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                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

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

                                   Form 10-KSB

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

               SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR

                             ENDED DECEMBER 31, 1999

                                       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                 (I.R.S. Employer
                jurisdiction of                 Identification No.)
                incorporation or
                 organization)

                             10300 Metric Boulevard
                               Austin, Texas 78758
                    (Address of principal executive offices)
       Registrant's telephone number, including area code: (512) 651-3767

                  Securities registered under Section 12(b) of
                  the Exchange Act: None Securities registered
                    under Section 12(g) of the Exchange Act:
                           Common Stock, no par value
                                (Title of Class)
                         Common Stock Purchase Warrants
                                (Title of Class)

     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 [ ]

     Check here if there is no disclosure  of  delinquent  filers in response to
Item 405. [X]

     The issuer's revenues for its most recent fiscal year was $3,140,163.

     The aggregate market value of the voting stock held as of March 20, 2000 by
nonaffiliates of the issuer was $58,447,403, based on the last sale price of its
Common Stock on such date. As of March 20, 2000, the issuer had 7,499,853 shares
of its no par value Common Stock issued and outstanding.

     Transitional Small Business Disclosure Format. YES [ ] NO [X]
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<PAGE>

                                      INDEX

PART I

Item 1.    Business

The Company........................................................ 3
Business Strategy.................................................. 4
Business of USOL................................................... 4
USOL Properties.................................................... 4
USOL Products and Services......................................... 5
The USOL Market.................................................... 5
USOL Marketing Strategy............................................ 6
USOL Competition................................................... 7
The Business of TRC................................................ 7
TRC Properties..................................................... 7
TRC Products and Services.......................................... 7
TRC Marketing Strategy............................................. 7
TRC Competition.................................................... 8
Key Suppliers...................................................... 8
Employees.......................................................... 8
Legislation and Regulation......................................... 8

Item 2. Properties................................................ 11

Item 3. Legal Proceedings......................................... 11

Item 4. Submission of Matters to a Vote of Security Holders....... 11

PART II

Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters....................................... 11

Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Introduction...................................................... 11
Results of Operations............................................. 13
Liquidity and Capital Resources................................... 13
Year 2000......................................................... 14
Preferred Stock Dividends......................................... 14
Adoption of New Accounting Standards.............................. 14

Item 7. Financial Statements and Supplementary Data............... 14

Item 8. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure............................... 14

PART III

Item 9. Directors and Executive Officers of the Registrant........ 15

Item 10. Executive Compensation................................... 19

Item 11. Security Ownership of Certain Beneficial Owners
and Management.................................................... 21

Item 12. Certain Relationships and Related Transactions........... 24

PART IV

Item 13. Exhibits and Reports on Form 8-K

Exhibits.......................................................... 24
Signatures........................................................ 25

<PAGE>

                                     PART I

Item 1. Business.

The Company

    USOL  Holdings,   Inc.  (formerly  FirstLink   Communications,   Inc.)  (the
"Company") provides integrated  telecommunications and entertainment services to
residents of multi-family apartment and condominium complexes ("MDUs") in Texas,
Oregon,  Colorado and  Virginia.  Services  provided  include  cable  television
("CATV") and enhanced local and long-distance  telephone services,  collectively
referred  to  as  residential   multi-tenant   services  ("RMTS").   In  certain
properties, we also provide high-speed internet access.

    We provide our services  under right of entry  contracts  ("ROEs")  with MDU
property owners and service agreements with MDU residents.  The ROEs allow us to
exclusively market RMTS services to the property residents.  We offer incentives
to property owners such as royalties, the ability to deal with a single provider
for all  telecommunication  services,  and the  ability to  differentiate  their
property by offering integrated telecommunication services to their residents.

    We also  provide a range of move-in and  lifestyle  enhancement  services to
residents of MDUs through our subsidiary, TheResidentClub.com, Inc. ("TRC"). TRC
provides its services under  exclusive  marketing  agreements  with MDU property
owners.

    On December 15, 1999, our  shareholders  approved a merger (the "Merger") by
and between FirstLink Communications, Inc. ("FirstLink") and USOL Holdings, Inc.
("Holdings")  in a  stock-for-stock  transaction  with  FirstLink  as the  legal
survivor.  Pursuant to the  definitive  merger  agreement,  FirstLink  exchanged
3,175,000  shares of its no par  common  stock,  1,480,000  shares of  preferred
stock,  and 2,084,000  common stock  purchase  warrants (at prices  ranging from
$2.00 to $6.00 per share) for identical  securities  of Holdings.  Additionally,
FirstLink  changed its name to USOL  Holdings,  Inc. The Merger was completed on
December  22,  1999.  At  closing,  the  Company  had 14,954 and 7,085 cable and
telephone  passings,  respectively,  counting 10,072 cable subscribers and 2,780
telephone subscribers. The total purchase price was $32,051,611.

    The Merger was accounted for as a reverse  merger under the purchase  method
of accounting.  Accordingly,  the legal form of the transaction has been ignored
and Holdings has been treated as the accounting acquirer. The excess of purchase
price over the fair market value of FirstLink's  net assets has been recorded as
goodwill and will be amortized over a 10-year period.

    Holdings  was formed on May 12, 1999 for the purpose of  acquiring  entities
providing  telecommunications,  cable  television,  internet  access  and  other
services to residents of MDUs. On July 21, 1999, Holdings through its subsidiary
USOL,  Inc.  ("USOL")  purchased  substantially  all of the assets  and  certain
liabilities  of U.S.  OnLine  Communications,  Inc.  ("US  OnLine").  US  OnLine
provided  telecommunications  and cable television services to residents of MDUs
in Texas,  Virginia  and  Colorado.  Pursuant to the asset  purchase  agreement,
Holdings exchanged 750,000 shares of its common stock valued at $2.00 per share,
warrants to purchase  1,500,000  shares of Holdings' common stock at an exercise
price of $5.50 per share,  and $845,000 of cash. We valued the  warrants,  using
the Black-Scholes  pricing model, at approximately  $1,324,800.  The acquisition
was accounted for under the purchase  method of  accounting.  The total purchase
price was $3,669,800.

    On July 21, 1999,  Holdings  through its subsidiary TRC,  purchased  certain
assets and contract rights from GMAC Commercial Mortgage Corporation ("GMACCM").
Pursuant to the asset  purchase  agreement,  the  purchase  price of  $2,843,800
consisted  of cash of  $2,500,000  and a warrant to purchase  325,000  shares of
Holdings'  common stock at an exercise price of $2.00 per share.  We valued this
warrant,  using the Black-Scholes pricing model, at approximately  $343,800. The
acquisition was accounted for as a purchase with the entire purchase price being
recorded as goodwill.

    The Company was  organized in 1995 under the laws of the State of Oregon and
our headquarters are located at 10300 Metric Boulevard, Austin, Texas 78758. Our
telephone number is (512) 651-3767.

    We currently have ROEs with 84 residential  developments  in seven cities in
the  United  States.  As of  December  31,  1999,  63 of those  properties  were
operational,  all in Austin, Dallas/Ft. Worth, Denver, Portland, San Antonio and
Washington,  D.C.,  representing 30,748 operational passings. As of December 31,
1999,  the  Company  had  11,919,  4,171  and 74 CATV,  telephone  and  Internet
customers, respectively.

<PAGE>

Business Strategy

    Our  primary  objective  is  to  become  the  leading  provider  of  bundled
communications and ancillary services to residents of MDUs in the United States.
We plan on  accomplishing  this objective by operating two separate and distinct
businesses: 1) our bundled telecommunication services business conducted through
USOL and 2) our move-in and lifestyle  enhancement  business  conducted  through
TRC.

Business of USOL

    We currently  have  operations in seven major  markets:  Austin,  Dallas/Ft.
Worth, Denver, Houston,  Portland, San Antonio and Washington,  D.C. Our plan is
to grow our markets rapidly,  yet prudently,  without sacrificing the quality of
our  services or the  customer's  experience.  We will seek to grow our existing
markets  first,  as we believe that  geographical  clustering  enhances  overall
enterprise  value and results in  operating  efficiencies.  However,  we will be
opportunistic  in looking at new markets,  entering  them only if they appear to
make strategic  geographic sense and offer the opportunity to achieve  immediate
scale in the market.

    We plan on growing our markets by  generating  new ROEs through  traditional
in-house sales efforts as well as through the acquisition of other private cable
operators.  We will target MDUs in our markets with favorable  demographics that
only fit within the parameters of our property capital expenditure profile. Once
we have obtained the ROE, we will seek to maximize  subscriber  penetrations and
revenue by providing a suite of bundled communications  products and services at
competitive prices with superior customer service and support.

USOL Properties

    We currently have ROEs with 84 residential  developments  in seven cities in
the United States,  including properties owned or managed by many of the leading
real estate companies in the United States including Amli Residential Properties
Trust, 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.

    The table below  summarizes our active  operational  passings and subscriber
base as of December 31, 1999:

<TABLE>
<CAPTION>
<S>                             <C>          <C>        <C>       <C>        <C>         <C>         <C>         <C>
                                                Passings                                     Subscribers
                               ---------------------------------------      -----------------------------------------
Market                         CATV      Telephone   Internet    Total      CATV      Telephone   Internet    Total
Austin                         4,018        1,953      1,183      7,154      2,700         728        36        3,464
Dallas/Ft. Worth               3,775        2,888         --      6,663      2,645       1,259        --        3,904
Denver                           968          496         --      1,464        718         166        --          884
Portland                       3,300        3,220      1,006      7,526      1,847       1,391        38        3,276
San Antonio                    5,569        1,124         --      6,693      3,466         361        --        3,827
Washington, D.C. Area            624          624         --      1,248        543         266        --          809
                             -------      -------      -----   --------     ------     -------      ----      -------
Totals                        18,254       10,305      2,189     30,748     11,919       4,171        74       16,164
                              ======       ======      =====     ======     ======      ======       ===       ======

</TABLE>

    The table below  summarizes  our backlog of passings  under contract but not
yet operational at December 31, 1999:

                                           Passings
                               -------------------------------
Market                           CATV      Telephone      Total
Austin                             90         600          690
Dallas/Ft. Worth                   --         561          561
Denver                            150          --          150
Houston                         4,842          --        4,842
Portland                           --          --           --
San Antonio                       200         876        1,076
Washington, D.C. Area              --          --           --
                               ------      ------       ------
Totals                          5,282       2,037        7,319
                                =====       =====        =====

<PAGE>

USOL Products and Services

    We offer  standard and enhanced local and  long-distance  telecommunications
and/or  CATV  services to MDU  residents.  In  addition,  we have begun to offer
high-speed Internet access to some of our communities.

    CATV  Services.  We typically  deliver our CATV services by  re-transmitting
programming signals via antenna and principal headend electronic  equipment that
receive  and  process  signals  from  satellites,  via both  analog and  digital
transmissions.  We obtain our programming through program access agreements with
suppliers of programming.  We also process and distribute  off-air  transmission
signals from local network affiliates and independent  television stations.  Our
system  architecture  generally  eliminates the need for set-top converter boxes
when it is connected to cable-ready  television sets, and enables us to activate
service for subscribers without entering into an apartment.  Many of our systems
currently use 18 GHz microwave relays to link more than one apartment  community
to a single headend,  enabling us to realize greater  economies of scale. In the
future,  we plan to employ the  technology  that  provides  the most  attractive
return on invested capital without  compromising its service. In some instances,
we may simply resell the services of the local franchise cable operator.  We are
also  currently  analyzing  and/or beta  testing  other  technologies  including
digital overlays and interdiction  (automated work order  processing) to provide
expanded and enhanced services.

    We offer  our  subscribers  a full  range of  popular  CATV  programming  at
competitive  prices. Our basic MDU programming package is generally priced below
the  rate  charged  by  incumbent   franchise  CATV   operators,   and  includes
uninterrupted  full-length motion pictures,  regional sports channels,  sporting
events,  concerts,  and  other  entertainment  programming.   Premium  channels,
including HBO(TM),  Cinemax(TM),  Showtime(TM),  and The Disney Channel(TM), are
generally  offered  individually  or in discounted  packages with basic or other
services. In addition, we offer each property its own dedicated channel,  called
"Community  Link,"  that  provides  on-site   management  with  the  ability  to
communicate  electronically  with residents.  Communities with controlled access
are outfitted with surveillance  cameras that allow residents to view traffic at
the access gates.

    Telephony  Services.  We currently  purchase standard and enhanced local and
dedicated  long-distance  telephony  services in bulk via T-1 based connectivity
from local exchange  carriers  ("LECs"),  competitive  local  exchange  carriers
("CLECs"), and interexchange carriers ("IXCs"). We offer local and long-distance
telephony   services  to  customers   through  our  networked,   central  office
telecommunications  platforms.  Telephony services offered include call waiting,
call  forwarding,  caller ID and voice mail. We do not permit customers to place
900-number  calls or use related type  services,  in part to limit the potential
credit risk  generally  associated  with such calls,  and in part because of the
additional expense associated with billing such calls. Our switching systems are
software-driven  and  capable  of  feature  enhancement  and  efficient,  remote
servicing through software interfaces.

    Internet Services. We provide high-speed (1 mbps) Internet access to certain
apartment  communities.  We  provide  our  dedicated  connection  utilizing  the
existing copper wire infrastructure of the apartment community. Each property is
then connected to the network  backbone,  via a T-1 or digital  subscriber  line
("DSL") connection.

    During  2000,  we are  planning  to beta  test  high-speed  Internet  access
utilizing cable modem  technology.  If such tests are successful,  we anticipate
providing such services to additional apartment  communities.  Additionally,  we
also  anticipate  introducing  a dial-up  Internet  access  product as well,  by
reselling the services of a major Internet service provider ("ISP").

The USOL Market

    The United States telecommunications industry is large and robust. The cable
television  industry's revenues exceed $28 billion while local and long-distance
telephone  traffic is in excess of $200  billion.  It has been  estimated by the
Yankee Group that the MDU market  presents an  approximately  $20 billion annual
revenue opportunity.

    As a result of technological and regulatory  changes that have occurred over
the past few years, smaller companies have been able to compete more effectively
in the CATV and telephony markets  traditionally  dominated by larger companies.
This shift has enabled the RMTS industry to evolve as an early stage  competitor
in the CATV and telephony markets. The potential market for RMTS remains largely
undeveloped,   creating   significant   opportunities  for  companies  with  the
technological,   operational  and   administrative   ability  to  manage  growth
effectively.  It has been  estimated by the Yankee Group that only 5% of the MDU
market is being served by an RMTS  provider.  First,  there are few  competitors
relative to the size of the  potential  market,  which is estimated to be nearly
4.5 million units across the United States located in MDUs of 200 units or more.
Second, RMTS providers can offer their services  selectively and customize their
products  and  service  offerings  to meet the  specific  demands  of  apartment
residents. Due to their lower cost structure,  reduced regulatory oversight, and
economies of scale  realized  from an  increased  range of products and services
offered,  RMTS  providers  can  generally  offer  revenue-sharing  agreements to
property owners to induce them to enter into long-term ROEs.

<PAGE>

    The regulatory  environment in the  telecommunications  industry has changed
dramatically  over the past few  years.  In  1990,  the  Federal  Communications
Commission  (the  "FCC")  mandated  that  states act to shift the  ownership  of
telephone  wiring in customer  premises from regional bell  operating  companies
("RBOCs") to property owners.  This decision relieved  regulated local telephone
companies  of the burden of wire  maintenance  and  allowed  property  owners to
decide how to use  existing  wiring.  This  regulatory  development  created the
opportunity for private telecommunications  operators to serve MDUs as resellers
of local telephone network services. In the past, however, the cost of switching
equipment  and tariffs in local and  long-distance  exchange  markets  prevented
private telecommunications operators from taking advantage of this opportunity.

    Recent  changes in the  telecommunications  industry  have  enabled  private
telephone  operators  to  package  and  resell a variety  of  telecommunications
services to MDU residents at competitive  prices.  These changes include (i) the
development of highly reliable,  efficient, low-cost private branch exchange and
switching  equipment,   (ii)  the  proliferation  of  fiber  optic  transmission
capacity,  and (iii) the  gradual  decrease  in  barriers  to entry  into  local
markets.  While these changes have created  opportunities  for private telephone
operators,  they have also created  pricing  pressures  which may depress profit
margins for such private telephone operators in the future.

USOL Marketing Strategy

    We  believe  that it is  important  to enter  target  markets  as quickly as
practicable to establish an early market presence and to gain critical operating
mass in advance of competitors.  We currently target apartment  communities with
200 or more  units.  The  selling  cycle  for  our  services  includes  proposal
presentation, contract negotiations and service implementation, a cycle that can
require  more  than six  months to  complete.  While we plan to  bolster  growth
through acquisition,  securing new ROEs through direct marketing efforts is also
an  integral  part of the  Company's  strategy  to grow  and  achieve  operating
efficiencies.

    While royalty  arrangements  encourage property owners to enter into service
agreements  with us, we  believe  that  delivery  of  competitive  products  and
superior  customer  service  is the key to  acquiring  ROEs.  We use a  two-tier
strategy.  First,  we  concentrate on entering into ROEs with the large national
owners of high-quality multi-family housing. These property owners are generally
partnerships,  real estate  investment  trusts,  insurance  companies  and other
institutional  owners that control 20,000 or more units.  Second,  we market our
services  to  smaller  owners  whose  properties  typically  lie within a single
geographic market.

    We offer property owners and management  companies an attractive new revenue
source in the form of royalties. Under our royalty arrangements, property owners
generally are paid a percentage of gross monthly receipts collected for services
delivered by us to  subscribers on a property.  The percentage  paid to property
owners under this  arrangement  typically varies depending upon the total number
of  subscribers  to our  services in  relation  to the total  number of dwelling
units. We negotiate  long-term ROEs with owners of large MDU portfolios  because
we believe that strategic relationships with these owners are critical to market
penetration and long-term  success.  These ROEs generally  provide for a term of
eight to 15 years and give us the  right to be the  exclusive  provider  of CATV
services and a  nonexclusive  provider of telephony  and related  services.  The
property owner typically  agrees to market and promote our telephony and related
services exclusively.

    Once we have obtained the ROE and have  activated  services on the property,
we  utilize  the  on-site  leasing  personnel  to  market  our  services  to the
residents,  which  typically  takes place at the time the  residents  sign their
leases. We package our services at competitive  prices, and usually discount the
installation  prices compared to the  competition.  For the resident,  this easy
sign-up  process  eliminates  the  need for them to  contact  several  different
service  providers,  and saves  them  money and time.  In  addition,  we usually
schedule  service  installations  and assign phone  numbers prior to the move-in
date of the resident.  This  eliminates  the  inconvenience  for the resident of
having  to  meet  the  installation  technicians,   as  is  the  case  with  the
competition.  All of the  services  are  billed  on a  single  invoice,  and the
resident  only has one  company to contact for any  questions  or  concerns.  We
believe  that the  combination  of  convenience,  savings,  and quality  service
presented  to the resident at the time of move-in is a very  powerful  marketing
advantage.  Additionally,  the leasing agents are given an incentive to sell our
services,  since we pay them  commissions  (directly  or  through  the  property
owner's management company) for signing up existing residents and new residents.
The leasing  agents are trained by us and are provided with  marketing and other
support literature to facilitate sales of our products and services.

    Our acquisition strategy is to pursue small private cable operators that are
not of high priority to the local franchised CATV provider  ("MSO").  We believe
that we can acquire these passings at relatively low valuations.

<PAGE>

USOL Competition

    The market for CATV and telephony services is highly competitive. We compete
for ROEs  with  MSOs,  other  private  cable  operators  and  telecommunications
providers.  Under the terms of our ROEs,  we  generally  are required to provide
products and services that are competitive with those offered by other cable and
telecommunications  providers.  We compete for  customers on the basis of price,
services  offered  and  customer  service.  MSOs  and  Regional  Bell  Operating
Companies ("RBOCs") represent our principal  competition.  These competitors are
typically very large companies with  significantly  greater resources than ours.
Our principal  Residential  Multi-Tenant Service ("RMTS") competitors are OpTel,
Inc. and OnePoint Communications, L.L.C.

The Business of TRC

    In July 1999, we acquired  exclusive  marketing  agreements from GMACCM that
allow us to provide various services to residents of MDUs. It is our plan to use
these rights to provide  "move-in" and "lifestyle  enhancement"  services to the
residents utilizing the Internet.

    TRC is  currently  serving  its  customers  by using a fax  server  that was
acquired from GMACCM. It is management's plan to migrate the current business to
an Internet-based platform and expand the number of properties served as well as
the products and services  offered.  This new business model is currently in the
development  stage and we expect to launch our first  beta tests in April  2000.
Accordingly,  the following  discussion  relates to how we envision the business
operating in the future.

TRC Properties

    We currently have marketing  agreements acquired from GMACCM with over 2,000
residential   apartment  communities  in  40  states  owned  or  managed  by  51
organizations.  Our marketing  agreements  generally  have terms of two years or
less.

TRC Products and Services

    Move-in services will typically include the ability to initiate  third-party
services including local and long-distance  telephone service,  cable television
service,  newspaper  delivery,  the ability to purchase renters insurance and an
option to rent furniture and appliances all at the time the resident signs their
lease. In most instances,  the telecommunications  services being initiated will
be provided by competitors  of USOL. In some  instances,  the  telecommunication
services will be provided by USOL.  Contracts  currently  exist with US WEST and
Bell Atlantic to provide local  telecommunications  services, and with Sprint to
provide long-distance telecommunication services.

    Move-in  services will be available to all new  residents  free of charge to
the resident.  We will be  compensated  by the providers of the services that we
initiate.

    Lifestyle enhancement services will be provided to paying members only. Such
services will include,  but are not limited to, free Internet access,  unlimited
E-mail  services,  the ability to pay rent or schedule  maintenance  through the
web,  free  on-line  banking,  and other  services.  Additionally,  we will also
develop and maintain local content for web sites designed  specifically for each
apartment community that we serve.  Membership fees will vary depending upon the
speed of Internet access that is desired.

    We will also provide "move-out"  services to our members when they leave the
apartment  community.  Such services will include  telecommunications  and cable
television service disconnection,  truck rentals, and storage services.  Members
will be  allowed  to  maintain  their  memberships  in TRC after  they leave the
community.

TRC Marketing Strategy

    We will focus  initially on MDU  communities  with 250 units or greater.  We
will  concentrate on entering into agreements with large national owners of MDUs
such as REITs,  insurance companies and partnerships that control 20,000 or more
units.  Because  our  business  is not  constrained  by the need to build  local
facilities,  we can offer our services on a national  basis without the need for
geographic  clustering.  Property  owners and managers are interested in our TRC
services  because it allows them to  differentiate  their  properties while also
providing a source of  revenue.  Additionally,  we plan to  "private  label" the
services we provide so that it appears to the  resident  that the  services  are
being provided by the apartment community.

<PAGE>

    Once the agreement  with the property  owner has been signed,  we can market
our  services to the  residents.  Services  and  membership  will  generally  be
initiated by using a  browser-based  tool that will be located on a  specialized
kiosk in the  leasing  office.  Residents  will be directed to the kiosks by the
leasing  agents who will be incented to do so. For those  residents  who may not
want to use the kiosk, the leasing agent will be able to fax in, or the resident
will be able to call in, the requested membership or services.

TRC Competition

    TRC's  competition  can be divided into five distinct  areas: 1) Large cable
and telecommunications  providers that seek to provide similar services into the
MDU market and have existing programs for property owners. These include many of
TRC's current partners,  such as US West, Bell Atlantic, Time Warner and TCI; 2)
Large REITs and MDU property  managers that believe they can develop and provide
these  services  more  efficiently  into  their  customer  base,  such as Equity
Residential,  AIMCO and Archstone;  3) Small,  start-up Internet  companies that
have developed a local solution for one or more local MDU  communities,  such as
therent.com and  essential.com  and larger  Internet  companies that address the
real estate market by providing a link between  potential renters or home buyers
and available real estate,  including  rent.net,  apartmentguides,  viva.com and
HomeStore;   4)  High-speed   Internet   service   development   and  deployment
organizations  that focus on the MDU  market,  such as  BroadBand.Now  (formerly
I3S), CAIS and Darwin Networks; and 5) Generic portals and ISPs that can provide
myCommunity  or  myAffinityGroup  services  off a common  template  for affinity
groups at large (e.g., from Yahoo,  Excite@Home,  Lycos and others),  as well as
free  ISPs  such as  Netzero,  Juno  Online,1stUp,  altavista,  surfree.com  and
freei.net.

Key Suppliers

    Neither USOL nor TRC are materially dependent upon any one supplier of goods
or services.

Employees

    At December 31, 1999, we employed 115 persons on a full-time basis. Of these
employees,  21 were  administrative  or  management,  19 were  in the  areas  of
customer  service  and  billing,  63 were in  operations  and 12 were at TRC. We
believe our relationship with our employees to be good and none of the employees
are union members. All of the Company's employees are at will with the exception
of certain Executive Officers whom have employment agreements.

Legislation and Regulation

  Government Regulation--General

    USOL's  business  is subject  to  regulations  under both state and  federal
telecommunications  laws  which  are fluid and  rapidly  changing.  On the state
level,  rules and policies are set by each state's Public Utility  Commission or
Public Service Commission ("PUC" or "PSC"). At the federal level, the FCC, among
other  agencies,  dictates  the  rules  and  policies  which  govern  interstate
communications  providers. The FCC is also the main agency in charge of creating
rules and regulations to implement the 1996 Telecommunications Act.

  Government Regulation--CATV Regulatory Issues

    Regulatory Status and Regulation of Private Cable Operators. Franchise cable
operators are subject to a wide range of FCC regulations  regarding such matters
as the rates  charged for certain  services,  transmission  of local  television
broadcast signals, customer service standards/procedures,  performance standards
and system testing requirements.  In addition,  the operator's franchise,  which
can be  issued  at the  municipal,  county  or state  level,  typically  imposes
additional  requirements  for operation.  These relate to such matters as system
design and construction, provision of channel capacity and production facilities
for public educational and government use, and the payment of franchise fees and
the provision of other "in kind" benefits to the city.

    The operator of a video distribution  system that serves subscribers without
using any public right-of-way, referred to generally as a private cable operator
("PCO"), is exempt from the majority of FCC regulations applicable to franchised
systems which do use public rights-of-way. Moreover, a state or local government
cannot impose a franchise requirement on such operators.

    In an attempt to remain  exempt  from  extensive  FCC  regulation  and local
franchising   requirements,   we  intend  to   continue  to  confine  our  video
distribution  facilities to contiguous  private property and obtain  programming
primarily via satellite  master  antenna  television  ("SMATV")  facilities  and
digital ("DBS") transport.  In some instances, we rely on 18 GHz microwave links
to cross public

<PAGE>

rights-of-way where necessary and technically and economically feasible. The use
of microwave  frequencies to transmit video signals across a public right-of-way
is not  considered  a "use" of the  right-of-way  sufficient  to trigger a local
franchising requirement or FCC regulation applicable to franchised operators. We
intend to be a private cable operator in all of the markets that we serve.

    The use of 18 GHz microwave links nationwide could be affected  generally by
two  ongoing  proceedings  at the  FCC.  In the  first  proceeding,  the  FCC is
considering  whether to provide for routine "blanket" licensing of large numbers
of small antenna earth stations in a range of frequency  bands  including the 18
GHz band. If the proposed operations are allowed, it is possible that we will be
required to use more  sophisticated  and more  expensive  equipment  to maintain
signal quality in our point-to-point 18 GHz microwave links. It is also possible
that the  proposed  operations  would cause  interference  with these links that
could not be remedied entirely. In the second proceeding,  initiated on April 1,
1998,  the FCC has  been  asked  to  authorize  the use of the 12 GHz  band  for
transmission  of  video  programming.  Such  action  would  expand  the  general
availability  of  microwave  links.  More  importantly,  a 12 GHz link can cover
approximately  twice the distance of an 18 GHz link and consequently would allow
us to integrate systems over a larger area.

    Even  structuring  our operations in the foregoing  manner,  we will have to
comply with various FCC rules, including the following: the FCC's signal leakage
rules,  which require  monitoring and testing of its  facilities,  various Equal
Employment Opportunity requirements (including annual reports and implementation
of a  nondiscrimination  policy  and  a  positive  program  to  encourage  equal
opportunity),  requirements  that we obtain the consent of commercial  broadcast
stations for  transmission  of the  stations'  signals and rules  requiring  the
closed captioning of programming.

    Access to Property. Federal law provides franchise cable operators access to
public  rights-of-way and certain private easements.  These provisions generally
have  been  limited  by the  courts  to apply  only to  external  easements  and
franchise  operators  have not been  able to use  these  rights  to  access  the
interior  of  MDUs  without  owner  consent.  In some  jurisdictions,  franchise
operators  have been able to use state or local  access  laws to gain  access to
property over the owner's objection and in derogation of a competing  provider's
exclusive contractual right to serve the property.  These statutes,  referred to
as  "mandatory  access"  provisions,  typically  empower  only  franchise  cable
operators  to  force  access  to an  MDU to  provide  service  to the  residents
regardless  of whether the owner  objects or has entered into a contract with an
alternative  provider of video services such as us. Thus, in jurisdictions where
a mandatory  access  provision has been enacted,  a franchise  operator would be
able to access an MDU and provide  service in competition  with us regardless of
whether we have an  exclusive  ROE with the  owner.  The  ability  of  franchise
operators  to force access to an MDU and take a portion of the  subscriber  base
could  negatively  effect our operating margin at a particular  property.  It is
often the case,  particularly  at the local  level,  that the  mandatory  access
provision is suspect under  constitutional  principles because,  for example, it
does not provide the MDU owner compensation for the "taking" of its property.

    The  FCC  has  recently  granted  direct  broadcast  satellite  ("DBS")  and
multi-channel,  multi-point  distribution service ("MMDS") operators rights on a
national  basis  similar to the  mandatory  access  provided to franchise  cable
operators in some state and local jurisdictions.  The FCC recently adopted rules
prohibiting  homeowners  associations,  manufactured housing parks and state and
local governments from imposing any restriction on a property owner that impairs
the owner's installation,  maintenance or use of DBS and MMDS antennas one meter
or less in diameter or diagonal measurement.  To date, our business has not been
significantly impacted by these rights.

    Inside Wiring. Last year, the FCC issued new rules governing the disposition
of inside wiring by incumbent operators in MDUs upon termination of service when
the incumbent  operator owns the wiring. In some instances,  a new provider such
as us faces  difficulty  in taking over a property  because the ownership of the
wiring is  uncertain or  contested  and the property  owner is hesitant to allow
installation  of  additional  wiring.  The new  rules  address  this  issue  and
facilitate competition from new providers by requiring the incumbent operator to
choose  between sale,  removal or  abandonment of the wiring within certain time
constraints and by allowing installation of wiring within an incumbent's molding
in certain  instances.  The rules are  currently  the subject of  petitions  for
reconsideration  at the FCC and at least one  judicial  challenge  in the Eighth
Circuit Court of Appeals.

    In conjunction  with the issuance of the inside wiring  provisions,  the FCC
sought comment on a number of related issues which it will address in new rules.
It is  considering,  among  other  things,  whether  to (i)  adopt  a cap on the
duration of exclusive contracts equal to the amount of time reasonably necessary
to  recover  capital  costs (the FCC has  preliminarily  proposed a cap of seven
years); (ii) limit the ability of multi-channel  video programming  distributors
("MVPDs")  with market  power  (typically  the local  franchisee)  to enter into
exclusive contracts,  (iii) take action to address the anti-competitive  effects
of perpetual exclusive contracts (those continuing though all future renewals of
the franchise),  such as by allowing MDU owners to void these contracts pursuant
to a "fresh look" mechanism;  (iv) require competing providers to share a single
system of wiring;  (v) extend  existing  rules on cable home wiring (that wiring
within residential units up to twelve inches outside each unit) to all MVPDs and
not just  franchise  operators;  and/or (vi)  extend

<PAGE>

rights of  subscribers  to  install  their own cable  wiring  within  MDUs.  The
comments  filed  in this  proceeding  are  divided  on  many  of the key  issues
regarding treatment of exclusive and perpetual contracts.

    Given the limited subscriber base at MDUs, it is important for us to be able
to rely upon  exclusive  contracts  as a means of  maximizing  our  revenue at a
particular  property.  Thus, if in  implementing  rules to address the foregoing
issues,  the FCC imposes too short a cap on  exclusive  contracts  or  otherwise
unduly  limits  their  use,  it could  have a  material  adverse  effect  on our
business,  financial  condition  and results of  operations.  In  addition,  the
perpetual  contracts often utilized by franchise  operators inhibit  competition
from alternative  providers such as us or stifle it altogether if such contracts
are  exclusive.  If the FCC does not grant MDU  owners  broad  enough  powers to
extricate  themselves  from perpetual  contracts with franchise  operators,  the
number of MDUs at which we could compete would be diminished, which could have a
material  adverse  effect on our  business,  financial  condition and results of
operations.

    Regulation of Franchise Cable Television  Rates. The FCC regulates the rates
that franchise  cable systems charge for basic monthly  service,  expanded basic
service and certain customer premises equipment.  As an exception to the general
uniform rate requirement,  the regulations allow certain "bulk" discounts to MDU
customers,  enabling franchise cable systems to be more competitive with private
operators  such as us.  In  addition,  rate  regulation  does  not  apply if the
franchise  operator is subject to "effective  competition" as defined by the FCC
or if the operator  qualified  for the "small  operator"  exemption.  The FCC is
currently  considering  revisions  to  the  uniform  rate  regulations  and  the
foregoing  exemptions,  which  revisions may affect the level of protection  the
regulations  afford private  operators.  More generally,  the regulations do not
prohibit  discriminatory pricing for services other than rate-regulated services
and associated  installation and equipment costs.  Although  regulation of rates
for expanded  basic service is scheduled to be eliminated in March 1999,  recent
cable rate  increases  have  resulted  in  pressure  on  Congress to extend this
"sunset" date.

    Actions by the FCC that expand the  freedom of  franchise  operators  to set
rates or the  termination of rate  regulation  altogether  could allow franchise
operators to subsidize  competition at MDUs through their  citywide  operations.
This could have a material adverse effect on our business,  financial  condition
and results of operations.

    Copyright.  The  broadcast  programming  to be  distributed  by us  contains
copyrighted  material.  Accordingly,  we pay  copyright  fees  for  use of  that
material (copyright liability for  satellite-delivered  programming is typically
assumed by the supplier).  The U.S. Copyright Office recently ruled that private
systems located in "contiguous communities" (or operating from one headend) will
be treated as one system and that the revenue for such  systems must be combined
in the  calculation  of copyright  fees. If the combined  revenue figure is high
enough,  it results in more  complicated  fee  calculations  and higher fees. We
intend to structure  our  programming  to minimize the revenue  associated  with
retransmission  of  television  and radio  broadcasts in an effort to maintain a
simplified  filing status and to reduce our copyright  liability in the event we
must file under the more complicated formula.

  Government Regulation--Telephony Regulatory Issues

    In providing  telecommunications  services to our customers, we will operate
as either a shared  tenant  service  ("STS")  provider  or a  competitive  local
exchange carrier ("CLEC"),  as well as an interexchange  carrier ("IXC").  Fewer
than a dozen states impose  certification  and/or tariffing  requirements on STS
providers, while virtually all states do so with respect to CLECs. While the FCC
and a majority of states impose certification  and/or tariffing  requirements on
IXCs,  federal and state regulation of IXCs has been relaxed  substantially over
the  past  few  years.  CLECs  remain  subject  to a wide  array  of  regulatory
constraints  and  obligations.  By  contrast,  regulation  of STS  providers  is
minimal.  We  are  certified  as a CLEC  in  the  states  of  Colorado,  Oregon,
Washington,  and Texas and  intend to seek like  authority  when we enter  other
states.  We also have authority to operate as an IXC in the same states and will
seek authority to act as an IXC to the extent such authority is required when we
enter new states. To date, we have never operated as a CLEC.

    The 1996 Act opened the local  telecommunications  markets to competition by
mandating  the  elimination  of  legal,  regulatory,  economic  and  operational
barriers to competitive  entry. These changes provided us with new opportunities
to provide local telephone  services on a more  cost-effective  basis.  The 1996
Act,  however,  also provides the RBOCs with a means to enter the  long-distance
market, which introduced a number of substantial new competitors in that market.
On  balance,   we  believe   that  we  will  benefit   significantly   from  the
market-opening provisions of the 1996 Act.

<PAGE>

Item 2. Properties.

    The  corporate   headquarters  and  national  customer  service  center  are
currently  located at 10300 Metric Boulevard in Austin,  Texas, in approximately
28,000 square feet of commercial space under a long-term lease. We also maintain
leased facilities in Farmer's Branch and San Antonio,  Texas; Portland,  Oregon;
and McLean, Virginia.

Item 3. Legal Proceedings.

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

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

    Pursuant to a proxy statement dated November 8, 1999, the Company  submitted
the  proposal  to enter  into the  Merger to its  security  holders at a special
meeting held December 15, 1999. The Merger was approved by the shareholders by a
vote of 2,370,886  For,  890 Against,  and 8,250  present but  abstaining,  with
1,326,953 shares treated as broker non-votes.

                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

    Our common stock and certain  common stock  purchase  warrants  trade on the
Nasdaq  National  Market System  ("NMS")  under the symbols  "USOL" and "USOLW",
respectively.

    Set forth in the following  table are high and low bid  quotations  for each
quarter in the fiscal year ended  December 31, 1999.  The Company  completed its
initial public offering ("IPO") on July 27, 1998 and, accordingly,  there was no
public  market  for its stock or  warrants  prior to that date.  The  quotations
represent   inter-dealer   quotations  without  retail  markups,   markdowns  or
commissions, and may not represent actual transactions:

                                             Common Stock           Warrants
                                            ---------------     ----------------
             Quarter Ended                  High       Low       High       Low
-----------------------------------------   -----     -----     ------    ------
September 30, 1998.......................   $4.50     $1.50     $  .56    $  .13
December 31, 1998........................   $2.31     $1.13     $  .25    $  .06
March 31, 1999...........................   $2.37     $1.69     $  .22    $  .06
June 30, 1999............................   $6.75     $1.72      $1.88    $  .19
September 30, 1999.......................   $5.56     $4.13      $1.50    $  .81
December 31, 1999........................   $8.00     $3.75      $1.88    $  .88

    There were approximately 753 holders of record of the Company's common stock
as of March 20, 2000.

    No dividends  have been declared or paid by us related to common stock,  nor
do we  anticipate  paying cash  dividends  on the shares of common  stock in the
foreseeable future.

Item 6. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations.

Introduction

    The  following   discussion  of  the  financial  condition  and  results  of
operations of the Company,  the  description  of our business,  as well as other
sections of this Form 10-KSB contain  certain  forward-looking  statements.  Our
actual  results  could differ  materially  from those  discussed  herein and the
current  business  plans could be altered in response to market  conditions  and
other factors beyond our control.

    We provide  integrated  telecommunications  and  entertainment  services  to
residents of multi-family apartment and condominium complexes. Services provided
include  cable  television  and  enhanced  local  and  long-distance   telephone
services. In certain properties, we also provide high-speed Internet access. Our
primary objective is to become a leading provider of RMTS in the United States.

<PAGE>

    On December 15, 1999, our  shareholders  approved a merger (the "Merger") by
and between FirstLink Communications, Inc. ("FirstLink") and USOL Holdings, Inc.
("Holdings")  in a  stock-for-stock  transaction  with  FirstLink  as the  legal
survivor.  Pursuant to the  definitive  merger  agreement,  FirstLink  exchanged
3,175,000  shares of its no par  common  stock,  1,480,000  shares of  preferred
stock,  and 2,084,000  common stock  purchase  warrants (at prices  ranging from
$2.00 to $6.00 per share) for identical  securities  of Holdings.  Additionally,
FirstLink  changed its name to USOL  Holdings,  Inc. The Merger was completed on
December 22, 1999. The total purchase price was $32,051,611.

    The Merger was accounted for as a reverse  merger under the purchase  method
of accounting.  Accordingly,  the legal form of the transaction has been ignored
and Holdings has been treated as the accounting acquirer.

    Holdings  was formed on May 12, 1999 for the purpose of  acquiring  entities
providing  telecommunications,  cable  television,  internet  access  and  other
services to residents of MDUs. On July 21, 1999, Holdings through its subsidiary
USOL,  Inc.  ("USOL")  purchased  substantially  all of the assets  and  certain
liabilities  of U.S.  OnLine  Communications,  Inc.  ("US  OnLine").  US  OnLine
provided  telecommunications  and cable television services to residents of MDUs
in Texas,  Virginia  and  Colorado.  Pursuant to the asset  purchase  agreement,
Holdings exchanged 750,000 shares of its common stock valued at $2.00 per share,
warrants to purchase  1,500,000  shares of Holdings' common stock at an exercise
price of $5.50 per share,  and $845,000 of cash. We valued the  warrants,  using
the Black-Scholes  pricing model, at approximately  $1,324,800.  The acquisition
was accounted for under the purchase  method of  accounting.  The total purchase
price was $3,669,800.

    On July 21, 1999,  Holdings  through its subsidiary TRC,  purchased  certain
assets and contract rights from GMAC Commercial Mortgage Corporation ("GMACCM").
Pursuant to the asset  purchase  agreement,  the  purchase  price of  $2,843,800
consisted  of cash of  $2,500,000  and a warrant to purchase  325,000  shares of
Holdings'  common stock at an exercise price of $2.00 per share.  We valued this
warrant using the  Black-Scholes  pricing model at approximately  $343,800.  The
acquisition was accounted for as a purchase with the entire purchase price being
recorded as goodwill.

    As  a  result  of  the   aforementioned   transactions,   the   accompanying
consolidated  statement of operations and cash flows for the Company included in
this Form 10-KSB are those of Holdings  from May 12,  1999  (inception)  through
December 22, 1999 and the results of the Company from  December 23, 1999 through
December 31, 1999.  For purposes of the  following  discussion on the results of
operations,  the table set forth below was used to compare the 1999 results with
those of 1998.  The 1999 amounts  represent  12 months of  operating  results by
combining  the Company's  1999 results (May 12, 1999 through  December 31, 1999)
with those of its  accounting  predecessor,  US OnLine  (January 1, 1999 through
June 30, 1999). The 1998 operating  results are those of US OnLine.  US OnLine's
financial statements are presented elsewhere in this Form 10-KSB.

<TABLE>
<CAPTION>
<S>                                         <C>                <C>             <C>               <C>
                                                             1999                               1998
                                       ------------------------------------------------    -------------
                                          Company         US OnLine         Combined         US OnLine
Revenue                                $   3,140,163    $   2,831,079     $   5,971,242    $   5,108,225
                                       -------------    -------------     -------------    -------------
Expenses:
  Operating                                2,528,953        2,100,739         4,629,692        4,469,879
  Selling, general and
    administrative                         3,186,502        1,554,807         4,741,309        4,454,102
  Depreciation and amortization            1,265,671          878,286         2,143,957        1,532,351
  Stock compensation                       1,023,874               --         1,023,874               --
  Write down of property and
    equipment                                     --               --                --        1,172,468
                                       -------------    -------------     -------------    -------------
                                           8,005,000        4,533,832        12,538,832       11,628,800
                                       -------------    -------------     -------------    -------------
Loss from operations                      (4,864,837)      (1,702,753)       (6,567,590)      (6,520,575)
                                       -------------    -------------     -------------    -------------
Other income (expense), net                  165,608       (1,800,641)       (1,635,033)      (4,964,746)
                                       -------------    -------------     -------------    -------------
Loss before minority interest             (4,699,229)      (3,503,394)       (8,202,623)     (11,485,321)
Minority interest                             10,426            2,414            12,840           37,863
                                       -------------    -------------     -------------    -------------
Net loss                               $  (4,688,803)   $  (3,500,980)    $  (8,189,783)   $ (11,447,458)
                                       =============    =============     =============   ==============

</TABLE>

<PAGE>

Results of Operations

  Year Ended December 31, 1999 Compared to December 31, 1998

    We incurred a net loss of $8,189,783 on a combined  basis for the year ended
December 31, 1999 compared to a net loss of  $11,447,458  for the same period of
the prior  year.  The  decrease  in net loss is due to a  reduction  in interest
bearing debt  instruments  between years combined with interest income earned on
the Company's excess net cash proceeds generated from the sale of $37,000,000 of
preferred stock in July 1999.

    Revenue  increased  $863,017 or 17% between years on a combined  basis.  The
increase in revenue resulted from the addition of 1,645 passings during 1999, as
well as the maturation of certain existing properties.

    Operating  expense  increased  $159,813  or 4%  between  years on a combined
basis.  The  increase  in  operating  expense  was the net  result of  increased
variable cable programming and wholesale long-distance minutes costs, due to the
increase in revenue,  offset by a reduction in field operating costs,  primarily
personnel costs. Operating expense was 78% of revenue in 1999 compared to 88% in
1998.

    Selling, general and administrative expense increased $287,207 or 6% between
years on a combined basis. The increase in selling,  general and  administrative
costs was primarily due to increased personnel costs at the corporate level that
the Company  added  during the latter  half of 1999 it  considers  necessary  to
execute its business plan. Additionally,  royalties paid to property owners also
increased  as a  result  of  the  increase  in  revenue.  Selling,  general  and
administrative expense was 79% of revenue in1999 compared to 87% in 1998.

    Depreciation  and  amortization  expense  increased  $611,606 or 40% between
years on a combined basis. The increase in depreciation and amortization expense
was primarily due to amortization of the goodwill associated with the Merger and
the  asset   acquisitions  by  USOL  and  TRC  during  1999.   Depreciation  and
amortization expense was 36% of revenue in 1999 compared to 30% in 1998.

    Stock compensation  expense primarily relates to the initial sale of 425,000
Holdings'  common shares to management  for $.01 per share when the market price
was $2.00 per share.  Additionally,  stock  compensation  expense  includes  the
amortization  of the vested portion of certain  common stock options  granted to
certain employees at exercise prices below market value on the date of grant.

    Other expense decreased $3,329,713 or 67% between years on a combined basis.
The decrease in other  expense is the result of a reduction in interest  bearing
debt  instruments  between years  combined  with  interest  income earned on the
Company's  excess net cash proceeds  generated  from the sale of  $37,000,000 of
preferred stock in July 1999.

Liquidity and Capital Resources

    At  December  31,  1999,  the  Company  had  cash and  cash  equivalents  of
$13,637,511.  Net cash of $1,387,913  was used in operating  activities  for the
period ended December 31, 1999,  which  principally  resulted from the Company's
net loss offset by noncash  charges  for  depreciation,  amortization  and stock
compensation   expenses  and  an  increase  in  accounts   payable  and  accrued
liabilities.

    Net cash of  $14,892,280  was used in  investing  activities  for the period
ended  December  31,  1999.  This  principally  consisted  of net  cash  paid in
connection  with the  Company's  acquisitions  of  approximately  $9,325,000,  a
$2,455,000  deposit  paid in  connection  with the  purchase of  equipment,  and
approximately $3,012,000 in capital expenditures and software development costs.

    Net cash of  $29,917,704  was  provided by financing  activities  during the
period ended December 31, 1999. This was the net result of raising approximately
$34,410,000 in net proceeds from the sale of preferred stock, offset by payments
under capital leases of  approximately  $2,713,000 and  $1,781,000incurred  with
obtaining our senior credit facility (the "Facility").

    As more fully described  elsewhere in this Form 10-KSB, we have two separate
and distinct  businesses with USOL and TRC. We believe that our cash on hand and
available proceeds from the Facility should be sufficient to fund the activities
of USOL for at least the next 12 months.  However,  an integral part of the USOL
business  plan is to  grow  through  acquisitions.  Should  we find  acquisition
opportunities that are either larger in magnitude or in number than our business
plan anticipates, then additional funding may be required sooner than planned.

<PAGE>

    The  Facility  allows us to borrow up to $35 million  for a two-year  period
commencing  January 1, 2000 and ending  December 31, 2001, at which time it will
convert to a five-year  term loan.  The Facility bears interest at our option at
an annual rate of prime plus 2.75% or LIBOR plus 3.75%.  Borrowings  cannot take
place  under  the  Facility  until  we have  used all of the  proceeds  from the
preferred  stock sale. We anticipate  that this will occur in the second quarter
of 2000. The Facility is secured by all of the assets of the Company,  excluding
TRC.

    The  Facility  limits the amount of funding that can be provided to TRC from
the preferred stock and Facility  proceeds to an aggregate of $2,000,000.  As of
December 31,  1999,  we had  provided  approximately  $850,000 of funding to TRC
under  an  intercompany  note  agreement.  We  expect  that  we will  reach  the
$2,000,000 threshold by the end of the second quarter of 2000. Accordingly,  TRC
will require  additional  funding in order to execute its business  plan. TRC is
currently evaluating  alternatives for financing including,  but not limited to,
private  equity and debt  placements as well as a public  offering of TRC stock.
The amount of funding  required to execute the TRC business  plan is still being
determined and is dependent  upon numerous  variables.  Management  expects that
approximately  $20 million to $30 million in  additional  funding not  presently
arranged  will be  required  over the next 18 to 24  months to  execute  the TRC
business plan. Any delays in raising the required  funding will delay  executing
the TRC business plan, which could adversely impact TRC and the Company. Because
of the funding limitation set forth in the Facility,  management does not expect
TRC to have an  immediately  significant  impact  on the  liquidity  or  capital
resources of the Company.

    We maintain  various  cancelable and  noncancelable  service  agreements for
telecommunications  services with several LECs and one IXC that commit us to the
LECs' and IXCs'  services.  These  agreements  require  minimum  monthly charges
ranging  from $340 to $25,000 per month and have terms  ranging from one year to
five 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.  As of  December  31,  1999,  the  fixed  minimum  charges  for  all
noncancelable  agreements  over  the  life  of the  agreements  was  $2,539,508.
Additionally,  we are planning on upgrading and consolidating telephony switches
during 2000 in Austin,  Dallas/Ft.  Worth and San Antonio. The anticipated costs
of such upgrades are $450,000.

Year 2000

    The  "Year  2000"  issue is a  general  term used to  describe  the  various
problems  that may have  resulted  from the  improper  processing  of dates  and
date-sensitive  calculations  by computers and other  machinery as the Year 2000
was  approached  and reached.  These  problems  arise from hardware and software
unable to distinguish  dates in the "2000's" from dates in the "1900's" and from
other sources, such as the use of special codes and conventions in software that
make use of a date field.  We did not  experience  any  significant  hardware or
software failures as a result of the Year 2000 date change.

Preferred Stock Dividends

    The Series A and Series B Preferred Stock accrete dividends from the date of
issuance at the rate of 12% per year,  payable  quarterly in arrears on the last
day of March,  June,  September and  December.  We have the option of paying the
dividend in cash or in shares of common stock. The Facility prohibits the paying
of such dividends in cash.

Adoption of New Accounting Standards

    In December  1999,  the  Securities  and  Exchange  Commission  issued Staff
Accounting  Bulletin  No. 101 ("SAB  101"),  Revenue  Recognition  in  Financial
Statements.  SAB 101 provides guidance on applying generally accepted accounting
principles to revenue  recognition issues in financial  statements.  The Company
will adopt SAB 101 as  required in the first  quarter of 2000 and is  evaluating
the effect that such adoption may have on its consolidated results of operations
and financial position.

Item 7. Financial Statements and Supplementary Data.

    The  financial  statements  of the  Company  appear on page F-1 of this Form
10-KSB.  All financial  statement  schedules  required under  Regulation S-X are
omitted as the required  information  is not  applicable or the  information  is
presented in the financial statements, related notes or other schedules.

Item  8.  Changes  In and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure.

    On December 22, 1999, we notified our former independent auditors, KPMG Peat
Marwick,  LLP, of our decision to dismiss such firm as our independent  auditors
in  connection  with the  Merger.  Our  decision  was  approved  by our Board of
Directors.  The

<PAGE>

independent auditors' report of KPMG Peat Marwick, LLP for the fiscal year ended
December 31, 1998 was unqualified.  During fiscal year 1998 and through the date
of dismissal,  there were no disagreements between us and KPMG Peat Marwick, LLP
on any  matter  of  accounting  principles  or  practices,  financial  statement
disclosure, or auditing scope or procedure.

    On January 26,  2000,  we engaged  Arthur  Andersen  LLP as our  independent
auditors.  Arthur  Andersen LLP had been the  independent  auditors of Holdings.
During  fiscal  year 1999 and  through  the date of  engagement,  neither us nor
anyone  acting  on our  behalf  consulted  Arthur  Andersen  LLP  regarding  the
application  of accounting  principles to any  specified,  proposed or completed
transaction  or the type of opinion  that  might be  rendered  on our  financial
statements.  Arthur Andersen LLP subsequently  audited our consolidated  balance
sheet as of December 31, 1999 and the  consolidated  statements  of  operations,
stockholders' equity and cash flows for the period from inception (May 12, 1999)
through December 31, 1999.

                                    PART III

Item 9. Directors and Executive Officers of the Registrant.

    The directors and  executive  officers of the Company,  and their ages as of
the date of this Form 10-KSB, are as follows:

                 Name                     Age                 Position
-----------------------------------       ---    -------------------------
Robert G. Solomon (6)(9)...........       37     Chairman of the Board and
                                                 Chief Executive Officer
Donald E. Barlow...................       52     President, Chief Operating
                                                 Officer and Secretary
David B. Agnew (1)(5)(6)(9)........       51     Director
Mark Sampson (2)(5)(6)(8)(9).......       45     Director
Thomas E. McChesney (5)(7).........       53     Director
A. Roger Pease (7)(8)..............       52     Director
Ronald L. Piasecki (3)(5)(7).......       60     Director
Roy Rose (4)(5)(8).................       42     Director
Jeffrey S. Sperber.................       35     Vice President, Chief Financial
                                                 Officer and Assistant Secretary
Seth R. Davis......................       45     Senior Vice President and
                                                 Chief Technical Officer
------------------------------

    In  accordance  with terms of the Merger  Agreement,  our Board of Directors
will consist of seven persons. Four holders of our preferred stock each have the
right to designate one director.

(1)      Designated by AGL Investments No. 8 Limited Partnership.

(2)      Designated by GMAC Commercial Mortgage Corporation.

(3)      Designated by Aspen Foxtrot Investments, LLC.

(4)      Designated by Peregrine Capital, Inc.

(5)      Independent directors. We will maintain at least two (2) independent
         directors on our Board of Directors.

(6)      Member of Executive Committee.

(7)      Member of Audit Committee.

(8)      Member of Compensation Committee.

(9)      Member of Nominations Committee.

<PAGE>

    Robert G. Solomon has served as the Chief  Executive  Officer of the Company
since December 22, 1999. He served as Chief  Executive  Officer of Holdings from
July 22, 1999 to December 22,  1999.  He served as  President  and  Secretary of
Holdings  from May 1999 to July 22, 1999.  From February 1995 until July 1999 he
was Founder,  President,  and beginning March 1998, Chairman of US OnLine. Since
1987, Mr. Solomon has been a Senior Vice President and principal  shareholder of
CS Management,  Inc., a firm that develops and manages apartment communities and
commercial  properties  throughout South and Central Texas. Although Mr. Solomon
remains a shareholder  and officer of CS  Management,  Inc., he is not active in
its day-to-day  operations.  Mr.  Solomon  serves on the Executive  Board of the
Independent Cable and Telecommunications Association, the leading industry trade
association  and lobby  coalition.  Mr. Solomon  received his B.B.A. in Business
Administration from the University of Texas in 1984.

    Donald E. Barlow has served as President and Chief Operating  Officer of the
Company since December 22, 1999 and Secretary  since January 14, 2000. He served
as President,  Chief Operating Officer,  and Secretary of Holdings from July 22,
1999 to December 22,  1999.  He served as Chief  Financial  Officer of US OnLine
from 1996 and as President of US OnLine from March 1998.  From 1973 to 1978, Mr.
Barlow served as a commercial  manager with  Southwestern  Bell  Telephone.  Mr.
Barlow served as Senior Vice President and General  Counsel  (1978-1990)  and as
Senior  Vice  President  of  Business  Development  (1982-1983)  for  Perry  Gas
Companies,  and from 1980 to 1982,  he served as President  and Chief  Operating
Officer  for  Perry  Gas  Processors.  From  1983 to 1994,  he  served  as Chief
Financial  Officer,  General  Counsel  and Chief  Operating  Officer for Capitan
Enterprises, Inc. From 1994 through 1996, Mr. Barlow was in the private practice
of law as an  attorney-mediator,  acting as  general  counsel  and  negotiations
consultant  for early stage  technology  companies and a  professional  mediator
specializing in civil disputes  involving  business,  financial,  and technology
subject matters. He also provided business and financial  consulting services to
startup  and  early-stage  technology  companies  through a separate  consulting
practice.  During the period  1994  through  1996 he served as  Chairman  of the
Corporation and Tax Section of the Travis County Bar Association,  Vice Chairman
of  the  Alternative  Dispute  Resolution  Section  of  the  Travis  County  Bar
Association,  and a member  of the Board of the  Travis  County  Chapter  of the
Association of Attorney Mediators, and he was an adjunct instructor of mediation
and  negotiations  at the University of Texas School of Law. Mr. Barlow received
both his B.A. and J.D.  degrees from the  University  of Texas in 1969 and 1972,
respectively,  and his M.B.A.  from Southern  Methodist  University in 1973. Mr.
Barlow is a Certified Public Accountant.

     David B. Agnew has served as a Director of the Company  since  December 22,
1999. He served as Director of Holdings from July 22, 1999 to December 22, 1999.
Mr. Agnew has been the Chief Executive Officer and owner of the ultimate General
Partner of Amstar  Group,  Ltd.  since 1987.  Amstar is a  privately  owned real
estate investment and development company which conducts business nationwide. He
received  his B.A.  degree  from St.  Olaf  College,  and his J.D.  degree  from
Washington University.

     Mark  Sampson  has served as a Director of the  Company  since  January 14,
2000.  Mr. Sampson serves as Managing  Director,  Corporate  Finance at Newman &
Associates,  Inc., an  investment  banking firm owned by a subsidiary of General
Motors  Acceptance  Corporation.  Prior to joining  Newman in 1992,  Mr. Sampson
served  as  President,  First  Interstate  Securities,  Los  Angeles,  and as an
Executive  Director of First Interstate  Capital  Markets,  Ltd.,  London,  both
wholly owned subsidiaries of First Interstate Bancorp, Los Angeles.

     Thomas E.  McChesney  has served as a Director of the Company since January
1996.  He is a  registered  representative  of  Blackwell  Donaldson  &  Co.,  a
securities  broker-dealer.  From January 1996 to October 1996, Mr. McChesney was
associated with Bathgate McColley Capital Group, LLC. Previously,  Mr. McChesney
was an officer  and  director  of Paulson  Investment  Co. and  Paulson  Capital
Corporation  from March  1977 to June 1995.  Mr.  McChesney  also  serves on the
boards of Labor Ready,  Inc., a company  listed on the New York Stock  Exchange;
and Nation's Express, Inc.

    A. Roger Pease was  appointed  Executive  Vice  President of TRC in December
1999.  Prior to that, he had served as President and Chief Executive  Officer of
the Company from January  1996 to December 22, 1999.  From June 1994,  Mr. Pease
served  as Chief  Executive  Officer,  President  or  Manager  of the  Company's
predecessors. Previously, Mr. Pease was President and Chief Executive Officer of
Payline Systems,  Inc. since 1987. From 1983 to 1987, he was employed by Lattice
Semiconductor  Corporation  as Vice  President  of Finance,  Vice  President  of
Strategic Planning and Administration,  and as a consultant.  From 1979 to 1983,
Mr.  Pease was a Partner  with the  Portland  office of the  accounting  firm of
Touche,  Ross & Co.,  where he  served  as  Director  of  Management  Consulting
Operations.  Mr.  Pease,  a  certified  public  accountant,  holds a Masters  of
Business  Administration  degree  from  Northwestern  University  (1970)  and  a
Bachelor of Arts degree in Finance from the University of Illinois (1968).

     Ronald L. Piasecki has served as a Director of the Company  since  December
22, 1999. He served as a Director of Holdings from July 22, 1999 to December 22,
1999. He is the Executive Vice President of Aspen  Enterprises,  Ltd.,  which he
co-founded in 1973.  From 1993 through  January  1997,  Mr.  Piasecki  served as
Director of Horizon Group, Inc., a real estate investment trust company involved
in factory outlet shopping centers. In February 1997, he became Vice Chairman of
the Board and served as President and

<PAGE>

Chief  Executive  Officer of Horizon  until June 1997.  Mr.  Piasecki  continued
serving  as Vice  Chairman  of the Board  until June 1998 when the  company  was
merged with Prime  Retail.  In May 1996,  Sun  Communities,  Inc.  acquired  the
manufactured  housing portion of Aspen  Enterprises,  Ltd., which was one of the
largest privately held developers, owners, and operators of manufactured housing
communities in the United States.  Mr. Piasecki currently serves on the Board of
Sun  Communities,  Inc. He also serves as Chairman of the Board of  Directors of
Kurdziel  Industries,  Inc., the world's largest producer of counter weights for
the material  handling  industry.  Mr. Piasecki  obtained his J.D.  degree,  cum
laude,  from Wayne State  University  Law School and has a B.A.  degree from the
University of Michigan.

     Roy Rose has served as a Director of the Company  since  December 22, 1999.
From  July 22,  1999  through  December  22,  1999 he served  as a  Director  of
Holdings.  Mr. Rose founded and has served as the President and Chief  Executive
Officer of Peregrine Holdings  (Oregon),  Ltd. since 1991 and Peregrine Capital,
Inc. since 1997.  Those  entities are involved in making  investments in various
businesses.  From  1985 to 1990,  Mr.  Rose  was the  Chief  Executive  Officer,
President and a director of Northern Capital Corporation.

    Jeffrey S.  Sperber  has served as Chief  Financial  Officer of the  Company
since October 1997 and Secretary from March 1999 through  January 14, 2000. From
August 1995 to September  1997,  Mr. Sperber was the Controller of TCI Wireline,
Inc., a business unit of  Tele-Communications,  Inc., engaged in providing local
telephone  service.  From August 1991 to August 1995, he was employed by Concord
Services,  Inc., a privately held  international  conglomerate  based in Denver,
Colorado, where he was responsible for the accounting and finance of both public
and privately held entities,  most recently,  as Chief Financial  Officer of its
manufacturing and processing  business unit. From September 1986 to August 1991,
he was  employed  by Arthur  Andersen  & Co. in  Denver,  Colorado,  as a senior
auditor.

    Seth R.  Davis has  served  as Senior  Vice  President  and Chief  Technical
Officer since January 2000.  From 1996 through 1999 he served as Vice  President
General  Manager/Development for Cable Plus, where he oversaw the development of
establishing  local and long-distance  telephone service to residents of MDUs in
five  cities.   From  1994  to  1996,  he  served  as  Senior  Vice   President,
International  Operations of MIDCOM Communications,  Inc., where he was directly
responsible  for a large wireless  cellular and satellite  communications  joint
venture  located in Russia.  From 1989 to 1994, he served as President and Chief
Executive Officer of US FiberCom Network, Inc., a long-distance telephone resale
firm. From 1988 to 1989, Mr. Davis served as General Manager of UNICEL,  Inc., a
publicly traded company that owned and operated  cellular  telephone  systems in
Texas and Iowa. Prior to 1988, Mr. Davis served in various management  positions
and  consulting  roles  all  in  the  telecommunications  and  cable  television
industries.  Mr. Davis received his undergraduate  training at the University of
Southern  California and the  University of Alaska,  and his Masters of Business
Administration from Vanderbilt University.

    There are no family  relationships  among directors or persons  nominated or
chosen  by  the  Company  to  become  a  director,   nor  any   arrangements  or
understandings  between any director and any other person  pursuant to which any
director  was elected as such.  Each  director is elected to serve for a term of
one (1) year until the next annual meeting of  stockholders or until a successor
is duly elected and qualified.  The present term of office of each director will
expire at the next annual meeting of stockholders.

    The  executive  officers of the  Company  are elected  annually at the first
meeting of the Company's  Board of Directors  held after each annual  meeting of
stockholders.  Each  executive  officer will hold office until his  successor is
duly elected and qualified,  until his  resignation or until he shall be removed
in the manner provided by the Company's Bylaws.

    During 1998, the Company formed the Audit and Compensation Committees of the
Board of  Directors.  The Audit  Committee  is  chaired  by Mr.  Pease,  and the
Compensation Committee chaired by Mr. Sampson. Those committees consist of three
members each,  including two outside  directors.  No member of those  committees
will  receive any  additional  compensation  for his service as a member of that
committee.

    The Audit  Committee is responsible  for providing  assurance that financial
disclosures made by management of the Company  reasonably  portray the Company's
financial condition,  results of operations,  plan and long-term commitments. To
accomplish  this,  the Audit  Committee  oversees the external  audit  coverage,
including the annual nomination of the independent public  accountants,  reviews
accounting  policies and policy  decisions,  reviews the  financial  statements,
including interim financial statements and annual financial statements, together
with  auditor's  opinions,  inquires  about the  existence  and substance of any
significant  accounting  accruals,  reserves or  estimates  made by  management,
reviews with management the Management's  Discussion and Analysis section of the
Annual  Report,  reviews the letter of management  representations  given to the
independent  public  accountants,  meets privately with the  independent  public
accountants to discuss all pertinent matters, and reports regularly to the Board
of Directors regarding its activities.

<PAGE>

    Additionally,  on January 14, 2000,  the Company  formed the  Executive  and
Nominations Committees, both chaired by Mr. Solomon.

  Director Nominee

    Four of the holders of the Company's Series A. Preferred Stock (GMACCM,  AGL
Investments  No. 8 Limited  Partnership,  Aspen  Foxtrot  Investments,  LLC, and
Peregrine  Capital,  Inc.)  each  have the  right to  nominate  one of the seven
directors of the Company,  and those directors will be elected by the holders of
the Series A. Preferred  Stock,  voting as a class and separately from all other
classes and series. If the number of directors is increased or decreased,  those
four  entities  shall have the right to  nominate  and elect a majority  of such
number.

  Director Compensation

    Directors  who  are  also  executive  officers  of the  Company  receive  no
additional  compensation for their services as directors.  Directors who are not
executive  officers of the  Company  are paid a $500 fee for each board  meeting
they attend.  In addition,  directors  are entitled to be  reimbursed  for their
expenses  associated  with  attendance  at  meetings  or  otherwise  incurred in
connection  with the  discharge  of their  duties as  directors  of the Company.
Additionally,  directors  are eligible  for stock  options  under the  Company's
option plans.

  Limitation on Directors' Liability; Indemnification

    The Company's  Articles of  Incorporation  limit the liability of a director
for monetary damages for his conduct as a director, except for:

o    any breach of the duty of loyalty to the Company or its shareholders;

o    acts or omissions not in good faith or that involved intentional misconduct
     or a knowing violation of law;

o    dividends  or other  distributions  of  corporate  assets  from  which  the
     director derives an improper personal benefit; and

o        liability under federal securities law.

    The effect of these  provisions is to eliminate the Company's  right and the
right of its shareholders (through shareholder's derivative suits on its behalf)
to recover  monetary damages against a director for breach of his fiduciary duty
of care as a director,  except for the acts described above. These provisions do
not limit or eliminate the Company's right or the right of a shareholder to seek
nonmonetary  relief,  such as an  injunction  or  rescission,  in the event of a
breach of a director's duty of care. The Company's Bylaws provide that if Oregon
law is  amended,  in the case of alleged  occurrences  of  actions or  omissions
preceding any such amendment, the amended indemnification provisions shall apply
only  to  the  extent  that  the  amendment   permits  it  to  provide   broader
indemnification rights than the law permitted prior to such amendment.

    The  Company's  Articles  and Bylaws also  provide  that the  Company  shall
indemnify,  to the fullest extent permitted by Oregon law, any of its directors,
officers, employees or agents who are made, or threatened to be made, a party to
a  proceeding  by  reason  of the  fact  that  he or  she  is or was  one of our
directors,  officers,  employees  or  agents.  The  indemnification  is  against
judgments, penalties, and fines, settlements and reasonable expenses incurred by
the person in  connection  with the  proceeding  if certain  standards  are met.
Insofar as indemnification  for liabilities  arising under the Securities Act of
1933 may be permitted to its  directors,  officers  and  controlling  persons in
accordance  with these  provisions,  or otherwise,  the Company has been advised
that, in the opinion of the SEC,  indemnification  for liabilities arising under
the  Securities  Act of  1933 is  against  public  policy  as  expressed  in the
Securities Act and is, therefore, unenforceable.

<PAGE>

Item 10. Executive Compensation.

    The following table summarizes the compensation  paid to the Company's Chief
Executive Officer, its former Chief Executive Officer, its President, and to its
Chief Financial Officer, its most highly compensated executive officers, for all
services  rendered in all  capacities  to the Company for each of the last three
fiscal years,  which represents all officers  compensated in excess of $100,000.
For purposes of this table, the Company has combined as to each named person all
compensation paid or payable by the Company, Holdings and Holdings' predecessor,
US OnLine.

                                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
<S>                                           <C>           <C>        <C>             <C>                 <C>
                                                                                            Long-Term
                                                   Annual Compensation                 Compensation Awards
                                          -------------------------------------   ------------------------------
                                                                                   Other Annual       Securities
                                                                                    Compensation      Underlying
                                                          Salary                    (4)(5)(6)(7)        Options
                  Name                    Fiscal Year     (1)(2)     Bonus (3)        (8)(9)(10)         (SARs)
---------------------------------------   -----------  ----------   ----------     -------------       ---------
Robert G. Solomon, CEO                       1999      $  140,544   $       --      $    46,750         545,000
                                             1998      $       --   $       --      $        --              --
                                             1997      $       --   $       --      $        --              --

Donald E. Barlow, President                  1999      $  114,895           --      $    54,500         275,000
                                             1998      $       --   $       --      $        --              --
                                             1997      $       --   $       --      $        --              --
A. Roger Pease,
former CEO and President                     1999      $  150,000   $       --      $   150,000              --
                                             1998      $   96,908   $   10,000      $    30,000         100,000
                                             1997      $       --   $       --      $    96,000         160,000

Jeffrey S. Sperber, CFO                      1999      $  113,558   $   65,000      $    45,000         100,000
                                             1998      $   88,321   $   10,000      $    10,809          33,333
                                             1997      $       --   $       --      $    13,500          66,667
Ramona Kelly,
former FirstLink General Manager             1999      $   72,188   $       --      $    69,000             --
                                             1998      $   59,831   $       --      $        --          33,333
                                             1997      $   49,750   $       --      $        --          53,333
</TABLE>

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

(1)  Mr.  Solomon's salary includes $67,409 paid by Holdings and $73,135 paid by
     US OnLine during 1999.

(2)  Mr. Barlow's  salary includes  $57,485 paid by Holdings and $57,410 paid by
     US OnLine during 1999.

(3)  Mr.  Sperber was paid a $30,000  bonus in  connection  with  relocating  to
     Austin,  Texas. In addition, he earned a $35,000 merger completion bonus to
     be  paid in  lieu  of  exercising  certain  rights  he had  under a  salary
     continuation agreement. See (7) below.

(4)  Mr.  Solomon was paid  $46,750  related to  compensation  deferred in prior
     periods.

(5)  Mr.  Barlow wad paid  $54,500  related to  compensation  deferred  in prior
     periods.

(6)  Mr. Pease was entitled to receive $150,000 related to a salary continuation
     agreement of which $60,000 was paid during 1999 with the remaining  $90,000
     paid in January 2000.

(7)  Mr.  Sperber  was  entitled  to  receive   $120,000  related  to  a  salary
     continuation agreement of which he and the Company have agreed to a $45,000
     payment in lieu of exercising certain rights.

(8)  Ms. Kelly was entitled to receive $69,000 pursuant to a salary continuation
     agreement which was paid in January 2000.

<PAGE>

(9)  Mr.  Pease  was paid  $8,000  per month  during  1997  pursuant  to an oral
     agreement with him. It paid him $10,000 per month in January  through March
     1998  under the same oral  agreement.  Beginning  in April  1998,  the oral
     agreement was terminated and Mr. Pease became an employee.

(10) Mr. Sperber was a contractor  from October 1997 through  February 15, 1998.
     He became an employee effective February 16, 1998.

  Employment Agreements

     The Company has entered into Employment  Agreements  with Messrs.  Solomon,
Barlow and Davis. Mr. Sperber is working under a Salary  Continuation  Agreement
assumed from  FirstLink.  It is the intention of the Company and Mr.  Sperber to
convert the current  agreement  into an Employment  Agreement.  The terms of the
agreements are substantially  similar. They provide that the employees will work
full time for the Company,  and they will have such  authority and duties as may
from  time to time be  assigned  to them by the  Board of  Directors,  including
assisting with acquisition and merger  opportunities;  assisting in streamlining
and strengthening the Company's systems and procedures; assisting in identifying
and  procuring  sources of capital and credit;  assisting  in hiring,  managing,
training and developing  general  managers for the Company and its  subsidiaries
and  affiliates;  assisting  in  various  aspects of sales and  marketing;  and,
assisting in improving operations. Mr. Solomon is employed as the Company's CEO.
Mr. Barlow is employed as the Company's President.  Mr. Davis is employed as the
Company's Chief Technical Officer, while Mr. Sperber is serving as the Company's
Chief Financial Officer.

     The employment  agreements for Messrs.  Solomon and Barlow are for terms of
five years. The term for Mr. Davis is for three years. They may be terminated by
the Company for cause or other than for cause.  If Mr.  Solomon or Mr. Barlow is
terminated other than for cause  (including if he is terminated  within 120 days
of a  change  in  control  of  USOL),  he will be  paid  severance  compensation
equivalent  to his base  salary  for 18 months.  Mr.  Solomon's  base  salary is
$175,000 per year.  Mr.  Barlow's base salary is $150,000 per year.  Mr. Sperber
would be paid a severance equivalent to his annual base salary which is $120,000
per year, while Mr. Davis would be paid the equivalent of six months base salary
which is $142,500 per year.

  Stock Incentive Plans

    The Company has three stock option plans:

    The 1999 Incentive Plan (the  "Incentive  Plan") was adopted by the Board of
Directors on September 23, 1999,  and approved by the  shareholders  on December
15, 1999. The Incentive  Plan provides for the grant of incentive  stock options
("ISO's"), nonstatutory stock options ("NSO's"), and restricted stock grants and
stock appreciation rights ("SAR's"). ISO's are intended to qualify as "incentive
stock  options"  within the  meaning of Section 422 of the Code.  NSO's  granted
under the Incentive Plan are intended not to qualify as incentive  stock options
under the Code and may be issued  below fair market  value on the date of grant.
The Incentive Plan is administered by the Board of Directors. The exercise price
of ISO's  may not be less than the fair  market  value of the  Company's  common
stock on the date of grant and, in some cases, may not be less than 110% of such
fair market value.  Vesting periods are at the discretion of the Company's Board
of Directors.  The maximum term of options under the Incentive Plan is 10 years.
The Company has reserved 3,000,000 shares for issuance under the Incentive Plan.

    During 1999, options were issued to acquire 1,710,000 shares of common stock
at prices ranging from $1.00 to $5.50 per share. These options have a life of 10
years and vest over three years with certain  options vesting 25% on the date of
grant. As of December 31, 1999, there were options to purchase  1,591,000 shares
of common stock under the Incentive Plan.

    In  connection  with  the  Merger,  the  Company  assumed   FirstLink's  two
outstanding  stock option plans; the FirstLink  Communications,  Inc.  1998-1999
Combined  Incentive  and  Non-Qualified  Stock  Option  Plan  and the  FirstLink
Communications,  Inc.  1997 Restated and Combined  Incentive  and  Non-Qualified
Stock Option Plan  (collectively  referred to as the "FirstLink  Option Plans").
The number of options outstanding and exercisable at December 31, 1999 under the
FirstLink  Option Plans was 556,335 shares.  There are no additional  authorized
shares  available for grant under the FirstLink  Option Plans as of December 31,
1999.

    The following tables set forth certain  information as of December 31, 1999,
concerning  nonqualified  stock  options  granted to and  exercised by the named
executive  officer and the fiscal  yearend  value of  unexercised  options on an
aggregated basis.

<PAGE>

                                               OPTIONS/GRANTS

<TABLE>
<CAPTION>
<S>                                      <C>           <C>          <C>            <C>          <C>

                                                                 % of Total
                                                     Number of    Options/
                                                     Securities   Grants to
                                                     Underlying   Employees     Exercise
                                        Fiscal         Option/    in Fiscal       Price      Expiration
Name                                     Year         Grants        Year        ($/share)       Date
-----------------------------           ------       ----------   ----------    ---------    -----------
Robert G. Solomon, CEO                   1999         545,000        32%       $1.00-$2.00    July 2009
                                         1998            --           --            --            --

Donald E. Barlow, President              1999         275,000        16%       $1.00 -$2.00   July 2009
                                         1998              --         --            --            --

A. Roger Pease,                          1999              --         --            --
former President and CEO                 1998         100,000        29%           $2.31      August 2008

Jeffrey S. Sperber, CFO                  1999         100,000         6%           $2.00      July 2009
                                         1998          33,333        10%           $2.31      August 2008

</TABLE>

                             AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                                     AND FISCAL YEAREND OPTION/SAR VALUES
<TABLE>
<CAPTION>
<S>                                       <C>       <C>            <C>         <C>       <C>                <C>
                                        Shares                      Number of           Value of Unexercised
                                       Acquired    Value           Unexcercised              In-the-Money
                                         on       Realized        Options/SARs at          Options/SARs at
                                       Excercise    (1)           Fiscal Year End         Fiscal Year End (2)

Robert G. Solomon, CEO                    --         --        Exercisable    136,250  Exercisable     $   692,500
                                                               Unexercisable  408,750  Unexercisable   $ 2,077,500

Donald E. Barlow, President               --         --        Exercisable     68,750  Exercisable     $   350,000
                                                               Unexercisable  206,250  Unexercisable   $ 1,050,000

A. Roger Pease,                           --           --      Exercisable    260,000  Exercisable     $ 1,409,000
former President and CEO                                       Unexercisable       --  Unexercisable   $        --

Jeffrey S. Sperber, CFO                   --           --      Exercisable    125,000  Exercisable     $   673,000
                                                               Unexercisable   75,000  Unexercisable   $   375,000
</TABLE>

--------------
(1)  Value  realized is determined by  calculating  the  difference  between the
     aggregate exercise price of the options and the aggregate fair market value
     of the common stock on the date the options are exercised.

(2)  The  value  of  unexercised   options  is  determined  by  calculating  the
     difference  between the fair market value of the securities  underlying the
     options at fiscal yearend and the exercise  price of the options.  The fair
     market value of the securities underlying the options, based on the closing
     bid price on December 31, 1999, was $7.00 per share.

Item 11. Security Ownership of Certain Beneficial Owners and Management.

    The following  table sets forth  certain  information  regarding  beneficial
ownership  of the  Company's  common  stock as of December  31, 1999 by (i) each
person who owns  beneficially  more than 5% of the Company's common stock;  (ii)
each of the Company's directors and executive officers;  and (iii) all directors
and executive  officers as a group.  Each named beneficial owner has sole voting
and investment power with respect to the shares held, unless otherwise stated.

<PAGE>

<TABLE>
<CAPTION>
<S>                                               <C>            <C>             <C>         <C>              <C>              <C>
                                                              Number of                                 Percentage of
                                                         Shares Beneficially                         Shares Beneficially
                                                              Owned (1)                                     Owned
                                                 -------------------------------------    ------------------------------------------
                                                                                Fully                                       Fully
                                                                               Diluted                                     Diluted
                                                 Common        Preferred       Common        Common        Preferred        Common
         Name and Address of Owner               Shares         Shares         Shares      Shares (2)      Shares (2)       Shares
---------------------------------------------   --------       ----------    ---------    -----------     -----------      ---------

GMAC Commercial Mortgage Corporation (3).        419,875        398,900      5,406,125         5.4%          27.0%          20.6%
650 Drescher Road
Horsham, PA 19044

AGL Investments No. 8 Limited Partnership (4)    181,875        398,900      5,168,125         2.4%          27.0%          19.9%
1050 17th Street, Suite 1200
Denver, CO 80265

Aspen Foxtrot Investments, LLC (5).......      1,980,312        180,000      4,230,312        24.6%          12.2%          15.9%
2757 - 44th Street SW
Grand Rapids, MI 49509

Peregrine Capital, Inc. (6)..............      1,067,570        200,000      3,567,570        14.4%          13.5%          13.8%
9725 Beaverton Hillsdale Highway, Suite 350
Beaverton, OR 97005

German American Capital Corporation (7)..         33,298        140,000      1,783,298        <1%             9.5%           6.9%
31 West 52nd Street, 14th Floor
New York, NY 10019

A. Roger Pease (8).......................        366,667             --        366,667         4.9%          --              1.4%
190 SW Harrison Street
Portland, OR 97201

Robert G. Solomon (9)....................        411,250             --        411,250         5.5%          --              1.6%
10300 Metric Boulevard
Austin, TX 78758

Donald E. Barlow (10)....................        218,750             --        218,750         2.9%          --               <1%
10300 Metric Boulevard
Austin, TX 78758

Jeffrey S. Sperber (11)..................        125,000             --        125,000         1.7%          --               <1%
10300 Metric Boulevard
Austin, TX 78758

Seth R. Davis (12).......................         30,000             --         30,000          <1%          --               <1%
10300 Metric Boulevard
Austin, TX 78758

Thomas E. McChesney (13).................        147,568             --        147,568         2.0%          --               <1%
200 SW Market Street
Portland, OR 97201

All Executive Officers and Directors as a      4,948,867      1,177,800     19,671,367        58.5%          79.6%          71.5%
Group (10 persons) (14)..................

</TABLE>

--------------
(1)  Except as set forth in the  footnotes to this table,  the persons  named in
     this  table  have sole  voting and  investment  power  with  respect to all
     shares.  Shares not outstanding but deemed  beneficially owned by virtue of
     the  individual's  right to acquire them as of December 31, 1999, or within
     sixty  (60)  days of  such  date,  are  all  treated  as  outstanding  when
     determining  the  percent  of the  class  owned  by such  person  and  when
     determining the percent owned by a group.

(2)  Applicable  percentage  is  based  on  7,417,274  shares  of  common  stock
     outstanding on March 1, 2000 and 1,480,000  shares of preferred stock which
     convert into 18,500,000 shares of common stock.

<PAGE>

(3)   Includes  4,986,250  shares of common stock  underlying  398,900 shares of
      Series A  Preferred  Stock,  94,875  shares of common  stock  payable as a
      preferred  stock  dividend  and 325,000  shares  underlying  common  stock
      purchase warrants.

(4)   Includes  4,986,250  shares of common stock  underlying  398,900 shares of
      Series A  Preferred  Stock,  94,875  shares of common  stock  payable as a
      preferred   stock   dividend  and  87,000  shares   underlying   presently
      exercisable common stock purchase  warrants.  The ultimate general partner
      of AGL Investments No. 8 Limited Partnership is AGLPGP No. 8, Inc. ("AGLP,
      Inc.").  David B. Agnew is the sole director and shareholder of AGLP, Inc.
      and, accordingly, may be deemed to be the beneficial owner of common stock
      held by AGL  Investments  No. 8 Limited  Partnership.  Mr. Agnew is also a
      manager of AGL  Capital  Investments,  LLC,  which owns the 87,000  common
      stock purchase warrants. Accordingly, he may be deemed to share voting and
      dispositive  power with respect to the common stock purchase warrants with
      the other manager  thereof.  Mr. Agnew disclaims  beneficial  ownership of
      common stock held of record by AGL Investments  No. 8 Limited  Partnership
      and shares issuable upon the exercise of warrants to purchase common stock
      held by AGL Capital Investments, LLC.

(5)   Includes  1,312,500  shares  owned of common  stock,  2,250,000  shares of
      common stock underlying 180,000 shares of Series A Preferred Stock, 42,812
      shares of common stock payable as a preferred  stock  dividend and 625,000
      shares underlying common stock purchase warrants.

(6)   Owned by 10 limited liability  companies  controlled by Peregrine Capital,
      Inc. Includes 1,020,000 shares of common stock owned,  2,500,000 shares of
      common stock  underlying  200,000  shares of Series A Preferred  Stock and
      47,570 shares of common stock payable as a preferred stock dividend.

(7)   Includes 937,500 shares of common stock underlying 75,000 shares of Series
      B Preferred Stock, 812,500 shares of common stock underlying 65,000 shares
      of Series A Preferred Stock and 33,298 shares of common stock payable as a
      preferred  stock  dividend.  However,  under the terms of the Series A and
      Series B Preferred  Stock,  German American  Capital Corp. may not convert
      shares  of  nonvoting  Series  B  Preferred  Stock  into  voting  Series A
      Preferred Stock or common stock in amounts that would cause its percentage
      of voting stock in the Company to be above 5%.

(8)   103,334  shares  are  owned  by Mr.  Pease  in his  individual  retirement
      account. Also includes 3,333 shares owned by Mr. Pease's wife, of which he
      disclaims beneficial ownership; and presently exercisable stock options by
      Mr. Pease to purchase 260,000 shares of common stock.

(9)  Includes  275,000  shares of common stock owned and  presently  exercisable
     stock options to purchase 136,250 shares of common stock.

(10)  Includes  150,000  shares of common stock owned and presently  exercisable
      stock options to purchase 68,750 shares of common stock.

(11) Includes presently  exercisable stock options to purchase 125,000 shares of
     common stock.

(12) Includes  presently  exercisable stock options to purchase 30,000 shares of
     common stock.

(13)  Includes  84,542  shares of common  stock owned and 7,779 shares of common
      stock owned by Mr.  McChesney's  wife,  of which he  disclaims  beneficial
      ownership.  Also  includes  28,580  and  26,667  shares  of  common  stock
      underlying presently  exercisable common stock purchase warrants and stock
      options, respectively.

(14) GMAC  Commercial  Mortgage  Corporation,   AGL  Investment  No.  8  Limited
     Partnership, Aspen Foxtrot Investments, LLC and Peregrine Capital, Inc. are
     deemed to have director ownership through their director nominees.

<PAGE>

Item 12. Certain Relationships and Related Transactions.

    The Company  engaged  Newman & Associates,  Inc.  ("Newman"),  an investment
banking firm,  to broker the sale of preferred  stock and obtain a senior credit
facility  on  behalf of the  Company.  Newman is a wholly  owned  subsidiary  of
GMACCM,  a substantial  shareholder of the Company.  Mr. Sampson is the Managing
Director of Corporate Finance at Newman. Pursuant to the agreement in July 1999,
the Company sold $37 million of preferred  stock and received a commitment for a
$35 million  senior credit  facility.  Newman  received a total of $3,290,000 in
fees for brokering these transactions.

    The  Company's  senior  credit  facility  is being  provided  by Paribas and
Deutsche  Bank  AG.  Affiliates  of  both  of  these  entities  are  substantial
shareholders of the Company.  The Company paid an administrative fee of $875,000
to Paribas in connection with obtaining the facility.

    In  April  1994,  Payline  Systems,  Inc.  ("Payline"),  a  publicly  traded
corporation,  entered  into a five-year  contract  with Pacific  Union  Property
Services,  the management  company for Portland  Center  Apartments,  to provide
telecommunications  services to the tenants of the Portland  Center  Apartments.
Shortly thereafter, Payline formed FirstLink Communications, L.L.C. ("FLC"), and
assigned that contract to FLC. In January 1995, FLC signed a seven-year contract
with  RiverPlace  II  Joint  Venture  to  provide  services  to the  tenants  of
RiverPlace. Subsequently, FLC borrowed a total of $250,000 from three investors,
including J.R. Roberts Corporation and Thair Q. Schneiter,  a director and major
stockholder of the Company.  The investors obtained as collateral for the loan a
security interest in all assets of FLC,  including the two contracts and certain
equipment.  In May 1995, the investors  foreclosed on their notes, which were in
default,  and  obtained the assets of FLC.  They  assigned the assets to a newly
formed limited liability company,  FirstLink Tenant Services, L.L.C. ("FTS"). On
January 1, 1996, the Company acquired substantially all of the assets of FTS, in
exchange for 133,333 shares of common stock. The acquisition of these net assets
was accounted for using the purchase  method of  accounting.  As the Company and
FTS were entities under common  control,  the assets and liabilities of FTS were
recorded by the Company using the carryover basis in such assets and liabilities
of $82,790.  Because of the nature of this transaction,  it cannot be considered
to have resulted  from an  arms-length  negotiation  between the Company and the
investors.

    In October 1996,  the Company issued 6,667 shares of common stock to each of
Mr. McChesney, a Director of the Company, and Messrs. Steven Bathgate and Eugene
McColley,  who are substantial  stockholders of the Company, in consideration of
their  guaranteeing a $125,000 equipment lease. The Company also agreed to issue
an additional 200 shares per month to each of those  individuals  for each month
that the guarantee is  outstanding.  Through  December 31, 1998, the Company had
issued an additional 8,800 shares to each such  individual.  The equipment lease
was paid in full in January 2000 thus releasing the guarantees.

    In 1997,  the Company  issued 8,692  shares to Mr.  Robert  Olsen,  a former
director of the Company, and 1,060 shares to Mr. McChesney, as consideration for
their guarantees of a second lease.  This equipment lease has since been paid in
full thus releasing the guarantees.

    Messrs.  Bathgate and McColley are principals of Bathgate  McColley  Capital
Group, LLC ("BMCG"), who acted as the Company's Placement Agent in three private
offerings of the Company in 1997 and 1998.  In connection  with such  offerings,
they were paid commissions aggregating $135,852 in 1997 and $38,000 in 1998, and
issued  persons  affiliated  with BMCG  warrants  to purchase a total of 157,000
shares of common stock.

    Each of the above transactions,  except the transaction in which the Company
acquired  the  assets  of FTS,  were  approved  or  ratified  by a  majority  of
disinterested  directors.  The Board of Directors has determined that any future
transactions  with  officers,  directors,  or  principal  stockholders  will  be
approved by the  disinterested  directors and will be on terms no less favorable
than could be obtained from an unaffiliated  third party. The Board of Directors
will obtain  independent  counsel or other independent  advice to assist in that
determination.

                                     PART IV

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

(a)  For Financial Statements filed as a part of this Report,  reference is made
     to "Index to Financial  Statements" on page F-1 of this Report.  For a list
     of Exhibits filed as a part of this Report, see Exhibit Index on page 21 of
     this Report.

(b)      None.

<PAGE>

                                   SIGNATURES

    In  accordance  with Section 13 or 15(d) of the  Securities  Exchange Act of
1934,  the  Registrant  has caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.

Dated March 30, 2000.

                                                             USOL HOLDINGS, INC.

                                                       By: /s/ Robert G. Solomon
                                                       -------------------------
                                                       Robert G. Solomon, CEO


                                POWER OF ATTORNEY

    KNOW ALL MEN BY THESE  PRESENTS,  that each person whose  signature  appears
below  constitutes  and appoints  Robert G. Solomon and Jeffrey S. Sperber,  and
each of them, his true and lawful  attorneys-in-fact and agents, with full power
of substitution and re-substitution,  for him and in his name, place, and stead,
in  any  and  all  capacities,   to  sign  any  and  all  amendments  (including
post-effective  amendments) to this Form 10-KSB,  and to file the same, with all
exhibits  thereto,  and  other  documents  in  connection  therewith,  with  the
Securities and Exchange  Commission,  granting unto said  attorneys-in-fact  and
agents,  and each of them,  full power and  authority to do and perform each and
every  act and  thing  requisite  and  necessary  to be done  in and  about  the
premises,  as he or she  might or  could  do in  person,  hereby  ratifying  and
confirming all that said  attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes,  may lawfully do or cause to be done by virtue
hereof.

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

     Signature                            Title                        Date

/s/ Robert G. Solomon................ Chief Executive Officer    March 30, 2000
------------------------------------- and Director
Robert G. Solomon

/s/ Donald E. Barlow................. President, Chief           March 30, 2000
------------------------------------- Operating Officer
Donald E. Barlow                      and Secretary

/s/ Jeffrey S. Sperber............... Chief Financial Officer    March 30, 2000
-------------------------------------
Jeffrey S. Sperber

/s/ Thomas E. McChesney.............. Director                   March 30, 2000
-------------------------------------
Thomas E. McChesney

/s/ A. Roger Pease................... Director                   March 30, 2000
-------------------------------------
A. Roger Pease

/s/ David B. Agnew................... Director                   March 30, 2000
-------------------------------------
David B. Agnew

/s/ Mark Sampson..................... Director                   March 30, 2000
-------------------------------------
Mark Sampson

/s/ Roy Rose......................... Director                   March 30, 2000
-------------------------------------
Roy Rose

/s/ Ronald L. Piasecki............... Director                   March 30, 2000
-------------------------------------
Ronald L. Piasecki

<PAGE>

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
<S>                         <C>                                                <C>
                                                                           Incorporated by
Number                      Description                                     Reference to

2.1            Agreement and Plan of Merger and                 Exhibit 1.1 to the Current Report on Form
               Reorganization dated as of  July 21, 1999        8-K dated July 21, 1999 (File No. 01-14271)
               between FirstLink Communications, Inc. and
               USOL Holdings, Inc.
3.1(I)         Articles of Incorporation                        Exhibit 3.1 to the Registration Statement on
                                                                Form SB-2 effective July 1998
                                                                 (File No. 333-49291)
3.1(I)(a)      Amendment to Articles of Incorporation           Exhibit 4.1 to the Current Report on Form
                                                                8-K dated December 22, 1999 (File No.
                                                                01-14271)
3.1(I)(b)      Amendment to Articles of Incorporation (to       Appendix D to  the Company's Proxy Statement
               change the name)                                 filed November 12, 1999
3.1(ii)        Bylaws                                           Exhibit 3.2 to the Registration Statement on
                                                                Form SB-2 effective July 1998
                                                                 (File No. 333-49291)
4.1            Specimen Common Stock share certificate          Exhibit 4.1 to the Registration Statement on
                                                                Form SB-2 effective July 1998
                                                                 (File No. 333-49291)
4.2            Form of Warrant Agreement (with Form of          Exhibit 4.2.1 to the Registration Statement
               Warrant Certificate)                             on Form SB-2 effective July  1998 (File No.
                                                                333-49291)
4.3            Form of Lock Up Agreement with certain           Exhibit 4.3 to the Registration Statement on
               Securityholders                                  Form SB-2 effective July 1998 (File No.
                                                                333-49291)
4.5            Registration Rights Agreement                    Exhibit 4.5 to the Registration Statement on
                                                                Form SB-2 effective July 1998 (File No.
                                                                333-49291)
4.6            Form of Lock Up Agreement with certain           Exhibit 4.6 to the Registration Statement on
               Securityholders                                  Form SB-2 effective July 1998 (File No.
                                                                333-49291)
4.7            Certificate of Designations, Preferences,        Exhibit 4.2 to the Current Report on Form 8-K
               Limitations and Relative Rights of Series A      filed December 22, 1999 (File No. 01-14271)
               Convertible Preferred Stock
4.8            Certificate of Designations, Preferences,        Exhibit 4.3 to the Current Report on Form 8-K
               Limitations and Relative Rights of Series B      filed December 22, 1999 (File No. 01-14271)
               Convertible Preferred Stock
4.9            Agreement Among Investors dated July 21, 1999    Exhibit 99.1 to Schedule 13D filed January 3,
                                                                2000

4.10           Preferred Stockholder Registration Rights        Exhibit 99.5 to Schedule 13D filed January 3,
               Agreement dated July 21, 1999                    2000
4.11           Common Stockholder and Warrant Holder            Exhibit  99.6 to Schedule 13D filed January
               Registration Rights Agreement dated July 21,     3, 2000
               1999

10.1           Employment Agreement dated July 21, 1999         Filed herewith
               between the Company and Robert Solomon

10.2           Employment Agreement dated July 21, 1999         Filed herewith
               between the Company and Donald Barlow

10.3           Employment Agreement dated January 14, 2000      Filed herewith
               between the Company and Seth Davis
10.4           Credit Agreement dated December 30, 1999         Filed herewith
               between the Company and Banque Paribas

10.5           1997 Restated Combined Incentive Stock Option    Exhibit 99.1 to Form S-8 filed December 17,
               and Nonqualified Stock Option Plan               1999
10.6           1998-1999 Combined Incentive Stock Option and    Exhibit 99.2 to Form S-8 filed December 17,
               Nonqualified Stock Option Plan                   1999
10.7           1999 Incentive Plan                              Appendix E to the Company's Definitive Proxy
                                                                Statement filed on November 12, 1999
23.1           Consent of Arthur Andersen                       Filed herewith
24.1           Power of Attorney                                N/A

27.1           Financial Data Schedule.                         Filed herewith

</TABLE>

<PAGE>

                          INDEX TO FINANCIAL STATEMENTS

USOL HOLDINGS, INC. Page
Report of Independent Public Accountants.................................... F-2
Consolidated Balance Sheet.................................................. F-3
Consolidated Statement of Operations........................................ F-4
Consolidated Statement of Stockholders' Equity.............................. F-5
Consolidated Statement of Cash Flows........................................ F-6
Notes to Consolidated Financial Statements.................................. F-7


U.S. ONLINE COMMUNICATIONS, INC.
Report of Independent Public Accountants................................... F-18
Consolidated Statements of Operations...................................... F-19
Consolidated Statements of Cash Flows...................................... F-20
Notes to Consolidated Financial Statements................................. F-21

<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of
USOL Holdings, Inc.:

We have audited the  accompanying  consolidated  balance sheet of USOL Holdings,
Inc. (an Oregon corporation),  and subsidiaries as of December 31, 1999, and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows for the period from  inception  (May 12, 1999) through  December 31, 1999.
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 auditing standards  generally accepted
in the United States. 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 USOL  Holdings,  Inc.,  and
subsidiaries  as of December 31, 1999,  and the results of their  operations and
their cash flows for the period from inception  (May 12, 1999) through  December
31, 1999, in conformity with  accounting  principles  generally  accepted in the
United States.

Austin, Texas
February 11, 2000

<PAGE>

                               USOL HOLDINGS, INC.

                CONSOLIDATED BALANCE SHEET - - DECEMBER 31, 1999

                                 (Notes 1 and 2)

                                 ASSETS

CURRENT ASSETS:
   Cash and cash equivalents                                       $  13,637,511
   Accounts receivable, net                                              535,262
   Note receivable, related party                                        102,742
   Supply inventory                                                      818,837
   Other current assets                                                  221,609
                                                                     -----------
                         Total current assets                         15,315,961

PROPERTY AND EQUIPMENT, net                                           16,458,736

GOODWILL, net                                                         35,159,285

DEFERRED LOAN COSTS                                                    1,780,903

OTHER ASSETS                                                           4,210,588
                                                                   -------------
                         Total assets                                $72,925,473
                                                                     ===========

                LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable                                                $   1,369,636
   Accrued liabilities                                                 2,416,239
   Preferred dividends payable                                         1,973,333
   Current portion of capital lease obligations                          601,784
   Deferred revenue                                                      419,262
   Related party payable                                                 294,857
                                                                   -------------
                         Total current liabilities                     7,075,111
                                                                   -------------

CAPITAL LEASE OBLIGATIONS, less current portion                        1,749,818
                                                                   -------------
OTHER LONG-TERM LIABILITIES                                               48,666
                                                                   -------------
COMMITMENTS AND CONTINGENCIES (Note 10)

MINORITY INTEREST                                                         58,504
                                                                   -------------

STOCKHOLDERS' EQUITY:
   Convertible preferred stock, no par value,
     5,000,000 shares authorized-
     Series A, 1,325,000 shares issued and
      outstanding; liquidation preference of $33,125,000              30,675,361
     Series B, 155,000 shares issued and
      outstanding; liquidation preference of $3,875,000                3,588,439
   Common stock, no par value, 50,000,000 shares authorized,
    6,892,668 shares issued and outstanding                           36,735,911
   Deferred compensation                                               (344,201)
   Accumulated deficit                                               (6,662,136)
                                                                   -------------

                         Total stockholders' equity                   63,993,374
                                                                   -------------

                         Total liabilities and stockholders'
                          equity                                   $  72,925,473
                                                                   =============


               The accompanying notes are an integral part of this
                       consolidated financial statement.

<PAGE>

                               USOL HOLDINGS, INC.

                      CONSOLIDATED STATEMENT OF OPERATIONS

                  FOR THE PERIOD FROM INCEPTION (MAY 12, 1999)

                            THROUGH DECEMBER 31, 1999

                                 (Notes 1 and 2)

REVENUES                                                           $   3,140,163
                                                                   -------------

OPERATING EXPENSES:
   Operating                                                           2,528,953
   Selling, general and administrative                                 3,186,502
   Depreciation and amortization                                       1,265,671
   Stock compensation expense                                          1,023,874
                                                                   -------------
                                     Total operating expenses          8,005,000
                                                                   -------------
LOSS FROM OPERATIONS                                                 (4,864,837)
                                                                   -------------
INTEREST INCOME                                                          165,608
                                                                   -------------
LOSS BEFORE MINORITY INTEREST                                        (4,699,229)

MINORITY INTEREST IN LOSS OF SUBSIDIARY                                   10,426
                                                                   -------------
                                     Net loss                     $  (4,688,803)
                                                                   =============

PREFERRED STOCK DIVIDENDS                                            (1,973,333)
                                                                   -------------
LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS                          $  (6,662,136)
                                                                   =============
BASIC AND DILUTED LOSS PER COMMON SHARE                                  $(2.67)
                                                                   =============
BASIC AND DILUTED WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING           2,492,421
                                                                   =============


               The accompanying notes are an integral part of this
                       consolidated financial statement.

<PAGE>

                               USOL HOLDINGS, INC.

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                  FOR THE PERIOD FROM INCEPTION (MAY 12, 1999)

                            THROUGH DECEMBER 31, 1999

<TABLE>
<CAPTION>
<S>                                                       <C>           <C>          <C>          <C>           <C>          <C>

                                                             Common Stock         Preferred Stock Shares   Preferred Stock Amounts
                                                      ------------------------   -----------------------  -------------------------
                                                         Shares       Amount      Series A     Series B     Series A      Series B
                                                      ----------   -----------   ----------   ----------  -----------  -----------
INITIAL CAPITAL CONTRIBUTION:                           425,000   $      425          -             -        $   -        $   -
   Stock compensation expense on initial contribution      -         849,575          -             -            -            -
   Sale of common stock for cash and notes, net of    2,000,000    3,675,000          -             -            -            -
     offering costs of $325,000
   Stock subscription receivable                           -     (3,674,000)          -             -            -            -
   Sale of preferred stock, net of offering costs of       -            -         1,325,000      155,000   30,675,361     3,588,439
     $2,736,200

   Warrants issued in connection with issuance of          -         146,200          -             -            -            -
     preferred stock
   Common stock issued in connection with asset         750,000    1,500,000          -             -            -            -
     acquisition

   Common stock warrants issued in connection with asset   -       1,668,600          -             -            -            -
     acquisition

   Common stock and other equity securities issued    3,717,668   32,051,611          -             -            -            -
     in connection with acquisition of FirstLink
   Deferred compensation on stock options                  -         518,500          -             -            -            -
   Amortization of deferred compensation                   -            -             -             -            -            -
   Preferred stock dividends                               -            -             -             -            -            -
   Net loss                                                -            -             -             -            -            -
                                                      ----------  ----------     ----------   ----------    -----------  -----------
BALANCE, December 31, 1999                            6,892,668  $36,735,911      1,325,000      155,000    $30,675,361  $3,588,439
                                                      ========== ===========      =========   ==========    ===========  ===========

</TABLE>
<TABLE>
<CAPTION>
<S>                                                         <C>           <C>        <C>
                                                                                    Total
                                                         Deferred     Retained   Stockholders'
                                                        Compensation    Deficit      Equity
                                                       ----------   ----------    ----------
INITIAL CAPITAL CONTRIBUTION:                             $ -         $   -       $       425
   Stock compensation expense on initial contribution       -             -           849,575
   Sale of common stock for cash and notes, net of          -             -         3,675,000
     offering costs of $325,000
   Stock subscription receivable                            -             -       (3,674,000)
   Sale of preferred stock, net of offering costs of        -             -        34,263,800
     $2,736,200

   Warrants issued in connection with issuance of           -             -           146,200
     preferred stock
   Common stock issued in connection with asset             -             -         1,500,000
     acquisition

   Common stock warrants issued in connection with asset    -             -         1,668,600
     acquisition

   Common stock and other equity securities issued          -             -        32,051,611
     in connection with acquisition of FirstLink
   Deferred compensation on stock options             (518,500)           -            -
   Amortization of deferred compensation                174,299           -           174,299
   Preferred stock dividends                               -     (1,973,333)      (1,973,333)
   Net loss                                                -     (4,688,803)      (4,688,803)
                                                      ---------- -----------      -----------

BALANCE, December 31, 1999                           $(344,201) $(6,662,136)      $63,993,374
                                                      ========== ===========      ===========

</TABLE>

               The accompanying notes are an integral part of this
                       consolidated financial statement.

<PAGE>

                               USOL HOLDINGS, INC.

                      CONSOLIDATED STATEMENT OF CASH FLOWS

                  FOR THE PERIOD FROM INCEPTION (MAY 12, 1999)

                            THROUGH DECEMBER 31, 1999

                                 (Notes 1 and 2)

CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                      $   (4,688,803)
   Adjustments to reconcile net loss to net cash used in
    operating activities-
     Depreciation and amortization                                     1,265,671
     Minority interest                                                  (10,426)
     Stock compensation expense                                        1,023,874
     Changes in operating assets and liabilities-
       Accounts receivable, net                                        (102,082)
       Other current assets                                             (20,634)
       Accounts payable and accrued expenses                           1,091,967
       Other liabilities                                                  52,520
                                                                  --------------
                       Net cash used in operating activities         (1,387,913)
                                                                  --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Deposit on equipment                                              (2,454,707)
   Purchases of property, equipment and other                        (3,012,044)
   Cash paid for acquisitions, net of cash acquired                  (9,325,529)
   Loan to related party                                               (100,000)
                                                                  --------------
                       Net cash used in investing activities        (14,892,280)
                                                                  --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Principal payments on capital lease obligations                   (2,712,818)
   Payment of deferred financing costs                               (1,780,903)
   Proceeds from sale of preferred stock,                             34,410,000
    net of cash offering costs of $2,590,000
   Proceeds from sale of common stock                                      1,425
                                                                  --------------
                       Net cash provided by financing activities      29,917,704
                                                                  --------------

INCREASE IN CASH AND CASH EQUIVALENTS                                 13,637,511

CASH AND CASH EQUIVALENTS, beginning of period                                 -
                                                                  --------------

CASH AND CASH EQUIVALENTS, end of period                          $   13,637,511
                                                                  ==============

SUPPLEMENTAL CASH FLOW INFORMATION:
   Cash paid for interest                                         $      977,511
   Net assets acquired from acquisitions                               2,968,612
   Deferred compensation                                                 518,500
   Issuance of common stock and warrants in                            3,168,600
     connection with acquisitions
   Common stock issued for notes                                       3,674,000
   Discount recorded on issuance of common stock                         325,000
   Accretion of dividends on preferred stock                           1,973,333

               The accompanying notes are an integral part of this
                       consolidated financial statement.

<PAGE>

                               USOL HOLDINGS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1999

1.  BUSINESS

    USOL Holdings,  Inc. (formerly  FirstLink  Communications,  Inc.), an Oregon
corporation,  its wholly  owned  subsidiary  USOL,  Inc.  (USOL),  and USOL's 50
percent  owned  subsidiary,   U.S.  Austin  Cable  Association  I,  Ltd.  (USAC)
(collectively   referred  to  herein  as  the   Company),   provide   integrated
telecommunications  services including local telephone, long distance telephone,
enhanced  calling  features and cable  television  to  residents of  multifamily
apartment  complexes  and  condominiums  (MDUs) in Texas,  Oregon,  Virginia and
Colorado.  The services are provided to the tenants in accordance with long-term
operating agreements between the Company and the property owners under which the
property owners receive royalties from the telecommunication  revenues generated
from their properties. The agreements provide the tenants with the option to use
either  the  Company  or the local  telephone  and long  distance  carriers  for
telephone  services.  Tenants  desiring to  subscribe to cable  television  must
utilize the Company.

    USOL, Inc. also wholly owns TheResidentClub.com, Inc. (TRC), a business that
provides  a  range  of  move-in  and  lifestyle  enhancement  services  for  the
multifamily housing market that will utilize the Internet.

2.  ORGANIZATION AND BASIS OF PRESENTATION

    On December 15, 1999, the  shareholders  of FirstLink  Communications,  Inc.
(FirstLink), approved a merger (the Merger) with USOL Holdings, Inc. (Holdings),
a Delaware  corporation,  in a stock for stock transaction with FirstLink as the
legal survivor. Additionally,  FirstLink changed its name to USOL Holdings, Inc.
The Merger was completed on December 22, 1999.

    The Merger was accounted for as a reverse  merger under the purchase  method
of accounting.  Accordingly,  the legal form of the transaction has been ignored
and Holdings has been treated as the accounting acquirer. The excess of purchase
price over the fair market value of FirstLink's  net assets has been recorded as
goodwill  and will be amortized  over a 10-year  period.  The purchase  price of
$32,051,611 was allocated as follows:

Current assets                                         $   2,466,584
Fixed assets                                               1,648,060
Current liabilities                                         (803,968)
Capital leases                                              (177,277)
Other liabilities                                            (50,700)
Goodwill                                                  29,057,912
                                                       -------------
                                                       $  32,051,611

Holdings  was formed on May 12,  1999,  for the  purpose of  acquiring  entities
providing  telecommunications,  cable  television,  Internet  access  and  other
services  to  residents  of  MDUs.  On July  21,  1999,  Holdings,  through  its
subsidiary  USOL,  purchased   substantially  all  of  the  assets  and  certain
liabilities of U.S. OnLine Communications,  Inc. (US OnLine). US OnLine provided
telecommunications  and cable television services to residents of MDUs in Texas,
Virginia  and  Colorado.  Pursuant  to the asset  purchase  agreement,  Holdings
exchanged  750,000  shares of Holdings'  common stock valued at $2.00 per share,
warrants to purchase  1,500,000  shares of Holdings' common stock at an exercise
price of $5.50 per share and $845,000 of cash.  The Company  valued the warrants
using  the  Black-Scholes  pricing  model  at  approximately   $1,324,800.   The
Black-Scholes  valuation  was based on the warrant  terms using  Holdings'  then
current   stock   price  of  $2.00  per  share  and  a   volatility   percentage
representative  of a  public  company  operating  in this  industry.  The  total
purchase  price was  $3,669,800.  The  acquisition  was  accounted for under the
purchase method of accounting with the purchase price allocated as follows.

<PAGE>

Current assets                                         $    2,357,577
Fixed assets                                               13,648,334
Other assets                                                1,029,117
Current liabilities                                       (16,823,702)
Minority interest                                            (236,413)
Goodwill                                                    3,694,887
                                                       --------------
                                                       $    3,669,800

    Also on July 21,  1999,  Holdings,  through its  subsidiary  TRC,  purchased
certain assets and contract  rights from GMAC  Commercial  Mortgage  Corporation
(GMACCM).  Pursuant  to the asset  purchase  agreement,  the  purchase  price of
$2,843,800  consisted of cash of  $2,500,000  and a warrant to purchase  325,000
shares of  Holdings'  common  stock at an  exercise  price of $2.00  per  share.
Holdings'  valued  this  warrant  using  the  Black-Scholes   pricing  model  at
approximately  $343,800.  The  Black-Scholes  valuation was based on the warrant
terms  using  Holdings'  then  current  stock  value of $2.00  per  share  and a
volatility  percentage  representative  of a public  company  operating  in this
industry.  The  acquisition  was  accounted  for as a  purchase  with the entire
purchase price being recorded as goodwill.

    The purchase price  allocation  for these  acquisitions  is preliminary  and
further refinements may be made in accordance with generally accepted accounting
principles.

    The  accompanying  consolidated  balance  sheet  is that of the  Company  at
December 31, 1999. The  accompanying  consolidated  statements of operations and
cash flows reflect the results of operations and cash flows for Holdings for the
period from inception (May 12, 1999) through  December 22, 1999, and the results
of  operations  and cash flows for the Company from  December 23, 1999,  through
December 31, 1999.  The minority  interest in the loss of USAC is deducted  from
the  consolidated  loss. All intercompany  balances and  transactions  have been
eliminated in consolidation.

    The table below reflects the unaudited  combined results of the Company,  US
OnLine and FirstLink as if the  acquisitions had taken place at the beginning of
fiscal 1999 and  reflects  the  operations  of the Company  from the period from
inception through December 31, 1999, the operations of US OnLine from January 1,
1999,  through its  acquisition by the Company  effective June 30, 1999, and the
operations  of FirstLink for the period from January 1, 1999,  through  December
22, 1999:

<TABLE>
<CAPTION>
<S>                                              <C>              <C>                <C>                 <C>
                                                                                   Firstlink
                                                 The            US OnLine         (Premerger)          Combined
                                               Company       (Preacquisition)     (Unaudited)        (Unaudited)
                                            --------------   ----------------     -----------        -----------
Revenues                                    $   3,140,163      $  2,831,079     $  1,389,093      $    7,360,335
Loss from operations                           (4,864,837)       (1,702,753)      (2,207,540)         (8,775,130)
Loss before minority interest                  (4,699,229)       (3,503,394)      (2,207,540)        (10,410,163)
Net loss                                       (4,688,803)       (3,500,980)      (2,312,534)        (10,502,317)

</TABLE>

3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

    The  preparation  of  financial  statements  in  conformity  with  generally
accepted accounting  principles requires the use of estimates and assumptions by
management  in  determining  the  reported  amounts of assets  and  liabilities,
disclosure of contingent liabilities at the date of the financial statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

Cash and Cash Equivalents

    The  Company  considers  all highly  liquid  investments  purchased  with an
original maturity of three months or less to be cash equivalents.

<PAGE>

Supply Inventory

    Supply inventory  consists of various service and maintenance  items related
to the  Company's  transmission  systems  and are stated at the lower of cost or
market using the first-in, first-out method.

Property and Equipment

    Property and  equipment  are stated at cost,  and  depreciation  is computed
using the  straight-line  method over the estimated  useful lives of the assets.
Depreciation expense for the period ended December 31, 1999, was $828,357.

    The Company  follows the  provisions  of Statement  of Financial  Accounting
Standards  (SFAS) No. 121,  "Accounting for the Impairment of Long-Lived  Assets
and Long-Lived Assets to Be Disposed Of."  Accordingly,  in the event that facts
and  circumstances  indicate  that property and equipment or other assets may be
impaired,  an evaluation of recoverability would be performed.  If an evaluation
is required,  the estimated future  undiscounted  cash flows associated with the
asset are compared to the asset's  carrying amount to determine if an impairment
of such property is necessary.  The effect of any impairment would be to expense
the difference between the fair value of such property and its carrying value.

    Expenditures  for  repairs  and  maintenance  are  charged to  expense  when
incurred.  Expenditures  for major  renewals and  betterments,  which extend the
useful  lives of existing  equipment,  are  capitalized  and  depreciated.  Upon
retirement  or  disposition  of  property  and  equipment,  the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statement of operations.

    The Company  leases  certain  equipment  under  agreements  accounted for as
capital  leases.  The assets under capital  leases are recorded at the lesser of
the present value of aggregate  future  minimum lease payments or the fair value
of the assets under lease. Assets under capital lease are depreciated over their
estimated  useful  lives as it is  management's  intent to exercise  the bargain
purchase options available under the agreements.

Goodwill

    Goodwill is related to the Merger,  the purchase of the US OnLine assets and
TRC's  purchase of the assets from  GMACCM,  as described in Note 2 and is being
amortized on the  straight-line  method over 10 years.  Amortization  expense of
approximately   $437,314  is  reflected  as  a  component  of  depreciation  and
amortization for the period ended December 31, 1999.

Deferred Loan Costs

    Deferred loan costs consist of costs  incurred in connection  with obtaining
the  Company's  senior  credit  facility in 1999.  These costs will be amortized
using the effective  interest  method over the term of the related debt. As this
facility was executed on December 30,  1999,  there is no  amortization  expense
included in the accompanying statement of operations.

Revenue Recognition

    Revenue  from  subscribers  is  recognized  in the  period  that  service is
provided.  Amounts billed prior to providing  services are reflected as deferred
revenue. Installation fees are recognized as revenue upon origination of service
to subscribers. Costs incurred to obtain subscribers are expensed as incurred.

Income Taxes

    The Company  follows the liability  method of accounting for income taxes in
accordance with SFAS No. 109,  "Accounting for Income Taxes." Under this method,
deferred  assets and  liabilities  are recorded for future tax  consequences  of
temporary  differences  between the financial  reporting and tax bases of assets
and  liabilities and are measured using the enacted tax rates and laws that will
be in effect when the underlying assets or liabilities are recovered or settled.

<PAGE>

Comprehensive Income

    The Company follows the provisions of SFAS No. 130, "Reporting Comprehensive
Income."  The  objective of SFAS No. 130 is to report all changes in equity that
result from  transactions  and  economic  events  other than  transactions  with
owners.  There is no difference  between net loss and comprehensive loss for the
period ended December 31, 1999.

Credit Risk and Significant Customers

    The  Company's  accounts  receivable  subject the Company to credit risk, as
collateral is generally not required.  The Company's risk of loss is limited due
to advance  billings  to  certain  customers  for  services  and the  ability to
terminate  access  on  delinquent  accounts.   The  large  number  of  customers
comprising the customer base mitigates the concentration of credit risk. For the
period ended December 31, 1999, no customer  represented more than 10 percent of
the Company's consolidated revenues.

Financial Instruments

    The carrying  amounts of cash  equivalents,  accounts  receivable,  accounts
payable and accrued liabilities approximate fair value because of the short-term
nature of these instruments.  The fair value of all long-term debt was estimated
by  discounting  the future cash flows using market  interest rates and does not
differ significantly from that reflected in the financial statements.

Common Stock and Loss Per Share

    The Company  follows the  provisions of SFAS No. 128,  "Earnings Per Share."
Under SFAS No. 128, basic EPS excludes dilution for common stock equivalents and
is computed by dividing  income or loss available to common  stockholders by the
weighted-average  number of common shares outstanding during the period. Diluted
EPS reflects the  potential  dilution  that could occur if  securities  or other
contracts to issue common stock were exercised or converted into common stock.

    In accordance  with SFAS No. 128, the  calculation  of basic and diluted EPS
does not assume the  conversion,  exercise or contingent  issuance of securities
that would have an  antidilutive  effect on  earnings  per share.  Common  stock
equivalents  related to the  conversion  of preferred  stock,  stock options and
warrants totaling 18,500,000, 2,147,335 and 3,340,888, respectively, during 1999
were  excluded from the diluted net loss per share  calculation  as their effect
would have been antidilutive.

4.  DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS

Accounts Receivable

    Accounts receivable consist of the following at December 31, 1999:
       Accounts receivable                                           $   681,983
         Less- Allowance for doubtful accounts                         (146,721)
                                                                     -----------
    Accounts receivable, net                                         $   535,262
                                                                     ===========

    For the year ended  December 31, 1999,  activity in the Company's  allowance
for doubtful accounts consists of the following:

    Balance, at inception                                                 $    -
    Acquired from US OnLine                                              135,777
    Provision for bad debts                                              231,026
    Deductions for uncollectible  receivables written off,             (220,082)
      net of recoveries                                              -----------
    Balance, end of year                                             $   146,721
                                                                     ===========

<PAGE>

Property and Equipment

    Property and equipment consists of the following:

                                                                     Estimated
                                                    Useful Lives    December 31,
                                                      in Years          1999

    Cable systems                                     5 - 10        $  5,998,378
    Telephone switch equipment                        10               8,772,854
    Furniture, fixtures and office equipment          5 - 10             739,663
    Purchased software                                5                  191,332
    Leasehold improvements                            10                 213,711
    Construction in progress                          N/A              1,371,155
                                                                  --------------
                                                                      17,287,093
    Less- Accumulated depreciation                                     (828,357)
                                                                  --------------
    Property and equipment, net                                     $ 16,458,736
                                                                    ============

    Equipment   associated  with  capital  leases  with  a  net  book  value  of
approximately  $2,633,251 are included in property and equipment at December 31,
1999.

Goodwill

    Goodwill consists of the following at December 31, 1999:

    Goodwill                                                       $  35,596,599
     Less- Accumulated amortization                                    (437,314)
                                                                   -------------
    Goodwill, net                                                  $  35,159,285
                                                                   =============

Other Assets

    Other assets consist of the following at December 31, 1999:

    Deposits on equipment                                           $  2,596,442
    Capitalized software                                               1,600,625
    Other                                                                 13,521
                                                                    ------------
    Other assets                                                    $  4,210,588
                                                                    ============

    Capitalized  software primarily consists of amounts paid to a third party to
develop a customized  billing  system for the Company.  The  development of this
system is not yet complete. Once the system is complete and becomes operational,
the Company will begin to depreciate this asset.

Accrued Liabilities

   Accrued liabilities consist of the following at December 31, 1999:

   Accrued sales and communication taxes                            $    915,021
   Accrued wages                                                         505,327
   Accrued professional fees                                             253,701
   Accrued programming and telephony costs                               237,058
   Other                                                                 505,132
                                                                    ------------
   Accrued liabilities                                              $  2,416,239
                                                                    ============

<PAGE>

5.  NOTE RECEIVABLE, RELATED PARTY

    In connection with the relocation of a certain  officer,  the Company loaned
this individual  $100,000 pursuant to a promissory note (the Note). The Note was
due on March 1, 2000,  and bore  interest at 7 percent  per annum.  The Note and
accrued interest was paid in full on February 1, 2000.

6.  DEBT

    The Company has a senior  credit  facility (the  Facility)  with a bank that
provides for borrowings of up to $35 million.  Under terms of the Facility,  the
Company may borrow funds for a two-year period  commencing  January 1, 2000, and
ending December 31, 2001, at which time the Facility will convert to a five-year
term loan. The Facility bears interest at the Company's option at an annual rate
of prime  plus 2.75  percent  or LIBOR  plus 3.75  percent  subject  to  certain
discounts based on leverage ratios. The Facility is secured by all assets of the
Company,  excluding TRC. The Facility  contains an unused commitment fee ranging
from .5 percent to 1.25  percent  depending  on  borrowing  levels and an annual
administrative  fee of $30,000.  At December 31, 1999,  there were no borrowings
under the Facility.

7.  STOCKHOLDERS' EQUITY

Convertible Preferred Stock

    On July 21, 1999,  Holdings  issued  1,325,000  shares of Series A Preferred
Stock and 155,000  shares of Series B Preferred  Stock for $37  million.  On the
date of Merger,  this preferred  stock was exchanged for an identical  number of
shares of  preferred  stock of the  Company and the  Company  assumed  Holdings'
obligation for accreted but unpaid dividends.

    The  preferred  stock  has a stated  value  of $25 per  share  and  accretes
cumulative  dividends  from the date of  issuance  at the rate of 12 percent per
year, payable quarterly in arrears on the last day of March, June, September and
December. The Company has the option of paying the dividend in cash or shares of
its common stock.  The Facility  prohibits the paying of such dividends in cash.
As of December  31,  1999,  the Company had  accreted  dividends  of  $1,973,333
representing dividends from July 21, 1999, through December 31, 1999. Subsequent
to year-end,  the Company paid the  dividends by issuing  352,006  shares of its
common stock.

    Each share of Series A  Preferred  Stock has  12-1/2  votes per share on any
matter on which  holders of common  stock are  entitled to vote,  except for the
election of  directors.  Four of the  entities  that have been  issued  Series A
Preferred Stock each have the right to nominate and elect, voting as a class and
separately  from all other  classes  and  series,  a majority  of the  Company's
directors.  Holders of Series B Preferred Stock do not have the right to vote on
any matter,  except for a proposal to merge or consolidate  with or into another
entity,  or any  recapitalization  or  reorganization  in  which  they  would be
adversely affected.

    Beginning  July 21, 2001,  each share of preferred  stock shall convert into
common  stock on the  earliest to occur of (a) the closing of a firm  commitment
public offering  pursuant to which the Company offers its equity  securities for
gross  proceeds of $40 million or more; (b) the day that the closing sales price
of the  Company's  common  stock is $10.00 per share or more for 15  consecutive
trading days; or (c) if the common stock is trading at more than $2.00 per share
on July 21, 2006.

    In the event of liquidation,  the preferred stock  shareholders are entitled
to receive $25 per share and all unpaid cumulative  dividends,  prior to, and in
preference to any  distribution to the holders of common stock. If undistributed
assets remain after  satisfying the preferred  stock  shareholders,  such assets
shall be distributed  ratably among the holders of common stock,  and holders of
preferred stock have no further right or claim to any of the remaining assets.

    The holders of the  preferred  stock may convert their shares in whole or in
part  into  common  stock at any time at a ratio of  12-1/2  common  shares to 1
preferred  share  subject to certain  antidilution  provisions.  The  holders of
Series B Preferred  Stock may convert their shares into Series A Preferred Stock
at any time.

Common Stock

    In addition to the common  stock  issued as  described in Note 2, on May 12,
1999, the Company issued 425,000 shares of common stock to members of management
in  exchange  for  $425  in  cash.  The  Company  recorded   $849,575  of  stock
compensation  expense  related  to the  issuance  of these  shares  based on the
difference  between  the cash paid and the  estimated  $2 per share fair  market
value of the shares at the date of issuance.

<PAGE>

Stock Options

    The Company has three stock option plans:

    The 1999  Incentive  Plan (the  Incentive  Plan) was adopted by the board of
directors on September 23, 1999,  and approved by the  shareholders  on December
15, 1999. The Incentive  Plan provides for the grant of incentive  stock options
(ISO's),  nonstatutory stock options (NSO's),  restricted stock grants and stock
appreciation  rights (SAR's).  ISO's are intended to qualify as "incentive stock
options" within the meaning of Section 422 of the Code.  NSO's granted under the
Incentive Plan are intended not to qualify as incentive  stock options under the
Code and may be  issued  below  fair  market  value on the  date of  grant.  The
Incentive Plan is administered by the board of directors.  The exercise price of
ISO's may not be less than the fair market value of the  Company's  common stock
on the date of grant and,  in some  cases,  may not be less than 110  percent of
such fair market value.  Vesting  periods are at the discretion of the Company's
board of directors.  The maximum term of options under the Incentive  Plan is 10
years.  The  Company  has  reserved  3,000,000  shares  for  issuance  under the
Incentive Plan.

    During 1999,  Holdings  issued options (which were assumed by the Company on
the Merger date) to acquire  1,710,000  shares of common stock at prices ranging
from $1.00 to $5.50 per share.  These  options  have a life of 10 years and vest
over 3 years  with  certain  options  vesting  25  percent on the date of grant.
Included  in the above  amounts  are  options  granted to certain  employees  to
purchase  425,000  shares of common  stock at prices that were below that of the
fair  market  value on the date of grant.  The  Company  has  recorded  deferred
compensation of $518,500 and recognized stock  compensation  expense of $174,299
for such options during 1999.

    In  connection  with  the  Merger,  the  Company  assumed   FirstLink's  two
outstanding  stock option plans; the FirstLink  Communications,  Inc.  1998-1999
Combined  Incentive  and  Non-Qualified  Stock  Option  Plan  and the  FirstLink
Communications,  Inc.  1997 Restated and Combined  Incentive  and  Non-Qualified
Stock Option Plan (collectively  referred to as the FirstLink Option Plans). The
number of options  outstanding and  exercisable at December 31, 1999,  under the
FirstLink  Option Plans was 556,335 shares.  There are no additional  authorized
shares  available for grant under the FirstLink  Option Plans as of December 31,
1999.

    The Company applies APB 25 and related interpretations in accounting for its
option plans.  Accordingly,  no  compensation  cost is recognized  for grants of
options with  exercise  prices equal to or above the fair value of the Company's
common stock on the date of grant. Compensation cost is recognized for grants of
options  with  exercise  prices  less than the fair value and is computed as the
difference between the fair value on the date of grant and the exercise price.

    Had  compensation  cost for the stock option grants been determined based on
their fair value at the grant date consistent with the method prescribed by SFAS
No. 123,  "Accounting for Stock-Based  Compensation,"  the Company's net loss to
common  shareholders  and loss per common share as of December  31, 1999,  would
have been increased to the pro forma amounts indicated below:

                    Net loss to common shareholders-
                       As reported                                 $ (6,662,136)
                       Pro forma                                     (7,019,768)

                    Net loss per common share-
                       As reported                                 $(2.67)
                       Pro forma                                   $(2.82)

    As of December 31, 1999,  the fair value of each option grant was  estimated
on the date of grant  using the  Black-Scholes  option  pricing  model  with the
following weighted average assumptions used:

                    Dividend yield                                            -%
                    Expected volatility                                   95.00%
                    Risk-free interest rate                                5.10%
                    Expected life                                     6.75 years

<PAGE>

    A summary of the status of the  Company's  stock  option  plans is presented
below:

<TABLE>
<CAPTION>
<S>                                                             <C>             <C>           <C>          <C>        <C>
                                                                                   Outstanding                Exercisable
                                                                            ------------------------   ----------------------
                                                                                          Weighted-                 Weighted-
                                                                                           Average                   Average
                                                                Shares                     Exercise                  Exercise
                                                               Reserved       Shares        Price       Shares        Price
                                                             ------------   ----------    ----------   ----------   ---------
           Inception, May 12, 1999-
              Shares reserved                                  3,000,000        -           $  -          -          $  -
              Granted                                         (1,710,000)    1,710,000        2.29        -             -
              Carryover from FirstLink                            -            556,335        1.57       556,335       1.57
              Options becoming exercisable                        -             -              -         335,625       1.88
              Forfeited                                          119,000      (119,000)       3.10        -             -
                                                             -----------    ----------                 ---------
           Outstanding, December 31, 1999                      1,409,000     2,147,335        2.11       891,960       1.69
                                                             ===========    ==========                 =========

</TABLE>
<TABLE>
<CAPTION>
                                                    <S>                   <C>            <C>
                                                                                      Weighted-
                                                                                    Average
                                                     Range of                      Remaining
                                                     Exercise                     Contractual
                                                      Prices          Number         Life
                                                --------------    -------------   -----------
                                                $1.00 to $2.50      1,830,835      8.7 years
                                                $3.00 to $5.50        316,500      9.6 years

</TABLE>

    FirstLink had a consulting  agreement with a financial public relations firm
assumed by the Company under which  FirstLink  issued options to purchase 39,000
shares of common stock at prices ranging from $2.00 - $3.00.  As of December 31,
1999, all of the options were vested. The agreement expired on January 15, 2000.

Warrants

    The Company has issued  various stock purchase  warrants in connection  with
its financing and acquisition activities.  The following table is a roll forward
of warrant  activity  from the period  from  inception  (May 12,  1999)  through
December 31, 1999:

<TABLE>
<CAPTION>
<S>                                                   <C>              <C>                <C>
                                                      Number
                                                    of Shares         Range of
                                                   Underlying         Exercise          Range of
                                                    Warrants           Prices        Expiration Dates
                                                   -----------      --------------   -----------------
Inception, May 12, 1999                                      -      $           -
FirstLink  warrants  carried  over in  connection
  with the Merger                                    1,256,888      $ .75 - $7.70    4-30-00 - 7-28-03
Warrants issued                                      2,084,000      $2.00 - $6.00    7-21-03 - 7-21-04
                                                   -----------
Warrants outstanding, December 31, 1999              3,340,888
                                                   ===========

</TABLE>

    Warrants outstanding at December 31, 1999, have a weighted-average  exercise
price of $4.76.

    The  Company  issued  259,000  warrants  to purchase  common  stock,  with a
weighted-average  exercise price of $4.00 per share, to AGL Capital  Investments
LLC (Amstar) in connection with the preferred stock offering and other financial
advisory  services.  Amstar is also a holder of the Company's Series A Preferred
Stock and has a representative on the Company's board of directors.  The Company
recorded  offering costs of $146,200  associated  with the issuance of preferred
stock based on a Black-Scholes  valuation using the Company's then current stock
value of $2.00 per share and a volatility percentage  representative of a public
company  operating in the industry.  The warrants are exercisable over two years
with the $2.00 tranche  (87,000  shares)  becoming  exercisable  upon  execution
issuance of the warrants, the $4.00 tranche (86,000 shares) becoming exercisable
on the one-year  anniversary  and the $6.00  tranche  (86,000  shares)  becoming
exercisable on the two-year anniversary.

    All other warrants are fully  exercisable  as of December 31, 1999.  Certain
warrants also contain cash, less exercise provisions.

<PAGE>

Stock Subscription Receivable

    On July 21,  1999,  Holdings  issued 2 million  shares  of  common  stock in
exchange for notes receivable totaling $3,674,000 and $1,000 in cash. The shares
were sold for $2.00 per share, however, one party purchased shares at $1.675 per
share in recognition of their services for identifying  certain  investors.  The
notes  accrue  interest  at 5 percent per annum and are due July 21,  2002.  The
$325,000  difference between the fair market value of the stock and the purchase
price has been  reflected as a stock offering cost. The two holders of the notes
each  own  Series  A  Preferred  Stock  and each  have a  representative  on the
Company's board of directors.

8.  INCOME TAXES

    For the period from inception (May 12, 1999) through  December 31, 1999, the
Company has  generated  losses and,  therefore,  has not been subject to federal
income taxes. The difference between expected tax benefit,  computed by applying
the federal statutory rate of 35 percent to loss before taxes and the actual tax
benefit of $0 is due to the  increase in the  valuation  allowance  for deferred
taxes.

    The Company's deferred tax assets are comprised of the following at December
31, 1999:

   Net operating loss carryforwards                       $  2,740,834
   Accrued liabilities                                         105,000
   Other                                                       100,056
                                                           ------------
   Total gross deferred tax assets                           2,945,890
   Less- Valuation allowance                                (2,945,890)
                                                           ------------
   Net deferred tax assets                                $     -
                                                           ============

    The  valuation  allowance  for  deferred  tax  assets  as of May  12,  1999,
inception,  was $0.  The net  change in the total  valuation  allowance  for the
period ended December 31, 1999,  was an increase of $2,945,890.  The Company has
established a valuation allowance due to the uncertainty that the full amount of
the operating loss carryforwards will be utilized. Any subsequent adjustments to
the valuation  allowance,  if deemed  appropriate due to changed  circumstances,
will be recognized as a separate component of the provision for income taxes.

    The Merger was accounted for as a reverse merger using  purchase  accounting
for  financial  reporting  purposes  and  for  tax  purposes.  Pursuant  to that
treatment,  tax assets,  liabilities  and net operating  loss  carryforwards  of
FirstLink  were acquired by the Company.  At December 31, 1999,  the Company had
net operating loss carryforwards  which are available to offset future financial
reporting and taxable  income  totaling  approximately  $7,830,954 and expire in
2011 through 2019.

    A provision of the Internal  Revenue Code  requires the  utilization  of net
operating  losses be  limited  when there is a change of more than 50 percent in
ownership of the Company. Such an ownership change occurred with the Merger.

9.  RELATED-PARTY TRANSACTIONS

    The  investment  banking firm that brokered the Company's  sale of preferred
stock and the Facility is a subsidiary of GMACCM.  The Company paid fees to this
firm totaling  $2,590,000  and $700,000 for the sale of preferred  stock and the
Facility,  respectively,  during the period ended  December 31, 1999,  which are
reflected  in  preferred   stock   offering   costs  and  deferred  loan  costs,
respectively, on the accompanying balance sheet.

    The Company was charged for certain  administrative  and operating  services
provided by GMACCM related to the business of TRC. Such charges totaled $314,268
for the period ended  December 31, 1999,  of which  $294,857 is reflected on the
accompanying balance sheet as related-party payable.

    An  officer  of the  Company  has a  beneficial  ownership  interest  in two
apartment complexes served by the Company.  The properties are owned by separate
limited  partnerships  in which the officer is the general  partner of one and a
limited partner in the other.  Both properties are managed by a company which is
partially owned by the officer. For the period ended December 31, 1999, revenues
from these two properties were approximately $74,000.

<PAGE>

10.  COMMITMENTS AND CONTINGENCIES

Operating Leases

    The Company has entered into various  operating lease  agreements for office
and warehouse space.  Future minimum rental  commitments under all noncancelable
operating leases are as follows:

             Year ending December 31-
                       2000                                           $  344,375
                       2001                                              309,108
                       2002                                              186,688
                       2003                                               71,343
                       2004                                                9,000
                                                                      ----------
                                                                      $  920,514
                                                                      ==========

    Rental expense incurred in connection with these leases approximated $96,910
for the period ended December 31, 1999.

Capital Leases

    The Company leases certain telephony network equipment under capital leases.
At December 31, 1999,  future minimum lease payments under capital leases are as
follows:

             Year ending December 31-
                       2000                                         $    781,765
                       2001                                              771,432
                       2002                                              717,905
                       2003                                              609,719
                                                                    ------------
                                                                       2,880,821
             Less- Amount representing interest                        (529,219)
                                                                    ------------
             Net minimum lease payments                                2,351,602
             Less- Current portion of capital lease obligations        (601,784)
                                                                    ------------
             Capital lease obligations, less current portion        $  1,749,818
                                                                    ============

Service Agreements

    The  Company   maintains  various   cancelable  and  noncancelable   service
agreements for telecommunications  services with several local exchange carriers
(LEC) and one  interexchange  carrier (IXC) that commit the Company to the LECs'
and IXC's  services.  These  agreements  require minimum monthly charges ranging
from $340 to  $25,000  per month and have  terms  ranging  from one year to five
years.  The Company also has agreements with certain cable providers to purchase
bulk cable signal at some of the Company's  properties.  The agreements  provide
for the  Company  to pay  fixed  monthly  amounts  regardless  of the  number of
customers the Company has at the  properties.  Future minimum  amounts due under
all noncancelable agreements are as follows:

             Year ending December 31-
                       2000                                         $    896,843
                       2001                                              648,161
                       2002                                              378,292
                       2003                                              206,514
                       2004                                              131,575
                       Thereafter                                        278,123
                                                                    ------------
                                                                    $  2,539,508
                                                                    ============

Litigation

    From time to time,  the  Company is involved  in various  litigation  in the
normal course of business.  Management believes that the outcome of such matters
will not  have a  material  impact  on the  Company's  operations  or  financial
condition.

<PAGE>

Web Service Company

    FirstLink had an exclusive  marketing  agreement  with Web Service  Company,
Inc. (Web or the Web  Agreement).  Under terms of the Web Agreement,  Web was to
exclusively  market  FirstLink's  services  in four  markets for which Web would
receive up to 2 million  warrants,  exercisable  at $5.40 per share,  subject to
vesting  requirements  based  on  performance.  Additionally,  Web was to earn a
commission based on performance.

    FirstLink and Web mutually agreed to delay commencing  marketing  activities
under the Web  Agreement.  The Web Agreement  also  contained a provision  that,
should the Web Agreement be terminated  due to a "change of control," as defined
in the Web  Agreement,  a $200,000  break-up  fee would be  payable  to Web.  On
January 17, 2000,  Web notified the Company that it considered the Web Agreement
terminated due to the Merger.

    The Company  believes that the Web  Agreement  does not allow Web to receive
the break-up fee if the Web  Agreement is terminated by Web. The Company and Web
are currently  discussing a mutually agreeable  resolution.  Management believes
that the outcome will not have a material impact on the Company's  operations or
financial condition.

Employment Agreements

    The Company has  employment  agreements  with  certain  key  employees  that
provide for severance in the event of termination, as defined in the agreements.
The total  obligation  under these  agreements  in the event of  termination  is
$678,750.

11.  SEGMENT DISCLOSURE:

    The  Company's  operations  are  classified  into  two  reportable  business
segments:   Telecommunications  and  TheResidentsClub.com.   The  Company's  two
reportable  business  segments  are  managed  separately  based  on  fundamental
differences in their operations.

    Telecommunications    consists    principally   of   providing    integrated
telecommunications   services  including  telephone,  long  distance  telephone,
enhanced  called  features and cable  television  to  residents  of  multifamily
apartment complexes and condominiums in Texas, Oregon, Virginia and Colorado.

    TheResidentsClub.com  consists  principally of products  designed to improve
and enhance multifamily housing residents  experiences  associated with move-ins
and other ongoing  lifestyle  experiences  associated with  multifamily  housing
communities.

    The  operating  results by business  segment  were as follows for the period
ended December 31, 1999:

<TABLE>
<CAPTION>
<S>                                                  <C>                      <C>                  <C>
                                             Telecommunications        TheResidentsClub       Consolidated
                                             ------------------        ----------------      --------------
Revenues                                       $  3,088,773            $     51,390          $  3,140,163
Segment profit (loss)                            (3,537,269)             (1,151,534)           (4,688,803)
Total assets                                     69,874,804               3,050,669            72,925,473
Capital expenditures                              2,669,889                 342,155             3,012,044
Depreciation and amortization                     1,103,355                 162,316             1,265,671

</TABLE>

<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To U.S. OnLine Communications, Inc.:

We have audited the accompanying  consolidated statements of operations and cash
flows  of  U.S.  OnLine  Communications,  Inc.  (a  Delaware  corporation),  and
subsidiary  for the year ended  December 31, 1998,  and for the six months ended
June  30,  1999.  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 audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the 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 financial  statements  referred to above present fairly, in
all material  respects,  the results of operations and cash flows of U.S. OnLine
Communications,  Inc., and subsidiary, for the year ended December 31, 1998, and
for the six months ended June 30, 1999, in conformity with accounting principles
generally accepted in the United States.

On July 21, 1999, the Company sold  substantially  all of its assets and certain
liabilities to a subsidiary of USOL for USOL common stock,  warrants to purchase
USOL common stock and cash. It is management's intent to wind up the affairs and
liquidate the Company as soon as practical.  These matters are further described
in Note 2 to the accompanying financial statements.

Austin, Texas
February 11, 2000

<PAGE>

                        U.S. ONLINE COMMUNICATIONS, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                    (Note 2)

                                                                        For the
                                                      For the        Six Months
                                                     Year Ended         Ended
                                                    December 31,       June 30,
                                                        1998             1999
                                                    ------------     -----------

REVENUES                                            $5,108,225        $2,831,079
                                                    ------------     -----------

EXPENSES:

   Operating                                         4,469,879         2,100,739
   Selling, general and administrative               4,454,102         1,554,807
   Depreciation and amortization                     1,532,351           878,286
   Write down of property and equipment              1,172,468            -
                                                    -----------       ----------
                    Total expenses                  11,628,800         4,533,832
                                                    -----------       ----------

LOSS FROM OPERATIONS                               (6,520,575)       (1,702,753)
                                                   -----------       -----------

OTHER:

   Interest expense                                (4,772,896)       (1,722,942)
   Gain on disposition of                               26,378            -
     property and equipment, net
   Other expense, net                                (218,228)          (77,699)
                                                   -----------       -----------
                    Total other                    (4,964,746)       (1,800,641)
                                                   -----------       -----------
LOSS BEFORE MINORITY INTEREST                     (11,485,321)       (3,503,394)

MINORITY INTEREST IN LOSS OF SUBSIDIARY                 37,863             2,414
                                                   -----------       -----------
                    Net loss                   $  (11,447,458)    $  (3,500,980)
                                                  ============       ===========

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

<PAGE>

                        U.S. ONLINE COMMUNICATIONS, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                    (Note 2)

<TABLE>
<CAPTION>
<S>                                                                                           <C>                <C>
                                                                                                              For the
                                                                                              For the        Six Months
                                                                                            Year Ended          Ended
                                                                                           December 31,       June 30,
                                                                                               1998             1999
                                                                                         ----------------   --------
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                              $  (11,447,458)    $  (3,500,980)
   Adjustments to reconcile net loss to net cash used in operating activities-
       Gain on disposition and write down of property and equipment                           1,146,090            -
       Depreciation and amortization                                                          3,421,758         1,463,526
       Minority interest                                                                        (37,863)           (2,414)
       Interest expense on related-party debt of the LLC not acquired                         1,111,423            -
       Accretion of deferred compensation                                                        64,844            51,563
       Changes in operating assets and liabilities-
         Restricted cash                                                                       (496,566)          352,071
         Accounts receivable, net                                                               (48,509)          164,585
         Other current assets                                                                   (18,011)          (60,229)
         Accounts payable and accrued expenses                                                1,846,913           876,327
         Deferred revenue                                                                       104,470           (25,966)
                                                                                         --------------     -------------
                      Net cash used in operating activities                                  (4,352,909)         (681,517)
                                                                                         --------------     -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from sale of property and equipment                                                 457,947            -
   Purchases of property and equipment                                                       (1,754,988)         (443,515)
                                                                                         --------------     -------------
                      Net cash used in investing activities                                  (1,297,041)         (443,515)
                                                                                         --------------     -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from long-term debt, related parties                                              3,250,000            -
   Payments on long-term debt, related parties                                                   -                 -
   Proceeds from long-term debt                                                               1,500,000            -
   Payments on long-term debt                                                                    -               (145,100)
   Proceeds from short-term notes payable                                                        -              1,475,000
   Payments on capital lease obligations                                                       (998,669)           -
   Payment of deferred financing costs                                                         (832,046)           -
   Proceeds from sale of common stock                                                         3,250,500            -
   Payments of stock issuance costs                                                            (461,321)           -
                                                                                         --------------     -------------
                      Net cash provided by financing activities                               5,708,464         1,329,900
                                                                                         --------------     -------------

INCREASE IN CASH AND CASH EQUIVALENTS                                                            58,514           204,868

CASH AND CASH EQUIVALENTS, beginning of period                                                  949,474         1,007,988
                                                                                         --------------     -------------

CASH AND CASH EQUIVALENTS, end of period                                                 $    1,007,988     $   1,212,856
                                                                                         ==============     =============
SUPPLEMENTAL CASH FLOW INFORMATION:
   Cash paid for interest                                                                $    1,378,931     $    123,086
   Acquisition of certain assets and liabilities of the LLC                                   3,818,951           -
   Deferred compensation, net of forfeitures                                                    606,250           -
   Issuance of warrants in connection with debt obligations                                     719,000           -
   Recognition of original issue discount                                                     1,083,000           -
   Issuance of warrants for payment of loan costs                                               320,000           -

</TABLE>

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

<PAGE>

                        U.S. ONLINE COMMUNICATIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  BUSINESS

    U.S.  OnLine  Communications,  Inc.  (US OnLine),  and its 50 percent  owned
subsidiary,  U.S.-Austin Cable Associates I, Ltd. (USAC) (collectively  referred
to herein  as the  Company),  provided  integrated  telecommunications  services
including local telephone,  long distance  telephone,  enhanced calling features
and cable  television  to  residents  of  multifamily  apartment  complexes  and
condominiums in Texas, Virginia and Colorado.  The services were provided to the
tenants in accordance with long-term  operating  agreements  between the Company
and the property owners under which the property owners received  royalties from
the telecommunication  revenues generated from their properties.  The agreements
provided  the  tenants  with the option to use  either the  Company or the local
telephone  and long  distance  carriers  for  telephone  services.  Tenants  who
subscribed to cable  television  had to utilize the Company.  In July 1999,  the
Company sold substantially all its assets and certain liabilities.  As such, the
Company is no longer providing the services described above. See Note 2.

2.  ORGANIZATION AND BASIS OF PRESENTATION

    US OnLine was  incorporated  March 5, 1998, by the management of U.S. OnLine
Communications  L.L.C. (the LLC) for the purpose of acquiring  substantially all
of the assets and certain of the  liabilities of the LLC. This  transaction  was
consummated  on July 21, 1998.  US OnLine  issued  800,000  shares of its common
stock and a $3  million  note to  acquire  certain  assets  and  liabilities  of
approximately $17,166,000 and $17,985,000,  respectively, of the LLC. The assets
acquired included the 50 percent interest held by the LLC in USAC. In accordance
with generally accepted accounting principles,  US OnLine recorded the purchased
assets and liabilities at the LLC's  historical cost since US OnLine and the LLC
are entities under common control.

    For  the  year  ended  December  31,  1998,  the  accompanying  consolidated
statement of  operations  and  consolidated  statement of cash flows reflect the
consolidated results of operations and cash flows of (i) the LLC from January 1,
1998, through July 21, 1998, and (ii) the Company from inception (March 5, 1998)
through  December  31,  1998.  The  minority  interest  in the income of USAC is
deducted from the consolidated loss. All intercompany  balances and transactions
have been eliminated in consolidation.  Following is certain selected  operating
data for the year ended December 31, 1998:

<TABLE>
<CAPTION>
<S>                                              <C>                          <C>                     <C>
                                                                          The Company
                                               LLC From                  From Inception
                                             January 1, 1998,           (March 5, 1998)
                                             Through July 21,        Through December 31,
                                                   1998                     1998                      Total
                                          ----------------------  -------------------------      --------------

Revenues                                       $  2,631,917              $  2,476,308          $    5,108,225
Loss from operations                             (2,443,207)               (4,077,368)             (6,520,575)
Loss before minority interest                    (4,532,843)               (6,952,478)            (11,485,321)
Net loss                                         (4,557,447)               (6,890,011)            (11,447,458)

</TABLE>

     On July 21, 1999, the Company sold substantially all its assets and certain
liabilities to USOL, Inc., a subsidiary of USOL Holdings,  Inc. (USOL). Pursuant
to the asset purchase  agreement,  USOL exchanged  750,000 shares of USOL common
stock  valued at $2 per share,  warrants  to purchase  1,500,000  shares of USOL
common stock at an exercise  price of $5.50 per share and $845,000 in cash.  The
warrants  were valued using the  Black-Scholes  pricing  model at  approximately
$1,324,800. The Black-Scholes valuation was based on the warrant terms using the
then  USOL  common  stock  value of $2 per  share  and a  volatility  percentage
representative of a public company  operating in this industry.  Liabilities not
assumed by USOL were  satisfied by the Company from the cash,  stock and warrant
proceeds  received in the transaction.  In connection with the acquisition,  the
management of the Company accepted similar  management  positions at USOL. It is
management's  intent to wind up the affairs and liquidate the Company as soon as
practical.

    For accounting purposes,  the acquisition  described above was considered to
have been effective as of July 1, 1999. Therefore, the results of operations and
cash flows of the Company for the period  from July 1, 1999,  to July 21,  1999,
have been reflected by USOL

<PAGE>

in its financial statements.  The revenue, expenses and results of operations of
the Company for that period are not  significant.  The Company is considered the
predecessor  entity to USOL,  and the  accompanying  consolidated  statements of
operations  and cash flows reflect the Company's  results of operations and cash
flows through the effective date of the acquisition.

3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

    The  preparation  of financial  statements  in  conformity  with  accounting
principles generally accepted in the United States requires the use of estimates
and assumptions by management in determining the reported  amounts of assets and
liabilities,  disclosure of contingent  liabilities at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

Goodwill

    Goodwill was reflected in connection  with the purchase of USAC as described
in Note 2 and is being  amortized  on the  straight-line  method  over 10 years.
Amortization  expense of  approximately  $302,000 and $151,000 is reflected as a
component of depreciation and amortization for the year ended December 31, 1998,
and for the six months ended June 30, 1999, respectively.

Deferred Loan Costs

    Loan costs were deferred in connection  with obtaining  debt in 1998.  These
costs are being amortized  using the effective  interest method over the term of
the related debt. Amortization expense of approximately $666,000 and $259,000 is
reflected  as a component  of interest  expense for the year ended  December 31,
1998, and for the six months ended June 30, 1999, respectively.

Revenue Recognition

    Revenue  from  subscribers  is  recognized  in the  period  that  service is
provided.  Amounts billed prior to providing  services are reflected as deferred
revenue. Installation fees are recognized as revenue upon origination of service
to subscribers. Costs incurred to obtain subscribers are expensed as incurred.

Income Taxes

    The Company  follows the liability  method of accounting for income taxes in
accordance with SFAS No. 109,  "Accounting for Income Taxes." Under this method,
deferred  assets and  liabilities  are recorded for future tax  consequences  of
temporary  differences  between the financial  reporting and tax bases of assets
and  liabilities and are measured using the enacted tax rates and laws that will
be in effect when the underlying assets or liabilities are recovered or settled.

    The LLC was organized as a limited liability company and was classified as a
partnership for federal,  state and local income tax purposes.  The members were
responsible for their respective tax liabilities, if any, related to their share
of the income and expenses of the LLC.

Comprehensive Income

    Effective  January 1, 1998,  the Company  adopted the provisions of SFAS No.
130,  "Reporting  Comprehensive  Income."  The  objective  of SFAS No. 130 is to
report all changes in equity that result from  transactions  and economic events
other than transactions with owners. There is no difference between net loss and
comprehensive  loss for the year ended December 31, 1998, and for the six months
ended June 30, 1999.

<PAGE>

Credit Risk and Significant Customers

    The  Company's  accounts  receivable  subject the Company to credit risk, as
collateral is generally not required.  The Company's risk of loss is limited due
to advance  billings  to  certain  customers  for  services  and the  ability to
terminate  access  on  delinquent  accounts.   The  large  number  of  customers
comprising the customer base mitigates the concentration of credit risk. For the
year ended  December  31, 1998,  and for the six months ended June 30, 1999,  no
customer  represented  more  than  10  percent  of  the  Company's  consolidated
revenues.

4.  DEBT

    The Company had various  notes  payable at December 31,  1998,  and June 30,
1999.

    Each of the note agreements contained warranties and covenants.  At December
31, 1998,  and June 30, 1999,  the Company was in default on each note agreement
and its capital lease obligations due to nonpayment of required principal and/or
interest. The Company, however, continued to accrue interest at the stated rate.
The notes and accrued  interest  payable to a bank were paid by USOL upon USOL's
acquisition of the Company,  and the notes and accrued  interest  payable to the
LLC, the corporation and the stockholders were forgiven  immediately  before the
effectiveness of the acquisition.  Certain of the capital lease obligations were
paid by USOL upon USOL's  acquisition of the Company,  and the remaining capital
lease obligations were assumed by USOL.

    In connection with renegotiating the note payable to a bank during 1998, the
Company  issued a warrant to the bank for the  purchase of 75,000  shares of the
Company's  common  stock  at  $3.75  per  share.  The  warrant  was  immediately
exercisable and has a term of five years.  The Company valued this warrant using
the  Black-Scholes  pricing  model at $308,000 and reflected it as a discount to
the related debt. The entire discount was amortized as interest  expense through
October 1998, the maturity date of the related debt.

    In connection  with the issuance of the note to a corporation  in 1998,  the
Company  also issued a warrant to the  corporation  for the  purchase of 100,000
shares  of the  Company's  common  stock at $3.75 per  share.  The  warrant  was
immediately  exercisable  and has a term of five years.  The Company valued this
warrant  using the  Black-Scholes  pricing model at  approximately  $411,000 and
reflected it as a discount to the related debt.

    This discount was being  amortized as interest  expense over the term of the
related debt.  Interest expense recognized for the year ended December 31, 1998,
was approximately $103,000, and $57,000 for the six months ended June 30, 1999.

    In 1998, the Company sold 866,667 shares of its common stock for $3,250,000,
or $3.75  per  share,  and  issued  $3,250,000  in  bridge  notes to its  bridge
investors.  The  estimated  fair market value of the common stock on the date of
sale was $5.00. Therefore,  the Company reflected a discount on the related debt
of  approximately  $1,083,000  for the difference of $1.25 per share between the
fair value of the common stock and the price at which it was sold. This discount
was amortized as interest  expense over the term of the related  debt.  Interest
expense  recognized for the year ended December 31, 1998, and for the six months
ended June 30, 1999, was approximately $812,000 and $271,000, respectively.

5.  COMMITMENTS AND CONTINGENCIES

Operating Leases

    The Company entered into various  operating lease  agreements for office and
warehouse  space.  Future minimum  rental  commitments  under all  noncancelable
operating leases are as follows:

                  Year ending December 31-
                            2000                                      $  261,635
                            2001                                         223,188
                            2002                                         100,768
                            2003                                          11,743
                            Thereafter                                     9,000
                                                                      ----------
                                                                      $  606,334
                                                                      ==========

<PAGE>

    Rental  expense  incurred  in  connection  with  these  leases  approximated
$154,000  and  $84,000 for the year ended  December  31,  1998,  and for the six
months ended June 30, 1999, respectively. These lease agreements were assumed by
USOL.

Service Agreements

    The  Company  maintained   various  cancelable  and  noncancelable   service
agreements for telecommunications  services with several local exchange carriers
(LEC) and one  interexchange  carrier  (IXC) that  committed  the Company to the
LECs' and IXC's  services.  These  agreements  require  minimum  monthly charges
ranging  from $340 to $25,000 per month and have terms  ranging from one year to
five years. Future minimum amounts due under all noncancelable agreements are as
follows:

                  Year ending December 31-
                            2000                                      $  465,500
                            2001                                         240,027
                            2002                                          52,614
                            2003                                          30,053
                            2004                                           8,725
                                                                      ----------
                                                                      $  796,919
                                                                      ==========

    These service agreements were assumed by USOL.

6.  CAPITAL STOCK

Preferred Stock

    The  Company  has one  million  shares of $.001 par  value  preferred  stock
authorized, none of which is issued and outstanding.  The board of directors has
the  authority to issue the  preferred  stock in series and designate the rights
and preferences of each series.

Common Stock

    The  Company  has  20  million  shares  of  $.001  par  value  common  stock
authorized.  Holders of common  stock are  entitled  to receive  dividends  when
declared by the board of directors.  Upon  liquidation,  holders are entitled to
share  pro  rata  in any  distribution  to such  holders  following  payment  to
creditors.  Holders  have one vote per  share and have no  cumulative  voting or
preemptive rights.

Restricted Stock Awards

    The Company adopted the 1998 Restricted Stock Award Plan (the Stock Plan) in
March 1998, to provide incentives to attract and retain highly competent persons
as officers and key employees. Under the Stock Plan, the Company can issue up to
500,000  shares  of common  stock to key  employees  designated  by the board of
directors,  with the Company  generally  having a right to repurchase  nonvested
(restricted)  shares  at a price of $.001  per  share  upon  termination  of the
employee.  Restricted shares may not be sold, exchanged,  transferred,  pledged,
hypothecated  or  otherwise  disposed  of,  unless they have been offered to the
Company for repurchase.

    The  Company  awarded all 500,000  shares  issuable  under the Stock Plan in
March 1998,  of which  120,000  were fully  vested and are no longer  subject to
repurchase  by the Company.  The  remaining  shares were subject to a three-year
vesting period based on the  anniversary  of the date of grant.  At December 31,
1998, and June 30, 1999, 120,000 shares and 240,000 shares,  respectively,  were
fully vested.

    Also,  in March 1998,  each  employee who received an award,  entered into a
shareholder  agreement  with the majority  member of the LLC which  provided the
majority  member the right to  purchase  the  shares at $.001 per share,  if the
Company failed to complete an initial public offering on or before September 30,
1998. In addition,  each  employee gave his voting right to the majority  member
until such time as the shareholder agreement is terminated or amended.

    Due to the shareholder agreement, there was no certainty as to the number of
shares the employees would ultimately  receive and, as such, the Company treated
the award of  500,000  shares  as a  variable  award  under  the  provisions  of
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees" (APB 25). In connection with the USOL  transaction  described in Note
2, management believes that these awards have no value.

<PAGE>

Stock Options

    The Company adopted the 1998 Non-Qualified  Stock Option and Incentive Stock
Option Plan (the Option  Plan) in March 1998.  The Option Plan allowed up to one
million  options to be granted to  eligible  participants  for the  purchase  of
common  stock.   Options   granted  were  either   incentive  stock  options  or
nonstatutory  stock  options and were  exercisable  within the times or upon the
events  determined  by the  board  of  directors  as  specified  in each  option
agreement.  Incentive  stock  options  granted under the Option Plan were not to
have exercise  prices less than the fair value of the Company's  common stock on
the date of grant. Nonstatutory options could have exercise prices not less than
85 percent of the fair value of the Company's common stock on the date of grant.
Incentive stock options granted to a 10 percent  stockholder  were not less than
110 percent of the fair market value of the  Company's  common stock on the date
of grant.  Options  granted had a life of ten years and generally  vested over a
period of six years.  The  vesting  could be subject  to  acceleration  upon the
occurrence of specified  performance  criteria and are  immediately  exercisable
upon the occurrence of certain events including a merger,  acquisition or change
in control.  At June 30, 1999,  the Company had  reserved one million  shares of
common stock for issuance under the Option Plan.

    The Company applied APB 25 and related interpretations in accounting for the
Option Plan.  Accordingly,  no  compensation  cost was  recognized for grants of
options with  exercise  prices equal to or above the fair value of the Company's
common stock on the date of grant.  Compensation  cost was recognized for grants
of options with exercise  prices less than the fair value and is computed as the
difference  between the fair value on the date of grant and the exercise  price.
During 1998, the Company  granted  options for the purchase of 495,000 shares of
the Company's common stock at $3.75 per share.  These shares were to have vested
in 2004, but vesting could have been accelerated if certain performance criteria
were met. Such criteria were not met during 1998. On the date of grant, the fair
value of the common stock was  estimated to be $5.00 per share,  therefore,  the
Company  recorded  deferred  compensation  of  approximately  $619,000  and  was
amortizing this amount to selling,  general and administrative  expense over the
vesting  period.  The  Company  reflected  approximately  $65,000 and $52,000 in
compensation  expense  related to these options for the year ended  December 31,
1998, and for the six months ended June 30, 1999, respectively.

    Had  compensation  cost for the stock option grant been determined  based on
their fair value at the grant date consistent with the method prescribed by SFAS
No. 123, "Accounting for Stock-Based Compensation," the Company's net loss would
have been increased to the pro forma amount indicated below:

                                                                       For the
                                                  Year Ended         For the Six
                                                December 31,        Months Ended
                                                    1998           June 30, 1999
                                                -------------      -------------
                Net loss-
                  As reported                 $ (11,447,458)       $ (3,500,980)
                  Pro forma                     (12,053,708)         (3,682,855)


    The fair value of each option grant was estimated on the date of grant using
the  Black-Scholes  option  pricing  model with the following  weighted  average
assumptions used:

                                                    December 31,       June 30,
                                                        1998             1999
                                                    ------------     -----------
                Dividend yield                         -     %           -     %
                Expected volatility                     95.00%            95.00%
                Risk-free interest rate                  5.10%             5.10%
                Expected life                       6.75 years        6.75 years

<PAGE>

    A summary of the status of the  Company's  stock  option  plan is  presented
below as of and for the year ended  December 31, 1998, and six months ended June
30, 1999:

                                                                        Weighted
                                                                         Average
                                                                        Exercise
                                                            Shares        Price
                                                          ----------    --------
                Outstanding, beginning of year                 -            $  -
                   Granted                                  495,000         3.75
                   Forfeited                                (10,000)        3.75
                                                          ----------
               Outstanding, December 31, 1998               485,000         3.75
                   Granted                                     -               -
                                                          ----------
                Outstanding, June 30, 1999                  485,000         3.75
                                                          ==========
                Options exercisable at year-end                -

                Weighted average fair value of options        $4.22
                  granted during 1998
                Weighted average remaining contractual   8.75 years
                  life at June 30, 1999

    As a result of the USOL transaction discussed in Note 1, management believes
that these awards have no value.

Warrants

    As discussed in Note 5, the Company  issued  warrants in 1998 in  connection
with two debt  obligations to purchase  175,000  shares of the Company's  common
stock at $3.75 per share.

    The  Company  also  issued a warrant in 1998 to  purchase  78,054  shares of
common  stock at $3.75  per share to a  corporation  for  professional  services
rendered in connection with obtaining the bridge notes.  The Company valued this
warrant  using the  Black-Scholes  pricing model at  approximately  $320,000 and
reflected it as a component of deferred loan costs.

    Each of  these  warrants  is  currently  exercisable  and has a term of five
years.  As a result  of the USOL  transaction  discussed  in Note 1,  management
believes that these awards have no value.

7.  INCOME TAXES

    As discussed in Note 3, the LLC was organized as a limited liability company
and was  classified  as a  partnership  for federal,  state and local income tax
purposes. The members were responsible for their respective tax liabilities,  if
any,  related to their share of the income and expenses of the LLC. As such,  no
tax  provision  is  reflected  in the  accompanying  consolidated  statement  of
operations  for the LLC's  results of operations  from January 1, 1998,  through
July 21, 1998. See Note 2.

    For the period from  inception  (March 5, 1998)  through June 30, 1999,  the
Company has  generated  losses and,  therefore,  has not been subject to federal
income taxes. Since there was no assurance of future taxable income, a valuation
allowance was established to fully offset the deferred tax asset at December 31,
1998,  and June 30,  1999,  and no deferred  tax benefit  was  reflected  in the
accompanying  consolidated  statements of operation related to the Company's net
operating loss or other deferred tax assets.

8.  RELATED-PARTY TRANSACTIONS

    During 1997 and prior years,  the LLC entered  into various note  agreements
with one of its members to provide  operating  capital.  Interest was payable at
prime, plus 2 percent compounded annually. For the year ended December 31, 1998,
the  accompanying   statement  of  operations   reflects   interest  expense  of
approximately $968,000,  related to these note obligations of the LLC. The notes
and related  accrued  interest  were not  acquired by the  Company.  See Note 2.
During  1998,  the Company  entered  into note  agreements  with the LLC and its
bridge investors. See Note 4.

<PAGE>

    The LLC entered into a guaranty and subordination  agreement with one of its
members whereby the member guaranteed the note payable to a bank and agreed that
amounts  due him were  subordinate  to the note  payable to the bank.  Under the
terms of the agreement, the LLC was charged a fee of .125 percent of the average
daily  outstanding  balance  of the note  payable to a bank and 6 percent of the
total of the principal and interest due to the member under the note  agreements
discussed  above.  For the year ended  December 31, 1998, and for the six months
ended June 30, 1999, the accompanying  statements of operations reflect interest
expense of  approximately  $63,000 and  $38,000,  respectively,  related to this
agreement.

    A company controlled by the majority member of the LLC provided  management,
administrative  and consulting  services to the LLC. For the year ended December
31, 1998, the Company was charged approximately $111,000 for these services. The
Company no longer received these services subsequent to March 31, 1998.

    An  officer  of the  Company  has a  beneficial  ownership  interest  in two
apartment complexes served by the Company.  The properties are owned by separate
limited  partnerships  in which the officer is the general  partner of one and a
limited partner in the other. Both properties are managed by a company, which is
partially  owned by the officer.  For the year ended  December 31, 1998, and for
the six months  ended June 30,  1999,  revenue  from  these two  properties  was
approximately $74,000 and $31,000, respectively.

    During part of 1998,  the Company  leased its corporate  office space from a
limited  partnership  in which an officer of the  Company  was both the  general
partner and a limited partner.  The Company  subleased a portion of the space to
another entity  partially owned by the officer.  For the year ended December 31,
1998, net lease expense  reflected in the accompanying  statements of operations
was approximately $18,000.