Notes payable and
    current maturities of
    long-term debt........    $    89      $     --          $     89      $     --         $     89
  Accounts payable and
    accrued expenses......     20,720            --            20,720            --           20,720
  Due to Parent Company...     34,173       (17,000)(u)        17,173            --           17,173
  Due to shareholders of
    acquired subsidiary...     15,000            --            15,000       (10,000)(w)        5,000
                              -------      --------          --------      --------         --------
    Total Current
       Liabilities........     69,982       (17,000)           52,982       (10,000)          42,982
Notes payable.............         17                              17                             17
Minority interest.........        610                             610          (610)(v)           --
                              -------      --------          --------      --------         --------
Stockholders Equity
  Common shares...........          1             1(t)              2            --                2
  Additional paid-in
    capital...............     17,814        32,534(t)         50,348        14,669(w)(v)     65,017
  Retained earnings.......        593            --               593            --              593
                              -------      --------          --------      --------         --------
    Total Stockholders'
       Equity.............     18,408        32,535            50,943        14,669           65,612
                              -------      --------          --------      --------         --------
                              $89,017      $ 15,535          $104,552      $  4,059         $108,611
                              =======      ========          ========      ========         ========
</TABLE>


                                       33
<PAGE>   37

                   NOTES TO THE PRO FORMA UNAUDITED CONDENSED
                       CONSOLIDATED FINANCIAL STATEMENTS
                                ($ IN THOUSANDS)

     (a) Represents the net increase to amortization expense for goodwill,
arising from the allocation of the purchase price to the actual assets and
liabilities of Bostek at January 1, 1998, resulting from the acquisition of
Bostek amortized over a period of seven years, calculated as follows:

<TABLE>
         <S>                                                             <C>
         Pro forma goodwill at January 1, 1998.......................    $21,904
         Divide by 7 years for annual amortization...................      3,129
                                                                         -------
         Multiply by 5/12 for 5 months amortization..................    $ 1,304
                                                                         =======
</TABLE>

     (b) Represents the net increase to our interest expense for the nine months
ended September 30, 1999 associated with debt issued in connection with the
purchase of Bostek, based upon borrowing the $14,486 paid to the Bostek sellers
and used to repay Bostek debt at closing, at an average interest rate of 7.54%
per annum, calculated as follows:

<TABLE>
         <S>                                                             <C>
         Net amount borrowed.........................................    $14,486
         Multiply by 7.54% for annual interest expense...............      1,092
         Multiply by 5/12 for 5 months interest expense..............        455
         Less: Bostek historical interest expense....................       (151)
                                                                         -------
              Net adjustment.........................................    $   304
                                                                         =======
</TABLE>

A change in the interest rate of 1/8% would change interest expense by
approximately $7.

     (c) Represents a decrease in Bostek's tax provision due to Bostek's
earnings reduced by the pro forma interest expense, multiplied by the combined
federal and state statutory income tax rate. Bostek was a subchapter S
corporation for income tax purposes and accordingly no provision was made for
federal income taxes on a pre-acquisition historical basis. Amortization is not
deducted in computing the pro forma income tax provision.

<TABLE>
         <S>                                                             <C>
         Bostek income before provision for income taxes.............    $   219
         Less: Pro forma interest expense............................       (304)
                                                                         -------
         Adjusted (loss) before provision (benefit) for income
           taxes.....................................................        (85)
         Multiply by statutory income tax rate of 43%................        (37)
         Less: Existing tax provision................................         74
                                                                         -------
         Pro forma tax adjustment....................................    $  (111)
                                                                         =======
</TABLE>

                                       34
<PAGE>   38
                   NOTES TO THE PRO FORMA UNAUDITED CONDENSED
                CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


     (d) Diluted Earnings per Share Reconciliation



<TABLE>
<CAPTION>
                                 PRO FORMA                                          PRO FORMA
                                AS ADJUSTED        ACTUAL          PRO FORMA       AS ADJUSTED
                                DECEMBER 31,    SEPTEMBER 30,    SEPTEMBER 30,    SEPTEMBER 30,
                                    1998            1999             1999             1999
                                ------------    -------------    -------------    -------------
<S>                             <C>             <C>              <C>              <C>
Numerator:
  Net income (loss).........      $(3,150)         $   593          $  (759)         $(3,073)
Denominator:
  Weighted average shares...       15,000           15,000           15,000           15,000
  Effect of dilutive
     securities employee
     stock options..........            *            2,392                *                *
     offering adjustments...        5,630               --               --            5,630
                                  -------          -------          -------          -------
Denominator for diluted
  earnings per share --
  adjusted weighted-average
  shares....................       20,630           17,392           15,000           20,630
                                  =======          =======          =======          =======
Diluted earnings (loss) per
  share.....................      $ (0.15)         $  0.03          $ (0.05)         $ (0.15)
</TABLE>


-------------------------


* For loss periods no common equivalent shares are included in computing diluted
  shares outstanding.



     (e) Represents the increase in goodwill amortization as a result of our
purchase of the minority interests and settlement of the earn-out obligations in
connection with this offering (including our purchase of the minority interest
in Elite in August 1999 for $300):



<TABLE>
<S>                                                         <C>
Total value of additional consideration (excluding
Service Transport)......................................    $10,040
Value of 50,000 shares additional consideration due to
  Service Transport minority stockholder, assuming an
  initial public offering price of $9.00................        450
Less: Minority interest.................................       (610)
                                                            -------
Pro forma additional goodwill...........................      9,880
Divide by 7 years for annual amortization...............      1,411
                                                            -------
Multiply by 9/12 for 9 months amortization..............      1,058
Less: Actual amortization recorded for Elite............         (4)
                                                            -------
Amortization adjustment.................................    $ 1,054
                                                            =======
</TABLE>



     (f) Represents the decrease in interest expense resulting from our use of
the net proceeds to repay borrowings from Applied Digital Solutions:


<TABLE>
<S>                                                         <C>
Pro forma amount to be repaid...........................    $17,000
Multiply by 7.54% for average annual interest expense...      1,282
                                                            -------
Multiply by 9/12 for 9 months interest expense..........    $   961
                                                            =======
</TABLE>

                                       35
<PAGE>   39
                   NOTES TO THE PRO FORMA UNAUDITED CONDENSED
                CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


     (g) Represents the increase in the tax provision as a result of the
decrease in interest expense in (f) above. Amortization is not deducted in
computing the pro forma income tax provision.


<TABLE>
<S>                                                          <C>
Pro forma decrease in interest expense...................    $  961
Multiply by statutory income tax rate of 43%.............       413
</TABLE>


     (h) Represents the elimination of minority interest as a result of our
purchase of the minority interests in connection with this offering.



     (i) Represents shares issued in connection with:



          (1) this offering (4,000,000 shares);


          (2) payment to the former shareholders of Bostek in the amount of
     $10,000, assuming an initial offering price of $9.00 for total shares of
     1,111,111; and


          (3) our purchase of the minority interests and settlement of the
     earn-out obligation in the amount of $10,190, including the issuance of
     518,778 shares, having a value of $4,669, assuming an initial public
     offering price of $9.00.



     (j) Represents the net increase to amortization expense for goodwill
resulting from the 1998 acquired companies and paid earnouts from prior
acquisitions amortized over a period of seven years, calculated as follows:


<TABLE>
<S>                                                         <C>
Pro forma goodwill at January 1, 1998...................    $14,116
Divide by 7 years for annual amortization...............      2,016
Less: Existing amortization.............................       (535)
                                                            -------
Pro forma amortization adjustment.......................    $ 1,481
                                                            =======
</TABLE>


     (k) Represents an adjustment to the 1998 acquired companies' tax provision
due to their earnings multiplied by the combined federal and state statutory
income tax rate. The 1998 acquired companies were subchapter S corporations for
income tax purposes and accordingly no provision was made for federal income
taxes on a pre-acquisition historical basis. Amortization of goodwill is not
deducted in computing the pro forma income tax provision.



<TABLE>
<S>                                                         <C>
1998 acquired companies' loss before provision for
income taxes............................................    $  (237)
Multiply by statutory income tax rate of 43%............       (102)
Less: Existing tax provision............................         --
                                                            -------
Pro forma tax adjustment................................    $  (102)
                                                            =======
</TABLE>



     (l) Represent the minority interest in the earnings and losses of two of
the 1998 acquired companies, as follows:


<TABLE>
<S>                                                         <C>
Combined net loss of less than wholly owned
subsidiaries............................................    $   (50)
Minority interest at 20%................................        (10)
</TABLE>

                                       36
<PAGE>   40
                   NOTES TO THE PRO FORMA UNAUDITED CONDENSED
                CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


     (m) Represents the net increase to amortization expense for goodwill,
arising from the allocation of the purchase price to the actual assets and
liabilities of Bostek at January 1, 1998, amortized over a period of seven
years, calculated as follows:


<TABLE>
<S>                                                         <C>
Pro forma goodwill at January 1, 1998...................    $21,904
Divide by 7 years for annual amortization...............      3,129
Less: existing amortization.............................        (46)
                                                            -------
Amortization adjustment.................................    $ 3,083
                                                            =======
</TABLE>


     (n) Represents the net increase to interest expense for the year ended
December 31, 1998 associated with debt issued in connection with the purchase of
Bostek, based upon borrowing the $14,486 paid to the Bostek sellers and used to
repay Bostek debt at closing, borrowed at an average interest rate of 9% per
annum, calculated as follows:


<TABLE>
<S>                                                         <C>
Net amount borrowed.....................................    $14,486
Multiply by 9% for annual interest expense..............      1,304
Less: Bostek historical interest expense................       (353)
                                                            -------
Net adjustment..........................................    $   951
                                                            =======
</TABLE>

A change in the interest rate of 1/8% would change interest expense by
approximately $13.


     (o) Represents an increase in Bostek's tax provision due to Bostek's
earnings reduced by the pro forma interest expense, multiplied by the combined
federal and state statutory income tax rate. Bostek was a subchapter S
corporation for income tax purposes and accordingly no provision was made for
federal income taxes on a pre-acquisition historical basis. Amortization is not
deducted in computing the pro forma income tax provision.



<TABLE>
<S>                                                         <C>
Bostek income before provision for income taxes.........    $ 1,724
Less: Pro forma interest expense........................       (951)
                                                            -------
Adjusted income before provision for income taxes.......        773
Multiply by statutory income tax rate of 43%............        332
Less: Existing tax provision............................        (28)
                                                            -------
Pro forma tax adjustment................................    $   304
                                                            =======
</TABLE>



     (p) Represents the increase in goodwill amortization as a result of our
purchase of the minority interests and settlement of the earn-out obligations in
connection with this offering (including our purchase of the minority interest
in Elite in August 1999 for $300):


<TABLE>
<S>                                                         <C>
Total value of additional consideration (excluding
  Service Transport)....................................    $10,040
Value of 50,000 shares additional consideration due
  Service Transport, assuming an initial public offering
  price of $9.00........................................        450
Less: minority interest at January 1, 1998..............       (384)
                                                            -------
Pro forma additional goodwill at January 1, 1998........     10,106
                                                            -------
Divide by 7 years for annual amortization...............    $ 1,443
                                                            =======
</TABLE>

                                       37
<PAGE>   41
                   NOTES TO THE PRO FORMA UNAUDITED CONDENSED
                CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


     (q) Represents the decrease in interest expense resulting from our use of
the net proceeds to repay borrowings from Applied Digital Solutions:


<TABLE>
<S>                                                         <C>
Pro forma amount to be repaid...........................    $17,000
Multiply by 9% for annual interest expense..............      1,530
</TABLE>


     (r) Represents the increase in the tax provision as a result of the
decrease in interest expense in (q) above. Amortization is not deducted in
computing the pro forma income tax provision.


<TABLE>
<S>                                                         <C>
Pro forma decrease in interest expense..................    $ 1,530
Multiply by statutory income tax rate of 43%............        658
</TABLE>


     (s) Represents the elimination of minority interest as a result of our
purchase of the minority interests in connection with this offering.



     (t) Represents the issuance of common stock and repayment of outstanding
debt.



<TABLE>
<S>                                                         <C>
4,000,000 shares issued assuming initial
  public offering price of $9.00........................    $36,000
Less: Offering costs....................................     (3,465)
                                                            -------
Net cash received in offering...........................     32,535
Less: Amount paid to Applied Digital Solutions..........     17,000
                                                            -------
Net cash remaining......................................    $15,535
                                                            =======
</TABLE>



     (u) Represents repayment of outstanding debt to Applied Digital Solutions.



     (v) Represents the amount to purchase minority interests and settle
earn-out obligations.



<TABLE>
<S>                                                         <C>
Total value of additional consideration
  (excluding Service Transport):
  Amount paid in cash...................................    $ 5,521
  Amount paid in stock, excluding Service Transport:....      4,219
Value of 50,000 shares additional consideration due to
  Service Transport minority stockholder, assuming an
  initial public offering price of $9.00................        450
                                                            -------
                                                             10,190
Less: Minority interest.................................       (610)
                                                            -------
Pro forma additional goodwill...........................    $ 9,580
                                                            =======
</TABLE>



     (w) Represents amount to be paid to the shareholders of Bostek and its
affiliate, Micro Components, in shares of our common stock.


<TABLE>
<S>                                                         <C>
Value of 1,111,111 shares of common stock at an initial
  public offering price of $9.00........................    $10,000
                                                            =======
</TABLE>

                                       38
<PAGE>   42


                           FORWARD-LOOKING STATEMENTS


     Certain statements under the captions "Summary," "Risk Factors," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Intellesale.com, Inc." and elsewhere in this
prospectus are "forward-looking statements." These forward-looking statements
include, but are not limited to, statements about our plans, objectives,
expectations, prospects and intentions, markets in which we participate and
other statements contained in this prospectus that are not historical facts.
When used in this prospectus, the words "expect," "project," "anticipate,"
"believe," "estimate," "intend," "plan," "seek" and similar expressions are
generally intended to identify forward-looking statements. Because these
forward-looking statements involve risks and uncertainties, there are important
factors that could cause actual results to differ materially from those
expressed or implied by these forward-looking statements, including changes in
our plans, objectives, expectations, prospects and intentions and other factors
discussed under "Risk Factors" and elsewhere in this prospectus. We cannot
guarantee any future levels of activity, performance or achievements. We will
update these forward-looking statements, to the extent required by law, to
reflect material changes in the information previously disclosed.

                                       39
<PAGE>   43


                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF


                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS


     The following discussion of our results of operations and financial
condition and the results of operations and financial condition of Bostek should
be read in conjunction with the financial statements and related notes for us
and for Bostek included elsewhere in this prospectus. We consummated the Bostek
acquisition effective June 1, 1999; accordingly, the results presented for
Intellesale for the first nine months of 1999 include four months of Bostek's
operations. The following discussion contains forward-looking statements that
reflect our expectations, assumptions, estimates and beliefs. The outcome of the
events described in these forward-looking statements is subject to risks and
uncertainties, and actual results could differ materially. Factors that could
cause or contribute to such differences include those discussed below and
elsewhere in this prospectus, particularly in "Risk Factors."

OVERVIEW

     Intellesale sells refurbished and new computer equipment and related
components. We sell products online through our website at www.Intellesale.com
as well as through traditional channels, which we are migrating to the Internet
to the extent feasible. In addition to selling products on our website, we
distribute products through other online retailers' websites.

     Our business consists of our Internet segment, in which we sell refurbished
and new computer products on a retail basis through our website and through
other Internet companies, and on a wholesale basis to other Internet retailers,
and our traditional commerce and other services segment, in which we buy and
remarket computer equipment and components to traditional wholesalers, retailers
and value-added resellers, as well as individual and corporate end users, and
provide integration and consulting services, computer recycling, parts-on-demand
services and transportation services for computer and other equipment. Our
service business also includes the leasing of computers and other electronic
equipment, most often for trade shows, which frequently have temporary need for
computers which we can satisfy from our inventory of used computers, which we
can then refurbish and sell. Although this portion of our business provides
higher operating profit than other portions of our business because we use
equipment in our inventory which is subsequently resold, it is not a material
portion of our business and we do not expect it to become a significant portion
of our business. We are in the process of moving a portion of our traditional
commerce business to the Internet. We have traditionally sold our products
through direct marketing, catalogs and telephone orders from brokers and retail
clients. We expect to continue making sales through these channels but at a
decreasing rate as we continue our focus on selling our products on the
Internet.

     We began offering products on the Internet in the second quarter of 1998
with the acquisition of Data Path Technologies, Inc., which marketed refurbished
computer products through the Internet. Building on this Internet platform, we
established the Intellesale.com website in January 1999 and began to focus our
business on, and migrate our traditional commerce business to, the Internet.

     Intellesale has grown through acquisition and has been able to grow its
profitability before depreciation and amortization, interest expense and taxes.
However, this growth has required Intellesale to invest additional working
capital which has used cash and resulted in higher interest expense. The
additional goodwill arising from the acquisitions also has increased the amount
of amortization expense being incurred.

                                       40
<PAGE>   44

OUR HISTORY


     We were incorporated in Delaware in December 1998 and are the successor to
several businesses. We are an 80%-owned subsidiary of Applied Digital Solutions,
Inc., a publicly held company which is traded on the Nasdaq National Market
under the symbol "ADSX." Our business consists of the operations of 14
businesses acquired by Applied Digital Solutions beginning in 1995 that were
operated by our senior management as a separate operating unit of Applied
Digital Solutions since 1996, including Bostek, Inc. and its affiliate which
were acquired in June 1999. These predecessor businesses acquired by Applied
Digital Solutions were combined into Intellesale in July 1999 in anticipation of
this offering. We have grown rapidly, both internally and through acquisition.
The acquisitions referred to above were made primarily through the use of
Applied Digital Solutions' common stock. Set forth below is certain information
with respect to these acquisitions:



<TABLE>
<CAPTION>
                                                                        FAIR                ADDITIONAL
                                                                       VALUE                 PURCHASE
                                EFFECTIVE                              OF NET                 PRICE
                                 DATE OF     PERCENT    ACQUISITION    ASSETS                 TO BE                BUSINESS
                               ACQUISITION   ACQUIRED      PRICE      ACQUIRED   GOODWILL    PAID(1)             DESCRIPTION
                               ------------  --------   -----------   --------   --------   ----------    --------------------------
                                                                         ($ IN THOUSANDS)
  <S>                          <C>           <C>        <C>           <C>        <C>        <C>           <C>
  1995 ACQUISITION
  Elite Computer
   Services, Inc.............  September 1,      80%      $   557      $   10    $   547      $  300(2)   Remarketer of computer
                                   1995                                                                   parts

  1996 ACQUISITION
  Universal Commodities
   Corp......................  November 1,       80%        1,512         271      1,241          --      Remarketer of computer
                                   1996                                                                   equipment

  1997 ACQUISITIONS
  Norcom Resources, Inc......   January 1,       80%          538          57        481         900      Remarketer of mainframe
                                   1997                                                                   computers
  Pizarro
   Re-Marketing, Inc.........   January 1,       80%          356         156        200         500      Remarketer of computer
                                   1997                                                                   tape and disk drives
  Cybertech Station, Inc.....  July 1, 1997      80%          467           0        467         415      Remarketer of computer
                                                                                                          memory products
  Port Parties, Ltd..........  July 1, 1997      80%        3,966          82      3,884       4,000      Leasing and rental
                                                                                                          services for meeting and
                                                                                                          convention planners

  1998 ACQUISITIONS
  Blue Star
   Electronics, Inc..........    April 1,        80%          431           1        430         175      Cable assembly
                                   1998                                                                   manufacturer

  Consolidated Micro
   Components, Inc...........    April 1,       100%        1,948           4      1,944          --      Remarketer of memory,
                                   1998                                                                   processors and hard drives
  Data Path
   Technologies, Inc.........    April 1,       100%        3,421         146      3,275       2,000      Remarketer of computer
                                   1998                                                                   equipment
  GDB Software
   Services, Inc.............    April 1,       100%        1,931         221      1,710       1,500      Provider of data
                                   1998                                                                   processing consulting
                                                                                                          services
  Service Transport
   Company...................    April 1,        80%           89         (69)       158         450(3)   Transporter of computer
                                   1998                                                                   equipment
  Fiscal Advantage, Inc......   October 1,    assets          200          25        175         250      Computer leasing services
                                   1998

  1999 ACQUISITION
  Bostek, Inc. and
   affiliate.................  June 1, 1999     100%       25,205       3,747     21,458          --      Remarketer of computer
                                                                                                          equipment
</TABLE>


-------------------------

(1) Represents the amount payable in cash of $5,521 or in shares of Intellesale
    equal to $4,669 (at an assumed initial public offering price of $9.00) on
    completion of this offering to acquire the remaining minority interest in
    the acquired company and any remaining earn-out rights of the selling
    stockholders.


(2) This amount has already been paid.

(3) Represents the value of the 50,000 shares being issued. Based on an assumed
    initial public offering price of $9.00 per share.

                                       41
<PAGE>   45

     On the date of acquisition, each entity listed above, other than Fiscal
Advantage, became an indirect subsidiary of Applied Digital Solutions and a part
of Applied Digital Solutions' computer equipment sales, service and leasing
business operated by Intellesale's management team. The Fiscal Advantage
acquisition was structured as an asset purchase.


     Applied Digital Solutions' common stock was issued as consideration for all
of the above acquisitions, except the acquisitions of Fiscal Advantage, Inc. and
Bostek. All of the above acquisitions, including Bostek and Fiscal Advantage,
have been accounted for using the purchase method of accounting and,
accordingly, the consolidated and combined financial statements included
elsewhere herein reflect, for the predecessor businesses, the results of
operations of each company from the date of acquisition by Applied Digital
Solutions. The costs of acquisition include all payments under the acquisition
agreements plus the direct costs incurred in connection with the acquisitions,
primarily fees for investment banking services, legal services and accounting
services. The excess of the purchase price for the acquisitions over the
estimated fair values of the net assets acquired has been allocated to goodwill,
which results in approximately $46 million of goodwill (which includes $9.6
million of goodwill resulting from our buyout of earn-out arrangements and of
minority interests in our subsidiaries). The amortization of this goodwill over
seven years will result in an annual noncash charge to our operating results of
approximately $6.6 million, or approximately $1.7 million per quarter. Because
Bostek generated $21.5 million of this goodwill and it was not acquired until
June 1999, Intellesale's historical results through September 30, 1999 do not
fully reflect these annual expected goodwill charges. See "Pro Forma Financial
Information," Note 14 to our consolidated and combined financial statements for
information on depreciation and amortization expense by operating segment, Note
15 for unaudited pro forma information relating to the above acquisitions that
occurred in 1997 and 1998 and Note 16 regarding acquisition activity in the nine
months ended September 30, 1999.


ACCOUNTING POLICIES AND TRENDS

     The consolidated and combined financial statements included elsewhere
herein reflect the financial position, results of operations and cash flows of
the predecessor companies of Intellesale and of Intellesale for the periods
presented. The financial statements have been prepared as if we had operated as
a stand-alone entity for the periods presented, and include those assets,
liabilities, revenues and expenses directly attributable to our operations. The
determination and presentation of assets, liabilities, revenues and expenses
have been made on a basis consistent with the policies of Applied Digital
Solutions used for purposes of consolidation.


     For product sales, including sales to other online companies, we recognize
revenue upon shipment. There are no significant post-contract support
obligations at the time of revenue recognition. Our accounting policy regarding
vendor and post-contract support obligations is based on the terms of the
customers' contract, billable upon the occurrence of the post-sale support.
Costs of goods sold are recorded as the related revenue is recognized. Although
an allowance for sales returns is recorded, we do not experience significant
product returns. During the nine months ended September 30, 1999, approximately
3% of the products we shipped to customers were returned to us with some type of
damage or defect. Approximately one-third of those returns were based on
shipping damage for which the shipper compensated us. Regardless of the source
of the merchandise, most of our products are warranted by either us or the
manufacturer. We provide a minimum six month warranty for most products not
covered by factory


                                       42
<PAGE>   46

warranties. In addition, we offer our customers the opportunity to purchase an
extended warranty, which is priced on the basis of the selling price of the item
covered. These extended warranties are provided under an agreement with a third
party. We record a warranty accrual based on estimated warranty claims.


     To date, our historical growth in revenue has resulted primarily from the
acquisition of businesses which were combined into Intellesale. We generally
have experienced stability in the average revenue per unit within a product
class, such as monitors, CPUs and laptops. Each generation of computers goes
through a product life cycle. Introduction of newer product causes the prices of
older computers to decrease. This product life cycle results in a changing
supply mix of newer and older product. We have recently installed a new
perpetual inventory tracking system that will maintain detailed unit purchasing
and sales data. Prior to that time, we and our predecessor companies did not
maintain summary records of the number of units sold or the actual per unit
sales prices. As a result, we are not able to provide comparative information on
a unit basis to explain changes in revenue and gross profit.


     With our emphasis on the Internet, we expect Internet revenues to
contribute a significantly greater percentage of our total revenue in the
future. As our Internet segment continues to grow, we expect that gross margins
from the Internet segment will continue to be higher than margins from our
traditional commerce segment, although they may vary based on several factors,
including product pricing and product acquisition costs. However, we expect
margin pressures as we expand the Internet segment of our business. As we expand
our Internet business, we expect operating margins will decline from current
levels as we increase our advertising and website maintenance costs.

     Our leasing services have higher gross and operating margins than the
remainder of our businesses as a result of several factors. First, because of
continued demand for our leasing services, and because we are using equipment
already in inventory which we can later sell, we are able to maintain a higher
gross margin. The product mix for the remainder of our business, which consists
primarily of refurbished computers, carries a lower gross margin. Second, our
leasing business has lower selling, general and administrative expense than our
other businesses, because our leasing business requires less personnel per gross
profit dollar than these other businesses. We anticipate that revenues and
profits from our leasing services will remain relatively constant in absolute
dollar terms and, accordingly, will represent a lesser portion of the business
on a percentage basis as the rest of the business grows.

     Applied Digital Solutions currently provides services to, and incurs
expenses on behalf of, Intellesale. These services include legal, internal
audit, financial reporting and human resources. These expenses include corporate
overhead expenses, administration of our 401(k) employee benefit plan,
preparation of advertising materials and legal fees. The amounts which Applied
Digital Solutions charges Intellesale for these services and expenses are
determined on the basis of Applied Digital Solutions' estimate of the cost to
provide these services. These costs were approximately $0.4 million in 1998 and
$0.5 million in the first nine months of 1999. No costs were allocated in 1996
and 1997 since Applied Digital Solutions did not provide significant services.
Although management believes the amounts actually paid to Applied Digital
Solutions for these services reflect a reasonable estimate of its actual costs
of providing these services, such amounts may not necessarily be indicative of
the expenses which would have resulted had we operated as a separate entity. If
we had to provide these services ourselves, they might have cost more. Following
the completion of this offering, we will be required to provide these services
at

                                       43
<PAGE>   47

our expense. Management estimates that the cost of providing these services
following the closing of this offering will be approximately equal to the
amounts we have been paying to Applied Digital Solutions for the services.

     Due to our historical dependence on Applied Digital Solutions for funding
and services, our ability to grow internally has been constrained by the
allocation of resources made by Applied Digital Solutions. For this reason, we
expect to have our own line of credit in place at the closing of this offering,
which will replace our line of credit with Applied Digital Solutions. Until we
establish such lines of credit, we will depend on Applied Digital Solutions for
funding, and the ability of Applied Digital Solutions to provide such funding
will be subject to the terms and conditions of its credit facilities. Applied
Digital Solutions has no obligation to provide funding to us. To the extent
Applied Digital Solutions does not provide funding to us, because it is unable
to borrow under its facilities or because it elects not to do so, our business
may be materially adversely affected.


     Due to the significant level of acquisitions from 1997 through September
1999, the historical financial statements and the related management's
discussions and analysis do not fully provide an understanding of recent trends.
As a result, we have provided an analysis of trends on a pro forma basis for the
nine months ended September 30, 1999 and 1998 under the heading "Management's
Discussion and Analysis of Pro Forma Results of Operations." Due to the
difficulty of making pro forma adjustments which meet the factually-supportable
criteria of SEC regulations, this discussion has been limited to those captions
requiring no pro forma adjustments. Accordingly, only revenue, cost of goods
sold and selling, general and administrative expenses are discussed in this
presentation.


                                       44
<PAGE>   48


INTELLESALE.COM (1999 ONLY) AND PREDECESSOR COMPANIES TO INTELLESALE.COM


RESULTS OF OPERATIONS


     The following table summarizes our combined results of operations as a
percentage of revenue for the nine month periods ended September 30, 1998 and
1999 and for the three years ended December 31, 1996, 1997 and 1998:


<TABLE>
<CAPTION>
                                                          RELATIONSHIP TO REVENUE
                                          -------------------------------------------------------
                                           PREDECESSOR COMPANIES TO INTELLESALE       INTELLESALE
                                          --------------------------------------      -----------
                                                  YEARS ENDED                NINE MONTHS ENDED
                                                 DECEMBER 31,                  SEPTEMBER 30,
                                          ---------------------------      ----------------------
                                          1996       1997       1998       1998          1999
                                          -----      -----      -----      -----      -----------
<S>                                       <C>        <C>        <C>        <C>        <C>
Revenue.............................      100.0%     100.0%     100.0%     100.0%        100.0%
Cost of goods sold..................       42.7       84.2       78.4       78.7          78.0
                                          -----      -----      -----      -----         -----
Gross profit........................       57.3       15.8       21.6       21.3          22.0
Selling, general and administrative
  expenses..........................       31.9        9.6       14.4       14.0          15.5
Depreciation and amortization.......        5.5        0.9        1.3        1.3           2.9
                                          -----      -----      -----      -----         -----
Operating income....................       19.9        5.3        5.9        6.0           3.6
Interest income.....................        0.1        0.0        0.1        0.0           0.2
Interest expense....................        0.5        0.4        0.6        0.6           1.0
Income before provision for income
  taxes and minority interest.......       19.5        4.9        5.4        5.4           2.8
Provision for income taxes..........        9.5        2.2        2.7        2.4           2.0
                                          -----      -----      -----      -----         -----
Income before minority interest.....       10.0        2.7        2.7        3.0           0.8
Minority interest...................        1.5        0.6        0.4        0.4           0.1
                                          -----      -----      -----      -----         -----
Net income..........................        8.5%       2.1%       2.3%       2.6%          0.7%
                                          =====      =====      =====      =====         =====
</TABLE>

     REVENUE

     We began offering products on the Internet in the second quarter of 1998
with the acquisition of Data Path Technologies, Inc., which marketed refurbished
computer products through the Internet.

     Nine month periods ended September 30, 1998 and 1999.  Revenue from
customers for each operating segment for the nine months ended September 30,
1998 and 1999 was:

<TABLE>
<CAPTION>
                                                         1998                1999
                                                   ----------------    ----------------
                                                      $         %         $         %
                                                   -------    -----    -------    -----
                                                             ($ IN THOUSANDS)
<S>                                                <C>        <C>      <C>        <C>
Internet.......................................    $ 4,549     10.6    $31,448     35.8
Traditional commerce...........................     38,492     89.4     56,427     64.2
                                                   -------    -----    -------    -----
Consolidated...................................    $43,041    100.0    $87,875    100.0
                                                   =======    =====    =======    =====
</TABLE>

     Revenue for the nine month period ended September 30, 1999 was $87.9
million, an increase of $44.8 million, or 104.2%, from $43.0 million for the
first nine months of 1998. Of the $44.8 million increase, $33.4 million, or
74.6%, was contributed by Bostek, which we acquired effective June 1, 1999, and
the remainder was contributed primarily by the full nine months of revenue in
1999 from our acquisitions in 1998. Businesses acquired in

                                       45
<PAGE>   49

the first nine months of 1998 represented $25.8 million of revenue in the first
nine months of 1999 and $10.6 million in the first nine months of 1998.


     In the Internet segment, the $26.9 million increase in revenue resulted
from broader consumer use and acceptance of the Internet, as well as our
marketing efforts on the Internet, via Internet portals such as Yahoo! Inc. and
Lycos and retail sales through websites such as Egghead.com (formerly OnSale).
Of the $26.9 million increase, $15.1 million is attributable to Data Path
Technologies, which was owned for only six months in the 1998 period and
expanded its business in 1999, including $9.9 million, or 33.8%, of the increase
from our program with FlashNet, which began in June 1999. The remainder of the
increase came from Bostek ($9.1 million), which was acquired effective June 1,
1999, and from expansion and migration of other parts of our business to the
Internet ($2.7 million). Sales through Egghead.com represented approximately
7.0% of our revenues for the nine months ended September 30, 1999.



     In the traditional commerce segment, the $17.9 million increase in revenue
resulted from several factors: $24.3 million from Bostek, which experienced
strong demand for its laptop products during the quarter and was acquired
effective June 1, 1999, a $1.8 million increase in the demand for memory
products, and the full nine months of revenues from the 1998 acquisitions
resulted in an approximately $40,000 increase in revenue in the first nine
months of 1999. This increase, however, was offset by an $8.2 million decrease
in revenue from the remainder of our business. This decrease was primarily a
result of reduced demand for mainframe and storage devices that had experienced
significant sales in 1998, when customers were purchasing these products to
address the year 2000 problem and, to a lesser extent, the migration of other
parts of traditional commerce to the Internet.


     Years ended December 31, 1996, 1997 and 1998.  Revenue from customers for
each operating segment was:

<TABLE>
<CAPTION>
                                      1996                    1997                    1998
                                -----------------      ------------------      ------------------
                                  $           %           $           %           $           %
                                ------      -----      -------      -----      -------      -----
                                                        ($ IN THOUSANDS)
<S>                             <C>         <C>        <C>          <C>        <C>          <C>
Internet..................      $   --         --      $    --      --...      $ 7,334       12.1
Traditional commerce......       1,993      100.0       39,445      100.0       53,409       87.9
                                ------      -----      -------      -----      -------      -----
Consolidated..............      $1,993      100.0      $39,445      100.0      $60,743      100.0
                                ======      =====      =======      =====      =======      =====
</TABLE>


     Revenue for 1998 was $60.7 million, an increase of $21.3 million, or 54.0%,
from $39.4 million in 1997. Of this increase, $17.7 million resulted from
acquisitions made during 1998 and $5.2 million resulted from acquisitions made
in July 1997, which are included for a full year in 1998 results. The $5.2
million increase included $1.4 million of increased sales of certain memory
products that were sold as customers prepared for the Year 2000 problem. As the
acquired companies were integrated, we increased revenue at certain companies as
we focused on shifting our customers to the proper distribution channel.
Accordingly, the dollar increase from the July 1997 acquisitions was partially
offset by decreases in revenues at other subsidiaries, resulting in an overall
revenue increase from acquisitions prior to 1998 of $3.6 million.



     All of our Internet revenue in 1998 was from companies we acquired in 1998.
Traditional commerce revenue for 1998 increased by $14.0 million, or 35.4%, over
1997. Of this amount, approximately $10.4 million, or 74.3%, was contributed by
companies we acquired during 1998 and a net $3.6 million, as described above,
was contributed by companies that we acquired prior to 1998.


                                       46
<PAGE>   50

     The 1997 revenue represents an increase of $37.5 million over the $2.0
million reported in 1996. Of this amount, $34.0 million, or 90.7%, was
contributed by companies we acquired during 1997. The remaining increase is
primarily the result of revenues from Universal Commodities, which we acquired
in November 1996. Our operations in 1996 consisted only of Elite Computer
Services, which we acquired in August 1995, and two months of Universal
Commodities.

GROSS PROFIT/MARGIN

     Nine month periods ended September 30, 1998 and 1999.  Gross profit by
operating segment, and as a percentage of segment revenue, was:


<TABLE>
<CAPTION>
                                                          1998                  1999
                                                    ----------------      -----------------
                                                      $          %           $          %
                                                    ------      ----      -------      ----
                                                               ($ IN THOUSANDS)
<S>                                                 <C>         <C>       <C>          <C>
Internet......................................      $2,229      49.0      $10,309      32.8
Traditional commerce..........................       6,921      18.0        9,030      16.0
                                                    ------      ----      -------      ----
Consolidated..................................      $9,150      21.3      $19,339      22.0
                                                    ======      ====      =======      ====
</TABLE>


     Our gross profit for the first nine months of 1999 was $19.3 million, an
increase of $10.2 million, or 111.4%, from $9.1 million for the first nine
months of 1998. As a percentage of revenue, the gross margin was 22.0% for the
first nine months of 1999 and 21.3% for the first nine months of 1998. The
increase in our gross margins resulted primarily from lower product acquisition
cost, higher pricing resulting from increased demand and the continued migration
of our business to the Internet, which has higher margins than our traditional
commerce segment.


     Gross profit in the Internet segment increased by $8.1 million. Of this
increase, $1.4 million was contributed by Bostek, and $6.5 million was
contributed by Data Path Technologies, which was included for a full nine months
in 1999 and experienced significant growth in 1999 from direct website sales and
our program with FlashNet, as well as by Universal Commodities. The remaining
$0.2 million was contributed from Internet sales that resulted from expansion
and migration of other parts of our business to the Internet.


     Years ended December 31, 1996, 1997 and 1998.  Gross profit by operating
segment, and as a percentage of segment revenue, was:


<TABLE>
<CAPTION>
                                              1996              1997              1998
                                         --------------    --------------    ---------------
                                           $        %        $        %         $        %
                                         ------    ----    ------    ----    -------    ----
                                                          ($ IN THOUSANDS)
<S>                                      <C>       <C>     <C>       <C>     <C>        <C>
Internet.............................    $   --      --    $   --      --    $ 3,353    45.7
Traditional commerce.................     1,142    57.3     6,243    15.8      9,767    18.3
                                         ------    ----    ------    ----    -------    ----
Consolidated.........................    $1,142    57.3    $6,243    15.8    $13,120    21.6
                                         ======    ====    ======    ====    =======    ====
</TABLE>



     Our gross profit for 1998 was $13.1 million, an increase of $6.9 million,
or 110.2%, from $6.2 million in 1997. Of this increase, $3.4 million was the
result of the Data Path Technologies acquisition and expansion of its business
in 1998. Additionally, 1998 acquisition activity resulted in a net increase of
$2.0 million, from both acquired businesses and internal growth, and 1997
acquisitions contributed $1.5 million to the increase. The


                                       47
<PAGE>   51

overall increase in our gross margins resulted primarily from lower product
acquisition costs which we were able to achieve as we integrated our businesses.


     As a percentage of revenue, gross margin increased to 21.6% in 1998 from
15.8% in 1997, resulting from our commencement of sales on the Internet, which
has higher margins. Additionally, margins improved in the traditional commerce
segment, a result of the acquisition activity contributing higher margin
business and our ability as a whole to negotiate lower product acquisition costs
based on our ability to purchase in higher volumes.


     The 1997 gross profit represents an increase of $5.1 million over the $1.1
million reported in 1996. Of this amount, $3.9 million was a result of 1997
acquisitions and the remainder was due to inclusion of Universal Commodities for
a full year in 1997. Gross margin was 57.3% in 1996, but represented only the
results of Elite for the whole year and Universal Commodities for two months.
Accordingly, we believe that 1998 margins are more indicative of margins from
our continuing business.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSE

     Selling, general and administrative expenses, as a percentage of revenue,
are higher in the Internet segment than in our traditional commerce segment.
This is because advertising costs, website maintenance costs and labor costs are
all significantly greater than in our traditional commerce segment. We expect
these expenses to increase in absolute dollar terms in the future as the
Internet segment grows.

     Nine month periods ended September 30, 1998 and 1999.  Selling, general and
administrative expense by operating segment, and as a percentage of segment
revenue, was:


<TABLE>
<CAPTION>
                                                          1998               1999
                                                     --------------    ----------------
                                                       $        %         $         %
                                                     ------    ----    -------    -----
                                                              ($ IN THOUSANDS)
<S>                                                  <C>       <C>     <C>        <C>
Internet.........................................    $1,676    36.8    $ 5,528     17.6
Traditional commerce.............................     4,359    11.3      8,136     14.4
                                                     ------    ----    -------    -----
Consolidated.....................................    $6,035    14.0    $13,664     15.5
                                                     ======    ====    =======    =====
</TABLE>


     Selling, general and administrative expenses were $13.7 million for the
first nine months of 1999, an increase of $7.6 million, or 126.4%, from $6.0
million for the first nine months of 1998. As a percentage of revenue, selling,
general and administrative expenses were 15.5% for the first nine months of 1999
and 14.0% for the first nine months of 1998. Of the increase, $2.2 million
resulted from the Bostek acquisition and $2.9 million resulted from 1998
acquisitions and related increase in personnel. The remainder of the increase,
both in absolute dollar terms and as a percentage of revenue, was due to the
addition of corporate management and other employees to support our growth, rent
at our new facility, advertising and management fees paid to Applied Digital
Solutions. Management fees paid to Applied Digital Solutions in the first nine
months of 1999 amounted to $0.5 million compared to $0.3 million in the first
nine months of 1998.


     In the Internet segment, selling, general and administrative expenses
increased by $3.9 million, of which $1.1 million was due to the Bostek
acquisition and the remaining $2.8 million was primarily due to the inclusion of
Data Path Technologies for the full nine


                                       48
<PAGE>   52


months in 1999, migration of our business to the Internet and the resulting
growth of the Internet business costs, including additional personnel and
advertising.


     Selling, general and administrative expenses in the traditional commerce
segment increased by $3.8 million. Of this amount, $2.1 million is a result of
the acquisition of Bostek and the companies acquired in 1998. The remaining
increase is primarily due to the addition of corporate management and other
personnel to support our growth.

     Years ended December 31, 1996, 1997 and 1998.  Selling, general and
administrative expense by operating segment, and as a percentage of segment
revenue, was:


<TABLE>
<CAPTION>
                                               1996             1997              1998
                                           ------------    --------------    --------------
                                            $       %        $        %        $        %
                                           ----    ----    ------    ----    ------    ----
                                                           ($ IN THOUSANDS)
<S>                                        <C>     <C>     <C>       <C>     <C>       <C>
Internet...............................    $ --      --    $   --      --    $2,551    34.8
Traditional commerce...................     635    31.9     3,778     9.6     6,174    11.6
                                           ----    ----    ------    ----    ------    ----
Consolidated...........................    $635    31.9    $3,778     9.6    $8,725    14.4
                                           ====    ====    ======    ====    ======    ====
</TABLE>



     Selling, general and administrative expenses were $8.7 million in 1998, an
increase of $4.9 million, or 130.9%, from $3.8 million in 1997. As a percentage
of revenue, selling, general and administrative expenses increased to 14.4% in
1998 from 9.6% in 1997. The increase from 1997 to 1998 was due primarily to 1998
acquisitions, which contributed additional expenses of $3.6 million in 1998, and
1997 acquisitions, which contributed additional expenses of $0.9 million in
1998. In addition, we paid $0.4 million in management fees to Applied Digital
Solutions in 1998. We paid no fees in 1996 or 1997 as services provided were
insignificant.


     The 1997 expense represents an increase of $3.1 million over the $0.6
million reported in 1996. In 1996, selling, general and administrative expenses
were 31.9% of revenue, compared to 9.6% in 1997. The increase in absolute dollar
terms from 1996 to 1997 was primarily a result of acquisitions made in 1997 and
the acquisition of Universal Commodities made in November 1996. The decrease in
selling, general and administrative expenses as a percentage of revenue was
because acquisitions made in 1997 allowed us to spread our corporate overhead
expenses over a larger revenue base.

     DEPRECIATION AND AMORTIZATION

     Nine month periods ended September 30, 1998 and 1999.  Depreciation and
amortization for each of the operating segments, and as a percentage of segment
revenues, during the first nine months of 1998 and 1999 was:


<TABLE>
<CAPTION>
                                                             1998             1999
                                                         ------------    --------------
                                                          $       %        $        %
                                                         ----    ----    ------    ----
                                                                ($ IN THOUSANDS)
<S>                                                      <C>     <C>     <C>       <C>
Internet.............................................    $ 40     0.9    $  879     2.8
Traditional commerce.................................     511     1.3     1,651     2.9
                                                         ----    ----    ------    ----
Consolidated.........................................    $551     1.3    $2,530     2.9
                                                         ====    ====    ======    ====
</TABLE>


     Depreciation and amortization expense was $2.5 million for the first nine
months of 1999, an increase of $2.0 million, or 359.0%, from $0.6 million for
the first nine months of

                                       49
<PAGE>   53

1998. The increase is primarily due to goodwill amortization resulting from the
companies acquired in 1998 and the Bostek acquisition.

     Years ended December 31, 1996, 1997 and 1998. Depreciation and amortization
for each of the operating segments, and as a percentage of segment revenues,
was:


<TABLE>
<CAPTION>
                                                  1996            1997            1998
                                              ------------    ------------    ------------
                                               $       %       $       %       $       %
                                              ----    ----    ----    ----    ----    ----
                                                            ($ IN THOUSANDS)
<S>                                           <C>     <C>     <C>     <C>     <C>     <C>
Internet..................................    $ --      --    $ --      --    $ 56     0.8
Traditional commerce......................     110     5.5     342     0.9     718     1.3
                                              ----    ----    ----    ----    ----    ----
Consolidated..............................    $110     5.5    $342     0.9    $774     1.3
                                              ====    ====    ====    ====    ====    ====
</TABLE>


     Depreciation and amortization expense was $0.8 million in 1998, an increase
of $0.4 million, or 126.3%, from 1997. The increase is primarily due to
amortization of goodwill associated with 1998 and 1997 acquisitions.
Depreciation and amortization expense increased by $0.2 million in 1997 as
compared to 1996 primarily as a result of goodwill amortization associated with
companies acquired in 1997 and the acquisition of Universal Commodities in
November 1996. Including our acquisition of Bostek and the minority interests of
our non wholly-owned subsidiaries, our annual goodwill amortization expense will
be $6.6 million.

     OPERATING INCOME

     Nine month periods ended September 30, 1998 and 1999.  Operating income for
each of the operating segments, and as a percentage of segment revenue, during
the first nine months of 1998 and 1999 was:


<TABLE>
<CAPTION>
                                                            1998              1999
                                                       --------------    --------------
                                                         $        %        $        %
                                                       ------    ----    ------    ----
                                                               ($ IN THOUSANDS)
<S>                                                    <C>       <C>     <C>       <C>
Internet...........................................    $  513    11.3    $3,902    12.4
Traditional commerce...............................     2,051     5.3      (757)   (1.3)
                                                       ------    ----    ------    ----
Consolidated.......................................    $2,564     6.0    $3,145     3.6
                                                       ======    ====    ======    ====
</TABLE>


     Operating income was $3.1 million for the first nine months of 1999, an
increase of $0.5 million, or 22.7%, from $2.6 million for the first nine months
of 1998.


     Of this increase, $1.1 million was contributed by Bostek, which we acquired
effective June 1, 1999, and the remainder was contributed primarily by the full
nine months of operating income in 1999 from our acquisitions in 1998, most of
which occurred effective April 1, 1998. In the Internet segment, the $3.4
million increase in operating revenue resulted from an increase of $0.3 million
from Bostek, which was acquired effective June 1, 1999, and the remainder of the
increase was from Data Path Technologies, which we owned for six months in 1998,
and which in 1999 included our program with FlashNet. The decrease in
traditional operating income was a result of migration of business to the
Internet, additional depreciation and amortization expense and increased
selling, general and administrative expenses.


                                       50
<PAGE>   54

     Years ended December 31, 1996, 1997 and 1998.  Operating income for each of
the operating segments, and as a percentage of segment revenue, was:


<TABLE>
<CAPTION>
                                                1996            1997              1998
                                            ------------    -------------    --------------
                                             $       %        $        %       $        %
                                            ----    ----    ------    ---    ------    ----
                                                           ($ IN THOUSANDS)
<S>                                         <C>     <C>     <C>       <C>    <C>       <C>
Internet................................    $ --      --    $   --     --    $  746    10.2
Traditional commerce....................     397    19.9     2,123    5.4     2,875     5.4
                                            ----    ----    ------    ---    ------    ----
Consolidated............................    $397    19.9    $2,123    5.4    $3,621     6.0
                                            ====    ====    ======    ===    ======    ====
</TABLE>


     Operating income was $3.6 million in 1998, an increase of $1.5 million, or
70.6%, from $2.1 million in 1997. The 1997 operating income represents an
increase of $1.7 million over the $0.4 million reported in 1996. The increase in
operating income in 1998 of $1.5 million over the $2.1 million reported in 1997
was from companies acquired during 1998 and from acquisitions made in 1997 that
were included for a full year in 1998. The increase in operating income of $1.7
million over the $0.4 million reported in 1996 was from companies acquired
during 1997.

     INTEREST INCOME AND EXPENSE

     Interest income was insignificant in each of the periods. Interest income
is earned primarily from short-term investments. Interest expense was $0.9
million for the first nine months of 1999 and $0.3 million for the first nine
months of 1998. Interest expense was $0.3 million in 1998, an increase of $0.1
million from $0.2 million in 1997. The 1997 expense increased $0.1 million over
the nominal amount reported in 1996. As we have grown over the last three years,
our need to finance our working capital has increased, resulting in greater
amounts borrowed and higher interest expense. Interest expense is principally
associated with advances from Applied Digital Solutions and borrowings from
financial institutions.

     INCOME TAXES


     We had effective income tax rates of 45.1% for the first nine months of
1998 and 71.7% for the first nine months of 1999. Our effective income tax rates
were 48.9% in 1996, 44.8% in 1997 and 49.5% in 1998. Changes in the effective
rate were primarily the result of acquisitions of companies in states with
higher state income tax rates and non-deductible goodwill resulting from
acquisitions. Information on income taxes can be found in Notes 1 and 9 to our
audited financial statements included herein.


LIQUIDITY AND CAPITAL RESOURCES

     We have historically funded our operations primarily through borrowings
from Applied Digital Solutions and cash from operations.

     As of September 30, 1999, cash and cash equivalents totaled $0.9 million,
an increase of $0.3 million from $0.6 million at December 31, 1998. Excess cash
on hand has been applied against our indebtedness to Applied Digital Solutions.

                                       51
<PAGE>   55

     OPERATING ACTIVITIES


     Net cash used in operating activities was approximately $10.6 million for
the nine month period ended September 30, 1999. This was primarily the result of
an increase in accounts receivable of $15.7 million and an increase of $13.5
million in inventory, partially offset by net income of $0.6 million,
depreciation and amortization of $2.5 million and an increase in accounts
payable and accrued expenses of $15.6 million and $1.0 million in current
liabilities due to Applied Digital Solutions. The higher levels of accounts
receivable and inventory are a result of increased sales and anticipated sales
from the Internet segment of our business. Net cash used in operating activities
for the nine months ended September 30, 1998 was approximately $1.5 million.
This was primarily the result of net income of $1.1 million, offset by an
increase in inventory of $1.0 million, a decrease in current liabilities due to
Applied Digital Solutions of $1.1 million and a decrease in accounts payable and
accrued expenses of $1.3 million. We anticipate that we will continue to use
more cash than will be provided by our operations as our business grows during
the next 12 months, primarily because of our anticipated significant increase in
our marketing and promotional efforts. In order to conduct the marketing and
other efforts we have planned during this period, we will rely on the proceeds
of this offering. If this offering is not completed, we will continue to be a
part of Applied Digital Solutions and will rely on capital provided by Applied
Digital Solutions as necessary and to the extent it continues to be available.


     We do not anticipate any material capital expenditures within the next 12
months. We believe that our efforts to migrate our traditional business to the
Internet will not require significant capital expenditures. We expect to enhance
our website to accommodate the needs of our traditional customers and estimate
that these costs will be less than $0.5 million.


     Net cash used in operating activities was approximately $2.2 million for
the year ended December 31, 1998. This was primarily the result of an increase
in inventory of $2.3 million, a decrease in accounts payable and accrued
expenses of $1.8 million and a decrease in current liabilities due to Applied
Digital Solutions of $0.4 million, offset in part by net income of $1.5 million
and depreciation and amortization of $0.8 million. Net cash provided by
operating activities was approximately $0.2 million for the year ended December
31, 1997. This was primarily the result of net income of $0.8 million,
depreciation and amortization of $0.3 million, an increase in accounts payable
and accrued expenses of $1.7 million and an increase in current liabilities due
to Applied Digital Solutions of $0.8 million, offset by an increase in inventory
of $2.3 million and an increase in accounts receivable of $1.4 million. Net cash
provided by operating activities was approximately $0.1 million for the year
ended December 31, 1996. This was primarily the result of net income of $0.2
million and an increase in current liabilities due to Applied Digital Solutions
of $0.4 million, offset by an increase in inventory of $0.2 million, an increase
in accounts receivable of $0.1 million and a decrease in accounts payable and
accrued expenses of $0.2 million.


     INVESTING ACTIVITIES

     Net cash used in investing activities was approximately $12.1 million for
the nine month period ended September 30, 1999. This was the result of payments
in the Bostek acquisition of $10.5 million, the purchase of furniture and
fixtures, equipment and leasehold improvements of $1.2 million and an increase
in other assets of $0.4 million. Net

                                       52
<PAGE>   56

cash used in investing activities was approximately $1.0 million for the nine
months ended September 30, 1998. This was primarily due to loans to our
executive officers of $0.9 million.


     Net cash used in investing activities was approximately $1.0 million for
the year ended December 31, 1998. This was primarily the result of an increase
in loans to our executive officers of $1.1 million. Net cash provided by
investing activities was $0.4 million for the year ended December 31, 1997. This
was primarily the result of net cash acquired in acquisitions of $0.6 million, a
decrease in notes receivable of $0.1 million and proceeds from the sale of
assets of $0.1 million, offset by purchases of furniture, fixtures and equipment
of $0.4 million. Net cash used in investing activities for the year ended
December 31, 1996 was nominal.


     FINANCING ACTIVITIES

     Net cash provided by financing activities was $23.1 million for the nine
month period ended September 30, 1999. This was the result of additional
borrowings of $23.1 million from Applied Digital Solutions, including $10.1
million borrowed to acquire Bostek and an additional $4.4 million to refinance
Bostek's working capital loans. Net cash provided by financing activities was
$2.6 million for the nine months ended September 30, 1998. This was the result
of borrowings of $4.3 million from Applied Digital Solutions, a portion of which
was used to pay off $1.6 million of borrowings from financial institutions.

     Net cash provided by financing activities was approximately $3.2 million
for the year ended December 31, 1998. This was primarily the result of
additional borrowings from Applied Digital Solutions of $5.0 million for
acquisitions and working capital, offset by payments of amounts due financial
institutions of $1.8 million. Net cash used in financing activities for the year
ended December 31, 1997 was nominal. Net cash used in financing activities for
the year ended December 31, 1996 was $0.2 million. This was the result of
reductions in the amounts due financial institutions.


     As of December 21, 1999, our outstanding borrowings from Applied Digital
Solutions were $36.0 million, including the amounts borrowed in connection with
the Bostek acquisition as described above. From January 1, 1999 through November
30, 1999, our average weighted interest rate on borrowings from Applied Digital
Solutions was 7.5%, and at December 21, 1999 the interest rate on these
borrowings was 7.5%. Our borrowings from Applied Digital Solutions bear interest
at the same rate as the rate paid by Applied Digital Solutions to its lender.
These rates are subject to adjustment to reflect changes in specified interest
rate indexes. We expect to have our own line of credit in place at the closing
of this offering, which will replace the line of credit which Applied Digital
Solutions is now providing to us. We cannot provide assurance that we will be
able to establish such line of credit on favorable terms or at all. Until we
establish such line of credit, we will depend on Applied Digital Solutions for
funding, and the ability of Applied Digital Solutions to provide such funding
will be subject to the terms and conditions of its credit facilities. We expect
that the proceeds of this offering, together with our available cash resources,
will be sufficient to meet our cash and working capital requirements for at
least the next 12 months. However, after that 12-month period, we may require
additional equity or debt financing to meet our working capital and capital
expenditure requirements. Our capital requirements depend on a variety of
factors, including but not limited to the rate of increase or decrease in our
existing business base, the success, timing and amount of investment required to
bring new products or services online, revenue growth or decline


                                       53
<PAGE>   57

and potential acquisitions. We cannot assure you that we will not need
additional financing sooner or, if required, that it will be available on a
timely basis or on terms satisfactory to us.


     Applied Digital Solutions currently has a term and revolving credit
facility with IBM Credit Corporation, under which Applied Digital Solutions may
borrow in various tranches. The aggregate amount of the facility for domestic
use is $71.3 million, of which $27.0 million is a revolving credit line that may
be used for general working capital requirements, capital expenditures and other
permitted purposes. The U.S. tranche bears interest at a floating rate equal to
30-day LIBOR plus 1.9%. As of December 21, 1999, a total of $60.8 million was
outstanding under the U.S. tranche and $10.5 million remained available under
the U.S. tranche. The shares of Intellesale held by Applied Digital Solutions
are pledged as security for this facility. Our ability to borrow funds from
Applied Digital Solutions is subject to various factors, including the ability
of Applied Digital Solutions to meet the conditions to borrowing under the
facility, the amounts available under the facility and the determination of the
management of Applied Digital Solutions whether to make funds available to us,
which will be affected by the borrowing requirements of Applied Digital
Solutions for its own operations, for acquisitions and for its other
subsidiaries. While we cannot assure you as to Applied Digital Solutions' future
ability to borrow under this facility, Applied Digital Solutions has advised us
that it meets all conditions to borrowing under the facility as of the date of
this prospectus. Due to our historical dependence on Applied Digital Solutions
for funding, our ability to grow internally has been constrained by the
allocation of resources made by Applied Digital Solutions. We have received a
non-binding letter of intent for a line of credit from an unaffiliated lending
institution, which would provide us with an aggregate of $50 million in
revolving credit financing for working capital and other purposes, but we cannot
assure you that we will be able to complete such line of credit. We currently
anticipate that our borrowing availability will be based on a percentage of our
inventory and accounts receivable. We intend to use borrowings under this line
of credit to repay all amounts owed to Applied Digital Solutions.


     In connection with previous acquisitions, we have agreed to pay additional
amounts to the sellers of the acquired businesses depending on the performance
of the businesses. We have recently entered into agreements with those sellers
who are entitled to these payments under which we have agreed, subject to
completion of this offering, to pay fixed amounts, in a combination of cash and
shares of our stock, in lieu of the earn-out payments. Some of those individuals
also retained minority interests in our subsidiaries, and in those cases, we
have also agreed, subject to completion of this offering, to repurchase their
minority interests, also for a combination of cash and our stock. Our aggregate
cash obligation to those individuals under all of these agreements is $5.5
million. We intend to use $5.5 million of the proceeds from this offering to
satisfy the cash portion of those obligations, and to issue 518,778 shares of
our common stock, assuming an initial public offering price of $9.00 per share,
to satisfy the stock portion of those obligations.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

     In 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (FAS) 133, Accounting for Derivative
Instruments and Hedging Activities. In 1999, the FASB issued FAS 137, Accounting
for Derivative Instruments and Hedging Activities -- Deferral of the Effective
Date of FAS 133. We currently do not use any derivative financial instruments to
hedge our exposure to adverse

                                       54
<PAGE>   58

fluctuations in interest rates, foreign exchange rates, fluctuations in
commodity prices or other market risks, nor do we invest in speculative
financial instruments.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Less than 5% of our revenues for 1998 resulted from export to other
countries. Our operations may be subject to volatility due to inflation or
changes in political and economic conditions in these countries. Sales and
expenses that are denominated in local currencies may be affected as currency
fluctuations affect our product prices and operating costs or those of our
competitors.

     Borrowings from Applied Digital Solutions are at a variable rate. We do not
have any hedging arrangements for interest rates.


BOSTEK


     This portion of this discussion provides information about the operations
of Bostek for periods prior to our acquisition of Bostek, which occurred
effective June 1, 1999, and also provides information about the anticipated
effect of the acquisition on Intellesale.

     Bostek was founded in 1983 as a reseller of computer equipment. In early
1998, Bostek shifted its focus to capitalize on an emerging niche segment in the
computer equipment distribution industry that involved acquiring new and
refurbished computer equipment from manufacturers, retailers and resellers and
selling such equipment over the Internet and through traditional sales channels.

     In March 1998, Bostek developed a website under the name American Discount
Warehouse, at PickADW.com, to sell its products over the Internet.

     Bostek operated in three business segments:

     - Internet, which began in the second quarter of 1998, in which Bostek
       remarketed new and refurbished computer products through its website on a
       retail basis;

     - Internet wholesale, in which Bostek sold products on a wholesale basis to
       other Internet companies that remarket the products on a retail basis
       through the Internet; and

     - Traditional commerce, in which Bostek remarketed personal computer
       equipment and components to traditional wholesalers, retailers and
       value-added resellers as well as individual and corporate end users.

ACQUISITION BY INTELLESALE


     Effective June 1, 1999, we completed the purchase of Bostek and its
affiliate, Micro Components International, for $25.2 million, and we have agreed
to pay up to an additional $5.0 million in cash if Bostek achieves approximately
$4 million of earnings before income taxes over the two-year period ended May
31, 2001. Of the $25.2 million base purchase price, including expenses, $10.2
million was paid in cash at the closing, $10.0 million will be paid in our
common stock within 30 days after the closing of this offering, based on the
initial public offering price of this offering, and $5.0 million is payable in
cash in January 2000. We will also reimburse the former Bostek stockholders
approximately $1 million in tax liability they will incur as a result of a
Section 338(h)(10)


                                       55
<PAGE>   59


tax election we made in connection with the acquisition. As a result of this
election, a portion of goodwill amortization will be deductible for tax
purposes. This amount of goodwill has not been finalized. We borrowed $10.1
million of the cash portion of the consideration from Applied Digital Solutions.
We also borrowed $4.4 million from Applied Digital Solutions to refinance
Bostek's working capital loans. Assuming an initial public offering price of
$9.00, we will issue 555,556 shares of common stock to each of the two former
Bostek stockholders within 30 days of the closing of this offering, which will
represent approximately 2.7% of our outstanding common stock after giving effect
to this offering and the issuance of shares of common stock to satisfy earn-out
obligations and to purchase minority interests in acquired subsidiaries. Both of
the former Bostek stockholders are employees of Intellesale.


     The purchase price for Bostek was assigned to the assets acquired and the
liabilities assumed based on their estimated fair values at the acquisition
date. Based on such allocations, the aggregate purchase price exceeded the
estimated fair value of the net assets acquired by approximately $21.5 million.
That amount is recognized as goodwill and is being amortized over 7 years and
will result in an annual amortization charge of approximately $3.1 million. Any
additional amounts paid out under the purchase price contingency provision noted
above will result in additional goodwill.


     Bostek is engaged in the business of acquiring excess inventory and
manufacturer refurbished computer equipment and selling such equipment,
primarily over the Internet. As a result of the Bostek acquisition, our product
mix now includes newer, factory-warranted, higher end products in addition to
our refurbished equipment. In addition to expanding our product mix and customer
base, we expect that the integration of Bostek will have the following benefits:


     - the combination of the best features of both websites should enhance our
       customers' experience; and

     - the combination of Bostek's warehousing operations with our own should
       lead to cost savings.

                                       56
<PAGE>   60

RESULTS OF OPERATIONS

     The following table summarizes Bostek's historical, pre-acquisition results
of operations as a percentage of revenue for the five-month period ended May 31,
1998 and 1999 and for the years ended December 31, 1996, 1997 and 1998:

<TABLE>
<CAPTION>
                                                         RELATIONSHIP TO REVENUE
                                                -----------------------------------------
                                                                            FIVE MONTHS
                                                      YEARS ENDED              ENDED
                                                -----------------------    --------------
                                                     DECEMBER 31,             MAY 31,
                                                1996     1997     1998     1998     1999
                                                -----    -----    -----    -----    -----
<S>                                             <C>      <C>      <C>      <C>      <C>
Revenue.....................................    100.0%   100.0%   100.0%   100.0%   100.0%
Cost of goods sold..........................     87.1     86.2     87.8     87.8     88.6
                                                -----    -----    -----    -----    -----
Gross profit................................     12.9     13.8     12.2     12.2     11.4
Selling, general and administrative
  expenses..................................      7.1     10.1      9.4      7.5     10.3
                                                -----    -----    -----    -----    -----
Operating income............................      5.8      3.7      2.8      4.7      1.1
Interest and other income...................       --       --     (0.6)      --       --
Interest expense............................      0.2      0.1      0.6      0.9      0.5
                                                -----    -----    -----    -----    -----
Income before provision for income taxes....      5.6      3.6      2.8      3.8      0.6
Provision for income taxes..................      0.1      0.1      0.0      0.3      0.2
                                                -----    -----    -----    -----    -----
Net income..................................      5.5%     3.5%     2.8%     3.5%     0.4%
                                                =====    =====    =====    =====    =====
</TABLE>

     REVENUE

     Five month periods ended May 31, 1998 and 1999.  Revenue from customers for
each operating segment for the first five months of 1998 and 1999 was:


<TABLE>
<CAPTION>
                                                         1998                1999
                                                   ----------------    ----------------
                                                      $         %         $         %
                                                   -------    -----    -------    -----
                                                             ($ IN THOUSANDS)
<S>                                                <C>        <C>      <C>        <C>
Internet.......................................    $ 1,475      6.2    $ 7,321     22.0
Internet wholesale.............................      3,456     14.5      5,890     17.6
Traditional commerce...........................     18,933     79.3     20,189     60.4
                                                   -------    -----    -------    -----
Consolidated...................................    $23,864    100.0    $33,400    100.0
                                                   =======    =====    =======    =====
</TABLE>


     Revenue for the first five months of 1999 was $33.4 million, an increase of
$9.5 million, or 40.0%, from $23.9 million for the first five months of 1998.
This increase is primarily attributable to more transactions conducted over the
Internet. Bostek's Internet segment began operating in April 1998 and accounted
for 61.3% of the increase.

                                       57
<PAGE>   61

     Years ended December 31, 1996, 1997 and 1998.  Revenue from customers for
each operating segment was:


<TABLE>
<CAPTION>
                                          1996                1997                1998
                                    ----------------    ----------------    ----------------
                                       $         %         $         %         $         %
                                    -------    -----    -------    -----    -------    -----
                                                        ($ IN THOUSANDS)
<S>                                 <C>        <C>      <C>        <C>      <C>        <C>
Internet........................    $    --       --    $    --       --    $ 7,789     12.8
Internet wholesale..............         --       --         --       --      8,208     13.5
Traditional commerce............     54,400    100.0     42,930    100.0     44,775     73.7
                                    -------    -----    -------    -----    -------    -----
Consolidated....................    $54,400    100.0    $42,930    100.0    $60,772    100.0
                                    =======    =====    =======    =====    =======    =====
</TABLE>



     Revenue for 1998 was $60.8 million, an increase of $17.8 million, or 41.6%,
from $42.9 million in 1997. This increase is principally attributable to an
increased number of transactions being conducted over the Internet and increased
revenues from Internet wholesale arrangements. Traditional commerce revenues
were up slightly in 1998 due to increased volume of sales. The 1997 revenue
represents a decrease of $11.5 million, or 21.1%, from the $54.4 million
reported in 1996. This decrease was a result of significant changes within the
personal computer market, primarily the introduction of the Intel Pentium(R)
processor which severely impacted the demand for older processors.


     GROSS PROFIT/MARGIN

     Five month periods ended May 31, 1998 and 1999.  Gross profit by operating
segment, and as a percentage of segment revenue, was:


<TABLE>
<CAPTION>
                                                            1998              1999
                                                       --------------    --------------
                                                         $        %        $        %
                                                       ------    ----    ------    ----
                                                               ($ IN THOUSANDS)
<S>                                                    <C>       <C>     <C>       <C>
Internet...........................................    $  201    13.6    $  878    12.0
Internet wholesale.................................       317     9.2       658    11.2
Traditional commerce...............................     2,388    12.6     2,268    11.2
                                                       ------    ----    ------    ----
Consolidated.......................................    $2,906    12.2    $3,804    11.4
                                                       ======    ====    ======    ====
</TABLE>


     Gross profit for the first five months of 1999 was $3.8 million, an
increase of $0.9 million, or 30.9%, from $2.9 million for the first five months
of 1998. As a percentage of revenue, gross margin was 11.4% for the first five
months of 1999 and 12.2% for the first five months of 1998. Overall gross margin
decreased in the 1999 period primarily because Bostek shifted its product mix to
newer, higher-end systems, where there is higher demand but increased
competition that results in lower margins for such products on both the Internet
and through traditional channels. Because Bostek has completed the shift of its
product mix to newer, higher-end products, we do not expect such downward
pressure on Bostek's margins to continue.

                                       58
<PAGE>   62

     Years ended December 31, 1996, 1997 and 1998. Gross profit by operating
segment, and as a percentage of segment revenue, was:


<TABLE>
<CAPTION>
                                               1996              1997              1998
                                          --------------    --------------    --------------
                                            $        %        $        %        $        %
                                          ------    ----    ------    ----    ------    ----
                                                           ($ IN THOUSANDS)
<S>                                       <C>       <C>     <C>       <C>     <C>       <C>
Internet..............................    $   --      --    $   --      --    $  857    11.0
Internet wholesale....................        --      --        --      --       940    11.5
Traditional commerce..................     7,034    12.9     5,915    13.8     5,609    12.5
                                          ------    ----    ------    ----    ------    ----
Consolidated..........................    $7,034    12.9    $5,915    13.8    $7,406    12.2
                                          ======    ====    ======    ====    ======    ====
</TABLE>



     Gross profit for 1998 was $7.4 million, an increase of $1.5 million, or
25.2%, from $5.9 million in 1997. Gross profit for 1997 represents a decrease of
$1.1 million, or 15.9%, from the $7.0 million reported in 1996. Overall gross
margin decreased in 1998 primarily because Bostek shifted its product mix to
newer, higher-end systems, where there is higher demand but increased
competition that results in lower margins for such products on both the Internet
and through traditional channels.


     SELLING, GENERAL AND ADMINISTRATIVE EXPENSE

     Selling, general and administrative expenses, as a percentage of revenue,
are higher in the Internet segment than in Bostek's traditional and Internet
wholesale segments. All labor costs are included in this category, as are
website maintenance costs and advertising costs, both of which are significantly
greater than in Bostek's traditional commerce and Internet wholesale segments.

     Five month periods ended May 31, 1998 and 1999.  Selling, general and
administrative expense by operating segment, and as a percentage of segment
revenue, was:


<TABLE>
<CAPTION>
                                                            1998              1999
                                                       --------------    --------------
                                                         $        %        $        %
                                                       ------    ----    ------    ----
                                                               ($ IN THOUSANDS)
<S>                                                    <C>       <C>     <C>       <C>
Internet...........................................    $  161    10.9    $  919    12.6
Internet wholesale.................................       206     6.0       576     9.8
Traditional commerce...............................     1,418     7.5     1,929     9.6
                                                       ------    ----    ------    ----
Consolidated.......................................    $1,785     7.5    $3,424    10.3
                                                       ======    ====    ======    ====
</TABLE>


     Selling, general and administrative expenses were $3.4 million for the
first five months of 1999, an increase of $1.6 million, or 91.3%, from $1.8
million for the first five months of 1998. As a percentage of revenue, selling,
general and administrative expenses were 10.3% for the first five months of 1999
and 7.5% for the first five months of 1998. The increased expense in absolute
dollar terms and as a percentage of revenue is due to the expansion of the
corporate infrastructure necessary to support continued growth and the entry
into the Internet market.

                                       59
<PAGE>   63

     Years ended December 31, 1996, 1997 and 1998.  Selling, general and
administrative expense by operating segment, and as a percentage of segment
revenue, was:


<TABLE>
<CAPTION>
                                               1996              1997              1998
                                           -------------    --------------    --------------
                                             $        %       $        %        $        %
                                           ------    ---    ------    ----    ------    ----
                                                           ($ IN THOUSANDS)
<S>                                        <C>       <C>    <C>       <C>     <C>       <C>
Internet...............................    $   --     --    $   --      --    $1,114    14.3
Internet wholesale.....................        --     --        --      --       712     8.7
Traditional commerce...................     3,858    7.1     4,354    10.1     3,895     8.7
                                           ------    ---    ------    ----    ------    ----
Consolidated...........................    $3,858    7.1    $4,354    10.1    $5,721     9.4
                                           ======    ===    ======    ====    ======    ====
</TABLE>



     Selling, general and administrative expenses were $5.7 million in 1998, an
increase of $1.4 million, or 31.4%, from $4.4 million in 1997. The 1997 expense
represents an increase of $0.5 million, or 12.9%, over the $3.9 million reported
in 1996. As a percentage of revenue, selling, general and administrative
expenses increased from 7.1% in 1996 to 10.1% in 1997 but decreased to 9.4% in
1998. During these periods, Bostek expanded its corporate infrastructure to
support continued growth, entered the Internet market and lowered sales prices
to meet increased competition.


     OPERATING INCOME

     Five month periods ended May 31, 1998 and 1999. Operating income for each
of the operating segments, and as a percentage of segment revenue, was:


<TABLE>
<CAPTION>
                                                              1998             1999
                                                          -------------    ------------
                                                            $        %      $       %
                                                          ------    ---    ----    ----
                                                                ($ IN THOUSANDS)
<S>                                                       <C>       <C>    <C>     <C>
Internet..............................................    $   38    2.6    $(43)   (0.6)
Internet wholesale....................................       109    3.2      80     1.4
Traditional commerce..................................       964    5.1     333     1.6
                                                          ------    ---    ----    ----
Consolidated..........................................    $1,111    4.7    $370     1.1
                                                          ======    ===    ====    ====
</TABLE>


     Operating income was $0.4 million for the first five months of 1999, a
decrease of $0.7 million, or 66.7%, from $1.1 million for the first five months
of 1998. The operating loss in the Internet segment for the five months ended
May 31, 1999 was primarily the result of increased advertising.

     Years ended December 31, 1996, 1997 and 1998.  Operating income for each of
the operating segments, and as a percentage of segment revenue, was:


<TABLE>
<CAPTION>
                                                1996             1997              1998
                                            -------------    -------------    --------------
                                              $        %       $        %       $        %
                                            ------    ---    ------    ---    ------    ----
                                                            ($ IN THOUSANDS)
<S>                                         <C>       <C>    <C>       <C>    <C>       <C>
Internet................................    $   --     --    $   --     --    $ (257)   (3.3)
Internet wholesale......................        --     --        --     --       228     2.8
Traditional commerce....................     3,175    5.8     1,561    3.6     1,714     3.8
                                            ------    ---    ------    ---    ------    ----
Consolidated............................    $3,175    5.8    $1,561    3.6    $1,685     2.8
                                            ======    ===    ======    ===    ======    ====
</TABLE>


     Operating income was $1.7 million in 1998, an increase of $0.1 million, or
7.9%, from $1.6 million in 1997. Operating income for 1997 represents a decrease
of $1.6 million, or

                                       60
<PAGE>   64


50.8%, from the $3.2 million reported in 1996. The operating loss for the
Internet segment for the year ended December 31, 1998 was primarily the result
of increased advertising.


     INTEREST AND OTHER INCOME AND INTEREST EXPENSE

     Interest income, earned primarily from short-term investments, was
immaterial in each of the periods. During 1998, Bostek recognized a gain on sale
of investment of $0.4 million. The investment was accepted as payment of a
receivable and was sold for a gain by Bostek. Interest expense was $0.1 million
for the first five months of 1999 and $0.2 million for the first five months of
1998. Interest expense was $0.3 million in 1998, nominal in 1997 and $0.1
million in 1996. Interest expense is principally associated with borrowings from
financial institutions. As Bostek grew during 1998 and invested in its Internet
and Internet wholesale segments, its need to finance its working capital
increased, resulting in greater amounts borrowed and higher interest expense
over 1997 and 1996.

     INCOME TAXES

     In 1995 Bostek elected to be treated as subchapter S corporation for income
tax purposes. The effect of this election was that corporate earnings were
reported on the individual returns of the shareholders. Upon our acquisition of
Bostek, the subchapter S corporation election terminated. Had Bostek not been a
subchapter S corporation, its tax rate would have been approximately 44%. Bostek
paid an immaterial amount of state and local taxes in the periods presented.

LIQUIDITY AND CAPITAL RESOURCES

     OPERATING ACTIVITIES

     Net cash provided by operating activities was approximately $2.5 million
for the five months ended May 31, 1999. This was primarily the result of net
income of $0.1 million, a decrease in inventory of $2.1 million, an increase in
accounts payable and accrued expenses of $2.1 million, offset by an increase in
accounts receivable of $1.9 million. Net cash used by operating activities was
approximately $1.0 million for the five month period ended May 31, 1998. This
was primarily the result of an increase in accounts receivable of $2.9 million,
offset by an increase in accounts payable and accrued expenses of $0.8 million
and net income of $0.8 million.

     Net cash used in operating activities was approximately $2.3 million for
the year ended December 31, 1998. This was primarily the result of an increase
in inventory of $2.0 million, an increase in accounts receivable of $0.6
million, a decrease in accounts payable and accrued expenses of $0.7 million,
offset by net income of $1.7 million. Net cash provided by operating activities
was approximately $0.1 million for the year ended December 31, 1997. This was
primarily the result of net income of $1.5 million, offset by an increase in
inventory of $1.5 million. Net cash provided by operating activities was $4.1
million for the year ended December 31, 1996. This was primarily the result of
net income of $3.0 million and a decrease in inventory of $1.0 million.

     INVESTING ACTIVITIES

     Net cash used in investing activities was approximately $0.1 million for
the five months ended May 31, 1999. This was the result of the purchase of
furniture, fixtures and

                                       61
<PAGE>   65

equipment. Net cash used by investing activities was nominal for the five month
period ended May 31, 1998.


     Net cash used by investing activities was approximately $0.2 million for
the year ended December 31, 1998. This was the result of the purchase of
furniture, fixtures and equipment. Net cash used by investing activities was
nominal for the years ended December 31, 1997 and 1996.


     FINANCING ACTIVITIES

     Net cash used by financing activities was $2.5 million for the five months
ended May 31, 1999. This was primarily the result of reductions in the amounts
due financial institutions of $2.1 million and dividends of $0.4 million. Net
cash provided by financing activities for the five month period ended May 31,
1998 was approximately $0.9 million. This was primarily the result of additional
borrowings from financial institutions of $0.9 million.

     Net cash provided by financing activities was approximately $1.6 million
for the year ended December 31, 1998. This was primarily the result of net
borrowings from financial institutions of $3.1 million, offset by dividends paid
of $1.1 million and loans to officers of $0.5 million. Net cash provided by
financing activities was approximately $0.5 million for the year ended December
31, 1997. This was primarily the result of net borrowings from financial
institutions of $2.7 million and loans from officers of $0.3 million, offset by
dividends paid of $2.5 million. Net cash used by financing activities was $3.4
million for the year ended December 31, 1996. This was primarily the result of
reductions in the amounts due financial institutions of $2.9 million and
dividends paid of $0.5 million.

     Bostek's borrowings were made under a revolving line of credit with
Citizens Bank of Massachusetts at a floating interest rate equal to the bank's
prime rate. In connection with our acquisition of Bostek, the outstanding
balance of $4.4 million under this line of credit was paid off entirely.
Financing is now obtained through borrowings from Applied Digital Solutions.

YEAR 2000 COMPLIANCE


     Background.  Some computers, software and other equipment include
programming code in which calendar year data is abbreviated to only two digits.
As a result of this design decision, some of these systems could fail to operate
or fail to produce correct results if "00" is interpreted to mean 1900, rather
than 2000. These problems are commonly referred to as the "Millennium Bug" or
"Year 2000 problem."


     Assessment.  The Year 2000 problem could affect computers, software and
other equipment used, operated or maintained by us. Accordingly, we are
reviewing our internal computers, software, applications and related equipment
and our systems other than information technology systems to ensure that they
will be Year 2000 compliant.


     We have completed our Year 2000 review. We spent approximately $20,000 in
1998 on our Year 2000 compliance plan and approximately $30,000 in 1999, most of
which relates to new equipment. These amounts include expenditures by Bostek. We
cannot be certain that our total costs will be limited to these amounts.



     Internal Infrastructure.  We believe that our major computers, software
applications and related equipment used in connection with our internal
operations are not subject to


                                       62
<PAGE>   66

significant Year 2000 problems, because the computer programs used by us are
primarily off-the-shelf, recently developed programs from third-party vendors.
We have requested and obtained assurances from certain of our vendors as to the
Year 2000 compliance of their products. However, most vendors have been
reluctant to provide written assurances and we cannot be certain that our
systems utilized by us will not be affected. We have assessed all of our
operating locations and have determined that all key systems in all locations
are Year 2000 compliant. We believe that all of our systems and equipment are
Year 2000 compliant.

     Systems Other than Information Technology Systems.  In addition to
computers and related systems, the operation of office and facilities equipment,
such as fax machines, photocopiers, telephone switches, security systems,
elevators, and other common devices, may be affected by the Year 2000 problem.
We have assessed all of our operating locations and have determined that all
such other systems and facilities are Year 2000 compliant.


     Suppliers.  We have communicated with third party suppliers of the major
computers, software, and other equipment we use. Based on our discussions with
these suppliers, we are not aware of any material Year 2000 problem which would
be expected to affect us. However, we have limited or no control over the
actions of these third party suppliers, and we cannot be certain that Year 2000
problems with these systems will not cause a material disruption to our
business.


     Internet.  As a significant percentage of our business is conducted over
the Internet, it is possible that we would be affected by telecommunications
problems experienced by our local Internet service provider or by Internet users
which might prevent those customers from being able to access our website. This
could be combined with, or result from, interruptions in electrical power
systems. Additionally, many customers may be using older systems which may not
be Year 2000 compliant, which could affect their ability to access our website.
Year 2000 problems, either in our systems or in third party systems, could also
prevent us from processing credit card sales.


     Products Sold to Consumers.  With regard to our manufacturer's excess
product, in addition to oral assurances, we have reviewed the publicly available
information of the following vendors of our most popular products (Sony, Compaq,
Toshiba, NEC and Fujitsu) to ensure Year 2000 compliance. For Intellesale's
refurbished products, we have reviewed the publicly available information of the
manufacturers of our most popular products, which are IBM, Toshiba, Sony,
Fujitsu, Compaq, Hewlett-Packard and NEC. We do not rely on any assurances from
vendors of refurbished products because such vendors do not necessarily have any
expertise with computers. The refurbished product compliance varies with model
number. Some products are compliant as is, and some require a free "patch."



     We do not develop software for resale. We do, however, sell off-the-shelf
software that may be bundled with hardware that we sell. Software updates which
address Year 2000 issues are available for most, but not all, third party
software that we sell. Furthermore when we sell such software, it is sold "as
is" without warranty of any kind. However, variability of definitions of
"compliance" with the Year 2000 and of different combinations of software,
firmware and hardware could lead to lawsuits against us. The outcome of any such
lawsuits and the impact on us are not estimable at this time.


                                       63
<PAGE>   67

     Contingency Plans.  As noted above, our Year 2000 compliance program has
been completed. We have not developed any specific contingency plan to deal with
unanticipated Year 2000 problems. We believe that our computer refurbishing
operations do not depend on technology which is subject to Year 2000 disruption.

     Most Likely Consequences of Year 2000 Problems.  We believe we have
identified and resolved all Year 2000 problems that could materially adversely
affect our business. However, we believe that it is not possible to determine
with complete certainty that all Year 2000 problems affecting us have been
identified or corrected, and we cannot accurately predict the extent to which
Year 2000 problem-related failures may affect us. However, if such problems do
occur, we expect that they might have the following consequences:

     - a significant number of operational inconveniences and inefficiencies for
       us and our clients that may divert management's time and attention and
       financial and human resources from our ordinary business activities; and

     - a lesser number of serious system failures that may require significant
       efforts by us or our customers to prevent or alleviate material business
       disruptions.

                                       64
<PAGE>   68


                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF


                        PRO FORMA RESULTS OF OPERATIONS



     This section discusses our results of operations on a pro forma basis, and
has been prepared to illustrate the pro forma effects of the Bostek acquisition
and the other acquisitions we describe herein as if they had all occurred on
January 1, 1998. This analysis is presented to show business trends without the
effects caused by the acquisitions we completed in 1998 and 1999. These amounts
do not reflect any effects of purchase accounting adjustments such as increased
depreciation or goodwill amortization.



     This pro forma unaudited financial information does not purport to
represent (1) what our actual results of operations would have been had the
acquisitions occurred on January 1, 1998 or (2) what we expect our results of
operations to be in the future. They do not reflect an adjustment for services
Intellesale receives from Applied Digital Solutions as they approximate the cost
that will be incurred by Intellesale as a stand alone company. This discussion
of results of operations does not reflect the effects of this offering or the
application of the net proceeds therefrom. Due to the difficulty in making pro
forma adjustments which meet the factually-supportable criteria of SEC
regulations, this pro forma presentation is limited to revenues, cost of goods
sold, selling, general and administrative expenses, as no pro forma adjustments
in any period are required.



     This section should be read in conjunction with the historical financial
statements of Intellesale and Bostek, including the notes thereto, and other
financial information set forth under "Capitalization," "Selected Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Pro Forma Financial Information" included elsewhere in this
document.


PRO FORMA RESULTS OF OPERATIONS

     The following table sets forth for the periods indicated certain components
of our pro forma unaudited consolidated statements of operations, before giving
effect to this offering and the application of the proceeds from this offering,
and the percentage of revenue represented by these components. We have not
presented a full consolidated statement of operations, which would have included
the effects of interest expense and income taxes. Except for our acquisition of
Bostek and Fiscal Advantage, all of the acquisitions were made in exchange for
the common stock of Applied Digital Solutions.


<TABLE>
<CAPTION>
                                                        NINE MONTHS ENDED SEPTEMBER 30,
                                                    ---------------------------------------
                                                          1998                  1999
                                                    ----------------      -----------------
                                                       $         %           $          %
                                                    -------    -----      --------    -----
                                                               ($ IN THOUSANDS)
<S>                                                 <C>        <C>        <C>         <C>
Revenues........................................    $94,071    100.0      $121,275    100.0
Cost of goods sold..............................     76,718     81.6        98,132     80.9
                                                    -------    -----      --------    -----
Gross profit....................................     17,353     18.4        23,143     19.1
Selling, general and administrative expenses....     11,467     12.2        17,088     14.1
</TABLE>


     PRO FORMA REVENUE

     We and Bostek began operating over the Internet in the second quarter of
1998. However, Data Path Technologies, which we acquired effective April 1,
1998, began its Internet operations in 1996 and was our platform for beginning
Internet operations.

                                       65
<PAGE>   69

     Pro forma nine month periods ended September 30, 1998 and 1999.  Pro forma
revenue for each operating segment for the first nine months of 1998 and 1999
was:


<TABLE>
<CAPTION>
                                                        1998                1999
                                                  ----------------    -----------------
                                                     $         %         $          %
                                                  -------    -----    --------    -----
                                                            ($ IN THOUSANDS)
<S>                                               <C>        <C>      <C>         <C>
Internet
  Direct Internet.............................    $13,433     14.3    $ 38,769     32.0
  Internet wholesale..........................      6,037      6.4       5,890      4.8
                                                  -------    -----    --------    -----
Total Internet................................     19,470     20.7      44,659     36.8
Traditional commerce..........................     74,601     79.3      76,616     63.2
                                                  -------    -----    --------    -----
Consolidated..................................    $94,071    100.0    $121,275    100.0
                                                  =======    =====    ========    =====
</TABLE>


Pro forma revenue for the nine month period ended September 30, 1999 was $121.3
million, an increase of $27.2 million, or 28.9%, from $94.1 million for the nine
month period ended September 30, 1998.


     Direct Internet segment pro forma revenue increased by $25.3 million or
188.6% due primarily to an increase in number of units sold as a result of the
acquisitions and the addition of higher end, higher priced products in the
Intellesale product line. This increase is a result of broader consumer use and
acceptance of the Internet, as well as our marketing efforts on the Internet,
via Internet portals such as Yahoo! Inc. and Lycos and retail sales through
websites such as Egghead.com (formerly OnSale). Sales through OnSale represented
approximately 4.8% of our revenues for the nine months ended September 30, 1999.
Each generation of computers goes through a life cycle. Introduction of newer
product causes the prices of older computers to decrease. This product life
cycle results in a changing supply mix of newer and older product, which gives
stability to the average revenue per unit within a product class, such as
monitors, CPUs and laptops.


     Internet wholesale segment pro forma revenue decreased by $0.1 million or
2.4%. Internet wholesale sales are sales in which Bostek sells products on a
wholesale basis to other Internet companies that remarket the products through
the Internet on a retail basis. This decrease in pro forma revenues resulted
from our transitioning away from this wholesale distribution business to focus
on selling products on a retail basis directly through our website. We have no
contractual relationships with Internet wholesale customers and we plan to
gradually reduce this business.


     Traditional commerce segment pro forma revenue increased $2.0 million or
2.7%, primarily as a result of an increase in sales of our notebook and desktop
personal computer products.


                                       66
<PAGE>   70


     PRO FORMA GROSS PROFIT/MARGIN


     Pro forma nine month periods ended September 30, 1998 and 1999.  Pro forma
gross profit by operating segment, and as a percentage of segment revenue, was:


<TABLE>
<CAPTION>
                                                          1998               1999
                                                     ---------------    ---------------
                                                        $        %         $        %
                                                     -------    ----    -------    ----
                                                              ($ IN THOUSANDS)
<S>                                                  <C>        <C>     <C>        <C>
Internet
  Direct Internet................................    $ 3,933    29.3    $11,187    28.9
  Internet wholesale.............................        796    13.2        658    11.2
                                                     -------    ----    -------    ----
Total Internet...................................      4,729    24.3     11,845    26.6
Traditional commerce.............................     12,624    16.9     11,298    14.7
                                                     -------    ----    -------    ----
Consolidated.....................................    $17,353    18.4    $23,143    19.1
                                                     =======    ====    =======    ====
</TABLE>


     Pro forma gross profit for the first nine months of 1999 was $23.1 million,
an increase of $5.7 million, or 33.4%, from $17.4 million for the first nine
months of 1998. As a percentage of pro forma revenue, the pro forma gross margin
was 19.1% for the first nine months of 1999 and 18.4% for the first nine months
of 1998.

     In the Internet segment, pro forma gross margin remained relatively stable.
We anticipate margin pressures as we expand the Internet segment of our
business. We expect that gross margins from the Internet segment will vary based
on several factors, primarily product pricing and product acquisition costs.

     Internet wholesale pro forma gross profit decreased by approximately 17.3%,
while gross margin decreased by 2.0 percentage points. This decrease resulted
from price competition in the Internet wholesale market. We note that this
margin is significantly below the margin achieved from distributing products on
a retail basis through direct Internet sales. Accordingly, we plan to gradually
reduce this business over time and focus on retail sales through our website and
other Internet companies.

     Traditional commerce pro forma gross profit decreased by approximately
10.5%, while gross margin decreased by 2.2 percentage points. This was primarily
the result of Bostek shifting its product mix to newer, higher-end systems,
where there is higher demand but increased competition, resulting in lower
margins.


     PRO FORMA SELLING, GENERAL AND ADMINISTRATIVE EXPENSES


     Selling, general and administrative expenses, as a percentage of revenue,
are higher in the Internet segment than in our traditional segment. This is
because advertising costs, website maintenance costs and labor costs are all
significantly greater than in our traditional commerce segment. We expect these
expenses to increase in absolute dollar terms in the future as the Internet
segment grows.

     Applied Digital Solutions has provided services and incurred expenses on
our behalf and on behalf of our subsidiaries. We believe the amounts charged to
Intellesale and its predecessor companies approximates the costs we would have
separately incurred. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Trends and Accounting Policies."

                                       67
<PAGE>   71

     Pro forma nine month periods ended September 30, 1998 and 1999.  Pro forma
selling, general and administrative expenses by operating segment, and as a
percentage of pro forma segment revenue, were:


<TABLE>
<CAPTION>
                                                          1998               1999
                                                     ---------------    ---------------
                                                        $        %         $        %
                                                     -------    ----    -------    ----
                                                              ($ IN THOUSANDS)
<S>                                                  <C>        <C>     <C>        <C>
Internet
  Direct Internet................................    $ 3,284    24.4    $ 6,447    16.6
  Internet wholesale.............................        408     6.8        576     9.8
                                                     -------    ----    -------    ----
Total Internet...................................      3,692    19.0      7,023    15.8
Traditional commerce.............................      7,775    10.4     10,065    13.1
                                                     -------    ----    -------    ----
Consolidated.....................................    $11,467    12.2    $17,088    14.1
                                                     =======    ====    =======    ====
</TABLE>


     Pro forma selling, general and administrative expenses were $17.1 million
for the nine month period ended September 30, 1999, an increase of $5.6 million,
or 49.0%, from $11.5 million for the nine month period ended September 30, 1998.
The primary reason for the increase is the overall expansion into the Internet,
as described above. As a percentage of pro forma revenue, pro forma selling,
general and administrative expenses were 14.1% and 12.2% for the nine month
periods ended September 30, 1999 and 1998. However, as they relate to the
Internet business, pro forma selling, general and administrative expenses
decreased as a percentage of revenue from 24.4% to 16.6%. This decrease is due
to the fact that selling, general and administrative expenses in the Internet
segment only approximately doubled, while revenue almost tripled, in the first
nine months of 1999 compared to the first nine months of 1998.


     Pro forma selling, general and administrative expenses include management
fees paid to Applied Digital Solutions. Management fees paid to Applied Digital
Solutions in the nine months ended September 30, 1999 amounted to $0.5 million
compared to $0.3 million in the nine months ended September 30, 1998.


                                       68
<PAGE>   72


                             INTELLESALE.COM, INC.


ABOUT US


     Intellesale sells refurbished and new computer equipment and related
products. We sell products online through our website at www.Intellesale.com as
well as through traditional channels, most of which we are migrating to the
Internet. In addition to selling products on our website, we distribute products
over the Internet through programs with Egghead.com (formerly OnSale) and which
hosts auctions of our products in exchange for a commission, as well as Lycos
and other Internet portals and service providers. Most of the computers we offer
are brand name, Intel Pentium(R) class or equivalent products. We offer our
customers complete packages, including monitors, regularly-featured specials and
the ability to purchase selected merchandise on an auction basis. We are not
aware of any major online retailers currently focusing principally on
refurbished computer equipment.


     We operate in two business segments:

     - Internet, in which we sell refurbished and new computer products on a
       retail basis through our website. Refurbished products consist primarily
       of off-lease equipment which we test, clean and prepare for sale, and
       manufacturer refurbished products which carry a manufacturer's warranty.
       Our Internet business also includes Internet wholesale, in which we bulk
       wholesale our products to other companies that market these products on a
       retail basis through their websites. We are transitioning away from this
       wholesale distribution business and focusing on selling products on a
       retail basis directly through our website.

     - Traditional commerce and other services, in which we buy and remarket
       computer equipment and components to traditional wholesalers, retailers
       and value-added resellers, as well as individual and corporate end users,
       and provide integration and consulting services, computer recycling,
       parts-on-demand services and transportation services for computer and
       other equipment. Our service business also includes the leasing of
       computers and other electronic equipment, most often for tradeshows,
       which frequently have temporary need for computers which we can satisfy
       from our inventory of used computers which we can then refurbish and
       sell. We are transitioning our traditional commerce business to the
       Internet to the extent feasible.

     We believe the demand for refurbished brand name computer equipment is
growing as consumers realize they can purchase refurbished products that can
serve their needs at substantial discounts to the price of new merchandise.
Shorter product life cycles are leading to increased off-lease and excess
inventory computer equipment which vendors and leasing companies need to dispose
of in large quantities without conflicting with their primary distribution
channels. We offer such vendors and leasing companies the ability to
conveniently sell all their products to us in a single transaction. We believe
our ability to acquire many different types of equipment in large quantities
through our established vendor relationships provides us with a significant
competitive advantage both with consumers and vendors.

     We have grown rapidly, both internally and through acquisitions, since
1996. We began offering products on the Internet in the second quarter of 1998
with the acquisition of Data Path Technologies, Inc., which markets refurbished
computer products through the Internet. Building on this Internet presence as a
platform, we established the

                                       69
<PAGE>   73


Intellesale.com website in January 1999 and began to focus our business on, and
migrate our traditional commerce business to, the Internet. Our revenues for the
nine months ended September 30, 1999, pro forma for our acquisition of Bostek,
Inc. and its affiliate, were $121.3 million. Of this amount, approximately 32.0%
were direct Internet sales and approximately 4.8% were Internet wholesale
revenues. The Internet is our fastest growing sales channel, and we believe that
the Internet will be the basis for our future growth. We believe the expansion
of our Internet business and our recent acquisition of Bostek position
Intellesale.com to become the premier website offering refurbished and new
computer equipment to consumers and businesses.


OUR INDUSTRY

     Growth in Internet traffic and its use as a channel of distribution has
been fueled by several factors, including:

     - a large and growing number of installed personal computers in the home
       and workplace;

     - improvements in Internet infrastructure and bandwidth; and

     - increased awareness and acceptance of the Internet among consumer and
       business users.

     According to International Data Corporation, a market research firm, the
number of Internet users worldwide will increase from approximately 142 million
in 1998 to 502 million in 2003. IDC further estimates that the number of people
making purchases over the Internet will increase from approximately 31 million
in 1998 to approximately 183 million in 2003. According to Jupiter
Communications, another market research firm, the second largest category of
e-commerce spending is computer hardware and software, which Jupiter projects
will grow from approximately $3.1 billion in 1998 to approximately $15.8 billion
in 2003.

     In recent years, the number of companies leasing rather than purchasing
computer equipment has increased significantly, primarily due to shorter product
life cycles. Corporate leases generally have a three-year term after which the
equipment is replaced and a new lease cycle begins. Off-lease equipment is
generally from brand-name manufacturers and still has a relatively high resale
value when refurbished. The refurbished computer market also includes computer
equipment that has been reconditioned by the manufacturer after being returned
by customers. Refurbished computer equipment typically requires a nominal amount
of service, such as minor repairs, cleaning and repackaging.

     In addition to refurbished computer equipment, large quantities of excess
inventory computer products become available on a regular basis, which
management of Intellesale believes is a result of the frequent introductions of
new models with incremental increases in features or capacity which characterize
the personal computer industry. These excess inventory products are only
marginally different from the newest models and will serve the needs of most
users.

     The disposal of refurbished and excess inventory computer equipment
represents a substantial burden on many vendors. Such computers and accessories
are currently sold through many different outlets, including wholesale
distributors, catalogs, company stores or outlets, resellers and specialized
retailers, as well as mass merchants that are not committed to the resale of
these goods and generally sell them as a supplementary product

                                       70
<PAGE>   74


line. Because of the highly fragmented and relatively undeveloped nature of the
market for these products, prices received by leasing companies and vendors tend
to be highly variable and subject to negotiation based on quantity, age and
condition of the merchandise. Our experience has indicated that leasing
companies and vendors look favorably upon a distribution channel that enables
them to dispose of significant quantities of merchandise quickly without
affecting their traditional sales channels.



     We are not aware of any major online retailers currently focusing
principally on refurbished computer equipment. Although some websites such as
uBid.com and Egghead.com offer some refurbished products, we believe that the
majority of their products consist of new computers and accessories.


OUR STRATEGY

     Our goal is to become the premier website offering refurbished and new
computer equipment and related components to consumers and businesses. Our
strategy to achieve our goal includes the following:

     Increase Brand Awareness.  We believe that a strong brand name is critical
to differentiating Intellesale and attracting a high level of customer traffic
and purchases. To date, we have made limited investments in marketing and
promotion of our brand. We intend to use a portion of the proceeds of this
offering to increase our visibility and brand recognition through online and
traditional advertising. We anticipate spending approximately $10 million on
marketing over the next twelve months. We intend to promote Intellesale.com on a
number of websites, including content providers, major portal sites and targeted
computer-related sites. Our traditional media-based advertising efforts will
include radio, print advertising, television and outdoor media.


     Increase Cooperative Relationships.  We intend to expand existing sales
programs and establish new programs under which other companies will promote our
products on their websites and in their other customer communications, and under
which we will compensate them through promotions of their products and services
or through payments of fees. We have established such a program with Egghead.com
(formerly OnSale), which hosts web auctions of our products in exchange for a
commission. We also advertise on Lycos and sell our products on Amazon.com's
zShops and on eBay and CNET.com. These types of arrangements and cooperative
programs can be a source of significant new website traffic and customers and
should aid in building recognition of our brand.


     Continue Improving Our Website.  We intend to expand our Internet sales
through continued upgrading and improvements to our website. We have now
completed the combination of Bostek's PickADW.com website with our
Intellesale.com website. We also plan to add new features to our website and
improve its design on an ongoing basis to increase ease of use, to lead
customers to areas that may be of particular interest to them based on their
prior purchases and page viewing patterns, and to draw customers' attention to
products we wish to feature.

     Migrate Other Parts of Our Business to the Internet.  From January 1, 1999
through September 30, 1999, on a pro forma basis including Bostek, approximately
32% of our sales were conducted on a retail basis directly through the Internet.
As we expand our Internet presence, we intend to migrate the traditional
commerce segment of our business to the Internet to the extent possible, which
should allow us to expand our customer base, increase efficiency and increase
our operating margins. We believe our traditional

                                       71
<PAGE>   75

commerce products can be marketed more effectively through our website. We plan
to display our entire inventory on our website and give access to
password-protected areas to our wholesale and mainframe customers. As part of an
automated registration process, we intend to gather basic information about
customers, their businesses and areas of interest. Based on this information and
the customers' purchase history, we plan to highlight products which may be of
interest to them or direct them to additional parts, accessories or features
which are compatible with their existing equipment. We may also include special
pricing features for some items, showing increasing discounts for customers
based on purchase volume.

     Expand and Improve Procurement Sources.  In order to be able to offer
attractive prices to customers yet maintain our margins, we must be able to
obtain a sufficient amount of product at favorable prices. As we have grown in
size and developed cooperative relationships, we have been able to secure more
products on improved terms. We believe this reflects the desire of vendors to
have a reliable purchaser who is in a position to regularly acquire large
quantities of products. In order to continue and expand our procurement
capability, we intend to maintain and enhance our existing relationships with
leasing companies, manufacturers and other sources of equipment and to pursue
new relationships. No single supplier provided us with more than 10% of our
products during 1998 or the first nine months of 1999.

PRODUCTS THAT WE SELL ONLINE


     Intellesale offers a wide range of refurbished and new products, including
laptop and desktop computers, monitors, disk drives, modems, printers, scanners,
memory, expansion boards, cables and connectors. Substantially all of the
products we offer are brand name products manufactured by IBM, Toshiba, Sony,
Fujitsu, Compaq, Hewlett-Packard and other major manufacturers. For the first
nine months of 1999, approximately 75% of our retail Internet product sales were
laptops, desktop PCs and monitors. For the nine months ended September 30, 1999,
new products represented approximately 18% of our revenues.



     Regardless of the source of the merchandise, most of our products are
warranted by either us or the manufacturer. We provide a minimum six month
warranty for most products not covered by manufacturer warranties, although we
will from time to time offer longer warranties. In our program with FlashNet, we
provided a three year warranty to the approximately 35,000 FlashNet customers
who received computers under the program. In addition, we offer our customers
the opportunity to purchase an extended warranty, which is priced on the basis
of the selling price of the item covered. These extended warranties are provided
under an agreement with a third party.


HOW WE ACQUIRE PRODUCTS


     We believe our ability to acquire computer equipment in large quantities
and at favorable prices is a key competitive advantage. We purchase from leasing
companies, computer manufacturers, corporate information technology departments
and others who look to us to be a reliable channel for disposition of products.
Of the refurbished equipment we sold in 1998, approximately 43%, based on cost
of goods sold, was acquired from 15 leasing companies and corporate end-users.
Other sources of our products include independent brokers, federal, state and
local governments, liquidators and educational institutions. We receive
information about new sources of products from prior contacts, online resources
to which we subscribe, advertising, industry publications, trade associations


                                       72
<PAGE>   76

and email and fax bid requests received. We currently have 18 employees who are
involved in procuring equipment.

     We do not enter into formal agreements for the purchase of equipment. Our
access to sources of equipment is based primarily on relationships which we and
our predecessor companies have established over approximately the last eight
years. Since product availability is unpredictable, a strong base of vendor
relationships is important to our success. We maintain ongoing contact through
telephone calls with our vendors to learn when products will become available.


     The average age of the products which we refurbish is approximately 18
months, and the average age of our manufacturer-refurbished products is
approximately six months. The average time between our purchase of an item and
the completion of refurbishment and sale of that item was approximately 40 days
for the nine months ended September 30, 1999. Although we assume inventory and
price risk associated with selling these products, we believe our ability to
sell our inventory quickly through our website and our other distribution
channels justifies the risk. We typically purchase products in large quantities,
and frequently make bulk purchases on an "as-is" basis, which can result in
significantly lower acquisition cost, although these purchases are without
warranties except as to title and quantity of equipment. A small part of a
particular shipment may not meet our strict quality standards for products we
offer. In those cases, we seek to immediately sell these products in bulk
through brokers, which in some cases sell the products internationally. For the
nine month period ended September 30, 1999, our inventory writedowns were
approximately $95,000.


     There are no set formulas for determining the purchase prices we pay to our
suppliers. The pricing is usually negotiated for each transaction based on the
current market prices for similar equipment, the condition and location of the
equipment and the cost and effort anticipated in packing and shipping the
equipment.

HOW WE HANDLE AND REFURBISH PRODUCTS

     When we purchase equipment, we usually have responsibility for
transportation of the equipment to our warehouse. In some cases we use our own
trucks to transport the equipment to our warehouse. After we receive equipment
at our warehouse, we follow standard procedures to audit each shipment,
including a physical count, an inspection for physical damage and testing of
equipment. We then submit any appropriate freight claims or claims against the
vendor for shortages or defects which are covered by warranties, if any.

     We have a standardized process for refurbishing equipment, depending on the
type of product. For each standard product type, we have detailed procedures
under which we identify any aspects or components of the product that do not
meet our requirements. If the defect cannot readily be remedied or if the
component cannot be replaced on a cost-effective basis, we use the component for
parts or otherwise dispose of the defective item.

     For example, the procedure we follow in refurbishing a desktop PC is:

     - Inspection and testing

        -- Physical inspection of the exterior and appearance

        -- Interior cleaning

        -- Complete erasing of all existing data and software

        -- Complete hardware diagnostics

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<PAGE>   77

     - Repair or set aside

        -- Replacement of defective components, if any

        -- Set aside computers not suitable for repair, to be used for parts

     - Upgrade and testing

        -- Upgrade the computer according to the specifications of the customer
           work order

        -- Test the upgraded hardware

        -- Clean the exterior of the computer

        -- Label and package the computer


     The time required for the refurbishment process depends on the condition of
the equipment. The labor cost relating to refurbishment is relatively low,
averaging, for a desktop computer, approximately $12 in wages and other
benefits.


HOW WE DETERMINE SELLING PRICES

     We determine our selling prices, both wholesale and retail, on the basis of
current market conditions and the number of items we have on hand, as well as
our target profit margins for various types of products. In setting the prices,
we compare prices of similar new equipment, if any, as well as prices offered by
our competitors for similar products over the Internet, in trade publications
and in other published advertisements. Given the nature of our products and the
rapid technological changes in the industry, we may have to reduce prices over
time, and a portion of our inventory may have to be recycled or sold as scrap.
However, we take these factors into account when we purchase equipment and we
have not to date incurred significant writedowns of inventory. For the nine
month period ended September 30, 1999, our inventory writedowns were
approximately $95,000.

HOW WE HANDLE ONLINE CUSTOMER ORDERS

     When a customer places an order through our website, processing of the
order is automated, including submission of credit card information for
approval. If we receive this approval, we immediately notify the customer that
the order has been accepted with an automated e-mail message thanking the
customer for the order. If the credit card transaction is declined, we contact
the customer by telephone, fax or e-mail.

     On accepted orders, the order is printed automatically and delivered to the
appropriate processing department, depending on the product purchased. The
product is then taken from the warehouse, on the basis of the product locator
shown on the order, and appropriately packed with foam packing, bubble wrap or
other packaging material, the computer-generated label is attached and the order
is shipped by Federal Express or United Parcel Service or, in the case of
wholesale orders, by customer pickup or by truck shipment.

     Customers may also place telephone orders for equipment shown on our
website, particularly for larger quantity orders or if the purchaser is itself a
reseller or wishes to request a quantity discount. In these cases the use of our
website increases efficiency since the customer is familiar with the product
description, availability information and pricing before the customer calls us.

     On average, we currently ship products 24 to 48 hours following receipt of
the order. We offer our online customers the ability to track their shipments
through our website, using tracking numbers provided automatically for each
customer shipment.

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<PAGE>   78

INTERNET SALES AND MARKETING

     We are focusing our marketing strategy on strengthening our brand name,
increasing customer traffic to our website and helping consumers understand the
value of purchasing refurbished computer equipment. Our marketing strategy
consists of establishing relationships with online companies, as well as
employing various media and promotional activities to achieve these goals.

     Relationships with Online Companies.  We have established strategic
relationships and cooperative programs with Internet service and content
providers, and we intend to build on our existing relationships and establish
additional relationships. These relationships can be a source of significant new
website traffic and customers, and aid in building brand recognition. Some of
these alliances require us to pay either up-front or periodic fees as well as
payments based upon a percentage of the net revenue generated through the
alliance. We typically enter into these agreements for an initial term of one
year, with Intellesale having a right to renew at specified times on specified
conditions, or for additional fees and/or increased revenue sharing. Some of our
relationships include:


     - Egghead.com.  We have an arrangement with OnSale, which was recently
       acquired by Egghead.com, under which Egghead.com hosts web auctions of
       Intellesale products. In these web auctions, online bidders are allowed
       to submit bids according to the time limits and minimum bid amounts shown
       for the particular item, and the product is sold to the highest bidder.
       We pay a commission to the company which hosts the auction for us. Under
       the agreement, Egghead.com is responsible for managing the auction,
       providing firstline customer support and, on completion of each auction,
       forwarding information on the winning bidders to us electronically. We
       then process and complete the entire transaction. In accordance with the
       agreement, we deal directly with the customer, process the credit card
       transaction, ship directly to the customer and handle any related
       customer service matters. We retain information relating to the
       transaction. Links to Egghead.com appear on our website. This
       relationship was established by our subsidiary Data Path Technologies in
       1996. The current agreement may be terminated by either party on 60 days'
       notice. We believe that we are the primary source for refurbished
       computer equipment available on Egghead.com.



     - Amazon.  We have an arrangement with Amazon, under which customers can
       buy products we have listed on the new zShops area of their website. We
       pay Amazon for listing these products. Each listing contains information
       about the product and a link to other products sold by us on the zShops
       site.



     - CNET and uBid.  We have established relationships with CNET and uBid,
       similar to our Egghead arrangement described above, through which we
       conduct auctions of our products.



     In June 1999, we entered into an agreement with FlashNet Communications,
Inc., under which we jointly promoted refurbished computers and Internet
services. Under this program, FlashNet paid us to provide a free refurbished
personal computer to each FlashNet customer who agreed to a 24 to 36 month
service agreement to use the FlashNet Internet service. We recognized
approximately $9.9 million in revenues through the program through September 30,
1999. FlashNet discontinued its program of offering a free refurbished personal
computer to its customers in November 1999. We have agreed with FlashNet to
terminate our arrangement with them as part of a settlement of litigation


                                       75
<PAGE>   79

initiated by FlashNet against us relating to the program, which litigation and
settlement are described under "Intellesale.com, Inc. -- Legal Proceedings."

     Internet Advertising.  We have not spent significant amounts on advertising
or promotion of the Intellesale.com brand name. We intend to use a portion of
the proceeds from this offering to increase our advertising and promotional
activities, including online advertising. We will attempt to maximize the return
from promotional expenditures by choosing advertising media based on the cost
relative to the likely audience and ability to generate increased traffic on our
website. We intend to place advertisements on specific sites which offer product
reviews and allow price comparisons, such as ZDNet. We also will target
high-profile and high-traffic portal websites, such as Excite, Yahoo!, Lycos and
Go2Net. These advertisements will usually take the form of banner ads that
encourage readers to click through directly to our website.

     We also plan to offer the sites on which we advertise reciprocal links on
our website. Our goal is to use these programs to increase our brand awareness,
educate consumers about the benefits of refurbished computer ownership, obtain
favorable percentages of click-throughs and convert those click-throughs to
sales. We currently have in place the following arrangements for Internet
advertising:


     - Yahoo!  We have entered into a contract with the Yahoo! Internet portal,
       under which we pay a fee for banner advertising, which is renewable on a
       monthly basis.


     - Lycos.  We have entered into an agreement with the Lycos Internet portal
       under which, for a one year period starting May 1999, we are paying a fee
       to be a featured vendor for refurbished computers on the Lycos website.
       We will also appear in at least one million banner impressions on Lycos
       during that period.


     - ZDNet.  We have entered into a contract with ZDNet, under which we pay a
       fee for banner advertising, which is renewable on a monthly basis.


     Customer Electronic Mail Broadcasts.  Intellesale markets to its own base
of customers through e-mail broadcasts. All customers purchasing through our
website are invited to join our electronic mailing list. At least once each
month, we send an e-mail message announcing new items available, special
products available, site changes and new features. We maintain a policy of
sending only solicited e-mail, and a customer can remove his or her name from
our mailing list at any time.

INTERNET WHOLESALE


     In our Internet wholesale business, we sell our products to other Internet
companies that remarket these products on their websites. Some of our Internet
wholesale customers include ValueAmerica, uBid.com, Bid.com, CyberianOutpost and
Egghead.com (formerly OnSale). We are gradually transitioning away from this
wholesale distribution business in order to focus on selling products directly
through our website. Bostek accounted for all of our Internet wholesale revenue.


THE INTELLESALE.COM EXPERIENCE


     Browsing.  We categorize the products that we offer at Intellesale.com into
a simple set of categories and sub-categories. By clicking on the category name,
the consumer can quickly target products of interest. The major categories
offered under "Shop Intellesale" on our opening page are "Complete Systems,"
"Specials," "Hardware," "Software,"


                                       76
<PAGE>   80


"Accessories" and "Auctions." Our website also displays a number of featured
links to information about us, our customer service, technical support,
corporate services and terms and conditions of sale, as well as a link to a
general description of refurbished products and buttons to check out all
purchases and to check order status.



     Our website also displays a number of featured specials, as well as our
"Make Us an Offer" link, where customers can make an offer for specified new and
refurbished products at a price lower than the listed price. Customers can also
subscribe to our electronic mail list.



     When a customer is shopping for products, the screen presents a list of
product groups, including notebooks, computers and monitors. Within each product
category there are further subcategories, and the user can choose to display
items based on characteristics such as manufacturer or processor speed.



     Searching.  At each product screen, we provide a search tool that allows
customers to search by keywords they may enter, such as the manufacturer or
product type.



     Products on Hand.  The inventory offered on our website changes daily based
on our purchases and sales of equipment. We also offer a full line of new
products, through arrangements we have made with another online vendor, whose
catalog is directly linked with our website. Purchases from this vendor are made
under separate purchase orders, and we have no written agreement relating to
this arrangement. For each purchase from this vendor, we mark up such products
the lesser of $50 or 5% of our purchase price.


     We generally do not include operating systems or software with our
refurbished products, although we offer Windows installation as an option.


     Warranty.  We provide a minimum six month warranty for most products we
sell which are not covered by manufacturer warranties. In addition, we offer our
customers the opportunity to purchase an extended warranty, which is priced on
the basis of the selling price of the item covered. These extended warranties
are provided under an agreement with a third party. To select an appropriate
extended warranty, the customers can search for "warranty" using the search tool
and add the warranty to their shopping carts.



     Product Information and Ordering.  For many of our products, the customer
can access detailed information, such as a description, system requirements and
a photo, by clicking on the item. To purchase products, customers simply click
on a button to add products to their virtual shopping carts. The customers then
select the quantity, review the pricing information and are shown the current
status of the shopping cart and total purchases. Customers can add and subtract
products from their shopping baskets as they browse with the "View Cart"
feature, just as in a physical store. To complete orders, customers click on the
"Check Out" button, and are then prompted to supply shipping and credit card
details. Prior to finalizing an order, an order confirmation is displayed
showing the final pricing and shipping information. Our system automatically
confirms each order via e-mail. Although it does not occur frequently, if a
product selected is on backorder, our personnel will contact the customer and
inquire whether the customer wishes to wait until the selected product is
available or assist the customer in making an alternative purchase.



     Customer Service.  The customer service area of our website allows
customers to check the status of their orders, provides Intellesale contact
information and permits customers to e-mail us. We currently have 16 customer
service agents who are available to answer customer questions about products and
the shopping process. Our customer service


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<PAGE>   81

hours are 9 a.m. to 6 p.m. Eastern time, Monday through Friday, and we have made
arrangements for a customer service center to answer calls in case all of our
agents are busy. Calls received during non-business hours are routed to the call
center, and calls are returned on the next business day. Customers also have the
ability to check the status of an order directly on our website.

     Future Enhancements and Improvements.  We intend to continue enhancing the
Intellesale.com experience through ongoing upgrades and improvements to our
website. We have completed the combination of Bostek's PickADW.com website with
our Intellesale.com website. The combined website is Intellesale.com, and
visitors to PickADW.com are automatically redirected to the combined website. We
plan to add new features to the website which will:

     - allow users to compare prices of refurbished products available on our
       website with those of comparable new products;

     - allow users to indicate their areas of interest and customize the
       Intellesale.com experience for those users by directing them to pages
       showing products and services that match their areas of interest; and

     - track page views and purchases of registered users, and customize the
       featured items and menu selections so that customers do not have to input
       their areas of interest each time they access the website.

TECHNOLOGY AND SYSTEMS

     Intellesale has implemented a broad array of website management, search,
customer support, transaction-processing and fulfillment systems using a
combination of proprietary technologies and commercially available, licensed
technologies. Our website is built on industry standard technologies, including
two Sun Microsystems servers. The Microsoft NT 4.0 operating system, running
Active Server Pages technology and Microsoft SQL Server, performs the user
interface, ordering and customer communication functions.

     We believe our website can survive the failure of one server with little or
no downtime. We currently have the capacity to support up to one million hits
per hour through a high capacity connection to the Internet, with redundancy to
protect against interruptions if the primary connection becomes unavailable.
Capacity can be quickly and easily expanded without substantial additional
development. Our policy is to run key systems at no more than 60% of capacity.
When our website traffic exceeds 60% of our current capacity, we plan to
increase our Internet connection and server capacity to handle up to three
million hits per hour.

     We handle back-end transaction processing primarily through our custom
designed software. Our system accepts and validates orders, processes orders
with multiple vendors, receives product and assigns it to customer orders,
manages shipments and multiple shipment methods, credit card transaction
processing and automated customer communications and allows the customer to
choose whether to receive single or multiple shipments based on availability.


     Cube Computer Corporation, an Internet service provider with two redundant
facilities located in Hawthorne, N.Y. and in Jersey City, N.J., provides us with
redundant Internet connections to multiple Internet access points, a secure
physical environment, climate control and redundant power. In addition, Cube
provides us with 24 hour a day, seven day


                                       78
<PAGE>   82

a week system monitoring. Cube currently hosts our wide area network operations
in its Hawthorne, N.Y., and we believe Cube has the capacity to support our
foreseeable growth.

TRADITIONAL COMMERCE

     In our traditional commerce business, we provide leasing, remarketing and
parts-on-demand for mainframe and midrange systems to industrial, commercial and
retail organizations. We also purchase electronic components for demanufacturing
and reclamation of precious metals, steel, aluminum and copper.

     We have traditionally sold these products through direct marketing,
catalogs and telephone orders from brokers and retail clients. We expect to
continue making sales through these channels, but at a decreasing rate as we
continue our focus on selling our products on the Internet.

     In our traditional commerce business, we also offer our corporate customers
the ability to hire us as consultants to do custom programming and the ability
to lease electronic equipment through a third party leasing company. In
addition, we provide leasing and rental services of computers and electronic
equipment for meetings and conventions. We expect the service and leasing
business to remain relatively constant in terms of revenue and profitability.

     We intend to migrate our traditional commerce business to the Internet to
the extent feasible. We believe that the customers in our traditional commerce
businesses desire to transact business over the Internet and that the migration
of these businesses to the Internet will increase the potential market
opportunities available to us, by allowing us to present a wider selection of
products which are likely to be of interest to these customers and allowing them
to easily select and purchase additional products.

     As we migrate our traditional commerce business to the Internet, we plan to
display our entire available inventory for our wholesale products, mainframe and
midrange parts and accessories on our website. We have traditionally sold these
products through direct marketing, catalogs and telephone orders. Under the
traditional model, a customer would call us to purchase a particular item, and
may not be aware of the entire range of products which we have available. As we
introduce our wholesale customers to our website, we plan to give them access to
password-protected areas of our website which will be customized by product line
and type of customer. As part of an automated registration process, we intend to
gather basic information about customers' businesses and areas of interest.
Based on this information and the customers' purchase history, we plan to
highlight products which may be of interest to them or direct them to additional
parts, accessories or features which are compatible with their existing
equipment. We may also include a pricing feature for certain items which will
display increasing price discounts for customers based on the volume of their
purchases of particular items. The website information will also provide them
with telephone numbers for priority access to our personnel for transactions
which cannot be completed directly through our website.

COMPETITION

     While we are not aware of another company which operates in all of our
business areas, we face intense competition in each area of our business, and
many of our competitors have greater resources than we have. As we focus our
efforts on building our Internet business, we expect to face increased
competition from other companies that have

                                       79
<PAGE>   83

an established Internet presence and from other companies which are expanding
into e-commerce.

     The primary competitors we have identified include the following:

     - major manufacturers of computer equipment such as Compaq, Dell and IBM,
       which offer both refurbished and new equipment through their own
       websites;

     - traditional store-based computer retailers, such as Best Buy, Circuit
       City, CompUSA and Gateway Country; and


     - other online competitors, such as the Boston Computer Exchange, Buy.com,
       Cyberian Outpost, Egghead.com (formerly OnSale), Fairmarket.com, uBid and
       Value America.


     Many computer manufacturers and traditional retailers sell directly through
their own websites, and a number of them have established websites specifically
for refurbished and off-lease equipment. In addition, Internet portals and
online service providers that feature shopping services, such as Yahoo!, Excite,
Lycos and America Online, also sell refurbished and new computer equipment.

     The principal competitive factors affecting our market are the ability to
secure large volumes of products at favorable prices, to attract customers at
favorable customer acquisition costs, to operate our website in an uninterrupted
manner and with acceptable speed and to offer attractive product pricing to
consumers. We believe our relationships with our vendors is a competitive
advantage for Intellesale, and that our ability to acquire many different types
of equipment in large quantities through our established vendor relationships
provides us with a significant competitive advantage both with consumers and
vendors.

     Until we complete phasing out our Internet wholesale business, in which we
bulk wholesale products to other Internet companies that remarket these products
on their websites, we will also face competition from those companies in direct
retail sales to consumers.

     Many traditional store-based and online competitors have longer operating
histories, larger customer or user bases, greater brand recognition and
significantly greater financial, marketing and other resources than we do. Many
of these competitors already have an established brand and can devote
substantially more resources to website development, increasing brand
recognition and product sourcing than we can. In addition, larger, well-
established and well-financed entities may join with online competitors or
computer manufacturers or suppliers as the use of the Internet and other online
services increases.

     Our competitors may be able to secure products from vendors on more
favorable terms, fulfill customer orders more efficiently or adopt more
aggressive price or inventory availability policies than we can. Traditional
store-based retailers also enable customers to see and test products in a manner
that is not possible over the Internet.

EMPLOYEES


     As of November 30, 1999, we had a total of 371 full-time employees. We also
use independent contractors and temporary employees on an as-needed basis. None
of our employees is represented by a labor union, and we consider our labor
relations to be good.


                                       80
<PAGE>   84

     As we continue to consolidate the businesses we have acquired in recent
years, we expect to eliminate redundant positions. However, we expect that the
overall number of employees will increase as our business continues to grow. We
expect, in particular, to add employees in our technical support services area
and in our warehouse operations.

INTELLECTUAL PROPERTY

     We have been granted a registered service mark for the name "Intellesale."
We also have rights to the "Intellesale.com" and "PickADW.com" domain names, as
well as rights to two other domain names, which are not related to our current
businesses and which we do not expect to use.

FACILITIES


     At December 21, 1999, we leased a total of approximately 244,000 square
feet for our operations. Of this space, 28,000 square feet is used for office
facilities and 216,000 square feet is for factory/warehouse use. These leases
expire at various dates through 2004.


     Our primary operations are conducted at our newly-leased facility in
Lincoln Park, New Jersey, which is also our corporate headquarters.

     Our current leased properties are:

<TABLE>
<CAPTION>
        LOCATION                       SIZE                       DESCRIPTION
------------------------    ---------------------------    -------------------------
<S>                         <C>                            <C>
Lincoln Park, New Jersey    135,750 s.f.                   Headquarters, warehouse
                              warehouse/distribution;        and operations center
                              8,000 s.f. office space
Pleasantville, New York     21,000 s.f. warehouse;         Technical service center,
                              3,000 s.f. office space        customer service center
                                                             and warehouse
Hayward, California         20,000 s.f.                    Warehouse
Dallas, Texas               1,400 s.f.                     Office
Cherry Hill, New Jersey     3,400 s.f.                     Sales office
Newtown, Pennsylvania       2,825 s.f.                     Sales office
Syosset, New York           240 s.f.                       Sales office
Minneapolis, Minnesota      2,000 s.f.                     Sales office
</TABLE>


     We also lease space in various other locations, representing a total of
46,700 additional square feet, under leases which expire at various times
through December 2000. Most of the operations at these locations are being moved
to our new headquarters in Lincoln Park, New Jersey. The aggregate lease
obligations for the remaining lease terms at these locations are approximately
$61,000. We do not intend to renew these leases when they expire.


     Our current total lease obligations are $1.6 million per year.

LEGAL PROCEEDINGS

     On November 11, 1999, we were advised that FlashNet Communications, Inc.
had initiated litigation against us relating to the program under which FlashNet
paid us to provide a free refurbished personal computer to each FlashNet
customer who agreed to a service agreement to use the FlashNet Internet service.
As described below, this dispute

                                       81
<PAGE>   85


has been resolved. On November 11, 1999, FlashNet announced an agreement to be
acquired by Prodigy Communications Corporation.


     In its complaint, FlashNet asserted that we had breached our agreement with
FlashNet in failing to supply computers to FlashNet customers within the time
requirements and the quality requirements of our agreement with FlashNet, and in
failing to provide customer support in accordance with the agreement. FlashNet
claimed damages based on these alleged failures in unspecified amounts, and
disputed each outstanding invoice submitted by Intellesale to FlashNet in the
aggregate amount of approximately $2.9 million.

     On November 22, 1999, we settled the litigation with FlashNet. Under this
settlement:

     - FlashNet and Intellesale released each other from all claims and
       liabilities relating to our agreement with FlashNet except the
       obligations under the settlement agreement.

     - Our agreement with FlashNet was terminated.


     - FlashNet paid all of our outstanding invoices, aggregating $2.9 million.


     - We agreed that our three-year warranty for each of the approximately
       35,000 computers we sold under our agreement with FlashNet will remain in
       effect. Under these warranties, we will replace any of these computers
       which fail, within three years from the date of delivery, at our cost.

     - We will sell up to 5,000 new personal computers to FlashNet for $400
       each, of which $100 will be paid in cash and the remaining $300 will be
       paid in the form of a $300 advertising credit, which we will use to
       compensate FlashNet for promoting Intellesale to its customers who
       receive these personal computers, by including our promotional disk
       and/or pamphlet with the computers. Although FlashNet is not obligated to
       purchase these computers, we expect that they will be sold to FlashNet
       over a period of approximately 12 months.

     - We will furnish replacement computers or computer components to up to
       approximately 1,080 FlashNet customers who received computers under our
       agreement with FlashNet and who have submitted claims.

     - We have provided a performance bond to FlashNet in the amount of $3.0
       million to secure performance of our obligations under the settlement
       agreement.

     In settling this matter, neither Intellesale nor FlashNet has admitted
liability to the other.

     As a result of this settlement, we expect to incur advertising expense
under the promotional program related to the additional computers we are selling
to FlashNet of up to approximately $1.5 million. The advertising program with
FlashNet will be part of the $10 million increase in advertising and other
marketing efforts during the 12 months following the offering being funded with
a portion of the proceeds of this offering. We cannot assure you that the
FlashNet advertising program will be a cost-effective use of our funds.

     We are a party to various other legal actions, either as plaintiff or
defendant, which have arisen in the ordinary course of our business. In the
opinion of management, none of these proceedings, if adversely determined, would
have a material adverse effect on our business.

                                       82
<PAGE>   86


                                   MANAGEMENT


OUR DIRECTORS AND EXECUTIVE OFFICERS

     Our directors and executive officers are as follows:


<TABLE>
<CAPTION>
                NAME                     AGE                      POSITION
                ----                     ---    --------------------------------------------
<S>                                      <C>    <C>
Marc Sherman.........................    36     Director, President and Chief Executive
                                                Officer
Edward L. Cummings...................    51     Director, Executive Vice President, Chief
                                                Financial Officer and Secretary
Garrett A. Sullivan..................    64     Director
Constance K. Weaver (1)(2)...........    47     Director
David A. Loppert.....................    45     Director
Alexander H. Good (2)................    50     Director
Timothy C. O'Brien (1)...............    51     Director
Charles D. Newman....................    35     Executive Vice President and Chief Operating
                                                Officer
Joseph S. Keats......................    37     Vice President Sales and Marketing
</TABLE>


-------------------------

(1) Member of audit committee

(2) Member of compensation committee

     Marc Sherman has served as a director and President and Chief Executive
Officer since the inception in December 1994 of our predecessor, Universal
Commodities Corp., which was merged into Intellesale in July 1999. Mr. Sherman
founded Universal Commodities and subsequently sold 80% of its stock to Applied
Digital Solutions in November 1996. He was appointed Vice President of Applied
Digital Solutions in April 1998 and Senior Vice President in March 1999,
positions from which he resigned effective August 9, 1999. For ten years prior
to 1994, he served in key positions in various family businesses. He has over
ten years of experience in marketing, operations and executive management.

     Edward L. Cummings has served as Executive Vice President, Chief Financial
Officer and Secretary of Intellesale since July 1999. He joined our predecessor
company Universal Commodities Corp. in October 1995 as controller and was
elected to the board of directors in January 1997. From September 1994 to
October 1995 he owned TCC, Inc., an operator of several retail gift shops. From
December 1981 to September 1994 he was Chief Financial Officer and Treasurer of
Albert E. Price, Inc., a giftware import and export company.

     Garrett A. Sullivan has served as a director of Intellesale since December
1998. He has served on the board of directors of Applied Digital Solutions since
August 1995 and has been Applied Digital Solutions' President and Chief
Operating Officer since February 1997. He was Applied Digital Solutions' acting
Chief Financial Officer from March 1995 to February 1997. From 1993 to 1994 he
was an Executive Vice President of Envirobusiness, Inc., an environmental
consulting firm.


     Constance K. Weaver has served as a director of Intellesale since January
1999. She has been a member of Applied Digital Solutions' board of directors
since June 1998. Since 1996, Ms. Weaver has been Vice President, Investor
Relations and Financial Communications for AT&T Corporation. From 1995 through
1996 she was Senior Director, Investor


                                       83
<PAGE>   87


Relations and Financial Communications for Microsoft Corporation. From 1993 to
1995 she was Vice President, Investor Relations, and from 1991 to 1993 she was
Director of Investor Relations, for MCI Communications, Inc. Ms. Weaver is a
director of Primark Corporation, the National Investor Relations Institute and
BUYandHOLD.com, Inc. Ms. Weaver is the sister-in-law of our President and Chief
Executive Officer, Marc Sherman.


     David A. Loppert has served as a director of Intellesale since December
1998. He has been the Vice President, Treasurer and Chief Financial Officer of
Applied Digital Solutions since February 1997. From 1996 to 1997, he was Chief
Financial Officer of Bingo Brain, Inc., a manufacturer of handheld computer
devices. From 1994 to 1996, he was Chief Financial Officer of C.T.A. America,
Inc. and Ricochet International, L.L.C., both footwear retailers. Mr. Loppert
started his financial career with Price Waterhouse in 1978 where he advanced to
the position of Senior Manager.

     Alexander H. Good has served as a director of Intellesale since August
1999. Mr. Good is Chief Executive Officer of @Link Networks, Inc., a data
competitive local exchange carrier. Prior to joining @Link in August 1999, Mr.
Good was Executive Vice President, Strategy and Corporate Development of Bell
Atlantic Corporation since 1994. Prior to this position, Mr. Good served as
Corporate Senior Vice President, Strategic Planning and Corporate Development
and as President and Chief Executive Officer of Bell Atlantic International,
Inc. Prior to joining Bell Atlantic, Mr. Good was Senior Vice President of
Mobile Telecommunications Technologies Corporation and President of MTEL
International. He has served or is currently serving as a director of several
companies, including Bell Atlantic Europe, S.A., Bell Atlantic
International-Italia S.r.L., Bell Atlantic International Ventures, Inc., Bell
Atlantic Puerto Rico, Inc., Infostrada, S.p.A. and Sodalia S.p.A.

     Timothy C. O'Brien has served as a director of Intellesale since November
1999. Mr. O'Brien has been Vice President and Chief Financial Officer of
Ziff-Davis, Inc., a technology media company, since 1995. From 1985 to 1994, Mr.
O'Brien was Chief Financial Officer of Reed Elsevier Inc. and Reed Publishing
USA, publishing and information providing companies. From 1992 to 1994, he was
also Executive Vice President of Cahners Publishing Company, a publisher of
business to business and special consumer magazines, which he joined in 1980.
From 1970 to 1980, Mr. O'Brien was employed by PricewaterhouseCoopers LLP.

     Charles D. Newman has served as Executive Vice President and Chief
Operating Officer of Intellesale since January 1999. He joined Universal
Commodities in September 1996 as Vice President. From 1992 to 1996, Mr. Newman
was the president and founder of Nu-Blind Inc., a window treatment company. From
1988 to 1992, he served as president of Phoenix Abatement, Inc., a national
asbestos and waste removal company.

     Joseph S. Keats joined Intellesale in May 1998 as Vice President -- Sales
and Marketing. From 1996 to 1998, he was General Manager of the Budget Car Group
retail sales division in Philadelphia, Pa. He was the President and General
Manager of Keats Ford from 1985 to 1996, when he sold this business.

                                       84
<PAGE>   88

BOARD OF DIRECTORS' COMMITTEES

     We have established an audit committee and a compensation committee of our
board of directors, effective upon completion of this offering.

     Our audit committee will recommend for approval by the board of directors a
firm of certified public accountants to audit our financial statements. The
audit committee will also monitor the effectiveness of the audit effort, our
internal and financial accounting organization and controls and financial
reporting.

     Our compensation committee will administer our 1999 Flexible Stock Plan,
including the review and grant of benefits to officers and other employees under
the plan, and will recommend the adoption of new plans. The compensation
committee will also review and approve our other compensation policies and
matters and will review and approve salaries and other matters relating to our
executive officers. The compensation committee will review all senior corporate
employees after the end of each fiscal year to determine compensation for the
subsequent year.

DIRECTOR COMPENSATION


     We reimburse each member of our board of directors for out-of-pocket
expenses incurred in connection with attending board meetings. In addition, each
of Mr. Good and Mr. O'Brien has been granted 7,500 shares of restricted common
stock for nominal consideration, with restrictions that lapse after one year of
service on the board, and has received an option to purchase 75,000 shares of
our common stock, exercisable at the initial public offering price beginning on
the first anniversary of such director joining the board of directors. The
restricted stock awards have been valued at the expected initial offering price
of $9.00 per share, or a total of $135,000. This amount will be recognized as
expense over one year from the grant date. The options become exercisable in
three equal annual installments. Each of our directors who is not an employee or
affiliate of Intellesale is paid $2,000 for each board meeting attended and
$1,000 for each committee meeting attended.


                                       85
<PAGE>   89

EXECUTIVE COMPENSATION


     The following table sets forth certain summary information concerning the
total remuneration paid in to our President and Chief Executive Officer and each
of our other executive officers whose compensation exceeded $100,000 in fiscal
year 1999. For periods prior to July 1999, when Intellesale began operations,
this compensation was paid to these executives in their capacities as employees
of Universal Commodities Corp., one of the predecessors of Intellesale.


                           SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>
                                                                                LONG-TERM
                                           ANNUAL COMPENSATION                COMPENSATION
                               --------------------------------------------   -------------
          NAME AND                                             OTHER ANNUAL
     PRINCIPAL POSITION        YEAR    SALARY     BONUS        COMPENSATION      OPTIONS
     ------------------        ----   --------   --------      ------------   -------------
<S>                            <C>    <C>        <C>           <C>            <C>
Marc Sherman.................  1999   $302,808   $157,052(1)     $87,671(3)       500,000(4)
  President and Chief          1998    129,848    114,900(2)      60,279(3)       400,000(4)
  Executive Officer            1997    125,690         --         50,941(3)     1,060,000(4)
Edward L. Cummings...........  1999   $213,500   $ 81,960(5)     $80,972(6)        83,000(7)
  Executive Vice President
     and                       1998     77,070     76,600(2)      55,664(6)            --
  Chief Financial Officer      1997     75,000         --         45,054(6)     1,040,000(7)
Charles D. Newman............  1999   $223,368   $ 81,960(5)     $ 1,817(8)        83,000(9)
  Executive Vice President
     and                       1998    102,763     19,150(2)       1,237(8)            --
  Chief Operating Officer      1997     70,000         --          7,200(8)       300,000(9)
Joseph S. Keats..............  1999   $111,635         --(5)     $ 1,661(10)       25,000(11)
  Vice President               1998     50,584         --          6,279(10)      135,000(11)
  Sales and Marketing          1997         --         --             --               --
</TABLE>


-------------------------


 (1) Does not include bonus based on our earnings and revenue for 1999 pursuant
     to his employment agreement, which has not yet been determined.



 (2) Bonus for 1998 paid through the issuance of shares of common stock of
     Applied Digital Solutions, having a value of $3.83 per share, as follows:
     Mr. Sherman -- 30,000 shares; Mr. Cummings -- 20,000 shares; and Mr.
     Newman -- 5,000 shares.



 (3) For 1999, includes $8,921 in leased vehicle payments and $78,750 in finders
     fee payments paid by Applied Digital Solutions in connection with
     acquisitions made by Applied Digital Solutions that were initiated by Mr.
     Sherman or in which Mr. Sherman was instrumental. For 1998, includes $5,779
     in leased vehicle payments and $54,500 in finders fee payments paid by
     Applied Digital Solutions in connection with acquisitions made by Applied
     Digital Solutions that were initiated by Mr. Sherman or in which Mr.
     Sherman was instrumental. For 1997, includes $5,887 in leased vehicle
     payments and $45,054 in finders fee payments paid by Applied Digital
     Solutions in connection with acquisitions made by Applied Digital Solutions
     that were initiated by Mr. Sherman or in which Mr. Sherman was
     instrumental.



 (4) For 1998 and 1999, consists of options granted by Applied Digital Solutions
     under its 1996 Non-Qualified Stock Option Plan. For 1997, includes
     1,000,000 options granted by our predecessor, Universal Commodities, under
     its 1997 Stock Option Plan and 60,000 options granted by Applied Digital
     Solutions under its 1996 Non-Qualified Stock Option Plan.


                                       86
<PAGE>   90


 (5) Does not include bonus for 1999 pursuant to his employment agreement, which
     has not yet been determined.



 (6) For 1999, includes $2,222 in leased vehicle payments and $78,750 in finders
     fee payments paid by Applied Digital Solutions in connection with
     acquisitions made by Applied Digital Solutions that were initiated by Mr.
     Cummings or in which Mr. Cummings was instrumental. For 1998, includes
     $1,164 in leased vehicle payments and $54,500 in finders fee payments paid
     by Applied Digital Solutions in connection with acquisitions made by
     Applied Digital Solutions that were initiated by Mr. Cummings or in which
     Mr. Cummings was instrumental. For 1997, consists of finder's fee payments
     paid by Applied Digital Solutions in connection with acquisitions made by
     Applied Digital Solutions that were initiated by Mr. Cummings or in which
     Mr. Cummings was instrumental.



 (7) For 1999, consists of options granted by Applied Digital Solutions under
     its 1996 Non-Qualified Stock Option Plan. For 1997, includes 1,000,000
     options granted by our predecessor, Universal Commodities, under its 1997
     Stock Option Plan and 40,000 options granted by Applied Digital Solutions
     under its 1996 Non-Qualified Stock Option Plan.



(8) For 1999 and 1998, consists of leased vehicle payments. For 1997, consists
    of finders fee payments paid by Applied Digital Solutions in connection with
    acquisitions made by Applied Digital Solutions that were initiated by Mr.
    Newman or in which Mr. Newman was instrumental.



 (9) For 1999, consists of options granted by Applied Digital Solutions under
     its 1996 Non-Qualified Stock Option Plan. For 1997, consists of 300,000
     options granted by our predecessor, Universal Commodities, under its 1997
     Stock Option Plan.



(10) For 1999, consists of leased vehicle payments. For 1998, includes $279 in
     leased vehicle payments and $6,000 in finders fee payments paid by Applied
     Digital Solutions in connection with acquisitions made by Applied Digital
     Solutions that were initiated by Mr. Keats or in which Mr. Keats was
     instrumental.



(11) For 1999, consists of options granted by Applied Digital Solutions under
     its 1996 Non-Qualified Stock Option Plan. For 1998, includes 125,000
     options granted by our predecessor, Universal Commodities, under its 1997
     Stock Option Plan and 10,000 options granted by Applied Digital Solutions
     under its 1996 Non-Qualified Stock Option Plan.


                                       87
<PAGE>   91

STOCK OPTIONS


     None of the executive officers named in the summary compensation table
received options to purchase our common stock in 1999. The following table
contains information concerning grants of stock options in 1999 under Applied
Digital Solutions' 1996 Non-Qualified Stock Option Plan to each of those
officers in connection with their employment by Intellesale:


                           APPLIED DIGITAL SOLUTIONS
                       OPTION GRANTS IN LAST FISCAL YEAR


<TABLE>
<CAPTION>
                                          INDIVIDUAL GRANTS
                         ---------------------------------------------------
                         NUMBER OF     % OF TOTAL
                         SECURITIES     OPTIONS       PER
                         UNDERLYING    GRANTED TO    SHARE                     GRANT DATE
                          OPTIONS      EMPLOYEES    EXERCISE    EXPIRATION      PRESENT
         NAME            GRANTED(1)    IN 1999(2)    PRICE         DATE         VALUE(3)
         ----            ----------    ----------   --------   -------------   ----------
<S>                      <C>           <C>          <C>        <C>             <C>
Marc Sherman...........   500,000         12%       $2.03125     August 2004    $635,000
Edward L. Cummings.....    83,000          2%        2.03125        May 2005     105,410
Charles D. Newman......    83,000          2%        2.03125        May 2005     105,410
Joseph S. Keats........    25,000          *%        2.03125        May 2005      31,750
</TABLE>


-------------------------


 * Less than 1%.


(1) These options are exercisable over a ten-year period beginning with the
    first anniversary of the grant date.


(2) Represents the percentage of options granted to employees of Applied Digital
    Solutions in 1999.


(3) Based on the grant date present value of $1.27 per option share that was
    derived using the Black-Scholes option pricing model in accordance with
    rules and regulations of the Securities and Exchange Commission. This is not
    intended to forecast future appreciation of Applied Digital Solutions'
    common stock price. The Black-Scholes model was used with the following
    assumptions: dividend yield of 0%; expected volatility of 43.69%; risk-free
    interest rate of 4.74%; and expected lives of five years.

                                       88
<PAGE>   92

FISCAL YEAR-END OPTION VALUES


     The following table sets forth information with respect to each of the
executive officers named in the summary compensation table concerning their
unexercised Intellesale options held on December 31, 1999. No options were
exercised during 1998. All options listed become fully exercisable upon the
completion of this offering.



<TABLE>
<CAPTION>
                                       NUMBER OF SECURITIES
                                            UNDERLYING                 VALUE OF UNEXERCISED
                                       UNEXERCISED OPTIONS             IN-THE-MONEY OPTIONS
                                         AT YEAR END 1999              AT YEAR END 1999(1)
                                   ----------------------------    ----------------------------
             NAME                  EXERCISABLE    UNEXERCISABLE    EXERCISABLE    UNEXERCISABLE
             ----                  -----------    -------------    -----------    -------------
<S>                                <C>            <C>              <C>            <C>
Marc Sherman...................     1,000,000          --          $8,150,000          --
Edward L. Cummings.............     1,000,000          --           8,150,000          --
Charles D. Newman..............       300,000          --           2,445,000          --
Joseph S. Keats................       125,000          --           1,018,750          --
</TABLE>


-------------------------


(1) The dollar values have been calculated by determining the difference between
    the fair market value of the securities underlying the options at December
    31, 1999 and the exercise prices of the options. Solely for purposes of
    determining the value of options at December 31, 1999, we have assumed that
    the fair market value of shares of common stock issuable upon exercise of
    options was $9.00 per share, the assumed initial public offering price,
    since the common stock was not traded in an established market before the
    offering.


EMPLOYMENT AGREEMENTS


     Effective July 1, 1999, we entered into employment agreements with Marc
Sherman, Edward L. Cummings, Charles D. Newman and Joseph S. Keats. The initial
term of each agreement ends on June 30, 2004, subject to extension in the case
of Mr. Sherman as described below. Mr. Sherman's base compensation is initially
$400,000 per year, which will be reduced to $280,000 per year upon completion of
this offering. He will also be entitled to receive a minimum annual bonus based
on the annual earnings of Intellesale before interest, taxes, depreciation and
amortization as a percentage of the budgeted amount and the annual net revenue
of Intellesale as a percentage of the budgeted amount. Each such percentage will
be multiplied by $125,000 to determine his minimum bonus. The agreements of the
other executives provide for base compensation as set forth in the table below,
and each is also entitled to a minimum bonus as indicated in the table. Any
bonus in excess of the minimum bonus will be at the discretion of the board of
directors.


<TABLE>
<CAPTION>
               EXECUTIVE                   BASE SALARY    MINIMUM BONUS
               ---------                   -----------    -------------
<S>                                        <C>            <C>
Edward L. Cummings.....................     $280,000         $70,000
Charles D. Newman......................     $280,000         $70,000
Joseph S. Keats........................     $150,000         $37,500
</TABLE>

     In addition, each of the agreements requires Intellesale to make severance
payments to the executive in the event of a change of control, as defined in the
agreements. A change of control under the agreements generally means:

     - the acquisition by any person or entity of (1) more than 20% of our
       outstanding shares of voting stock without the approval of the board of
       directors, or (2) more

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       than 50% of such shares with the approval of the board, in either case
       through a tender offer, exchange offer or otherwise;

     - the sale or other disposition of all or substantially all of our assets
       unless before the sale our stockholders own at least 50% of the voting
       stock of the purchaser, and the purchaser assumes our obligations under
       these agreements;

     - a merger or consolidation after which our stockholders own less than 50%
       of the voting stock of the surviving entity; or

     - any time during any two-year period in which individuals who constituted
       the board of directors at the start of such period, or who were elected
       after being nominated by individuals who constituted at least two-thirds
       of the board at the start of this period, do not constitute at least 50%
       of the board for any reason.

     In the case of Messrs. Cummings, Newman and Keats, the severance payment
would not be payable unless Mr. Sherman was also no longer our chief executive
officer. Each executive, at his sole option and discretion, may terminate his
employment at any time upon 15 days' notice within one year after any change of
control. In this event, or if the executive's employment is terminated other
than for cause within one year of a change of control, we would be obligated to
pay to the executive, within one month after termination, a severance payment
equal to three times his average annual compensation for the previous five
years, minus $1.00. The amounts of these severance payments would be reduced if
their payment would result in an additional special tax to the executive.

     Any changes in stock ownership resulting from this offering or changes in
Intellesale's board of directors within two years after this offering will not
trigger the change of control provisions in these agreements.

     Each of these agreements also provides that the executive officer will not
engage in any business competitive with our business or own more than 5% of any
such business for three years after termination of employment with Intellesale.

     In addition to the above, Mr. Sherman's agreement provides for automatic
one-year extensions to the employment term at the end of each contract year
unless either party gives notice at least 30 days prior to the end of such
contract year that the agreement will no longer be extended. Mr. Sherman also
receives $5,000 per month for personal expenses. In the event Mr. Sherman is
terminated for any reason except a material breach of his employment agreement,
he is entitled to receive for three years following such termination an amount
equal to his highest annual compensation in any 12-month period during the term
of his agreement. This amount would be reduced by any change of control payments
described above.

     In August 1999, Mr. Sherman purchased a residence and obtained a mortgage
loan through an unaffiliated commercial bank in the amount of approximately
$1,250,000. Applied Digital Solutions guaranteed the loan. This satisfied the
agreement of Intellesale in Mr. Sherman's employment agreement to provide such a
guarantee. Mr. Sherman has agreed to indemnify Applied Digital Solutions for any
amounts which it is required to pay under the guarantee, and his agreement is
secured by a pledge of other real estate he owns.

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1997 NON-QUALIFIED STOCK OPTION PLAN

     In 1997, Universal Commodities adopted a Non-Qualified Stock Option Plan.
Intellesale assumed the plan following the merger of Universal Commodities into
Intellesale in July 1999. Options to purchase a total of 5,450,000 shares are
outstanding under this plan, and are exercisable for ten years from the date of
the grant. The exercise price under each of the options is $0.85 per share. We
do not intend to issue any future options under this plan.

     This plan was a long-term plan designed to link rewards with stockholder
value over time. Stock options were granted to aid in the retention of employees
and to align the interests of employees with stockholders. The value of the
stock options to an employee increases as the price of our stock increases above
the fair market value on the grant date, and the employee must remain in our
employ for the period required for the stock option to be exercisable, which
provides an incentive to remain with us.

1999 FLEXIBLE STOCK PLAN

     In May 1999, our board of directors and Applied Digital Solutions, as our
majority stockholder, approved our 1999 Flexible Stock Plan. The flexible plan
is intended to attract, retain, motivate and reward employees and other
individuals and to encourage ownership by employees and other individuals of our
common stock. The flexible plan provides for benefits to be awarded in the form
of incentive stock options, non-qualified stock options, stock appreciation
rights, performance shares, restricted stock, cash awards, and other stock based
awards. Benefits under the flexible plan may be granted only to:

     - persons who are our employees, members of our board and employees and
       owners of entities which are not affiliated with us but which have a
       direct or indirect ownership interest in us or one of our affiliates;

     - individuals who, and employees and owners of entities that, are our or
       one of our affiliate's customers or suppliers;

     - individuals who, and employees and owners of entities that, render
       services to us or one of our affiliates; and

     - individuals who, and employees and owners of entities that, have
       ownership or business affiliations with any individual or entity
       previously described.

     The flexible plan will be administered by our compensation committee, which
has complete authority to determine the terms, conditions and provisions of, and
restrictions relating to, and to grant, the benefits under the plan.


     The number of shares of our common stock which may be issued in connection
with benefits granted under the flexible plan is initially 2,500,000 shares,
plus an annual increase, effective on the first day of each calendar year
commencing January 1, 2001, of 5% of the number of outstanding shares of common
stock as of the first day of such calendar year, but not more than 7,500,000
shares in the aggregate may be issued under the plan. If there is any change in
our common stock, the number and class of shares available under the plan,
and/or the price thereof, will be appropriately adjusted. There are currently
2,335,000 shares available for grant under the plan.


     Options granted under the flexible plan which are intended to qualify as
incentive stock options must be exercised within ten years of the date of grant
or the expiration date

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set forth in the option grant, if earlier, subject to earlier option expiration
upon termination of the holder's employment, disability or death. The exercise
price of all options intended to qualify as incentive stock options must be at
least equal to the fair market value of the underlying shares of common stock on
the date of the grant, and the exercise price of other options must be at least
85% of the fair market value of the shares on the date of grant. Incentive stock
options granted to any participant who owns 10% or more of our outstanding
common stock must have an exercise price equal to or exceeding 110% of the fair
market value of a share of common stock on the date of the grant and must not be
exercisable for longer than five years.


     A participant who is granted a stock appreciation right under the flexible
plan has the right to receive an amount equal to the difference between the fair
market value of a share of stock on the date of grant of the stock appreciation
right and such value on the date of its payment. Under the flexible plan, a
participant may also be awarded performance shares, under which the participant
may receive a grant of shares of our common stock or cash equal to the fair
market value of those shares that is contingent upon achieving targeted profit
or performance objectives established by the committee. In addition, the
committee may make restricted stock awards under the flexible plan. Restricted
stock granted under the flexible plan is subject to such terms and conditions,
and carries such voting, dividend and other ownership rights, in each case as
determined by the compensation committee.


     We have granted 7,500 shares of restricted stock and nonqualified options
to purchase 75,000 shares of our common stock under the flexible plan to each of
Mr. Good and Mr. O'Brien, who are members of our board of directors. The
exercise price under each option will be equal to the initial public offering
price in this offering. No other options, performance awards, stock appreciation
rights, restricted stock awards or other awards are outstanding under the
flexible plan.

     Our board of directors may amend or terminate the plan, but the board may
not amend the plan without the approval of our stockholders, if such amendment
would:

     - cause the options which are intended to qualify as incentive stock
       options to fail to qualify as incentive stock options;

     - cause the plan to fail to meet the requirements of Rule 16b-3 of the
       Exchange Act; or

     - violate applicable law.

     In the event of a change in control, our board of directors or its
committee may provide such protection as it deems necessary to maintain a
participant's rights, including:

     - providing for the acceleration of any time periods relating to the
       exercise or realization of any benefit;

     - providing for the purchase of a benefit upon the participant's request
       for an amount in cash equal to the amount which could have been attained
       upon the exercise or realization of the benefit had it been currently
       exercisable or payable;

     - making such adjustment to the outstanding benefits as the committee deems
       appropriate; and/or

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     - causing the outstanding benefits to be assumed, or new benefits
       substituted therefor, by the surviving corporation.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     Before the closing of this offering, all matters concerning executive
officer compensation were addressed by the entire board of directors because we
did not have a compensation committee. Messrs. Sherman and Cummings were
directors and executive officers during that period and, as directors,
participated in deliberations regarding executive compensation.


                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


ACQUISITION OF MINORITY INTERESTS

     Intellesale is the successor to a number of businesses that were acquired
primarily through the use of the common stock of our principal stockholder,
Applied Digital Solutions. In most cases, Applied Digital Solutions purchased
80% of the stock of the businesses acquired. In addition, Applied Digital
Solutions generally agreed to make earn-out payments to the sellers of the
businesses acquired, including instances where Applied Digital Solutions
acquired 100% of the stock of those businesses. We subsequently assumed these
earn-out obligations. We have now agreed to purchase, upon the closing of this
offering, all of the minority interests in these businesses and to settle all of
the earn-out payments for fixed amounts, using a combination of cash and
Intellesale common stock. We will issue an aggregate of 518,778 shares of our
common stock in acquiring these minority interests, assuming an initial offering
price of $9.00 per share. These transactions are described below.

     Elite Computer Services, Inc.

     In September 1995, Applied Digital Solutions acquired 80% of the
outstanding stock of Elite Computer Services, Inc. Elite sells parts to service
companies for the repair of computers and computer equipment. In July 1999,
Applied Digital Solutions contributed the stock of Elite to Intellesale. In
August 1999, Intellesale purchased the remaining 20% minority interest in Elite
for $300,000 in cash.


     Universal Commodities Corp.



     In November 1996, Applied Digital Solutions acquired 80% of the outstanding
stock of Universal Commodities Corp., a seller of refurbished computer
equipment, from Mr. Sherman, our current President and Chief Executive Officer
and the sole shareholder of Universal Commodities. In this transaction, Applied
Digital Solutions issued 735,000 shares of its common stock, having a fair value
of approximately $1.5 million, to Mr. Sherman. Mr. Sherman retained the
remaining 20% of the common stock of Universal Commodities, although he
subsequently transferred 2% of the common stock of Universal Commodities to Mr.
Cummings. On July 13, 1999, Applied Digital Solutions completed a corporate
reorganization in which Universal Commodities merged into Intellesale, with
Intellesale as the surviving corporation. The outstanding shares of common stock
and options to purchase shares of common stock of Universal Commodities were
converted into the same number of shares of, and options to purchase, common
stock of Intellesale,


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having the same relative rights and preferences as such Universal Commodities
shares. Applied Digital Solutions received 12,000,000 shares of Intellesale
common stock for the shares of Universal Commodities which it had acquired in
November 1996. Mr. Sherman and Mr. Cummings received 2,700,000 and 300,000
shares, respectively, of Intellesale common stock in the merger for the shares
of Universal Commodities common stock they held at the time of the merger.


     Norcom Resources Incorporated


     In January 1997, Applied Digital Solutions acquired 80% of the outstanding
stock of Norcom Resources Incorporated. Norcom buys and sells mainframe computer
processors. The Norcom shareholders were granted the right to require Applied
Digital Solutions to purchase their remaining 20% interest in Norcom. In
December 1999, Applied Digital Solutions amended its agreement with the Norcom
shareholders to provide that Intellesale will purchase their remaining interests
in Norcom for $900,000. We are obligated to pay that amount in cash, shares of
our common stock or a combination of cash and stock. We intend to pay $450,000
of the $900,000 in cash, which we intend to pay from the proceeds of this
offering, and to issue to the shareholders $450,000 of our common stock, valued
at the initial public offering price in this offering, within 30 days following
the completion of this offering.


     Pizarro Re-Marketing, Inc.


     In January 1997, Applied Digital Solutions acquired 80% of the outstanding
stock of Pizarro Re-Marketing, Inc. Pizarro Re-Marketing buys and sells computer
tape and disk storage devices. Donna W. Pizarro, the sole stockholder of Pizarro
Re-Marketing, was granted the right to require Applied Digital Solutions to
purchase her remaining 20% interest in Pizarro Re-Marketing. In March 1999,
Applied Digital Solutions amended its agreement with Ms. Pizarro to provide that
Intellesale will purchase her remaining interest in Pizarro Re-Marketing for
$500,000. In August 1999, we further amended our agreement with Ms. Pizarro to
provide that we will pay that amount in cash within 30 days following the
completion of this offering. We intend to use a portion of the proceeds of this
offering to make that payment.


     Cybertech Station, Inc.


     In July 1997, Applied Digital Solutions acquired 80% of the outstanding
stock of Cybertech Station, Inc. Cybertech Station buys and sells computer
memory chips. Ms. Sheerr, the sole stockholder of Cybertech Station, was granted
the right to require Applied Digital Solutions to purchase her remaining 20%
interest in Cybertech Station. In August 1999, Applied Digital Solutions amended
its agreement with Sherri Sheerr to provide that Intellesale will purchase her
remaining interest in Cybertech Station for $415,000. We are obligated to pay
Ms. Sheerr $208,000 of the $415,000 in cash, which we intend to pay from the
proceeds of this offering, and to issue to Ms. Sheerr $207,000 of our common
stock, valued at the initial public offering price in this offering, within 30
days following the completion of this offering. Ms. Sheerr is the sister of Marc
Sherman, our President and Chief Executive Officer.


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     Port Parties, Ltd.


     Effective July 1997, Applied Digital Solutions acquired 80% of the
outstanding stock of Port Parties, Ltd., which provides leased computers and
related equipment to meeting and convention planners. Applied Digital Solutions
agreed to pay an additional amount to Harvey H. Newman and Martin D. Zuckerman,
the sole stockholders of Port Parties, if Port Parties achieved specified
earnings targets during various periods ending December 31, 2000. In addition,
the selling stockholders were granted the right to require Applied Digital
Solutions to purchase their remaining 20% interest in Port Parties. In July
1999, Applied Digital Solutions transferred its shares in Port Parties to us,
and amended the agreement with Messrs. Newman and Zuckerman. The amendment
provides that Intellesale will pay them $4,000,000 in lieu of the earn-out
payments and for the purchase of their remaining interests in Port Parties. We
are obligated to pay Mr. Newman $1,020,000 in cash, which we intend to pay from
the proceeds of this offering, and to issue to Mr. Newman $1,020,000 of our
common stock, valued at the initial public offering price in this offering. We
are obligated to pay Mr. Zuckerman $980,000 in cash, which we intend to pay from
the proceeds of this offering, and to issue to Mr. Zuckerman $980,000 of our
common stock, valued at the initial public offering price in this offering. Mr.
Newman is the father of Charles Newman, our Executive Vice President.


     Blue Star Electronics, Inc.


     In April 1998, Applied Digital Solutions acquired 80% of the outstanding
stock of Blue Star Electronics, Inc., a manufacturer of custom computer cables
and cable assemblies. Applied Digital Solutions agreed to pay an additional
amount to Paul Pappas, the sole stockholder of Blue Star, if Blue Star achieved
specified earnings targets during the two years ending December 31, 1999. In
addition, Mr. Pappas was granted the right to require Applied Digital Solutions
to purchase his remaining 20% interest in Blue Star. In August 1999, Applied
Digital Solutions amended its agreement with Mr. Pappas to provide that
Intellesale will pay $175,000 in lieu of the earn-out payments and to purchase
his remaining interest in Blue Star. We are obligated to pay Mr. Pappas $88,000
of the $175,000 in cash, which we intend to pay from the proceeds of this
offering, and to issue to Mr. Pappas $87,000 in shares of our common stock,
valued at the initial public offering price in this offering.


     Service Transport Company

     In April 1998, Applied Digital Solutions acquired 80% of the outstanding
stock of Service Transport Company, a trucking company. Under the acquisition
agreement, Erich Nigl and Carl C. Saracino, the stockholders of Service
Transport, had the right to require Applied Digital Solutions to purchase their
remaining 20% interest in Service Transport. Applied Digital Solutions purchased
Mr. Nigl's remaining interest in December 1998 for nominal consideration. In
August 1999, Applied Digital Solutions amended its agreement with Mr. Saracino
to provide that Intellesale will purchase his remaining interest in Service
Transport within 30 days after the closing of this offering for an aggregate of
50,000 shares of our common stock.

     Data Path Technologies, Inc.

     In April 1998, Applied Digital Solutions acquired all of the outstanding
stock of Data Path Technologies, Inc., a seller of refurbished computer
products, including sales made

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through the Internet. Applied Digital Solutions agreed to pay an additional
amount to the stockholders of Data Path, including Donn J. Wagner, the President
of Data Path, if Data Path achieved specified earnings targets during various
periods ending December 31, 2001. In March 1999, Applied Digital Solutions
amended its agreement with the Data Path stockholders to provide that
Intellesale will pay $2,000,000 in lieu of the earn-out payments. We have the
option to pay that amount in cash, in shares of our common stock, or in a
combination of cash and stock. We intend to pay $1,400,000 of the $2,000,000 in
cash from the proceeds of this offering and to pay the balance in stock by
issuing shares of our common stock to the Data Path stockholders, valued at the
initial public offering price in this offering.


     GDB Software Services, Inc.

     Effective April 1998, Applied Digital Solutions acquired all of the stock
of GDB Software Services, Inc., a provider of consulting services relating to
software and computer equipment. Applied Digital Solutions agreed to pay an
additional amount to Patrick C. Chai and Robert W. Borra, the sole stockholders
of GDB Software, if GDB Software achieved specified earnings targets during
various periods ending December 31, 2001. In April 1999, Applied Digital
Solutions amended its agreement with the selling stockholders to provide that
Intellesale will pay $1,500,000 in lieu of the earn-out payments. We have the
option to pay that amount in cash, in shares of our common stock, or in a
combination of cash and stock. We intend to pay $750,000 of the $1,500,000 in
cash from the proceeds of this offering and to pay the balance in stock by
issuing shares of our common stock to Messrs. Chai and Borra, valued at the
initial public offering price in this offering.

     Fiscal Advantage Corporation

     Effective October 1998, Applied Digital Solutions acquired substantially
all of the assets of Fiscal Advantage Corporation, which acts as a broker in
arrangements between buyers of computers and leasing companies. We agreed to pay
an additional amount to Charles J. Phillips, the sole stockholder of Fiscal
Advantage, if Fiscal Advantage achieved specified earnings targets. In April
1999, Applied Digital Solutions amended its agreement with Mr. Phillips to
provide that Intellesale will pay $250,000 in lieu of the earn-out payments. We
have the option to pay that amount in cash, in shares of our common stock, or in
a combination of cash and stock. We intend to repay $125,000 of the $250,000 in
cash from the proceeds of this offering and to pay the balance in stock by
issuing shares of our common stock to Mr. Phillips, valued at the initial public
offering price in this offering.

STOCKHOLDERS' AGREEMENT

     On June 30, 1999, Applied Digital Solutions and Messrs. Sherman and
Cummings entered into a stockholders' agreement, pursuant to which Applied
Digital Solutions granted Messrs. Sherman and Cummings "tag along" and put sales
rights for their shares of our common stock, which are described in the
following paragraphs.

     Each of Mr. Sherman and Mr. Cummings, at his option, may participate
proportionately in any sale of our shares made by Applied Digital Solutions,
other than a sale into the public market. Messrs. Sherman and Cummings would be
entitled to elect to sell the same percentage of their shares of our common
stock as Applied Digital Solutions

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proposes to sell of its shares, and would be entitled to receive the same per
share amount as Applied Digital Solutions.

     In the absence of this offering, beginning November 1, 2001, each of
Messrs. Sherman and Cummings may, at his option, require that Applied Digital
Solutions purchase all of his shares of our common stock for a per share
purchase price determined as provided in the stockholders' agreement. Upon
completion of this offering, such right to require the purchase of shares of
Intellesale will no longer apply.

TRANSACTIONS WITH APPLIED DIGITAL SOLUTIONS AND ITS AFFILIATES

     Applied Digital Solutions is our principal stockholder. After the
completion of this offering, assuming an initial public offering price of $9.00
per share and after giving effect to the issuance of 1,629,889 shares of our
common stock to the sellers of Bostek and our other subsidiaries, Applied
Digital Solutions will own approximately 49.9% of our outstanding common stock,
or approximately 47.3% if the underwriters' over-allotment option is exercised
in full. Applied Digital Solutions is a Missouri corporation which is
principally engaged in the communications industry.

     Voting and Standstill Agreement.  In September 1999, we entered into a
voting and standstill agreement with Applied Digital Solutions relating to
shares of our voting securities held by Applied Digital Solutions.

     Under the agreement, Applied Digital Solutions has agreed to vote all of
the voting stock of Intellesale that it holds either for or against the election
or removal of directors, or on any other matter presented to the stockholders,
in the same proportion as the other stockholders of Intellesale vote for or
against such matter. Applied Digital Solutions has granted to us an irrevocable
proxy to vote its shares in this manner. In addition, Applied Digital Solutions
has agreed not to initiate or participate in any discussions relating to a
business combination involving Intellesale unless those discussions are approved
by a majority of our disinterested directors. "Disinterested directors" means
directors who are not officers or directors of Applied Digital Solutions or
owners of 5% of the outstanding common stock of Applied Digital Solutions.

     Applied Digital Solutions has also agreed that it will not:

     - participate in or form any group having or seeking the ability to direct
       control of Intellesale;

     - enter into any voting trust or other voting agreement relating to its
       Intellesale shares, other than its agreement with us; or

     - enter into proxy contests, election contests or solicit or participate in
       solicitation or any stockholder proposals relating to Intellesale shares.

     Applied Digital Solutions also agreed that it will not own any more shares
of our stock than it will own immediately following this offering, except for
any increases due to stock splits, stock dividends or reorganizations.

     The agreement provides that Applied Digital Solutions will not initiate or
participate in any tender offer for our shares, or assist any third party in a
tender offer, without the approval of a majority of our disinterested directors.
Applied Digital Solutions may sell our shares only if the sale is registered
under the Securities Act or if the sale is made through any national stock
market. It may make sales under Rule 144 only if it has first given us a

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copy of any notice it is required to file with the SEC specifying the aggregate
number of shares it proposes to sell. All other private sales by Applied Digital
Solutions must first be approved by our disinterested directors. Applied Digital
Solutions has agreed not to sell any shares of our voting stock it owns during
the 180 days following the effective date of any registration statement for
sales of our voting stock except for registration statements we file pursuant to
our registration rights agreement with applied Digital Solutions, described
below.


     Applied Digital Solutions has pledged the shares of Intellesale which it
owns to secure its revolving credit agreement. If the lender under the credit
agreement were to foreclose on that pledge, it would be able to sell the shares
of Intellesale it acquires, free from the restrictions of our agreement with
Applied Digital Solutions.

     The voting and standstill agreement terminates on the earlier of:

     - when Applied Digital Solutions owns less than 10% of our outstanding
       voting securities; or

     - when it owns less than 15% of our outstanding voting securities and
       another stockholder beneficially owns more voting securities than Applied
       Digital Solutions.


     Registration Rights.  Upon completion of this offering, Applied Digital
Solutions, Marc Sherman and Edward L. Cummings, or their transferees, will be
entitled to rights with respect to the registration of their shares under the
Securities Act. These three stockholders will beneficially own a total of
15,300,000 shares of our common stock after this offering, including 2,000,000
options to purchase shares of our common stock held by Messrs. Sherman and
Cummings, assuming the underwriters do not exercise their over-allotment option.
Applied Digital Solutions may cause us to effect five registrations of the
stock, but the offerings must be underwritten and each one may cover no more
than one-third of the shares held by Applied Digital Solutions upon completion
of this offering. Mr. Sherman may cause us to effect seven registrations, but
each one may cover no more than 20% of the shares he holds. In addition, Applied
Digital Solutions and Messrs. Sherman and Cummings are entitled to include their
shares for registration in the event we register our stock for sale, subject to
customary rights of underwriters to reduce the number of shares that each of
those stockholders may include. We have agreed to indemnify these stockholders
in connection with these registrations, except to the extent that the losses
relate to statements included in the registration statement that are provided by
the selling stockholder or to the extent that person participates as an
underwriter in the offering.


     Registration of these shares under the Securities Act would result in the
shares becoming freely tradable without restriction under the Securities Act,
except for shares purchased by affiliates, immediately upon the effectiveness of
the registration.

     Management Services.  Applied Digital Solutions currently provides services
to us and incurs expenses on our behalf. These services consist of legal,
internal audit and financial reporting. We incurred approximately $0.4 million
of these costs in 1998 and approximately $0.5 million in the first nine months
of 1999. No costs were allocated in 1996 and 1997 because Applied Digital
Solutions did not provide significant services to us. These expenses are not
necessarily indicative of the expenses we would have incurred had we operated as
a separate entity. We believe that the cost of providing these services will be
approximately the same as the fees which Applied Digital Solutions has been
charging us for these services.

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     Applied Digital Solutions has agreed that it will make the services of its
general counsel, Michael Krawitz, available to Intellesale at a rate of $100 per
hour if and to the extent required by Intellesale. There is no formal written
agreement in place with respect to such services, and Intellesale is not
obligated to use Mr. Krawitz's services.


     Financing.  As of December 21, 1999, the outstanding amount of our
borrowings from Applied Digital Solutions was $36.0 million. We expect to have
our own line of credit in place at the closing of this offering, which will
replace our line of credit with Applied Digital Solutions. We cannot provide
assurance that we will be able to establish such line of credit on favorable
terms or at all. We intend to use $17.0 million of the proceeds from this
offering and borrowings under this facility to repay all amounts owing to
Applied Digital Solutions.


     Applied Digital Solutions has advised us that, subject to the availability
of funds, it intends to provide interim financing to us until we have obtained
our own financing. We have been advised by Applied Digital Solutions that this
financing would be provided on a pass-through basis, which means that Applied
Digital Solutions would be passing on the exact cost of its financing. There is
no formal written agreement in place with respect to the provision of this
financing support, and we cannot assure you that Applied Digital Solutions will
be willing and/or able to provide funds to us. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" for a discussion of Applied Digital Solutions' credit
facility.

     Tax Allocation Agreement.  We have entered into a tax allocation and tax
sharing agreement with Applied Digital Solutions. The agreement provides that
the tax liability of the Applied Digital Solutions federal consolidated tax
return group, during the period that we are a member of that group, will be
allocated among the members of the group in proportion to their separately
calculated tax liability. Following completion of this offering, we will no
longer be a part of the Applied Digital Solutions consolidated group. The
agreement also provides that any savings resulting from the tax benefits of a
particular member will be paid to that member, rather than accruing to the
benefit of the other members. The agreement requires that certain payments be
made between Applied Digital Solutions and us in the event there is a change in
pre-offering tax liabilities of Intellesale and provides that Applied Digital
Solutions may settle proposed adjustments without our consent. In addition,
Applied Digital Solutions has agreed to indemnify us against any tax liabilities
of the Applied Digital Solutions federal consolidated tax return group that are
not attributable to us, and we have agreed to indemnify Applied Digital
Solutions against any of our tax liabilities.

     Conflicts of Interest.  Our directors include one person who is a director
of Applied Digital Solutions, one who is an executive officer of Applied Digital
Solutions, and who one is both a director and executive officer of Applied
Digital Solutions. In addition, Mr. Sherman was an executive officer of Applied
Digital Solutions prior to August 9, 1999 and beneficially owns 1,409,419 shares
of Applied Digital Solutions common stock, representing less than 1% of Applied
Digital Solutions' common stock. These persons may have had a conflict of
interest in negotiating the arrangements between Applied Digital Solutions and
us described above. Although we believe that the terms of such agreements are at
least as favorable to us as those we could negotiate with unrelated parties,
these agreements may be modified in the future, and we may enter into additional
agreements or transactions with Applied Digital Solutions or its affiliates.
Conflicts of interest could arise between Applied Digital Solutions and us with
respect to any of these or any future agreements or arrangements between Applied
Digital Solutions and us. In addition, subject

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to the limitations of the Voting Agreement referred to above, Applied Digital
Solutions may be able to direct the outcome of matters requiring approval by our
stockholders, including the election of our directors. If this occurs, it could
delay or prevent a change of control of Intellesale.

     Finders Fees.  In respect of acquisitions that took place in 1997 and 1998,
Applied Digital Solutions paid finder's fees to Messrs. Sherman, Cummings and
Newman, as set forth under "Management -- Summary Compensation Table."

INDEBTEDNESS OF MANAGEMENT


     We made loans to several of our executive officers in 1997 and 1998
aggregating $696,505. The loans are unsecured, bear interest at 6% per year, and
are payable on demand. All of the loans are to be repaid in full at the time of
completion of this offering. The following table summarizes the outstanding
loans to each officer at November 30, 1999:



<TABLE>
<CAPTION>
                                                                 ACCRUED AND
                                                                    UNPAID
                                                                INTEREST AS OF
                                                 OUTSTANDING     NOVEMBER 30,
                   OFFICER                        PRINCIPAL          1999          TOTAL
                   -------                       -----------    --------------    --------
<S>                                              <C>            <C>               <C>
Marc Sherman.................................     $595,000         $52,218        $647,218
Edward L. Cummings...........................       52,515             264          52,779
Charles D. Newman............................       26,505          10,780          37,285
                                                  --------         -------        --------
                                                  $674,020         $63,262        $737,282
                                                  ========         =======        ========
</TABLE>


     As provided in his employment agreement with us, Applied Digital Solutions
has guaranteed a $1,250,000 mortgage loan to Mr. Sherman, which is described
under "Management -- Employment Agreements."

                                       100
<PAGE>   104


                       PRINCIPAL AND SELLING STOCKHOLDERS



     The following table sets forth information regarding beneficial ownership
of our common stock as of January 3, 2000, and as adjusted to reflect the sale
of the shares of common stock offered by this prospectus and the related
transactions described below, by:


     - each person known to us who beneficially owns more than 5% of our common
       stock;

     - each of our directors and each of our executive officers named in the
       summary compensation table;

     - the selling stockholder; and

     - all of our directors and executive officers as a group.

     Except as otherwise noted below, the address of each person listed below is
our address. Beneficial ownership is determined in accordance with the rules of
the SEC and generally includes voting or investment power with respect to
securities. A person is deemed to beneficially own shares of common stock
subject to options, warrants and convertible securities held by the person if
the options, warrants or convertible securities are currently exercisable or
convertible or are exercisable or convertible within 60 days of the date of this
table. Beneficial ownership after the offering assumes:

     - no exercise by the underwriters of their over-allotment options from us
       and Applied Digital Solutions;

     - the issuance of a total of 1,111,111 shares of our common stock to the
       sellers of Bostek in connection with our acquisition of Bostek; and

     - the issuance of 518,778 shares of our common stock in settlement of
       earn-outs in connection with acquisitions and in connection with the
       acquisition of all outstanding minority interests in our subsidiaries.

     For a description of our obligations to the Bostek sellers, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Bostek -- Acquisition by Intellesale." For a description of the
settlement of our earn-out obligations and our acquisition of these minority
interests, see "Certain Relationships and Related Transactions -- Acquisition of
Minority Interests." Unless otherwise indicated, to our knowledge, all persons
listed have sole voting and investment power with respect to their shares of
common stock, except to the extent authority is shared by spouses under
applicable law.

                                       101
<PAGE>   105


<TABLE>
<CAPTION>
                                   SHARES OWNED PRIOR                         SHARES OWNED AFTER
                                     TO THE OFFERING                             THE OFFERING
                                  ---------------------                      ---------------------
   NAME OF BENEFICIAL OWNERS        NUMBER      PERCENT    SHARES OFFERED      NUMBER      PERCENT
   -------------------------      ----------    -------    --------------    ----------    -------
<S>                               <C>           <C>        <C>               <C>           <C>
Applied Digital Solutions, Inc.
  400 Royal Palm, Suite 410
  Palm Beach, Florida 33480.....  12,000,000     79.9%       1,700,000       10,300,000     49.9%
Marc Sherman(1).................   3,700,000     23.1               --        3,700,000     17.1
Edward L. Cummings(1)...........   1,300,000      8.1               --        1,300,000      6.0
Garrett A. Sullivan(2)..........     500,000      3.2               --          500,000      2.4
David A. Loppert(2).............     500,000      3.2               --          500,000      2.4
Charles D. Newman(3)............     300,000      2.0               --          300,000      1.4
Constance K. Weaver(2)..........     100,000        *               --          100,000        *
Alexander H. Good...............       7,500        *               --            7,500        *
Timothy C. O'Brien..............       7,500        *               --            7,500        *
All directors and executive
  officers as a group (9
  persons)(4)...................   6,540,000     35.3%              --        6,540,000     27.1%
</TABLE>


-------------------------

 *  Less than 1%.


(1) Includes 1,000,000 shares of common stock issuable to each of Messrs.
    Sherman and Cummings upon the exercise of stock options which are
    exercisable within 60 days of the date of this table. Such shares would be
    subject to the limitations of the lock-up agreements described below under
    "Shares Available for Future Sale."


(2) Consists of shares of common stock issuable upon the exercise of stock
    options which are exercisable within 60 days of the date of this table. Such
    shares would be subject to the limitations of the lock-up agreements
    described below under "Shares Available for Future Sale."

(3) Consists of shares of common stock issuable upon the exercise of stock
    options which are exercisable within 60 days of the date of this table. Such
    shares would be subject to the limitations of the lock-up agreements
    described below under "Shares Available for Future Sale." Includes options
    beneficially owned by his wife.

(4) Includes 3,525,000 shares of common stock issuable upon the exercise of
    stock options which are exercisable within 60 days of the date of this
    table.

     If the underwriters exercise their over-allotment option in full, Applied
Digital Solutions will own 10,045,000 shares of our common stock representing
approximately 47.3% of our common stock.

                                       102
<PAGE>   106


                          DESCRIPTION OF CAPITAL STOCK


     Our certificate of incorporation authorizes the issuance of up to
30,000,000 shares, par value $0.0001 per share, of our common stock, and up to
5,000,000 shares of preferred stock, par value $.01 per share.


     As of the date of this prospectus, 15,015,000 shares of our common stock
were outstanding and held of record by five stockholders. As of the date of this
prospectus, options to purchase 5,350,000 shares of our common stock at an
exercise price of $0.85 per share, and options to purchase 250,000 shares of our
common stock at an exercise price equal to the initial public offering price in
the offering, were outstanding. Of the outstanding options, none are now
exercisable, but 4,300,000 become exercisable upon completion of this offering
and the remainder become exercisable at various times over the next year. Upon
the closing of this offering, we will have outstanding 20,644,889 shares of
common stock, after giving effect to the issuance of 1,629,889 shares to sellers
of various subsidiaries, including Bostek, in connection with the Bostek
acquisition, the purchase of minority interests in our subsidiaries, and the
settlement of earn-out rights.


COMMON STOCK

     All of the outstanding shares of common stock are, and the shares offered
hereby will be, fully paid and nonassessable. Each holder of common stock is
entitled to one vote for each share held of record on all matters presented to a
vote of stockholders. Holders of common stock do not have cumulative voting
rights in the election of directors. Stockholders casting a plurality of the
votes of stockholders entitled to vote in an election of directors may elect all
of the directors. Holders of common stock have no preemptive rights to purchase
or subscribe for any stock or other securities and there are no conversion
rights or redemption or sinking fund provisions with respect to such stock.
Subject to the rules and regulations of the Nasdaq National Market, additional
shares of authorized common stock may be issued without stockholder approval.

     Applied Digital Solutions has entered into an agreement under which it has
agreed to vote its shares on matters presented to our stockholders in the same
proportions as the other stockholders vote their shares, subject to certain
conditions, as described under "Certain Relationships and Related
Transactions -- Voting Agreement with Applied Digital Solutions."

     Upon a liquidation, dissolution or winding-up, holders of our common stock
will each receive their pro rata share of our remaining assets, after payment of
liquidation preferences, if any, on any outstanding shares of preferred stock
and payments of claims of creditors.

PREFERRED STOCK

     Upon the closing of this offering, we will not have any shares of our
preferred stock outstanding. The 5,000,000 authorized shares of preferred stock
may be issued in one or more series without further approval from our
stockholders. Our board of directors is authorized to determine the terms,
limitations and relative rights and preferences of the preferred stock, to
establish series of preferred stock and to determine the variations among
series. If we issue preferred stock, it would have priority over our common
stock with respect to dividends and to other distributions, including the
distribution of assets upon liquidation. In addition, we may be obligated to
repurchase or redeem it. The holders of

                                       103
<PAGE>   107

preferred stock may have voting and conversion rights, including multiple voting
rights, which could adversely affect the rights of the holders of our common
stock. We do not have any present plans to issue any shares of preferred stock.

DELAWARE ANTI-TAKEOVER LAW

     We are subject to Section 203 of the Delaware General Corporation Law
regulating corporate takeovers. Section 203, subject to certain exceptions,
prohibits a Delaware corporation from engaging in any "business combination"
with any "interested stockholder" for a period of three years following the date
that such stockholder became an interested stockholder unless:

     - prior to such date, the board of directors of the corporation approved
       either the business combination or the transaction that resulted in the
       stockholder becoming an interested stockholder;

     - upon consummation of the transaction that resulted in the stockholder
       becoming an interested stockholder, the interested stockholder owned at
       least 85% of the voting stock of the corporation outstanding at the time
       the transaction commenced, excluding those shares owned by persons who
       are directors and also officers, and employee stock plans in which
       employee participants do not have the right to determine confidentially
       whether shares held subject to the plan will be tendered in a tender or
       exchange offer; or

     - on or subsequent to such date, the business combination is approved by
       the board of directors and authorized at an annual or special meeting of
       stockholders, and not by written consent, by the affirmative vote of at
       least two-thirds of the outstanding voting stock that is not owned by the
       interested stockholder.

     In general, Section 203 defines "business combination" to include mergers
or consolidations between a Delaware corporation and an interested stockholder,
transactions with an interested stockholder involving the assets or stock of the
corporation or its majority-owned subsidiaries and transactions which increase
an interested stockholder's percentage ownership of stock. In general, Section
203 defines an "interested stockholder" as any entity or person beneficially
owning 15% or more of the outstanding voting stock of the corporation and any
entity or person affiliated with or controlling or controlled by such entity or
person.

LIMITATION OF LIABILITY AND INDEMNIFICATION

     Our certificate of incorporation and bylaws contain provisions permitted
under Delaware law relating to the liability of directors. These provisions
eliminate a director's personal liability for monetary damages resulting from a
breach of fiduciary duty, except in circumstances involving any of the following
wrongful acts:

     - any breach of the director's duty of loyalty to us or to our
       stockholders;

     - acts or omissions not in good faith or which involve intentional
       misconduct or a knowing violation of law;

     - any actions under Section 174 of the Delaware General Corporation Law; or

     - any transaction from which the director derives an improper personal
       benefit.

                                       104
<PAGE>   108

     These provisions do not limit or eliminate our rights or any stockholder's
rights to seek non-monetary relief, such as an injunction or rescission, in the
event of a breach of a director's fiduciary duty. These provisions will not
alter a director's liability under federal securities laws.

     In addition, we will enter into separate agreements with each of our
directors that will provide them with indemnification to the maximum extent
permitted by Delaware law for liabilities they incur serving as our directors
and officers. We believe that these provisions and agreements will assist us in
attracting and retaining qualified individuals to serve as directors and
officers.

TRANSFER AGENT

     The transfer agent and registrar for our common stock is Equiserve LP.

LISTING

     There is currently no active trading market for our common stock. We have
applied to have our common stock approved for quotation on the Nasdaq National
Market under the symbol "SALE."


                        SHARES ELIGIBLE FOR FUTURE SALE


     Upon completion of this offering, there will be 20,644,889 shares of our
common stock outstanding, assuming no exercise of the underwriters'
over-allotment offering, no exercise of options and the issuance of 1,629,889
shares to owners of minority interests in our subsidiaries. Of the outstanding
shares, all of the shares of common stock sold in this offering will be freely
tradable without restriction under the Securities Act of 1933, except that any
shares purchased in this offering by our affiliates, as that term is defined in
Rule 144 under the Securities Act, may generally only be resold in compliance
with applicable provisions of Rule 144. This leaves 14,949,889 shares eligible
for sale in the public market as follows:


<TABLE>
<CAPTION>
          NUMBER OF SHARES                                     DATE
          ----------------               -------------------------------------------------
<C>                                      <S>
                  0                      After the date of this prospectus.
             13,300,000                  After 180 days after the date of this prospectus,
                                         subject, in all cases, to volume limitations.
              1,644,889                  At various times after January 2001, subject in
                                         all cases to volume limitations.
</TABLE>


     The restricted securities may be sold in the public market only if
registered or if they qualify for an exemption from registration under Rules
144, 144(k) or 701 promulgated under the Securities Act.

     Prior to this offering, there has been no public market for our common
stock. We cannot predict the effect, if any, that market sales of shares or the
availability of shares for sale will have on the market price of our common
stock prevailing from time to time. We are unable to estimate the number of
shares of common stock that may be sold in the public market pursuant to Rule
144, because this will depend on the market price of our common stock, the
personal circumstances of the sellers and other factors. Nevertheless, sales of
significant amounts of our common stock in the public market could adversely

                                       105
<PAGE>   109

affect the market price of our common stock and could impair our ability to
raise capital through an offering of, or effect acquisitions with, our equity
securities.

RULE 144

     In general, under Rule 144 as currently in effect, a person, or persons
whose shares are aggregated, who has beneficially owned restricted shares for at
least one year, including the holding period of any prior owner except an
affiliate, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of:

     - one percent of the number of shares of our common stock then outstanding,
       which will equal approximately 206,000 shares immediately after this
       offering; or

     - the average weekly trading volume of the common stock on the Nasdaq
       National Market during the four calendar weeks preceding the filing of a
       notice on Form 144 with respect to such sale.

     Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.

RULE 144(K)

     Under Rule 144(k), a person who is deemed not to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the restricted shares for at least two years, including the
holding period of any prior owner except an affiliate, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.

LOCK-UP AGREEMENTS

     All of our directors, executive officers and stockholders have signed
lock-up agreements under which they have agreed not to transfer or dispose of,
directly or indirectly, any shares of our common stock or any securities
convertible into or exercisable or exchangeable for shares of our common stock,
for a period of 180 days after the date of this prospectus. Transfers or
dispositions can be made sooner:

     - with the prior written consent of Ladenburg Thalmann & Co. Inc.;

     - in the case of gifts or estate planning transfers where the donee signs a
       lock-up agreement; or

     - in the case of distributions to stockholders or affiliates of the
       stockholders where the recipient signs a lock-up agreement.

     Richard Sullivan, the Chairman of the Board of Applied Digital Solutions,
who holds options to purchase 1,000,000 shares of our common stock, has agreed
that, for six months following expiration of the 180-day lockup period, he will
sell any shares he may acquire under the options only pursuant to the notice and
volume limitations provisions of Rule 144.

                                       106
<PAGE>   110

REGISTRATION RIGHTS


     Upon completion of this offering, Applied Digital Solutions, Marc Sherman
and Edward L. Cummings and their transferees, will be entitled to rights with
respect to the registration of their shares of common stock under the Securities
Act, entitling them to include the shares of common stock they own when we
register our own shares for sale, subject to customary provisions limiting the
number of shares they may include. Those stockholders will beneficially own
15,300,000 shares of our common stock (including 2,000,000 shares of common
stock issuable upon exercise of outstanding stock options) after this offering,
after giving effect to the sale of the 1,700,000 shares of the common stock
offered by Applied Digital Solutions in this offering, assuming no exercise of
the underwriters' over-allotment option. In addition, Applied Digital Solutions
and Mr. Sherman will have "demand" registration rights, which means that they
would be able to cause us to register their shares under the Securities Act on
the terms specified in our agreement with those shareholders. Registration of
those shares under the Securities Act would result in those shares becoming
freely saleable by these persons without restriction under the Securities Act.
See "Certain Relationships and Related Transactions -- Transaction with Applied
Digital Solutions and Its Affiliates -- Registration Rights."


STOCK OPTIONS


     We intend to file a registration statement under the Securities Act
covering 5,450,000 shares of common stock reserved for issuance under our 1997
Non-Qualified Stock Option Plan and the 15,000 shares issued and 2,485,000
shares of our common stock reserved for issuance under our 1999 Flexible Stock
Plan 180 days following completion of this offering. Thereafter, shares of
common stock which are issued as a result of restricted stock awards or options
previously granted to our employees and directors and directors and officers of
our affiliates will, subject to Rule 144 volume limitations applicable to
affiliates, be available for sale in the open market.


                                       107
<PAGE>   111


                                  UNDERWRITING



     Subject to the terms and conditions contained in an underwriting agreement
dated           , 2000, the underwriters named below, who are represented by
Ladenburg Thalmann & Co. Inc. and Punk, Ziegel & Company, L.P., have severally
agreed to purchase from us the number of shares opposite their names below.



<TABLE>
<CAPTION>
                                                          NUMBER OF
                     UNDERWRITERS                          SHARES
                     ------------                         ---------
<S>                                                       <C>
Ladenburg Thalmann & Co. Inc. ........................
Punk, Ziegel & Company, L.P. .........................

                                                          ---------
     Total............................................    5,700,000
                                                          =========
</TABLE>


     The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of certain legal matters and to certain other
conditions. The underwriters are obligated to purchase and accept delivery of
all the shares, other than those shares covered by the over-allotment option
described below, if they purchase any of the shares.


     The underwriters propose to initially offer some of the shares directly to
the public at the initial public offering price on the cover page of this
prospectus and some of the shares to certain dealers at the initial public
offering price less a concession not in excess of $               per share. The
underwriters may allow, and such dealers may re-allow, a concession not in
excess of $               per share on sales to other dealers. After the initial
offering of the shares to the public, the representatives may change the public
offering price and such concessions.


     The following table shows the per share and total underwriting fees to be
paid to the underwriters by us and by Applied Digital Solutions in connection
with this offering. The underwriting discounts and commissions per share are the
public offering price per share less the amount paid by the underwriters to us
and to Applied Digital Solutions per share of common stock. These amounts are
shown with and without exercise of the underwriters' over-allotment option.

<TABLE>
<CAPTION>
                                                                    TOTAL
                                                  -----------------------------------------
                                                        WITHOUT                WITH
                                 PER SHARE          OVER-ALLOTMENT        OVER-ALLOTMENT
                            -------------------   -------------------   -------------------
                             AMOUNT       %        AMOUNT       %        AMOUNT       %
                            --------   --------   --------   --------   --------   --------
<S>                         <C>        <C>        <C>        <C>        <C>        <C>
Underwriting discounts and
commissions we will pay...
Underwriting discounts and
  commissions Applied
  Digital Solutions will
  pay.....................
                            --------   --------   --------   --------   --------   --------
     Total................
                            ========   ========   ========   ========   ========   ========
</TABLE>

                                       108
<PAGE>   112


     We will pay the offering expenses, which we estimate will be approximately
$1,125,000.


     We and Applied Digital Solutions have granted to the underwriters an
option, exercisable for 30 days after the date of this prospectus, to purchase
up to 600,000 additional shares from Intellesale and up to 255,000 additional
shares from Applied Digital Solutions, at the initial public offering price
minus the underwriting fees. If the underwriters exercise this option, the
additional shares will be allocated between Intellesale and Applied Digital
Solutions in the same proportion as the other shares offered hereunder. The
underwriters may exercise this option solely to cover over-allotments, if any,
made in connection with this offering. To the extent that the underwriters
exercise this option, each underwriter will become obligated, subject to certain
conditions, to purchase a number of additional shares approximately
proportionate to that underwriter's initial purchase commitment.

     We and Applied Digital Solutions have agreed to indemnify the underwriters
against certain civil liabilities, including liabilities under the Securities
Act, or to contribute to payments that the underwriters may be required to make
in respect to any of those liabilities. These liabilities generally consist of
damages which the underwriters may be required to pay in connection with, and
expenses incurred in responding to or defending, claims which may be asserted
against the underwriters and which arise out of or relate to the offer, purchase
or sale of our common stock in this offering.

     Ladenburg Thalmann & Co. Inc. has informed us that the underwriters do not
expect sales to discretionary accounts to exceed 5% of the total number of
shares offered hereby and that the underwriters do not intend to confirm sales
of shares to any account over which they exercise discretionary authority.

     We, our executive officers and directors, Applied Digital Solutions and all
of our other stockholders have agreed, for a period of 180 days from the date of
this prospectus, not to, without the prior written consent of Ladenburg
Thalmann:

     - offer, pledge, sell, contract to sell, sell any option or contract to
       purchase, purchase any option or contract to sell, grant any option,
       right or warrant to purchase or otherwise transfer or dispose of,
       directly or indirectly, any shares of our common stock or any securities
       convertible into or exercisable or exchangeable for our common stock; or

     - enter into any swap or other arrangement that transfers all or a portion
       of the economic consequences associated with the ownership of any common
       stock, regardless of whether any of the transactions described in this
       paragraph is to be settled by the delivery of common stock, or such other
       securities, in cash or otherwise.


This limitation will not apply to the shares offered by Applied Digital
Solutions in this offering. In addition, during this period, we have agreed not
to file any registration statement with respect to, and each of our executive
officers and directors and all of our stockholders have agreed not to make any
demand for, or exercise any right with respect to, the registration of any
shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock, without the prior written consent of Ladenburg
Thalmann.


                                       109
<PAGE>   113


     Prior to this offering, there has been no established trading market for
our common stock. The initial public offering price for the common stock in this
offering will be determined by negotiation among us, Applied Digital Solutions
and the representatives of the underwriters. The factors to be considered in
determining the initial public offering price are the history of and the
prospects for the industry in which we compete, the ability of our management,
our past and present operations, our prospects for future earnings, the general
condition of the securities markets at the time of this offering and the recent
market prices of securities of generally comparable companies.


     We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "SALE."

     Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of our common
stock included in this offering in any jurisdiction where action for that
purpose is required. The shares included in this offering may not be offered or
sold, directly or indirectly, nor may this prospectus or any other offering
material or advertisement in connection with the offer and sale of any of these
shares be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of that jurisdiction. Persons who receive this prospectus are
advised to inform themselves about and to observe any restrictions relating to
the offering of our common stock and the distribution of this prospectus. This
prospectus is not an offer to sell or a solicitation of an offer to buy any
shares of our common stock included in this offering in any jurisdiction where
that would not be permitted or legal.

     In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in this offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while this offering is in progress.

     The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.

     These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. The underwriters are not required to engage in these activities. If
these activities are commenced, they may be discontinued by the underwriters at
any time. These transactions may be effected on the Nasdaq National Market, in
the over-the-counter market or otherwise.

     Ladenburg Thalmann has in the past performed investment banking services
for Applied Digital Solutions, for which it has received customary compensation,
including a fee of $1.175 million in connection with the closing of the credit
facility which Applied Digital Solutions entered into with IBM Credit
Corporation in 1999.

                                       110
<PAGE>   114


                                 LEGAL MATTERS



     Bryan Cave LLP, St. Louis, Missouri, as our counsel, has issued an opinion
as to the validity of the common stock. Certain legal matters in connection with
this offering will be passed upon for the underwriters by Fulbright & Jaworski
L.L.P. Bryan Cave LLP from time to time serves as legal counsel to us and to
some of our affiliates, including Applied Digital Solutions.



                                    EXPERTS


     Our consolidated and combined financial statements for the year ended
December 31, 1998 included in this prospectus have been included herein in
reliance upon the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting. Our
combined financial statements for the years ended December 31, 1997 and 1996 in
this prospectus have been included herein in reliance upon the report of Rubin,
Brown, Gornstein & Co., LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.


     The financial statements for Universal Commodities Corp. for the ten months
ended October 31, 1996 included in this prospectus have been included herein in
reliance on the report of Rubin, Brown, Gornstein & Co. LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.



     The financial statements for Bostek for the years ended December 31, 1996,
1997 and 1998 included in this prospectus have been included herein in reliance
on the report of DiPesa & Company, independent accountants, given on the
authority of said firm as experts in auditing and accounting.



                       CHANGE IN INDEPENDENT ACCOUNTANTS


     On October 23, 1998, the board of directors of Applied Digital Solutions
voted to replace Rubin, Brown, Gornstein & Co. LLP with PricewaterhouseCoopers
LLP as Applied Digital Solutions' and, as a result, Intellesale's independent
accountants for the year ending December 31, 1998. The reports of Rubin, Brown,
Gornstein on our financial statements for the past two fiscal years did not
contain an adverse opinion or a disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles. In connection
with the audits of our financial statements for each of the two fiscal years
ended December 31, 1997 and 1996, and in the subsequent interim period through
November 2, 1998, there were no disagreements with Rubin, Brown, Gornstein & Co.
LLP on any matters of accounting principles or practices, financial statement
disclosure, or auditing scope and procedures which, if not resolved to the
satisfaction of Rubin, Brown, Gornstein & Co. LLP, would have caused them to
make reference to the matter in their report. During the two most recent fiscal
years and in the subsequent interim period through November 2, 1998, there were
no reportable events as defined in Regulation S-K Item 304(a)(1)(v). On November
2, 1998, Applied Digital Solutions and, as a result, Intellesale, engaged
PricewaterhouseCoopers LLP as principal accountants to audit the financial
statement for the year ending December 31, 1998. During fiscal 1996 and 1997 and
in the subsequent interim period, Applied Digital Solutions and we had not
consulted PricewaterhouseCoopers LLP on items which concerned the application of
accounting principles generally, or to a specific transaction or group of
transactions, either completed or proposed, or the type of audit opinion that
might be rendered on our financial statements.

                                       111
<PAGE>   115


                   WHERE YOU CAN FIND ADDITIONAL INFORMATION


     We have filed with the SEC a registration statement on Form S-1 to register
the shares of common stock offered hereby. This prospectus is a part of that
registration statement. As allowed by the SEC rules, this prospectus does not
contain all the information you can find in the registration statement or the
exhibits to that registration statement. For further information with respect to
us and the common stock offered hereby, reference is made to the registration
statement and the exhibits to that registration statement. Statements in this
prospectus concerning the contents of any contract or any other document are not
necessarily complete. If a contract or document has been filed as an exhibit to
the registration statement, we refer you to that exhibit. Each statement in this
prospectus relating to a contract or document filed as an exhibit to the
registration statement is qualified by the filed exhibits. You can obtain a copy
of the registration statement and the exhibits through the SEC, at the SEC's
public reference rooms at 450 Fifth Street, N.W., Washington, D.C., 20549, Seven
World Trade Center, 13th Floor, New York, New York 10048, and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661, or the SEC's
website at http://www.sec.gov. Please call the SEC at 1-800-SEC-0330 for more
information on the public reference rooms and their copy charges.

     We intend to furnish our stockholders annual reports containing financial
statements audited by our independent auditors. We will also file annual,
quarterly and current reports, proxy statements and other information with the
SEC. You can also request copies of these documents, for a copying fee, by
writing the SEC.

                                       112
<PAGE>   116


                         INDEX TO FINANCIAL STATEMENTS



<TABLE>
<S>                                                             <C>
INTELLESALE.COM, INC. AND PREDECESSOR COMPANIES TO
INTELLESALE.COM, INC.
Financial Statements for the years ended December 31, 1996,
  1997 and 1998
Reports of Independent Accountants..........................     F-2
Financial Statements
  Consolidated and Combined Balance Sheet...................     F-5
  Combined Statements of Operations.........................     F-6
  Combined Statements of Stockholders' Equity...............     F-7
  Combined Statements of Cash Flows.........................     F-8
  Notes to Consolidated and Combined Financial Statements...     F-9
Financial Statements (unaudited) for the nine months ended
  September 30, 1999 and 1998
  Consolidated Balance Sheet................................    F-27
  Consolidated and Combined Statements of Operations........    F-28
  Consolidated and Combined Statements of Stockholders'
     Equity.................................................    F-29
  Consolidated and Combined Statements of Cash Flows........    F-30
  Notes to Consolidated and Combined Financial Statements...    F-31
BOSTEK, INC. AND AFFILIATE
Financial Statements for the years ended December 31, 1996,
  1997 and 1998
Independent Auditor's Report................................    F-37
Financial Statements
  Balance Sheet.............................................    F-40
  Statements of Income and Retained Earnings................    F-41
  Statement of Cash Flows...................................    F-42
  Notes to Financial Statements.............................    F-43
Financial Statements (unaudited) for the five months ended
  May 31, 1999 and May 31, 1998
  Balance Sheet.............................................    F-49
  Statements of Income......................................    F-50
  Statements of Cash Flows..................................    F-51
  Notes to Financial Statements.............................    F-52
UNIVERSAL COMMODITIES CORP.
Financial Statements for the ten months ended October 31,
  1996
Report of Independent Accountants...........................    F-54
Financial Statements
  Balance Sheet.............................................    F-55
  Statement of Operations...................................    F-56
  Statement of Cash Flows...................................    F-57
  Notes to Financial Statements.............................    F-58
</TABLE>


                                       F-1
<PAGE>   117

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
  Shareholders of Intellesale.com, Inc.

     In our opinion, the accompanying consolidated balance sheet presents
fairly, in all material respects, the financial position of Intellesale.com,
Inc. (a majority-owned subsidiary of Applied Digital Solutions, Inc.) and its
subsidiaries at December 31, 1998, in conformity with generally accepted
accounting principles. This balance sheet is the responsibility of the Company's
management; our responsibility is to express an opinion on this financial
statement based on our audit. We conducted our audit of this statement in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statement is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.

PricewaterhouseCoopers LLP
St. Louis, Missouri
June 10, 1999 (Except as to the second paragraph
  of Note 1, the second paragraph of Note 10 and
  Note 16 which are as of August 23, 1999)

                                       F-2
<PAGE>   118

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
  Shareholders of the Predecessor Companies
  of Intellesale.com, Inc.

     In our opinion, the accompanying combined statements of operations, of
investment in predecessor companies and stockholders' equity, and of cash flows
present fairly, in all material respects, the results of operations and cash
flows of the predecessor companies of Intellesale.com, Inc. (all of which are
wholly or majority-owned subsidiaries of Applied Digital Solutions, Inc.) for
the year ended December 31, 1998 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
St. Louis, Missouri
June 10, 1999 (Except as to the second paragraph
  of Note 1, the second paragraph of Note 10 and
  Note 16 which are as of August 23, 1999)

                                       F-3
<PAGE>   119

                       REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors and Shareholders
  of the Predecessor Companies of
  Intellesale.com, Inc.

     We have audited the accompanying combined balance sheet of the predecessor
companies of Intellesale.com, Inc. (all of which are majority-owned subsidiaries
of Applied Digital Solutions, Inc.) as of December 31, 1997, and the related
combined statements of operations, investment in predecessor companies and cash
flows for each of the two years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

     In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
predecessor companies of Intellesale.com, Inc. as of December 31, 1997, and the
combined results of their operations, their investment in predecessor companies
and their cash flows for each of the two years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
Rubin, Brown, Gornstein & Co., LLP
St. Louis, Missouri
February 24, 1998

                                       F-4
<PAGE>   120

                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES
                    CONSOLIDATED AND COMBINED BALANCE SHEETS
                    (DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)

                                     ASSETS



<TABLE>
<CAPTION>
                                               COMBINED PREDECESSOR
                                                   COMPANIES TO            CONSOLIDATED
                                               INTELLESALE.COM, INC.   INTELLESALE.COM, INC.
                                               ---------------------   ---------------------
                                                   DECEMBER 31,            DECEMBER 31,
                                                       1997                    1998
                                               ---------------------   ---------------------
<S>                                            <C>                     <C>
CURRENT ASSETS
Cash and cash equivalents.....................        $   615                 $   571
Accounts receivable (net of allowance for
  doubtful accounts of $100 in 1997 and $362
  in 1998)....................................          3,626                   4,675
Inventories...................................          3,474                   6,249
Notes receivable -- related parties...........             74                     262
Prepaid expenses and other current assets.....            125                     143
                                                      -------                 -------
  TOTAL CURRENT ASSETS........................          7,914                  11,900
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET.....            418                     601
NOTES RECEIVABLE -- RELATED PARTIES...........             --                     873
GOODWILL, NET.................................          2,727                   7,864
OTHER ASSETS..................................             68                     125
                                                      -------                 -------
                                                      $11,127                 $21,363
                                                      =======                 =======
                            LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current maturities of
  long-term debt..............................        $ 1,403                 $    80
Due to Parent Company.........................          1,242                   6,022
Accounts payable and accrued expenses.........          3,111                   5,531
                                                      -------                 -------
  TOTAL CURRENT LIABILITIES...................          5,756                  11,633
                                                      -------                 -------
COMMITMENTS AND CONTINGENT LIABILITIES (Note
  11).........................................
                                                      -------                 -------
MINORITY INTEREST.............................            384                     590
                                                      -------                 -------
STOCKHOLDERS' EQUITY
Common shares:
  Authorized 30,000,000 shares of $.0001 par
     value; issued and outstanding 15,000,000
     shares...................................                                      1
Additional paid-in capital....................                                  9,139
Equity of predecessor companies...............          4,987                      --
  TOTAL STOCKHOLDERS' EQUITY..................          4,987                   9,140
                                                      -------                 -------
                                                      $11,127                 $21,363
                                                      =======                 =======
</TABLE>



               See the accompanying notes to financial statements


                                       F-5
<PAGE>   121

                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES

                       COMBINED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                FOR THE YEARS
                                                              ENDED DECEMBER 31,
                                                         ----------------------------
                                                          1996      1997       1998
                                                         ------    -------    -------
<S>                                                      <C>       <C>        <C>
Revenue..............................................    $1,993    $39,445    $60,743
Costs of goods sold..................................       851     33,202     47,623
                                                         ------    -------    -------
Gross profit.........................................     1,142      6,243     13,120
Operating costs and expenses
Selling, general and administrative expenses.........       635      3,778      8,725
Depreciation and amortization........................       110        342        774
                                                         ------    -------    -------
Operating income.....................................       397      2,123      3,621
Interest income......................................         1          1         45
Interest expense.....................................       (10)      (152)      (341)
                                                         ------    -------    -------
Income before provision for income taxes and minority
  interest...........................................       388      1,972      3,325
Provision for income taxes...........................       190        884      1,646
                                                         ------    -------    -------
Income before minority interest......................       198      1,088      1,679
Minority interest....................................        30        247        226
                                                         ------    -------    -------
Net income...........................................    $  168    $   841    $ 1,453
                                                         ======    =======    =======
</TABLE>


               See the accompanying notes to financial statements


                                       F-6
<PAGE>   122

                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES

           COMBINED STATEMENTS OF INVESTMENT IN PREDECESSOR COMPANIES
                            AND STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                       COMMON STOCK      ADDITIONAL     EQUITY OF
                                     ----------------     PAID-IN      PREDECESSOR
                                     NUMBER    AMOUNT     CAPITAL       COMPANIES     TOTAL
                                     ------    ------    ----------    -----------    ------
<S>                                  <C>       <C>       <C>           <C>            <C>
BALANCE -- DECEMBER 31, 1995.....       --       $--       $   --        $  (152)     $ (152)
Net income.......................       --       --            --            168         168
Contribution of capital from
  Parent Company for Parent
  Company shares issued for
  acquisitions...................       --       --            --            336         336
                                     ------      --        ------        -------      ------
BALANCE -- DECEMBER 31, 1996.....       --       --            --            352         352
Net income.......................       --       --            --            841         841
Contribution of capital from
  Parent Company for Parent
  Company shares issued for
  acquisitions...................       --       --            --          3,794       3,794
                                     ------      --        ------        -------      ------
BALANCE -- DECEMBER 31, 1997.....       --       --            --          4,987       4,987
Net income.......................       --       --            --          1,453       1,453
Contribution of capital from
  Parent Company for Parent
  Company shares issued for
  Universal Commodities Corp.....       --       --            --          2,700       2,700
Contribution of Predecessor
  Companies to Intellesale.com,
  Inc. effective December 31,
  1998...........................    15,000       1         9,139         (9,140)         --
                                     ------      --        ------        -------      ------
BALANCE -- DECEMBER 31, 1998.....    15,000      $1        $9,139        $    --      $9,140
                                     ======      ==        ======        =======      ======
</TABLE>


               See the accompanying notes to financial statements


                                       F-7
<PAGE>   123

                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES

                       COMBINED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                FOR THE YEARS
                                                             ENDED DECEMBER 31,
                                                         ---------------------------
                                                         1996      1997       1998
                                                         -----    -------    -------
<S>                                                      <C>      <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...........................................    $ 168    $   841    $ 1,453
Adjustments to reconcile net income to net cash
  provided by (used in) operating activities:
  Depreciation and amortization......................      110        342        774
  Minority interest..................................       30        247        226
  Gain on sale of equipment..........................       --         --        (21)
  Net change in operating assets and liabilities
     (Note 13).......................................     (180)    (1,239)    (4,640)
                                                         -----    -------    -------
NET CASH PROVIDED BY (USED IN) OPERATING
  ACTIVITIES.........................................      128        191     (2,208)
                                                         -----    -------    -------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in notes receivable -- related
  parties............................................       --        108     (1,097)
Proceeds from sale of assets.........................       --        120        110
Payments for equipment and other assets..............      (20)      (372)      (248)
Net cash acquired in (used for) business
  acquisitions.......................................       12        563        208
                                                         -----    -------    -------
NET CASH PROVIDED BY (USED IN) INVESTING
  ACTIVITIES.........................................       (8)       419     (1,027)
                                                         -----    -------    -------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in bank overdrafts...............       82        (82)        --
Net amounts borrowed (paid) on notes payable.........     (259)        78     (1,813)
Net amounts borrowed from Parent Company.............       --         --      5,004
                                                         -----    -------    -------
NET CASH PROVIDED BY (USED IN) FINANCING
  ACTIVITIES.........................................     (177)        (4)     3,191
                                                         -----    -------    -------
NET INCREASE (DECREASE) IN CASH......................      (57)       606        (44)
CASH AND CASH EQUIVALENTS -- BEGINNING OF PERIOD.....       66          9        615
                                                         -----    -------    -------
CASH AND CASH EQUIVALENTS -- END OF PERIOD...........    $   9    $   615    $   571
                                                         =====    =======    =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid....................................    $  --    $    45    $     2
Interest paid........................................       10        149        341
                                                         -----    -------    -------
</TABLE>


               See the accompanying notes to financial statements


                                       F-8
<PAGE>   124

                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES

            NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     ORGANIZATION AND BASIS OF PRESENTATION

     The accompanying financial statements of the predecessor companies to
Intellesale.com Inc. and Intellesale.com, Inc. (Intellesale or the Company)
present the financial position, operating results and cash flows of the wholly
and majority owned subsidiaries of Applied Digital Solutions, Inc. (ADS or the
Parent Company) involved in sales, service and leasing of new and refurbished
computer equipment and related components (see Note 2 for a detailed listing of
these individual predecessor businesses and the dates of their acquisition by
ADS). The individual operations of the predecessor businesses have been included
in these financial statements since their acquisition by ADS or Universal
Commodities Corp. (UCC), as described in Note 2.

     In December 1998, Intellesale.com, Inc. was incorporated and later merged
with Universal Commodities Corp. (UCC), one of the predecessor businesses.
Additionally, ADS contributed its ownership in each of the other predecessor
businesses to Intellesale.com in July 1999. For financial statement presentation
purposes these transactions have been accounted for at their historical carrying
values as transactions involving entities under common control and effective as
of December 31, 1998. As a result of these transactions and this effective date,
the consolidated balance sheet at December 31, 1998 is that of Intellesale.com.
The combined balance sheet at December 31, 1997 and the combined statements of
operations, of investment in predecessor companies, and of cash flows for each
of the three years ended December 31, 1998, represent those of the predecessor
companies. As Intellesale did not exist prior to December 31, 1998, no earnings
per share information is provided.

     OPERATIONS

     Intellesale and its predecessor companies sell refurbished and new computer
equipment and related components. The Company sells products online through its
website at www.Intellesale.com as well as through traditional channels, which
the Company is migrating to the Internet. In addition to selling products on its
website, the Company distributes products through marketing arrangements with
OnSale.com, which hosts auctions of the Company's products in exchange for a
commission, as well as Lycos and other Internet portals and service providers.
Intellesale operates in two segments as more fully discussed in Note 14.

                                       F-9
<PAGE>   125
                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES

     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

     CONSOLIDATION AND COMBINATION POLICY


     The Companies included in these consolidated and combined financial
statements are all wholly owned or majority owned subsidiaries of ADS as
described above. Each entity has been included since the date of its acquisition
by ADS as described in Note 2. In preparing these financial statements all
significant intercompany balances and transactions have been eliminated.
Minority interest represents the minority shareholders' proportionate share in
the equity or income of the majority-owned subsidiaries of ADS included herein.


     USE OF ESTIMATES

     The preparation of the financial statements requires management to make
certain estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Although these estimates are based
on the knowledge of current events and actions the Company may undertake in the
future, they may ultimately differ from actual results.

     CASH AND CASH EQUIVALENTS

     The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.

     INVENTORIES

     Inventories primarily consist of finished goods and equipment available for
resale. Inventory is valued at the lower of cost or market, determined by the
first-in, first-out method. The Company closely monitors and analyzes inventory
for potential obsolescence and slow-moving items based upon the aging of the
inventory. Inventory items designated as obsolete or slow-moving are reduced to
net realizable value. The reserve for excess and obsolete inventory was $50 at
December 31,1998. There was no inventory reserve in 1997.

     EQUIPMENT AND LEASEHOLD IMPROVEMENTS

     Equipment and leasehold improvements are carried at cost, less accumulated
depreciation and amortization computed using straight-line and accelerated
methods. Leasehold improvements are depreciated and amortized over the life of
leases ranging from 1 to 5 years, and equipment is depreciated over periods
ranging from 3 to 10 years. Equipment and leasehold improvements are
periodically reviewed for impairment based on expected future undiscounted cash
flows. Management believes there has been no impairment at December 31, 1998.

     GOODWILL

     Goodwill is stated on the cost basis and amortized, on a straight-line
basis, over the estimated life of 7 years. Goodwill is periodically reviewed for
impairment based on expected future undiscounted cash flows. Management believes
there has been no impairment at December 31, 1998.

                                      F-10
<PAGE>   126
                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES

     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

     REVENUE RECOGNITION

     For all product sales, the Company recognizes revenue upon shipment to the
customer. For programming and consulting services, the Company recognizes
revenue as work is performed based on actual labor hours in the job times the
standard billing rate and adjusted to realizable value if necessary. For
maintenance contracts, revenue is recognized ratably over the life of the
maintenance agreements. Costs of goods sold are recorded as the related revenue
is recognized.

     The Company does not experience significant product returns. An allowance
for estimated sales returns is recorded in accrued expenses.

     ADVERTISING COSTS

     The Company expenses production costs of print advertisements as of the
first date the advertisements take place. Advertising expense, included in
selling, general and administrative expenses, was $183 in 1998 and $53 in 1997.
There were no material advertising expenses in 1996.

     INCOME TAXES

     As a subsidiary of ADS, the Company's results of domestic operations are
included in consolidated federal income tax returns which also include ADS and
its other operating subsidiaries. The Company could be considered jointly and
severally liable for assessments of additional tax on the consolidated group.
The Company's provision (benefit) for income taxes is based on income taxes the
Company would have provided on a separate company basis. The Company's domestic
income taxes currently payable are reflected in Due to Parent Company, as such
taxes were paid or received by ADS on behalf of the Company.

     The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (FAS) No. 109, Accounting for Income Taxes,
requiring the use of the liability method of accounting for income taxes. The
current and deferred tax consequences of a transaction are measured by applying
the provisions of enacted tax laws to determine the amount of taxes payable
currently or in future years. Deferred income taxes are provided for temporary
differences between income tax bases for assets and liabilities and their
carrying amounts for financial reporting purposes. A valuation allowance reduces
deferred tax assets when management determines that it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
Deferred income tax assets and liabilities are reflected as other assets and
liabilities (Note 9).

     NEW ACCOUNTING STANDARDS

     In 1998, the Financial Accounting Standards Board issued FAS 133,
Accounting for Derivative Instruments and Hedging Activities. In 1999, FAS 137,
Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FAS 133, was issued. As the Company does not have any
derivative instruments or hedging transactions, adoption of FAS 133 is not
expected to have any effect on the financial statements.

                                      F-11
<PAGE>   127
                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES

     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

     In 1998, the Company adopted FAS 131, Disclosures about Segments of an
Enterprise and Related Information. FAS 131 superseded FAS 14, Financial
Reporting for Segments of a Business Enterprise, replacing the "Industry
segment" approach with the "management" approach. The management approach
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of the Company's
reportable segments. FAS 131 also requires disclosures about products and
services, geographic areas, and major customers. The adoption of FAS 131 did not
affect results of operations or financial position but did affect the disclosure
of segment information (see Note 14).

     In 1998, the Company adopted FAS 130, Reporting Comprehensive Income, which
establishes standards for reporting and disclosure of comprehensive income and
its components. Adoption of FAS 130 did not have a material effect on the
financial statements.

                                      F-12
<PAGE>   128
                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES

     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

2.  ACQUISITIONS

     The following represents all of the acquisitions made by ADS which occurred
through 1998 and which comprise these financial statements from the date of
their acquisition:

<TABLE>
<CAPTION>
                                                                               FAIR VALUE
                                        EFFECTIVE                                OF NET
                                         DATE OF     PERCENT    ACQUISITION      ASSETS                     BUSINESS
                                       ACQUISITION   ACQUIRED      PRICE        ACQUIRED      GOODWILL     DESCRIPTION
                                       -----------   --------   -----------   -------------   --------   ---------------
<S>                                    <C>           <C>        <C>           <C>             <C>        <C>
1995 ACQUISITION
Elite Computer Services, Inc. .......   09/01/95         80%      $  557          $ 10         $  547    Remarketer of
                                                                                                         computer parts
1996 ACQUISITION
Universal Commodities Corp. .........   11/01/96         80%       1,512           271          1,241    Remarketer of
                                                                                                         computer
                                                                                                         equipment
1997 ACQUISITIONS
Norcom Resources, Inc. ..............   01/01/97         80%         538            57            481    Remarketer of
                                                                                                         mainframe
                                                                                                         computers
Pizarro Re-Marketing, Inc. ..........   01/01/97         80%         356           156            200    Remarketer of
                                                                                                         computer tape
                                                                                                         and disk drives
Cybertech Station, Inc. .............   07/01/97         80%         467             0            467    Remarketer of
                                                                                                         computer memory
                                                                                                         products
Port Parties, Ltd. ..................   07/01/97         80%       3,966            82          3,884    Leasing and
                                                                                                         rental services
                                                                                                         for meeting and
                                                                                                         convention
                                                                                                         planners
1998 ACQUISITIONS
Blue Star Electronics, Inc. .........   04/01/98         80%         431             1            430    Cable assembly
                                                                                                         manufacturer
Consolidated Micro Components,
  Inc. ..............................   04/01/98        100%       1,948             4          1,944    Remarketer of
                                                                                                         memory,
                                                                                                         processors and
                                                                                                         hard drives
Data Path Technologies, Inc. ........   04/01/98        100%       3,421           146          3,275    Remarketer of
                                                                                                         computer
                                                                                                         equipment
GDB Software Services, Inc. .........   04/01/98        100%       1,931           221          1,710    Provider of
                                                                                                         data processing
                                                                                                         consulting
                                                                                                         services
Service Transport Company............   04/01/98         80%          89           (69)           158    Transporter of
                                                                                                         computer
                                                                                                         equipment
Fiscal Advantage, Inc. ..............   10/01/98      Assets         200            25            175    Computer
                                                                                                         leasing
                                                                                                         services
</TABLE>

     The stock of ADS was issued for all of the above acquisitions except the
assets of Fiscal Advantage, Inc. which was acquired by ADS for cash. The
original ADS shares will remain outstanding and will not be converted to
Intellesale shares. The above acquisitions have been accounted for using the
purchase method of accounting and, accordingly, the

                                      F-13
<PAGE>   129
                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES

     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)


consolidated and combined financial statements reflect the results of operations
of each company from the date of acquisition. The costs of acquisitions reflect
the Parent Company's basis in the assets and liabilities and include all
payments according to the acquisition agreements plus costs for investment
banking services, legal services and accounting services, that were direct costs
of acquiring these assets. These acquisitions did not include separate
non-compete agreements. Additionally, none of these entities had any patents,
trademarks or other identifiable intangible assets. Therefore, the excess cost
over the fair value of the tangible assets acquired has been recorded as
goodwill. Goodwill resulting from these acquisitions is being amortized on a
straight-line basis, over seven years. Certain acquisition agreements include
the issuance of additional shares contingent on profits of the acquired
subsidiary. Upon earning these shares, the value is recorded as additional
goodwill. The acquisition price and goodwill above include all such contingent
payments earned through December 31, 1998. See Note 16 which describes
subsequent amendments to these Agreements. In summary, these Agreements were
modified to result in Intellesale paying $5,521 in cash and $4,669 in its stock
to pay the earnout agreements and purchase minority interests contingent on the
successful completion of a public offering of Intellesale's stock. Upon payment
of these additional amounts, the value will be recorded as goodwill. See Note 15
for unaudited pro forma information for the above acquisitions that occurred in
1998 and 1997.


3.  NOTES RECEIVABLE

<TABLE>
<CAPTION>
                                                                1997     1998
                                                                ----    ------
<S>                                                             <C>     <C>
Due from officers, unsecured, bears interest at 6%, $200 due
November 1999, balance due on demand........................     $12    $1,073
Due from customer, unsecured, due on demand.................     62         62
                                                                 --     ------
                                                                 74      1,135
Less: Current portion.......................................     74        262
                                                                 --     ------
                                                                 $--    $  873
                                                                 ==     ======
</TABLE>

     As provided in his employment agreement, ADS has guaranteed a $1,250
mortgage loan to the President of Intellesale. This guaranty will be retained by
ADS.

4.  EQUIPMENT AND LEASEHOLD IMPROVEMENTS

<TABLE>
<CAPTION>
                                                                1997    1998
                                                                ----    ----
<S>                                                             <C>     <C>
Equipment...................................................    $556    $795
Leasehold improvements......................................       4     152
                                                                ----    ----
                                                                 560     947
Less: Accumulated depreciation and amortization.............     142     346
                                                                ----    ----
                                                                $418    $601
                                                                ====    ====
</TABLE>

     Depreciation and amortization expense amounted to $2, $109 and $251 for the
years ended December 31, 1996, 1997 and 1998, respectively.

                                      F-14
<PAGE>   130
                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES

     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

5.  GOODWILL

     Goodwill consists of the excess of cost over fair value of tangible and
identifiable intangible assets of companies purchased. The Company has applied
the purchase method of accounting for acquisitions of wholly owned and majority
owned subsidiaries.

<TABLE>
<CAPTION>
                                                                 1997      1998
                                                                ------    ------
<S>                                                             <C>       <C>
Original balance............................................    $3,139    $8,799
Accumulated amortization....................................      (412)     (935)
                                                                ------    ------
Carrying value..............................................    $2,727    $7,864
                                                                ======    ======
</TABLE>


     The Company has entered into various earnout arrangements with the selling
stockholders of certain acquired subsidiaries. These arrangements provide for
additional consideration to be paid in future years if certain earnings levels
are met. These amounts are recognized as additional goodwill when earned. The
Company entered into agreements with those sellers who are entitled to these
payments under which the Company has agreed to pay fixed amounts, in a
combination of cash and shares of stock, in lieu of earnout payments. Some of
these individuals retained minority interests in these subsidiaries, and in
those cases the Company has also agreed to repurchase their minority interests,
also for a combination of cash and stock. See Notes 2 and 16 for further
discussion.


     Goodwill amortization amounted to $108, $233 and $523 for the years ended
December 31, 1996, 1997 and 1998, respectively.

6.  RELATED PARTY TRANSACTIONS

<TABLE>
<CAPTION>
                                                                 1997      1998
                                                                ------    ------
<S>                                                             <C>       <C>
Due to Parent Company -- line of credit.....................    $   --    $5,194
Due to Parent Company -- other..............................     1,242       828
                                                                ------    ------
     Due to Parent Company..................................    $1,242    $6,022
                                                                ======    ======
</TABLE>

     During the third quarter of 1998, the Parent Company entered into a twenty
million dollar line of credit with a bank, collateralized by all the domestic
assets of the Parent Company and its subsidiaries, including the Company, at the
prime lending rate or at the London Interbank Offered Rate, as elected by the
Parent Company. The line of credit was scheduled to expire on July 31, 1999 and
contained standard covenants relating to the Parent Company's financial position
and performance, as well as restrictions on the Parent Company's declaration and
payment of dividends. The amount due to Parent Company -- line of credit
represents that portion of ADS's line of credit that ADS has loaned to the
company. This loan bears interest at 9.0%, as set by the Parent Company. In
March 1999, the loan began to bear interest at the same rate as paid by the
Parent Company. The loan, including interest, is repaid as funds are available.
Interest expense related to this line of credit amounted to $140 in 1998.

                                      F-15
<PAGE>   131
                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES

     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

     In May 1999, the Parent Company entered into a Term and Revolving Credit
Agreement with IBM Credit Corporation and repaid the amount due to the bank. The
lending arrangement between the Parent Company and Intellesale remains
unchanged.

     ADS provides certain services to and incurs certain expenses on behalf of
its subsidiaries. These costs, which include general overhead, certain employee
benefit programs, general treasury services and various business insurance
coverages are allocated to Parent Company subsidiaries, including the Company,
based upon the Parent Company's estimate of its actual cost to provide these
services. The Company incurred $420 in these costs to the Parent Company in
1998. No costs were allocated in 1996 and 1997, since the Parent Company did not
provide significant services due to the decentralized operations of the
subsidiaries during those periods. Management believes the method used to
allocate expenses to the Company is reasonable and appropriate.

     The amounts due to Parent Company -- other represent those amounts due to
ADS for income taxes paid on the subsidiaries' behalf.

     See also Note 3 regarding notes receivable from officers.

7.  NOTES PAYABLE

<TABLE>
<CAPTION>
                                                                 1997     1998
                                                                ------    ----
<S>                                                             <C>       <C>
Notes payable -- banks, collateralized by business assets
and by personal guarantees of officers/stockholders of
certain subsidiaries Interest is payable monthly at rates
varying from prime plus 1/2% to prime plus 2 1/4% in 1998.
The credit lines are due through December 1999..............    $1,126    $--
Notes payable -- other, unsecured, due on demand............       277     80
                                                                ------    ---
                                                                $1,403    $80
                                                                ======    ===
</TABLE>

     The weighted average interest rate including amounts due to Parent Company
in Note 6 was 10.3% and 9.0% for the years ended December 31, 1997 and 1998,
respectively.

8.  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:

     CASH AND CASH EQUIVALENTS

     The carrying amount approximates fair value because of the short maturity
of those instruments.

                                      F-16
<PAGE>   132
                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES

     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

     NOTES RECEIVABLE

     The carrying value of the notes approximate fair value because either the
interest rates of the notes approximate the current rate that the Company could
receive on a similar note, or because of the short-term nature of the notes.

     NOTES PAYABLE

     The carrying amount approximates fair value because of the short-term
nature of the notes.

     ACCOUNTS PAYABLE AND ACCRUED EXPENSES

     The carrying amount approximates fair value.

9.  INCOME TAXES

     The provision for income taxes consists of:

<TABLE>
<CAPTION>
                                                              1996    1997     1998
                                                              ----    ----    ------
<S>                                                           <C>     <C>     <C>
Current taxes at statutory rates..........................    $188    $921    $1,618
Deferred income taxes provision (credit)..................       2     (37)       28
                                                              ----    ----    ------
                                                              $190    $884    $1,646
                                                              ====    ====    ======
</TABLE>

     The tax effects of temporary differences and carryforwards that give rise
to significant portions of deferred tax assets and liabilities which are
recorded as other assets and liabilities consist of the following:

<TABLE>
<CAPTION>
                                                                1997    1998
                                                                ----    ----
<S>                                                             <C>     <C>
Deferred Tax Assets -- Current:
Accounts receivable.........................................    $41      $9
Deferred Tax Liabilities -- Long-term:
Equipment and leasehold improvements........................     (4)     --
                                                                ---      --
Net Deferred Tax Asset......................................    $37      $9
                                                                ===      ==
</TABLE>

     The reconciliation of the effective tax rate with the statutory federal
income tax rate is as follows:

<TABLE>
<CAPTION>
                                                                1996    1997    1998
                                                                 %       %       %
                                                                ----    ----    ----
<S>                                                             <C>     <C>     <C>
Statutory rate..............................................    34.0    34.0    34.0
Non-deductible goodwill amortization........................     9.5    11.8    15.7
State and local income taxes, net of federal benefits.......     3.8     3.8     3.8
Other.......................................................     1.7    (4.8)   (4.0)
                                                                ----    ----    ----
                                                                49.0    44.8    49.5
                                                                ====    ====    ====
</TABLE>

                                      F-17
<PAGE>   133
                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES

     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

10.  COMMITMENTS AND CONTINGENCIES

     Rentals of space, vehicles, and office equipment under operating leases
amounted to approximately $59, $231 and $521 for the years ended December 31,
1996, 1997, and 1998, respectively.

     The Company has entered into employment contracts with key officers and
employees of the Company. The agreements are for periods of one to ten years
through June 2007. Some of the employment contracts also call for bonus
arrangements based on earnings of the particular subsidiary or the Company.

     The approximate minimum payments required under operating leases and
employment contracts that have initial or remaining terms in excess of one year
at December 31, 1998 are:

<TABLE>
<CAPTION>
                                              MINIMUM        EMPLOYMENT
                 YEAR                     RENTAL PAYMENTS    CONTRACTS
                 ----                     ---------------    ----------
<S>                                       <C>                <C>
1999..................................        $  633          $ 2,440
2000..................................           521            2,690
2001..................................           430            2,620
2002..................................           319            2,400
2003..................................            24            1,890
Thereafter............................            --            1,350
                                              ------          -------
                                              $1,927          $13,390
                                              ======          =======
</TABLE>

     The Company has entered into put options with the selling stockholders of
various companies in which the Company acquired less than a 100% interest. These
options provide for the Company to acquire the remaining portion it does not own
after periods ranging from 4 to 5 years from the dates of acquisition at amounts
generally equal to 10%-20% of the average annual earnings of the subsidiary
before income taxes for the two-year period ending the effective date of the put
multiplied by a multiple ranging from 4 to 5. The stockholders have agreed to
eliminate the put option. See Note 2 and Note 16 for further discussion.

     The employment agreements of four officers of the Company include certain
"change of control" provisions. An initial public offering is not considered a
"change of control." At the employee's option, he may terminate his employment
under the agreement at any time within one year after such change of control.
The Company shall pay to the employee a severance payment based on formulas
relating to parachute payment provisions of the Internal Revenue Code and prior
compensation.

     The Company is party to various legal proceedings. In the opinion of
management, these proceedings are not likely to have a material adverse effect
on the financial position or overall trends in results of the Company. The
estimate of potential impact on the Company's financial position, overall
results of operations or cash flows for the above legal proceedings could change
in the future.

                                      F-18
<PAGE>   134
                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES

     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

11.  PROFIT SHARING PLAN

     The Company participates in the Parent Company's Section 401(k) Plan for
the benefit of eligible employees. Essentially all full-time employees with six
months of service are eligible to participate. Company matching contributions
are completely discretionary. The Company and ADS have made no contributions to
the Section 401(k) Plan in 1996 through 1998.

12.  STOCK OPTIONS

     During 1997, UCC adopted a non-qualified stock option plan (the Option
Plan) that was assumed by the Company upon the merger of UCC into the Company.
The Company applies APB 25 and related interpretations in accounting for the
Option Plan. In addition, the Parent Company has a non-qualified stock option
plan (the Parent Option Plan) and applies APB 25 and interpretations. The
exercise price of options granted under the Option Plan is determined at the
discretion of the Company, and is typically based on the estimated fair value of
the stock at the date of grant. Compensation expense is recognized when the
exercise price of options is less than the fair value of the underlying stock on
the date of grant. Compensation expense in 1997 and 1998 was not material. Under
the Parent Option Plan, options to purchase Parent Company stock are granted at
an exercise price which approximates fair value on the date of grant.
Accordingly, no compensation cost has been recognized. Had compensation cost for
the Option Plan and the Parent Option Plan been determined based on the fair
value at the grant dates for awards under the Option Plan and the Parent Option
Plan, consistent with the alternative method set forth under FAS 123, Accounting
for Stock-Based Compensation, the Company's net income available to common
stockholders would have been reduced.

     The pro forma amounts are indicated below:

<TABLE>
<CAPTION>
                                                                1997     1998
                                                                ----    ------
<S>                                                             <C>     <C>
Net income
  As reported...............................................    $841    $1,453
  Pro forma.................................................    $639    $1,110
</TABLE>

     Under the Option Plan, options for 7.5 million common shares were
authorized for issuance to certain officers and employees of the Company, of
which options to purchase 5.4 million shares had been granted through December
31, 1998. Each of these options was originally issued in the predecessor entity
UCC which was later merged into Intellesale (see Note 1). The UCC options were
converted into Intellesale options at the merger date under identical terms. The
options may not be exercised until one to four years after the options have been
granted, and are exercisable for a period of ten years. In addition, options for
0.6 million shares of ADS stock were granted to officers and employees of the
Company through December 31, 1998 under the Parent Option Plan.

     Under the Option Plan, the fair value of each option granted is estimated
on the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1997 and 1998:
dividend yield of 0% in both years; expected

                                      F-19
<PAGE>   135
                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES

     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

volatility ranging from 45% to 50%; risk-free interest rates ranging from 5.0%
to 6.7%; and expected lives of 10 years for both years. The weighted-average
fair value of options granted under the Option Plan was $0.32 for the year ended
December 31, 1997 and $0.64 for the year ended December 31, 1998.

     Under the Parent Option Plan, the fair value of each option granted is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for grants in 1997 and 1998:
dividend yield of 0% in both years; expected volatility of 44.03% and 43.69% for
1997 and 1998, respectively; risk-free interest rate of 5.72% and 4.74% for 1997
and 1998, respectively; and expected lives of 5 years for both years. The
weighted-average fair value of options granted under the Parent Option Plan was
$1.58 for the year ended December 31, 1997 and $1.27 for the year ended December
31, 1998.

     A summary of the stock option activity under the Option Plan for 1997 and
1998 follows:

<TABLE>
<CAPTION>
                                                   1997                      1998
                                          ----------------------    ----------------------
                                                       WEIGHTED-                 WEIGHTED-
                                                        AVERAGE                   AVERAGE
                                                       EXERCISE                  EXERCISE
                                           SHARES        PRICE       SHARES        PRICE
                                          ---------    ---------    ---------    ---------
<S>                                       <C>          <C>          <C>          <C>
Outstanding on January 1..............           --       $--       4,750,000      $0.85
Granted...............................    4,750,000     0.85          650,000       0.85
Exercised.............................           --       --               --         --
Forfeited.............................           --       --               --         --
                                          ---------       --        ---------      -----
Outstanding on December 31............    4,750,000     0.85        5,400,000       0.85
                                          ---------       --        ---------      -----
Exercisable on December 31............           --       --               --         --
                                          ---------       --        ---------      -----
Shares available on December 31, for
  options that may be granted.........    2,750,000                 2,100,000
                                          =========       ==        =========      =====
</TABLE>

     The following table summarizes information about the Company stock options
at December 31, 1998:

<TABLE>
<CAPTION>
                                         OUTSTANDING STOCK OPTIONS          EXERCISABLE STOCK
                                     ----------------------------------          OPTIONS
                                                WEIGHTED-                   -----------------
                                                 AVERAGE      WEIGHTED-              WEIGHTED-
                                                REMAINING      AVERAGE                AVERAGE
                                               CONTRACTUAL    EXERCISE               EXERCISE
         EXERCISE PRICE              SHARES       LIFE          PRICE      SHARES      PRICE
         --------------              ------    -----------    ---------    ------    ---------
                                           (IN THOUSANDS, EXCEPT FOR EXERCISE PRICE DATA
                                                       AND CONTRACTUAL LIFE)
<S>                                  <C>       <C>            <C>          <C>       <C>
$0.85............................    5,400        8.30          $0.85       --          $--
                                     =====        ====          =====        ==         ==
</TABLE>

                                      F-20
<PAGE>   136
                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES

     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

     A summary of the stock option activity for ADS under the Parent Option Plan
for 1997 and 1998 with respect to employees of the Company follows:

<TABLE>
<CAPTION>
                                                     1997                    1998
                                             --------------------    --------------------
                                                        WEIGHTED-               WEIGHTED-
                                                         AVERAGE                 AVERAGE
                                                        EXERCISE                EXERCISE
                                             SHARES       PRICE      SHARES       PRICE
                                             -------    ---------    -------    ---------
<S>                                          <C>        <C>          <C>        <C>
Outstanding on January 1.................         --      $  --      100,000      $3.83
Granted..................................    100,000       3.83      410,000       2.21
Exercised................................         --         --           --         --
Forfeited................................         --         --           --         --
                                             -------      -----      -------      -----
Outstanding on December 31...............    100,000       3.83      510,000       2.53
                                             -------      -----      -------      -----
Exercisable on December 31...............         --         --      200,000       2.19
                                             -------      -----      -------      -----
Shares available on December 31, for
  options that may be granted............         --                      --
                                             =======      =====      =======      =====
</TABLE>

     The following table summarizes information about stock options granted to
employees of the Company under the Parent Option Plan at December 31, 1998:


<TABLE>
<CAPTION>
                                       OUTSTANDING STOCK OPTIONS          EXERCISABLE STOCK
                                  -----------------------------------          OPTIONS
                                              WEIGHTED-                  --------------------
                                               AVERAGE      WEIGHTED-               WEIGHTED-
                                              REMAINING      AVERAGE                 AVERAGE
                                             CONTRACTUAL    EXERCISE                EXERCISE
   RANGE OF EXERCISE PRICES       SHARES        LIFE          PRICE      SHARES       PRICE
   ------------------------       -------    -----------    ---------    -------    ---------
                                         (IN THOUSANDS, EXCEPT FOR EXERCISE PRICE DATA
                                                     AND CONTRACTUAL LIFE)
<S>                               <C>        <C>            <C>          <C>        <C>
$2.00 to $3.00................    400,000       5.50          $2.18      200,000      $2.19
$3.01 to $4.00................    110,000       6.70           3.82           --         --
                                  -------       ----          -----      -------      -----
$2.00 to $4.00................    510,000                     $2.53      200,000      $2.19
                                  =======       ====          =====      =======      =====
</TABLE>


                                      F-21
<PAGE>   137
                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES

     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

13.  SUPPLEMENTAL CASH FLOW INFORMATION

     The changes in operating assets and liabilities, excluding the effects of
acquisitions, are as follows:

<TABLE>
<CAPTION>
                                                             FOR THE YEARS ENDED
                                                                DECEMBER 31,
                                                         ---------------------------
                                                         1996      1997       1998
                                                         -----    -------    -------
<S>                                                      <C>      <C>        <C>
Increase in accounts receivable......................    $(115)   $(1,426)   $  (204)
Increase in inventories..............................     (238)    (2,277)    (2,277)
(Increase) decrease in prepaid expenses..............       (5)         2        (11)
(Increase) decrease in deferred tax asset............        1        (38)        27
Increase (decrease) in current liabilities due to
  Parent Company.....................................      391        792       (414)
Increase (decrease) in accounts payable and accrued
  expenses...........................................     (214)     1,708     (1,761)
                                                         -----    -------    -------
                                                         $(180)   $(1,239)   $(4,640)
                                                         =====    =======    =======
</TABLE>

     In the years ended December 31, 1996, 1997 and 1998, the Company had the
following noncash investing and financing activities:

<TABLE>
<CAPTION>
                                                            1996     1997      1998
                                                            ----    ------    ------
<S>                                                         <C>     <C>       <C>
Payment of debt in exchange for common stock............    $678    $2,266    $   --
Assets acquired for debt................................      --        --       190
Assets acquired for common stock of Parent Company......     985       256     2,700
Capital leases..........................................      --       158        --
</TABLE>

14.  SEGMENT INFORMATION

     During 1998, the Company entered into the Internet business. The Company is
now organized into two primary operating segments as follows:

     - Internet, in which the Company sells refurbished and new computer
       products through its website. Refurbished products consist primarily of
       off-lease equipment which the Company tests, cleans and prepares for
       sale, and manufacturer refurbished products which carry a manufacturer's
       warranty. The Company's Internet business also includes Internet
       wholesale, in which the Company sells its products to other companies
       that market these products on their websites. The Company is
       transitioning away from this wholesale distribution business and focusing
       on selling products directly through the Company's website.


     - Traditional commerce and other services, in which the Company buys and
       remarkets computer equipment and components to traditional wholesalers,
       retailers and value-added resellers, as well as individual and corporate
       end users, and provides integration and consulting services, computer
       recycling, parts-on-demand services and transportation services for
       computer and other equipment. The


                                      F-22
<PAGE>   138
                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES

     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

       Company is transitioning the traditional commerce business to the
       Internet to the extent feasible. The leasing group provides leasing and
       rental services for meeting and convention planners.

     The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies, except that
intersegment sales and transfers are generally accounted for as if the sales or
transfers were to third parties at current market prices, and segment data
includes an allocated charge for the corporate headquarters costs. It is on this
basis that management utilized the financial information to assist in making
internal operating decisions. The Company evaluates performance based on stand
alone operating segment net income.


     The "Eliminations" category includes all amounts recognized upon
consolidation of the Company's subsidiaries such as the elimination of
intersegment revenues, expenses and assets and liabilities.




                                      F-23
<PAGE>   139
                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES

     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)


<TABLE>
<CAPTION>
                                                 TRADITIONAL
                                                  COMMERCE
                                             -------------------
                                             SALES AND
             1998                 INTERNET    SERVICE    LEASING   ELIMINATIONS   CONSOLIDATED
             ----                 --------   ---------   -------   ------------   ------------
<S>                               <C>        <C>         <C>       <C>            <C>
Revenue from external
  customers....................    $7,334     $48,556    $4,853      $    --        $60,743
Intersegment revenue...........        --       1,944        --       (1,944)            --
                                   ------     -------    ------      -------        -------
     Total Revenue.............    $7,334     $50,500    $4,853      $(1,944)       $60,743
                                   ======     =======    ======      =======        =======
Depreciation and
  amortization.................    $   56     $   602    $  116      $    --        $   774
Operating income...............       746       1,929     1,090         (144)         3,621
Segment assets.................     1,809      15,515     4,362         (323)        21,363
Expenditures for property......        --         248        --           --            248
</TABLE>


<TABLE>
<CAPTION>
                                                 TRADITIONAL
                                                  COMMERCE
                                             -------------------
                                             SALES AND
             1997                 INTERNET    SERVICE    LEASING   ELIMINATIONS   CONSOLIDATED
             ----                 --------   ---------   -------   ------------   ------------
<S>                               <C>        <C>         <C>       <C>            <C>
Revenue from external
  customers....................      $--      $38,040    $1,405      $    --        $39,445
Intersegment revenue...........       --        2,127        --       (2,127)            --
                                     ---      -------    ------      -------        -------
     Total Revenue.............      $--      $40,167    $1,405      $(2,127)       $39,445
                                     ===      =======    ======      =======        =======
Depreciation and
  amortization.................      $--      $   288    $   54      $    --        $   342
Operating income...............       --        1,881       242           --          2,123
Segment assets.................       --       10,389     1,066         (328)        11,127
Expenditures for property......       --          372        --           --            372
</TABLE>

<TABLE>
<CAPTION>
                                                 TRADITIONAL
                                                  COMMERCE
                                             -------------------
                                             SALES AND
             1996                 INTERNET    SERVICE    LEASING   ELIMINATIONS   CONSOLIDATED
             ----                 --------   ---------   -------   ------------   ------------
<S>                               <C>        <C>         <C>       <C>            <C>
Revenue from external
  customers....................      $--      $1,933       $--          $--          $1,993
Intersegment revenue...........       --          --        --           --              --
                                     ---      ------       ---          ---          ------
     Total Revenue.............      $--      $1,933       $--          $--          $1,993
                                     ===      ======       ===          ===          ======
Depreciation and
  amortization.................      $--      $  110       $--          $--          $  110
Operating income...............       --         397        --           --             397
Expenditures for property......       --          20        --           --              20
</TABLE>

                                      F-24
<PAGE>   140
                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES

     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

15.  PRO FORMA INFORMATION (UNAUDITED)

     The following pro forma consolidated information of the Company for the
years ended December 31, 1997 and 1998 gives effect to the acquisitions
disclosed in Note 2 as if they were effective at January 1, 1997. The statement
gives effect to the acquisitions under the purchase method of accounting. The
1997 pro forma acquisitions include: Norcom Resources, Inc., Pizarro
Remarketing, Inc., Cybertech Station, Inc. and Port Parties, Ltd. The 1998 pro
forma acquisitions include: Blue Star Electronics, Inc., Consolidated Micro
Components, Inc., Data Path Technologies, Inc., GDB Software Services, Inc.,
Service Transport Company and Fiscal Advantage, Inc.

     The pro forma information may not be indicative of the results that would
have actually occurred if the acquisitions had been effective on the dates
indicated or of the results that may be obtained in the future. The pro forma
information should be read in conjunction with the consolidated financial
statements and notes thereto of the Company.

<TABLE>
<CAPTION>
                                                     PRO FORMA
                                               ---------------------
                                                   DECEMBER 31,
                                               ---------------------
                                                1997          1998
                                               -------       -------
                                                  (IN THOUSANDS)
<S>                                            <C>           <C>
Revenue......................................  $67,307       $67,076
Net income available to common
  stockholders...............................      525          (173)
</TABLE>

16.  SUBSEQUENT EVENTS

     AMENDMENTS TO PURCHASE AGREEMENTS


     Several of the purchase agreements for the subsidiaries identified in Note
2 contained provisions whereby the sellers could put their remaining shares and
obtain additional "earnout payments" upon achievement of certain profits. The
Company has entered into agreements in 1999 to fix the amount of these payments
at $9,740 in a combination of $5,821 in cash and $4,219 in stock of Intellesale
plus 50,000 shares of Intellesale stock to Service Transport.


     The above settlements are contingent upon the successful completion of a
planned public offering of Intellesale within one year of reaching the agreement
and will result in additional goodwill.

     ACQUISITIONS

     Effective June 1, 1999, the Company acquired all of the outstanding common
stock of Bostek, Inc. and Affiliate (Bostek) in a transaction accounted for
under the purchase method of accounting. The aggregate purchase price was
approximately $25,200 of which $10,200 was paid in cash at closing. Upon a
successful initial public offering of the common stock of Intellesale, $10,000
will be payable in stock of the Company, and the remaining $5,000 will be
payable in cash on January 3, 2000. In the event an initial public offering does
not occur within one year from closing of the acquisition, the $10,000 will be

                                      F-25
<PAGE>   141
                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES

     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)


payable in cash. An additional $5,000 of the purchase price, payable in cash, is
contingent upon the achievement of certain earnings targets. The purchase price
for Bostek was assigned to the assets acquired and the liabilities assumed based
on their estimated fair values at the acquisition date. Based on such
allocations, the aggregate purchase price exceeded the estimated fair value of
the net assets acquired by approximately $21,500 (goodwill), which is being
amortized over 7 years and will result in an annual amortization charge of
approximately $3,100.


     OFFICE AND WAREHOUSE LEASE

     In June 1999, the Company entered into a five-year office and warehouse
lease. Minimum rental payments under the lease are $48 per month for the first
three years and $60 per month for the last two years.

17.  CAPITAL STRUCTURE

     COMMON STOCK

     The Company has 30,000,000 shares of $0.0001 par value stock authorized
with 15,000,000 shares outstanding at December 31, 1998. All shares outstanding
are fully paid and nonassessable. Each holder of common stock is entitled to one
vote for each share held of record on all stockholder voting matters. The common
stock does not have cumulative voting rights, preemptive rights, conversion
rights, redemption provisions, or sinking fund provisions.

     PREFERRED STOCK

     The Company has 5,000,000 shares of $0.01 par value preferred stock with no
shares outstanding at December 31, 1998. The Company's Board of Directors is
authorized to determine the terms, limitations and relative rights and
preferences of the preferred stock. If issued, the preferred stock would have
priority over the rights of common stock.

                                      F-26
<PAGE>   142

                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                               SEPTEMBER 30, 1999
                    (DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)
                                  (UNAUDITED)

<TABLE>
<S>                                                             <C>
                                ASSETS
CURRENT ASSETS
Cash and cash equivalents...................................    $   910
Accounts receivable (net of allowance for doubtful accounts
  of $612)..................................................     26,981
Inventories.................................................     23,154
Notes receivable............................................        326
Prepaid expenses and other current assets...................      1,659
                                                                -------
  TOTAL CURRENT ASSETS......................................     53,030
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET...................      1,886
NOTES RECEIVABLE............................................        880
GOODWILL, NET...............................................     32,742
OTHER ASSETS................................................        479
                                                                -------
                                                                $89,017
                                                                =======
                 LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current maturities of long-term debt......    $    89
Accounts payable and accrued expenses.......................     20,720
Due to parent company.......................................     34,173
Due to shareholders of acquired subsidiary..................     15,000
                                                                -------
  TOTAL CURRENT LIABILITIES.................................     69,982
                                                                -------
NOTES PAYABLE...............................................         17
                                                                -------
MINORITY INTEREST...........................................        610
                                                                -------
STOCKHOLDERS' EQUITY
Common shares:
  Authorized 30,000,000 shares of $.0001 par value; issued
     and outstanding 15,000,000 shares......................          1
Additional paid-in capital..................................     17,814
Retained earnings...........................................        593
                                                                -------
  TOTAL STOCKHOLDERS' EQUITY................................     18,408
                                                                -------
                                                                $89,017
                                                                =======
</TABLE>


               See the accompanying notes to financial statements


                                      F-27
<PAGE>   143

                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES

               CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                             FOR THE NINE MONTHS
                                                             ENDED SEPTEMBER 30,
                                                ----------------------------------------------
                                                        1998                     1999
                                                ---------------------    ---------------------
                                                      COMBINED
                                                     PREDECESSOR
                                                    COMPANIES OF             CONSOLIDATED
                                                INTELLESALE.COM, INC.    INTELLESALE.COM, INC.
                                                ---------------------    ---------------------
<S>                                             <C>                      <C>
Revenue.....................................           $43,041                  $87,875
Costs Of Goods Sold.........................            33,891                   68,536
                                                       -------                  -------
Gross Profit................................             9,150                   19,339
                                                       -------                  -------
Operating Costs And Expenses
Selling, general and administrative
  expenses..................................             6,035                   13,664
Depreciation and amortization...............               551                    2,530
                                                       -------                  -------
Total Operating Costs And Expenses..........             6,586                   16,194
                                                       -------                  -------
Operating Income............................             2,564                    3,145
Interest Income.............................                27                      126
Interest Expense............................              (263)                    (869)
                                                       -------                  -------
Income Before Provision For Income Taxes And
  Minority Interest.........................             2,328                    2,402
Provision For Income Taxes..................             1,050                    1,723
                                                       -------                  -------
Income Before Minority Interest.............             1,278                      679
Minority Interest...........................               167                       86
                                                       -------                  -------
Net Income..................................           $ 1,111                  $   593
                                                       =======                  =======
Earnings Per Common Share -- Basic..........                                    $   .04
                                                                                =======
Earnings Per Common Share -- Diluted........                                    $   .03
                                                                                =======
Weighted Average Number Of Common Shares
  Outstanding -- Basic......................                                     15,000
                                                                                =======
Weighted Average Number Of Common Shares
  Outstanding -- Diluted....................                                     17,392
                                                                                =======
</TABLE>


               See the accompanying notes to financial statements


                                      F-28
<PAGE>   144

                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                   COMMON SHARES        ADDITIONAL                    TOTAL
                                --------------------     PAID-IN      RETAINED    STOCKHOLDERS'
                                  NUMBER      AMOUNT     CAPITAL      EARNINGS       EQUITY
                                ----------    ------    ----------    --------    -------------
<S>                             <C>           <C>       <C>           <C>         <C>
BALANCE -- DECEMBER 31,
1998........................    15,000,000      $1       $ 9,139        $ --         $ 9,140
  Net income (unaudited)....            --      --            --         593             593
  Contribution of capital
     from Parent for Parent
     shares issued for
     acquisitions
     (unaudited)............            --      --         8,675          --           8,675
                                ----------      --       -------        ----         -------
BALANCE -- SEPTEMBER 30,
  1999
  (UNAUDITED)...............    15,000,000      $1       $17,814        $593         $18,408
                                ==========      ==       =======        ====         =======
</TABLE>


               See the accompanying notes to financial statements


                                      F-29
<PAGE>   145

                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES

               CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                   FOR THE NINE MONTHS
                                                                   ENDED SEPTEMBER 30,
                                                      ----------------------------------------------
                                                              1998                     1999
                                                      ---------------------    ---------------------
                                                            COMBINED
                                                           PREDECESSOR
                                                          COMPANIES OF             CONSOLIDATED
                                                      INTELLESALE.COM, INC.    INTELLESALE.COM, INC.
                                                      ---------------------    ---------------------
<S>                                                   <C>                      <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................           $ 1,111                 $    593
Adjustments to reconcile net income to net cash
  used in operating activities:
  Depreciation and amortization...................               551                    2,530
  Minority interest...............................               167                       86
  (Gain) loss on sale of equipment................                19                       (5)
  Change in assets and liabilities:
     (Increase) decrease in accounts receivable...               304                  (15,680)
     Increase in inventories......................            (1,011)                 (13,509)
     Increase in prepaid expenses.................              (224)                  (1,282)
     Increase (decrease) in current liabilities
       due to Parent Company......................            (1,074)                   1,003
     Increase (decrease) in accounts payable and
       accrued expenses...........................            (1,347)                  15,631
                                                             -------                 --------
NET CASH USED IN OPERATING ACTIVITIES.............            (1,504)                 (10,633)
                                                             -------                 --------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in notes receivable -- officers..........              (912)                     (82)
(Increase) decrease in other assets...............                47                     (356)
Proceeds from sale of property and equipment......                65                        6
Payments for equipment and other assets...........              (275)                  (1,162)
Proceeds from (payments for) costs of asset and
  business acquisitions (net of cash balances
  acquired).......................................                68                  (10,497)
                                                             -------                 --------
NET CASH USED IN INVESTING ACTIVITIES.............            (1,007)                 (12,091)
                                                             -------                 --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net paid on notes payable.........................            (1,613)                     (35)
Proceeds from parent company......................             4,338                   23,109
Payments on long-term debt........................              (148)                     (11)
                                                             -------                 --------
NET CASH PROVIDED BY FINANCING ACTIVITIES.........             2,577                   23,063
                                                             -------                 --------
NET INCREASE IN CASH AND CASH EQUIVALENTS.........                66                      339
CASH AND CASH EQUIVALENTS -- BEGINNING OF
  PERIOD..........................................               615                      571
                                                             -------                 --------
CASH AND CASH EQUIVALENTS -- END OF PERIOD........           $   681                 $    910
                                                             =======                 ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid.................................           $    62                 $    623
Interest paid.....................................               263                      869
Noncash investing and financing activities:
  Fixed assets acquired for long-term debt........                --                       72
  Due to shareholders of acquired subsidiary......                --                   15,000
                                                             -------                 --------
</TABLE>



               See the accompanying notes to financial statements


                                      F-30
<PAGE>   146

                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES
            NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
                                  (UNAUDITED)

1.  OPERATIONS AND BASIS OF PRESENTATION


     The accompanying unaudited consolidated financial statements of
Intellesale.com, Inc. (Intellesale or the Company) as of and for the nine months
ended September 30, 1999 and of the Predecessor Companies of Intellesale.com,
Inc. for the nine months ended September 30, 1998 have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X under the Securities Exchange Act of 1934. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the Company's
management, all adjustments (consisting of only normal recurring adjustments)
considered necessary to present fairly the consolidated financial statements
have been made.


     The consolidated statement of operations for the nine months ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the entire year. These statements should be read in conjunction
with the consolidated financial statements and related notes thereto for the
year ended December 31, 1998.

     In December 1998, Intellesale.com, Inc. was incorporated and later merged
with Universal Commodities Corp. (UCC), one of the predecessor businesses.
Additionally, Applied Digital Solutions (ADS or Parent Company) contributed its
ownership in each of the other predecessor businesses to Intellesale in July
1999. For financial statement presentation purposes these transactions have been
accounted for at their historical carrying values as transactions involving
entities under common control and effective as of December 31, 1998. As a result
of these transactions and this effective date, the consolidated balance sheet,
at September 30, 1999, and the consolidated statement of operations of
stockholders' equity, and of cash flows for the nine months then ended are that
of Intellesale. The combined statement of operations and of cash flows for the
nine months ended September 30, 1998 represent those of the predecessor
companies.

     Intellesale and its predecessor companies sell refurbished and new computer
equipment and related components. The Company sells products online through its
Website, at www.Intellesale.com as well as through traditional channels the
Company is migrating to the internet. In addition to selling products on its
website, the Company distributes products through marketing arrangements with
OnSale.com, which hosts auctions of the Company's products in exchange for a
commission, as well as Lycos and other internet portals and service providers.
Intellesale operates in two segments as more fully discussed in Note 3.

CONSOLIDATION AND COMBINATION POLICY


     The Companies included in these consolidated and combined financial
statements are all wholly owned or majority owned subsidiaries of ADS or
Intellesale.com as described above. Each entity has been included since the date
of its acquisition by ADS. In preparing these financial statements all
significant intercompany balances and transactions have been eliminated.
Minority interest represents the minority shareholders' proportionate share in
the equity or income of the majority-owned subsidiaries of ADS or
Intellesale.com included herein.


                                      F-31
<PAGE>   147
                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


EARNINGS PER COMMON AND COMMON SHARE EQUIVALENT

     Basic EPS is computed by dividing income available to common stockholders
by the weighted average number of common shares outstanding for the period.
Diluted EPS is computed giving effect to all dilutive potential common shares
that were outstanding during the period. Dilutive potential common shares
consist of incremental shares issuable upon exercise of stock options and
warrants and contingently issuable shares. EPS for 1998 is not presented as
Intellesale was not incorporated until 1998.

NEW ACCOUNTING STANDARDS


     In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (FAS) 133, Accounting for Derivative Instruments
and Hedging Activities. In 1999, FAS 137, Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FAS 133, was issued.
As the Company does not have any derivative instruments or hedging transactions,
adoption of FAS 133 will not have any effect on the financial statements.


2.  EARNINGS PER SHARE

     The following is a reconciliation of the numerator and denominator of basic
and diluted earnings per share:

<TABLE>
<CAPTION>
                                                                     FOR THE
                                                                NINE MONTHS ENDED
                                                                  SEPTEMBER 30,
                                                                -----------------
                                                                      1999
                                                                -----------------
<S>                                                             <C>
Numerator:
  Net income................................................       $      593
                                                                   ==========
Denominator:
  Denominator for basic earnings per share --
     Weighted-average shares................................       15,000,000
Effect of dilutive securities --
  Employee stock options....................................        2,392,000
                                                                   ----------
Denominator for diluted earnings per share -- Adjusted
     Weighted-average shares................................       17,392,000
                                                                   ==========
Basic earnings per share....................................       $      .04
                                                                   ==========
Diluted earnings per share..................................       $      .03
                                                                   ==========
</TABLE>

                                      F-32
<PAGE>   148
                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


3.  SEGMENT INFORMATION

     During 1998, in connection with its acquisition strategy, the Company
entered into the Internet business. The Company is now organized into two
primary operating segments as follows:


     - Internet, in which the Company sells refurbished and new computer
       products through its website. Refurbished products consist primarily of
       off-lease equipment which the Company tests, cleans and prepares for
       sale, and manufacturer refurbished products, which carry a manufacturer's
       warranty. The Company's Internet business also includes Internet
       wholesale, in which the Company sells its products to other companies
       that market these products on their websites. The Company is
       transitioning away from this wholesale distribution business and focusing
       on selling products directly through the Company's website.


     - Traditional commerce and other services, in which the Company buys and
       remarkets computer equipment and components to traditional wholesalers,
       retailers, value added retailers as well as individual and corporate end
       users, and provides integration and consulting services, computer
       recycling, parts-on-demand services and transportation services for
       computer and other equipment. The Company is transitioning the
       traditional commerce business to the Internet to the extent feasible. The
       leasing group provides leasing and rental services for meeting and
       convention planners.

     The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies in the December 31,
1998 financial statements of the Company and its predecessor companies, except
that intersegment sales and transfers are generally accounted for as if the
sales or transfers were to third parties at current market prices, and segment
data includes an allocated charge for the corporate headquarters costs. It is on
this basis that management utilized the financial information to assist in
making internal operating decisions. The Company evaluates performance based on
stand alone operating segment net income.

     The following segment information is for the nine month periods ended
September 30:


<TABLE>
<CAPTION>
                                                  TRADITIONAL
                                              -------------------
                                              SALES AND
              1998                 INTERNET    SERVICE    LEASING   ELIMINATIONS   CONSOLIDATED
              ----                 --------   ---------   -------   ------------   ------------
<S>                                <C>        <C>         <C>       <C>            <C>
Revenue from external
customers........................   $4,549     $34,506    $3,986       $  --         $43,041
Intersegment revenue.............        4         919        --        (923)             --
                                    ------     -------    ------       -----         -------
Total Revenue....................   $4,553     $35,425    $3,986       $(923)        $43,041
                                    ======     =======    ======       =====         =======
Depreciation and amortization....   $   40     $   451    $   60       $  --         $   551
Operating income.................      513       1,250       801          --           2,564
</TABLE>


                                      F-33
<PAGE>   149
                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)



<TABLE>
<CAPTION>
                                                 TRADITIONAL
                                             -------------------
                                             SALES AND
              1999                INTERNET    SERVICE    LEASING   ELIMINATIONS   CONSOLIDATED
              ----                --------   ---------   -------   ------------   ------------
<S>                               <C>        <C>         <C>       <C>            <C>
Revenue from external
customers.......................  $31,448     $51,778    $4,649      $    --        $87,875
Intersegment revenue............    2,045       2,962        --       (5,007)            --
                                  -------     -------    ------      -------        -------
Total Revenue...................  $33,493     $54,740    $4,649      $(5,007)       $87,875
                                  =======     =======    ======      =======        =======
Depreciation and amortization...  $   879     $ 1,460    $  191      $    --        $ 2,530
Operating income................    3,902      (1,272)      515           --          3,145
Segment assets..................   29,440      54,929     5,292         (536)        89,125
</TABLE>


4.  ACQUISITION

     In June 1999, Intellesale purchased all of the shares of Bostek, Inc. and
Micro Components International, Incorporated (collectively, "Bostek") for
approximately $25,200, of which $10,200 was paid in cash at closing. Upon a
successful initial public offering of Intellesale, $10,000 will be payable in
stock of Intellesale and the remaining $5,000 will be payable in cash on January
3, 2000. In the event an initial public offering does not occur, the $10,000
will be payable in cash. An additional $5,000 is contingent upon the achievement
of certain earnings targets. The transaction was accounted for under the
purchase method of accounting. The fair value of net assets acquired and
liabilities assumed was $3,747, resulting in goodwill of $21,458. This goodwill
will be amortized over 7 years.

     Unaudited pro forma results of operations for the nine months ended
September 30, 1999 and 1998 are included below. Such pro forma information
assumes that the above transactions had occurred as of January 1, 1998.

<TABLE>
<CAPTION>
                                                                      FOR THE
                                                                 NINE MONTHS ENDED
                                                                   SEPTEMBER 30,
                                                                -------------------
                                                                 1998        1999
                                                                -------    --------
<S>                                                             <C>        <C>
Revenues....................................................    $94,071    $121,275
Net income (loss)...........................................        765        (759)
Earnings per common share -- basic..........................         --         .05
Earnings per common share -- diluted........................         --         .05
</TABLE>

5.  RELATED PARTY TRANSACTIONS

<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,
                                                                  1999
                                                              -------------
<S>                                                           <C>
Due to Parent Company -- line of credit.....................     $32,343
Due to Parent Company -- other..............................       1,830
                                                                 -------
                                                                 $34,173
                                                                 =======
</TABLE>

                                      F-34
<PAGE>   150
                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


     During the third quarter of 1998, the Parent Company entered into a twenty
million dollar line of credit with a bank, collateralized by all the domestic
assets of the Parent Company and its subsidiaries, including the Company, at the
prime lending rate or at the London Interbank Offered Rate, as elected by the
Parent Company. The line of credit was due to expire on July 31, 1999 and
contained standard covenants relating to the Parent Company's financial position
and performance, as well as restrictions on the Parent Company's declaration and
payment of dividends. The amount due to Parent Company -- line of credit
represents that portion of ADS's line of credit that ADS had loaned to the
Company. In March 1999, the loan began to bear interest at the same interest
rate as paid by the Parent Company. This loan bore interest at 9.0%, as set by
the Parent Company. The loan, including interest, was repaid as funds were
available.

     In May 1999, the Parent Company entered into a Term and Revolving Credit
Agreement with IBM Credit Corporation and repaid the amount due to the bank. In
connection with the Bostek acquisition (Note 4), the Company borrowed
approximately $10,200 from the Parent Company.

     ADS provides certain services to and incurs certain expenses on behalf of
its subsidiaries. These costs, which include general overhead, certain employee
benefit programs, general treasury services and various business insurance
coverages are allocated to Parent Company subsidiaries, including the Company,
based upon ADS's estimate of the actual cost to provide these services. The
Company incurred approximately $315 and $450 in these costs to the Parent
Company in the nine month periods ended September 30, 1998 and 1999,
respectively. Management believes the method used to allocate expenses to the
Company is reasonable and appropriate.

     The amounts due to Parent Company -- other represent those amounts due to
ADS for income taxes paid on the subsidiaries' behalf.

6.  COMMITMENTS AND CONTINGENCIES

     In June 1999, the Company entered into a five-year office and warehouse
lease. Minimum annual rental payments under the lease are $48 per month for the
first three years and $60 per month for the last two years.


     In connection with certain acquisitions, the Company agreed to pay
additional amounts to sellers of the acquired businesses depending on the
performance of the businesses. The Company recently entered into agreements with
those sellers who are entitled to these payments under which the Company has
agreed to pay fixed amounts, in a combination of cash and shares of stock, in
lieu of earnout payments. Some of those individuals also retained minority
interests in the subsidiaries, and in those cases the Company has also agreed to
repurchase their minority interests, also for a combination of cash and stock.
Upon successful completion of the Company's pending initial public offering, the
Company will pay $9,740 in cash and stock and increase goodwill by approximately
$9,130 to record the transactions resulting from these agreements.


                                      F-35
<PAGE>   151
                     INTELLESALE.COM, INC. AND SUBSIDIARIES
                           AND PREDECESSOR COMPANIES
     NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


7.  SUBSEQUENT EVENTS

     On November 11, 1999, a customer initiated litigation against the Company.
On November 22, 1999, the litigation with the customer was settled. In entering
into the settlement of this matter, neither the Company nor the customer has
admitted liability to the other.

     As a result of this settlement, the Company expects to incur advertising
costs under a promotional program related to additional computers the customer
can purchase in future periods. The customer is not required to purchase these
additional computers. The Company does not anticipate that the obligation
related to the sale of these computers will otherwise have any material effect
on the financial statements.

                                      F-36
<PAGE>   152

April 6, 1999
(Except for Note 13, which is as of June 4, 1999)

To the Board of Directors
Bostek, Inc. and Affiliate
Hanover, MA

Re: Independent Auditor's Report
    Bostek, Inc.
    Micro Components International, Inc.

Gentlemen:

     We have audited the accompanying combined balance sheet of Bostek, Inc. (a
Massachusetts corporation) and affiliate as of December 31, 1998, and the
related combined statements of income and retained earnings, and cash flows for
the year then ended. These combined financial statements are the responsibility
of the Companies' management. Our responsibility is to express an opinion on
these combined financial statements based on our audit.

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

     In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Bostek, Inc. and
affiliate as of December 31, 1998, and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.

Respectfully submitted,

DI PESA & COMPANY

Certified Public Accountant
Boston, Massachusetts

                                      F-37
<PAGE>   153

April 1, 1998

To the Board of Directors
Bostek, Inc.
Hanover, Massachusetts

Re: Independent Auditor's Report

Gentlemen:

     We have audited the accompanying balance sheet of Bostek, Inc. as of
December 31, 1997, and the related statements of income, retained earnings, and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bostek, Inc. as of December
31, 1997, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.

Respectfully submitted,

DI PESA & COMPANY

Certified Public Accountants
Boston, Massachusetts

                                      F-38
<PAGE>   154

July 23, 1999

To the Board of Directors
Bostek, Inc.
Hanover, Massachusetts

Re: Independent Auditor's Report

Gentlemen:

     We have audited the accompanying statements of income, retained earnings
and cash flows of Bostek, Inc. for the year ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Bostek,
Inc. for the year ended December 31, 1996, in conformity with generally accepted
accounting principles.

Respectfully submitted,

DI PESA & COMPANY

Certified Public Accountants
Boston, Massachusetts

                                      F-39
<PAGE>   155

                                  BOSTEK, INC.

                                 BALANCE SHEET
                        AS OF DECEMBER 31, 1997 AND 1998

                                     ASSETS

<TABLE>
<CAPTION>
                                                              1997          1998
                                                           ----------    -----------
                                                                         (COMBINED)
<S>                                                        <C>           <C>
CURRENT ASSETS
Cash...................................................    $1,068,101    $   105,096
Account Receivable Trade, Net..........................     3,937,315      4,739,295
Inventory..............................................     3,469,951      5,454,646
Prepaid Expenses.......................................        38,496         75,645
Due from Employees.....................................        66,103        130,691
Due from Realty Trust..................................            --         93,695
                                                           ----------    -----------
     TOTAL CURRENT ASSETS..............................     8,579,966     10,599,068
                                                           ----------    -----------
PROPERTY AND EQUIPMENT, NET............................        96,396        258,501
                                                           ----------    -----------
TOTAL ASSETS...........................................    $8,676,362    $10,857,569
                                                           ==========    ===========
                        LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line-of-Credit.........................................    $3,000,000    $ 6,115,000
Accounts Payable.......................................       906,107        426,505
Warranty Reserve.......................................       652,777        250,000
Accrued Expenses.......................................       284,082         14,334
Accrued State Taxes....................................            --         64,939
                                                           ----------    -----------
     TOTAL CURRENT LIABILITIES.........................     4,842,966      6,870,778
                                                           ----------    -----------
LONG-TERM LIABILITIES
Subordinated Stockholder Debt..........................       482,789             --
                                                           ----------    -----------
     TOTAL LONG-TERM LIABILITIES.......................       482,789             --
                                                           ----------    -----------
     TOTAL LIABILITIES.................................     5,325,755      6,870,778
                                                           ----------    -----------
STOCKHOLDERS' EQUITY
Common Stock...........................................       250,714        280,914
Less: Treasury Stock, At Cost..........................       (81,000)       (81,000)
Retained Earnings......................................     3,180,893      3,786,877
                                                           ----------    -----------
     TOTAL STOCKHOLDERS' EQUITY........................     3,350,607      3,986,791
                                                           ----------    -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............    $8,676,362    $10,857,569
                                                           ==========    ===========
</TABLE>


            See Independent Auditor's Report and accompanying notes


                                      F-40
<PAGE>   156

                                  BOSTEK, INC.

                   STATEMENTS OF INCOME AND RETAINED EARNINGS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

<TABLE>
<CAPTION>
                                                1996           1997           1998
                                             -----------    -----------    -----------
                                                                           (COMBINED)
<S>                                          <C>            <C>            <C>
Revenue..................................    $54,400,011    $42,930,016    $60,772,443
Cost of Sales............................     47,366,335     37,014,620     53,366,139
                                             -----------    -----------    -----------
Gross Profit on Sales....................      7,033,676      5,915,396      7,406,304
Operating Expenses.......................      3,858,219      4,354,385      5,720,778
                                             -----------    -----------    -----------
Income from Operations...................      3,175,457      1,561,011      1,685,526
                                             -----------    -----------    -----------
Other Income (Expense)
Gain on Sale of Investments..............             --             --        381,665
Interest Income..........................         18,259         16,324         10,800
Interest Expense.........................       (139,200)       (33,590)      (353,250)
                                             -----------    -----------    -----------
                                                (120,941)       (17,266)        39,215
                                             -----------    -----------    -----------
Income Before Provision For Taxes........      3,054,516      1,543,745      1,724,741
Provision for Income Taxes...............         50,000         45,000         27,972
                                             -----------    -----------    -----------
Net Income...............................      3,004,516      1,498,745      1,696,769
Retained Earnings -- Beginning Balance...      1,635,651      4,183,363      3,180,893
Less: Dividends Paid.....................       (456,804)    (2,501,215)    (1,090,785)
                                             -----------    -----------    -----------
Retained Earnings -- Ending Balance......    $ 4,183,363    $ 3,180,893    $ 3,786,877
                                             ===========    ===========    ===========
</TABLE>


            See Independent Auditor's Report and accompanying notes


                                      F-41
<PAGE>   157

                                  BOSTEK, INC.

                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

<TABLE>
<CAPTION>
                                                1996           1997           1998
                                             -----------    -----------    -----------
                                                                           (COMBINED)
<S>                                          <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income...............................    $ 3,004,516    $ 1,498,745    $ 1,696,769
Adjustments to Reconcile Net Income to
  Net Cash Provided by Operating
  Activities
  Depreciation...........................         35,000         42,070         45,500
Allowance for Bad Debts..................        191,388        141,901       (294,613)
  Changes in Assets and Liabilities:
     Accounts Receivable.................        (82,704)       258,494       (638,364)
     Inventory...........................      1,050,153     (1,484,947)    (1,984,695)
     Prepaid Expenses....................         23,230        (32,298)       (37,149)
     Due from Employees..................        (47,405)       (43,260)       (64,588)
     Officer Loans.......................         29,579             --             --
     Accounts Payable....................       (374,089)       343,152       (479,602)
     Warranty Reserve....................        147,223       (147,223)      (402,777)
     Accrued Expenses....................        145,831       (519,079)      (224,748)
     Accrued State Taxes.................             --             --         19,939
     Due from Related Parties............             --             --         37,302
                                             -----------    -----------    -----------
       NET CASH PROVIDED (USED) BY
          OPERATING ACTIVITIES...........      4,122,722         57,555     (2,327,026)
                                             -----------    -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Fixed Assets.................        (26,643)       (29,917)      (207,605)
                                             -----------    -----------    -----------
       NET CASH PROVIDED (USED) BY
          INVESTING ACTIVITIES...........        (26,643)       (29,917)      (207,605)
                                             -----------    -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends Paid...........................       (456,804)    (2,501,215)    (1,090,785)
Loans from Officers......................             --        271,804       (482,789)
Net Borrowings on Line of Credit.........     (2,900,000)     2,700,000      3,115,000
Proceeds from Issuance of Common Stock...             --             --            200
Capital Contributions....................             --             --         30,000
                                             -----------    -----------    -----------
       NET CASH PROVIDED (USED) BY
          FINANCING ACTIVITIES...........     (3,356,804)       470,589      1,571,626
                                             -----------    -----------    -----------
NET CHANGE IN CASH.......................        739,275        498,227       (963,005)
                                             -----------    -----------    -----------
CASH -- BEGINNING OF YEAR................       (169,401)       569,874      1,068,101
                                             -----------    -----------    -----------
CASH -- END OF YEAR......................    $   569,874    $ 1,068,101    $   105,096
                                             ===========    ===========    ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
  INFORMATION:
Interest Expense Paid....................    $   139,200    $    33,590    $   353,250
Taxes Paid -- State......................    $       397    $   159,267    $    98,230
</TABLE>


            See Independent Auditor's Report and accompanying notes


                                      F-42
<PAGE>   158

                                  BOSTEK, INC.
                         NOTES TO FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A.  NATURE OF OPERATIONS

     Bostek, Inc. and its affiliate Micro Components International, Inc. were
incorporated in the Commonwealth of Massachusetts in 1990 and 1998,
respectively. The Companies operate as a single business unit as
wholesalers/retailers of personal computer hardware and peripheral products.
Micro Components International, Inc. the affiliate, is not a subsidiary of
Bostek, Inc. but has the same shareholders and directors.

     In March 1998, Bostek established a new method of distribution for personal
computer products and components, American Discount Warehouse ("ADW"). ADW sells
personal computer related equipment to individual consumers over the Internet.
For 1998, ADW was treated as a DBA (Doing Business As) of Bostek.

B.  COMBINED STATEMENTS

     The accompanying financial statements include the combined accounts of
Bostek, Inc. and Micro Components International, Inc. for the year ended
December 31, 1998, the first year of operations of Micro Components
International, Inc. Both companies have identical ownership by two individuals,
each owning exactly 50% of the stock of each company and who exercise common
control. Additionally, Micro Components International was managed by Bostek for
its entire existence.

     The Companies are affiliated by virtue of having the same stockholders and
not through parent subsidiary stock ownership. All significant intercompany
balances have been eliminated and there were no intercompany sales transactions
for the year ended December 31, 1998.

C.  METHOD OF ACCOUNTING

     The financial statements are prepared using the accrual basis of accounting
in compliance with generally accepted accounting principles. They accordingly
reflect all significant receivables, payables and other liabilities.

D.  REVENUE RECOGNITION

     Bostek and Micro Components recognize revenues when the product is shipped.
The Companies' return policy provides for money back guarantees on certain
items. An allowance for potential product returns based upon historical trends
has been established.

E.  ACCOUNTS RECEIVABLE

     The Companies provide for bad debts on the allowance method of accounting.
The allowance for uncollectible accounts was $778,000 and $483,387 at December
31, 1997 and 1998, respectively.

                                      F-43
<PAGE>   159
                                  BOSTEK, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

F.  INVENTORIES

     Inventories consist of computer hardware and components and are stated at
historical cost (determined under the first-in, first-out cost method) or market
whichever is lower. All inventories are of goods available for immediate resale,
with no raw materials or work in process inventory. The personal computer
industry is characterized by rapid technological advancement and declining
market prices. Should demand for the current generation of personal computers
prove to be significantly less than anticipated, the ultimate realizable value
of such products could be substantially less than the amount shown on the
balance sheet.

G.  INCOME TAXES

     In 1995, Bostek elected to be treated as an S Corporation under provisions
of the current Internal Revenue Code. The federal income tax liability for
Bostek's income is the responsibility of the individual shareholders.
Massachusetts laws vary from Federal in that a company having receipts of
$6,000,000 or more is liable for the income measure of the corporate excise tax.
Therefore, Bostek has made a provision for income taxes of $50,000, $45,000 and
$27,972 for the years ending December 31, 1996, 1997 and 1998, respectively.
Micro Components International, Inc. (a C Corporation) provides for income taxes
under the provisions of SFAS No. 109 "Accounting for Income Taxes". SFAS No. 109
requires an asset and liability based approach in accounting for income taxes.
Bostek has a net operating loss of $430,870 for the year ended December 31,
1998. The deferred tax asset associated with the potential future benefit from
this net operating loss is fully offset by a valuation allowance. There are no
other temporary differences.

H.  PROPERTY AND EQUIPMENT

     The Companies record property and equipment at cost. These assets are
depreciated using straight-line and accelerated methods over the estimated lives
of the respective assets, ranging from 5 to 7 years. The difference in
depreciation calculated under current tax laws as compared to generally accepted
accounting principles is not material.

     The following is a summary of property and equipment at cost, less
accumulated depreciation:

<TABLE>
<CAPTION>
                                                 1997         1998
                                               ---------    ---------
<S>                                            <C>          <C>
Furniture and Fixtures.....................    $ 268,080    $ 475,685
Vehicles...................................      108,224      108,224
                                               ---------    ---------
Total......................................      376,304      583,909
                                               ---------    ---------
Accumulated Depreciation...................     (279,908)    (325,408)
                                               ---------    ---------
Net Property and Equipment.................    $  96,396    $ 258,501
                                               =========    =========
</TABLE>

                                      F-44
<PAGE>   160
                                  BOSTEK, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

I.  CASH AND CASH EQUIVALENTS

     For the purpose of the Statement of Cash Flows, the Companies consider all
highly liquid investments purchased with original maturities of three months or
less to be cash equivalents. The Companies did not have any cash equivalents for
the year ended December 31, 1996, 1997 and 1998.

J.  USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses for the period.
Actual results may differ from those estimates.

NOTE 2  OPERATING LEASES

     Bostek leases office space, vehicles and equipment under certain operating
leases in excess of one year. Rent expense under leases was $188,891, $173,240
and $176,369 for 1996, 1997 and 1998, respectively.

     The following is a schedule of future minimum rental payments required
under the above leases:

<TABLE>
<CAPTION>
                      YEAR ENDING
                      DECEMBER 31
                      -----------
<S>                                                        <C>
1999...................................................    $197,120
   2000................................................     179,649
   2001................................................     160,884
   2002................................................     144,000
   2003................................................     144,000
                                                           --------
                                                           $825,653
                                                           ========
</TABLE>

NOTE 3  RELATED PARTY TRANSACTIONS

     Bostek leases its corporate headquarters and warehouse facilities from a
trust controlled by the shareholders of the company. The lease is classified as
an operating lease and provides for minimum annual rentals of $144,000. There is
also a mortgage on the property of $250,000 payable to Citizens Bank of
Massachusetts that is guaranteed by Bostek.

     Advances from officers represent advances made by the shareholders of
Bostek and bore an interest rate of 7%. In accordance with the terms of the
line-of-credit, the advances were subordinate to the line-of-credit.

     During 1998, the shareholders loans totaling $482,789 were paid.

                                      F-45
<PAGE>   161
                                  BOSTEK, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     Bostek had sales to an entity in which the shareholders owned greater than
40% of the stock. Effective May, 1998, shareholders no longer owned stock in
this entity. The following is a summary of transactions and balances with
related parties.

<TABLE>
<CAPTION>
                                                     1996         1997         1998
                                                   --------    ----------    --------
<S>                                                <C>         <C>           <C>
Sales to Related Parties.......................    $     --    $1,443,153    $212,956
Due from Affiliate.............................          --       130,997          --
Due from Realty Trust..........................     149,382            --      93,695
</TABLE>

     During 1998, the shareholders of Bostek established Micro Components
International, Inc. The operations of the affiliate are similar to those of
Bostek. The shareholders are in a position to, and in the future may, influence
the sales volume of Bostek for the benefit of the other company in the same line
of business that are under their control.

NOTE 4  LINE-OF-CREDIT

     On January 24, 1997, Bostek entered into a revolving line-of-credit
agreement with a financial institution providing a maximum loan balance of
$8,000,000. The outstanding balance bears interest at a rate equal to the bank's
prime rate. The Loan Agreement is collateralized by substantially all of
Bostek's assets. Additionally, one of the principal shareholders pledged stock
in Bostek as collateral. The Loan Agreement provides for certain covenants
including among others, minimum levels of working capital and certain ratios. At
December 31, 1997 and 1998, the outstanding balance was $3,000,000 and
$6,115,000, respectively, bearing interest of 8.50% and 8.00% respectively. This
revolving line-of-credit replaced all existing lines of credit.

     On March 24, 1998, Bostek increased its line-of-credit from $8,000,000 to
$10,000,000. All other terms of the loan remained substantially the same.

     The loan agreement on the revolving line-of-credit contains various
covenants pertaining to minimum requirements for accounts receivables and
inventory balances. At December 31, 1998, Bostek had borrowings in excess of its
borrowing base. The bank has waived that requirement of the agreement as of
April 6, 1999.

NOTE 5  WARRANTY RESERVE

     Bostek has an allowance for warranty products and returns. This allowance
is based upon the cost of handling returns and warranty items using historical
return rates and costs. The allowance for warranty approximated $652,777 and
$250,000 at December 31, 1997 and 1998, respectively.

NOTE 6  RETIREMENT PLAN

     Bostek provides a 401(k) deferred contribution plan for all full-time
employees who are over the age of twenty-one and have completed one year of
service. An employee is fully vested in matching contributions after six years
of service. Employees may contribute up to 15% of their salary to the plan.
Bostek has the option to make a discretionary matching contribution equal to a
percentage of each employee's contribution, the exact

                                      F-46
<PAGE>   162
                                  BOSTEK, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

percentage to be determined each year by Bostek. Bostek's contributions for any
plan year shall not exceed the maximum amount allowable as a deduction to
Bostek. Retirement expense for the years ended 1996, 1997 and 1998 was $135,155,
$100,000 and $- 0 -, respectively.

NOTE 7  COMMITMENTS AND CONTINGENCIES

     Bostek and its affiliate are involved in various claims arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on Bostek's
financial position, operating results, or cash flows.

NOTE 8  GAIN ON SALE OF INVESTMENT

     During 1998, Bostek accepted stock in lieu of payment of an account
receivable. The stock subsequently appreciated and Bostek sold the stock for a
$381,665 gain in 1998.

NOTE 9  ADVERTISING COSTS

     Advertising costs are charged to operations when incurred. The advertising
expense for Bostek for 1996, 1997 and 1998 amounted to $12,322, $762 and
$436,644, respectively.

NOTE 10  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying amount of cash, accounts receivable, accounts payable and
line-of-credit approximates fair value because of the short maturity of those
instruments. The fair value of the amounts due from employees does not differ
materially from the carrying value recorded in the accompanying balance sheet.

NOTE 11  NEW ACCOUNTING STANDARDS

     In 1998, the Financial Accounting Standards Board (FASB) issued FAS 133,
Accounting for Derivative Instruments and Hedging Activities. In 1999, the FASB
issued FAS 137, Accounting for Derivative Instruments -- Deferral of the
Effective Date of FAS 133. As Bostek does not have any derivative instruments or
hedging transactions, adoption of FAS 133 is not anticipated to have a material
effect on the financial statements.

     Bostek and Micro Components International, Inc. operate in a single
segment. Accordingly, there are no disclosure requirements under FAS 131,
Disclosures about Segments of an Enterprise and Related Information.

     The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (FAS) 130, Reporting Comprehensive Income (SFAS
130). Implementation of the standard had no material impact on Bostek's
financial statements as presented.

                                      F-47
<PAGE>   163
                                  BOSTEK, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 12  COMMON STOCK AND TREASURY STOCK

<TABLE>
<CAPTION>
                                                                                      MICRO
                                                                                   COMPONENTS
                                                                               INTERNATIONAL, INC.
                                           BOSTEK, INC. NO PAR,                   NO PAR 10,000
                                         15,000 SHARES AUTHORIZED               AUTHORIZED SHARES
                                -------------------------------------------    -------------------
                                   OUTSTANDING           TREASURY STOCK            OUTSTANDING
                                ------------------    ---------------------    -------------------
                                SHARES     AMOUNT     SHARES      AMOUNT       SHARES      AMOUNT
                                ------    --------    ------    -----------    -------    --------
<S>                             <C>       <C>         <C>       <C>            <C>        <C>
Balance, January 1, 1996....    4,000     $250,714    (2,000)    $(81,000)         --          --
Balance, December 31,
  1996......................    4,000      250,714    (2,000)     (81,000)         --          --
Balance, December 31,
  1997......................    4,000      250,714    (2,000)     (81,000)         --          --
Formation of
  Micro Components
  International, Inc........       --           --        --           --       2,000     $30,200
Balance, December 31,
  1998......................    4,000     $250,714    (2,000)    $(81,000)      2,000     $30,200
</TABLE>

NOTE 13  SALE OF COMPANY

     In June, 1999, Intellesale.com, Inc. a subsidiary of Applied Cellular
Technology, Inc., purchased all of the outstanding shares of common stock, no
par value of Micro Components International, Incorporated and Bostek, Inc. for
the aggregate purchase price of $25,055,000, excluding expense, and subject to
adjustment as set forth in the Agreement of Purchase and Sale.

                                      F-48
<PAGE>   164


                                  BOSTEK, INC.


                                 BALANCE SHEET
                               AS OF MAY 31, 1999
                                  (UNAUDITED)

<TABLE>
<S>                                                             <C>
                                  ASSETS
Current assets:
  Cash and cash equivalents.................................    $        --
  Accounts receivable.......................................      6,654,040
  Inventory.................................................      3,395,582
  Prepaid expenses and other assets.........................        234,136
          Total current assets..............................     10,283,758
Property and equipment, net.................................        352,515
          Total Assets......................................    $10,636,273
                   LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Line-of-credit............................................    $ 4,040,000
  Accounts payable and accrued expenses.....................      2,599,490
  Warranty reserve..........................................        250,000
          Total current liabilities.........................      6,889,490
Stockholders' equity:
  Common Stock..............................................        280,914
  Less: Treasury Stock, At Cost.............................        (81,000)
  Retained Earnings.........................................      3,546,869
          Total stockholders' equity........................      3,746,783
Total Liabilities and Stockholders' Equity..................    $10,636,273
</TABLE>


               See the accompanying notes to financial statements


                                      F-49
<PAGE>   165


                                  BOSTEK, INC.


                              STATEMENTS OF INCOME
                FOR THE FIVE MONTHS ENDED MAY 31, 1998 AND 1999
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                          MAY 31, 1998    MAY 31, 1999
                                                          ------------    ------------
<S>                                                       <C>             <C>
Revenue...............................................    $23,864,262     $33,400,242
Cost of Sales.........................................     20,958,198      29,596,178
                                                          -----------     -----------
Gross Profit on Sales.................................      2,906,064       3,804,064
Operating Expenses....................................      1,795,462       3,434,201
                                                          -----------     -----------
Income from Operations................................      1,110,602         369,863
Interest Expense......................................        204,854         150,873
                                                          -----------     -----------
Income before provision for income taxes..............        905,748         218,990
Provision for income taxes............................         77,972          74,000
                                                          -----------     -----------
Net income............................................    $   827,776     $   144,990
                                                          ===========     ===========
</TABLE>


               See the accompanying notes to financial statements


                                      F-50
<PAGE>   166

                                  BOSTEK, INC.

                            STATEMENTS OF CASH FLOWS
                FOR THE FIVE MONTHS ENDED MAY, 31 1998 AND 1999
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                          MAY 31, 1998    MAY 31, 1999
                                                          ------------    ------------
<S>                                                       <C>             <C>
Cash Flows from Operating Activities
Net Income............................................    $   827,775     $   144,992
  Add items not affecting cash flows Depreciation.....         10,000          10,000
  (Increase) Decrease in Accounts receivable..........     (2,867,165)     (1,914,745)
  Inventory...........................................        270,198       2,059,064
  Other Assets........................................        (72,220)         65,895
Increase (Decrease) in:
  Accounts payable and Accrued expenses...............        833,166       2,093,712
  Net Cash Flows from Operations......................       (998,246)      2,458,918
Cash Flows from investing Purchase of fixed assets....        (50,266)       (104,014)
Cash Flows from Financing:
  Dividends paid......................................                       (385,000)
  Payment of stockholders loans.......................        (11,489)
  Increase (decrease) in line of credit...............        925,000      (2,075,000)
       Net Cash Flows from Financing..................        913,511      (2,460,000)
  Net Change in Cash and cash equivalents.............       (135,001)       (105,096)
  Cash and cash equivalents, Beginning of period......      1,068,101         105,096
  Cash and cash equivalents, Ending of period.........    $   933,100     $        --
</TABLE>


               See the accompanying notes to financial statements


                                      F-51
<PAGE>   167

                                  BOSTEK, INC.

                         NOTES TO FINANCIAL STATEMENTS
                FOR THE FIVE MONTHS ENDED MAY 31, 1998 AND 1999

                                  (UNAUDITED)

NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A.  NATURE OF OPERATIONS

     Bostek, Inc. and its affiliate Micro Components International, Inc. were
incorporated in the Commonwealth of Massachusetts in 1990 and 1998,
respectively. The Companies operate as a wholesaler/retailer of personal
computer hardware and peripheral products. Micro Components International, Inc.
the affiliate, is not a subsidiary of Bostek, Inc. but does have the same
shareholders and directors.

     In March 1998, Bostek developed a website under the name American Discount
Warehouse at PickADW.com to sell its products over the Internet. For 1998, ADW
was treated as a DBA (Doing Business As) of Bostek.

B.  COMBINED STATEMENTS

     The accompanying financial statements include the combined accounts of
Bostek, Inc. and Micro Components International, Inc. The Companies are
affiliated by virtue of having the same stockholders and not through parent
subsidiary stock ownership. All significant intercompany balances have been
eliminated and there were no intercompany sales transactions for the 5 months
ended May, 1999.

C.  UNAUDITED INTERIM FINANCIAL STATEMENTS

     The accompanying unaudited financial statements as of May 31, 1999 and for
the five months ended May 31, 1999 and 1998 have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the Company's management, all adjustments (consisting of only
normal recurring adjustments) considered necessary to present fairly the
consolidated financial statements have been made.

     The consolidated statement of operations for the five months ended May 31,
1999 are not necessarily indicative of the results that may be expected for the
entire year. These statements should be read in conjunction with the financial
statements and related notes thereto for the year ended December 31, 1998.

D.  ACCOUNTS RECEIVABLE

     The Companies provide for bad debts on the allowance method of accounting.
The allowance for uncollectible accounts was $253,385 at May 31, 1999.

                                      F-52
<PAGE>   168
                                  BOSTEK, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

E.  NEW ACCOUNTING STANDARDS

     In 1998, the Financial Accounting Standards Board (FASB) issued FAS 133,
Accounting for Derivative Instruments and Hedging Activities. In 1999, the FASB
issued FAS 137, Accounting for Derivative Instruments -- Deferral of the
Effective Date of FAS 133. As Bostek does not have any derivative instruments or
hedging transactions, adoption of FAS 133 is not anticipated to have a material
effect on the financial statements.

NOTE 2  SALE OF COMPANY

     Effective June 1, 1999, Intellesale.com, Inc. a subsidiary of Applied
Cellular Technology, Inc., purchased all of the outstanding shares of common
stock, no par value, of Micro Components International, Incorporated and Bostek,
Inc. for the aggregate purchase price of $25,055,000, excluding expenses, and
subject to adjustments as set forth in the Agreement of Purchase and Sale.

                                      F-53
<PAGE>   169

                       REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors and Shareholders
Universal Commodities Corp.

     We have audited the accompanying balance sheet of Universal Commodities
Corp. as of October 31, 1996, and the related statements of operations, retained
earnings and cash flows for the ten months ended October 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Universal Commodities Corp.
as of October 31, 1996, and the results of their operations and their cash flows
for the ten months ended October 31, 1996, in conformity with generally accepted
accounting principles.

Rubin, Brown, Gornstein & Co. LLP
St. Louis, Missouri
July 9, 1999

                                      F-54
<PAGE>   170

                          UNIVERSAL COMMODITIES CORP.
                                 BALANCE SHEET
                                OCTOBER 31, 1996

<TABLE>
<S>                                                             <C>
                                 ASSETS
Cash and cash equivalents...................................    $ 12,399
Accounts receivable and unbilled receivables (net of
  allowance for doubtful accounts of $63,000)...............     602,501
Inventories.................................................     150,000
Deposits....................................................      19,800
                                                                --------
                                                                $784,700
                                                                ========
                  LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes payable -- bank.......................................    $100,000
Accounts payable and accrued expenses.......................     577,535
                                                                --------
  TOTAL LIABILITIES.........................................     677,535
                                                                --------
STOCKHOLDERS' EQUITY
Common Stock -- Authorized 1,000,000 shares of $1 par value,
  1,000 shares issued and outstanding.......................       1,000
Additional paid-in capital..................................      34,311
Retained earnings...........................................      71,854
                                                                --------
  TOTAL STOCKHOLDERS' EQUITY................................     107,165
                                                                --------
                                                                $784,700
                                                                ========
</TABLE>


               See the accompanying notes to financial statements


                                      F-55
<PAGE>   171

                          UNIVERSAL COMMODITIES CORP.

                            STATEMENT OF OPERATIONS
                   FOR THE TEN MONTHS ENDED OCTOBER 31, 1996

<TABLE>
<S>                                                             <C>
REVENUE.....................................................    $4,575,131
COST OF GOODS SOLD..........................................     3,689,237
                                                                ----------
GROSS PROFIT................................................       885,894
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................       936,436
                                                                ----------
OPERATING LOSS..............................................        50,542
INTEREST EXPENSE............................................        12,766
                                                                ----------
NET LOSS....................................................    $  (63,308)
                                                                ==========
                      STATEMENT OF RETAINED EARNINGS
BALANCE -- BEGINNING OF PERIOD..............................    $  135,162
NET LOSS....................................................       (63,308)
                                                                ----------
BALANCE -- END OF PERIOD....................................    $   71,854
                                                                ==========
</TABLE>


               See the accompanying notes to financial statements


                                      F-56
<PAGE>   172

                          UNIVERSAL COMMODITIES CORP.

                            STATEMENTS OF CASH FLOWS
                   FOR THE TEN MONTHS ENDED OCTOBER 31, 1996

<TABLE>
<S>                                                             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss....................................................    $(63,308)
Adjustments to reconcile net loss to net cash provided by
  operating activities:
  Change in assets and liabilities:
     Increase in accounts receivable........................    (427,962)
     Decrease in inventories................................     129,000
     Increase in accounts payable and accrued expenses......     438,314
                                                                --------
NET CASH PROVIDED BY OPERATING ACTIVITIES...................      76,044
                                                                --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net amounts paid on notes payable...........................    (123,278)
                                                                --------
NET DECREASE IN CASH AND CASH EQUIVALENTS...................     (47,234)
CASH AND CASH EQUIVALENTS -- BEGINNING OF PERIOD............      59,633
                                                                --------
CASH AND CASH EQUIVALENTS -- END OF PERIOD..................    $ 12,399
                                                                ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid...............................................    $ 12,285
                                                                --------
</TABLE>


               See the accompanying notes to financial statements


                                      F-57
<PAGE>   173

                          UNIVERSAL COMMODITIES CORP.

                         NOTES TO FINANCIAL STATEMENTS
                                OCTOBER 31, 1996

1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     ORGANIZATION

     Universal Commodities Corp. purchases new, used and scrapped computer
systems or components either to custom order or prospective sale. The company
also engages in metals reclamation and other computer part commodity reclamation
and sale.

     USE OF ESTIMATES

     In conformity with generally accepted accounting principles, the
preparation of financial statements requires management to make certain
estimates and assumptions that affect the amounts reported in our financial
statements and accompanying notes. Although these estimates are based on the
knowledge of current events and actions the Company may undertake in the future,
they may ultimately differ from actual results.

     INVENTORIES

     Inventories consist of supplies and finished goods. Inventory is valued at
the lower of cost or market, determined by the first-in, first-out method. The
Company closely monitors and analyzes inventory for potential obsolescence and
slow-moving items based upon the aging of the inventory and the inventory turns
by product.

     REVENUE RECOGNITION

     For product sales, the Company recognizes revenue upon shipment.

     The Company does not experience many product returns, and therefore,
Company management is of the opinion that no allowance for sales returns is
necessary. The Company has no obligation for warranties on hardware sales,
because the warranty is provided by the manufacturer. The Company does not offer
a warranty policy for services to customers.

     INCOME TAXES

     The Company has elected under Subchapter S of the Internal Revenue Code,
and similar provisions of the New Jersey tax laws, not to be subject to
corporate income taxes, but rather to have the stockholders report their share
of the Company's taxable income or losses on their personal income tax returns.
Therefore, no liability for federal and state income taxes is reflected in the
accompanying financial statements.

2.  NOTES PAYABLE

     The note payable to the bank in the amount of $100,000 at October 31, 1996
is a demand note secured by the business assets. Interest on the note is payable
monthly at 2% above the bank's prime rate.

                                      F-58
<PAGE>   174
                          UNIVERSAL COMMODITIES CORP.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3.  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:

     CASH AND CASH EQUIVALENTS

     The carrying amount approximates fair value because of the short maturity
of those instruments.

     ACCOUNTS RECEIVABLE

     The carrying amounts approximate fair value.

     NOTES PAYABLE

     The carrying amount approximates fair value because of the short-term
nature of the notes.

     ACCOUNTS PAYABLE AND ACCRUED EXPENSES

     The carrying amount approximates fair value.


     The estimated fair value amounts presented herein have been determined
using available market information and appropriate valuation methodologies and
are not necessarily indicative of the amount which could be realized in a
current market exchange.


4.  COMMITMENTS

     The Company is obligated under real estate leases, expiring through 2000.

     The total future minimum lease commitments are as follows:

<TABLE>
<CAPTION>
                         YEAR                               AMOUNT
                         ----                              --------
<S>                                                        <C>
1996...................................................    $ 14,000
1997...................................................      93,000
1998...................................................      99,600
1999...................................................     104,580
2000...................................................      26,460
                                                           --------
                                                           $337,640
                                                           ========
</TABLE>

5.  SUBSEQUENT EVENTS


     Effective November 1, 1996, 80% of the Company was acquired by Applied
Digital Solutions, Inc. (formerly Applied Cellular Technology, Inc.).


                                      F-59
<PAGE>   175

             ------------------------------------------------------
             ------------------------------------------------------

     YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT, AND THE UNDERWRITERS HAVE NOT,
AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION. IF ANYONE
PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON
IT. WE ARE NOT, AND THE UNDERWRITERS ARE NOT, MAKING AN OFFER TO SELL THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. YOU
SHOULD ASSUME THAT THE INFORMATION APPEARING IN THIS PROSPECTUS IS ACCURATE AS
OF THE DATE ON THE FRONT COVER OF THIS PROSPECTUS ONLY. OUR BUSINESS, FINANCIAL
CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE CHANGED SINCE THAT DATE.

                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                        PAGE
                                        ----
<S>                                     <C>
Summary.............................      1
Risk Factors........................      7
Use of Proceeds.....................     22
Dividend Policy.....................     22
Capitalization......................     23
Dilution............................     24
Selected Financial Data.............     26
Pro Forma Financial Information.....     30
Management's Discussion and Analysis
  of Financial Condition and Results
  of Operations.....................     40
Management's Discussion and Analysis
  of Pro Forma Results of
  Operations........................     65
Intellesale.com, Inc................     69
Management..........................     83
Certain Relationships and Related
  Transactions......................     93
Principal and Selling
  Stockholders......................    101
Description of Capital Stock........    103
Shares Eligible for Future Sale.....    105
Underwriting........................    108
Legal Matters.......................    111
Experts.............................    111
Change In Independent Accountants...    111
Where You Can Find Additional
  Information.......................    112
Index to Financial Statements.......    F-1
</TABLE>


                           -------------------------


     UNTIL                , 2000, ALL DEALERS EFFECTING TRANSACTIONS IN THE
COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

             ------------------------------------------------------
             ------------------------------------------------------
             ------------------------------------------------------
             ------------------------------------------------------

                                5,700,000 SHARES

                                INTELLESALE LOGO

                                  COMMON STOCK
                            ------------------------
                                   PROSPECTUS
                            ------------------------
                         LADENBURG THALMANN & CO. INC.

                             PUNK, ZIEGEL & COMPANY

                                            , 2000

             ------------------------------------------------------
             ------------------------------------------------------
<PAGE>   176

                                    PART II
                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

     The following table sets forth the expenses (other than underwriting
discounts and commissions) which, other than the SEC registration fee, are
estimates, payable by the Registrant in connection with the sale and
distribution of the shares registered hereby:


<TABLE>
<S>                                                    <C>
SEC registration fee.................................  $   18,223
NASD filing fee......................................       7,055
Nasdaq National Market listing fee...................      95,000
Printing and engraving expenses......................     200,000*
Accounting fees and expenses.........................     325,000*
Legal fees and expenses..............................     400,000*
Transfer Agent and Registrar fees and expenses.......      15,000*
Miscellaneous expenses...............................      64,722*
                                                       ----------
     Total...........................................  $1,125,000*
                                                       ==========
</TABLE>


-------------------------

* Estimated

ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.

     The Delaware General Corporation Law permits the indemnification by a
Delaware corporation of its directors, officers, employees and other agents
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement in connection with specified actions, suits or proceedings,
whether civil, criminal, administrative or investigative (other than derivative
actions which are by or in the right of the corporation) if they acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful. A
similar standard of care is applicable in the case of derivative actions, except
that indemnification only extends to expenses (including attorneys' fees)
incurred in connection with defense or settlement of such an action and requires
court approval before there can be any indemnification where the person seeking
indemnification has been found liable to the corporation.

     As permitted by Delaware law, the Registrant's Amended and Restated
Certificate of Incorporation provides that no director of the Registrant will be
personally liable to the Registrant or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (a) for any breach
of duty of loyalty to the Registrant or to its stockholders, (b) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the Delaware General Corporation Law,
or (d) for any transaction from which the director derived an improper personal
benefit.

     The Registrant's Amended and Restated Certificate of Incorporation further
provides that the Registrant must indemnify its directors and executive officers
and may indemnify its other officers and employees and agents to the fullest
extent permitted by Delaware law. The Registrant believes that indemnification
under its Amended and Restated Certificate of Incorporation covers negligence
and gross negligence on the part of indemnified parties.

                                      II-1
<PAGE>   177

     The Registrant has entered into indemnification agreements with each of its
directors and officers. These agreements, among other things, require the
Registrant to indemnify such directors and officers for certain expenses
(including attorneys' fees), judgments, fines and settlement amounts incurred by
any such person in any action or proceeding, including any action by or in the
right of the Registrant, arising out of such person's services as a director or
officer of the Registrant, any subsidiary of the Registrant or any other company
or enterprise to which the person provides services at the request of the
Registrant.


     The Underwriting Agreement (Exhibit 1.1) will provide for indemnification
by the underwriters of the Registrant, its directors, its officers who sign the
registration statement, and the Registrant's controlling persons for certain
liabilities, including certain liabilities arising under the Securities Act.


     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to such provisions, the Registrant has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in such Act and is therefore unenforceable.

ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES.

     The common stock and options of the Registrant issued to stockholders and
option holders of Universal Commodities Corp., a New Jersey corporation, in
connection with the reincorporation of the Registrant into Delaware did not
constitute a "sale" pursuant to Rule 145(a)(2) promulgated under the Securities
Act. The following sets forth information regarding all securities sold by the
Registrant's New Jersey predecessor since its inception (December 1994).


          (1) As of January 3, 2000, the Registrant's predecessor had granted
     stock options to purchase 5,550,000 shares of its common stock to
     employees, consultants and directors pursuant to its 1997 Stock Option
     Plan, and the Registrant had granted stock options to purchase 150,000
     shares of its common stock to two of its directors under its 1999 Flexible
     Stock Plan. Of these options to purchase, no shares have been exercised,
     100,000 issued pursuant to the 1997 Stock Option Plan have been canceled,
     and the remainder are outstanding.


          (2) In December 1994, the Registrant's predecessor issued an aggregate
     of 1,000 shares of its common stock to Marc Sherman, its founder, for
     nominal cash consideration.

          (3) In June 1999, the Registrant's predecessor issued an aggregate of
     14,999,000 shares of its common stock to its existing stockholders in a
     15,000 for 1 stock split, effected as a stock dividend.


          (4) In July 1999, the Registrant and its predecessor merged, with the
     Registrant surviving. All of the common stock and options to purchase
     common stock of the Registrant's predecessor was converted into the right
     to receive an equal number of shares and options of the Registrant.



          (5) In January 2000, the Registrant issued an aggregate of 15,000
     shares of its common stock, subject to certain restrictions, to its
     directors as compensation.


                                      II-2
<PAGE>   178

     The sales and issuances of securities described in paragraph (1) above were
deemed to be exempt from registration under the Securities Act by virtue of Rule
701 of the Securities Act in that they were offered and sold either pursuant to
a written compensatory benefit plan or pursuant to a written contract relating
to compensation, as provided by Rule 701. The sales and issuances of securities
described in paragraphs (2) and (3) above were deemed to be exempt from
registration under the Securities Act by virtue of Section 4(2) and Section
3(a)(9), respectively. Appropriate legends are affixed to the stock certificates
issued in the aforementioned transactions. Similar legends were imposed in
connection with any subsequent sales of any such securities. All recipients
either received adequate information about the Registrant or had access, through
employment or other relationships, to such information.

ITEM 16.  EXHIBITS AND FINANCIAL STATEMENTS.

     See Exhibit Index and Financial Statements schedule.

ITEM 17.  UNDERTAKINGS.


     The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.


     The undersigned Registrant hereby undertakes that:

          (1) For purposes of determining liability under the Securities Act of
     1933, the information omitted from the form of prospectus filed as part of
     this registration statement in reliance upon Rule 430A and contained in a
     form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
     (4) or 497(h) under the Securities Act shall be deemed to be part of this
     registration statement as of the time it was declared effective.

          (2) For the purpose of determining any liability under the Securities
     Act of 1933, each post-effective amendment that contains a form of
     prospectus shall be deemed to be a new registration statement relating to
     the securities offered therein, and the offering of such securities at that
     time shall be deemed to be the initial bona fide offering thereof.


     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.


                                      II-3
<PAGE>   179

                                   SIGNATURES


     Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Pre-Effective Amendment to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Lincoln Park, State of New Jersey, on January 3, 2000.


                                          INTELLESALE.COM, INC.

                                          By:        /s/ MARC SHERMAN
                                             -----------------------------------
                                                        Marc Sherman
                                                President and Chief Executive
                                                           Officer

     Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment to Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.


<TABLE>
<CAPTION>
                SIGNATURE                                TITLE                     DATE
                ---------                                -----                     ----
<C>                                           <S>                             <C>
             /s/ MARC SHERMAN                 Director, President and         January 3, 2000
------------------------------------------      Chief Executive Officer
              (Marc Sherman)                    (Principal Executive
                                                Officer)

          /s/ EDWARD L. CUMMINGS              Director, Vice President,       January 3, 2000
------------------------------------------      Chief Financial Officer
           (Edward L. Cummings)                 and Secretary (Principal
                                                Financial and Accounting
                                                Officer)

            ALEXANDER H. GOOD*                Director                        January 3, 2000
------------------------------------------
           (Alexander H. Good)

            DAVID A. LOPPERT*                 Director                        January 3, 2000
------------------------------------------
            (David A. Loppert)

           TIMOTHY C. O'BRIEN*                Director                        January 3, 2000
------------------------------------------
           (Timothy C. O'Brien)

           GARRET A. SULLIVAN*                Director                        January 3, 2000
------------------------------------------
          (Garrett A. Sullivan)

           CONSTANCE K. WEAVER*               Director                        January 3, 2000
------------------------------------------
          (Constance K. Weaver)

          *By: /s/ MARC SHERMAN                                               January 3, 2000
   ------------------------------------
               Marc Sherman
             Attorney-in-Fact
</TABLE>


                                      II-4
<PAGE>   180

                                                                     SCHEDULE II

                 PREDECESSOR COMPANIES TO INTELLESALE.COM, INC.

                       VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                   ADDITIONS
                                            -----------------------
                              BALANCE AT    CHARGED TO    VALUATION                  BALANCE AT
                              BEGINNING      COST AND     ACCOUNTS                     END OF
       DESCRIPTION            OF PERIOD      EXPENSES     ACQUIRED     DEDUCTIONS      PERIOD
       -----------            ----------    ----------    ---------    ----------    ----------
<S>                           <C>           <C>           <C>          <C>           <C>
Valuation reserve deducted
in the balance sheet from
the asset to which it
applies:
Accounts Receivable:
  1998 Allowance for
     doubtful accounts....       $100          $294         $ 24          $56           $362
  1997 Allowance for
     doubtful accounts....         63            15          100           78            100
  1996 Allowance for
     doubtful accounts....         --            --           63           --             63
Inventory:
  1998 Allowance for
     excess and
     obsolescence.........         --            26           24           --             50
  1997 Allowance for
     excess and
     obsolescence.........         --            --           --           --             --
  1996 Allowance for
     excess and
     obsolescence.........         --            --           --           --             --
</TABLE>
<PAGE>   181

                      REPORT OF INDEPENDENT ACCOUNTANTS ON
                          FINANCIAL STATEMENT SCHEDULE

To the Board of Directors
  of the Predecessor Companies
  To Intellesale.com, Inc.

     Our audit of the combined financial statements referred to in our reports
dated June 10, 1999 (except as to the second paragraph of Note 1, Note 10 and
Note 16, which are as of August 23, 1999) appearing on pages F-2 and F-3 of this
Registration Statement on Form S-1 also included an audit of the December 31,
1998 balance of valuation and qualifying accounts and the related changes in
those accounts for the year then ended included in the financial statement
schedule listed in Item 16 of this Registration Statement, in our opinion this
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related combined
financial statements.
PricewaterhouseCoopers LLP
St. Louis, Missouri
June 10, 1999
<PAGE>   182

                     REPORTS OF INDEPENDENT ACCOUNTANTS ON
                          FINANCIAL STATEMENT SCHEDULE

To the Board of Directors
  of the Predecessor Companies
  To Intellesale.com, Inc.

     Our audit of the combined financial statements referred to in our report
dated February 24, 1998 appearing on page F-4 of this Registration Statement on
Form S-1 also included an audit of the December 31, 1997 and 1996 balances of
valuation and qualifying accounts and the related changes in those accounts for
the years then ended included in the financial statement schedule listed in Item
16 of this Registration Statement. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related combined financial statements.
Rubin, Brown, Gornstein & Co., LLP
St. Louis, Missouri
February 24, 1998
<PAGE>   183

                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<C>       <S>
  1.1+    Form of underwriting agreement
  2.1+    Agreement of Purchase and Sale, dated as of June 4, 1999,
          among the Registrant, Applied Digital Solutions, Inc., David
          Romano and Eric Limont
  2.2+    Amendment No. 1, dated as of June 9, 1999, among the
          Registrant, Applied Digital Solutions, David Romano and Eric
          Limont
  3.1+    Form of Amended and Restated Certificate of Incorporation of
          the Registrant
  3.2+    Form of Amended and Restated Bylaws of the Registrant
  4.1+    See Exhibits 3.1 and 3.2.
  4.2+    Registration Rights Agreement, dated as of June 30, 1999,
          between the Registrant and Applied Digital Solutions, Inc.
  4.3+    Registration Rights Agreement, dated as of July 30, 1999,
          among the Registrant, Marc Sherman and Edward L. Cummings
  4.6+    Voting and Standstill Agreement dated as of September 10,
          1999, between Applied Digital Solutions and the Registrant
  4.5+    Specimen Stock Certificate
  5.1     Opinion of Bryan Cave LLP regarding the validity of the
          Common Stock
 10.1+    1997 Non-Qualified Stock Option Plan of Registrant
 10.2+    1999 Flexible Stock Plan
 10.3+    Employment Agreement, dated as of July 1, 1999, between the
          Registrant and Marc Sherman
 10.4+    Employment Agreement, dated as of July 1, 1999, between the
          Registrant and Edward L. Cummings
 10.5+    Employment Agreement, dated as of July 1, 1999, between the
          Registrant and Charles D. Newman
 10.6+    Employment Agreement, dated as of July 1, 1999, between the
          Registrant and Joseph S. Keats
 10.7+    Form of Tax Allocation and Tax Sharing Agreement, dated as
          of December   , 1999, between the Registrant and Applied
          Digital Solutions, Inc.
 10.8+    Agreement, dated as of August 23, 1999, between the
          Registrant and Paul Pappas
 10.9+    Agreement, dated as of August 23, 1999, between the
          Registrant and Sherri Sheerr
 10.10+   Agreement, dated as of August 23, 1999, between the
          Registrant and Harvey H. Newman
 10.11+   Agreement, dated as of August 23, 1999, between the
          Registrant and Martin D. Zuckerman
 10.12+   Agreement, dated as of August 23, 1999, between the
          Registrant and Carl C. Saracino
</TABLE>

<PAGE>   184


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<C>       <S>
 10.13+   Agreement, dated as of August 23, 1999, between the
          Registrant and Donna W. Pizarro
 10.14+   Form of Agreement, dated as of December   , 1999, between
          the Registrant and Joel Owens
 10.15+   Form of Agreement, dated as of December   , 1999, between
          the Registrant and Michael Erickson
 10.16+   Amendment to Agreement of Sale, dated as of April 1, 1999,
          by and among Applied Cellular Technology, Inc., Universal
          Commodities Corp. (as predecessor-in-interest to the
          Registrant), Patrick C. Chai, Robert W. Borra and GDB
          Software Services, Inc.
 10.17+   Amendment to Asset Purchase Agreement, dated as of April 1,
          1999, by and among the Registrant, Charles J. Phillips and
          Fiscal Advantage Corporation
 10.18+   Amendment to Agreement and Plan of Class B Reorganization,
          dated as of April 1, 1999, by and among Applied Cellular
          Technology, Inc., Universal Commodities Corp. (as
          predecessor-in-interest to the Registrant), Data Path
          Technologies, Inc., Donn J. Wagner, Angela S. Wagner, Edward
          M. Kelly and Eilleen E. Kelly
 10.19+   Form of Indemnification Agreement between the Registrant and
          each of its Directors
 10.20+   Business Lease, dated April 1999, between 510 Ryerson Road
          Corp. and the Registrant
 10.21+   Agreement, dated March 1994, between Shirley B. DiPace and
          Data Path Technologies, Inc.
 10.22+   Agreement, dated September 14, 1998, between Shirley B.
          DiPace and Data Path Technologies, Inc.
 10.23+   Agreement, dated March 6, 1998, between Shirley B. DiPace
          and Data Path Technologies, Inc.
 10.24+   Agreement, dated September 14, 1998, between Shirley B.
          DiPace and Data Path Technologies, Inc.
 10.25+   Amendment to Employment Agreement, dated September 9, 1999,
          between the Registrant and Marc Sherman
 10.26+   Agreement for Termination of Computer Supply Agreement,
          dated November 22, 1999, between the Registrant and FlashNet
          Communications, Inc.
 10.27    Sales and Distribution Agreement, dated February 17, 1999,
          between the Registrant and On Sale, Inc. (confidential
          treatment is being sought for certain portions of this
          exhibit pursuant to Rule 406 of Securities Act of 1933, as amended)
 16.1+    Letter from Rubin, Brown, Gornstein & Co., LLP ("RBG")
          concurring with the statements made by the Registrant herein
          concerning RBG's resignation as the Registrant's principal
          accountant
 21.1+    List of subsidiaries of Registrant
 23.1     Consent of PricewaterhouseCoopers LLP
 23.2     Consent of Rubin, Brown, Gornstein & Co. LLP
</TABLE>

<PAGE>   185


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<C>       <S>
 23.3     Consent of DiPesa & Company
 23.4     Consent of Rubin, Brown, Gornstein & Co. LLP
 23.5     Consent of Bryan Cave LLP (included in Exhibit 5.1)
 24.1+    Power of Attorney (included on signature page of
          Registration Statement)
 24.2+    Power of Attorney of Timothy C. O'Brien
27+       Financial Data Schedule for the Registrant for the year
          ended December 31, 1998
27+       Financial Data Schedule for the Registrant for the nine
          months ended September 30, 1999
</TABLE>


-------------------------

+   Previously filed