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

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

                                   Form 10-KSB

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
               SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR
                             ENDED DECEMBER 31, 2001

                                       OR

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

                         Commission File Number 01-14271

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

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

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

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

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

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

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

     The issuer's revenues for its most recent fiscal year was $14,529,936.

     The aggregate  market value of the voting stock held as of April 5, 2002 by
nonaffiliates of the issuer was $4,710,305,  based on the last sale price of its
Common Stock on such date. As of April 5, 2002, the issuer had 13,206,260 shares
of its no par value Common Stock issued and outstanding.

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


                                      INDEX


PART I
        Item 1.     Business
                    The Company..........................................      3
                    Business Strategy....................................      3
                    Business of USOL.....................................      3
                    USOL Properties......................................      4
                    USOL Products and Services...........................      5
                    The USOL Market......................................      5
                    USOL Sales and Marketing Strategy....................      6
                    USOL Competition.....................................      7
                    The Business of TRC..................................      7
                    Key Suppliers........................................      8
                    Employees............................................      8
                    Legislation and Regulation...........................      8

        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..........................     11

        Item 6.     Management's Discussion and Analysis of
                    Financial Condition and Results of Operations
                    Introduction.........................................     11
                    Results of Operations................................     11
                    Liquidity and Capital Resources......................     12
                    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...............................     18

        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



                                       2


<PAGE>


                                     PART I

Item 1. Business.

The Company

     USOL Holdings, Inc. ("Holdings"),  an Oregon corporation,  its wholly owned
subsidiary USOL, Inc. and USOL, Inc.'s 50% owned  subsidiary,  U.S. Austin Cable
Association  I,  Ltd.  (collectively  referred  to herein  as  "USOL"),  provide
integrated  telecommunications  services  including  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"),  to  residents  of  multi-family   apartment  complexes  and
condominiums  ("MDUs") in Texas,  Colorado,  Virginia and the Pacific Northwest.
USOL  also  owns a 100%  interest  in  TheResidentClub,  Inc.  ("TRC").  See The
Business  of TRC  discussion  on page 7  regarding  the  winding  down of  TRC's
operations  during 2001.  Holdings,  USOL and TRC are  collectively  referred to
herein as the Company.

     We principally provide RMTS under long-term right of entry agreements ("ROE
Agreements") with MDU property owners and service agreements with MDU residents.
The ROE  Agreements  allow us to  exclusively  market  services to the  property
residents. We offer incentives to property owners such as royalties, the ability
to deal  with a single  provider  for all  telecommunication  services,  and the
ability to differentiate their property by offering integrated telecommunication
services to their  residents.  We offer  Company  branded  services,  or we will
market services co-branded with other service providers. We currently divide our
operations into seven major markets: Austin, Dallas/Fort Worth, Denver, Houston,
San Antonio, Washington, D.C. and the Pacific Northwest.

     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.

Business Strategy

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

Business of USOL

     We currently  have  operations in seven major markets:  Austin,  Dallas/Ft.
Worth, Denver, Houston, San Antonio, Washington, D.C. and the Pacific Northwest.
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 2002 will occur within existing markets.

     We  primarily  plan on growing our markets by  generating  new ROEs through
traditional in-house sales efforts as well as through the acquisition of private
cable operators.  In order to provide USOL branded service,  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
compelling suite of bundled communications products and services.

     During  2001,  we  expanded  our  business  model to also  begin a  service
business  involved in obtaining  ROE  Agreements  on the behalf of other service
providers  and  marketing  their  services  to the  tenants  of the  residential
developments  served.  The service  business  was started as part of a series of
transactions completed during 2001 with Grande Communications,  Inc. ("Grande").
On August 31, 2001,  the Company  entered  into an  agreement  (the "Grande Sale
Agreement")  with Grande to sell all of the Company's ROE Agreements and certain
property  and  equipment  located  in Austin  and San  Antonio,  Texas for $14.3
million.  Grande is a Texas-based  broadband service provider that offers retail
telecommunication services including local and long-distance telephone, advanced
digital video and high-speed Internet access over a single deep-fiber network to
residential customers and small and medium enterprises (collectively referred to
herein as "Grande's Broadband Business"). While our overall business strategy is
to grow our business in our markets in order to obtain  positive  operating cash
flow,  we believed  that the sales price of these assets was adequate to


                                       3

<PAGE>


support  the  loss  of  revenues  from  these   properties  by  allowing  us  to
significantly lower our outstanding debt and monthly interest expense.  Further,
we believe  sufficient  growth  opportunities  exist in our remaining markets to
allow us to replace these units,  which were sold for over $1,000 per unit, at a
significantly  lower cost per unit.  Concurrent  with the  signing of the Grande
Sale Agreement,  the Company also entered into a 10-year  agreement (the "Grande
Services Agreement") to become Grande's exclusive sales and marketing agent with
respect to the sale of Grande's  Broadband Business to MDU owners in Austin, San
Antonio,  and certain surrounding areas (collectively  referred to herein as the
"Austin/San Antonio  Corridor").  The Grande Services Agreement became effective
during  December 2001.  Under the terms of the Grande  Services  Agreement,  the
Company is  responsible  for  obtaining ROE  Agreements  for MDUs located in the
Austin/San Antonio Corridor on behalf of Grande. The Company is also responsible
for marketing  Grande's  Broadband  Business to the residents of all MDUs Grande
serves in the Austin/San  Antonio Corridor.  As consideration for providing this
service,  the  Company  will  receive  a share of  Grande's  Broadband  Business
revenues related to the MDUs served,  including the properties sold to Grande as
part  of  the  Grande  Sale  Agreement.  While  the  Grande  Services  Agreement
represents an expansion of our business model, it is an unproven  business,  and
there can be no assurance we will be successful with providing these services to
Grande or other  potential  partners.  The Grande  Services  Agreement  includes
provisions that require us to maintain an increasing minimum number of units for
which we have obtained ROE  Agreements  on their behalf and a minimum  number of
subscribers to Grande's  Broadband  Service on the MDUs served.  Failure to meet
these minimum requirements at the end of any calendar quarter will result in the
Company's  revenue  share  being  reduced,  and  failure  for three  consecutive
calendar  quarters will give Grande the right to terminate  the Grande  Services
Agreement.

USOL Properties

     We currently have ROE Agreements with 126 active  residential  developments
in seven  major  markets in the United  States,  including  properties  owned or
managed by many of the  leading  real  estate  companies  in the  United  States
including Equity Residential Properties Trust, Trammell Crow Residential, Gables
Residential  Trust,  Lincoln Property  Combined  Company and Walden  Residential
Properties,  Inc. among others.  Contract terms range from five to 20 years with
an average  remaining term of  approximately  10 years. At December 31, 2001, we
also serviced 27 properties on behalf of our partners.

     The table below summarizes active operational  passings and subscriber base
at December 31, 2001, for USOL's 126 properties:

<TABLE>
<CAPTION>



                                                Passings                                     Subscribers
                               ----------------------------------------      -----------------------------------------
Market                          CATV      Telephone  Internet     Total       CATV      Telephone   Internet     Total
                               ------     ---------  --------    ------      ------     ---------   --------    ------
<S>                            <C>         <C>        <C>        <C>         <C>         <C>          <C>       <C>
Austin                          3,549         857      1,994      6,400       1,869         433         320      2,622
Dallas/Ft. Worth               10,203       4,961      6,898     22,062       5,785       2,147         580      8,512
Denver                          2,414       1,808      1,942      6,164       1,496         823         209      2,528
Houston                        11,872          --      6,196     18,068       5,705          --         364      6,069
Pacific Northwest               4,435       4,199      2,627     11,261       2,572       1,865         207      4,644
San Antonio                     4,186       1,661      2,545      8,392       2,236         618          97      2,951
Washington, D.C. Area             624         624        624      1,872         405         261          27        693
                              -------     -------     ------     ------      ------     -------       -----    -------
Totals                         37,283      14,110     22,826     74,219      20,068       6,147       1,804     28,019
                              =======     =======     ======     =======     ======     =======       =====    =======
</TABLE>

     The  passings  and  subscribers  above  located in Austin  and San  Antonio
represent residential developments that have been purchased by Grande as part of
the Grande Sale Agreement, but Grande and the Company have not yet closed on the
sale of the  properties.  The total  proceeds  will be  received as part of four
separate closings, the first two which occurred during December 2001 and January
2002, respectively, with the remaining closings to occur no later than September
30,  2002.  Total  proceeds  received  as part of the  first two  closings  were
approximately $4.8 million and $4.3 million, respectively.

     The table below  summarizes our backlog of passings under contract that are
not active at December 31, 2001, but are expected to activate during 2002:

                                                 Passings
                               ----------------------------------------------
Market                           CATV     Telephone     Internet        Total
                               ------     ---------     --------       ------
Dallas/Ft. Worth                  727         190          727          1,644
Denver                          1,688       1,301        1,301          4,290
Houston                           564          --           --            564
Pacific Northwest               5,672          --           --          5,672
                               ------      ------       ------        -------
Totals                          8,651       1,491        2,028         12,170
                               ======      ======       ======        =======


                                       4

<PAGE>

USOL Products and Services

USOL Branded Services
---------------------

     We offer the following USOL branded 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.  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)  and  Showtime(TM)   are  generally   offered
individually  or in discounted  packages with basic or other  services.  Digital
service can be added and includes additional  expanded basic channels,  37 music
channels,  over  40  multiplex  premium  channels,  PPV  availability,   and  an
interactive programming guide. We have recently upgraded most of 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. We expect to continue these upgrades throughout 2002.

     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  network.  Our Class 4 switches are
capable of providing  all of the most popular  residential  telephone  features,
including 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  wholesale  minutes  from  interexchange
carriers ("IXCs").

     Internet  Services.  We provide high-speed (up to 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.

Grande Services Agreement
-------------------------

     Under the terms of the Grande Services Agreement, we are Grande's exclusive
sales  and  marketing  agent  with  respect  to the sale of  Grande's  Broadband
Business to MDU owners in the Austin/San  Antonio  Corridor.  We are responsible
for obtaining ROE Agreements for MDUs located in the Austin/San Antonio Corridor
on  behalf  of  Grande,  and we are  also  responsible  for  marketing  Grande's
Broadband  Business to the residents of all MDUs Grande serves in the Austin/San
Antonio  Corridor.  As  consideration  for providing this service,  we receive a
share of Grande's Broadband Business revenues related to the MDUs served.

The USOL Market

     The  United  States  cable  and  telecommunications  industry  is large and
robust.  In recent  years the  cable  television  industry  has  changed  from a
provider  of a single  product,  analog  CATV,  into a  competitive  provider of
multiple entertainment, information and telecommunications services. Cable's new
broadband  infrastructure  has allowed companies to expand into services such as
telephony,  high-speed  Internet access and digital CATV. The National Cable and
Telecommunications  Association  (the  "NCTA")  reports that over $55 billion of
private  capital has been  invested  in cable  companies  since  1996,  and this
investment has led to advanced broadband services now being offered to more than
70  million  U.S.  households.  The  Company  serves  the MDU  market,  which is
currently  estimated to represent over 26 million  households,  or approximately
one-half of all U.S. households.

                                       5

<PAGE>


     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  to the
franchised MSO in the CATV and telephony markets.  The potential market for RMTS
remains largely undeveloped,  creating significant opportunities for alternative
providers  with the  technological,  operational,  marketing and  administrative
ability to manage growth  effectively.  The NCTA estimated that one out of every
four CATV subscribers is currently being served by an alternative provider,  and
that  approximately  1.5 million tenants of MDUs currently use service providers
similar to the Company.

USOL Sales and Marketing Strategy

     For USOL branded services,  we typically target apartment  communities with
250 or more units in order to justify the capital  expenditure cost of providing
telecommunications  service to the community.  The organic selling cycle for our
services  includes  proposal  presentation,  contract  negotiations  and service
implementation, a cycle that can require up to 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.

     In the Austin/San Antonio Corridor, the Grande Services Agreement allows us
to sell to a larger base of  apartment  communities,  including  those below 250
units, provided Grande approves the ROE Agreement.  Grande maintains the capital
expenditure  requirements  for these  communities.  This greatly  increases  the
number of owners we can develop  relationships  with in the  Austin/San  Antonio
Corridor.  We are required to maintain an increasing minimum number of units for
which we have obtained ROE  Agreements  and a minimum  number of  subscribers to
Grande's  Broadband  Service on the MDUs served.  Failure to meet these  minimum
requirements  at the end of any calendar  quarter  will result in the  Company's
revenue share being reduced, and failure for three consecutive calendar quarters
will give Grande the right to terminate the Grande Services Agreement. If Grande
is not in compliance with its minimum  service level standards  during a quarter
in which the Company  fails to meet its targets,  the reduction in revenue share
and ability to terminate do not apply.

     While  royalty  arrangements  encourage  property  owners to enter into ROE
Agreements  with us or our  partners,  we believe that  delivery of  competitive
products and superior customer service that are targeted to our MDU niche market
are the key to acquiring ROE Agreements.  We use a two-tier strategy.  First, we
concentrate  on entering into ROE Agreements  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 a great  amenity that
promotes increased occupancy, as well as an attractive new revenue source in the
form of royalties. Under the ROE Agreements,  property owners generally are paid
a  percentage  of net monthly  receipts  collected  for  services  delivered  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 ROE Agreements 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 ROE Agreements generally provide for a
term of seven  to 15  years  and  give us or our  partners  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 the
telephony and data services exclusively.

     Once we have obtained the ROE Agreement and services have been activated on
the property, we utilize the on-site leasing personnel to market the services to
the residents,  which typically takes place at the time the residents sign their
leases.  The services are packaged at competitive  prices,  with heavy discounts
for  signing-up for two or more  services.  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  the  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 the products and
services.


                                       6

<PAGE>



     Our  acquisition  strategy is to pursue  properties that we can acquire for
costs comparable or below to those of an organic buildout.  These generally tend
to be ROE Agreements held by small private cable operators.  During 2001, 61% of
our new units  came via  acquisition  of  existing  ROE  Agreements  from  other
providers.

     During 2002,  we do not  anticipate  entering any new markets.  We expect a
majority  (55%-60%) of our new passings growth will occur from acquisitions with
the remaining  from organic  growth  activities  from local  marketing  efforts.
Additionally,  it is our  expectation  that we will provide CATV services to all
new  units  added  to our  portfolio  during  2002,  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 ROE Agreements,  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"),
such as AT&T Broadband,  Time Warner Cable, Charter  Communications 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,  RMTS  providers  that  serve  only MDUs  incur the  higher  churn
associated with these residents (the average life cycle of an apartment resident
is 18 months  vs.  seven  years for a  single-family  housing  resident),  which
results in a greater  percentage of marketing  costs and customer  service calls
than those of the incumbents.

The Business of TRC

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

     Although the Settlement Agreement was entered into on June 6, 2001, closing
of  the   settlement   was  delayed  until  July  13,  2001,  due  to  continued
negotiations, at which time TRC received a payment of approximately $6.1 million
from GMACM.  This  amount  differed  from that  provided  for in the  Settlement
Agreement  due to offsets of amounts  paid by GMACM to release  liens on certain
TRC assets and a $300,000  adjustment to reflect amounts  previously paid to TRC
by GMACM. Of this amount,  approximately $5.6 million has been used to repay the
principal and interest on a loan made to TRC in August 2000 by Newman  Financial
Services,   Inc.  (Newman),  an  entity  related  to  GMAC  Commercial  Mortgage
Corporation.  In  connection  with the closing of the  settlement  in July 2001,
TRC's operations have ceased,  and TRC recorded a net gain of approximately $5.9
million during the year ended December 31, 2001.


                                       7
<PAGE>


Key Suppliers

     USOL is materially dependent upon one vendor, WSNet, Inc. ("WSNet").  WSNet
currently  supplies CATV programming to  substantially  all properties with USOL
branded services.  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. As a
result,  if we were  required to replace  WSNet for any reason,  it is likely we
would not be able to offer our current  programming  packages to tenants or that
the cost of providing these packages would significantly increase.

Employees

     At December 31,  2001,  we employed  124 persons on a full-time  basis.  Of
these employees,  53 were sales,  administration  or management,  25 were in the
areas of customer service and billing and 46 were in operations.  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 (the "1996
Act").

Government Regulation--CATV Regulatory Issues

     Regulatory  Status and  Regulation  of Private Cable  Operators.  Franchise
cable  operators are subject to a wide range of FCC  regulations  regarding such
matters  as the  rates  charged  for  certain  services,  transmission  of local
television broadcast signals, customer service standards/procedures, performance
standards  and  system  testing  requirements.   In  addition,   the  operator's
franchise,  which  can be  issued  at the  municipal,  county  or  state  level,
typically imposes  additional  requirements for operation.  These relate to such
matters as 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
PCOs 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.


                                       8

<PAGE>

     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.

     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

                                       9

<PAGE>

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  are
authorized to 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 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 and operate as an STS in all markets.

     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 and Houston,  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.

     On or about December 6, 2001, the Company filed an Information Statement on
Schedule 14(C) and sent the  Information  Statement  together with a notice of a
special  shareholder  meeting to its  shareholders  of record as of November 28,
2001. The special  meeting took place on December 27, 2001 at the Company's main
offices in Austin,  Texas.  The purpose of the meeting was to vote on amendments
to the Company's  Articles of  Incorporation.  Holders of  16,471,608  shares of
common  stock and Series A stock,  which voted with the common stock as a single
class on an as-converted basis  (representing  approximately 58.1% of the voting
class),  also voted as a separate class in favor of the amendments to the Series
A Designation and the Series B Designation.  Holders voted  1,097,800  shares of
Series A stock (representing  holders of approximately 83.8% of the total number
of shares of Series A stock outstanding) voted in favor of the amendments to the
Series A  Designation  and holders of 1,097,800  shares of Series A stock and no
holders  of Series B stock  voting  together  as a single  class in favor of the
proposal. There were no votes cast abstaining or voting against the proposals.

                                       10

<PAGE>


                                     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,  2001.  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, 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
March 31, 2001..........................  $  3.50     $1.00     $  .41    $  .22
June 30, 2001...........................  $  1.65    $  .69     $  .21    $  .06
September 30, 2001......................  $  1.18    $  .60     $  .12    $  .08
December 31, 2001.......................  $  1.48    $  .57     $  .17    $  .07

     There were  approximately  188  holders of record of the  Company's  common
stock as of April 5, 2002.

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

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

Introduction

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

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

Results of Operations

Year Ended December 31, 2001 Compared to December 31, 2000

     We incurred a net loss of $10,530,127  for the year ended December 31, 2001
compared to a net loss of $22,573,783 for the same period of the prior year. The
decrease in net loss is attributable primarily to an increase in revenues during
2001  of  approximately  $4.3  million  as  compared  to  2000  and  a  gain  of
approximately  $5.9 million  recognized during 2001 on the termination of the IT
Services  Agreement  with GMACM (see The Business of TRC  discussion on page 7).
The Company also recorded approximately $5.7 million of asset write downs during
2000,  compared to $3 million of asset write downs during 2001. The Company also
limited its increases in operating  expenses as a result of the wind down of TRC
during 2001.  Upon receiving  notification of the termination of the IT Services
Agreement  during April 2001, the Company made  operational and staff reductions
resulting  in the  reduction  of  total  operating  expenses  during  2001.  The
elimination  of TRC operating  expenses,  combined with cost saving  initiatives
implemented by management in 2001 to leverage the Company's existing operational
infrastructure,   allowed  the  Company  to  increase  revenues  while  limiting
increases in operating expenses.

                                       11




<PAGE>


     Revenues  increased  $4,292,253  or 41.9% in 2001 as compared to 2000.  The
increase in revenue is primarily due to the Company's  significant  increases in
passings  and  subscribers  throughout  the  year as a result  of the  Company's
acquisition of SIMCOM and organic growth in existing markets during 2001. In the
current year, the Company also recognized  approximately  $729,000 of revenue at
TRC as part of its IT Services  Agreement with GMACM  compared to  approximately
$7,800 of revenue during 2000.

     Operating expense increased $444,611 or 5% in 2001 as compared to 2000. The
increase  between years is due to increases in cable  programming,  leased local
telephony circuits,  wholesale  long-distance minutes and call center costs, all
associated  with the  increase  in  revenue.  These  increases  were offset by a
reduction in operating expenses  associated with the wind down of TRC. USOL also
made expense  reductions during 2001, and as a result of these  reductions,  the
Company's  increase  in  revenues  did not  require  proportional  increases  in
operational expenses.  As a result of these measures,  operating expense was 59%
of revenues for the year ended  December 31, 2001  compared to 79% for the prior
year.

     Selling,  general and  administrative  expense decreased  $210,236 or 2% in
2001 as compared to 2000.  The decrease in selling,  general and  administrative
expense was primarily due to the wind down of TRC during 2001 combined with USOL
leveraging  its existing  infrastructure  to limit  increases in payroll  costs,
travel expense,  and other costs directly related to the Company's public status
such as legal,  accounting,  investor  relations and  insurance.  As a result of
these measures,  selling,  general and administrative expense was reduced to 74%
of revenues for the year ended  December 31, 2001  compared to 106% for the same
period of the prior year on a combined basis.

     Depreciation and amortization expense increased $63,890 or 1% between years
on a combined  basis.  The increase in  depreciation  and  amortization  expense
resulted  primarily from increased  depreciation  from capital  expenditures for
cable and  telephone  equipment  required for the addition of new  properties in
2001, offset by decreased goodwill amortization  resulting from the write-off of
TRC's goodwill during the fourth quarter of 2000.  Depreciation and amortization
expense was 44% of revenue for the year ended  December 31, 2001 compared to 62%
for the prior year.

     Write  down of  assets  held for sale  consists  of a  one-time  charge  of
approximately  $2,953,000.  The Company reviewed the  recoverability  of the net
book value of assets to be sold to Grande as part of the Grande Sale  Agreement.
Based on this  analysis,  the  Company  determined  the net book  value of these
assets was in excess of its fair  market  value.  As a result,  during  2001 the
Company recorded a write down of these assets.

     Write  down of  long-term  assets  for the year ended  December  31,  2000,
consisted of  approximately  $1.9 million of  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 during 2000 consists of  approximately  $1,420,000
of property and  equipment  and  $2,366,000 of goodwill that will not be used in
the execution of the TRC business plan. In the fourth quarter of 2000 as part of
the IT Services 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.

     Interest expense,  net increased  $1,122,398 or 104% in 2001 as compared to
2000. The increase in interest  expense between years is primarily the result of
interest and fees associated  with increased  borrowing from the Facility during
2001 compared to 2000.

Liquidity and Capital Resources

     At  December  31,  2001,  the  Company  had cash and  cash  equivalents  of
$2,020,764. Net cash of $7,686,861 was used in operating activities for the year
ended  December  31,  2001,  which  principally   resulted  from  the  Company's
$10,530,127 net loss combined with  approximately  $1,403,000 in working capital
uses and the noncash gain of $5,867,509  recorded on the  termination  of the IT
Services Agreement.  These amounts were offset by approximately $10.1 million of
noncash charges for depreciation and amortization, amortization of deferred loan
costs, stock compensation  expenses,  and the write down of assets held for sale
as part of the Grande Sale Agreement.


                                       12


<PAGE>

     Net cash of $675,113  was used in investing  activities  for the year ended
December 31, 2001. This principally  consisted of approximately $11.5 million in
capital expenditures and cash paid for acquisitions offset by approximately $6.1
million  received  from GMACM in  settlement  of the IT Services  Agreement  and
approximately  $4.8 million received from Grande as part of the first closing of
the Grande Sale Agreement.

     Net cash of $5,577,746 was provided by financing activities during the year
ended December 31, 2001. This was the result of net borrowings  under our senior
credit facility (the "Facility") of $11,196,529,  offset by repayment of the TRC
Note of approximately $5.0 million and payments on capital lease obligations and
deferred financing costs of approximately $619,000.

     The Company has suffered  recurring  losses from  operations and net losses
since inception,  and it has not generated cash from operations since inception.
The Company's  operations  and its purchases of property and equipment to expand
its  subscriber  base have been funded  primarily from the Company's last equity
financing,  which  occurred  in July  1999.  During  the last half of 2000,  the
Company began to borrow against its senior credit facility (the "Facility"), and
it has continued to borrow under the Facility  through  December 31, 2001. Under
the  Facility,  the Company  has the  ability to borrow up to $25 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 number of the  Company's  cable and  telephone
subscribers,  with a  total  available  borrowing  base of  approximately  $17.5
million as of December 31, 2001, of which the Company has borrowed approximately
$15.7 million. The Company is not currently in compliance with certain covenants
contained in the  Facility and there can be no assurance  that the holder of the
Facility will not call the amount outstanding or prevent additional borrowings.

     In order to fund  expected  future cash  resource  needs,  the Company must
continue to increase its subscriber base and revenues. Accordingly, the Facility
contains certain  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.  In  addition  to current  covenant
violations,  based on current  projections,  the Company is not expected to meet
its minimum  revenue and  operating  cash flow  covenants  during 2002.  If such
quarterly  minimums are not met, the Company would  continue to be in default of
its covenants  under the Facility and the holder of the Facility  could call the
amount outstanding under the Facility or prevent additional  borrowings.  We are
currently  working  with the holder of the  Facility to amend the  covenants  to
resolve both existing and projected  covenant  violations.  The process has been
delayed as a result of our current  negotiations for a possible acquisition of a
company that would also require bank approval and amendment. We expect to obtain
a waiver  and amend  the  covenants  as part of the  required  approval  of this
transaction;  however,  if we are not successful in completing this acquisition,
then we expect to separately  proceed with  obtaining  the necessary  waiver and
amendment to the Facility.  There is no assurance that we will be able to obtain
the  waiver  and  amendment.  We are also  continuing  to market  the  Company's
services in order to attain the prescribed  growth in subscribers,  revenues and
cash flow,  and we are pursuing  acquisitions.  There is no assurance,  however,
that we can adequately  market the Company's  services or complete  acquisitions
necessary to meet the existing or revised covenants. In addition, our ability to
complete  acquisitions is dependent on the Company's ability to borrow under the
Facility. As a result of existing covenant violations and the projected covenant
violations during 2002, the amount outstanding under the Facility as of December
31, 2001 has been classified as a current liability in the consolidated  balance
sheet included  elsewhere in this Form 10-KSB. The matters discussed above raise
substantial  doubt about the Company's  ability to continue as a going  concern.
The consolidated  financial statements included elsewhere in this Form 10-KSB do
not  include  any  adjustments  that  might  result  from  the  outcome  of this
uncertainty.  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.

     Under the terms of the Grande Sale Agreement, the Company will receive cash
proceeds of approximately  $13.4 million.  The proceeds will be received as part
of four separate closings, the first two which occurred during December 2001 and
January 2002,  respectively,  with the remaining closings to occur no later than
September  30, 2002. As part of its approval of the Grande Sale  Agreement,  the
holder of the  Facility  has  required the Company to remit 100% of the proceeds
received from Grande to the holder as repayment of amounts outstanding under the
Facility.  Total  proceeds  received  as part of the  first  two  closings  were
approximately  $4.8 million and $4.3  million,  respectively,  and these amounts
have  been  remitted  to the  holder of the  Facility  in  accordance  with this
provision.

     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 $10,000 per month and have terms  ranging from one year to
10 years.  We also have agreements with certain cable providers to purchase bulk
cable signal at some of our  properties.  The  agreements  provide for us to pay
fixed  monthly  amounts  regardless  of the number of  customers  we have at the
properties.   At  December  31,  2001,   the  fixed  minimum   charges  for  all
noncancelable  agreements  over the  life of the  agreements  was  approximately
$1,287,000.  Additionally,  we are planning on upgrading  existing  head-ends to
allow


                                       13

<PAGE>

us the ability to provide digital cable to selected  properties during 2001. The
anticipated costs of such upgrades are approximately $225,000.

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.

     On  December  27,  2001,  a majority  of the  shareholders  of the  Company
approved  Articles of Amendment to the Company's  Articles of  Incorporation  to
amend the dividend structure of the Series A and Series B Preferred Stock. Under
the  Articles  of  Amendment,  no  dividends  will be paid during 2002 and 2003,
dividends  at the rate of 2% per year will be paid in 2004,  4% per year in 2005
and 6% per  year  during  2006 and  beyond.  See  Notes 3 and 9 in the  notes to
consolidated  financial  statements  included  elsewhere  in  this  Form  10-KSB
regarding this  statement.  The Company is awaiting  consent of a few holders of
Series A Preferred Stock and all holders of Series B Preferred Stock to file the
Articles of Amendment.

Adoption of New Accounting Standards

     In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No.  141,  "Business  Combinations"  and  SFAS  No.  142,  "Goodwill  and  Other
Intangible  Assets."  SFAS  No.  141  requires  that all  business  combinations
subsequent  to June 30,  2001 be  accounted  for  under the  purchase  method of
accounting.  The pooling-of-interests  method is no longer allowed. SFAS No. 142
addresses  the  accounting  and  reporting  for  acquired   goodwill  and  other
intangible assets,  and provides that goodwill should not be amortized.  Rather,
it must be tested for impairment  annually or more  frequently if  circumstances
indicate potential impairment. SFAS No. 142 was effective January 1, 2002 and it
requires the Company to complete a transitional  goodwill impairment test within
six months from the date of adoption. The adoption of SFAS No. 142 on January 1,
2002  resulted  in a write  down  of  goodwill  of  approximately  $3.0  million
(unaudited).  This write down of goodwill was recorded as a cumulative effect of
a change in accounting  principle  and will be reflected in the  Company's  2002
first quarter Form 10-QSB.

     In  August  2001,  the  FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment or Disposal of Long-Lived  Assets." SFAS No. 144 establishes a single
accounting  model,  based upon the  framework  established  in SFAS No. 121, for
long-lived  assets  to be  disposed  of by  sale.  SFAS  No.  144  broadens  the
presentation of discontinued  operations to include more disposal  transactions,
and also provides additional  implementation guidance for SFAS No. 121. SFAS No.
144 is effective for fiscal years beginning after December 15, 2001. The Company
adopted SFAS No. 144 in August 2001, and its adoption did not have a significant
impact upon the Company's financial position and results of operations.

Item 7. Financial Statements and Supplementary Data.

     The consolidated  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 consolidated  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)...........       40     Chairman of the Board
James W. Livingston................       54     President, Chief Executive
                                                 Officer and Director
David B. Agnew (1)(5)(6)(9)........       54     Director
Robert D. Feller (2)(6)(8)(9)......       40     Director
Thomas E. McChesney (5)(6)(7)......       56     Director
Ronald L. Piasecki (3)(5)(7).......       63     Director
Roy Rose (4)(8)....................       45     Director
Seth R. Davis......................       48     Senior Vice President and
                                                 Chief Operating Officer
Shane A. Menking...................       29     Chief Financial Officer and
                                                 Secretary

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

     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.

     Robert G. Solomon has served the Chairman of the Board of the Company since
December  1999. Mr.  Solomon  served as Chief  Executive  Officer from July 1999
until June 2001.  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  Multi-family  Communications  Counsel,  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.

     David B. Agnew has served as a Director of the Company since December 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.


                                       15

<PAGE>



     Robert D.  Feller has served as a Director  of the  Company  since  October
2001. He is President and CEO of GMAC Commercial Mortgage Corporation ("GMACCM")
and a member of the GMAC  Commercial  Holding  Corp.  Executive  Committee.  Mr.
Feller is responsible for GMACCM's North American operations. Mr. Feller came to
GMACCM from GMAC Mortgage  Group where he was Group Vice President - Finance and
Managing Director.  Prior to joining GMAC Mortgage Group, Mr. Feller was Manager
of Venture Development for the Delphi Chassis Systems division of General Motors
(GM) where he led the  worldwide  acquisition,  joint  venture  and  divestiture
activities.  Mr.  Feller  previously  held  various  managerial  and  analytical
positions  on  GM's  Corporate   Financial  Staff  including  tenures  with  the
Comptroller's Staff in Detroit and the Treasurer's Staff in New York. Mr. Feller
began his career at GM's Delco  Electronics  unit where he worked as a financial
analyst and production supervisor. Mr. Feller is a CPA and holds a BS in general
management from Purdue University's  Krannert School of Management as well as an
MBA from Harvard Business School.

     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
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  Horizon  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  1999. Mr.
Rose  serves as  Chairman,  Chief  Executive  Officer  and a Director  of Sierra
Management,  Inc.,  which  serves as the manager of Sierra  Pacific  Acceptance,
L.L.C.  ("SPA").  SPA is  involved  in  making  investments  and loans in and to
various businesses and real property  developments.  From 1985 to 1990, Mr. Rose
was the Chief Executive  Officer and President of Northern Capital  Corporation.
From 1991 to 2000, Mr. Rose served as President,  Chief Executive  Officer and a
Director of Peregrine Holdings (Oregon), Ltd. He also served as President, Chief
Executive Officer and a Director of Peregrine Capital, Inc. from 1997 to 2001.

     James. W.  Livingston has served as Chief  Executive  Officer and President
since June 2001. Mr.  Livingston  worked for Main LaFrentz CPA from 1973 to 1975
before leaving to become the Controller of Home Interiors & Gifts,  Inc.  ("Home
Interiors"),  and serving in that position for nine years. From 1984 to 1997, he
served as Chief Financial Officer and Vice President of Business  Operations for
the Dallas Mavericks, a franchise member of the National Basketball Association.
During his tenure with the Mavericks,  Mr.  Livingston served as a member of the
NBA Board of  Governors  and  Chairman  of the Board of the  Continental  Indoor
Soccer League.  From 1997 through August 1, 2000, Mr.  Livingston served as Vice
President of  Operations  of Home  Interiors and also served as a member of that
company's  executive team. Prior to accepting the position of CEO and President,
he was a business  consultant  and a partner  with a private  equity fund having
consulted with USOL Holdings, Inc. He received a B.B.A. degree in accounting and
finance from Southern Methodist University (1969). Mr. Livingston is a Certified
Public  Accountant and was an all conference and all American football player at
SMU.

     Seth R. Davis was  appointed  Senior  Vice  President  and Chief  Operating
Officer  in July  2001 from his  position  of Senior  Vice  President  and Chief
Technical  Officer,  the position  Mr.  Davis held since  joining the Company in
January  2000.  From  1996  through  1999 he served  as Vice  President  General
Manager/Development  for  Cable  Plus,  where  he  oversaw  the  development  of
establishing  local and long-distance  telephone service to residents of MDUs in
five  cities.   From  1994  to  1996,  he  served  as  Senior  Vice   President,
International  Operations of MIDCOM Communications,  Inc., where he was directly
responsible  for a large wireless  cellular and satellite  communications  joint
venture  located in Russia.  From 1989 to 1994, he served as President and Chief
Executive Officer of US FiberCom Network, Inc., a long-distance telephone resale
firm. From 1988 to 1989, Mr. Davis served as General Manager of UNICEL,  Inc., a
publicly traded company that owned and operated  cellular  telephone  systems in
Texas and Iowa. Prior to 1988, Mr. Davis served in various management  positions
and  consulting  roles  all  in  the  telecommunications  and  cable  television
industries.  Mr. Davis received his undergraduate  training at the University of
Southern  California and the  University of Alaska,  and his Masters of Business
Administration from Vanderbilt University.


                                       16

<PAGE>




     Shane A. Menking was  appointed  Chief  Financial  Officer and Secretary in
July 2001 from his position of  Controller,  the position Mr. Menking held since
joining the Company in February  2001.  From February 2000 to February  2001, he
held various financial positions with DataFoundry, Inc., a sister company of the
Austin-based  Internet Service Provider Texas.net.  DataFoundry provides managed
hosting and data center services to companies throughout the United States. From
May 1995 to  December  1999,  he was a member  of the audit  practice  of Arthur
Andersen LLP. Mr.  Menking was an Audit Manager with Arthur  Andersen and served
several  clients  in the  technology  and  communication  sector  including  the
Company.  Mr.  Menking is a Certified  Public  Accountant  and a Magna Cum Laude
graduate  from the  University  of  Texas at San  Antonio  where he  received  a
Bachelors in Business Administration.

     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: the Audit Committee; the
Compensation Committee; the Executive Committee; and the Nominations Committee.

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

     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 one 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 and is chaired by Mr. Solomon.

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.


                                       17

<PAGE>


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.

Item 10. Executive Compensation.

     The  following  table  summarizes  the  compensation  paid to the Company's
Senior Vice President and Chief  Operating  Officer,  its former Chief Executive
Officers, its former Chief Operating Officer, its Former Presidents,  and to its
former 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 Communications, Inc. ("US Online").


                                       18


<PAGE>

<TABLE>
<CAPTION>


                                           SUMMARY COMPENSATION TABLE
                                                                                            Long-Term
                                                   Annual Compensation                 Compensation Awards
                                          --------------------------------------  -------------------------------
                                                                                   Other Annual
                                                                                   Compensation       Securities
                                                         Salary        Bonus         (5)(6)(7)        Underlying
                  Name                    Fiscal Year    (1)(2)        (3)(4)       (8)(9)(10)         Options
---------------------------------------   -----------  ----------  -------------  ---------------   -------------
<S>                                          <C>       <C>          <C>               <C>               <C>
Robert G. Solomon, Chairman of the
Board and Former CEO                         2001      $175,000     $       --        $      --              --
                                             2000      $175,000     $       --        $      --              --
                                             1999      $140,544     $       --        $  46,750         545,000

James W. Livingston, President and CEO       2001      $ 94,154     $   20,000        $      --         250,000
                                             2000      $     --     $       --        $      --              --
                                             1999      $     --     $       --        $      --              --

Seth R. Davis, Senior VP and COO             2001      $145,779     $       --        $      --         200,000
                                             2000      $131,433     $       --        $      --         150,000
                                             1999      $     --     $       --        $  12,000              --

Donald E. Barlow,
Former President and COO                     2001      $ 92,308     $       --        $ 227,165              --
                                             2000      $150,000     $       --        $      --              --
                                             1999      $114,895     $       --        $  54,500         275,000

Jeffrey S. Sperber, Former CFO               2001      $ 27,783     $       --        $      --              --
                                             2000      $120,000     $       --        $  80,000              --
                                             1999      $113,558     $   30,000        $      --         100,000

A. Roger Pease,
Former CEO and President                     2001      $     --     $       --        $      --              --
                                             2000      $105,699     $       --        $      --              --
                                             1999      $150,000     $       --        $ 150,000              --

<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 1999.

(4)  Mr.  Livingston  was paid a $20,000  bonus in  connection  with signing his
     employment agreement in 2001.

(5)  Mr.  Solomon was paid $46,750 in 1999 related to  compensation  deferred in
     prior periods.

(6)  Mr.  Barlow wad paid  $54,500 in 1999 related to  compensation  deferred in
     prior periods.

(7)  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.

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


                                       19

<PAGE>

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

(10) Mr. Barlow was paid $227,165 of severance compensation upon his resignation
     pursuant  to his  employment  agreement  with the  Company.  The  severance
     compensation  was paid upon Mr.  Barlow's  resignation as President and COO
     effective August 23, 2001.

</FN>
</TABLE>




Employment Agreements

     The Company has entered into Employment  Agreements  with Messrs.  Solomon,
Livingston, Davis and Menking.

     Mr. Solomon's agreement provide that he will serve as Chairman of the Board
for the Company and will work full time for the Company,  performing  the duties
provided  to him from  time to time by the  Board of  Directors.  The  agreement
terminates  on December 31, 2002.  Either party may  terminate  the agreement by
given 30 days  written  notice  to the  other  party.  Upon  termination  of the
agreement,  Mr.  Solomon will be paid severance  compensation  equivalent to his
base salary, $175,000, for 18 months.

     The terms of the agreements for Messrs.  Livingston,  Davis and Menking 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.  Mr.  Livingston is employed
as the  Company's  President  and CEO.  Mr.  Davis is employed as the  Company's
Senior Vice President and Chief  Operating  Officer.  Mr. Menking is employed as
the Company's Chief Financial Officer.  The employment  agreements are for terms
of two years.  They may be terminated by the Company for cause or other than for
cause.  If Messrs.  Livingston,  Davis or Menking are terminated  other than for
cause  (excluding  terminations  within  one year of a change in  control of the
Company)  then he will be paid  severance  compensation  equivalent  to his base
salary for six months.  If Messrs.  Livingston,  Davis or Menking are terminated
other than for cause  within one year of a change in control of the Company then
he will be paid  severance  compensation  equivalent  to his base  salary for 12
months.  Mr.  Livingston's  base salary is $180,000  per year.  Mr.  Davis' base
salary is $175,000 per year. Mr. Menking's base salary is $120,000 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, 2001,  there were options
outstanding  to purchase  1,816,000  shares of common stock under the  Incentive
Plan.

     The  Company  assumed  two  outstanding  stock  option  plans of  FirstLink
Communications,  Inc.  ("FirstLink"),  a company the Company  merged with during
1999.  The  two  plans  are  the  FirstLink  1998-1999  Combined  Incentive  and
Nonqualified  Stock  Option Plan and the  FirstLink  1997  Restated and Combined
Incentive and Nonqualified  Stock Option Plan  (collectively  referred to as the
"FirstLink Option Plans").  The number of options outstanding and exercisable at
December 31, 2001 under the FirstLink Option Plans was 232,502 shares. There are
no additional  authorized  shares available for grant under the FirstLink Option
Plans at December 31, 2001.

     TRC adopted the 2000  Incentive  Plan ("TRC  Incentive  Plan") on March 15,
2000. As part of the closing of TRC during 2001, all options  previously granted
under the plan have been forfeited as of December 31, 2001.

     The following  tables set forth certain  information  at December 31, 2001,
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.


                                       20

<PAGE>

<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, Former CEO            2001           --            --            --               --
                                         2000           --            --            --               --
                                         1999        545,000         32%       $1.00 - $2.00      July 2009

James W. Livingston, President and       2001        250,000         38%           $0.60        November 2011
CEO                                      2000           --            --            --               --
                                         1999           --            --            --               --

Seth R. Davis, Senior VP and COO         2001        200,000         31%           $0.60        November 2011
                                         2000        150,000         53%           $3.50        January 2010
                                         1999           --            --            --               --

Shane A. Menking, CFO                    2001        200,000         31%       $0.60 - $3.00    November 2011
                                         2000           --            --            --               --
                                         1999           --            --            --               --

Donald E. Barlow, Former President       2001           --            --            --               --
and COO                                  2000           --            --            --               --
                                         1999        275,000         16%       $1.00 - $2.00      July 2009

A. Roger Pease,                          2001           --            --            --               --
Former President and CEO                 2000           --            --            --               --
                                         1999        100,000         29%           $2.31         August 2008

Jeffrey S. Sperber, Former CFO           2001           --            --            --                --
                                         2000           --            --            --                --
                                         1999        100,000          6%           $2.00          July 2009


</TABLE>



<TABLE>
<CAPTION>



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

                                                                                          Value of Unexercised
                                        Shares       Value     Number of Unexercised           In-the-Money
                                       Acquired    Realized       Options/SARs at           Options/SAR's at
                Name                  on Exercise     (1)          Fiscal Yearend          Fiscal Yearend (2)
-----------------------------------   -----------  --------    ----------------------  ---------------------------
<S>                                       <C>          <C>     <C>                     <C>
Robert G. Solomon, Chairman               --           --      Exercisable    398,750  Exercisable     $     3,563
                                                               Unexercisable  136,200  Unexercisable   $     1,688

James W. Livingston, President and        --           --      Exercisable     62,500  Exercisable     $    34,375
COO                                                            Unexercisable  187,500  Unexercisable   $   103,125

Seth R. Davis, Senior VP and COO          --           --      Exercisable     50,000  Exercisable     $    27,500
                                                               Unexercisable  150,000  Unexercisable   $    82,500

Shane Menking, CFO                        --           --      Exercisable     54,167  Exercisable     $    20,625
                                                               Unexercisable  145,833  Unexercisable   $    61,875
<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, 2001, was $1.15 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, 2001 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).      2,814,602        398,900      7,800,852        14.6%          27.3%          20.8%
650 Drescher Road
Horsham, PA 19044

AGL Investments No. 8 Limited Partnership (4)  2,748,602        398,900      7,734,852        14.2%          27.3%          20.6%
1050 17th Street, Suite 1200
Denver, CO 80265

Aspen Online Investments, LLC (5)........      2,937,500             --      2,937,500        15.2%           --             7.8%
2757 - 44th Street SW
Grand Rapids, MI 49509

Aspen Foxtrot Investments, LLC (6).......      1,132,557        180,000      3,382,557         5.9%          12.3%           9.0%
2757 - 44th Street SW
Grand Rapids, MI 49509

Peregrine Capital, Inc. (7)..............      2,280,597        120,000      3,780,597        11.8%           8.2%          10.1%
9725 Beaverton Hillsdale Highway, Suite 350
Beaverton, OR 97005

German American Capital Corporation (8)..        867,917        140,000      2,617,917         4.5%           9.6%           7.0%
31 West 52nd Street, 14th Floor
New York, NY 10019

Robert G. Solomon (9)....................        677,750          --           677,750         3.5%           --             1.8%
10300 Metric Boulevard
Austin, TX 78758

Seth R. Davis (10).......................         50,000          --            50,000        <1%             --            <1%
10300 Metric Boulevard
Austin, TX 78758

Thomas E. McChesney (11).................        159,184          --           159,184        <1%             --            <1%
200 SW Market Street
Portland, OR 97201

Shane A. Menking (12)....................         54,167          --            54,167        <1%             --            <1%
10300 Metric Boulevard
Austin, TX 78758

All Executive Officers and Directors as a      9,917,459     23,639,959     19,883,969        51.4%          75.1%          62.9%
Group (10 persons) (13)..................

<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 September 30, 2001 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  19,292,357  shares  of  common  stock
     outstanding  on December 31, 2001 and 1,461,400  shares of preferred  stock
     which convert into 18,267,500 shares of common stock.



                                       22


<PAGE>


(3)  Includes  4,986,250  shares of common stock  underlying  398,900  shares of
     Series  A  Preferred  Stock,  1,108,149  shares  of  common  stock  paid as
     preferred stock dividends, 1,364,787 shares of common stock paid as part of
     a  restructuring  of  the  shareholders  preferred  stock,  325,000  shares
     underlying  common stock  purchase  warrants and 16,666  shares  underlying
     presently exercisable stock options held by Mark Sampson, a former director
     of the  Company  that  currently  serves as  Managing  Director,  Corporate
     Finance  at  Newman  &  Associates,  Inc.,  an  entity  controlled  by GMAC
     Commercial Mortgage Corporation.
(4)  Includes  4,986,250  shares of common stock  underlying  398,900  shares of
     Series  A  Preferred  Stock,  1,108,149  shares  of  common  stock  paid as
     preferred stock dividends, 1,364,787 shares of common stock paid as part of
     a  restructuring  of  the  shareholders  preferred  stock,  259,000  shares
     underlying presently  exercisable common stock purchase warrants and 16,666
     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 259,000 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  2,312,500  shares owned of common stock  (2,000,000  of which are
     under two separate  promissory notes for 1,000,000 shares each) and 625,000
     shares underlying common stock purchase warrants.
(6)  Includes  2,250,000  shares of common stock  underlying  180,000  shares of
     Series A Preferred Stock,  500,043 shares of common stock paid as preferred
     stock  dividends,  615,848  shares  of  common  stock  paid  as  part  of a
     restructuring  of  the  shareholders  preferred  stock  and  16,666  shares
     underlying presently exercisable stock options held by Mr. Piasecki.
(7)  Owned by 6 limited  liability  companies  controlled by Peregrine  Capital,
     Inc.  Includes  1,520,000  shares of common stock owned (1,500,000 of which
     are under two separate  promissory  notes for 1,000,000  shares and 500,000
     shares, respectively),  1,500,000 shares of common stock underlying 120,000
     shares of Series A Preferred Stock,  333,363 shares of common stock paid as
     preferred stock dividends, 410,568 shares of common stock paid as part of a
     restructuring  of  the  shareholders  preferred  stock  and  16,666  shares
     underlying presently exercisable stock options held by Mr. Rose.
(8)  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,  388,924  shares of  common  stock  paid as
     preferred  stock  dividends and 478,993 shares of common stock paid as part
     of a restructuring of the shareholders  preferred stock. 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%.
(9)  Includes  279,000  shares of common stock owned and  presently  exercisable
     stock options to purchase 398,750 shares of common stock.
(10) Includes  presently  exercisable stock options to purchase 50,000 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 43,333 shares of common stock underlying
     presently  exercisable  common stock  purchase  warrants and stock options,
     respectively.
(12) Includes  presently  exercisable stock options to purchase 54,167 shares of
     common stock.
(13) 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  2001,  GMAC  Mortgage  Corporation,  a sister  company  of GMACM (a
substantial  shareholder of the Company),  paid the Company  approximately $6.05
million as part of its  settlement  with TRC. See The Business of TRC discussion
on page 7 for further discussions of this settlement.

     During 2000,  Newman  Financial  Services,  Inc.  ("NFS"),  a subsidiary of
GMACM,  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.  During  2001,  the Company  paid NFS
approximately  $5.6 million in full  satisfaction of the outstanding  balance of
the promissory note, including accrued interest.



                                       23

<PAGE>



     During 2001,  the Company  entered into a six-month  agreement with Hampton
Holdings,  LLC  ("Hampton") to assist the Company with  identifying  acquisition
opportunities.  Pursuant  to  such  agreement,  the  Company  is to pay  Hampton
$150,000,  $66,667 of which was paid on execution,  with the  remaining  $83,333
paid in 5 monthly  installments of $16,667. Mr. Rose is an owner of Hampton. The
Company paid Hampton $83,334 during 2001.

     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 was an owner of Redfire  during the
time of this agreement. The Company paid Redfire $69,000 and $50,000 during 2001
and 2000, respectively. This agreement was terminated on March 29, 2001.

     During  2000,  Mr.  Solomon and Brian  Kushner,  Former  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. During 2001, as part of the wind-down of
TRC's operations as discussed on page 7, these notes were canceled and all stock
and options of TRC owned by Messrs.  Solomon and  Kushner  were  remitted to the
Company as satisfaction of amounts owed.

     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 $490,313 and $460,191 during 2001 and 2000, 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 15, 2002.


                                           USOL HOLDINGS, INC.


                                           By: /s/ James W. Livingston
                                              ----------------------------------
                                              James W. Livingston, President CEO


                                POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS,  that each person whose  signature  appears
below  constitutes  and appoints James W.  Livingston and Shane A. Menking,  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.

<TABLE>
<CAPTION>



                                         Signature                            Title                Date
                          -------------------------------------    -----------------------    --------------

<S>                       <C>                                      <C>                        <C>
                          /s/ James W. Livingston..............    President, Chief           April 15, 2002
                          -------------------------------------    Executive Officer,
                          James W. Livingston                      and Director

                          /s/ Shane A. Menking.................    Chief Financial Officer    April 15, 2002
                          -------------------------------------    and Secretary
                          Shane A. Menking

                          /s/ Robert G. Solomon................    Chairman of the Board      April 15, 2002
                          -------------------------------------
                          Robert G. Solomon

                          /s/ Thomas E. McChesney..............    Director                   April 15, 2002
                          -------------------------------------
                          Thomas E. McChesney

                          /s/ David B. Agnew...................    Director                   April 15, 2002
                          -------------------------------------
                          David B. Agnew

                          /s/ Robert D. Feller.................    Director                   April 15, 2002
                          -------------------------------------
                          Robert D. Feller

                          /s/ Roy Rose.........................    Director                   April 15, 2002
                          -------------------------------------
                          Roy Rose

                          /s/ Ronald L. Piasecki...............    Director                   April 15, 2002
                          -------------------------------------
                          Ronald L. Piasecki

</TABLE>

                                       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
               Reorganization dated as of July 21, 1999         Form 8-K dated July 21, 1999
               between FirstLink Communications, Inc. and       (File No. 01-14271)
               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. 01-14271)

                                       26
<PAGE>


                                                                              Incorporated by
Number                      Description                                         Reference to
-----------    -------------------------------------------      --------------------------------------------

10.2           Employment Agreement dated July 21, 1999         Exhibit 10.2 to the Current Report on
               between the Company and Donald Barlow            Form 10-KSB filed March 30, 2000
                                                                (File No. 01-14271)
10.3           Employment Agreement dated January 14, 2000      Exhibit 10.3 to the Current Report on
               between the Company and Seth Davis               Form 10-KSB filed March 30, 2000
                                                                (File No. 01-14271)
10.4           Credit Agreement dated December 30, 1999         Exhibit 10.4 to the Current Report on
               between the Company and BNP Paribas              Form 10-KSB filed March 30, 2000
                                                                (File No. 01-14271)
10.5           1997 Restated Combined Incentive Stock Option    Exhibit 99.1 to Form S-8 filed December 17,
               and Nonqualified Stock Option Plan               1999
10.6           1998-1999 Combined Incentive Stock Option and    Exhibit 99.2 to Form S-8 filed December 17,
               Nonqualified Stock Option Plan                   1999
10.7           1999 Incentive Plan                              Appendix E to the Company's Definitive Proxy
                                                                Statement filed on November 12, 1999
10.8           Amendment, Consent and Waiver dated June 2,      Exhibit 10.8 to the Current Report on
               2000 between the Company and the parties         Form 10-KSB filed April 17, 2001
               listed in the first paragraph of this exhibit    (File No. 01-14271)
10.9           Amendment, Consent and Waiver dated September    Exhibit 10.9 to the Current Report on
               8, 2000 between the Company and the parties      Form 10-KSB filed April 17, 2001
               listed in the first paragraph of this exhibit    (File No. 01-14271)
10.10          Third Amendment to Credit Agreement dated        Exhibit 10.10 to the Current Report
               March 6, 2001 between the Company and the        on Form 10-KSB filed April 17, 2001
               parties listed in the first paragraph of this    (File No. 01-14271)
               exhibit
10.11          Fourth Amendment to Credit Agreement dated       Filed herewith
               December 7, 2001 between the Company and the
               parties listed in the first paragraph of this
               exhibit
10.12          Executive Employment Agreement dated November    Filed herewith
               14, 2001 between the Company and James W.
               Livingston
10.13          Executive Employment Agreement dated November    Filed herewith
               15, 2001 between the Company and Shane Menking
10.14          Executive Employment Agreement dated November    Filed herewith
               15, 2001 between the Company and Seth Davis
10.15          Letter dated June 13, 2001 from the Company to   Filed herewith
               Robert G. Solomon amending Employment and
               Noncompetition Agreement dated July 21, 1999
               by and between the parties
10.16          Asset Purchase Agreement dated May 23, 2001      Filed herewith
               between the Company, Great West Services, Ltd.
               (a Colorado limited partnership d/b/a SIMCOM),
               USOL, Inc. (a Delaware corporation) and
               Simpson Housing Limited Partnership (a
               Colorado limited partnership)

                                       27

<PAGE>

                                                                              Incorporated by
Number                      Description                                         Reference to
-----------    -------------------------------------------      --------------------------------------------

10.17          Purchase Agreement dated August 31, 2001, by     Filed herewith
               and among Grande Communications, Inc. (a
               Delaware corporation) and USOL, Inc. (a
               Delaware corporation) joined by U.S.-Austin
               Cable Associated I, Ltd.
23.1           Consent of Arthur Andersen LLP                   Filed herewith
24.1           Power of Attorney                                See page 25
99             Acknowledgment by the Company of receipt of      Filed herewith
               certain Arthur Andersen LLP representations

</TABLE>


                                       28


<PAGE>



                          INDEX TO FINANCIAL STATEMENTS


                                                                            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


                                      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, 2001, and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows  for the years  ended  December  31,  2001 and  2000.  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, 2001, and the results of their  operations
and  their  cash  flows for the  years  ended  December  31,  2001 and 2000,  in
conformity with accounting principles generally accepted in the United States.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated  financial  statements,  the Company has suffered  recurring losses
from  operations  and net losses since  inception.  In addition,  the Company is
dependent on its ability to borrow under its senior credit facility. The Company
is not currently in compliance with its senior credit  facility,  and management
is projecting that the Company will not meet certain  covenants  included in the
senior credit  facility  during 2002. As such,  the holder of the facility could
call the amount outstanding under the facility or prevent additional borrowings.
These matters raise substantial doubt about the Company's ability to continue as
a going  concern.  Management's  plans  in  regard  to  these  matters  are also
described in Note 2. The  consolidated  financial  statements do not include any
adjustments that might result from the outcome of this uncertainty.


//s// Arthur Andersen LLP

Austin, Texas
March 15, 2002


                                      F-2


<PAGE>


<TABLE>
<CAPTION>


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

                  CONSOLIDATED BALANCE SHEET--DECEMBER 31, 2001
                  ---------------------------------------------

                                         ASSETS

<S>                                                                                       <C>
CURRENT ASSETS:
   Cash and cash equivalents                                                              $   2,020,764
   Accounts receivable, net                                                                   1,144,053
   Other current assets                                                                         494,625
   Assets held for sale                                                                       8,573,955
                                                                                          -------------
                         Total current assets                                                12,233,397

PROPERTY AND EQUIPMENT, net                                                                  25,017,318

GOODWILL AND OTHER INTANGIBLE ASSETS, net                                                    17,960,756

DEFERRED LOAN COSTS, net                                                                      1,675,183

OTHER ASSETS                                                                                    492,437
                                                                                          -------------
                         Total assets                                                     $  57,379,091
                                                                                          =============


                          LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
   Accounts payable                                                                       $     551,373
   Accrued liabilities                                                                        3,733,150
   Preferred stock dividends payable                                                          1,099,980
   Deferred revenue                                                                             706,227
   Current portion of capital lease obligations                                                 620,486
   Senior credit facility                                                                    15,696,329
                                                                                          -------------
                         Total current liabilities                                           22,407,545
                                                                                          -------------

CAPITAL LEASE OBLIGATIONS, less current portion                                                 573,689
                                                                                          -------------

OTHER LONG-TERM LIABILITIES                                                                      39,353
                                                                                          -------------

COMMITMENTS AND CONTINGENCIES (Note 12)

MINORITY INTEREST                                                                                43,246
                                                                                          -------------

STOCKHOLDERS' EQUITY:
   Convertible preferred stock, no par value, 5,000,000 shares authorized-
     Series A, 1,306,400 shares issued and outstanding; liquidation preference
       of $32,660,000                                                                        16,702,557
     Series B, 155,000 shares issued and outstanding; liquidation preference of
       $3,875,000                                                                             1,981,703
   Common stock, no par value, 50,000,000 shares authorized, 19,292,357 shares
     issued and outstanding                                                                  52,652,715
   Deferred compensation                                                                        (48,659)
   Accumulated deficit                                                                      (36,973,058)
                                                                                          -------------
                         Total stockholders' equity                                          34,315,258
                                                                                          -------------
                         Total liabilities and stockholders' equity                       $  57,379,091
                                                                                          =============
</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


                                                                                Year Ended December 31,
                                                                          -------------------------------
                                                                                 2001            2000
                                                                          --------------   --------------
<S>                                                                       <C>              <C>
REVENUES                                                                  $   14,529,936   $   10,237,683
                                                                          --------------   --------------

OPERATING EXPENSES:
   Operating                                                                   8,551,892        8,107,281
   Selling, general and administrative                                        10,688,521       10,898,757
   Depreciation and amortization                                               6,366,764        6,302,874
   Stock compensation expense                                                    209,994          624,523
   Write down of long-term assets                                                     --        1,870,551
   Impairment of TRC assets                                                           --        3,785,789
   Write down on assets held for sale                                          2,952,971               --
                                                                          --------------   --------------

                         Total operating expenses                             28,770,142       31,589,775
                                                                          --------------   --------------

LOSS FROM OPERATIONS                                                         (14,240,206)     (21,352,092)

INTEREST EXPENSE, net                                                         (2,198,359)      (1,075,961)

GAIN ON CONTRACT TERMINATION                                                   5,867,509               --

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

LOSS BEFORE MINORITY INTEREST                                                (10,571,056)     (22,517,336)
                                                                          --------------    -------------

MINORITY INTEREST IN LOSS (INCOME) OF A SUBSIDIARY                                40,929          (56,447)
                                                                          --------------    -------------

                         Net loss                                         $  (10,530,127)  $  (22,573,783)
                                                                          ==============   ==============

PREFERRED STOCK DIVIDENDS                                                     (4,415,940)      (4,440,000)

DISCOUNT ON RESTRUCTURING OF CONVERTIBLE PREFERRED STOCK (Notes 3 and
  9)                                                                          11,648,928               --
                                                                          --------------   --------------

LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS                                  $   (3,297,139)  $  (27,013,783)
                                                                          ==============   ==============

BASIC AND DILUTED LOSS PER COMMON SHARE                                   $        (0.32)  $        (3.50)
                                                                          ==============   ==============

BASIC AND DILUTED WEIGHTED--AVERAGE COMMON STOCK OUTSTANDING                  10,446,204        7,715,490
                                                                          ==============   ==============

</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
                                                                 -----------------------------------------------

                                                       Convertible           Convertible
                                                        Preferred             Preferred
                                  Common Stock         Stock Shares         Stock Amounts                                 Total
                            ----------------------  ------------------ ----------------------   Deferred    Acumulated Stockholders'
                               Shares     Amount    Series A  Series B  Series A    Series B   Compensation   Deficit      Equity
                            ---------- -----------  --------- -------- ----------- ----------- ------------ ---------- -------------
<S>                          <C>       <C>          <C>        <C>     <C>         <C>          <C>        <C>          <C>
BALANCES, December 31, 1999  6,892,668 $36,735,911  1,325,000  155,000 $30,675,361 $ 3,588,439  $(344,201) $(6,662,136) $63,993,374

 Preferred stock dividends     688,813   5,303,333         --       --          --          --         --           --    5,303,333
   paid in common stock
 Exercise of warrants          231,622     708,201         --       --          --          --         --           --      708,201
 Exercise of options           233,000     391,723         --       --          --          --         --           --      391,723
 Stock grants                    7,500      57,225         --       --          --          --         --           --       57,225
 Compensation expense on            --     135,000         --       --          --          --         --           --      135,000
   stock options
 Deferred compensation on           --     540,000         --       --          --          --   (540,000)          --           --
   stock options
 Amortization of deferred           --          --         --       --          --          --    432,298           --      432,298
   compensation
 Conversion of preferred        25,000      46,302     (2,000)      --     (46,302)         --         --           --           --
   stock to common stock
 Preferred stock dividends          --          --         --       --          --          --         --   (4,440,000)  (4,440,000)
 Net loss                           --          --         --       --          --          --         --  (22,573,783) (22,573,783)
                            ---------- -----------  --------- -------- ----------- ----------- ----------   ---------- -------------
BALANCES, December 31,       8,078,603  43,917,695  1,323,000  155,000  30,629,059   3,588,439   (451,903) (33,675,919)  44,007,371

 Preferred stock dividends   3,403,754   4,425,960         --       --          --          --         --           --    4,425,960
   paid in common stock
 Issuance of common stock      600,000     618,000         --       --          --          --         --           --      618,000
   in acquisition of
   SIMCOM
 Expiration of options on           --    (195,000)        --       --          --          --    195,000           --           --
   termination of an
   employee
 Amortization of deferred           --          --         --       --          --          --    208,244           --      208,244
   compensation
 Stock grant                     2,500       1,750         --       --          --          --         --           --        1,750
 Conversion of preferred       207,500     384,310    (16,600)      --    (384,310)         --         --           --           --
   stock to common stock
 Preferred stock dividends          --          --         --       --          --          --         --   (4,415,940)  (4,415,940)
 Sale of common stock        2,000,000   1,400,000         --       --          --          --         --           --    1,400,000
 Stock subscription                 --  (1,400,000)        --       --          --          --         --           --   (1,400,000)
   receivable
 Restructuring of            5,000,000   3,500,000         --       -- (13,542,192) (1,606,736)        --   11,648,928           --
   convertible preferred
   stock
 Net loss                           --          --         --       --          --          --         --  (10,530,127) (10,530,127)
                            ---------- -----------  --------- -------- ----------- ----------- ----------   ---------- -------------

BALANCES, December 31,      19,292,357 $52,652,715  1,306,400  155,000 $16,702,557 $ 1,981,703 $  (48,659)$(36,973,058) $34,315,258
                            ========== ===========  ========= ======== =========== =========== ========== ============  ===========
</TABLE>


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


                                      F-5



<PAGE>

<TABLE>
<CAPTION>

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

                                              CONSOLIDATED STATEMENTS OF CASH FLOWS
                                              -------------------------------------

                                                                                      Year Ended December 31,
                                                                                --------------------------------
                                                                                       2001            2000
                                                                                ---------------  ---------------
<S>                                                                             <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                     $  (10,530,127)  $  (22,573,783)
   Adjustments to reconcile net loss to net cash used in operating
     activities-
     Depreciation and amortization                                                   6,366,764        6,302,874
     Minority interest                                                                 (40,929)          56,447
     Amortization of deferred loan costs                                               455,520          325,098
     Stock compensation expense                                                        209,994          624,523
     Forgiveness of employee receivable                                                169,011               --
     Write down of long-term assets                                                         --        1,870,551
     Write down on assets held for sale                                              2,952,971               --
     Impairment of TRC assets                                                               --        3,785,789
     Gain on contract termination                                                   (5,867,509)              --
     Loss on disposal of assets                                                             --           89,283
     Changes in operating assets and liabilities-
       Accounts receivable, net                                                         91,570         (701,992)
       Other current assets                                                           (179,796)        (611,756)
       Other assets                                                                    (47,726)              --
       Accounts payable and accrued expenses                                        (1,208,958)         605,020
       Other liabilities and other                                                     (57,646)         296,447
                                                                                --------------   --------------
                        Net cash used in operating activities                       (7,686,861)      (9,931,499)
                                                                                --------------   --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property, equipment and other                                       (7,532,562)      (8,415,938)
   Cash paid for acquisition                                                        (4,000,000)              --
   Proceeds from sale of assets                                                      4,803,671          194,998
   Proceeds from contract termination                                                6,053,778               --
   Loan to related party                                                                    --          (66,269)
                                                                                --------------   --------------
                        Net cash used in investing activities                         (675,113)      (8,287,209)
                                                                                --------------   --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Principal payments on capital lease obligations                                    (560,411)        (597,017)
   Borrowings under senior credit facility, net                                     11,196,329        4,500,000
   Proceeds from TRC note payable                                                           --        5,000,000
   Repayment of TRC note payable                                                    (5,000,000)              --
   Payment of deferred financing costs                                                 (58,172)        (616,718)
   Proceeds from exercise of options/warrants                                               --        1,099,924
                                                                                --------------   --------------
                        Net cash provided by financing activities                    5,577,746        9,386,189
                                                                                --------------   --------------

DECREASE IN CASH AND CASH EQUIVALENTS                                               (2,784,228)      (8,832,519)

CASH AND CASH EQUIVALENTS, beginning of year                                         4,804,992       13,637,511
                                                                                --------------   --------------

CASH AND CASH EQUIVALENTS, end of year                                          $    2,020,764   $    4,804,992
                                                                                ==============   ==============

SUPPLEMENTAL CASH FLOW INFORMATION:
   Cash paid for interest                                                       $    1,939,155   $      768,249
   Deferred compensation                                                              (195,000)         540,000
  Issuance of common stock for purchase of assets                                      618,000        5,303,333
   Dividends on preferred stock                                                      4,415,940        4,440,000
   Preferred stock dividends paid in common stock                                   (4,425,960)      (5,303,333)
   Conversion of preferred stock to common stock                                       384,310           46,302
   Sale of common stock for notes                                                    1,400,000               --
   Restructuring of convertible preferred stock                                    (15,148,928)              --
   Issuance of common stock in connection with restructuring of convertible
    preferred stock                                                                  3,500,000               --
   Discount on restructuring of convertible preferred stock                         11,648,928               --

</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, 2001
                                -----------------


1.   BUSINESS
     --------

     USOL Holdings, Inc. ("Holdings"),  an Oregon corporation,  its wholly owned
subsidiary USOL, Inc. and USOL, Inc.'s 50% owned  subsidiary,  U.S. Austin Cable
Association  I, Ltd.  ("USAC")  (collectively  referred  to  herein as  "USOL"),
provide  integrated   telecommunications  services  including  local  telephone,
long-distance  telephone,  enhanced  calling  features and cable  television  to
residents of  multi-family  apartment  complexes  and  condominiums  ("MDUs") in
Texas, Virginia,  Colorado and the Pacific Northwest.  The services are provided
to the tenants in accordance  with  long-term  right-of-entry  agreements  ("ROE
Agreements")  between USOL or its  partners and the property  owners under which
the  property  owners  receive  royalties  from the  telecommunication  revenues
generated from their  properties.  Tenants have the option to use either USOL or
the local telephone and long-distance  carriers for telephone services.  Tenants
desiring to subscribe to cable  television  must utilize USOL.  USOL also owns a
100% interest in TheResidentClub, Inc. ("TRC"). See Note 5 regarding the winding
down of TRC's operations.  Holdings,  USOL and TRC are collectively  referred to
herein as the Company.

2.   GOING CONCERN AND LIQUIDITY
     ---------------------------

     The Company has suffered  recurring  losses from  operations and net losses
since inception,  and it has not generated cash from operations since inception.
The Company's  operations  and its purchases of property and equipment to expand
its  subscriber  base have been funded  primarily from the Company's last equity
financing,  which  occurred  in July  1999.  During  the last half of 2000,  the
Company began to borrow against its senior credit facility (the "Facility"), and
it has continued to borrow under the Facility  through  December 31, 2001. Under
the  Facility,  the Company  has the  ability to borrow up to $25 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 number of the  Company's  cable and  telephone
subscribers,  with a  total  available  borrowing  base of  approximately  $17.5
million as of December 31, 2001, of which the Company has borrowed approximately
$15.7 million. The Company is not currently in compliance with certain covenants
contained in the  Facility and there can be no assurance  that the holder of the
Facility will not call the amount outstanding or prevent additional borrowings.

     In order to fund  expected  future cash  resource  needs,  the Company must
continue to increase its subscriber base and revenues. Accordingly, the Facility
contains certain  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.  In  addition  to current  covenant
violations,  based on current  projections,  the Company is not expected to meet
its minimum  revenue and  operating  cash flow  covenants  during 2002.  If such
quarterly  minimums are not met, the Company would  continue to be in default of
its covenants  under the Facility and the holder of the Facility  could call the
amount  outstanding  under  the  Facility  or  prevent  additional   borrowings.
Management  is  currently  working  with the holder of the Facility to amend the
covenants  to resolve both  existing  and  projected  covenant  violations.  The
process has been delayed as a result of the Company's current negotiations for a
possible  acquisition  of a company that would also  require  bank  approval and
amendment.  The Company  expects to obtain a waiver and amend the  covenants  as
part of the required  approval of this transaction;  however,  if the Company is
not  successful in  completing  this  acquisition,  then  management  expects to
separately  proceed with  obtaining  the  necessary  waiver and amendment to the
Facility.  There is no  assurance  that  management  will be able to obtain  the
waiver and  amendment.  Management  is also  continuing  to market the Company's
services in order to attain the prescribed  growth in subscribers,  revenues and
cash flow, and they are pursuing acquisitions.  There is no assurance,  however,
that the Company can  adequately  market its  services or complete  acquisitions
necessary to meet the existing or revised covenants.  In addition, the Company's
ability to complete acquisitions is dependent on its ability to borrow under the
Facility. As a result of existing covenant violations and the projected covenant
violations during 2002, the amount outstanding under the Facility as of December
31,  2001  has  been  classified  as a  current  liability  in the  accompanying
consolidated balance sheet.

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

                                      F-7

<PAGE>


3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     ------------------------------------------

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

     The accompanying  consolidated financial statements include the accounts of
Holdings  and all  majority-owned  subsidiaries.  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.

Assets Held for Sale
--------------------

     As  discussed in Note 6, the Company  entered into an agreement  (the "Sale
Agreement")  with Grande  Communications,  Inc.  ("Grande") to sell property and
equipment  and ROE  Agreements  for MDU  properties  located  in Austin  and San
Antonio,  Texas to Grande for  approximately  $13.4  million  in cash.  The cash
proceeds  will be  received  as part of  several  closings,  the  first of which
occurred in December  2001.  Another  closing  occurred in January  2002 and the
remaining  closings will occur no later than  September 30, 2002.  Upon entering
into the Sale Agreement,  the Company reclassified amounts associated with these
assets,  including related goodwill and other intangible  assets, to assets held
for sale. The Company also reviewed the  recoverability of the net book value of
these  assets  based on the cash  proceeds to be received  according to the Sale
Agreement. Based on this analysis and accruing for expenses of $808,000 that the
Company will incur and are necessary to effect this sale, the Company determined
the net book  value of these  assets was in excess of the sales  price,  and the
Company  recorded a write down of  approximately  $2.9  million.  The  following
provides a summary of assets held for sale:

<TABLE>
<CAPTION>



                                Net Book Value of                                                 Assets Held for
                                 Assets Held for                                                  Sale and Accrued
                                   Sale Before                              Assets Sold and      Liabilities as of
                                    Write Down           Write Down         Liabilities Paid     December 31, 2001
                                -----------------        -------------      ----------------     -----------------
<S>                                <C>                   <C>                  <C>                    <C>
Assets--
  Property and equipment           $  4,586,126          $ (1,103,240)        $ (1,355,800)          $ 2,127,086
  Goodwill and other
   intangible assets                 10,936,471            (1,041,731)          (3,447,871)            6,446,869
                                   ------------          ------------         ------------           -----------
                                   $ 15,522,597            (2,144,971)        $ (4,803,671)          $ 8,573,955
                                   ============                               ============           ===========

  Accrued liabilities              $         --              (808,000)        $    140,667           $  (667,333)
                                   ============          ------------         ============           ===========
  Write down                                             $ (2,952,971)
                                                         ============

</TABLE>


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 years  ended  December  31,  2001 and  2000,  was
approximately $3.1 million and $2.5 million, respectively.

                                      F-8

<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.

Goodwill and Other Intangible Assets
------------------------------------

     The Company has recorded goodwill for the excess of purchase price paid for
acquired  businesses over the fair market value of the net assets acquired,  and
it has also recorded specific  intangibles in connection with its acquisition of
certain  businesses  that  were  readily  apparent  and for  which  values  were
reasonably assignable.  Goodwill and other intangible assets are being amortized
on the  straight-line  method  over 10 years.  Amortization  expense  related to
goodwill  and other  intangible  assets of  approximately  $3.2 million and $3.8
million is reflected as a component of  depreciation  and  amortization  for the
years ended December 31, 2001 and 2000, respectively.

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

     The Company  follows the  provisions  of Statement of Financial  Accounting
Standards  ("SFAS")  No.  144,  "Accounting  for the  Impairment  or Disposal of
Long-Lived  Assets."  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  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, 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 (see Note 5).

     As a result of the write down recorded in  connection  with assets held for
sale and  sustained  recurring  operating  losses,  the Company has performed an
evaluation of the  recoverability of the long-term assets of USOL. The Company's
evaluation  of  recoverability  is  based  on  certain   assumptions   regarding
subscriber penetration in existing properties. Management believes that based on
existing  plans,  historical  trends and 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. In addition,  management's estimate of future undiscounted cash flows
assumes that the Company will continue as a going concern. Should the Company be
unable to continue,  management's cash flow estimates would be significantly and
negatively impacted. See Note 2 and "Recent Accounting Pronouncements" below.

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

     Deferred loan costs  consist of  approximately  $2.1 million  incurred with
obtaining the Facility and $244,000 incurred with obtaining  various  amendments
to the  Facility  (see  Note 8).  These  costs  are  being  amortized  using the
straight-line  method, which approximates the effective interest method over the
term of the related debt.  Amortization expense for the years ended December 31,
2001 and 2000, was  approximately  $456,000 and $325,000,  respectively,  and is
included as a component  of interest  expense in the  accompanying  consolidated
statements of operations.


                                      F-9

<PAGE>

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 years ended December 31, 2001 or 2000.

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
years ended December 31, 2001 and 2000, no customer represented more than 10% of
the Company's consolidated revenues.

Financial Instruments
---------------------

     The carrying amounts of cash equivalents,  accounts receivable and accounts
payable  approximate  fair  value  because  of the  short-term  nature  of these
instruments.  The fair value of the Company's  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.

     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 18,267,500, 2,048,502 and 2,987,145, respectively, during 2001
and 18,475,000, 2,365,000 and 3,114,645, respectively, during 2000 were excluded
from the diluted net loss per share  calculation as their effect would have been
antidilutive.

     On November 20, 2001, the Board of Directors  approved the restructuring of
Series A and Series B convertible  preferred stock. The  restructuring  included
amending  certain  dividend  provisions of the Series A and Series B convertible
preferred  stock and the issuance of  5,000,000  shares of common  stock.  After
receiving majority  shareholder approval on December 27, 2001, the amendment and
exchanges  of shares was declared  effective  on December 31, 2001.  The amended
convertible  preferred  stock  provisions  contain terms that are  substantially
consistent  with  prior  preferred  stock  provisions  with the  exception  of a
revision to the prior  dividend rate


                                      F-10

<PAGE>


of 12.0%,  which is now revised so that: no dividends are paid through  December
31, 2003;  beginning on January 1, 2004 through December 31, 2004 dividends will
be paid at a rate of 2.0%;  beginning  on January 1, 2005  through  December 31,
2005 dividends will be paid at a rate of 4.0%; and, beginning on January 1, 2006
and beyond the stated dividend rate will be 6.0% (see note 9).

     The  Company  has the option of paying  dividends  in cash or shares of its
common stock,  however,  the Facility  prohibits the paying of such dividends in
cash.  As of December 31, 2001,  the Company had recorded  dividends  payable of
$1,099,980 representing dividends from October 1, 2001 through December 31, 2001
related  to the  preferred  stock  prior to the  change  in the  dividend  rate.
Subsequent to yearend,  the Company paid the dividends by issuing 913,903 shares
of its common  stock.  Fair  market  values for newly  issued  common  stock and
amended  convertible  preferred  stock were  determined  using the average daily
closing  price of common  stock on the Nasdaq  exchange  for the  10-day  period
immediately   prior  to  the  announcement  of  this   restructuring  and  using
comparative fair values of similar  convertible  preferred  securities of public
companies.  The fair  values of the amended and newly  issued  common  stock and
amended  convertible  preferred  stock  was  determined  to  be  $22.6  million,
resulting  in a discount of  approximately  $11.6  million  from the  previously
recorded  preferred stock being amended.  The resulting  $11.6 million  discount
resulted in a reduction of the loss attributable to common  stockholders,  and a
corresponding  reduction  of  $1.11  per  basic  and  diluted  loss  per  share.
Additional  supplementary  disclosure  of  basic  and  diluted  loss  per  share
information is shown below:

                                                        Year Ended December 31,
                                                        2001              2000
                                                        ----              ----

Net loss                                                $ (1.01)         $(2.93)
Preferred stock dividends                                 (0.42)          (0.57)
Discount on amendment to preferred stock and
   issuance of common stock                                1.11              --
                                                        -------          ------
Loss attributable to common stockholders                $ (0.32)         $(3.50)
                                                        =======          ======
Basic and diluted weighted average common stock
   outstanding                                       10,446,204       7,715,490
                                                     ==========       =========

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

     In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No.  141,  "Business  Combinations"  and  SFAS  No.  142,  "Goodwill  and  Other
Intangible  Assets."  SFAS  No.  141  requires  that all  business  combinations
subsequent  to June 30,  2001 be  accounted  for  under the  purchase  method of
accounting.  The pooling-of-interests  method is no longer allowed. SFAS No. 142
addresses  the  accounting  and  reporting  for  acquired   goodwill  and  other
intangible assets,  and provides that goodwill should not be amortized.  Rather,
it must be tested for impairment  annually or more  frequently if  circumstances
indicate potential impairment. SFAS No. 142 was effective January 1, 2002 and it
requires the Company to complete a transitional  goodwill impairment test within
six months from the date of adoption. The adoption of SFAS No. 142 on January 1,
2002  resulted  in a write  down  of  goodwill  of  approximately  $3.0  million
(unaudited).  This write down of goodwill was recorded as a cumulative effect of
a change in accounting  principle  and will be reflected in the  Company's  2002
first quarter Form 10-QSB.

     In  August  2001,  the  FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment or Disposal of Long-Lived  Assets." SFAS No. 144 establishes a single
accounting  model,  based upon the  framework  established  in SFAS No. 121, for
long-lived  assets  to be  disposed  of by  sale.  SFAS  No.  144  broadens  the
presentation of discontinued  operations to include more disposal  transactions,
and also provides additional  implementation guidance for SFAS No. 121. SFAS No.
144 is effective for fiscal years beginning after December 15, 2001. The Company
adopted SFAS No. 144 in August 2001, and its adoption did not have a significant
impact upon the Company's financial position and results of operations.


                                      F-11
<PAGE>


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

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

    Accounts receivable consist of the following as of December 31, 2001:

Accounts receivable                                                  $1,574,407
   Less- Allowance for doubtful accounts                               (430,354)
                                                                    ------------
Accounts receivable, net                                            $ 1,144,053
                                                                    ============

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

<TABLE>
<CAPTION>

                                                                                            Year Ended December 31,
                                                                                        ----------------------------
                                                                                            2001              2000
                                                                                        -----------       ----------
<S>            <C>                                                                      <C>               <C>
               Balance, beginning of year                                               $   402,108       $  146,721
               Provision for bad debts                                                    1,076,865          878,196
               Deductions for uncollectible  receivables written off,
                  net of recoveries                                                      (1,048,619)        (622,809)
                                                                                        -----------       ----------
               Balance, end of year                                                     $   430,354       $  402,108
                                                                                        ===========       ==========
</TABLE>

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

    Property and equipment consists of the following as of December 31, 2001:

                                                       Estimated
                                                     Useful Lives
                                                       in Years
                                                     ------------

Cable and phone systems                                    10     $  17,011,777
Telephone switch equipment                                 10         5,818,440
Internet equipment                                         10           334,243
Furniture, fixtures and office equipment                 3-10         1,725,111
Purchased software                                          5           723,632
Leasehold improvements                                     10           215,289
Supply inventory                                          N/A           675,599
Construction in progress                                  N/A         3,673,066
                                                                  -------------
                                                                     30,177,157
Less- Accumulated depreciation                                       (5,159,839)
                                                                  -------------
Property and equipment, net                                       $  25,017,318
                                                                  =============

     Equipment  associated  with  capital  leases  with  a  net  book  value  of
approximately  $1,961,000  are included in property and equipment as of December
31, 2001.

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

     Goodwill and other intangibles consists of the following as of December 31,
2001:

Goodwill and other intangibles                                     $22,494,933
   Less- Accumulated amortization                                   (4,534,177)
                                                                   -----------

Goodwill and other intangibles, net                                $17,960,756
                                                                   ===========

                                      F-12

<PAGE>


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

     Accrued liabilities consist of the following as of December 31, 2001:

Accrued sales and telecommunication taxes                          $  1,441,602
Accrued wages                                                           302,196
Accrued professional fees                                               230,730
Accrued royalties                                                       192,774
Other                                                                 1,565,848
                                                                   ------------
Accrued liabilities                                                $  3,733,150
                                                                   ============

5.   WINDING DOWN OF TRC
     -------------------

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

     Although the Settlement Agreement was entered into on June 6, 2001, closing
of  the   settlement   was  delayed  until  July  13,  2001,  due  to  continued
negotiations, at which time TRC received a payment of approximately $6.1 million
from GMACM.  This  amount  differed  from that  provided  for in the  Settlement
Agreement  due to offsets of amounts  paid by GMACM to release  liens on certain
TRC assets and a $300,000  adjustment to reflect amounts  previously paid to TRC
by GMACM.  Of this  amount,  approximately  $5.6  million  was used to repay the
principal and interest on a loan made to TRC in August 2000 by Newman  Financial
Services,  Inc.  ("Newman"),  an  entity  related  to GMAC  Commercial  Mortgage
Corporation.  In  connection  with the closing of the  settlement  in July 2001,
TRC's operations have ceased,  and TRC recorded a net gain of approximately $5.9
million during the year ended December 31, 2001.

6.   SALE OF ASSETS TO GRANDE
     ------------------------

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

     Concurrent with the signing of the Sale Agreement, the Company also entered
into a 10-year agreement (the "Services Agreement") to become Grande's exclusive
sales  and  marketing  agent  with  respect  to the sale of  Grande's  Broadband
Business to MDU owners in Austin,  San Antonio,  and certain  surrounding  areas
(collectively  referred to herein as "the  Austin/San  Antonio  Corridor").  The
Services  Agreement  became  effective  upon  the  first  closing  of  the  Sale
Agreement. Under the terms of the Services Agreement, the Company is responsible
for obtaining ROE Agreements for MDUs located in the Austin/San Antonio Corridor
on behalf of Grande.  The Company is also  responsible  for  marketing  Grande's
Broadband  Business to the residents of all MDUs Grande serves in the Austin/San
Antonio Corridor.  The Company receives a share of Grande's revenues earned from
providing  Grande's


                                      F-13


<PAGE>


Broadband  Business to the MDUs served,  including the properties sold to Grande
as part of the Sale Agreement. The Company is required to maintain an increasing
minimum  number of units for which it has obtained ROE  Agreements and a minimum
number of subscribers to Grande's Broadband Service on the MDUs served.  Failure
to meet these minimum requirements at the end of any calendar quarter will cause
the amount of the Company's  revenue share to be reduced,  and failure for three
consecutive  calendar  quarters  will give  Grande  the right to  terminate  the
Services  Agreement.  If Grande is not in  compliance  with its minimum  service
level standards during a quarter in which the Company fails to meet its targets,
the reduction in revenue share and ability to terminate do not apply.

     See Note 3 for further discussion regarding assets held for sale.

7.   SIMCOM ACQUISITION
     ------------------

     In May 2001,  the  Company  purchased  substantially  all of the  long-term
assets of Great West Services,  Ltd., d/b/a SIMCOM  ("SIMCOM"),  a subsidiary of
Simpson  Housing  Limited  Partnership,  which  provided  voice,  video and data
services to MDUs in Colorado,  Oregon and Texas, for an aggregate purchase price
of  approximately  $4.6  million,  consisting  of $4 million in cash and 600,000
shares of the  Company's  common stock valued at $618,000.  The acquired  assets
included exclusive ROE Agreements, as well as other telecommunications  property
and equipment.  The purchase price was financed  through a draw on the Facility.
The  acquisition  was accounted for using the purchase method of accounting and,
accordingly,  the operating  results of the acquired business have been included
in the accompanying  unaudited condensed consolidated financial statements since
the date of acquisition.  The Company allocated the entire purchase price to the
telecommunications   property  and  equipment  that  was  acquired  based  on  a
preliminary estimate of fair value which is subject to final adjustment.

     The following summarized unaudited pro forma financial  information assumes
that the SIMCOM  acquisition  had  occurred  on January 1, 2000.  The  following
unaudited pro forma  information  is not  necessarily  indicative of the results
that would have occurred had the acquisition  been completed on January 1, 2000,
nor is it indicative of future operating results:

                                                     Year Ended December 31,
                                                --------------------------------
                                                     2001              2000
                                                -------------      -------------

Revenues..................................      $ 15,503,025       $ 12,105,965
 Net loss..................................      (10,706,575)       (23,140,801)
Loss attributable to common
  shareholders per share--
  basic and diluted.......................      $      (0.32)      $      (3.32)

8.   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 weighted
average  interest  rate  during  2001 and 2000 was 8.5% and 8.8%,  respectively.
Including  debt issue  costs,  the  Facility  has a weighted  average  effective
interest rate during 2001 and 2000 of 14.1% and 9.5%, respectively.

     The amount  outstanding under the Facility as of December 31, 2001 has been
classified as a current liability as the Company is subject to certain quarterly
minimum  financial  covenants,  including  revenue,  cash flow and number of MDU
units to which the Company has available service, among other restrictions.  The
Company is not in  compliance  with  certain  covenants  in the  Facility  as of
December 31, 2001 and as of March 15,  2002,  and the holder of the Facility has
not  amended  those  covenants  or  provided  a  waiver  regarding  the  current
violations  or the  anticipated  noncompliance.  See further  discussion of this
matter in Note 2.

     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 years ended
December 31, 2001 and 2000,  was  approximately  $1.6 million and $1.3  million,
respectively.  The Facility is collateralized by substantially all assets of the
Company.

                                      F-14

<PAGE>


9.   STOCKHOLDERS' EQUITY
     --------------------

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

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

     The  Company  has the option of paying  dividends  in cash or shares of its
common stock,  however,  the Facility  prohibits the paying of such dividends in
cash.  As of December 31, 2001,  the Company had recorded  dividends  payable of
$1,099,980 representing dividends from October 1, 2001 through December 31, 2001
related  to the  preferred  stock  prior to the  change  in the  dividend  rate.
Subsequent to yearend,  the Company paid the dividends by issuing 913,903 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.

     The preferred  stock has a stated value of $25 per share,  and 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.

     As part of the motion approved on December 27, 2001 as discussed above, the
holders of the preferred stock  eliminated  their option to 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  until
January 1, 2005.

     As a result of the restructuring  referred to above, the Company determined
the fair market  value for newly  issued  common  stock and amended  convertible
preferred  stock based on the average daily closing price of common stock on the
Nasdaq exchange for the 10-day period  immediately  prior to the announcement of
this  restructuring  and using  comparative  fair values of similar  convertible
preferred  securities  of public  companies.  The fair value of the newly issued
common stock and amended convertible  preferred stock was determined to be $22.6
million,  resulting  in a  discount  of  approximately  $11.6  million  from the
previously  recorded preferred stock being amended.  The resulting $11.6 million
discount   resulted  in  a  reduction  of  the  loss   attributable   to  common
stockholders. Based upon the fair values recorded, the newly amended convertible
preferred  stock will yield an  effective  dividend  rate of 9% on the  carrying
balance of convertible preferred stock.

                                      F-15

<PAGE>


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

     The Company has four stock option plans, including a plan adopted by TRC in
2000  for TRC  employees.  The  stock  option  plans  provide  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 are not intended 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 stock options plans are  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 stock  option  plans is 10 years.  The Company  has  reserved
3,556,335  shares  for  issuance  under the stock  option  plans.  The number of
options  outstanding  as of December 31, 2001 under the stock  options plans was
2,019,502  shares. As part of winding down TRC's operations during 2001, all TRC
options held by employees were forfeited. There are no options outstanding as of
December 31, 2001 under this plan.

     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:

                                                       Year Ended December 31,
                                                     ---------------------------
                                                         2001           2000
                                                     ------------  -------------
       Net loss to common shareholders--
          As reported                                $(3,297,139)  $(27,013,783)
          Pro forma                                   (3,815,341)   (28,000,978)

       Net loss per common share-
          As reported                                   $(0.32)        $(3.50)
          Pro forma                                      (0.37)         (3.63)

     The fair  value of each  option  grant  under  the stock  option  plans 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,
                                                ---------------------------
                                                    2001            2000
                                                ----------      -----------

Dividend yield                                         --%              --%
Expected volatility                                 95.00%           95.00%
Risk-free interest rate                               5.5%             6.5%
Expected life                                   6.75 years       6.75 years


                                      F-16


<PAGE>


     A summary of the combined  status of the stock option plans  (excluding the
TRC stock option plan) 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>
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                                                --     (223,000)        1.62     (223,000)        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
   Granted                                            (650,000)     650,000         0.78           --          --
   Options becoming exercisable                             --           --          --       837,622         2.31
   Forfeited                                           956,500     (956,500)        2.66     (783,167)        2.08
                                                   -----------   ----------                 ----------

Outstanding, December 31, 2001                       1,313,833    2,019,502         2.02     1,212,372        2.14
                                                   ===========   ==========                 -=========

Weighted-average fair value of options granted
  during--
    2000                                                                          $ 5.13
    2001                                                                            0.64

</TABLE>

<TABLE>
<CAPTION>


                        Options Outstanding                               Options Exercisable
  --------------------------------------------------------------`      -------------------------
                                      Weighted-
                                       Average
      Range of                        Remaining        Weighted-                       Weighted-
      Exercise                       Contractual        Average                         Average
       Prices            Number          Life            Price           Number          Price
  --------------       ---------     -----------       ---------         ------        ---------
<S>                    <C>            <C>                <C>            <C>              <C>
  $0.60 to $3.50       1,784,335      8.39 years         $1.95          1,086,207        $1.77
  $4.50 to $5.50         166,667      7.75 years         $4.97            103,333        $4.69
  $7.63 to $9.00          68,500      8.83 years         $7.63             22,832        $7.63

</TABLE>

     During 2001,  as part of the wind down of TRC  operations,  all  previously
outstanding  options  under the TRC stock  option plan were  canceled and are no
longer outstanding.

     During  July 2000,  two  members of  management  of the  Company  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 ("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.  During  2001,  as part of the
wind-down  of TRC's  operations  these  notes  were  canceled  and all stock and
options of TRC were  remitted by the two members of management to the Company in
satisfaction of amounts owed.

                                      F-17

<PAGE>


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 is presented below:

                                                  Number of
                                                    Shares
                                                  Underlying        Range of
                                                   Warrants      Exercise Prices
                                                 ------------   ----------------
Expiring:
   2002                                              851,145     $0.75 - $5.50
   2003                                            1,552,000          $5.50
   2004                                              584,000     $2.00 - $6.00
                                                  ----------

Outstanding, December 31, 2001                     2,987,145
                                                  ==========


     Warrants  outstanding  and  exercisable  as of December  31,  2001,  have a
weighted-average exercise price of $4.92.

     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.

     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% per annum and are due July 21,  2002.  The $325,000
difference between the fair market value of the stock and the purchase price was
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.

     On November 13, 2001,  the Board of Directors  authorized the issuance of 2
million  additional shares of common stock to the same parties above in exchange
for notes  receivable  totaling  $1,400,000.  The shares were sold for $0.70 per
share,  which was in excess of the then current  stock value of $0.60 per share.
The notes accrue interest at 5% per annum and are due November 13, 2006.

10.  INCOME TAXES
     ------------

     For the years ended  December 31, 2001 and 2000,  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 as of
December 31, 2001:

Net operating loss carryforwards                       $  9,311,158
Impairment of TRC assets                                  1,287,168
Deferred revenue                                            240,117
Bad debt reserve                                            159,939
Other                                                       281,011
                                                       ------------

Total gross deferred tax assets                          11,279,393

Less- Valuation allowance                               (11,279,393)
                                                       ------------

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


                                      F-18


<PAGE>

     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.  As of
December 31, 2001,  the Company had net operating loss  carryforwards  which are
available to offset  future  financial  reporting  and taxable  income  totaling
approximately $27.4 million and expire in 2011 through 2022.

     A change in control,  as defined by federal income tax  regulations,  could
significantly  limit the  Company's  ability to utilize its net  operating  loss
carryforwards.

11.  RELATED-PARTY TRANSACTIONS
     --------------------------

     During 2001, the Company entered into a six-month consulting agreement with
a company  owned by a director of the Company.  Pursuant to the  agreement,  the
Company is to pay the consulting company $150,000,  of which $66,667 was paid on
execution  of the  agreement,  with  the  remaining  $83,333  to be paid in five
monthly  installments  of  $16,667.  Total  expenses  incurred  during 2001 were
approximately  $38,000.  During  2000,  the  Company  entered  into  a  separate
consulting  agreement  with a company owned by the same director of the Company.
Total  expenses  incurred  during 2001 and 2000 were  approximately  $69,000 and
$50,000, respectively.

     The Company was charged for certain  administrative  and operating services
provided  by  GMACM  related  to the  business  of  TRC.  Such  charges  totaled
approximately  $0 and $320,000  for the years ended  December 31, 2001 and 2000,
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 $490,313 and $460,191 during the years ended December 31,
2001 and 2000, respectively, in connection with the Facility.

     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,  revenues  from these two
properties were approximately $22,000.

12.  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-
   2002                                             $   304,093
   2003                                                 225,566
   2004                                                 133,600
   2005                                                  72,000
   2006                                                  48,000
                                                    -----------
                                                    $   783,259

     Rental expense  incurred in connection with these leases was  approximately
$358,000  and  $371,000  for  the  years  ended  December  31,  2001  and  2000,
respectively.

                                      F-19

<PAGE>


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

     The Company  leases  certain  telephony  network  equipment  under  capital
leases.  As of December 31, 2001,  future  minimum lease  payments under capital
leases are as follows:

Year ending December 31-
   2002                                                     718,915
   2003                                                     603,556
                                                       ------------

                                                          1,322,471
Less- Amount representing interest                         (128,296)
                                                       ------------

Net minimum lease payments                                1,194,175
Less- Current portion of capital lease obligations         (620,486)
                                                       ------------

Capital lease obligations, less current portion        $    573,689
                                                       ============

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 $10,000 per month and have terms  ranging from one year to
10 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-
   2002                                                 $   509,820
   2003                                                     274,271
   2004                                                     150,217
   2005                                                     103,906
   2006                                                      91,759
   Thereafter                                               157,310
                                                        -----------
                                                        $ 1,287,283

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
approximately $500,000.

Key Suppliers
-------------

     USOL is materially dependent upon one vendor, WSNet, Inc. ("WSNet").  WSNet
currently  supplies CATV programming to  substantially  all properties with USOL
branded services.  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. As a
result,  if we were  required to replace  WSNet for any reason,  it is likely we
would not be able to offer our current  programming  packages to tenants or that
the cost of providing these packages would significantly increase.


                                      F-20

<PAGE>


13.  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 MDUs in Texas,
Virginia, Colorado and the Pacific Northwest.

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

     The operating results by business segment were as follows:

<TABLE>
<CAPTION>


2001:                                       Telecommunications        TheResidentsClub       Consolidated
----                                        ------------------        ----------------       ------------

<S>                                            <C>                     <C>                   <C>
Revenues                                       $ 13,801,207            $    728,729          $ 14,529,936
Segment net income (loss)                       (15,118,287)              4,588,160           (10,530,127)
Total assets                                     57,326,095                  52,996            57,379,091
Capital expenditures                              7,532,562                      --             7,532,562
Depreciation and amortization                     6,366,764                      --             6,366,764


2000:                                       Telecommunications        TheResidentsClub       Consolidated
----                                        ------------------        ----------------       ------------

Revenues                                       $ 10,229,877            $      7,806          $ 10,237,683
Segment net 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


</TABLE>


                                      F-21