================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                   Form 10-QSB

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

                  For the quarterly period ended June 30, 2002

                                       OR

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

                   For the transition period from         to

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

                         Commission File Number 01-14271

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

                               USOL Holdings, Inc.
             (Exact name of Registrant as specified in its charter)

             Oregon                                                93-1197477
(State or other jurisdiction of                                (I.R.S. Employer
incorporation or organization)                               Identification No.)

                             10300 Metric Boulevard
                               Austin, Texas 78758
                    (Address of principal executive offices)

       Registrant's telephone number, including area code: (512) 651-3767

                                 Not Applicable
              (Former name, former address and former fiscal year,
                          if changed since last report)

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

     As of August 1, 2002 the  Registrant  had  20,206,260  shares of its no par
value Common Stock outstanding.

================================================================================




<PAGE>

<TABLE>
<CAPTION>


                                      INDEX

                                                                                                Page
                                                                                                ----
<S>            <C>                                                                              <C>
PART I                     FINANCIAL INFORMATION

               Item 1.     Financial Statements
                           Condensed Consolidated Balance Sheet as of
                           June 30, 2002.....................................................      3
                           Condensed Consolidated Statements of Operations for the
                           Three and Six Months Ended June 30, 2002 and 2001.................      4
                           Condensed Consolidated Statements of Cash Flows for the
                           Six Months Ended June 30, 2002 and 2001...........................      5
                           Notes to Condensed Consolidated Financial Statements..............      6

               Item 2.     Management's Discussion and Analysis of Financial
                           Condition and Results of Operations................................    13
                           Forward-Looking Statements.........................................    13
                           General............................................................    13
                           Overview...........................................................    13
                           Three Months Ended June 30, 2002 Compared to
                           Three Months Ended June 30, 2001...................................    14
                           Six Months Ended June 30, 2002 Compared to
                           Six Months Ended June 30, 2001.....................................    14
                           Liquidity and Capital Resources....................................    15
                           Preferred Stock Dividends..........................................    17
                           Adoption of New Accounting Standards...............................    17

               Item 3.     Quantitative and Qualitative Disclosures about
                           Market Risk........................................................    17

PART II                    OTHER INFORMATION

               Item 1.     Legal Proceedings..................................................    18

               Item 2.     Changes in Securities..............................................    18

               Item 3.     Defaults Upon Senior Securities....................................    18

               Item 4.     Submission of Matters to a Vote of Security Holders................    18

               Item 5.     Other Information..................................................    18

               Item 6.     Exhibits and Reports on Form 8-K...................................    18

               Signatures......................................................................   19

</TABLE>


                                       2

<PAGE>

<TABLE>
<CAPTION>

                               USOL HOLDINGS, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEET
                                   (Unaudited)


                                                                             June 30,
                                ASSETS                                         2002
                                                                             --------
<S>                                                                      <C>
Current assets:
  Cash and cash equivalents......................................        $        762,206
  Accounts receivable, net of allowance for doubtful
    accounts of $189,618.........................................                 884,696
  Other current assets...........................................                 484,128
  Assets held for sale...........................................               1,849,900
                                                                         ----------------
          Total current assets...................................               3,980,930

Property and equipment, net......................................              25,713,200

GOODWILL.........................................................              14,867,645

DEFERRED LOAN COSTS, net.........................................               1,476,935

Other assets.....................................................                 690,466
                                                                         ----------------

          Total assets...........................................        $     46,729,176
                                                                         ================


                 LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable...............................................        $      1,072,734
  Accrued liabilities............................................               2,585,643
  Capital lease obligations......................................                 990,452
  Deferred revenue...............................................                 638,608
  Senior Credit Facility.........................................              13,550,254
                                                                         ----------------
          Total current liabilities..............................              18,837,691
                                                                         ----------------

OTHER LONG-TERM LIABILITIES......................................                  18,281
                                                                         ----------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
  Convertible preferred stock, no par value; 5,000,000 shares
     authorized--
    Series A, 1,306,400 shares issued and outstanding;
       liquidation preference of $32,660,000.....................              17,469,633
    Series B, 155,000 shares issued and outstanding;
       liquidation preference of $3,875,000......................               2,072,713
  Common stock, no par value; 50,000,000 shares authorized,
       20,206,260 shares issued and outstanding..................              53,752,695
  Deferred compensation..........................................                  (6,951)
  Accumulated deficit............................................             (45,414,886)
                                                                         ----------------
          Total stockholders' equity.............................              27,873,204
                                                                         ----------------
          Total liabilities and stockholders' equity.............        $     46,729,176
                                                                         ================
</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                       3

<PAGE>

<TABLE>
<CAPTION>

                               USOL HOLDINGS, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)


                                                                      Three Months Ended               Six Months Ended
                                                                           June 30,                        June 30,
                                                                 -----------------------------  -----------------------------
                                                                      2002           2001            2002            2001
                                                                 -------------   -------------  -------------   -------------
<S>                                                              <C>             <C>            <C>             <C>
Revenue..........................................................$   4,088,117   $   3,425,382  $   7,746,588   $   6,689,027
                                                                 -------------   -------------  -------------   -------------

expenses:
  Operating......................................................    2,577,232       1,976,355      4,422,995       3,894,443
  Selling, general and administrative............................    2,164,525       2,892,499      4,934,257       5,447,713
  Depreciation and amortization..................................      836,112       1,840,657      1,633,106       3,446,637
  Write down of long-term assets.................................      159,744              --        159,744              --
  Stock compensation expense.....................................       20,855          91,973         41,709         191,165
                                                                 -------------   -------------  -------------   -------------
      Total operating expenses...................................    5,758,468       6,801,484     11,191,811      12,979,958
                                                                 -------------   -------------  -------------   -------------
      Loss from operations.......................................   (1,670,351)     (3,376,102)    (3,445,223)     (6,290,931)
                                                                    ----------   -------------  -------------   -------------

Other INCOME (EXPENSE):
  Interest, net..................................................     (311,061)       (611,631)      (713,249)     (1,171,126)
  Other, net.....................................................           --          (8,762)       (48,167)        (68,897)
  Gain (loss) on disposal of assets..............................      (14,397)          8,850        (14,248)          6,874
                                                                 -------------   -------------  -------------   -------------
                                                                      (325,458)       (611,543)      (775,664)     (1,233,149)
                                                                 -------------   -------------  -------------   -------------

      Loss before minority interest..............................   (1,995,809)     (3,987,645)    (4,220,887)     (7,524,080)

MINORITY INTEREST IN LOSS (INCOME) OF SUBSIDIARY.................         (824)         81,811       (269,745)         70,326
                                                                 -------------   -------------  -------------   -------------

      Net loss before cumulative effect of change in
         accounting principle....................................$  (1,996,633)  $  (3,905,834) $  (4,490,632)  $  (7,453,754)

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (Note 5).....
                                                                            --              --     (3,093,111)             --
                                                                 -------------   -------------  -------------   -------------

      Net loss...................................................$  (1,996,633)  $  (3,905,834) $  (7,583,743)  $  (7,453,754)
                                                                 =============   =============  =============   =============

PREFERRED STOCK DIVIDENDS (see Note 4)...........................     (429,043)     (1,107,480)      (858,086)     (2,215,980)
                                                                 -------------   -------------  -------------   -------------

LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS.........................
                                                                 $  (2,425,676)  $  (5,013,314) $  (8,441,829)  $  (9,669,734)
                                                                 =============   =============  =============   =============

PER SHARE AMOUNTS:...............................................
  Basic and diluted loss per common share........................$       (0.12)  $       (0.53) $       (0.42)  $       (1.07)
                                                                 =============   =============  =============   =============
  Basic and diluted weighted average common shares...............   20,206,260       9,479,045     20,201,211       9,013,068
                                                                 =============   =============  =============   =============
</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                       4

<PAGE>

<TABLE>
<CAPTION>


                               USOL HOLDINGS, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)


                                                                                                  Six Months Ended
                                                                                                      June 30,
                                                                                         --------------------------------
                                                                                                2002             2001
                                                                                         ---------------  ---------------
<S>     <C>                                                                              <C>              <C>
        CASH FLOWS FROM OPERATING ACTIVITIES:
          Net loss..................................................................     $   (7,583,743)  $   (7,453,754)
          Adjustments to reconcile net loss to net cash used in
            operating activities--
              Depreciation and amortization.........................................          1,633,106        3,446,637
              Amortization of deferred loan costs...................................            216,248          258,638
              Stock compensation expense............................................             41,708          191,165
              Write down of long-term assets........................................            159,744               --
              (Gain) loss on disposal of assets.....................................             14,248           (6,874)
              Minority interest.....................................................            269,745          (70,326)
              Cumulative effect of change in accounting principle...................          3,093,111               --
              Changes in assets and liabilities--
                 Accounts receivable................................................            259,357           92,320
                 Other assets.......................................................           (194,010)         (11,717)
                 Accounts payable and accrued liabilities...........................           (626,145)        (572,122)
                 Deferred revenue and other.........................................            (88,691)         (64,213)
                                                                                         --------------   --------------
                      Net cash used in operating activities.........................         (2,805,322)      (4,190,246)
                                                                                         --------------   --------------

        CASH FLOWS FROM INVESTING ACTIVITIES:
          Purchases of property, equipment and other................................         (2,499,844)      (2,585,954)
          Cash paid for acquisition.................................................                 --       (4,000,000)
          Proceeds from sale of assets..............................................          6,724,055               --
          Distribution to minority interest shareholder of USAC.....................           (309,649)              --
                                                                                         --------------   --------------
                      Net cash provided by (used in) investing activities...........          3,914,562       (6,585,954)
                                                                                         --------------   --------------

        CASH FLOWS FROM FINANCING ACTIVITIES:
          Principal payments under capital leases...................................           (203,723)        (274,008)
          Borrowings under Senior Credit Facility...................................          4,500,000        7,500,000
          Repayment of Senior Credit Facility.......................................         (6,646,075)              --
          Deferred loan costs.......................................................            (18,000)         (30,413)
                                                                                         --------------   --------------
                      Net cash (used in) provided by financing activities...........         (2,367,798)       7,195,579
                                                                                         --------------   --------------
                      Net decrease in cash and cash equivalents.....................         (1,258,558)      (3,580,621)
        CASH AND CASH EQUIVALENTS, beginning of period..............................          2,020,764        4,804,992
                                                                                         --------------   --------------
        CASH AND CASH EQUIVALENTS, end of period....................................     $      762,206   $    1,224,371
                                                                                         ==============   ==============

        SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
            Cash paid for interest..................................................     $      550,548   $      143,796
            Dividends on preferred stock............................................            858,086        2,215,080
            Issuance of common stock as payment of preferred stock dividends........                 --        2,218,500
            Issuance of common stock for purchase of assets.........................                 --          610,000

</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>


                               USOL HOLDINGS, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2002



(1)  Business Organization and Basis of Presentation

     USOL Holdings, Inc. ("Holdings"),  an Oregon corporation,  its wholly owned
subsidiary USOL, Inc. and USOL, Inc.'s 50% owned  subsidiary,  U.S. Austin Cable
Association  I, Ltd.  ("USAC")  (collectively  referred  to  herein as  "USOL"),
provide  integrated   telecommunications  services  including  local  telephone,
long-distance  telephone,  enhanced  calling  features and cable  television  to
residents of  multi-family  apartment  complexes  and  condominiums  ("MDUs") in
Texas, Virginia,  Colorado and the Pacific Northwest.  The services are provided
to the tenants in accordance  with  long-term  right-of-entry  agreements  ("ROE
Agreements")  between USOL or its  partners and the property  owners under which
the  property  owners  receive  royalties  from the  telecommunication  revenues
generated from their  properties.  Tenants have the option to use either USOL or
the local telephone and long-distance  carriers for telephone services.  Tenants
desiring to subscribe to cable  television  must utilize USOL.  USOL also owns a
100% interest in TheResidentClub, Inc. ("TRC"). See Note 6 regarding the winding
down of TRC's operations  during 2001.  Holdings,  USOL and TRC are collectively
referred to herein as the Company.

     The financial  statements included herein have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and notes normally included in financial statements prepared
in accordance with accounting principles generally accepted in the United States
have been condensed or omitted pursuant to such rules and regulations,  although
the Company  believes that the disclosures  included herein are adequate to make
the  information  presented  not  misleading.  A  description  of the  Company's
accounting  policies and other financial  information is included in the audited
financial statements as filed with the Securities and Exchange Commission in the
Company's Annual Report on Form 10-KSB.

     The  financial  statements  and related  notes for the three and six months
ended June 30, 2002 are unaudited but, in the opinion of management, include all
adjustments,   consisting  only  of  normal  recurring  adjustments,  which  are
necessary  for a  fair  presentation  of the  financial  condition,  results  of
operations  and cash flows of the Company.  The operating  results for the three
and six months ended June 30, 2002 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2002.

(2)  Going Concern and Liquidity

     The Company has suffered  recurring  losses from  operations and net losses
since inception,  and it has not generated cash from operations since inception.
The Company's  operations  and its purchases of property and equipment to expand
its  subscriber  base have been funded  primarily from the Company's last equity
financing,  which  occurred  in July  1999.  During  the last half of 2000,  the
Company  began to borrow  against its senior credit  facility (the  "Facility").
Under the  Facility,  the  Company  has the  ability to borrow up to $25 million
until December 31, 2002,  subject to borrowing base  limitations  and compliance
with financial and operations covenants, at which time the Facility will convert
to a  five-year  term loan.  The  Company,  however,  did not have access to the
remaining  available  borrowing  base as it was not in  compliance  with certain
covenants in the Facility as of June 30, 2002.  The holder of the Facility  must
waive the covenant  violations or amend the Facility in order for the Company to
have access to the remaining  available  borrowing base. In May 2002, the holder
of the Facility temporarily waived the covenant violations in order to allow the
Company to borrow additional funds. There can be no assurance, however, that the
holder of the Facility  will  continue to provide  access to the  Facility  with
similar future amendments. As a result of the existing covenant violations,  the
amount outstanding under the Facility as of June 30, 2002 has been classified as
a current liability in the accompanying condensed consolidated balance sheet.

                                       6


<PAGE>


     The Company is currently  dependent  upon  borrowings  from the Facility to
fund operations. Management is currently working with the holder of the Facility
to obtain an amendment to waive the existing covenants  violations and to revise
future  covenant  requirements.  The process has been delayed as a result of the
Company's current  negotiations for a possible  acquisition of assets that would
also require bank approval and amendment to the Facility. The Company expects to
obtain a waiver and amend the covenants as part of the required approval of this
transaction;  however,  if the  Company is not  successful  in  completing  this
acquisition,  then management  expects to separately  proceed with obtaining the
necessary  waiver and amendment to the Facility.  There is no assurance that the
holders of the Facility will provide the necessary approvals and amendments,  or
that the  holders of the  Facility  will not call the amount  outstanding.  As a
result,  management  is also  evaluating  alternative  equity  or  debt  funding
sources;  however,  there is no assurance that  management  will be able to find
sufficient   alternative   funding  sources  to  fund  the  operating  and  debt
requirements of the Company.

     The matters  discussed  above raise  substantial  doubt about the Company's
ability to continue as a going concern. The consolidated financial statements do
not  include  any  adjustments  that  might  result  from  the  outcome  of this
uncertainty.

(3)  Sale of Assets to Grande

     On August 31,  2001,  the  Company  entered  into an  agreement  (the "Sale
Agreement")  with Grande to sell all of the Company's ROE Agreements and certain
property  and  equipment  located in Austin  and San  Antonio,  Texas.  The Sale
Agreement  includes the  assignment  of ROE  Agreements  on 48 MDU  communities,
representing  13,057  apartment units and property and equipment with a net book
value of approximately $4.6 million and associated  intangibles of approximately
$10.9 million.  Grande is a Texas-based  broadband  service provider that offers
retail  telecommunication  services including local and long-distance telephone,
advanced digital video and high-speed Internet access over a single "deep-fiber"
network to  residential  customers and small and medium  enterprises.  Under the
terms  of the  Sale  Agreement,  the  Company  will  receive  cash  proceeds  of
approximately  $13.4 million or $1,024 per apartment  unit. The proceeds will be
received as part of four  separate  closings,  the first  three  which  occurred
during  December  2001,  January  2002 and March  2002,  respectively,  with the
remaining  closing to occur no later than  September  30, 2002.  Total  proceeds
received as part of the first three  closings were  approximately  $4.8 million,
$4.3 million and $2.4 million,  respectively.  As part of obtaining  approval of
the Sale Agreement  from the holders of the Facility,  the holders have required
the Company to pay the  Facility the net proceeds  received  from Grande.  As of
June 30, 2002,  the Company has paid the Facility  approximately  $11.5  million
from the proceeds received from the first three closings.

     Upon entering into the Sale  Agreement,  the Company  reclassified  amounts
associated with these assets,  including  related  goodwill,  to assets held for
sale.  The Company  also  reviewed the  recoverability  of the net book value of
these  assets  based on the cash  proceeds to be received  according to the Sale
Agreement. Based on this analysis and accruing for expenses of $808,000 that the
Company will incur and are necessary to effect this sale, the Company determined
the net book  value of these  assets was in excess of the sales  price,  and the
Company  recorded a write down of  approximately  $2.9  million.  The  following
provides a summary of assets held for sale.

                                       7

<PAGE>

<TABLE>
<CAPTION>


                                                            Assets
                                               -------------------------------
                                                Property and                          Accrued       Write Down on
                                                 Equipment          Goodwill        Liabilities         Assets
                                               -------------     -------------     -------------    -------------
<S>                                            <C>               <C>               <C>              <C>
August 31, 2001 net book value of assets
  held for sale before write down              $  4,586,126      $ 10,936,471      $         --     $         --
Fiscal year 2001 write down                      (1,103,240)       (1,041,731)         (808,000)      (2,952,971)
Assets sold and liabilities paid                 (1,355,800)       (3,447,871)          140,667               --
                                               ------------      ------------      ------------     ------------
Assets held for sale and accrued
  liabilities, December 31, 2001                  2,127,086         6,446,869          (667,333)              --
Assets sold and liabilities paid                 (1,589,489)       (5,134,566)          489,333               --
                                               ------------      ------------      ------------     ------------
Assets held for sale and accrued
  liabilities, March 31, 2002                  $    537,597      $  1,312,303      $    178,000     $         --
                                               ============      ============      ============     ============
</TABLE>

(4)  Goodwill

     In June 2001, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards  ("SFAS") No. 142,  "Goodwill  and
Other Intangible  Assets." On January 1, 2002, the Company adopted SFAS No. 142,
which required that goodwill and other intangible  assets with indefinite useful
lives no longer be amortized,  but rather tested  annually for  impairment.  The
adoption of SFAS No. 142 on January 1, 2002 resulted in a write down of goodwill
of approximately $3.1 million, which has been recorded as a cumulative effect of
a change in  accounting  principle in the  accompanying  condensed  consolidated
statements of operations for the six months ended June 30, 2002

     The  Company's  goodwill  as of  January  1, 2002 is  attributable  to five
reporting units, which comprise  substantially all of the Company's consolidated
results of operations  and  financial  condition.  As of December 31, 2001,  the
carrying value of goodwill was $17,960,756.  The Company  recorded  amortization
expense of goodwill of $897,438  and  1,794,877  during the three and six months
ended June 30, 2001,  respectively.  Upon  adoption of SFAS No. 142, the Company
ceased amortization of goodwill on January 1, 2002.

     The following table  reconciles net loss for the three and six months ended
June 30, 2001 to its amounts adjusted to exclude goodwill amortization expense:

<TABLE>
<CAPTION>


                                                 Three Months Ended         Six Months Ended
                                                    June 30, 2001            June 30, 2001
                                                 ------------------         ----------------
<S>                                                  <C>                        <C>
Reported net loss                                    $ (5,013,314)              $ (9,669,734)
Deduct: goodwill amortization                             897,438                  1,794,877
                                                     ------------               ------------
Adjusted net loss                                    $ (4,115,876)              $ (7,874,857)
                                                     ============               ============

Basis and diluted loss per common share:
  Reported net loss                                    $(0.53)                    $(1.07)
  Deduct: Goodwill amortization                          0.10                       0.20
                                                        -----                      -----
  Adjusted net loss                                    $(0.43)                    $(0.87)
                                                       ======                     ======
</TABLE>

     Prior to January 1, 2002, the Company tested goodwill for impairment  based
on the recoverability of carrying value using undiscounted  future cash flows in
accordance  with SFAS No. 121,  "Accounting  for the  Impairment  of  Long-Lived
Assets and for Long-Lived  Assets to be Disposed Of." The new criteria  provided
in SFAS No. 142  require  the testing of  impairment  based on fair  value.  For
initial  application of SFAS No. 142, the Company  performed a detailed analysis
of the fair value of goodwill as of January 1, 2002.

                                       8

<PAGE>


     The fair value of goodwill was determined  based upon the market value of a
recent  transaction  entered into by the Company,  which is discussed in Note 3.
The aggregate  fair market value  exceeded the carrying value for the Dallas and
Washington,  D.C.  reporting  units; the Houston,  Denver and Pacific  Northwest
reporting  units had a fair  market  value less than the  carrying  value of the
goodwill related to those reporting units. Accordingly, a cumulative effect of a
change in accounting principle of approximately $3.1 million was recorded during
the six months ended June 30, 2002.  The Company will test the carrying value of
its goodwill annually,  or more frequently if events or changes in circumstances
indicate potential impairment.

(5)  Preferred Stock Restructuring

     On November 20, 2001, the Board of Directors  approved the restructuring of
the  Company's   Series  A  and  Series  B  convertible   preferred  stock.  The
restructuring  included amending certain dividend provisions of the Series A and
Series B convertible  preferred  stock in exchange for the issuance of 5,000,000
shares of the Company's common stock.  After receiving  shareholder  approval on
December 27, 2001, the amendment and exchanges of shares was declared  effective
on December 31, 2001. The amended convertible preferred stock provisions contain
terms that are  substantially  consistent with prior preferred stock  provisions
with the exception of a revision to the prior dividend rate of 12.0%,  which was
revised so that: no dividends are paid through  December 31, 2003;  beginning on
January 1, 2004 through  December 31, 2004  dividends  will be paid at a rate of
2.0%;  beginning on January 1, 2005 through  December 31, 2005 dividends will be
paid at a rate of 4.0%; and,  beginning on January 1, 2006 and beyond the stated
dividend rate will be 6.0%.

     As a result of this  restructuring,  the Company determined the fair market
value for the newly issued common stock and amended convertible  preferred stock
based on the average daily closing price of common stock on the Nasdaq  exchange
for  the  10-day  period   immediately   prior  to  the   announcement  of  this
restructuring and using comparative fair values of similar convertible preferred
securities  of public  companies,  respectively.  The combined fair value of the
newly issued common stock and amended convertible preferred stock was determined
to be $22.6 million, resulting in a discount of approximately $11.6 million from
the value of the preferred stock prior to the amendment of its terms. Based upon
the fair values recorded,  the amended convertible preferred stock will yield an
effective  dividend  rate of  9.0%  on the  carrying  value  of the  convertible
preferred stock.

     The accompanying  condensed  consolidated  statements of operations for the
three and six months ended June 30, 2001,  reflects the preferred stock dividend
at the 12% rate in effect during that period. For the three and six months ended
June 30, 2002, the preferred stock dividend is reflected at the 9% dividend rate
discussed  above,  and  the  dividend  has  been  recorded  as a  charge  to the
accumulated  deficit with a corresponding  increase to the carrying value of the
Series A and Series B convertible  preferred stock. The Company will continue to
increase the carrying  value of its Series A and Series B convertible  preferred
stock until January 1, 2006,  at which time the stated  dividend rate will yield
the 9% effective dividend rate.

(6)  Winding Down of TRC

     TRC was in the business of developing  private labeled  Internet  solutions
for MDUs and other  residential  markets.  In August  2000,  TRC entered  into a
technology  and  services  agreement  (the "IT  Services  Agreement")  with GMAC
Mortgage  Corporation  ("GMACM"),  a sister company of GMAC Commercial  Mortgage
Corporation  which is a  significant  shareholder  of the Company,  to develop a
private labeled  Internet site for GMACM and provide  certain  services over the
period of the IT Services Agreement. TRC received formal notification from GMACM
(TRC's sole  customer)  on April 10,  2001,  that GMACM was  terminating  the IT
Services  Agreement.  As  part  of the  termination,  TRC  and  GMACM  continued
negotiations  that  culminated  in an agreement  setting  forth the terms of the
termination of their relationship under the IT Services Agreement. TRC and GMACM
entered into a Confidential  Release and Settlement  Agreement (the  "Settlement
Agreement") on June 6, 2001, whereby TRC agreed to transfer a significant amount
of its assets to GMACM in exchange  for  payment of $6.6  million and release of
certain  claims.  The assets  transferred by TRC included  substantially  all of
TRC's hardware and software.

                                       9

<PAGE>


     Although the Settlement Agreement was entered into on June 6, 2001, closing
of  the   settlement   was  delayed  until  July  13,  2001,  due  to  continued
negotiations, at which time TRC received a payment of approximately $6.1 million
from GMACM.  This  amount  differed  from that  provided  for in the  Settlement
Agreement  due to offsets of amounts  paid by GMACM to release  liens on certain
TRC assets and a $300,000  adjustment to reflect amounts  previously paid to TRC
by GMACM.  Of this  amount,  approximately  $5.6  million  was used to repay the
principal and interest on a loan made to TRC in August 2000 by Newman  Financial
Services,  Inc.  ("Newman"),  an  entity  related  to GMAC  Commercial  Mortgage
Corporation.  In  connection  with the closing of the  settlement  in July 2001,
TRC's operations have ceased,  and TRC recorded a net gain of approximately $5.9
million during the third quarter of fiscal 2001.

(7)  Senior Credit Facility

     Beginning in 2003,  the Facility will be payable in quarterly  installments
starting  at 1% of the  December  31,  2002,  outstanding  balance for the three
months ended March 31, 2003,  increasing  periodically  to 7.75% of the December
31, 2002, outstanding balance for the year ended December 31, 2007. The Facility
bears  interest  at the  Company's  option at an annual rate of prime plus 3% or
LIBOR plus 4%. The Facility contains an unused commitment fee ranging from .625%
to 1.375%  depending on  borrowing  levels and an annual  administrative  fee of
$30,000.  The weighted  average interest rate for the three and six months ended
June 30, 2002 was 4.8% and 6.0%, respectively,  and for the three and six months
ended June 30,  2001 the  weighted  average  interest  rate was 13.0% and 15.7%,
respectively.  Including  debt  issue  costs,  the  weighted  average  effective
interest  rate for the three and six  months  ended  June 30,  2002 was 8.1% and
9.1%,  respectively,  and for the three and six months  ended June 30,  2001 the
weighted  average  effective  interest  rate was 17.0% and 20.9%,  respectively.
Interest  expense  incurred for the three and six months ended June 30, 2002 was
approximately $275,000 and $629,000, respectively. Interest expense incurred for
the three and six months  ended June 30,  2001 was  approximately  $378,000  and
$699,000,  respectively.  The Facility is  collateralized  by substantially  all
assets of the Company.

     The amount  outstanding  under the  Facility  as of June 30,  2002 has been
classified  as a current  liability  as the Company was not in  compliance  with
certain quarterly minimum financial covenants,  including revenue, cash flow and
number of MDU units to which the  Company  has  available  service,  among other
restrictions. See further discussion of this matter in Note 2.

(8)  Capital Leases

     The Company  leases  certain  telephony  network  equipment  under  capital
leases. Under the terms of the lease agreements, the Company is required to make
monthly  payments until 2003. The Company is currently in default of these lease
agreements for failure to remit the required monthly payments.  As a result, the
Company has recorded the entire capital lease obligation as a current  liability
as of June 30, 2002.

(9)  Segment Disclosure

     The Company's  operations  during 2002 were  classified into two reportable
business  segments:  Telecommunications  and TRC. The Company's  two  reportable
business  segments were managed  separately based on fundamental  differences in
their operations.

     Telecommunications    consists    principally   of   providing   integrated
telecommunications   services  including  local  and  long-distance   telephone,
enhanced  call  features  and cable  television  to  residents of MDUs in Texas,
Oregon, Virginia and Colorado.

     Prior  to  its  ceasing  operations,   TRC  consisted  principally  of  the
development of a  private-labeled  Internet service portal for GMACM and related
entities (see Note 6).

                                       10

<PAGE>

<TABLE>
<CAPTION>

     The operating results by business segment were as follows:

                                                            Three Months Ended
                                                                 June 30
                                          ------------------------------------------------
                                                Tele-
                                            communications         TRC        Consolidated
                                          ----------------    -----------  ---------------
<S>                                          <C>              <C>            <C>
2002
Revenues............................         $  4,088,117     $        --    $  4,088,117
Segment net loss....................           (1,996,633)             --      (1,996,633)
Total assets........................           46,729,176              --      46,729,176
Capital expenditures................              907,565              --         907,565
Depreciation and amortization.......              836,112              --         836,112

2001
Revenues............................         $  3,106,653     $   318,729    $  3,425,382
Segment net loss....................           (3,291,889)       (613,945)     (3,905,834)
Total assets........................           61,401,303         403,959      61,805,262
Capital expenditures................            6,592,269           3,410       6,595,679
Depreciation and amortization.......            1,828,547          12,110       1,840,657


                                                              Six Months Ended
                                                                 June 30
                                          ------------------------------------------------
                                                Tele-
                                            communications         TRC        Consolidated
                                          ----------------    -----------  ---------------


2002
Revenues............................         $  7,746,588     $        --    $  7,746,588
Segment net loss....................           (7,583,743)             --      (7,583,743)
Total assets........................           46,729,176              --      46,729,176
Capital expenditures................            2,499,844              --       2,499,844
Depreciation and amortization.......            1,633,106              --       1,633,106

2001
Revenues............................         $  5,960,298     $   728,729    $  6,689,027
Segment net loss....................           (6,295,809)     (1,157,945)     (7,453,754)
Total assets........................           61,401,303         403,959      61,805,262
Capital expenditures................            7,290,269          30,410       7,320,679
Depreciation and amortization.......            3,422,527          24,110       3,446,637

</TABLE>



(10) SIMCOM Acquisition

     In May 2001,  the  Company  purchased  substantially  all of the  long-term
assets of Great West Services,  Ltd., d/b/a SIMCOM  ("SIMCOM"),  a subsidiary of
Simpson  Housing  Limited  Partnership,  which  provided  voice,  video and data
services to MDUs in Colorado,  Oregon and Texas, for an aggregate purchase price
of  approximately  $4.6  million,  consisting  of $4 million in cash and 600,000
shares  of  the  Company's  common  stock.  The  acquired  assets  included  ROE
Agreements,  as well as other  telecommunications  property and  equipment.  The
purchase price was financed through a draw on the Facility.  The acquisition was
accounted for using the purchase  method of  accounting  and,  accordingly,  the
operating   results  of  the  acquired   business  have  been  included  in  the
accompanying  unaudited condensed  consolidated  financial  statements since the
date of acquisition in May 2001. The Company allocated the entire purchase price
to the telecommunications property and equipment that was acquired.


                                       11
<PAGE>


     The following summarized unaudited pro forma financial  information assumes
that the SIMCOM  acquisition  happened at the beginning of the period indicated.
The following  unaudited pro forma information is not necessarily  indicative of
the results that would have occurred had the  acquisition  been completed at the
beginning of the period indicated:

                                                Three Months       Six Months
                                                    Ended            Ended
                                               June 30, 2001     June 30, 2001

 Revenues.................................     $  3,891,862      $  7,662,116
  Net loss.................................      (4,025,498)       (7,630,202)
Loss attributable to common shareholders per
  share--
  Basic and diluted.......................     $      (0.67)     $      (1.09)

(11) loss Per Common Share

     Basic and diluted loss per common share is  calculated  by dividing the net
loss by the weighted  average number of shares  outstanding.  The calculation of
basic and diluted loss per common share does not assume conversion,  exercise or
contingent  issuance of securities  that would have an  anti-dilutive  effect on
earnings per share.  The following  common stock  equivalents were excluded from
the  diluted net loss per share  calculations  as their  effect  would have been
anti-dilutive:

                                                        Six Months Ended
                                                            June 30,
                                                 -------------------------------
                                                     2002               2001
                                                 -----------         -----------

Preferred stock shares as converted.......        18,267,500          18,333,000
Common stock warrants.....................         2,976,312           3,114,645
Stock options--
  Shares..................................         2,204,842           2,193,502
  Weighted average price..................       $      1.91         $      2.53


                                       12



<PAGE>


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

Forward-Looking Statements

     The statements  contained in this Form 10-QSB  ("Quarterly  Report") of the
Company which are not historical in nature are forward-looking statements within
the  meaning of the  Private  Securities  Litigation  Reform Act of 1995.  These
forward-looking  statements  include  statements  in this  Item 2,  Management's
Discussion  and  Analysis of  Financial  Condition  and  Results of  Operations,
regarding intent,  belief or current expectations of the Company or its officers
with respect to the development or acquisition of new business.

     Such  forward-looking  statements  involve certain risks and  uncertainties
that could cause actual results to differ  materially from anticipated  results.
These risks and uncertainties  include regulatory  developments,  the ability of
the Company to acquire or build passings on economical terms and conditions, the
risk of insufficient cable and phone penetrations, the ability of the Company to
effectively  manage growth,  general and local market  conditions  including the
presence of competing  companies,  as well as other factors identified from time
to time in the Company's filings with the Securities and Exchange  Commission or
in the Company's press releases.

General

     The  following  discussion  of the  results  of  operations  and  financial
condition  of the  Company  should  be read in  conjunction  with the  Condensed
Consolidated  Financial Statements and the Notes thereto of the Company included
elsewhere in this Quarterly Report.

Overview

     Our  primary  objective  is to become the leading  provider  of  technology
solutions, principally bundled telecommunications and ancillary services, to the
largest MDU owners in the United States. We plan on accomplishing this objective
by: 1) creating  competitive bundled service offerings for USOL branded services
to be offered to residents of MDUs or 2) partnering with "cutting-edge"  service
providers who would  contract with USOL to market their services to residents of
MDUs.  In order to allow  residents  to obtain  these  services,  MDU owners are
required to enter into exclusive ROE Agreements  with the Company or in the case
of 2) above, the relevant service provider.

     We currently have ROE Agreements with 134 active  residential  developments
in seven  major  markets in the United  States,  including  properties  owned or
managed by many of the  leading  real  estate  companies  in the  United  States
including Equity Residential Properties Trust, Trammell Crow Residential, Gables
Residential  Trust,  Lincoln Property  Combined  Company and Walden  Residential
Properties,  Inc. among others.  Contract terms range from five to 20 years with
an average  remaining term of  approximately 10 years. At June 30, 2002, we also
serviced 62 properties on behalf of other service providers.

     The table below summarizes active operational  passings and subscriber base
at June 30, 2002, for USOL's 134 properties:

<TABLE>
<CAPTION>

                                              Passings                                     Subscribers
                               ----------------------------------------      -----------------------------------------
          Market               CATV      Telephone   Internet    Total       CATV      Telephone    Internet    Total
-----------------------------  ------    ---------   --------    ------      ------    ---------    --------    ------
<S>                            <C>         <C>        <C>        <C>         <C>          <C>         <C>       <C>
Austin                            602          --        308        910         229          --          54        283
Dallas/Ft. Worth               10,862       5,313      7,835     24,010       6,315       2,239         888      9,442
Denver                          3,200       2,761      1,942      7,903       1,527         847         285      2,659
Houston                        12,763          --      7,764     20,527       6,167          --         543      6,710
Pacific Northwest               9,591       4,199      2,921     16,711       5,216       1,866         384      7,466
San Antonio                       700         404        608      1,712         407          71          11        489
Washington, D.C. Area             624         624        624      1,872         445         271          53        769
                              -------     -------     ------     ------      ------     -------       -----    -------
Totals                         38,342      13,301     22,002     73,645      20,306       5,294       2,218     27,818
                              =======     =======     ======     ======      ======     =======       =====    =======

</TABLE>


                                       13

<PAGE>

     The  passings  and  subscribers  above  located in Austin  and San  Antonio
represent residential developments that Grande has agreed to purchase as part of
the Sale  Agreement,  but Grande and the Company have not yet closed on the sale
of the properties.

Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001

     The  Company  reported  a  loss  attributable  to  common  shareholders  of
approximately $2,425,676 for the three months ended June 30, 2002, compared to a
loss of  approximately  $5,013,314  for the same period of the prior  year.  The
decrease in net loss is  primarily  attributable  to an  approximate  $1,706,000
reduction  in the loss  from  operations,  which  was the  result  of  increased
revenues and decreased operating expenses, combined with an approximate $678,000
reduction in preferred  stock  dividends,  which was the result of the preferred
stock restructuring discussed in Note 5.

     Revenue  increased  approximately  $663,000  or 19.3% for the three  months
ended June 30, 2002, compared to the same period of the prior year. The increase
in  revenue is  primarily  due to a 12%  increase  in the  three-month  weighted
average subscribers for all of the Company's services between quarters, which is
the result of the  Company's  expansion of MDUs to which it provides  service in
existing markets. This increase was offset by approximately $319,000 in revenues
recorded by TRC during the three months ended June 30, 2001.  With the wind down
of TRC during 2001 (see Note 6), no revenues were recorded during 2002.

     Operating  expense  increased  approximately  $601,000 or 30% for the three
months ended June 30, 2002,  compared to the same period of the prior year.  The
increase in operating  expense  between  periods is  primarily  due to increased
operating expenses, including cost of service, repairs and maintenance, salaries
and bad debt expense, all associated with increased revenues and passings.  As a
result, operating expense increased to 63% of revenue for the three-month period
in 2002 compared to 58% of revenue in the same period of the prior year.

     Selling,   general  and  administrative  expense  decreased   approximately
$728,000 or 25% for the three months  ended June 30, 2002,  compared to the same
period of the prior year.  The decrease in selling,  general and  administrative
expense was primarily due to the Company eliminating  approximately  $631,000 of
selling,  general and  administrative  expenses recorded by TRC during the three
months  ended June 30, 2001 (see Note 6).  Selling,  general and  administrative
expenses decreased to 53% of revenue for the three-month period in 2002 compared
to 84% of revenue in the same period of the prior year.

     Depreciation and amortization expense decreased approximately $1,005,000 or
55% for the three months ended June 30, 2002, compared to the same period of the
prior year. The decrease  resulted from the adoption of SFAS No. 142,  "Goodwill
and Other Intangible Assets," which eliminates the amortization of goodwill. See
Note 4 for a complete  discussion  of the impact of SFAS 142.  Depreciation  and
amortization expense was 21% of revenue for the three months ended June 30, 2002
compared to 54% of revenue for the same period of the prior year.

     The  Company  reported a write down of  long-term  assets of  approximately
$160,000  during the three months ended June 30, 2002.  This was  primarily  the
result of the write down of excess and obsolete equipment during the quarter.

     The Company had net interest expense of  approximately  $311,000 during the
three months ended June 30, 2002 compared to  approximately  $612,000 during the
same period of the prior year.  The decrease  between  periods is primarily  the
result of the  repayment  of  approximately  $11,500,000  to the  Facility  from
proceeds  received as a result of the Company's  Sale Agreement with Grande (see
Note 3), which resulted in a lower outstanding debt balance and reduced interest
expense  during the second quarter of 2002 as compared to the same period in the
prior year.

Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001

     The  Company  reported  a  loss  attributable  to  common  shareholders  of
approximately  $8,441,829 for the six months ended June 30, 2002,  compared to a
loss of  approximately  $9,669,734  for the same period of the prior  year.  The
decrease in net loss is  primarily  attributable  to an  approximate

                                       14


<PAGE>

$2,846,000  reduction  in the loss  from  operations,  which  was the  result of
increased  revenues  and  decreased   operating   expenses,   combined  with  an
approximate  $1,357,000  reduction in preferred stock  dividends,  which was the
result  of  the  preferred  stock  restructuring  discussed  in  Note  5.  These
reductions  were  offset by the  cumulative  effect  of a change  in  accounting
principle that resulted in an approximate  $3,100,000 write down of goodwill for
the six months ended June 30, 2002. See Note 4 for a complete discussion of this
write down.

     Revenue increased approximately  $1,058,000 or 16% for the six months ended
June 30,  2002,  compared to the same period of the prior year.  The increase in
revenue is primarily  due to a 16% increase in the  six-month  weighted  average
subscribers for all of the Company's  services  between  quarters,  which is the
result  of the  Company's  expansion  of MDUs to which it  provides  service  in
existing markets. This increase was offset by approximately $729,000 in revenues
recorded by TRC during the six months ended June 30, 2001. With the wind down of
TRC during 2001 (see Note 6), no revenues were recorded during 2002.

     Operating  expense  increased  approximately  $529,000  or 14%  for the six
months ended June 30, 2002,  compared to the same period of the prior year.  The
increase in operating  expense  between  periods is  primarily  due to increased
expenses,  including cost of service, repairs and maintenance,  salaries and bad
debt  expense,  all  associated  with  increased  revenues.   Operating  expense
decreased to 57% of revenue for the six-month  period in 2002 compared to 58% of
revenue in the same period of the prior year.

     Selling,   general  and  administrative  expense  decreased   approximately
$513,000  or 9% for the six months  ended June 30,  2002,  compared  to the same
period of the prior year.  The decrease in selling,  general and  administrative
expense was primarily due to the Company eliminating approximately $1,283,000 of
selling,  general and  administrative  expenses recorded by TRC during the three
months  ended  June 30,  2001 (see Note 6).  This was  offset  by  increases  in
selling,  general and administrative  expenses required to service the Company's
increased passings and subscribers. Selling, general and administrative expenses
decreased to 64% of revenue for the six-month  period in 2002 compared to 81% of
revenue in the same period of the prior year.

     Depreciation and amortization expense decreased approximately $1,814,000 or
53% for the six months ended June 30,  2002,  compared to the same period of the
prior year. The decrease  resulted from the adoption of SFAS No. 142,  "Goodwill
and Other Intangible Assets," which eliminates the amortization of goodwill. See
Note 4 for a complete  discussion  of the impact of SFAS 142.  Depreciation  and
amortization  expense was 21% of revenue for the six months  ended June 30, 2002
compared to 52% of revenue for the same period of the prior year.

     The Company had net interest expense of  approximately  $713,000 during the
six months ended June 30, 2002 compared to approximately  $1,171,000  during the
same period of the prior year.  The decrease  between  periods is primarily  the
result of the  repayment  of  approximately  $11,500,000  to the  Facility  from
proceeds  received as a result of the Company's  Sale Agreement with Grande (see
Note 3), which resulted in a lower outstanding debt balance and reduced interest
expense during the six months ended June 30, 2002 as compared to the same period
in the prior year.

     The  Company  reported a write down of  long-term  assets of  approximately
$160,000  during the six months  ended June 30,  2002.  This was  primarily  the
result of the write  down of excess  and  obsolete  equipment  during the second
quarter of 2002.

     The Company  reported  an  increase  in minority  interest in the income of
subsidiary  of  approximately  $340,000.  This was the  result  of the  proceeds
received from Grande  pursuant to the terms of the Sale  Agreement  (see Note 3)
for properties owned by the Company's 50% owned partnership USAC, which resulted
in a gain for the partnership.  The total gain recorded for the six months ended
June 30,  2002 was  approximately  $591,000,  which  resulted  in  approximately
$270,000 of minority in interest in income of subsidiary for the Company.

Liquidity and Capital Resources

     At June 30, 2002, the Company had  approximately  $762,000 of cash and cash
equivalents compared to approximately  $2,020,764 at December 31, 2001. Net cash
of approximately  $2,805,000 was used in operating activities for the six months
ended June 30, 2002, which was a result of the Company's net loss for the period
combined with using approximately $649,000 of working capital, offset by noncash
charges  related  to  depreciation,


                                       15


<PAGE>



amortization,  minority interest,  stock  compensation  expense, a write down of
long-term assets and a cumulative effect of change in accounting principle.

     Net cash of approximately  $3,915,000 was provided by investing activities,
which was primarily the result the proceeds of approximately $6,724,000 received
by the Company pursuant to the terms of the Grande Sale Agreement. These amounts
were offset by  approximately  $2,500,000  used for  purchases  of property  and
equipment related to acquiring or building new passings and capital expenditures
for upgrading services to passings currently served, and approximately  $310,000
distributed to the minority interest shareholder of USAC.

     Net cash of  approximately  $2,368,000  was used in  financing  activities,
which  primarily   consisted  of  proceeds  of  approximately   $4,500,000  from
borrowings  under the  Facility  offset by  approximately  $204,000 in principal
payments under capital  leases and  approximately  $6,646,000  which was applied
toward the repayment of the Facility.

     The Company has suffered  recurring  losses from  operations and net losses
since inception,  and it has not generated cash from operations since inception.
The Company's  operations  and its purchases of property and equipment to expand
its  subscriber  base have been funded  primarily from the Company's last equity
financing,  which  occurred  in July  1999.  During  the last half of 2000,  the
Company  began to borrow  against its senior credit  facility (the  "Facility").
Under the  Facility,  the  Company  has the  ability to borrow up to $25 million
until December 31, 2002,  subject to borrowing base  limitations  and compliance
with financial and operations covenants, at which time the Facility will convert
to a  five-year  term loan.  The  Company,  however,  did not have access to the
remaining  available  borrowing  base as it was not in  compliance  with certain
covenants in the Facility as of June 30, 2002.  The holder of the Facility  must
waive the covenant  violations or amend the Facility in order for the Company to
have access to the remaining  available  borrowing base. In May 2002, the holder
of the Facility temporarily waived the covenant violations in order to allow the
Company to borrow additional funds. There can be no assurance, however, that the
holder of the Facility  will  continue to provide  access to the  Facility  with
similar future amendments. As a result of the existing covenant violations,  the
amount outstanding under the Facility as of June 30, 2002 has been classified as
a current liability in the accompanying condensed consolidated balance sheet.

     The Company is currently  dependent  upon  borrowings  from the Facility to
fund operations. Management is currently working with the holder of the Facility
to obtain an amendment to waive the existing covenants  violations and to revise
future  covenant  requirements.  The process has been delayed as a result of the
Company's current  negotiations for a possible  acquisition of assets that would
also require bank approval and amendment to the Facility. The Company expects to
obtain a waiver and amend the covenants as part of the required approval of this
transaction;  however,  if the  Company is not  successful  in  completing  this
acquisition,  then management  expects to separately  proceed with obtaining the
necessary  waiver and amendment to the Facility.  There is no assurance that the
holders of the Facility will provide the necessary approvals and amendments,  or
that the  holders of the  Facility  will not call the amount  outstanding.  As a
result,  management  is also  evaluating  alternative  equity  or  debt  funding
sources;  however,  there is no assurance that  management  will be able to find
sufficient   alternative   funding  sources  to  fund  the  operating  and  debt
requirements of the Company.

     The matters  discussed  above raise  substantial  doubt about the Company's
ability to continue as a going concern. The consolidated financial statements do
not  include  any  adjustments  that  might  result  from  the  outcome  of this
uncertainty.

     We maintain various  cancelable and  noncancelable  service  agreements for
telecommunications  services with several LECs and one IXC that commit us to the
LECs' and IXC's  services.  These  agreements  require  minimum  monthly charges
ranging  from $340 to $10,000 per month and have terms  ranging from one year to
10 years.  We also have agreements with certain cable providers to purchase bulk
cable signal at some of our  properties.  The  agreements  provide for us to pay
fixed  monthly  amounts  regardless  of the number of  customers  we have at the
properties.  At June 30, 2002, the fixed minimum  charges for all  noncancelable
agreements over the life of the agreements was approximately $1,243,000.

                                       16

<PAGE>


Preferred Stock Dividends

     On November 20, 2001, the Board of Directors  approved the restructuring of
the  Company's   Series  A  and  Series  B  convertible   preferred  stock.  The
restructuring  included amending certain dividend provisions of the Series A and
Series B convertible  preferred  stock in exchange for the issuance of 5,000,000
shares of the Company's common stock.  After receiving  shareholder  approval on
December 27, 2001, the amendment and exchanges of shares was declared  effective
on December 31, 2001. The amended convertible preferred stock provisions contain
terms that are  substantially  consistent with prior preferred stock  provisions
with the exception of a revision to the prior dividend rate of 12.0%,  which was
revised so that: no dividends are paid through  December 31, 2003;  beginning on
January 1, 2004 through  December 31, 2004  dividends  will be paid at a rate of
2.0%;  beginning on January 1, 2005 through  December 31, 2005 dividends will be
paid at a rate of 4.0%; and,  beginning on January 1, 2006 and beyond the stated
dividend rate will be 6.0%.

     As a result of this  restructuring,  the Company determined the fair market
value for the newly issued common stock and amended convertible  preferred stock
based on the average daily closing price of common stock on the Nasdaq  exchange
for  the  10-day  period   immediately   prior  to  the   announcement  of  this
restructuring and using comparative fair values of similar convertible preferred
securities  of public  companies,  respectively.  The combined fair value of the
newly issued common stock and amended convertible preferred stock was determined
to be $22.6 million, resulting in a discount of approximately $11.6 million from
the value of the preferred stock prior to the amendment of its terms. Based upon
the fair values recorded,  the amended convertible preferred stock will yield an
effective  dividend  rate of  9.0%  on the  carrying  value  of the  convertible
preferred stock.

     The accompanying  condensed  consolidated  statements of operations for the
three months ended March 31, 2001,  reflects the preferred stock dividend at the
12% rate in effect during that period. For the three months ended June 30, 2002,
the  preferred  stock  dividend is reflected at the 9% dividend  rate  discussed
above, and the dividend has been recorded as a charge to the accumulated deficit
with a corresponding increase to the carrying value of the Series A and Series B
convertible  preferred stock. The Company will continue to increase the carrying
value of its Series A and Series B convertible  preferred stock until January 1,
2006,  at which  time the  stated  dividend  rate will  yield  the 9%  effective
dividend rate.

Adoption of New Accounting Standards

     In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No.  141,  "Business  Combinations"  and  SFAS  No.  142,  "Goodwill  and  Other
Intangible  Assets."  SFAS  No.  141  requires  that all  business  combinations
subsequent  to June 30,  2001 be  accounted  for  under the  purchase  method of
accounting.  On January 1, 2002, the Company adopted SFAS No. 142 which requires
that goodwill and other intangible assets with indefinite useful lives no longer
be amortized.  This statement also requires that within the first interim period
of adoption,  the intangible  assets with indefinite  lives should be tested for
impairment as of the date of adoption,  and that if any impairment  results,  it
should be recognized as a change in accounting principle. Additionally, SFAS No.
142  requires  that,  within six months of  adoption,  it should be measured and
recorded before the end of the year of adoption.  SFAS No. 142 requires that any
goodwill  impairment  loss  recognized  as a result of  initial  application  be
reported  in the first  interim  period of  adoption  as a change in  accounting
principle  and that the  income  per share  effect of the  accounting  change be
separately  disclosed.  The adoption of SFAS No. 142 on January 1, 2002 resulted
in a write down of goodwill of  approximately  $3.1 million.  The write down has
been recorded as a cumulative effect of a change in accounting  principle in the
accompanying condensed consolidated  statements of operations for the six months
ended June 30, 2002 (see Note 4).

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     Not applicable.

                                       17

<PAGE>


                           PART II. OTHER INFORMATION

Item 1. Legal Proceedings

     There are no material  existing or pending legal  proceedings  to which the
Company is a party.

Item 2. Changes in Securities

     Not applicable.

Item 3. Defaults Upon Senior Securities

     As of June  30,  2002,  the  Company  was not in  compliance  with  certain
quarterly  minimum  financial  covenants of its senior credit facility and, as a
result, the Company is in default of this obligation. As of August 14, 2002, the
total  amount  outstanding  under the senior  credit  facility is  approximately
$13,550,254.

     The Company is  currently  in default of three  obligations  under  capital
lease. The Company has not remitted  payments due under these  obligations since
May 2002.  As of August  14,  2002,  the  Company  has  failed to make  payments
totaling  approximately  $228,000,  and the total amount outstanding under these
obligations, including unpaid interest, is approximately $1,006,000.

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

     Not applicable.

Item 5. Other Information

     None.

Item 6. Exhibits and Reports on Form 8-K

     (a) Exhibits

          Exhibit No.                              Description
          -----------     ------------------------------------------------------
             99-1         Certification Pursuant to Section 906 of the Sarbanes-
                          Oxley Act of 2002


     (b) Reports

         We filed  on  Form  8-K on July 19,  2002  under  Item 4,  "Changes  in
     Registrant's Certifying Accountant," announcing the change in the Company's
     auditor from Arthur  Andersen LLP to Fitts Roberts & Co.,  P.C.,  and under
     Item 5,  "Other  Items  Deemed  Important  to  Company  Security  Holders,"
     announcing  the  one-year  extension  on the  expiration  date of 1,633,889
     warrants originally set to expire on July 28, 2002.

          We filed on Form  8-K/A on July 29,  2002 under  Item 4,  "Changes  in
     Registrant's Certifying Accountant," to amend our July 19, 2002 filing.


                                       18

<PAGE>




                                   SIGNATURES

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

                                    USOL HOLDINGS, INC.


                                    By:    /s/ James Livingston
                                           -------------------------------------
                                           James Livingston
                                           President and Chief Executive Officer

                                    By:    /s/ Shane Menking
                                           -------------------------------------
                                           Shane Menking
                                           Chief Financial Officer (Principal
                                           Financial and Accounting Officer)

Dated August 14, 2002



                                       19