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


                                  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, 2000

                                       OR

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

                         Commission File Number 01-14271

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

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

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

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

                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 $10,237,683.

     The aggregate market value of the voting stock held as of April 11, 2001 by
nonaffiliates of the issuer was $9,152,826,  based on the last sale price of its
Common Stock on such date. As of April 11, 2001, the issuer had 8,635,685 shares
of its no par value Common Stock issued and outstanding.

     Transitional Small Business Disclosure Format.  YES  [  ]     NO  [X]
================================================================================

<PAGE>

<TABLE>
<CAPTION>

                                      INDEX
<S>     <C>        <C>                                                                  <C>
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 Sales and Marketing Strategy..................................   6
                   USOL Competition...................................................   6
                   The Business of TRC................................................   7
                   Key Suppliers......................................................   7
                   Employees..........................................................   7
                   Legislation and Regulation.........................................   7

        Item 2.    Properties.........................................................  10

        Item 3.    Legal Proceedings..................................................  10

        Item 4.    Submission of Matters to a Vote of Security Holders................  10

PART II
        Item 5.    Market for Registrant's Common Equity and
                   Related Stockholder Matters........................................  10

        Item 6.    Management's Discussion and Analysis of
                   Financial Condition and Results of Operations
                   Introduction.......................................................  10
                   Results of Operations..............................................  12
                   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.....................................................  22

        Item 12.   Certain Relationships and Related Transactions.....................  23

PART IV
        Item 13.   Exhibits and Reports on Form 8-K...................................  24

        Signatures...................................................................   25
        Index to Exhibits............................................................   26

</TABLE>


                                       2


<PAGE>


                                     PART I

Item 1. Business.

The Company

    USOL Holdings,  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 analog and digital cable television  ("CATV"),  enhanced local
and  long-distance   telephone   services,   and  high-speed   Internet  access,
collectively referred to as residential multi-tenant services ("RMTS").

    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.

    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 was ignored and
Holdings was treated as the  accounting  acquirer.  The excess of purchase price
over the fair market  value of  FirstLink's  net assets was recorded as goodwill
and is being 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  ("GMACM").
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 under the purchase method of accounting.

    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 88  residential  developments  in seven  major
markets in the United States.  At December 31, 2000, 83 of those properties were
operational,  all in Austin,  Dallas/Ft.  Worth, Houston,  Denver, Portland, San
Antonio and Washington,  D.C.,  representing  48,846  operational  passings.  At
December 31, 2000,  the Company had 16,712,  5,628 and 645 CATV,  telephone  and
Internet customers, respectively.

                                       3
<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 business to develop  Internet  platforms that provide a range of
private-labeled  on-line  solutions  for  MDUs  and  other  residential  markets
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.  It is our  expectation  that the  majority of new passings
growth in 2001 will come from existing Texas markets.

    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 88  residential  developments  in seven  major
markets in the United States,  including  properties owned or managed by many of
the  leading  real  estate   companies  in  the  United  States  including  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 at December 31, 2000:

<TABLE>
<CAPTION>

                                                  Passings                                Subscribers
                              -------------------------------------------  --------------------------------------------
Market                          CATV     Telephone   Internet     Total      CATV     Telephone   Internet      Total
                              -------    ---------   --------   ---------  --------   ---------   --------    ---------
<S>                            <C>         <C>        <C>        <C>        <C>          <C>         <C>       <C>
Austin                          4,108       2,553      1,969      8,630      2,937       1,256       213        4,406
Dallas/Ft. Worth                4,787       3,460      3,684     11,931      3,398       1,578       195        5,171
Denver                          1,102         496        630      2,228        773         219         8        1,000
Houston                         5,712          --      2,585      8,297      3,626          --        95        3,721
Portland                        3,220       2,984      1,706      7,910      2,026       1,522       114        3,662
San Antonio                     5,498       2,000      1,104      8,602      3,450         760        20        4,230
Washington, D.C. Area             624         624         --      1,248        502         293        --          795
                               ------      ------     ------     ------     ------       -----       ---       ------
Totals                         25,051      12,117     11,678     48,846     16,712       5,628       645       22,985
                               ======      ======     ======     ======     ======       =====       ===       ======
</TABLE>


    The table below  summarizes  our backlog of passings  under contract but not
yet operational at December 31, 2000:

                                                 Passings
                                --------------------------------------------
Market                           CATV      Telephone   Internet        Total
                                -----         ---        -----         -----
Austin                            308          --           --           308
Dallas/Ft. Worth                1,695         832        1,112         3,639
Denver                             --          --           --            --
Houston                           508          --          232           740
Portland                           --          --           --            --
San Antonio                        --          --           --            --
Washington, D.C. Area              --          --           --            --
                                -----         ---        -----         -----
Totals                          2,511         832        1,344         4,687
                                =====         ===        =====         =====


                                       4

<PAGE>

USOL Products and Services

    We offer the following services to MDU residents:

    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.  For
analog  services,  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.  For digital services,  a set-top converter box is required.  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
service. In some instances,  we resell the services of the local franchise cable
operator.

    We offer  our  subscribers  a full  range of  popular  CATV  programming  at
competitive  prices. Our expanded basic retail prices generally  approximate the
rates  charged  by  the  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.

    During 2001, we anticipate upgrading our headends to offer an expanded basic
tier of programming that will generally exceed the number of channels offered by
the incumbent franchise CATV operator for a comparable tier.

    Telephony  Services.  We currently  provide local  services via leased T-1's
from local exchange  carriers  ("LECs") and competitive  local exchange carriers
("CLECs")  which  are  interconnected  to our  networked,  central  office  like
telecommunications platforms. Our Class 4 switches are capable of providing call
waiting,  call forwarding,  caller ID and voice mail. Our switching  systems are
software-driven  and  capable  of  feature  enhancement  and  efficient,  remote
servicing  through  software  interfaces.  We  currently  provide  long-distance
service  through our switches by buying  minutes  wholesale  from  interexchange
carriers ("IXCs").

    Internet  Services.  We provide  high-speed  (1.5 mbps)  Internet  access to
apartment communities.  Our services include dedicated DSL connections utilizing
the existing copper wire  infrastructure of the apartment community or dedicated
service via cable modems using the existing cable infrastructure.  Each property
is  connected  to the  network  backbone  of a  national  MDU-focused  broadband
provider via a T-1.

The USOL Market

    The United States telecommunications industry is large and robust. The cable
television  industry's  revenues  exceed $30 billion  while  telephony  and data
revenues  are in excess of $260  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 a competitor  in the CATV
and  telephony   markets.   The  potential   market  for  RMTS  remains  largely
undeveloped,   creating   significant   opportunities  for  companies  with  the
technological,  operational,  marketing  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.

                                       5
<PAGE>


USOL Sales and Marketing Strategy

    We  currently  target  apartment  communities  with 250 or more  units.  The
organic selling cycle for our services includes proposal presentation,  contract
negotiations and service implementation, a cycle that can require more than nine
months  to  complete.  While we plan to  bolster  growth  through  acquisitions,
securing new ROEs through  direct  marketing  efforts is 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 net 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
seven to 20 years and give us the  right to be the  exclusive  provider  of CATV
services  and a  nonexclusive  provider  of  telephony  and data  services.  The
property  owner  typically  agrees to market and promote our  telephony and data
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 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  properties  that we can acquire for
costs  comparable to those of an organic  buildout.  These  generally tend to be
ROEs held by small private cable operators. During 2000, 93% of our new passings
came via acquisition of existing ROEs from other providers.

    During 2001,  we do not  anticipate  entering any new markets.  We expect to
derive our new  passings  growth  equally  between  organic and ROE  acquisition
activities.  Additionally,  it is our  expectation  that  we will  provide  CATV
services to all new units added to our portfolio  during 2001,  and we will also
provide high-speed Internet access to the majority of those units as well. Phone
service will be provided to selective new units based on  demographics,  capital
costs and existing network infrastructure.

USOL Competition

    The market for CATV and telephony services is highly competitive.  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.  Local  franchised CATV providers  ("MSOs") and Regional Bell
Operating  Companies  ("RBOCs")  represent  our  principal  competition.   These
competitors  are  typically  very large  companies  with  significantly  greater
resources than ours.

    While  technology  and  regulatory  changes have  allowed RMTS  providers to
better  compete with the  incumbents,  there is no assurance that RMTS providers
will be able to develop and execute upon  financially  viable  business  models.
Whereas RMTS providers have greater  flexibility to customize their products and
services than their  competition,  they typically pay higher  programming  costs
than the MSOs and do not have the scale of the MSOs and  RBOCs to  absorb  fixed
back  office  administrative,  customer  service  and  field  operations  costs.
Additionally,   because  RMTS  providers  serve  only  MDUs,  the  higher  churn
associated with these residents (the average life cycle of an apartment resident

                                       6

<PAGE>

is 18 months vs. seven years for a single-family  housing resident) results in a
greater  percentage of marketing costs and customer  service calls than those of
the incumbents.

    During 2000 and 1999, our two largest RMTS competitors, Cableplus and Optel,
both halted all growth  activities.  Cableplus  has  discontinued  the  business
selling all of its assets  (primarily  to the MSOs),  while Optel filed for, and
continues to operate under, Chapter 11 bankruptcy protection.

The Business of TRC

    During  2000,   TRC  expanded  it  business  plan  to  focus  on  developing
private-labeled Internet solutions for MDU's and other residential markets. As a
result TRC  discontinued  its  program to develop the GMAC  Residents  Advantage
program,  which  started as a result of the assets  purchased  in July 1999 from
GMACM.  In August  2000,  TRC entered into a four-year  services and  technology
agreement  with  GMACM  (the  "GMAC  Agreement")  to  develop a  private-labeled
Internet  service portal for GMACM.  Under the terms of the GMAC Agreement,  TRC
was given  deadlines to achieve  certain  milestones  throughout the term of the
GMAC Agreement,  with GMACM  guaranteeing  certain financial  reimbursements and
minimum  customer  levels.  As part of a  January  2001  amendment  to the  GMAC
Agreement,  TRC and GMACM agreed to temporarily delay certain  provisions on the
GMAC Agreement in order to allow sufficient time for GMACM and TRC to modify the
GMAC Agreement. The amendment further stated that if TRC and GMACM were not able
to modify the GMAC  Agreement,  either  party would have until April 14, 2001 to
terminate it. On April 10, 2001, GMACM sent formal notice of termination to TRC,
but as part of the termination  also continued to negotiate with TRC by offering
additional  proposals  for which a new  agreement  might be reached.  As further
discussed in MD&A, if TRC is not able to negotiate a new agreement with GMACM or
another entity or it is not able to raise sufficient capital on acceptable terms
from other sources, management believes this will have a material adverse effect
on the business of TRC.

Key Suppliers

    USOL is materially dependent upon one vendor,  WSNet, Inc. ("WSNet").  WSNet
currently  supplies cable  programming to  approximately  62% of our properties.
WSNet is in the  process  of  developing  a digital  and analog  product  geared
specifically  for the MDU  market.  Such  product  will  allow us to  provide an
expanded  basic tier of  programming  that is more  robust  than that  currently
offered  by the MSOs at a lower  price  point than we are  currently  paying for
fewer  channels.  Additionally,  WSNet will be offering a digital  cable product
comparable  to that  provided by the MSOs and DBS  providers  at a better  price
point than we can purchase from alternative suppliers. It is our plan to utilize
WSNet at most of our  properties by the end of 2001. We do not currently  have a
long-term  contract with WSNet for services being  provided.  While  alternative
suppliers do exist for analog and digital cable programming,  these alternatives
are either  not as robust  and/or are not as  economically  advantageous  as the
product(s) offered by WSNet.

    TRC is not materially dependent upon any one supplier of goods or services.

Employees

    At December 31, 2000, we employed 143 persons on a full-time basis. Of these
employees,  47 were  administrative  or  management,  28 were  in the  areas  of
customer  service  and  billing,  41 were in  operations  and 27 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.

                                       7
<PAGE>


  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
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  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.

    On June 22, 2000, the FCC authorized  blanket  licensing of Satellite  earth
stations in the 17.2-20.2 GHz and 27.5-30.0 LHz frequency  bands where the Fixed
Satellite Service is the sole primary  designation.  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 a second  FCC  proceeding,  which is still
pending,  the FCC is  considering  whether to open the 12 GHz frequency  band to
PLOs and multi-channel video program distributors.  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
anti-discrimination rules, 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 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 has 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.

                                       8
<PAGE>


    Inside Wiring.  In 1998, the FCC issued 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,  an FCC 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  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,  through local
governments,  regulates the rates that  franchised  cable systems can charge for
basic monthly service and certain customer premises  equipment.  Rate regulation
does not apply if the franchise operator is subject to effective  competition as
defined  by  the  FCC  or if the  operator  qualifies  for  the  small  operator
exemption. Under the FCC regulations,  cable operators are generally required to
have a uniform rate structure  throughout  their franchise  areas.  This general
requirement does not apply to charges for pay services. Further, the regulations
allow certain bulk discounts to MDU customers, enabling franchised cable systems
to be more competitive with private cable operators such as us.

    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").  Few
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,  and Texas and intend to
seek like  authority  when we enter  other  states.  We also have  authority  to


                                       9

<PAGE>

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 many 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.

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, Houston 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.

    None.

                                     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 two  fiscal  years  ended  December  31,  2000.  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
----------------------------------------  -------     -----      -----     -----
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
March 31, 2000..........................  $ 14.25     $6.13      $4.75     $1.44
June 30, 2000...........................  $ 10.88     $6.25      $3.19     $1.50
September 30, 2000......................  $ 10.75     $7.63      $3.16     $1.69
December 31, 2000.......................  $  8.88     $1.28      $2.13     $ .22


    There were approximately 590 holders of record of the Company's common stock
as of April 11, 2001.

    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.

                                       10

<PAGE>


    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.

    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 GMACM. 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  1999  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 2000
results with those of 1999.  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 2000 operating results are those of the Company.  US
OnLine's financial statements are presented elsewhere in this Form 10-KSB.

<TABLE>
<CAPTION>

                                                                 1999                               2000
                                          ------------------------------------------------     -------------
                                              Company          US OnLine         Combined         US OnLine
                                          -------------     -------------    -------------     -------------
<S>                                       <C>               <C>              <C>               <C>
Revenue                                   $   3,140,163     $   2,831,079    $   5,971,242     $  10,237,683
                                          -------------     -------------    -------------     -------------
Expenses:
  Operating                                   2,528,953         2,100,739        4,629,692         8,107,281
  Selling, general and administrative         3,186,502         1,554,807        4,741,309        10,898,757
  Depreciation and amortization               1,265,671           878,286        2,143,957         6,302,874
  Stock compensation                          1,023,874                --        1,023,874           624,523
  Write down of long-term assets                     --                --               --         1,870,551
  Impairment of TRC assets                           --                --               --         3,785,789
                                          -------------     -------------    -------------     -------------
                                              8,005,000         4,533,832       12,538,832        31,589,775
                                          -------------     -------------    -------------     -------------
Loss from operations                         (4,864,837)       (1,702,753)      (6,567,590)      (21,352,092)
                                          -------------     -------------    -------------     -------------
Other income (expense), net                     165,608        (1,800,641)      (1,635,033)       (1,165,244)
                                          -------------     -------------    -------------     -------------
Loss before minority interest                (4,699,229)       (3,503,394)      (8,202,623)      (22,517,336)
Minority interest                                10,426             2,414           12,840           (56,447)
                                          -------------     -------------    -------------     -------------
Net loss                                  $  (4,688,803)    $  (3,500,980)   $  (8,189,783)    $ (22,573,783)
                                          =============     =============    =============     =============
</TABLE>

                                       11

<PAGE>

Results of Operations

  Year Ended December 31, 2000 Compared to December 31, 1999

    We incurred a net loss of  $22,573,783  for the year ended December 31, 2000
compared to a net loss of $8,189,783  for the same period of the prior year on a
combined  basis.   The  increase  in  net  loss  is  attributable  to  increased
depreciation and  amortization  expenses  (primarily  amortization of goodwill),
increased  selling,  general and  administrative  expenses and one-time  charges
associated with the write-off and disposal of certain long-term assets.

    Revenues increased  $4,226,441 or 72% between years on a combined basis. The
increase  in revenue is due to an  increase in  operational  passings,  which is
primarily  the  result  of  the  Company  operating  in two  additional  markets
(Portland  and  Houston) in 2000  compared to 1999.  The revenue  from these two
markets represent  approximately 74% of the above mentioned  increase,  with the
remaining  increase  attributable  to  increased  passings  and  subscribers  in
existing markets.

    Operating  expense  increased  $3,477,589 or 75% between years on a combined
basis. The increase in operating expense between periods is primarily due to the
addition of two new  markets  between  periods,  as well as  increases  in cable
programming,  leased local telephony circuits,  wholesale  long-distance minutes
and call center costs,  all associated  with the increase in revenue.  Operating
expense was 79% of revenues for the year ended December 31, 2000 compared to 78%
for the same period of the prior year on a combined basis.

    Selling,  general and  administrative  expense increased  $6,157,448 or 130%
between  years on a  combined  basis.  The  increase  in  selling,  general  and
administrative  expense was primarily the result of increases in payroll  costs,
travel  expense,  royalties,  costs  associated with TRC, and increases in other
costs  directly  related to the  Company's  public status in 2000 such as legal,
accounting,   investor   relations   and   insurance.   Selling,   general   and
administrative expense was 106% of revenues for the year ended December 31, 2000
compared to 80% for the same period of the prior year on a combined basis.

    Depreciation and amortization  expense increased  $4,158,917 or 194% between
years on a combined basis. The increase in depreciation and amortization expense
resulted  primarily from goodwill  amortization in 2000 that was not incurred in
1999  combined  with the addition of fixed assets  obtained with the addition of
two new markets between periods.  Depreciation and amortization  expense was 62%
of revenue for the year ended  December  31,  2000  compared to 36% for the same
period of the prior year on a combined basis.

    Stock  compensation  expense  decreased  $399,351 or 39% between  years on a
combined basis. The decrease  primarily  relates to stock  compensation  expense
recorded in 1999 from the initial  sale of 425,000  Holdings'  common  shares to
management  for $.01 per share  when the  market  price  was  $2.00  per  share.
Additional stock compensation expense in 2000 and 1999 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.

    Write  down of  long-term  assets  for the  year-ended  December  31,  2000,
consists  of  approximately   $1,900,000  of  previously   capitalized  software
development  costs  associated  with the in-house  build of our next  generation
billing and customer  care system,  which will not be used. On March 31, 2000 we
signed a five-year agreement with CSG Systems, Inc. to outsource its billing and
customer care system to replace our in-house system.

    Impairment of TRC assets  consists of  approximately  $1,420,000 of property
and equipment and $2,366,000 of goodwill that will ultimately not be used in the
execution of the TRC business plan. In the fourth quarter of 2000 as part of the
GMAC  Agreement,  TRC made  substantial  changes to its business  model to begin
providing for the development of a  private-labeled  Internet service portal for
GMACM and  related  entities.  Goodwill  and  assets  recorded  as part of TRC's
original  purchase of assets and contract  rights from GMACM  during  1999,  and
property and equipment  purchased as part of the execution of the business model
based upon  providing  a range of move-in  and  lifestyle  enhancement  services
solely for the MDU market were  written-off  as a result of the  business  model
changes.

    Other expense  decreased  $413,342 or 25% between years on a combined basis.
The  reduction in other expense  between  periods is primarily the result of the
Company having certain  interest  bearing debt instruments in 1999 that were not
outstanding in 2000.

                                       12
<PAGE>


Liquidity and Capital Resources

    At  December  31,  2000,  the  Company  had  cash and  cash  equivalents  of
$4,804,992. Net cash of $9,931,499 was used in operating activities for the year
ended December 31, 2000, which principally  resulted from the Company's net loss
offset by noncash charges for depreciation,  amortization and stock compensation
expenses,  losses on the write down and disposal of long-term assets, impairment
write  downs of TRC assets,  and an  increase  in  accounts  payable and accrued
liabilities.

    Net cash of $8,287,209 was used in investing activities for  the  year ended
December 31, 2000. This  principally  consisted of  approximately  $8,416,000 in
capital expenditures and software development costs.

    Net cash of  $9,386,189  was  provided by  financing  activities  during the
year ended  December 31, 2000.  This was the net result of borrowings  under our
senior credit  facility (the  "Facility")  of  $4,500,000,  borrowings by TRC of
$5,000,000 under a note payable, offset by payments on capital lease obligations
and deferred financing costs of approximately $1,214,000.

    As more fully described  elsewhere in this Form 10-KSB, we have two separate
and distinct  businesses with USOL and TRC, with each having separate  financing
sources.

    USOL.  We  believe  that our cash on hand and  available  proceeds  from the
Facility will be sufficient to fund the activities of USOL for at least the next
15  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.

We are dependent on our Facility for our liquidity requirements. At December 31,
2000 the Facility  allowed 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 would
convert to a five-year  term loan.  At December 31,  2000,  we were in technical
default  under the Facility  related to a financial  covenant.  The Facility has
been amended to bring USOL back into compliance.  The amendment  changed several
provisions of the Facility,  which among other things, delayed the period we are
able to borrow under the Facility to December  31, 2002,  increased  our current
borrowing base, delayed the calculation of certain financial covenants until the
year ended December 31, 2002, and increased limits of other financial covenants.
No assurance can be given that USOL will be able to maintain compliance with the
financial  covenants  of the  Facility  or, in the event of a default,  that the
lenders  will agree to waive the default.  Additionally,  the amount that can be
borrowed  under the  Facility  is based on the  number  of cable  and  telephone
subscribers  we have.  As of December  31,  2000,  we had the ability  under the
Facility,  as  amended,  to  borrow  up  to  approximately  $12.7  million  with
approximately  $4.5 million of the available  borrowing  outstanding at December
31, 2000.  Accordingly,  the Facility  maintains certain  operational  covenants
requiring the Company to meet increasing quarterly minimums related to revenues,
operating  cash  flow and the  number  of MDU  units to which  the  Company  has
available  service.  Management  believes  that  the  Company  will  attain  the
prescribed growth in subscribers,  revenues and cash flow, and that it will have
sufficient cash resources  available under the Facility to fund  operations.  In
order to establish an adequate  subscriber base that can provide sufficient cash
from operations to satisfy the quarterly repayment requirements of the Facility,
which  begin in 2003,  management  believes  that the Company  must  continue to
invest  in  long-term  assets  through  September  2002.  Based on  management's
estimates,  beginning in April 2002, the borrowing base  availability  under the
Facility  may  become  inadequate  to  continue  to fund  the  necessary  growth
expenditures.  The Company is currently  evaluating  financing  alternatives  to
determine what resources are available to continue to fund growth  opportunities
if resources under the Facility become unavailable during 2002.

    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.   At  December  31,  2000,   the  fixed  minimum   charges  for  all
noncancelable  agreements  over the  life of the  agreements  was  approximately
$1,492,000.  Additionally,  we are planning on upgrading  existing  head-ends to
allow us the  ability to provide  digital  cable to selected  properties  during
2001. The anticipated costs of such upgrades are approximately $617,000.

                                       13
<PAGE>


    TRC. At December 31, 2000, TRC had approximately $1,189,000 of cash on hand.
Management  believes that after making  operational staff and expense reductions
as a result of the termination of the GMAC Agreement,  current cash on hand will
be sufficient to continue to fund future operations  throughout 2001, unless the
note payable described below is not extended beyond its August 3, 2001, maturity
date. As a result of the termination of the GMAC Agreement,  certain amounts are
due to TRC from  GMACM,  but  receipt  of such  amounts  is not  assured.  TRC's
revenues for the year ended December 31, 2000 were minimal.  In addition,  TRC's
note  payable  (the  "TRC Note  Payable")  to Newman  Financial  Services,  Inc.
("NFS"),  an entity  related to GMACM,  is due on the earlier of (a) the sale of
TRC, (b) the receipt of any proceeds by TRC due under the any termination of the
GMAC Agreement,  or (c) August 3, 2001. In the event any amounts potentially due
as a result of the  termination of the GMAC Agreement are not received by August
3,  2001,  NFS may elect to  extend  the  maturity  date,  however,  there is no
assurance regarding such matters.

    If TRC is not able to  negotiate  a new  agreement  with  GMACM  or  another
entity,  if NFS  elects to not  extend  the  maturity  date,  or if the  amounts
potentially  due to TRC  under the  termination  of the GMAC  Agreement  are not
sufficient  to repay  NFS,  TRC will not have a  revenue  source  or  sufficient
capital to continue.  Holdings and USOL have not  guaranteed  any amounts of the
TRC  Note  Payable  and  TRC's  remaining  liabilities  primarily  consist  of a
$2,000,000   intercompany   note  payable  to  USOL,   which  is  eliminated  in
consolidation.  Should TRC's operations discontinue, the effect on the Company's
financial position and results of operations would not be negatively impacted.

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

    None.

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.

    None.

                                       14

<PAGE>


                                    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)(10).......     38     Chairman of the Board and
                                               Chief Executive Officer
Donald E. Barlow...................     53     President, Chief Financial
                                               Officer, Chief Operating Officer
                                               and Secretary
David B. Agnew (1)(5)(6)(9)(10)....     52     Director
Mark Sampson (2)(5)(6)(8)(9).......     46     Director
Thomas E. McChesney (5)(6)(7)
(10)...............................     54     Director
Ronald L. Piasecki (3)(5)(7).......     61     Director
Roy Rose (4)(5)(8).................     43     Director
Seth R. Davis......................     46     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.

(10) Member of TRC Advisory Board

    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.

                                       15
<PAGE>


     Donald E. Barlow has served as President and Chief Operating Officer of the
Company  since  December 22, 1999,  Secretary  since  January 14, 2000 and Chief
Financial  Officer since March 2, 2001. 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.

     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 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.

    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


                                       16

<PAGE>

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.

    The Board of Directors has formed four  committees  and one advisory  board:
the Audit Committee;  the Compensation Committee;  the Executive Committee;  the
Nominations Committee; and, the TRC Advisory Board.

    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.  The Audit  Committee  consists of two
outside directors and is chaired by Mr. McChesney.

    The  Compensation  Committee is responsible  for reviewing and approving all
proposals concerning or related to the establishment or change of benefit plans,
salaries,  bonus plans and other  compensation.  Additionally,  the Compensation
Committee is responsible for the  administration  of all stock option or similar
incentive plans. The Compensation  Committee  consists of two outside  directors
and is chaired by Mr. Sampson.

    The  Executive  Committee  may exercise all the powers and  authority of the
Board of Directors in the  management of the business and affairs of the Company
other than the power or powers: (i) for which the delegation is, or from time to
time may be, prohibited by the Certificate of Incorporation or the Bylaws of the
Corporation or by the Oregon Business Corporation Act or is otherwise prohibited
by  applicable   law,  rule  or  regulation;   (ii)  to  declare   dividends  or
distributions;  (iii) to incur debt or to enter into  contracts on behalf of the
Company in an amount in any single  transaction in excess of $3.5 million;  (iv)
to approve any merger or other business  combination between the Company and any
other entity or entities; (v) to approve the sale of all or substantially all of
the Company's  assets;  (vi) to approve the  liquidation  or  dissolution of the
Company,  and (vii) to  approve  the  Company's  corporate  annual  budget.  The
Executive  Committee  consists  of  four  directors,   including  three  outside
directors, and is chaired by Mr. Agnew.

    The Nominating  Committee  shall have the power to nominate  persons to fill
director  vacancies  caused  either by  resignation,  removal,  death or serious
mental or physical  illness which results in a director  being unable to perform
satisfactorily  his  or  her  designated  functions.  The  Nominating  Committee
consists of three members,  including two outside  directors,  and is chaired by
Mr. Solomon.

    The TRC  Advisory  Committee  was  formed  in May 2000 to  provide a tier of
review for the sole director of the TRC Board of Directors  until such time that
TRC expands its Board of Directors.  The TRC Advisory  Committee is charged with
making an initial review of all matters requiring TRC Board of Director approval
and making recommendations to the TRC Board of Directors regarding such matters.
The  affirmative  recommendation  of two out of  three  TRC  Advisory  Committee
members shall be required  prior to the TRC Board of Directors  taking any board
action.  However,  the TRC Board may vote to approve  or reject any action  item
that is affirmatively  recommended to it by the TRC Advisory Committee.  The TRC
Advisory Committee consists of three members, including two outside directors.

                                       17

<PAGE>

  Director Nominee

    Four of the holders of the Company's  Series A. Preferred Stock (GMACM,  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 representing
or  designated  by  holders  of less  than 5% of the total  voting  power of the
Company,  on a fully  diluted  basis,  receive a retainer  of $12,000  per year.
Directors  representing  or  designated  by  holders  of 5% or more of the total
voting power of the Company,  on a fully  diluted  basis,  receive a retainer of
$6,000 per year. Additionally,  all nonofficer directors receive $1,000 per each
Board  meeting  attended  and $500  per each  committee  meeting  attended.  All
directors  are  entitled  to be  reimbursed  for  their  reasonable  travel  and
out-of-pocket  expenses  incurred  in  attending  Board or  committee  meetings.
Further,  directors  are also  eligible for stock  options  under the  Company's
option plans. In December 2000, each nonofficer  director received  nonqualified
options to acquire 25,000 shares of the Company's common stock. Such shares were
priced at 125% of the closing price on the date of grant and vest one-third upon
grant and one-third on each one year anniversary date.

  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.

                                       18
<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.

<TABLE>
<CAPTION>

                                     SUMMARY COMPENSATION TABLE

                                                                                            Long-Term
                                                   Annual Compensation                 Compensation Awards
                                          --------------------------------------  ------------------------------
                                                                                   Other Annual
                                                                                   Compensation      Securities
                                                         Salary                   (4)(5)(6)(7)       Underlying
                  Name                    Fiscal Year    (1)(2)      Bonus (3)      (8)(9)(10)         Options
------------------------------------      -----------  ----------   ----------    -------------    ------------
<S>                                          <C>       <C>          <C>               <C>               <C>
Robert G. Solomon, CEO                       2000      $  175,000   $       --        $      --              --
                                             1999      $  140,544   $       --        $  46,750         545,000
                                             1998      $       --   $       --        $      --              --
Donald E. Barlow,
President and CFO                            2000      $  150,000   $       --        $      --              --
                                             1999      $  114,895   $       --        $  54,500         275,000
                                             1998      $       --   $       --        $      --              --
A. Roger Pease,
former CEO and President                     2000      $  105,699   $       --        $      --              --
                                             1999      $  150,000   $       --        $ 150,000              --
                                             1998      $   96,908   $   10,000        $  30,000         100,000

Jeffrey S. Sperber, former CFO               2000      $  120,000   $       --        $  80,000              --
                                             1999      $  113,558   $   30,000        $      --         100,000
                                             1998      $   88,321   $   10,000        $  10,809          33,333

Seth R. Davis, CTO                           2000      $  131,433   $       --        $      --         150,000
                                             1999      $       --   $       --        $  12,000              --
                                             1998      $       --   $       --        $      --              --
<FN>
--------------

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

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

(3)  Mr.  Sperber was paid a $30,000  bonus in  connection  with  relocating  to
     Austin,  Texas. In 1998, Messrs. Pease and Sperber received $10,000 bonuses
     for successful completion of the Company's IPO.

(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.  Mr. Pease  resigned as CEO  effective  December 23,
     1999,  resigned  from the Board  effective  May 5, 2000 and  resigned as an
     employee effective September 15, 2000.

(7)  Mr.  Sperber  was  paid  $80,000  in  return  for  termination  of a salary
     continuation agreement in 2000.


                                       19

<PAGE>

(8)  Mr. Pease was paid $10,000 per month in January through March 1998 under an
     oral agreement.  Beginning in April 1998, the oral agreement was terminated
     and Mr. Pease became an employee.

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

(10) Mr.  Davis  was  paid  $12,000   during  1999   pursuant  to  a  consulting
     arrangement. He became an employee effective January 14, 2000.

</FN>
</TABLE>


  Employment Agreements

     The Company has entered into Employment  Agreements  with Messrs.  Solomon,
Barlow and Davis. 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,  Chief Operating Officer and Chief Financial Officer.  Mr.
Davis is employed as the Company's Chief Technical 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. Davis
would be paid the  equivalent  of six months base salary  which is $142,500  per
year.

  Stock Incentive Plans

     The Company has the following 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 Internal  Revenue Code
(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. At December 31, 2000,  there were options
outstanding  to purchase  1,912,500  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, 2000 under the
FirstLink  Option Plans was 413,502 shares.  There are no additional  authorized
shares  available  for grant under the  FirstLink  Option  Plans at December 31,
2000.

     TRC adopted the 2000  Incentive  Plan ("TRC  Incentive  Plan") on March 15,
2000. The TRC Incentive Plan provides for the grant of ISO's, NSO's,  restricted
stock grants and 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 TRC
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 TRC
Incentive Plan is administered  by TRC's board of directors.  The exercise price
of ISO's may not be less than the fair market value of TRC's common stock on the
date  of  grant.  Vesting  periods  are at the  discretion  of  TRC's  board  of
directors.  The maximum term of options under the Incentive  Plan is five years.
TRC has reserved  10,000,000  shares for issuance under the TRC Incentive  Plan.
The number of options  outstanding  at December 31, 2000 under the TRC Incentive
Plan was 4,168,000 shares.


                                       20
<PAGE>

    The  following  tables set forth certain  information  at December 31, 2000,
concerning stock options granted to and exercised by the named executive officer
and the fiscal year-end value of unexercised options on an aggregated basis.

<TABLE>
<CAPTION>

                                               OPTIONS/GRANTS

                                                                  % of Total
                                                    Number of      Options/
                                                    Securities     Grants to
                                                    Underlying    Employees      Exercise
                                                     Options/     in Fiscal        Price
                Name                  Fiscal Year     Grants         Year        ($/share)    Expiration Date
------------------------------------  -----------   ----------    ----------   ------------   ---------------
<S>                                      <C>          <C>            <C>       <C>             <C>
Robert G. Solomon, CEO                   2000              --         --            --              --
                                         1999         545,000        32%       $1.00 -$2.00      July 2009
                                         1998              --         --            --              --

Donald E. Barlow, President              2000              --         --            --              --
                                         1999         275,000        16%       $1.00 -$2.00      July 2009
                                         1998              --         --            --              --

A. Roger Pease,                          2000              --         --            --              --
former President and CEO                 1999              --         --            --              --
                                         1998         100,000        29%           $2.31        August 2008

Jeffrey S. Sperber, former CFO           2000              --         --            --              --
                                         1999         100,000         6%           $2.00         July 2009
                                         1998          33,333        10%           $2.31        August 2008

Seth R. Davis, CTO                       2000         150,000        53%           $3.50       January 2010
                                         1999              --         --            --              --
                                         1998              --         --            --              --

</TABLE>


<TABLE>
<CAPTION>




                         AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                                AND FISCAL YEAREND OPTION/SAR VALUES

                                       Shares                        Number of           Value of Unexercised
                                      Acquired      Value           Unexercised              In-the-Money
                                         on        Realized       Options/SARs at           Options/SARs at
               Name                   Exercise       (1)           Fiscal Yearend          Fiscal Yearend (2)
----------------------------------    --------     --------    ----------------------  ---------------------------
<S>                                     <C>        <C>         <C>                     <C>
Robert G. Solomon, CEO                  10,000     $ 81,550    Exercisable    262,500  Exercisable       $  8,625
                                                               Unexercisable  272,500  Unexercisable     $ 15,525

Donald E. Barlow, President               --           --      Exercisable    137,500  Exercisable       $  8,625
                                                               Unexercisable  137,500  Unexercisable     $  8,625

Jeffrey S. Sperber, CFO                 20,000      $141,850   Exercisable    130,000  Exercisable       $ 34,534
                                                               Unexercisable   50,000  Unexercisable     $     --

Seth R. Davis, CTO                        --           --      Exercisable     30,000  Exercisable       $     --
                                                               Unexercisable  120,000  Unexercisable     $     --
<FN>
--------------

(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, 2000, was $1.69 per share.

</FN>
</TABLE>

                                       21

<PAGE>

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, 2000 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.

<TABLE>
<CAPTION>


                                                              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
---------------------------------------------  ---------      ----------    ----------     ----------     ----------      -------
<S>                                            <C>            <C>           <C>               <C>            <C>            <C>
GMAC Commercial Mortgage Corporation (3).        653,646        398,900      5,639,896         7.3%          27.1%          20.6%
650 Drescher Road
Horsham, PA 19044

AGL Investments No. 8 Limited Partnership        501,646        398,900      5,487,896         5.7%          27.1%          20.2%
(4)
1050 17th Street, Suite 1200
Denver, CO 80265

Aspen Foxtrot Investments, LLC (5).......      2,090,372        180,000      4,340,372        22.6%          12.2%          15.7%
2757 - 44th Street SW
Grand Rapids, MI 49509

Peregrine Capital, Inc. (6)..............      1,188,933        200,000      3,688,933        13.8%          13.6%          13.6%
9725 Beaverton Hillsdale Highway, Suite 350
Beaverton, OR 97005

German American Capital Corporation (7)..        112,420        140,000      1,862,420         1.3%           9.5%           6.9%
31 West 52nd Street, 14th Floor
New York, NY 10019

Robert G. Solomon (8)....................        537,500             --        537,500         6.0%           0.0%           2.0%
10300 Metric Boulevard
Austin, TX 78758

Donald E. Barlow (9).....................        287,520             --        287,500         3.3%           0.0%           1.1%
10300 Metric Boulevard
Austin, TX 78758

Seth R. Davis (10).......................         70,000             --         70,000        <1%             0.0%          <1%
10300 Metric Boulevard
Austin, TX 78758

Thomas E. McChesney (11).................        150,941             --        150,941         1.7%           0.0%          <1%
200 SW Market Street
Portland, OR 97201

All Executive Officers and Directors as a      5,480,538      1,177,800     20,203,038        61.2%          79.9%          73.9%
Group (8 persons) (12)...................

<FN>
--------------

(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, 2000, 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  8,623,217  shares  of  common  stock
     outstanding on March 1, 2001 and 1,474,400  shares of preferred stock which
     convert into 18,430,000 shares of common stock.


                                       22

<PAGE>


(3)  Includes  4,986,250  shares of common stock  underlying  398,900  shares of
     Series A Preferred Stock,  320,313 shares of common stock paid as preferred
     stock dividends,  325,000 shares  underlying common stock purchase warrants
     and 8,333 shares underlying presently exercisable stock options held by Mr.
     Sampson.

(4)  Includes  4,986,250  shares of common stock  underlying  398,900  shares of
     Series A Preferred Stock,  320,313 shares of common stock paid as preferred
     stock dividends,  173,000 shares underlying  presently  exercisable  common
     stock purchase warrants and 8,333 shares underlying  presently  exercisable
     stock  options  held by Mr.  Agnew.  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  173,000  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  (1,000,000  of which are
     under a  three-year  promissory  note),  2,250,000  shares of common  stock
     underlying  180,000 shares of Series A Preferred  Stock,  144,539 shares of
     common stock paid as preferred stock dividends,  625,000 shares  underlying
     common  stock  purchase  warrants  and 8,333  shares  underlying  presently
     exercisable stock options held by Mr. Piasecki.

(6)  Owned by 10 limited liability  companies  controlled by Peregrine  Capital,
     Inc.  Includes  1,020,000  shares of common stock owned (1,000,000 of which
     are under a three-year  promissory note),  2,500,000 shares of common stock
     underlying  200,000 shares of Series A Preferred  Stock,  160,600 shares of
     common stock paid as preferred stock dividends and 8,333 shares  underlying
     presently exercisable stock options held by Mr. Rose.

(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  112,420  shares of common  stock paid as
     preferred  stock  dividends.  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)  Includes  275,000  shares of common stock owned and  presently  exercisable
     stock options to purchase 262,500 shares of common stock.

(9)  Includes  150,000  shares of common stock owned and  presently  exercisable
     stock options to purchase 137,500 shares of common stock.

(10) Includes  presently  exercisable stock options to purchase 70,000 shares of
     common stock.

(11) Includes  84,540  shares of common  stock  owned,  6,667 shares held by the
     McChesney Family LLC, 2,222 shares of common stock owned by Mr. McChesney's
     wife and 600 shares owned by Mr.  McChesney's minor daughter.  He disclaims
     beneficial  ownership  of the shares  owned by the family LLC, his wife and
     daughter. Also includes 21,912 and 35,000 shares of common stock underlying
     presently  exercisable  common stock  purchase  warrants and stock options,
     respectively.

(12) 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.

</FN>
</TABLE>


Item 12. Certain Relationships and Related Transactions.

    During 2000, Newman Financial Services,  Inc. ("NFS"), a subsidiary of GMACM
(a  substantial  shareholder  of the Company),  loaned $5 million to TRC under a
secured  promissory note agreement.  In connection with the note agreement,  the
Company  paid  an  arrangement  fee  in the  amount  of  $150,000  to  Newman  &
Associates,  Inc.  ("Newman"),  an  investment  banking  firm and a wholly owned
subsidiary of GMACM. Mr. Sampson is the Managing  Director of Corporate  Finance
at Newman.

                                       23
<PAGE>


    During  2000,  the  Company  entered  into a six-month  business  consulting
agreement  with  Redfire,  Inc.  ("Redfire")  to  assist  the  Company  with  an
operational and strategic evaluation. Pursuant to such agreement, the Company is
to pay Redfire $25,000 per month.  Mr. Rose is an owner of Redfire.  The Company
paid Redfire  $50,000  during 2000.  This  agreement was terminated on March 29,
2001.

    During 2000,  Mr.  Solomon and Brian  Kushner,  President of TRC,  exercised
1,200,000  options for TRC common stock at an exercise price of $0.50 per share.
The  consideration for each exercise was in the form of a secured note, which is
recourse as to interest.  The notes accrue interest  semi-annually  at 6.23% and
the entire principal amount, plus accrued interest,  shall be due and payable on
the earlier of 60 days from the termination of employment or July 20, 2005.

     The Company engaged Newman to broker the sale of preferred stock and obtain
a senior credit facility on behalf of the Company.  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 BNP Paribas and
Deutsche  Bank  AG.  Affiliates  of  both  of  these  entities  are  substantial
shareholders of the Company. The Company paid commitment and administrative fees
of $460,191 and $875,000 during 2000 and 1999, respectively,  in connection with
the Facility.

    Each of the above  transactions  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 Index to Exhibits on page
     26 of this Report.

(b)      None.

                                       24
<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 April 17, 2001.

                                                      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 Donald E. Barlow,  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    April 17, 2001
------------------------------------   and Director
Robert G. Solomon

/s/ Donald E. Barlow                   President, Chief           April 17, 2001
------------------------------------   Operating Officer,
Donald E. Barlow                       Chief Financial Officer
                                       and Secretary

/s/ Thomas E. McChesney                Director                   April 17, 2001
------------------------------------
Thomas E. McChesney

/s/ David B. Agnew                     Director                   April 17, 2001
------------------------------------
David B. Agnew

                                       Director                   April __, 2001
------------------------------------
Mark Sampson

                                       Director                   April __, 2001
------------------------------------
Roy Rose

/s/ Ronald L. Piasecki                 Director                   April 17, 2001
------------------------------------
Ronald L. Piasecki

                                       25
<PAGE>


<TABLE>
<CAPTION>

                                               INDEX TO EXHIBITS
                                                  FORM 10-KSB

                                                                               Incorporated by
Number                          Description                                     Reference to
----------     --------------------------------------------     ----------------------------------------------
<S>            <C>                                              <C>
2.1            Agreement and Plan of Merger and                 Exhibit 1.1 to the Current Report on Form 8-K
               Reorganization dated as of July 21, 1999         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
               Limitations and Relative Rights of Series A      Form 8-K filed December 22, 1999
               Convertible Preferred Stock                      (File No. 01-14271)
4.8            Certificate of Designations, Preferences,        Exhibit 4.3 to the Current Report on
               Limitations and Relative Rights of Series B      Form 8-K filed December 22, 1999
               Convertible Preferred Stock                      (File No. 01-14271)
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
               Agreement dated July 21, 1999                    January 3, 2000
4.11           Common Stockholder and Warrant Holder            Exhibit 99.6 to Schedule 13D filed
               Registration Rights Agreement dated July 21,     January 3, 2000
               1999
10.1           Employment Agreement dated July 21, 1999         Exhibit 10.1 to the Current Report on
               between the Company and Robert Solomon           Form 10-KSB filed March 30, 2000 (File No.
                                                                011-14271)


                                       26

<PAGE>

                                                                               Incorporated by
Number                          Description                                     Reference to
----------     --------------------------------------------     ----------------------------------------------
10.2           Employment Agreement dated July 21, 1999         Exhibit 10.2 to the Current Report on Form
               between the Company and Donald Barlow            10-KSB filed March 30, 2000 (File No.
                                                                011-14271)
10.3           Employment Agreement dated January 14, 2000      Exhibit 10.3 to the Current Report on Form
               between the Company and Seth Davis               10-KSB filed March 30, 2000 (File No.
                                                                011-14271)
10.4           Credit Agreement dated December 30, 1999         Exhibit 10.4 to the Current Report on Form
               between the Company and BNP Paribas              10-KSB filed March 30, 2000 (File No.
                                                                011-14271)
10.5           1997 Restated Combined Incentive Stock           Exhibit 99.1 to Form S-8 filed December 17,
               Option and Nonqualified Stock Option Plan        1999
10.6           1998-1999 Combined Incentive Stock Option        Exhibit 99.2 to Form S-8 filed December 17,
               and Nonqualified Stock Option Plan               1999
10.7           1999 Incentive Plan                              Appendix E to the Company's Definitive Proxy
                                                                Statement filed on November 12, 1999
10.8           Amendment, Consent and Waiver dated June 2,      Filed herewith
               2000 between the Company and those other
               parties listed in the first paragraph of
               this exhibit
10.9           Amendment, Consent and Waiver dated              Filed herewith
               September 8, 2000 between the Company and
               those other parties listed in the first
               paragraph of this exhibit
10.10          Third Amendment to Credit Agreement dated        Filed herewith
               March 6, 2001 between the Company and those
               oather parties listed in the first paragraph
               of this exhibit
23.1           Consent of Arthur Andersen LLP                   Filed herewith
24.1           Power of Attorney                                See page 25


</TABLE>



                                       27
<PAGE>


                          INDEX TO FINANCIAL STATEMENTS

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


U.S. ONLINE COMMUNICATIONS, INC. (predecessor to USOL Holdings, Inc.)
Report of Independent Public Accountants.............................       F-23
Consolidated Statement of Operations.................................       F-24
Consolidated Statement of Cash Flows.................................       F-25
Notes to Consolidated Financial Statements...........................       F-26


                                      F-1

<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, 2000, and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows for the year ended  December 31, 2000,  and for the period from  inception
(May  12,  1999)  through  December  31,  1999.  These  consolidated   financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

We conducted our audits in accordance with 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 consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of USOL Holdings, Inc.,
and  subsidiaries  as of December 31, 2000, and the results of their  operations
and their  cash flows for the year ended  December  31,  2000 and 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
April 12, 2001

                                      F-2
<PAGE>

<TABLE>
<CAPTION>

                               USOL HOLDINGS, INC.
                               -------------------

                  CONSOLIDATED BALANCE SHEET--DECEMBER 31, 2000
                  ---------------------------------------------

                                         ASSETS
<S>                                                                                       <C>
CURRENT ASSETS:
   Cash and cash equivalents                                                              $   4,804,992
   Accounts receivable, net                                                                   1,237,254
   Note receivable, related party                                                               169,011
   Other current assets                                                                         314,829
                                                                                          -------------
                         Total current assets                                                 6,526,086

PROPERTY AND EQUIPMENT, net                                                                  21,066,303

GOODWILL AND OTHER INTANGIBLES, net                                                          32,117,588

DEFERRED LOAN COSTS                                                                           2,072,523

OTHER ASSETS                                                                                    154,535
                                                                                          -------------
                         Total assets                                                     $  61,937,035
                                                                                          =============


                          LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable                                                                       $   1,674,001
   Accrued liabilities                                                                        2,760,778
   Preferred dividends payable                                                                1,110,000
   Deferred revenue                                                                             717,836
   Current portion of capital lease obligations                                                 565,141
   TRC note payable including accrued interest, related party                                 5,250,972
                                                                                          -------------
                         Total current liabilities                                           12,078,728
                                                                                          -------------

CAPITAL LEASE OBLIGATIONS, less current portion                                               1,189,445
                                                                                          -------------

LONG-TERM DEBT                                                                                4,500,000
                                                                                          -------------

OTHER LONG-TERM LIABILITIES                                                                      63,770
                                                                                          -------------

COMMITMENTS AND CONTINGENCIES (Note 11)

MINORITY INTEREST                                                                                97,721
                                                                                          -------------

STOCKHOLDERS' EQUITY:
   Convertible  preferred  stock,  no par value,  5,000,000  shares  authorized-
     Series A, 1,323,000 shares issued and outstanding;  liquidation  preference
     of $33,075,000                                                                         30,629,059
     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, 8,078,603 shares
     issued and outstanding                                                                 43,917,695
   Deferred compensation                                                                      (451,903)
   Accumulated deficit                                                                     (33,675,919)
                                                                                          ------------
                         Total stockholders' equity                                         44,007,371
                                                                                          ------------
                         Total liabilities and stockholders' equity                       $ 61,937,035
                                                                                          ============
</TABLE>


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

                                      F-3

<PAGE>

<TABLE>
<CAPTION>


                               USOL HOLDINGS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                                                            Inception (May
                                                                                                              12, 1999)
                                                                                             Year Ended         through
                                                                                            December 31,     December 31,
                                                                                                2000             1999
                                                                                          --------------    --------------
<S>                                                                                       <C>               <C>
REVENUES                                                                                  $  10,237,683     $   3,140,163
                                                                                          -------------     -------------

OPERATING EXPENSES:
   Operating                                                                                  8,107,281         2,528,953
   Selling, general and administrative                                                       10,898,757         3,186,502
   Depreciation and amortization                                                              6,302,874         1,265,671
   Stock compensation expense                                                                   624,523         1,023,874
   Write down of long-term assets                                                             1,870,551                --
   Impairment of TRC assets                                                                   3,785,789                --
                                                                                          -------------     -------------

                         Total operating expenses                                            31,589,775         8,005,000
                                                                                          -------------     -------------

LOSS FROM OPERATIONS                                                                        (21,352,092)       (4,864,837)

INTEREST INCOME (EXPENSE), net                                                               (1,075,961)          165,608

LOSS ON DISPOSAL OF ASSETS                                                                      (89,283)               --
                                                                                          -------------     -------------

LOSS BEFORE MINORITY INTEREST                                                               (22,517,336)       (4,699,229)
                                                                                          -------------     -------------

MINORITY INTEREST IN (INCOME) LOSS OF A SUBSIDIARY                                              (56,447)           10,426
                                                                                          -------------     -------------

                         Net loss                                                         $ (22,573,783)    $  (4,688,803)
                                                                                          =============     =============

PREFERRED STOCK DIVIDENDS                                                                    (4,440,000)       (1,973,333)
                                                                                          -------------     -------------

LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS                                                  $ (27,013,783)    $  (6,662,136)
                                                                                          =============     =============

BASIC AND DILUTED LOSS PER COMMON SHARE                                                           (3.50)    $       (2.67)
                                                                                          =============     =============

BASIC AND DILUTED WEIGHTED--AVERAGE COMMON SHARES OUTSTANDING                                 7,715,490         2,492,421
                                                                                          =============     =============
   OUTSTANDING

</TABLE>

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

                                      F-4
<PAGE>


<TABLE>
<CAPTION>

                               USOL HOLDINGS, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


                                                               Common Stock         Preferred Stock Shares   Preferred Stock Amounts
                                                          ----------------------   ------------------------  -----------------------
                                                            Shares       Amount      Series A      Series B    Series A     Series B
                                                          ---------  -----------   ----------      --------  ----------   ----------
<S>                                                       <C>        <C>           <C>             <C>       <C>          <C>
INITIAL CAPITAL CONTRIBUTION:                               425,000  $       425          --            --   $       --   $       --
   Stock compensation expense on initial contribution            --      849,575          --            --           --           --
   Sale of common stock for cash and notes, net of
     offering costs of $325,000                           2,000,000    3,675,000          --            --           --           --
   Stock subscription receivable                                 --   (3,674,000)                       --           --           --
   Sale of preferred stock, net of offering costs of
     $2,736,200                                                  --           --    1,325,000      155,000    30,675,361   3,588,439
   Warrants issued in connection with issuance of
     preferred stock                                             --      146,200           --           --            --          --
   Common stock issued in connection with asset
     acquisition                                            750,000    1,500,000           --           --            --          --
   Common stock warrants issued in connection with
     asset acquisition                                           --    1,668,600           --           --            --          --
   Common stock and other equity securities
     issued in connection with acquisition of
     FirstLink                                            3,717,668   32,051,611           --           --            --          --
   Deferred compensation on stock options                        --      518,500           --           --            --          --
   Amortization of deferred compensation                         --           --           --           --            --          --
   Preferred stock dividends                                     --           --           --           --            --          --
   Net loss                                                      --           --           --           --            --          --
                                                         ----------  -----------   ----------   ----------   ----------- -----------

BALANCES, December 31, 1999                               6,892,668   36,735,911    1,325,000      155,000    30,675,361   3,588,439
   Preferred stock dividends paid in common stock           688,813    5,303,333           --           --            --          --
   Exercise of warrants                                     231,622      708,201           --           --            --          --
   Exercise of options                                      233,000      391,723           --           --            --          --
   Stock grants                                               7,500       57,225           --           --            --          --
   Compensation expense on stock options                         --      135,000           --           --            --          --
   Deferred compensation on stock options                        --      540,000           --           --            --          --
   Amortization of deferred compensation                         --           --           --           --            --          --
   Conversion of preferred shares to common                  25,000       46,302       (2,000)          --       (46,302)         --
   Preferred stock dividends                                     --           --           --           --            --          --
   Net loss                                                      --           --           --           --            --          --
                                                         ----------  -----------   ----------   ----------   ----------- -----------

BALANCES, December 31, 2000                               8,078,603  $43,917,695    1,323,000      155,000   $30,629,059  $3,588,439
                                                         ==========   ===========  ==========   ==========   ============ ==========
</TABLE>

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

                                      F-5
<PAGE>


<TABLE>
<CAPTION>

                               USOL HOLDINGS, INC.
             CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (cont.)

                                                                                         Total
                                                           Deferred    Accumulated   Stockholders'
                                                         Compensation    Deficit        Equity
                                                         ------------  -----------   -------------
<S>                                                      <C>         <C>            <C>
INITIAL CAPITAL CONTRIBUTION:                            $       --  $         --   $        425
   Stock compensation expense on initial contribution            --            --        849,575
   Sale of common stock for cash and notes, net of
     offering costs of $325,000                                  --            --      3,675,000
   Stock subscription receivable                                 --            --     (3,674,000)
   Sale of preferred stock, net of offering costs of
     $2,736,200                                                  --            --     34,263,800
   Warrants issued in connection with issuance of
     preferred stock                                             --            --        146,200
   Common stock issued in connection with asset
     acquisition                                                 --            --      1,500,000
   Common stock warrants issued in connection with
     asset acquisition                                           --            --      1,668,600
   Common stock and other equity securities
     issued in connection with acquisition of
     FirstLink                                                   --            --     32,051,611
   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)
                                                         ----------  ------------   ------------

BALANCES, December 31, 1999                                (344,201)   (6,662,136)    63,993,374
   Preferred stock dividends paid in common stock                --            --      5,303,333
   Exercise of warrants                                          --            --        708,201
   Exercise of options                                           --            --        391,723
   Stock grants                                                  --            --         57,225
   Compensation expense on stock options                         --            --        135,000
   Deferred compensation on stock options                  (540,000)           --             --
   Amortization of deferred compensation                    432,298            --        432,298
   Conversion of preferred shares to common                      --            --             --
   Preferred stock dividends                                     --    (4,440,000)    (4,440,000)
   Net loss                                                      --   (22,573,783)   (22,573,783)
                                                         ----------  -------------  ------------
BALANCES, December 31, 2000                              $ (451,903) $(33,675,919)  $ 44,007,371
                                                         ==========  ============   ============
</TABLE>

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

                                      F-5A

<PAGE>

<TABLE>
<CAPTION>


                               USOL HOLDINGS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                                             Inception (May
                                                                                                                12, 1999)
                                                                                             Year Ended          through
                                                                                            December 31,       December 31,
                                                                                                2000               1999
                                                                                          ---------------   ---------------
<S>                                                                                       <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                               $  (22,573,783)   $   (4,688,803)
   Adjustments to reconcile net loss to net cash used in operating activities-
     Depreciation and amortization                                                             6,302,874         1,265,671
     Minority interest                                                                            56,447           (10,426)
     Amortization of deferred loan costs                                                         325,098                --
     Stock compensation expense                                                                  624,523         1,023,874
     Write down of long-term assets                                                            1,870,551                --
     Impairment of TRC assets                                                                  3,785,789                --
     Loss on disposal of assets                                                                   89,283                --
     Changes in operating assets and liabilities-
       Accounts receivable, net                                                                 (701,992)         (102,082)
       Other current assets                                                                     (611,756)          (20,634)
       Accounts payable and accrued expenses                                                     605,020         1,091,967
       Other liabilities                                                                         296,447            52,520
                                                                                          --------------    --------------
                        Net cash used in operating activities                                 (9,931,499)       (1,387,913)
                                                                                          --------------    --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Deposit on equipment                                                                               --        (2,454,707)
   Purchases of property, equipment and other                                                 (8,415,938)       (3,012,044)
   Cash paid for acquisitions, net of cash acquired                                                   --        (9,325,529)
   Proceeds from sale of assets                                                                  194,998                --
   Loan to related party                                                                         (66,269)         (100,000)
                                                                                          --------------    --------------
                        Net cash used in investing activities                                 (8,287,209)      (14,892,280)
                                                                                          --------------    --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Principal payments on capital lease obligations                                              (597,017)       (2,712,818)
   Borrowings under senior credit facility                                                     4,500,000                --
   Proceeds from TRC note payable                                                              5,000,000                --
   Payment of deferred financing costs                                                          (616,718)       (1,780,903)
   Proceeds from sale of preferred stock, net of cash
     offering costs of $2,590,000                                                                     --        34,410,000
   Proceeds from sale of common stock                                                                 --             1,425
   Proceeds from exercise of options/warrants                                                  1,099,924                --
                                                                                          --------------    --------------
                        Net cash provided by financing activities                              9,386,189        29,917,704
                                                                                          --------------    --------------

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                              (8,832,519)       13,637,511

CASH AND CASH EQUIVALENTS, beginning of period                                                13,637,511                --
                                                                                          --------------    --------------

CASH AND CASH EQUIVALENTS, end of period                                                       4,804,992    $   13,637,511
                                                                                          ==============    ==============

SUPPLEMENTAL CASH FLOW INFORMATION:
   Cash paid for interest                                                                 $      768,249    $      977,511
   Net assets acquired from acquisitions                                                              --         2,968,612
   Deferred compensation                                                                         540,000           518,500
   Issuance of common stock as payment of preferred stock dividends and
     warrants in connection with acquisitions                                                  5,303,333         3,168,600
   Common stock issued for notes                                                                      --         3,674,000
   Discount recorded on issuance of common stock                                                      --           325,000
   Accretion of dividends on preferred stock                                                   4,440,000         1,973,333

</TABLE>


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

                                      F-6
<PAGE>



                               USOL HOLDINGS, INC.
                               -------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                DECEMBER 31, 2000
                                -----------------

1.  BUSINESS

    USOL Holdings,  Inc. (formerly  FirstLink  Communications,  Inc.), an Oregon
corporation,  its wholly owned subsidiary USOL, Inc. and USOL,  Inc.'s 50% owned
subsidiary,  U.S.  Austin  Cable  Association  I,  Ltd.  ("USAC")  (collectively
referred to herein as "USOL"),  provide integrated  telecommunications  services
including local telephone,  long distance  telephone,  enhanced calling features
and cable  television  to  residents  of  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 USOL 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 USOL or the
local  telephone and long  distance  carriers for  telephone  services.  Tenants
desiring to subscribe to cable television must utilize USOL.

    USOL owns a 98% interest in  TheResidentClub,  Inc. ("TRC"). As discussed in
Note 3, TRC was formed to utilize assets and contract  rights acquired from GMAC
Commercial  Mortgage  Corporation  ("GMACM")  on July 21,  1999.  The assets and
contract rights  purchased were to be used to pursue a business model based upon
providing a range of move-in and lifestyle  enhancement  services solely for the
MDU market  that would  utilize  the  Internet.  In the fourth  quarter of 2000,
management  modified TRC's business model  resulting in an impairment of certain
long-term  assets   including   property  and  equipment  and  related  goodwill
associated  with  products  that  will not  ultimately  be used.  Management  is
currently  pursuing a business model for TRC which provides for the  development
of a  private-labeled  Internet  service portal for GMACM and related  entities;
however,  on April 10, 2001,  GMACM terminated the agreement with TRC related to
the development and operation of this  private-labeled  Internet service portal.
See Note 4 for a further discussion of these matters.

    USOL Holdings, Inc., USOL, Inc., USAC and TRC are  collectively  referred to
herein as the Company.

2.  LIQUIDITY

    The Company has not generated cash from operations since inception, and both
its  operations and purchases of property and equipment to expand its subscriber
base have  been  funded  primarily  from its  initial  equity  financing,  which
occurred in July 1999. In addition,  the Company  borrowed $4.5 million  against
its senior credit facility (the "Facility") during the last half of 2000.

    At  December  31,  2000,  the  Company was in  technical  default  under the
Facility  related to a financial  covenant.  In March  2001,  the  Facility  was
amended  to bring the  Company  back into  compliance.  Under the  Facility,  as
amended,  the Company has the ability to borrow up to $35 million until December
31,  2002,  subject to certain  borrowing  base  limitations,  at which time the
Facility will convert to a five-year term loan. The borrowing base is calculated
as a multiple of the Company's number of cable and telephone subscribers, with a
total available  borrowing base of  approximately  $12.7 million at December 31,
2000, of which $4.5 million has been borrowed against. In order to fund expected
future cash resource needs, the Company must continue to increase its subscriber
base and  revenues.  Accordingly,  the Facility  maintains  certain  operational
covenants requiring the Company to meet increasing quarterly minimums related to
revenues,  operating  cash flow and the number of MDU units to which the Company
has  available  service.  Management  believes  that the Company will attain the
prescribed growth in subscribers,  revenues and cash flow, and that it will have
sufficient cash resources  available under the Facility to fund  operations.  In
order to establish an adequate  subscriber base that can provide sufficient cash
from operations to satisfy the quarterly repayment  requirements of the Facility
beginning  in 2003 (see  Note 7),  management  believes  that the  Company  must
continue  to  invest  in  long-term  assets  through  September  2002.  Based on
management's estimates, beginning in April 2002, the borrowing base availability
under the  Facility  may become  inadequate  to continue  to fund the  necessary
growth expenditures.  The Company is currently evaluating financing alternatives
to  determine   what   resources  are  available  to  continue  to  fund  growth
opportunities if resources under the Facility become unavailable during 2002.

                                      F-7
<PAGE>


3.  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.  The Merger was completed on December 22, 1999,
and FirstLink changed its name to USOL Holdings, Inc.

    The Merger was accounted for as a reverse  merger under the purchase  method
of  accounting.  Accordingly,  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 is being  amortized  over a 10-year
period. The purchase price of $32,051,611 was allocated as follows:

Current assets                                         $   2,466,584
Fixed assets                                               1,559,060
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 its common stock valued at $2.00 per share, warrants
to purchase  1,500,000  shares of its 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:

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 GMACM.  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 accompanying 1999  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.

                                      F-8

<PAGE>


    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.  The results of  operations  of the Company are for the period from
inception  through  December  31,  1999,  the  operations  of US OnLine are from
January 1, 1999, through its acquisition by the Company effective June 30, 1999,
and the operations of FirstLink are for the period from January 1, 1999, through
December 22, 1999:

<TABLE>
<CAPTION>

                                                 The            US OnLine          FirstLink
                                               Company       (Preacquisition)     (Premerger)        Combined
                                            --------------   ----------------   -------------     ---------------
                                                                                  (Unaudited)       (Unaudited)
<S>                                         <C>                <C>              <C>               <C>
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>

4.  BUSINESS ACTIVITIES OF TRC
    --------------------------

Prior Business Model and Related Impairment
-------------------------------------------

    As  described  in Notes 1 and 3, USOL owns a majority  interest in TRC.  The
assets and contract  rights  originally  purchased from GMACM were to be used to
pursue a business  model based upon  providing a range of move-in and  lifestyle
enhancement  services solely for the MDU market that would utilize the Internet.
In the  fourth  quarter  of  2000,  management  modified  TRC's  business  model
resulting in an impairment of certain  long-term assets  including  property and
equipment and related goodwill associated with products that will not ultimately
be used.  The  impairment  charges  include the following  fair value write down
recorded during the year ended December 31, 2000:

Property and equipment                $1,420,000
TRC related goodwill                   2,366,000
                                      ----------
Total write down                      $3,786,000
                                      ==========

TRC Note Payable to Related Party
---------------------------------

    In August 2000, Newman Financial  Services,  Inc. ("NFS"), an entity related
to GMACM,  loaned $5 million to TRC under a secured  promissory  note  agreement
(the "TRC Note  Payable").  The TRC Note  Payable  matures on August 3, 2001 and
bears interest at 13% per annum payable  semi-annually  on February 3 and August
3. The TRC Note Payable is secured by all of the common stock and assets of TRC.
The TRC Note Payable provides that USOL has no monetary  liability upon an event
of default. The Company recorded interest expense of approximately  $251,000 for
the year ended December 31, 2000, related to the TRC Note Payable.

    TRC failed to make the required February 3, 2001 interest  payment.  NFS has
waived this  default and the TRC Note  Payable  has been  amended  such that the
February 3, 2001  interest  payment is now due on the earlier of (a) the sale of
TRC,  (b) the receipt of any  proceeds by TRC due under any  termination  of the
agreement between TRC and GMACM (see discussion below), or (c) August 3, 2001.

    GMACM is a significant shareholder of the Company.

Restrictions on TRC Cash and Intercompany Fundings
--------------------------------------------------

    As provided in the TRC Note  Payable  agreement,  TRC's cash  (approximately
$1,189,000 at December 31, 2000) is for use by TRC only and is not available for
general use by the Company. In addition, the Facility prohibits the Company from
allowing TRC to have outstanding  intercompany fundings in excess of $2,000,000,
excluding  interest  charges,  all of which has been used by TRC at December 31,
2000.

GMAC Agreement
--------------

    In August  2000,  TRC  entered  into a  four-year  services  and  technology
agreement  with  GMACM  (the  "GMAC  Agreement")  to  develop a  private-labeled
Internet  service portal for GMACM.  Under the terms of the GMAC Agreement,  TRC


                                      F-9

<PAGE>

was given  deadlines to achieve  certain  milestones  throughout the term of the
GMAC Agreement,  with GMACM  guaranteeing  certain financial  reimbursements and
minimum  customer  levels.  As part of a  January  2001  amendment  to the  GMAC
Agreement,  TRC and GMACM agreed to temporarily delay certain  provisions on the
GMAC Agreement in order to allow sufficient time for GMACM and TRC to modify the
GMAC Agreement. The amendment further stated that if TRC and GMACM were not able
to modify the GMAC  Agreement,  either  party would have until April 14, 2001 to
terminate it. On April 10, 2001, GMACM sent formal notice of termination to TRC,
but as part of the termination  also continued to negotiate with TRC by offering
additional proposals for which a new agreement might be reached.

Management's Plan for TRC and TRC's Ability to Continue
-------------------------------------------------------

    At December  31, 2000,  TRC had  approximately  $1,189,000  of cash on hand.
Management  believes that after making  operational staff and expense reductions
as a result of the termination of the GMAC Agreement,  current cash on hand will
be  sufficient to continue to fund future  operations  throughout  2001,  unless
uncertainties surrounding TRC's ability to repay the TRC Note Payable to NFS, as
described  below,  are not resolved.  As a result of the termination of the GMAC
Agreement,  certain  amounts  are due to TRC from  GMACM,  but  receipt  of such
amounts is not assured. TRC's revenues for the year ended December 31, 2000 were
minimal.  In addition,  in the event any amounts  potentially due as a result of
the  termination  of the GMAC  Agreement are not received by August 3, 2001, the
TRC Note Payable  will become due.  NFS may elect to extend the  maturity  date,
however, there is no assurance regarding such matters.

    If TRC is not able to  negotiate  a new  agreement  with  GMACM  or  another
entity,  if NFS  elects to not  extend  the  maturity  date,  or if the  amounts
potentially  due to TRC  under the  termination  of the GMAC  Agreement  are not
sufficient  to repay  NFS,  TRC will not have a  revenue  source  or  sufficient
capital to continue.  Holdings and USOL have not  guaranteed  any amounts of the
TRC  Note  Payable  and  TRC's  remaining  liabilities  primarily  consist  of a
$2,000,000   intercompany   note  payable  to  USOL,   which  is  eliminated  in
consolidation.  Should TRC's operations discontinue, the effect on the Company's
financial position and results of operations would not be negatively impacted.

5.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    ------------------------------------------

Principles of Consolidation
---------------------------

    The accompanying  consolidated  financial statements include the accounts of
Holdings and all majority-owned subsidiaries. Due to the net deficit position of
TRC,  the  Company  has not  reflected  a  minority  interest  asset  due to the
uncertainty of realizing such an asset.  The minority  interest in the income of
USAC is added to or deducted from the  consolidated  loss, as  appropriate.  All
material   intercompany   transactions  and  profits  have  been  eliminated  in
consolidation.

Use of Estimates
----------------

    The  preparation  of  financial  statements  in  conformity  with  generally
accepted  accounting  principles  of  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.

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.

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 year ended  December 31, 2000,  and for the period
from  inception  through  December 31, 1999,  was  approximately  $2,500,000 and
$828,000, respectively.

                                      F-10
<PAGE>


    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.

    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.

Realization of Long-Lived Assets
--------------------------------

    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.

    For the year ended December 31, 2000, the Company  recorded a  approximately
$6.0 million in total  impairment  charges for the  difference  between the fair
value of impaired  property  and its  carrying  value.  On March 31,  2000,  the
Company  signed a five-year  agreement  with CSG Systems,  Inc. to outsource its
billing  and  customer  care  system.   As  a  result,   the  Company  wrote-off
approximately $1.9 million of previously  capitalized software development costs
associated  with the in-house  build of the Company's  billing and customer care
system, which will not be used. In addition, and as further discussed in Note 3,
the Company  wrote-off  approximately  $3.8  million of  previously  capitalized
software,  hardware and related goodwill  associated with a prior business model
being pursued by TRC.

    The Company's  evaluation of  recoverability of the long-term assets of USOL
include  certain  assumptions  regarding  subscriber   penetration  in  existing
properties.  Management  believes  that  based on  existing  plans,  anticipated
subscriber  penetration  in existing  properties  indicates  that the  long-term
assets of the  Company  will be  recoverable.  Should  facts  and  circumstances
surrounding  subscriber penetration in existing properties change, an evaluation
of recoverability would be performed.

Goodwill and Other Intangibles
------------------------------

    Goodwill  is  primarily  related to the Merger  and the  purchase  of the US
OnLine assets, and is being amortized on the straight-line method over 10 years.

    During 2000, the Company  completed four transactions to purchase from other
MDU providers the assets used to provide cable and telecommunication services at
certain  properties  as  well  as the  long-term  operating  agreements  the MDU
providers  had with the property  owners.  The Company  recorded the purchase of
these assets at their  respective fair value of  approximately  $2.4 million and
reflected the remaining  asset purchase price of  approximately  $2.9 million as
other intangible assets associated with these long-term operating agreements.

Fixed assets                            $ 2,395,663
Other intangible assets                   2,880,057
                                        -----------
                                        $ 5,275,720
                                        ===========

    Amortization   expense   related  to  goodwill  and  other   intangibles  of
approximately   $3,800,000   and   $437,000  is  reflected  as  a  component  of
depreciation  and amortization for the year ended December 31, 2000, and for the
period from inception through December 31, 1999, respectively.

                                      F-11
<PAGE>


Deferred Loan Costs
-------------------

    Deferred  loan  costs  consist of  approximately  $2,051,000  incurred  with
obtaining the Facility, $175,000 incurred with obtaining the Company's amendment
to the Facility (see Note 6), and approximately  $172,000 incurred in connection
with the TRC Note Payable.  These costs are being  amortized using the effective
interest method over the term of the related debt.

    As the Facility was executed on December 30, 1999,  there is no amortization
expense  included in the  accompanying  statement of  operations  for the period
ended  December 31, 1999.  Amortization  expense for the year ended December 31,
2000,  was  approximately  $325,000,  and is included as a component of interest
expense in the accompanying consolidated statements 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. Costs incurred to obtain subscribers are expensed as incurred.

Installation Fees
-----------------

    The Company recognizes  installation  revenue when the customer is initially
billed for the  connection of services as the  installation  direct costs exceed
installation revenue on a per customer basis.

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.

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
year ended December 31, 2000, or for the period from inception  through 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
year ended December 31, 2000, and for the period from inception through December
31, 1999, no customer  represented  more than 10% 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.

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.


                                      F-12

<PAGE>

    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 18,475,000, 2,326,000 and 3,114,645, respectively, during 2000
and 18,500,000, 2,147,735 and 3,340,888, respectively, during 1999 were excluded
from the diluted net loss per share  calculation as their effect would have been
antidilutive.

Recent Accounting Pronouncements
--------------------------------

    In June 1998, the Financial  Accounting Standards Board ("FASB") issued SFAS
No. 133,  "Accounting for Derivative  Instruments and Hedging Activities," which
establishes  accounting  and  reporting  standards for  derivative  instruments,
including   certain   derivative   instruments   embedded  in  other   contracts
(collectively referred to as derivatives),  and for hedging activities. SFAS No.
133 is effective  for all fiscal  quarters of all fiscal years  beginning  after
June 15, 2000, with earlier application encouraged.  The Company does not expect
that  the  adoption  of SFAS No.  133  will  have a  significant  impact  on its
financial position or results of operations.

    In  June 2000,  the  FASB  issued  SFAS No.  138,  "Accounting  for  Certain
Derivative  Instruments and Certain Hedging  Activities".  This statement amends
the accounting and reporting  standards of SFAS No. 133 for certain  instruments
and  certain  hedging  activities.  SFAS No.  138 also  amends  SFAS No. 133 for
decisions  made by the FASB  relating  to the  Derivative  Implementation  Group
("DIG") process.  Certain  decisions  arising from the DIG process that required
specific  amendments to SFAS No. 133 are  incorporated  in this  Statement.  The
statement  is  effective  concurrently  with  SFAS  No.  133  according  to  the
provisions  of paragraph 48 of SFAS No. 133. The Company will adopt the standard
no later than the first quarter of fiscal year 2001 along with SFAS No. 133. The
Company  does  not  expect  that  the  adoption  of SFAS  No.  138  will  have a
significant impact on its financial position or results of operations.

    In December  1999,  the  Securities  and  Exchange  Commission  issued Staff
Accounting  Bulletin  ("SAB")  No. 101 which  summarizes  certain of the staff's
views  in  applying   generally  accepted   accounting   principles  to  revenue
recognition  in  financial  statements.  SAB 101 became  effective in the fourth
quarter of 2000.  The adoption of SAB 101 did not have a  significant  impact on
the Company's financial position or results of operations.

6.  DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
    ----------------------------------------

Accounts Receivable
-------------------

    Accounts receivable consist of the following at December 31, 2000:

Accounts receivable                                              $ 1,639,362
   Less- Allowance for doubtful accounts                            (402,108)
                                                                 -----------
Accounts receivable, net                                         $ 1,237,254
                                                                 ===========

    Activity in the Company's  allowance for doubtful  accounts  consists of the
following:

                                                                  Inception (May
                                                                     12, 1999)
                                                   Year Ended         through
                                                  December 31,      December 31,
                                                       2000             1999

Balance, beginning of period                         $ 146,721      $  135,777
Provision for bad debts                                878,196         231,026
Deductions for uncollectible receivables
  written off, nete of recoveries                     (622,809)       (220,082)
                                                     ---------      ----------
Balance, end of period                               $ 402,108      $  146,721
                                                     =========      ==========

                                      F-13

<PAGE>


Property and Equipment
----------------------

    Property and equipment consists of the following at December 31, 2000:

                                                   Estimated
                                                 Useful Lives
                                                   in Years
                                                 ------------
Cable systems                                            5 - 10     $14,140,854
Telephone switch equipment                              10            5,720,998
Furniture, fixtures and office equipment                 5 - 10       1,736,709
Purchased software                                       5              576,791
Leasehold improvements                                  10              253,163
Supply inventory                                       N/A            1,040,815
Construction in progress                               N/A              892,583
                                                                   ------------
                                                                     24,361,913
Less- Accumulated depreciation                                       (3,295,610)
                                                                   ------------
Property and equipment, net                                        $ 21,066,303
                                                                   ============

    Equipment   associated  with  capital  leases  with  a  net  book  value  of
approximately  $2,330,000 are included in property and equipment at December 31,
2000.

Goodwill and Other Intangibles
------------------------------

    Goodwill  and other  intangibles  consists of the  following at December 31,
2000:

Goodwill and other intangibles                                    $  35,897,536
   Less- Accumulated amortization                                    (3,779,948)
                                                                  -------------
Goodwill and other intangibles, net                               $  32,117,588
                                                                  =============

Accrued Liabilities
-------------------

    Accrued liabilities consist of the following at December 31, 2000:

Accrued sales and communication taxes                              $  1,182,691
Accrued wages                                                           338,674
Accrued professional fees                                               331,391
Accrued royalties                                                       122,383
Other                                                                   785,639
                                                                   ------------
Accrued liabilities                                                $  2,760,778
                                                                   ============

7.  DEBT
    ----

    Beginning in 2003,  the Facility  will be payable in quarterly  installments
starting  at 1% of the  December  31,  2002,  outstanding  balance for the three
months ended March 31, 2003,  increasing  periodically  to 7.75% of the December
31, 2002, outstanding balance for the year ended December 31, 2007.

    The Facility  bears  interest at the  Company's  option at an annual rate of
prime plus 3% or LIBOR plus 4%. The Facility  contains an unused  commitment fee
ranging  from  .625% to  1.375%  depending  on  borrowing  levels  and an annual
administrative  fee of $30,000.  Interest  expense  incurred  for the year ended
December 31, 2000, was approximately $114,000.

                                      F-14
<PAGE>


8.  STOCKHOLDERS' EQUITY
    --------------------

Convertible Preferred Stock
---------------------------

    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.
At  December  31,  2000,  the  Company  had  accreted  dividends  of  $1,110,000
representing   dividends  from  October  1,  2000  through  December  31,  2000.
Subsequent to year-end, the Company paid the dividends by issuing 499,577 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  automatically
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 3, 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.

Stock Options
-------------

    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 Internal  Revenue Code.
NSO's granted under the Incentive  Plan are intended not to qualify as incentive
stock  options  under the  Internal  Revenue  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. The number of options
outstanding at December 31, 2000 under the Incentive Plan was 1,912,500 shares.

                                      F-15

<PAGE>


    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  at December  31, 2000,  under the  FirstLink
Option  Plans was 413,502  shares.  There are no  additional  authorized  shares
available for grant under the FirstLink Option Plans at December 31, 2000.

    TRC  adopted the 2000  Incentive  Plan ("TRC  Incentive  Plan") on March 15,
2000. The TRC Incentive Plan provides for the grant of ISO's, NSO's,  restricted
stock grants and SAR's. ISO's are intended to qualify as incentive stock options
within the meaning of Section 422 of the Internal  Revenue  Code.  NSO's granted
under the TRC  Incentive  Plan are intended  not to qualify as  incentive  stock
options  under the  Internal  Revenue  Code and may be issued  below fair market
value on the date of grant.  The TRC  Incentive  Plan is  administered  by TRC's
board of  directors.  The exercise  price of ISO's may not be less than the fair
market value of TRC's common stock on the date of grant.  Vesting periods are at
the  discretion of TRC's board of  directors.  The maximum term of options under
the Incentive Plan is 5 years. TRC has reserved  10,000,000  shares for issuance
under the TRC Incentive Plan. The number of options  outstanding at December 31,
2000 under the TRC Incentive Plan was 4,168,000 shares.

    The Company applies  Accounting  Principles Board Opinion No. 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
attributable  to common  shareholders  and loss per common share would have been
increased to the pro forma amounts indicated below:

                                                                  Inception (May
                                                                     12, 1999)
                                                   Year Ended         through
                                                  December 31,      December 31,
                                                      2000               1999

       Net loss to common shareholders--
          As reported                            $(27,013,783)    $  (6,662,136)
          Pro forma                               (28,000,978)       (7,019,768)

       Net loss per common share-
          As reported                                  $(3.50)           $(2.67)
          Pro forma                                     (3.63)            (2.82)

    The  fair  value of each  option  grant  under  the  Incentive  Plan and the
FirstLink   Option  Plans  was   estimated  on  the  date  of  grant  using  the
Black-Scholes   option  pricing  model  with  the  following   weighted  average
assumptions used:

                                                                Inception (May
                                                                   12, 1999)
                                                 Year Ended         through
                                                December 31,      December 31,
                                                   2000              1999
                                                ------------    --------------
Dividend yield                                         --%              --%
Expected volatility                                95.00%           95.00%
Risk-free interest rate                               6.5%            5.10%
Expected life                                   6.75 years       6.75 years


                                      F-16
<PAGE>


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


                                                Year Ended
                                                December 31,
                                                   2000
                                                ------------

Dividend yield                                         --%
Expected volatility                                    --%
Risk-free interest rate                               6.0%
Expected life                                   4.75 years

    A summary of the combined  status of the  Incentive  Plan and the  FirstLink
Option Plans is presented below:

<TABLE>
<CAPTION>


                                                                 Outstanding                      Exercisable
                                                  ----------------------------------------   -----------------------
                                                                                Weighted-                 Weighted-
                                                                                 Average                   Average
                                                      Shares                    Exercise                  Exercise
                                                     Reserved       Shares        Price       Shares        Price
                                                  ------------   ----------     --------     --------    -----------
<S>                                                <C>           <C>              <C>       <C>             <C>
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
   Granted                                            (408,500)     408,500         4.84           --          --
   Options becoming exercisable                             --           --          --       488,957         2.35
   Exercised                                                --     (233,000)        1.62     (233,000)        1.62
   Forfeited                                             6,833       (6,833)        4.74           --           --
                                                   -----------   ----------                 ---------

Outstanding, December 31, 2000                       1,007,333    2,326,002         2.63    1,157,917         1.98
                                                   ===========   ==========                 =========
</TABLE>


                                      Weighted-
                                       Average
      Range of                        Remaining
      Exercise                       Contractual
       Prices            Number          Life
  --------------       ---------     -----------
  $1.00 to $3.50       2,022,500       8.5 years
  $4.50 to $5.50         170,002      8.75 years
  $7.63 to $9.00         133,500       9.7 years


                                      F-17


<PAGE>


<TABLE>
<CAPTION>


    A summary of the status of the TRC Incentive Plan is presented below:


                                                                        Outstanding               Exercisable
                                                                 ------------------------   -----------------------
                                                                                Weighted-                 Weighted-
                                                                                 Average                   Average
                                                      Shares                    Exercise                  Exercise
                                                     Reserved       Shares        Price       Shares        Price
                                                   -----------   -----------      -----     -----------     ------
<S>                                                <C>           <C>              <C>       <C>             <C>
Outstanding, December 31, 1999                              --            --      $  --              --     $  --
   Shares reserved                                 10,000,000             --         --              --        --
   Granted                                          (5,818,000)    5,818,000        4.41             --        --
   Options becoming exercisable                             --            --         --       1,200,000       0.50
   Forfeited                                           450,000      (450,000)       5.85             --        --
   Exercised                                                --    (1,200,000)        --      (1,200,000)      0.50
                                                   -----------   -----------      -----     -----------

Outstanding, December 31, 2000                       4,632,000     4,168,000        5.38             --        --
                                                   ===========   ===========                ===========
</TABLE>

                                      Weighted-
                                       Average
      Range of                        Remaining
      Exercise                       Contractual
       Prices            Number          Life
  ----------------      ---------    -----------
  $  0.50 to $1.00      1,349,327     4.26 years
  $  5.00               1,409,334     4.26 years
  $10.00                1,409,339     4.26 years


    During  July  2000,  two  members of  management  of the  Company  exercised
1,200,000  options for TRC common stock at an exercise  price of $.50 per share.
The  consideration  for each  exercise  was in the form of a secured  note ("TRC
Option  Notes")  which is recourse as to  interest.  The TRC Option Notes accrue
interest  semi-annually  at 6.23%,  and the entire principal amount plus accrued
interest  shall be due and  payable  on the  earlier  of 60 days  following  the
termination of employment or July 20, 2005.

Warrants
--------

    The Company has issued  various stock purchase  warrants in connection  with
its financing and acquisition  activities.  A summary of the Company's  warrants
outstanding at December 31, 2000 is presented below:

                                                  Number of
                                                    Shares
                                                  Underlying        Range of
                                                   Warrants      Exercise Prices

Expiring:
   2001                                              931,945     $5.50
   2002                                               46,700     $  .75 - $3.00
   2003                                            1,552,000     $5.50 - $7.70
   2004                                              584,000     $2.00 - $6.00
                                                  ----------

Warrants outstanding, December 31, 2000            3,114,645
                                                  ==========


    Warrants outstanding at December 31, 2000, have a weighted-average  exercise
price of $5.00.


    On April 2, 2001, the Company's  board of directors  extended the expiration
date for certain warrants, which were to terminate on July 28, 2001, to July 28,
2002. The warrants represent 804,445 shares of common stock exercisable at $5.50
per share.

                                      F-18
<PAGE>


    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 preferred stock offering costs of $146,200  associated with
the issuance of these  warrants  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 traunche (87,000 shares)
becoming exercisable upon execution issuance of the warrants, the $4.00 traunche
(86,000 shares) becoming  exercisable on the one-year  anniversary and the $6.00
traunche (86,000 shares) becoming exercisable on the two-year anniversary.

    Certain warrants also contain cashless exercise provisions.

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.

9.  INCOME TAXES
    ------------

    For the year ended December 31, 2000, and 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 34% to
loss before  taxes and the actual tax  benefit of $0 for both  periods is due to
the increase in the valuation allowance for deferred taxes.

    The Company's deferred tax assets are comprised of the following:

                                                  December 31,     December 31,
                                                     2000             1999
                                                  ------------     ------------

Net operating loss carryforwards                  $  8,085,561     $  2,740,834
Inventory                                            1,073,156               --
Goodwill                                               850,000               --
Deferred revenue                                       244,064               --
Accrued liabilities                                         --          105,000
Other                                                  176,229          100,056
                                                  ------------     ------------

Total gross deferred tax assets                     10,429,010        2,945,890

Less- Valuation allowance                          (10,429,010)      (2,945,890)
                                                  ------------     ------------

Net deferred tax assets                           $         --     $         --
                                                  ============     ============

    The valuation  allowance for deferred tax assets as of December 31, 2000 was
$10,429,010.  The net change in the total valuation allowance for the year ended
December 31, 2000, was an increase of $7,483,120.  The Company has established a
valuation  allowance due to the uncertainty that the deferred tax assets 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, 2000,  the Company had
net operating loss carryforwards  which are available to offset future financial
reporting and taxable income  totaling  approximately  $23,780,000 and expire in
2011 through 2021.


                                      F-19


<PAGE>


    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.

10.  RELATED-PARTY TRANSACTIONS
     --------------------------

    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.  Service to these  properties was  discontinued
during  2000.  For the year ended  December  31,  2000,  and for the period from
inception  (May 12, 1999)  through  December 31, 1999,  revenues  from these two
properties were approximately $22,000 and $74,000, respectively.

    During  2000,  the  Company  entered  into a six-month  business  consulting
agreement  with a company  owned by a director of the  Company.  Total  expenses
incurred during 2000 were approximately $50,000.

    The  investment  banking firm that brokered the Company's  sale of preferred
stock and the Facility is a subsidiary  of GMACM.  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.

    The Company was charged for certain  administrative  and operating  services
provided  by  GMACM  related  to the  business  of  TRC.  Such  charges  totaled
approximately $320,000 and $314,000 for the year ended December 31, 2000 and for
the  period  from   inception   (May  12,  1999)  through   December  31,  1999,
respectively.

    The  Facility  is being  provided  by banks  that have  affiliates  that are
substantial  shareholders  of the  Company.  The  Company  paid  commitment  and
administrative fees of $460,191 and $875,000 during 2000 and 1999, respectively,
in connection with the Facility.

11.  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-
   2001                                             $   346,889
   2002                                                 301,269
   2003                                                 214,286
   2004                                                 150,820
   2005                                                  89,220
   Thereafter                                            63,720
                                                    -----------
                                                    $ 1,166,204
                                                    ===========

    Rental  expense  incurred  in  connection  with  these  leases  approximated
$371,000 and $97,000 for the year ended  December  31, 2000,  and for the period
from inception (May 12, 1999) through December 31, 1999, respectively.



                                      F-20

<PAGE>


Capital Leases
--------------

    The Company leases certain telephony network equipment under capital leases.
At December 31, 2000,  future minimum lease payments under capital leases are as
follows:

Year ending December 31-
   2001                                                $    727,544
   2002                                                     713,792
   2003                                                     621,946
                                                       ------------
                                                          2,063,282

Less- Amount representing interest                         (308,696)
                                                       ------------
Net minimum lease payments                                1,754,586
Less- Current portion of capital lease obligations         (565,141)
                                                       ------------
Capital lease obligations, less current portion        $  1,189,445
                                                       ============

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-
   2001                                                 $   674,579
   2002                                                     404,710
   2003                                                     232,932
   2004                                                     157,993
   2005                                                     103,906
   Thereafter                                               249,068
                                                        -----------
                                                        $ 1,823,188
                                                        ===========

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.

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
$558,750.

12.  SEGMENT DISCLOSURE
     ------------------

    The  Company's  operations  are  classified  into  two  reportable  business
segments: Telecommunications and TheResidentsClub.  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  call  features  and  cable  television  to  residents  of  multifamily
apartment complexes and condominiums in Texas, Oregon, Virginia and Colorado.

    TheResidentsClub    consists   principally   of   the   development   of   a
private-labeled Internet service portal for GMACM and related entities.


                                      F-21

<PAGE>

<TABLE>
<CAPTION>

    The operating results by business segment were as follows for the year ended
December  31, 2000,  and for the period from  inception  (May 12, 1999)  through
December 31, 1999:

2000:                                       Telecommunications        TheResidentsClub       Consolidated
----                                        ------------------        ----------------       ------------
<S>                                            <C>                     <C>                   <C>
Revenues                                       $ 10,229,877            $      7,806          $ 10,237,683
Segment loss                                    (14,050,265)             (8,523,518)          (22,573,783)
Total assets                                     60,426,795               1,510,240            61,937,035
Capital expenditures                              7,173,138               1,242,800             8,415,938
Depreciation and amortization                     5,949,362                 353,512             6,302,874


1999:                                       Telecommunications        TheResidentsClub       Consolidated
----                                        ------------------        ----------------       ------------

Revenues                                       $  3,088,773            $     51,390          $  3,140,163
Segment 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>

                                      F-22

<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) 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 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 results of operations and cash flows of U.S. OnLine
Communications,  Inc. 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  Holdings,  Inc. for USOL  Holdings,  Inc.
common stock, warrants to purchase USOL Holdings, Inc. 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
consolidated financial statements.

Austin, Texas

February 11, 2000


                                      F-23
<PAGE>


<TABLE>
<CAPTION>




                        U.S. ONLINE COMMUNICATIONS, INC.
                        --------------------------------
                      CONSOLIDATED STATEMENT OF OPERATIONS
                      ------------------------------------
                     FOR THE SIX MONTHS ENDED JUNE 30, 1999
                     --------------------------------------

                                    (Note 2)
<S>                                                                                      <C>
REVENUES                                                                                 $   2,831,079
                                                                                         -------------

EXPENSES:

   Operating                                                                                 2,100,739
   Selling, general and administrative                                                       1,554,807
   Depreciation and amortization                                                               878,286

                                   Total expenses                                            4,533,832
                                                                                         -------------

LOSS FROM OPERATIONS                                                                        (1,702,753)
                                                                                         -------------

OTHER:

   Interest expense                                                                         (1,722,942)
   Other expense, net                                                                          (77,699)
                                                                                         -------------

                                   Total other                                              (1,800,641)
                                                                                         -------------

LOSS BEFORE MINORITY INTEREST                                                               (3,503,394)

MINORITY INTEREST IN LOSS OF SUBSIDIARY                                                          2,414
                                                                                         -------------

                                   Net loss                                              $  (3,500,980)
                                                                                         =============

</TABLE>

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

                                      F-24

<PAGE>


<TABLE>
<CAPTION>

                        U.S. ONLINE COMMUNICATIONS, INC.
                        --------------------------------
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                      ------------------------------------
                     FOR THE SIX MONTHS ENDED JUNE 30, 1999
                     --------------------------------------

                                    (Note 2)

<S>                                                                                      <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                              $  (3,500,980)
   Adjustments to reconcile net loss to net cash used in operating activities-
       Depreciation and amortization                                                         1,463,526
       Minority interest                                                                        (2,414)
       Accretion of deferred compensation                                                       51,563
       Changes in operating assets and liabilities-
         Restricted cash                                                                       352,071
         Accounts receivable, net                                                              164,585
         Other current assets                                                                  (60,229)
         Accounts payable and accrued expenses                                                 876,327
         Deferred revenue                                                                      (25,966)
                                                                                         -------------

                      Net cash used in operating activities                                   (681,517)
                                                                                         -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property and equipment                                                        (443,515)
                                                                                         -------------

                      Net cash used in investing activities                                   (443,515)
                                                                                         -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Payments on long-term debt                                                                 (145,100)
   Proceeds from short-term notes payable                                                    1,475,000
                                                                                         -------------

                      Net cash provided by financing activities                              1,329,900
                                                                                         -------------

INCREASE IN CASH AND CASH EQUIVALENTS                                                          204,868

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

CASH AND CASH EQUIVALENTS, end of period                                                 $   1,212,856
                                                                                         =============

SUPPLEMENTAL CASH FLOW INFORMATION:
   Cash paid for interest                                                                $    123,086

</TABLE>

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

                                      F-25
<PAGE>


                         U.S. ONLINE COMMUNICATIONS, INC.
                         --------------------------------


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

1.  BUSINESS
    --------

    U.S. OnLine Communications, Inc. ("US OnLine") and its 50% owned subsidiary,
U.S.-Austin Cable Association 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  on 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.

    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 by USOL 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 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.

                                      F-26
<PAGE>


Goodwill
--------

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

Deferred Loan Costs
-------------------

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

Revenue Recognition
-------------------

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

Income Taxes
------------

    The Company  follows the liability  method of accounting for income taxes in
accordance with Statement of Financial  Accounting  Standards  ("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.

Comprehensive Income
--------------------

    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 was no difference between net loss and comprehensive loss for the
six months ended June 30, 1999.

Credit Risk and Significant Customers
-------------------------------------

    The Company's accounts  receivable  subjected the Company to credit risk, as
collateral  was generally not required.  The Company's  risk of loss was 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 mitigated the concentration of credit risk. 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 June 30, 1999.

    Each of the note agreements contained warranties and covenants.  At 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 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,  a
corporation and the Company's  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 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 amortized as
interest expense over the term of the related debt.  Interest expense recognized
was approximately $57,000 for the six months ended June 30, 1999.


                                      F-27

<PAGE>

    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 six months ended June 30, 1999,  was  approximately
$271,000.

5.  COMMITMENTS AND CONTINGENCIES
    -----------------------------

Operating Leases
----------------

    The Company entered into various  operating lease  agreements for office and
warehouse  space.  Rental  expense  incurred  in  connection  with these  leases
approximated  $84,000  for the six  months  ended  June 30,  1999.  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  required  minimum monthly charges
ranging  from $340 to $25,000 per month and had terms  ranging  from one year to
five years.

    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 were 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 June 30, 1999,
240,000 shares 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 was terminated or amended.

                                      F-28
<PAGE>


    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.

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. 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  $52,000 in compensation  expense related to these options for the
six months ended June 30, 1999.

    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:

                                                  Six Months
                                                     Ended
                                                 June 30, 1999
                                                 --------------
Net loss-
   As reported                                    $ (3,500,980)
   Pro forma                                        (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:

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

                                      F-29


<PAGE>


    A summary of the status of the  Company's  stock  option  plan is  presented
below as of and for the six months ended June 30, 1999:
<TABLE>
<CAPTION>

                                                                                                     Weighted
                                                                                                     Average
                                                                                                     Exercise
                                                                                        Shares        Price
                                                                                     ----------      --------
<S>                                                                                  <C>              <C>
Outstanding, December 31, 1998                                                          485,000       $ 3.75
   Granted                                                                                   --          --
                                                                                     ----------

Outstanding, June 30, 1999                                                              485,000         3.75
                                                                                     ==========

Options exercisable at June 30, 1999                                                         --

Weighted average remaining contractual life at June 30, 1999                         8.75 years

</TABLE>

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

Warrants
--------

    At June 30, 1999, the Company had warrants  outstanding to purchase  253,054
shares of the  Company's  common stock at $3.75 per share.  These  warrants were
exercisable  at June 30, 1999 and have 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
    ------------

    The Company has generated losses through June 30, 1999 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 June 30, 1999,  and no deferred tax benefit was  reflected
in  the  accompanying  consolidated  statement  of  operations  related  to  the
Company's net operating loss or other deferred tax assets.

8.  RELATED-PARTY TRANSACTIONS
    --------------------------

    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 six months  ended  June 30,  1999,  the  accompanying
statement  of  operations  reflect  interest  expense of  approximately  $38,000
related to this agreement.

    An  officer  of the  Company  has a  beneficial  ownership  interest  in two
apartment  complexes which were 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 six months ended June
30, 1999, revenue from these two properties was approximately $31,000.

                                      F-30