CRL NETWORK SERVICES INC, S-1/A, 1999-06-02

CRL NETWORK SERVICES INC
S-1/A, 1999-06-02
BUSINESS SERVICES, NEC

Previous: FIRST ALLIANCE MORTGAGE LOAN TRUST 1999-1, 8-K, 1999-06-02

Next: FIRST DEPOSIT BANCSHARES INC, POS AM, 1999-06-02

<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 2, 1999.

REGISTRATION NO. 333-74793
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
------------------------

AMENDMENT NO. 5

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

CRL NETWORK SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE NO. 4813 68-0312353
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

ONE KEARNY STREET, SUITE 1450
SAN FRANCISCO, CALIFORNIA 94108
(415) 837-5300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

JAMES G. COUCH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ONE KEARNY STREET, SUITE 1450
SAN FRANCISCO, CALIFORNIA 94108
(415) 837-5300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:

<TABLE>
<S> <C>
KENNETH R. LAMB, ESQ. NORA L. GIBSON, ESQ.
LISA A. FONTENOT, ESQ. PETER S. BUCKLAND, ESQ.
PATRICK L. WONG, ESQ. TAYLOR L. STEVENS, ESQ.
GIBSON, DUNN & CRUTCHER LLP PATRICK J. O'LOUGHLIN, ESQ.
ONE MONTGOMERY STREET, TELESIS TOWER BROBECK, PHLEGER & HARRISON LLP
SAN FRANCISCO, CALIFORNIA 94104 ONE MARKET, SPEAR STREET TOWER
SAN FRANCISCO, CALIFORNIA 94105
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.

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

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

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

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

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

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

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

SUBJECT TO COMPLETION, DATED JUNE 2, 1999

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

PROSPECTUS

LOGO
CRL NETWORK SERVICES, INC.

COMMON STOCK

$ PER SHARE

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

This is the initial public offering of CRL Network Services, Inc. We are
offering 5,000,000 shares and a stockholder identified in this prospectus is
offering 850,000 shares. We will not receive any of the proceeds from the sale
of shares of our common stock by the selling stockholder. This is a firm
commitment underwriting.

We expect that the price to the public in the offering will be between $12.00
and $15.00 per share. The market price of the shares after the offering may be
higher or lower than the offering price.

We have applied to have the common stock approved for quotation on the Nasdaq
National Market under the symbol "CRLX."

INVESTING IN THE COMMON STOCK INVOLVES MATERIAL RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -------
<S> <C> <C>
Price to Public............................................. $ $
Underwriting discounts......................................
Proceeds to CRL Network Services, Inc.......................
Proceeds to the selling stockholder.........................
</TABLE>

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

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<S> <C>
Joint Lead Manager and Bookrunner Joint Lead Manager
CIBC WORLD MARKETS LEHMAN BROTHERS
</TABLE>

The undersigned is facilitating Internet distribution

DLJdirect INC.

The date of this prospectus is , 1999.
<PAGE> 3

[INSIDE FRONT COVER]

[Graphic depicts a map of United States entitled "Networks Built for Business"
with the CRL logo, reflecting CRL's network connecting cities nationwide,
including symbols designating CRL's Regional Hubs, CRL Points of Presence or
Service Areas, Internet Protocol Backbone and Switched Backbone]
<PAGE> 4

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
How We Intend to Use the Proceeds from the Offering......... 22
Dividend Policy............................................. 22
Capitalization.............................................. 23
Dilution.................................................... 24
Selected Consolidated Financial Data........................ 25
Management's Discussion and Analysis of Results of
Operations and Financial Condition........................ 26
Business.................................................... 35
Management.................................................. 56
Principal and Selling Stockholders.......................... 63
Description of Capital Stock................................ 64
Shares Eligible for Future Sale............................. 67
Underwriting................................................ 69
Legal Matters............................................... 71
Experts..................................................... 71
Where You Can Find More Information......................... 71
Index to Financial Statements............................... F-1
</TABLE>

i
<PAGE> 5

PROSPECTUS SUMMARY

This summary contains basic information about us and this offering. Because it
is a summary, it does not contain all of the information that you should
consider before investing. You should read this entire prospectus carefully,
including the section entitled "Risk Factors" and the financial statements and
the related notes to those statements included in this prospectus. This
prospectus assumes that the underwriters have not exercised the over-allotment
option and gives effect to our reincorporation in Delaware and the associated
exchange of one share of common stock of CRL for every three shares of common
stock of CRL's California predecessor.

CRL NETWORK SERVICES, INC.

CRL Network Services is a Tier 1 Internet service provider offering customized
Internet and network management solutions to small and medium-sized businesses.
As a Tier 1 provider we can be characterized as having a high quality, national
backbone network which can reach every other Internet destination through
agreements to exchange data, known as peering, without paying transit fees to
other network operators. We provide high quality, reliable and scalable Internet
and network connectivity and value-added services designed to meet our
customers' needs. Our services include:

- connectivity to the Internet and secure private networks through our
national backbone network from which our Internet access customers can reach
every other Internet address and our network customers can reach other
destinations within their private network.

- value-added services, which are additional services delivered over the same
circuit as our connectivity services. Our current value-added services are
remote management of our customers' networks and systems integration, which
includes the resale, installation and configuration of our customers'
computer systems and software.

- hosting, which is the distribution of customers' Internet content from our
facilities.

Our customers outsource the management of their Internet and network needs to
us. We develop and construct our data switched networks and perform all data
routing and transmission for our customers. We lease fiber-optic capacity from
third-party providers over which we transmit data and peer with other
telecommunications providers to exchange data traffic.

- engineering and technical expertise arising from our direct participation in
the evolution of the commercial Internet, which has enabled us to develop
our own sophisticated network infrastructure

- high speed, private switched network, which means it relies on our own
switches which enables us to maximize our quality of service by reducing
delay and data loss as well as increasing the level of security

- status as a Tier 1 provider, which resulted from being one of the first
commercial Internet providers and, which allows us to exchange data directly
with other Tier 1 providers without paying transit fees, reducing the costs
of operating our network

- our proprietary network management process, acquired through our recent
merger with Integral Networking Corporation in December 1998, which enables
us to connect directly to our customer's network and manage our customer's
network from the server to the desktop without the need to be on-site at our
customer's facilities, which we refer to as remote management

1
<PAGE> 6

As of May 31, 1999, we had 30 network equipment centers located in major
metropolitan areas from which we deliver our services. Our network connects to
all of the interexchange points sanctioned by the National Science Foundation
for the transfer of Internet Protocol-based traffic between Internet backbone
networks. Our network is comprised of several elements, including 24 Cascade
switches, 54 Cisco routers, facilities and clear channel fiber-optic bandwidth,
which together provide a fast, secure, high quality network capable of
minimizing outages resulting from hardware or software faults. Our customers
include Internet service and content providers like Internet America, Inc. and
Walnut Creek CDROM, Incorporated; companies engaged in electronic commerce like
Citizen One Software; government agencies like the U.S. Federal Reserve Board
and the U.S. Department of Commerce; and educational institutions like the
Pacific Union College and the Tustin Unified School District. These
representative customers are among those customers from the business sectors
indicated providing the highest revenues for CRL in 1998 or who were one of the
top 20 customers on the basis of revenues for CRL in the first quarter of 1999.

Our objective is to become the leading nationwide provider of customized
comprehensive Internet and network services to small and medium-sized
businesses. To achieve this objective, we intend to:

- FURTHER CAPITALIZE ON OUR EXISTING NETWORK INFRASTRUCTURE. We intend to
utilize our status as a Tier 1 Internet service provider and competitive
local exchange carrier in California as well as our fast, secure, reliable
and scalable network to cost effectively expand our customer base and
deliver additional services to our customers.

- CROSS SELL VALUE-ADDED SERVICES. We intend to capitalize on our existing
customer base and future customers by aggressively cross selling our current
and future value-added services to address their Internet and other network
management requirements.

- PROVIDE BUNDLED, COMPREHENSIVE NETWORKING SOLUTIONS. By combining our
network infrastructure with our existing and planned array of networking
services, we believe we are well positioned to become one of the premier,
comprehensive providers of bundled networking solutions to small and medium-
sized businesses.

- EXPAND CUSTOMER BASE AND SALES EFFORTS. We believe we will be able to
successfully market and sell our comprehensive networking solutions to a
large national customer base by significantly increasing our direct sales
force and expanding our relationships with potential channel partners.

- DRIVE REVENUE GROWTH BY INCREASING HOSTING SERVICES. We intend to optimize
our physical presence and facilities located at key Internet network access
points, which provide an attractive opportunity for us to market and sell
hosting services to existing and potential customers.

- ACCELERATE GROWTH THROUGH TARGETED ACQUISITIONS. We intend to seek
acquisition candidates that we believe we can integrate with our existing
network to increase our customer base or provide additional value-added
services. In this regard, we recently acquired Integral Networking
Corporation, which enables us to provide our remote management services.
------------------------

Our principal executive offices are located at One Kearny Street, Suite 1450,
San Francisco, California 94108, and our telephone number at that address is
(415) 837-5300.

This prospectus contains product names, trade names and trademarks that belong
to us or to other organizations.

2
<PAGE> 7

THE OFFERING

Common stock offered by us.... 5,000,000 shares

Common stock offered by the
selling stockholder........... 850,000 shares

Common stock to be outstanding
after the offering(1)......... 24,038,832 shares

Use of proceeds by CRL Network
Services.................... We intend to use the net proceeds from the sale
of common stock offered by us to repay
indebtedness totaling $1,088,000 as of March
31, 1999, for working capital and other general
corporate purposes, including expansion of our
sales and marketing activities. We may also use
a portion of the net proceeds for acquisitions.
We will not receive any proceeds from the sale
of the common stock offered by the selling
stockholder. See "How We Intend to Use the
Proceeds from the Offering."

Proposed Nasdaq National
Market symbol................. CRLX

Risk Factors.................. See "Risk Factors" for a discussion of factors
you should carefully consider before deciding
to invest in our common stock.
- -------------------------

(1) Based on 19,038,832 shares outstanding on May 31, 1999, which excludes
946,320 shares issuable upon exercise of currently outstanding options with
a weighted average exercise price of $2.20 per share and 2,000,000 shares
available for the grant of additional options under our 1999 Stock
Incentive Plan. See "Management -- Stock Options."

3
<PAGE> 8

SUMMARY CONSOLIDATED FINANCIAL DATA

The summary consolidated financial data as of December 31, 1998 and for the
years ended December 31, 1996, 1997 and 1998 are calculated from our audited
consolidated statements included in this prospectus. The summary consolidated
financial data for the years ended December 31, 1994 and 1995 and for the three
months ended March 31, 1998 and 1999 are calculated from unaudited consolidated
financial statements not included in this prospectus. The unaudited financial
statements have been prepared by us on a basis consistent with our audited
consolidated financial statements and include, in the opinion of our management,
all adjustments consisting only of normal recurring adjustments necessary for a
fair presentation of our results of operations and financial position for those
years.

You should read the following data with the more detailed information contained
in "Selected Consolidated Financial Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our consolidated financial
statements and the notes to the consolidated financial statements, each included
in this prospectus.

The following table indicates a summary of our balance sheet at March 31, 1999,
which has been adjusted to reflect the sale of 5,000,000 shares of common stock
offered by us after deducting underwriting discounts and commissions and
estimated offering expenses at an assumed initial public offering price of
$13.50 per share and the repayment of the amounts outstanding under our loan
agreements. See "How We Intend to Use the Proceeds from the Offering."

<TABLE>
<CAPTION>
AT MARCH 31, 1999
---------------------
ACTUAL AS ADJUSTED
------ -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents...................................... $ 354 $60,821
Working capital........................................... 229 60,946
Total assets.............................................. 4,522 64,475
Total liabilities......................................... 2,998 1,426
Long-term obligations, excluding current portion.......... 822 14
Stockholders' equity...................................... 1,524 63,049
</TABLE>

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

See notes 1 and 12 of the notes to the consolidated financial statements
included in this prospectus for an explanation of the determination of the
number of shares used in computing per share data.

4
<PAGE> 9

RISK FACTORS

You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are the
material risks currently known to us but not the only risks facing us. These
risk factors are not intended to represent a complete list of the general or
specific risk factors that may affect us as additional risks and uncertainties
not presently known to us or that we currently deem immaterial may also impair
our business operations. If any of the following risks actually occur, our
business, financial condition or results of operations could be materially
adversely affected. If that happens, the trading price of our common stock could
decline, and you may lose all or part of your investment.

THE SUCCESS OF OUR GROWTH STRATEGY DEPENDS ON OUR ABILITY TO MARKET AND SELL OUR
EXISTING AND FUTURE SERVICES.

Historically, our business has focused on selling Internet and other network
connection services. A critical component to the successful implementation of
our growth strategy is our ability to offer and expand our value-added services
and the acceptance of those services by our existing and potential customers.
Our future growth depends, in part, on the acceptance and use of remote
management and systems integration services by small and medium-sized
businesses. Until our December 1998 merger with Integral Networking Corporation,
we had very little experience in either of these markets and to date have
derived insignificant revenues from services in these markets. In particular,
the market for remote management services is new, making it difficult to
determine the size and growth of the market and to predict how this market will
develop. Changes in technology, the availability of qualified information
technology professionals and other factors that make internal network management
more cost effective than remote network management, would negatively impact the
market for our services. Our business may be seriously damaged if this market
fails to grow, grows more slowly than we expect or develops in some way that is
different from our expectations. We are also actively seeking to develop or
acquire a variety of other services we can offer and cross sell. In addition, we
recently began offering digital subscriber line services but have generated no
revenues from these services. For many reasons, including the reasons described
in the risk factors below, we cannot assure you that we will be successful in
developing or acquiring those or any other services or, that if we do, we will
be successful in marketing and selling those services to our existing or
potential customers.

OUR OPERATING RESULTS IN ONE OR MORE FUTURE PERIODS ARE LIKELY TO FLUCTUATE
SIGNIFICANTLY.

We expect to experience significant fluctuations in our future quarterly and
annual results of operations due in part to our growth strategy and the emerging
nature of the data communications industry in our markets. A variety of factors
likely to cause fluctuations in our operating results, some of which are outside
our control, include:

- demand for and market acceptance of our services

- capacity utilization of our facilities

- fluctuations in data communications and telecommunications costs

- reliable continuity of service and network availability

- customer retention

- the timing and success of sales and marketing efforts

- the timely expansion of existing facilities and completion of new facilities

- the ability to increase bandwidth as necessary

- fluctuations in bandwidth used by customers

5
<PAGE> 10

- the timing and magnitude of expenditures for sales and marketing and capital
expenditures

- introductions of new services or enhancements by us and our competitors

- the timing of customer installations and related payments

- the ability to maintain or increase peering relationships

- increased competition including the introduction by third parties of new
Internet and network services

- general growth of Internet use and establishment of Internet operations by
enterprises

- changes in our pricing policies and those of our competitors

- changes in regulatory laws and policies

- the success of our acquisition strategy

- the timing and amount of charges related to acquisitions

- economic conditions specific to the Internet and networking industry

Our expenses, particularly our telecommunications costs, depreciation, real
estate expenditures and personnel costs are expected to increase significantly
as we grow. Of our total costs and expenses, these costs comprise 73% of our
total costs for 1998 and 71% of our total costs for the first quarter of 1999.
We anticipate that such costs will continue to constitute a similar or higher
percentage of our total costs over the next twelve months. As we grow, we may
also incur one-time costs associated with capital expenditures for network and
facilities growth, acquisition expenses and development of our existing and new
service offerings. In addition, we are in the process of hiring new employees.
Consequently, our future results of operations will be particularly sensitive to
fluctuations in revenues. Over the next five years, we will record an expense of
approximately $739,000 related to some of our option grants. For more
information about these charges, see "Management's Discussion and Analysis of
Financial Conditions and Results of Operations."

For the year ended December 31, 1998 and for the three months ended March 31,
1999, we experienced operating losses for the first time in our operating
history due in part to increased sales and marketing and general and
administrative expenses, and the incurrence of stock-based compensation expense.
In addition, our revenue increase from the year ended December 31, 1997 to the
year ended December 31, 1998 was less than we have experienced in previous
years. If our revenues fail to grow at anticipated rates, our operating expenses
increase without a commensurate increase in our revenues or we fail to adjust
operating expense levels accordingly, our business and financial results could
be harmed.

We anticipate that we will continue to incur net losses for the foreseeable
future. The extent of these losses will be contingent, in part, on the amount of
growth in our revenues, particularly from new service offerings. We expect our
operating expenses to increase significantly, especially in the areas of sales
and marketing, and, as a result, we will need to generate increased quarterly
revenues to become profitable.

Due to the factors listed above and the other risk factors described in this
section of the prospectus, we believe that comparisons of our results of
operations are not necessarily meaningful and should not be relied upon as
indications of future performance. As a result, the fluctuation of our results
of operations in future periods could cause the trading price of our common
stock to suffer a significant decrease.

WE MAY NOT SUCCESSFULLY IMPLEMENT OUR ACQUISITION STRATEGY.

As part of our growth strategy, we will seek strategic acquisitions of
additional assets, technologies and businesses complementary to our operations.
We may not be able to locate suitable acquisition targets or be able to acquire
any target companies we locate on acceptable terms. Our recent merger with
Integral

6
<PAGE> 11

Networking Corporation is, and any future acquisitions would be, accompanied by
risks including, among other things:

- loss of customers and key personnel of an acquired company

- inability to achieve cost savings

- acquisition expenses and charges incurred

- difficulties integrating the operations and personnel of acquired companies

- additional financial resources that may be needed to fund the combined
company operations

- the potential disruption of our business

- our management's ability to realize financial and strategic benefits of
incorporating acquired technologies or businesses into our service offerings

- difficulty of maintaining uniform quality control and other standards,
policies and procedures in a larger organization

- impairment of employee relationships due to changes in management or
perceived conflicts

- assumption of unexpected liabilities and incurrence of significant
unexpected expenses in completing acquisitions

Any of the above risks could prevent us from realizing significant benefits from
our acquisitions. In connection with our merger with Integral, we experienced a
loss of Integral personnel, incurred unanticipated costs and required greater
than expected management attention to establish and maintain uniform quality
control, standards and policies. In addition, issuing our common stock in
acquisitions will dilute our stockholders' percentage interests in our company,
while using cash will deplete our cash reserves. Finally, if we are unable to
account for our acquisitions under the "pooling of interests" method of
accounting, we may incur significant, one-time write-offs and amortization
charges for acquisition or debt-related expenses, goodwill and other intangible
assets. These write-offs and charges would decrease our future earnings or
increase our future losses and could hurt the trading price of our common stock.

THE MARKETS FOR OUR SERVICES ARE CHARACTERIZED BY MANY COMPETING TECHNOLOGIES,
AND THE TECHNOLOGIES ON WHICH OUR SERVICES ARE BASED MAY NOT COMPETE
EFFECTIVELY.

The markets for the network connectivity services we provide are extremely
competitive and fragmented. There are no substantial barriers to entry in these
markets, and we expect that competition will intensify in the future. We believe
that our ability to compete successfully depends upon a number of factors,
including:

- the capacity, reliability, low delay and security of our network
infrastructure

- our ability to maintain existing and develop future peering relationships

- our technical expertise and the functionality, performance and quality of
services

- our ability to provide custom solutions for our customers

- the experience and technical expertise of our sales force and engineers

- the ease of access to our services

- our remote management capabilities

- the pricing policies of our competitors and suppliers

- our ability to operate as a competitive local exchange carrier

- our ability to scale our services to meet growing customer demand

7
<PAGE> 12

- the variety of services we offer

- our geographical presence

- the timing of introductions of new services by us and our competitors

- the responsiveness and quality of our customer support

- our financial resources

- our ability to support industry standards

To be competitive, we must respond promptly and effectively to the challenges of
technological change, evolving standards and our competitors' innovations by
continuing to enhance our services, as well as our sales programs and channels.
Any pricing pressures, reduced margins or loss of market share resulting from
increased competition or our failure to compete effectively, could seriously
damage our business and financial results.

THE MARKETS IN WHICH WE COMPETE ARE HIGHLY COMPETITIVE, AND WE MAY NOT BE ABLE
TO COMPETE EFFECTIVELY, ESPECIALLY AGAINST COMPANIES WITH GREATER RESOURCES.

Many of our competitors have greater market presence, engineering and marketing
capabilities and financial, technological and personnel resources than those
available to us. As a result, they may develop, deploy and expand their
communications and network infrastructures more quickly, adapt more swiftly to
new technologies and changes in customer requirements, take advantage of
acquisition and other opportunities more readily and devote greater resources to
the marketing and sale of their services than we can. Additionally, many
organizations have entered into or are forming joint ventures or consortiums to
provide services competitive with ours.

Our competitors generally may be divided into four principal groups:

- telecommunications carriers including regional Bell operating companies

- Internet service providers

- network and system integrators

- online network service providers

We believe the market for network management services will be highly competitive
if it grows as we expect. Competition will probably increase significantly as
new companies enter the market and current competitors expand their services and
product lines. Many potential competitors are likely to enjoy substantial
competitive advantages, including those listed above. As a result, our existing
and potential customers may contract with other competitive communications
providers, decreasing demand for CRL's services. For a list of our principal
competitors, see "Business -- Competition."

OUR BUSINESS MAY BE HARMED IF NEW COMPETITORS ENTER OUR MARKETS.

We believe that new competitors will enter our markets. These new competitors
could include large computer hardware, software, media and other technology and
telecommunications companies. A large number of companies with short operating
histories have entered the markets for the services we offer as these markets,
some of which are in an emerging state, develop. In addition, telecommunications
companies and online services providers currently offer or have announced plans
to offer or expand their network services. These telecommunications companies
and online services providers are able to devote greater resources to developing
and marketing competitive products and services. In addition, they often have
the ability to bundle other services and products with their Internet services,
such as voice and video communications, placing us at a competitive disadvantage
because we do not currently offer some of these services. Other companies are
also exploring the possibility of providing or are currently providing high
speed data services using alternative delivery methods that could be faster or
less expensive, decreasing customer demand for CRL's services. As new
competitors enter our markets, they sometimes offer special

8
<PAGE> 13

promotions to attract customers, such as free Internet access or computers,
which could adversely impact our ability to attract or retain customers.
Increased competition from new competitors could negatively affect our business
and financial results.

WE MAY HAVE TO REDUCE THE COST OF OUR SERVICES TO REMAIN COMPETITIVE.

Increased competition and industry consolidation has in the past and could in
the future result in significant pricing pressure. This pricing pressure could
cause large reductions in the average selling price of our services and has
resulted in a general industry decrease in the prices for the services we
provide. For example, telecommunications companies that compete with us may
provide customers with reduced communications costs for their Internet access or
private network services, reducing the overall cost of their solutions and
significantly increasing pricing pressures on us. Combined Internet services and
access companies can bundle their offerings and remain profitable at lower price
levels while realizing economies of scale. As a result, we have experienced
pricing pressures on our connectivity offerings, including our T-1 and
fractional T-1 services, have lowered prices on a case-by-case basis and have
introduced new lower price products. We may not be able to offset the effects of
any price reductions by increasing the number of our customers, generating
higher revenues from enhanced services, reducing cost, or by obtaining approvals
to operate as a competitive local exchange carrier. We believe that the
businesses of providing network connectivity, value-added network services and
hosting services will likely see increased consolidation in the future.
Consolidation could decrease selling prices and increase competition in these
industries which could erode our market share and could have a material negative
effect on our business and financial results.

WE DEPEND ON OUR NETWORK INFRASTRUCTURE AND OTHER SUPPLIERS TO PROVIDE
AFFORDABLE, RELIABLE, SCALABLE AND SECURE SERVICES.

Our success will depend upon our network infrastructure's capacity, scalability,
reliability and security, including the bandwidth capacity leased from
telecommunications network suppliers. In particular, we rely on Metropolitan
Fiber Systems, IXC Communications, Inc., Qwest Communications Corporation, Cable
& Wireless USA, Inc. and other telecommunications providers for backbone and
local loop capacity. These companies provide our dedicated clear channel
network, the backbone connecting our wide area data switches. These companies
also permit our networks to exchange Internet traffic with other Internet
service providers and distribute our services to our customers. We depend on the
ability of those companies to maintain the operational integrity of our backbone
and interconnections. If one or more of these companies is unable or unwilling
to provide or expand its current levels of service to us in the future, our
operations could be seriously and adversely affected. Most of our agreements
with these companies are for a one-year term with renewal options. These
agreements do not require minimum commitments and are on an as used basis. While
these companies have additional capacity available, they are under no obligation
under these agreements to provide it to us. We estimate that Qwest
Communications Corporation, IXC Communications, Inc. and MCI WorldCom, Inc.
provide approximately three-quarters of our bandwidth. In addition, rapid
changes within the telecommunications industry have led to the merging of many
telecommunications companies. These mergers have and in the future may further
cause the pricing we receive for the services we use and the quality of service
that we receive to vary significantly. The consolidation of companies providing
Internet services and access has and can result in preferential provision of
services to acquired companies and potential targets or business partners and
could cause the length of time it takes to deliver the telecommunications
services that we use to increase significantly.

We are currently in a dispute with Qwest Communications Corporation, one of our
three principal providers, involving fiber cable they own connecting several
cities. Qwest agreed to lease fiber to us to be installed and available to us by
specified dates. Qwest did not complete installation as agreed. Despite their
failure to install the fiber in a timely manner, Qwest alleges that we owe them
approximately $479,000 through March 31, 1999 for use of the fiber cable. We
believe Qwest is obligated to provide us with free service as a result of this
installation delay. We are currently attempting to resolve this dispute by

9
<PAGE> 14

negotiation. We cannot assure you that the dispute will be resolved to our
satisfaction or that Qwest will not suspend service, potentially resulting in an
interruption of service.

WE DEPEND ON OUR RELATIONSHIPS WITH TELECOMMUNICATIONS CARRIERS TO PROVIDE OUR
DATA COMMUNICATIONS CAPACITY.

We rely on local telephone companies and other companies to provide data
communications capacity via local telecommunications lines and leased long
distance lines. These arrangements are generally terminable at will or are for a
short term. We are also subject to potential disruptions or capacity constraints
in these telecommunications services and may have no means of replacing these
services on a timely basis or at all if disruption or capacity constraints
occur. In addition, local phone service is sometimes available only from one
local telephone company in a particular market we serve. We compete with those
regional Bell operating companies and other network operators providing Internet
services. Telecommunications carriers may be able to provide both Internet
services and data communications capacity at a lower rate than what we can
offer. Some telecommunications carriers have provided Internet access services
comparable to those provided by CRL at lower rates than CRL's prices. We believe
that the federal Telecommunications Act of 1996 generally will lead to increased
competition in the provision of local telephone service, but we cannot predict
the timing or extent of any such developments or the effect of increased
competition on pricing or supply. Some of our suppliers, including the regional
Bell operating companies and competitive local exchange carriers, are subject to
price constraints, including tariff controls, which in the future may change.
Recent regulatory changes and industry consolidation may increase the prices
that these carriers may charge us. Those increases may have a serious and
negative effect on our business and financial results.

WE DEPEND ON OUR PEERING RELATIONSHIPS AND TIER 1 STATUS TO DELIVER OUR SERVICES
ECONOMICALLY.

The Internet consists of many network providers operating their own networks and
interconnecting them at a number of public and private peering points, through
peering arrangements with one another. Our peering relationships, which allow us
to maintain high network performance levels without paying higher non-peered
transit costs to exchange traffic, are not regulated, are rarely subject to any
written agreement, and are subject to revision in terms, conditions or costs
over time. Network service providers may unilaterally elect at any time not to
maintain peering relationships with us which could increase requirements or
costs to maintain these peering relationships. A loss of any of these
relationships, the failure of our peering partners to increase bandwidth
commensurate to increased data traffic or increased pricing would diminish the
level of connectivity available to our customers or cause us to incur additional
operating expenses by requiring us to identify alternative methods to transmit
our customers' information and to pay for transit. No economical alternatives
may be available if that happens.

Many operators of the private peering interexchanges are also our competitors.
As a result, these competitors may cancel their peering relationships if they
find that the benefits of having a peering relationship with us are outweighed
by competitive conditions in our business.

OUR FAILURE TO PROPERLY MANAGE OUR BUSINESS EXPANSION MAY STRAIN OR EXCEED OUR
RESOURCES OR COULD HARM OUR BUSINESS.

Our company has recently experienced significant business expansion as seen in
the number of new hires, its recent merger with Integral and the expansion of
our service offerings and facilities. Continued growth is necessary to increase
our revenues in the accelerated manner contemplated by our business plan.

In particular, to successfully integrate newly acquired assets and continue to
implement a nationwide growth strategy and network, we must:

- closely monitor service quality

- increase our direct and indirect sales and marketing efforts

10
<PAGE> 15

- continue to implement and improve our operational, financial and management
information systems and controls

- hire, train and retain a relatively large number of additional qualified
personnel

- continue to expand and upgrade our network infrastructure

We must continue to enhance and develop our network to maintain our competitive
position and continue to meet the increasing demands for service quality,
availability and competitive pricing. Despite the availability of additional
network capacity from third-party network providers, we intend to maintain the
flexibility to expand or open new points of presence or make other capital
investments as dictated by customer demand or strategic considerations. To open
new points of presence, we must spend significant amounts of money for new
equipment and leased telecommunications facilities. In addition, to expand our
customer base nationwide, we will likely have to spend significant amounts of
money on additional equipment to maintain the high speed and reliability of our
Internet and other network access services.

We intend to begin consolidation of our San Francisco administrative and network
operations in one or more new, larger facilities during the third quarter of
1999 and to complete the consolidation in the fourth quarter of 1999. We are
still negotiating the location of this new site or sites. We also anticipate
completing the expansion of our Sacramento operations center by the end of the
fourth quarter of 1999. We expect management of the transition of our
information systems, personnel and operational equipment to new facilities to
place additional strain on our resources. This transition may not be completed
successfully or on a timely basis and may require a significant amount of
management's attention and could cause interruptions in our operations which
could harm our business.

Our increasing customer base necessitates that our network infrastructure and
technical support resources grow accordingly. We cannot assure you that our
technical support or other resources will be sufficient to facilitate our
growth. We are striving to increase total network utilization and to optimize
this utilization throughout a 24 hour period. There will be additional demands
on our customer support, sales and marketing resources as we pursue this
utilization strategy. If we fail to manage our growth effectively, our business
and financial results will be seriously adversely affected.

OUR SUCCESS WILL DEPEND ON THE INTEGRATION OF OUR NEW MANAGEMENT PERSONNEL.

We recently hired several of our executives, including our Vice President of
Business Development, our Executive Vice President/Chief Financial Officer and
Vice President of Direct Sales. As a result, our management team has worked
together for only a brief time, and may have a limited understanding of our
specific business. Our ability to effectively execute our strategies will depend
in part upon our ability to integrate these and future managers into our
operations. We also plan to hire additional executive management personnel,
including a Vice President of Marketing, Vice President of Operations and Vice
President of Engineering. If our executives do not integrate effectively, our
business could be materially negatively affected.

OUR SUCCESS WILL DEPEND ON THE CONTINUED PERFORMANCE OF OUR KEY PERSONNEL.

Our success depends in significant part upon the continued services of our
senior management and key technical and sales personnel, currently consisting of
our Executive Vice President and Chief Financial Officer, our Vice President of
Direct Sales, our Vice President of Business Development, our Vice President of
Finance, our Vice President of Channel Sales, Integral's President, our
Directors of Marketing and Systems Engineering and our National Sales Director
and particularly our President and Chief Executive Officer, James Couch. We do
not maintain key man insurance on the life of Mr. Couch or any other executive
officers. Any of our officers or employees can terminate his or her relationship
with us at any time. Only Mr. Couch and Robert Ross, the President of our
subsidiary, Integral Networking Corporation, have employment agreements for
specified terms with us. For more information about Messrs. Ross' and Couch's
employment agreements, see "Management -- Employment Agreements." The loss of
key personnel would materially negatively impact our business and financial
results.

11
<PAGE> 16

OUR SUCCESS WILL DEPEND ON ATTRACTING AND RETAINING ADDITIONAL PERSONNEL.

Approximately 60% of our current employees joined CRL within the past 12 months
and our growth strategy necessitates that we more than double the number of our
employees during the next 24 months. Our success depends upon our ability to
attract and retain additional highly qualified management, technical, sales and
marketing and customer support personnel. Locating personnel with the
combination of skills and attributes required to carry out our strategy is often
a lengthy process. Our future growth particularly depends upon our ability to
increase substantially the size of our sales and marketing organization. The
market for highly qualified technical and sales and marketing personnel is
intensely competitive, especially in the San Francisco Bay Area, where a
substantial portion of our operations are located. In the year ended December
31, 1998, we experienced a reduction in our sales force due to a number of
factors including normal attrition and our involvement in negotiations in the
second and third quarters of 1998 relating to potential business combinations
with companies possessing established sales forces. We believe our involvement
in these negotiations caused a higher attrition rate for our sales staff than we
have historically experienced. These negotiations also caused us to postpone our
efforts to hire additional and replace lost sales staff. We may not be
successful in meeting our hiring goals. Our inability to attract additional,
qualified personnel or to retain existing personnel would have a material
adverse effect on our business and financial results.

OUR NETWORK SYSTEM COULD FAIL, AND WE MAY BE UNABLE TO PROVIDE OUR SERVICES.

Network expansion and growth in usage will increase stress upon our network
hardware and traffic management systems. Our network has been designed with
redundant backbone circuits which means that we connect each of our network
switches together through the use of both primary and secondary backbone
circuits. These backbone circuits are generally data circuits purchased from
long distance data carriers. The secondary backbone circuit provides an
alternate method for two switches to reroute data should the primary backbone
circuit between them fail. The secondary backbone circuit permits our network to
respond to an unexpected hardware or software failure without a complete outage.
However, we could experience failures relating to individual network points of
presence or even catastrophic failure of the entire network. Our operations
depend on our ability to protect our network infrastructure against damage from
power loss, telecommunications failures and similar events such as damage from
human error or sabotage, acts of nature, power failures and telecommunications
failures. A significant portion of our computer equipment, including critical
equipment dedicated to our Internet access services and our switches and routers
that serve large areas of the United States, are located at our facilities in
San Francisco, Palo Alto and Los Angeles, California and Vienna, Virginia. Our
network operations center, which manages the entire network, is in San
Francisco, California. At each site, we maintain off-site backups for our
network configurations in case a natural disaster occurs. We do not, however,
have a comprehensive disaster recovery program in place. In the past,
unanticipated problems outside of our control have caused service interruptions.
During a major power outage in the San Francisco Bay Area on December 8, 1998
lasting over six hours, our network continued to operate but prevented some
dial-up customers from logging on to our network and caused an outage in one of
our switches, resulting in a fluctuation in service for a brief period. Also, in
the fourth quarter of 1998, a portion of our network was interrupted for part of
a day as a result of substantial flooding in the state of Texas. A natural
disaster, such as an earthquake, or other unanticipated problem at the network
operations center, at one of our hubs, sites where routers, switches and other
computer equipment that make up the backbone of our network infrastructure are
located, or at a number of our points of presence in the future could cause,
interruptions in our services, including a complete loss of operations. In
addition, our services could be interrupted if our telecommunications providers
fail to provide the data communications capacity in the time frame we require as
a result of a natural disaster or for some other reason. Any damage or failure
that causes interruptions in our operations could have a material adverse effect
on our business and financial results.

12
<PAGE> 17

IF OUR NETWORK SYSTEM FAILS, WE COULD BE LIABLE TO OUR CUSTOMERS FOR DAMAGES.

We could incur significant warranty obligations in connection with system
downtime. Our customer contracts for several of our services currently provide a
limited service warranty related to the continuous availability of service on a
24 hour-a-day, seven day-a-week basis, except for scheduled maintenance periods.
This warranty is generally limited to a credit of free service for a specified
limited period of time for disruptions in Internet transmission services. Our
customer contracts provide for our liability for personal injury or equipment
damage in only limited circumstances. Although these customer contracts
typically provide for no recovery with respect to incidental, punitive, indirect
and consequential damages resulting from damages to equipment or disruption of
service, we cannot assure you that we would not be found liable if these damages
occurred or that these damages would be covered by or would not exceed our
liability insurance.

WE FACE THE RISK OF FUNDAMENTAL CHANGES IN THE WAY ELECTRONIC DATA, INCLUDING
INTERNET ACCESS, IS DELIVERED.

Internet services are currently accessed primarily by computers connected by
telephone lines. Several companies have announced the development and sales of
digital subscriber lines, cable television modems, wireless modems and satellite
modems to provide Internet access. We believe that our competitors offering
Internet access using Cable TV can provide access for up to ten megabits per
second, those using satellite, up to two megabits per second and those using
wireless modems, up to 1.544 megabits per second. Our competitors are also
continually developing technology to offer Internet access using alternate
delivery methods at higher speeds. While we are capable of offering similar
speeds through the equipment we currently use, we currently generally do not and
likely will not be able to offer such speeds as cheaply as cable or wireless
modems. For example, wireless modems may reduce the cost of network services as
they are capable of delivering data, including Internet access, without
incurring local loop charges, which are charges by the local telephone companies
for use of their lines. As the Internet becomes more accessible through these
cable television, wireless and satellite modems and by screen based telephones,
televisions or other consumer electronic devices, or customer requirements
change the way Internet access is provided, we will have to develop new
technology or modify our existing technology to accommodate these new
developments. We may also have to modify how we deliver our services. Our
pursuit of these technological advances may require substantial time and
expense, and we may not succeed in adapting our Internet access business to
alternate access devices and conduits.

OUR SUCCESS DEPENDS ON THE CONTINUED GROWTH OF THE INTERNET.

Our success will depend in large part on continued growth in Internet use, which
in turn will depend on a variety of factors including security, reliability,
cost, ease of access, quality of service and necessary increases in bandwidth
availability. Many of our existing and proposed services target Internet users.
Increased Internet use for retrieving, sharing and transferring information
among businesses, consumers, suppliers and partners only recently began to
develop. As is typical in the case of a new and rapidly evolving industry
characterized by rapidly changing technology, evolving industry standards and
frequent new product and service introductions, demand and market acceptance for
recently introduced products and services is highly uncertain. In addition,
critical issues concerning the commercial use of the Internet remain unresolved
and may impact the growth of Internet use, especially in the business market we
target. Despite growing interest in commercial Internet uses, many businesses
have not purchased Internet access and other related services for a number of
reasons, including:

- inconsistent quality of service

- lack of availability of cost effective, high speed options

- a limited number of points of presence for corporate users

- inability to integrate business applications on the Internet

- the need to use multiple and frequently incompatible vendors
13
<PAGE> 18

- inadequate protection of the confidentiality of stored data and information
moving across the Internet

- a lack of tools to simplify Internet access and use

- increased risk that third parties may obtain unauthorized access to
confidential information

- concerns arising from the year 2000 problem

Individuals and enterprises historically relying upon alternative means of
commerce and communication must understand and accept a new way of conducting
business and exchanging information to adopt the Internet for their means of
commerce and communication. Enterprises with substantial resources invested in
other means of commerce and exchanging information may be particularly reluctant
or slow to adopt a new strategy that may make their existing personnel and
infrastructure obsolete.

OUR SUCCESS DEPENDS ON THE CONTINUED ACCEPTANCE OF THE INTERNET AS A VIABLE
COMMERCIAL MEDIUM.

Demand for and market acceptance of the Internet are highly uncertain and depend
on a number of factors, including growth in consumer access to and acceptance of
new interactive technologies, the development of technologies facilitating
interactive communication between organizations and targeted audiences, and
increases in user bandwidth. If the Internet as a commercial or business medium
fails to develop or develops more slowly than expected, our business would be
materially adversely affected. The recent growth in Internet use has caused
frequent periods of performance degradation, requiring the upgrade of routers
and switches, telecommunications links and other components forming the
Internet's infrastructure by Internet service providers, operators of
interexchange points and other organizations with links to the Internet. Any
perceived degradation in the Internet's performance could undermine the benefits
of our services. Potentially increased performance provided by our services and
others is ultimately limited by and reliant upon the speed and reliability of
the networks operated by third parties. Consequently, the emergence and growth
of the market for our services depends on improvements being made to the entire
Internet infrastructure to alleviate overloading and congestion.

WE MUST KEEP UP WITH RAPID TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY STANDARDS
TO COMPETE EFFECTIVELY IN OUR MARKETS.

The markets for our services are characterized by rapidly changing technology,
evolving industry standards, changes in customer needs, rapidly growing
competition and frequent new product and service introductions. Our future
success will depend, in part, on our ability to:

- effectively use and offer leading technologies

- continue to develop our technical expertise

- enhance our current networking services

- develop new products and services that meet changing customer needs

- advertise and market our services

- influence and respond to emerging industry standards and other technological
changes

We must accomplish these tasks in a timely and cost effective manner. New
technologies or industry standards may replace or provide lower cost
alternatives to our existing products and services or could render our existing
products and services obsolete and unmarketable. We also believe that our
ability to compete successfully depends on the continued compatibility and
interoperability of our services with products and architectures offered by
other vendors. Although we intend to support emerging standards in the market
for Internet and other network connectivity, new industry standards could
emerge, and we may not be able to conform to these new standards in a timely
fashion and maintain a competitive position in the market. Our pursuit of
necessary technological advances and maintenance of technological compatibility
may require substantial time and expense.

14
<PAGE> 19

WE MAY HAVE PROBLEMS MAINTAINING HIGH QUALITY STANDARDS.

Market acceptance of new or enhanced services could be significantly delayed or
hindered if we introduce services with reliability or compatibility problems.
Despite testing by us or our customers, our services or enhancements may contain
undetected errors or defects when first introduced after commencement of
commercial deployment. Any problems or delays could adversely affect our ability
to attract or retain customers.

In the past we have experienced shortages in bandwidth capacity, both at the
level of particular points of presence affecting only those customers using that
particular point of presence and with system-wide services such as e-mail and
news group services. In early 1999, we neared full capacity for our connections
with MAE West. The primary carriers from whom we purchased bandwidth also filled
capacity at MAE West. As a result, we were required to wait approximately 60
days while our providers acquired additional capacity, which limited our ability
to add more customers on those connections. A similar shortage in bandwidth
occurred at MAE East in 1998 and, as a result, we lost one customer. If we do
not maintain sufficient bandwidth capacity in our network connections, or
insufficient bandwidth is maintained on the networks operated by our peering
partners, our customers will experience a general slowdown of all Internet
services. To protect our customers' service levels, we may sometimes temporarily
delay adding new customers in cities or regions experiencing significant
capacity constraints until we alleviate these constraints. While our objective
is to maintain excess capacity, our failure to expand or enhance our network
infrastructure on a timely basis or to adapt it to an expanding customer base,
changing customer requirements or evolving industry standards could seriously
adversely affect us.

If we do not achieve balanced network utilization over a 24 hour period, our
network could become overburdened at busy periods during the day, which could
diminish our quality of service by increased delay or system failure.
Conversely, due to the high fixed cost nature of our infrastructure, under-
utilization of our network during low use times could hinder our ability to
provide cost efficient services at other times. Any failure to achieve balanced
network utilization could harm our business, financial condition and results of
operations.

WE MAY FACE POTENTIAL LIABILITY FOR INFORMATION DISSEMINATED THROUGH OUR
NETWORK.

As the law relating to liability of Internet service providers for information
carried on or disseminated through their networks is not settled, we may be
subject to such liability. A number of lawsuits have sought to impose liability
for defamatory speech, indecent materials and infringement of copyrighted
materials. The United States Supreme Court has let stand a lower court ruling
that an Internet service provider was protected from liability for material
posted on its system by a provision of the Communications Decency Act. However,
the findings in that case may not apply in other circumstances. Other courts
have held that online service providers and Internet service providers may be
subject to damages for copying or distributing copyrighted materials. Provisions
of the Communications Decency Act that imposed criminal penalties for using an
interactive computer service for transmitting obscene or indecent communications
have been found unconstitutional by the United States Supreme Court. However, on
October 21, 1998, new federal legislation was enacted that requires limits on
access to pornography and other material deemed "harmful to minors." This
legislation has been challenged in court as a violation of the First Amendment
of the United States Constitution. We are unable to predict the outcome of this
case. Potential liability imposed on Internet service providers like us for
material carried on or disseminated through network systems could require us to
implement measures to reduce our exposure to that liability. These measures may
require us to spend substantial resources or discontinue certain service
offerings. Our errors and omissions insurance coverage may not be adequate or
available to compensate us for all liability that may be imposed. The imposition
of liability in excess of, or the unavailability in the future of, such coverage
could have a material adverse effect on our business or financial results.

15
<PAGE> 20

WE MAY BECOME SUBJECT TO BURDENSOME AND EXPENSIVE GOVERNMENT REGULATION THAT MAY
HARM OUR BUSINESS.

Consistent with our growth and acquisition strategy, we are now engaged in, or
will soon be engaged in, activities that subject us to varying degrees of
federal, state and local regulation. Currently only a small body of laws and
regulations directly apply to access to or commerce on the Internet. However,
due to the Internet's increasing popularity and use, laws and regulations have
or may be proposed and may be adopted at the international, federal, state and
local levels with respect to the Internet, covering a range of issues. The
nature of any new laws and regulations and the manner in which existing and new
laws and regulations may be interpreted and enforced cannot be fully determined.
The adoption of any future laws might decrease the Internet's growth, decrease
demand for our services, impose taxes or other costly technical requirements or
otherwise increase the cost of doing business or in some other manner have a
material adverse effect on us. In addition, applicability to the Internet of
existing laws governing issues such as property ownership, copyrights and other
intellectual property issues, taxation, libel, obscenity and personal privacy is
uncertain. The application of any of these laws or regulations to our business
could increase our costs of compliance or otherwise affect our ability to
operate in those jurisdictions. In addition, as our services are available over
the Internet in multiple states, and as we facilitate sales by our customers to
end users located in such states, such jurisdictions may claim that we are
required to qualify to do business as a foreign corporation in each such state,
which may subject us to new taxes and costs.

Both the provisioning of Internet access service and the provisioning of
underlying telecommunications services are affected by federal, state and local
regulation. In March 1998, the California Public Utilities Commission approved
our operation as a competitive local exchange carrier in that state.
Subsequently, we negotiated an Interconnection Agreement with Pacific Bell, the
incumbent local exchange carrier in California, which was approved by the
California Public Utilities Commission in December 1998. The agreement provides
for reciprocal compensation payments for the termination of local traffic by
either party onto the other's network. While we believe that Pacific Bell will
send more traffic to our network than we will send to theirs, we cannot assure
you that this will continue, or that Pacific Bell will pay the amounts we
believe are required under the agreement. In the past, Pacific Bell has taken
the position that Internet traffic is considered inherently long distance and
not subject to reciprocal compensation. We do not believe any amounts that we
might receive as reciprocal compensation are material to our business, but we do
intend to defend our position regarding our rights to receive fair compensation
under the agreement. On February 25, 1999, the Federal Communications Commission
ruled that calls to Internet service providers for Internet access were long
distance, not local, calls. However, the ruling upheld existing reciprocal
compensation agreements in some states, including California. Because of our
reciprocal compensation agreement with Pacific Bell, we do not expect this
ruling will have a material effect on our costs in the near future. If incumbent
local exchange carriers charge fees for carrying Internet traffic and Internet
access becomes more expensive in the longer term, this ruling may have an
adverse effect on our potential future revenues as well as increase our costs.

We intend to apply for competitive local exchange carrier status in other
states. As we become a competitive local exchange carrier in additional states,
we will become subject to state requirements applicable to such carriers.

New laws or regulations relating to Internet or network services, or existing
laws found to apply to them, could have a material adverse effect on our
business or financial results. For a detailed discussion of government
regulation impacting our business, see "Business -- Government Regulation."

WE FACE RISKS ASSOCIATED WITH BECOMING YEAR 2000 COMPLIANT.

The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. As a result, date
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000. In addition, the year 2000 is a leap year, and some computer
programs may not properly provide for February 29, 2000. System failures and
miscalculations causing disruptions of normal business activities may occur. We
are currently in the process of reviewing our

16
<PAGE> 21

services, as well as our internal management information systems, in order to
identify and modify those services and systems that are not year 2000 compliant.
We do not have and are not developing a contingency plan in the event our
systems fail due to year 2000 related problems. For a detailed discussion of our
year 2000 readiness review, see "Management's Discussion and Analysis of Results
of Operations and Financial Condition -- Year 2000 Compliance Disclosure."

Based on our assessment to date, we believe that our internally developed
systems are year 2000 compliant. However, we utilize software and hardware
developed by third parties both for our network and internal information
systems. Additionally, we are continuing to assess the year 2000 compliance of
our services and systems.

Our services and systems operate in complex network environments and directly
and indirectly interact with a number of other hardware and software systems. We
face risks to the extent that suppliers of products, services and systems
purchased by us and others with whom we transact business, including those which
form significant portions of our network and may be sole or limited source
suppliers, do not have business systems or products that comply with year 2000
requirements. If these networks fail, our business will be significantly
impacted.

We do not currently have any information regarding the year 2000 status of our
customers, many of whom are private companies. As is the case with similarly
situated companies, if our customers experience Year 2000 problems, which result
in business interruptions or otherwise impact their operations, we could
experience a decrease in the demand for our services, which could have a
material adverse impact on our business, results of operations and financial
condition.

Our expectation that we will be able to upgrade our services and systems to
address the year 2000 issue and our expectation regarding the costs associated
with these upgrades are forward-looking statements subject to a number of risks
and uncertainties. Actual results may vary materially as a result of a number of
factors. We cannot assure you that we will be able to timely and successfully
modify our services and systems to comply with year 2000 requirements. Any
failure to do so could have a material adverse effect on our business, results
of operations and financial condition. Furthermore, despite testing by us and
our vendors, our services and systems may contain undetected errors or defects
in the technology associated with year 2000 date functions. In the event any
material errors or defects are not detected and fixed or third parties cannot
timely provide us with products, services or systems that meet the year 2000
requirements, on our business, results of operations and financial condition
could be materially adversely affected. Known or unknown errors or defects that
affect the operation of our services or systems could result in delay or loss of
revenues, interruption of network services, cancellation of customer contracts,
diversion of development resources, damage to our reputation, damages paid to
customers and litigation costs.

WE ARE SUBJECT TO THE RISKS FROM OUR LENGTHY SALES CYCLE.

Our customers and potential customers often take a long time to evaluate our
services. We spend a lot of time educating and providing information to our
prospective customers regarding the benefits of the Internet and our services.
Changes in the growth rate in our customer base, customer renewal rates and the
sales cycle for our services have caused, and are expected in the future to
cause, significant fluctuations in our results of operations from period to
period. In addition, we intend to significantly increase our sales and marketing
expenditures. Due to the lengthy sales cycle for our services, these expenses
will occur prior to customer commitments for our services. As a result, the
increase in our sales and marketing efforts may not result in increased sales of
our services.

OUR NETWORK IS SUBJECT TO SECURITY RISKS.

Our business depends upon the security of our network and, in part, on the
security of the network infrastructures of our third-party providers, which we
do not control. Despite implementing network security measures, the core of our
network infrastructure and our network providers' infrastructures are vulnerable
to denial of service attacks, computer viruses, break-ins and similar disruptive
problems such as the sending of excessive volumes of unsolicited bulk e-mail,
commonly referred to as spamming, caused by
17
<PAGE> 22

our customers or other Internet or network users. In the past, spamming has
caused our mail server to overload which caused us to delay sending our
customers' e-mail until the offending spam was deleted. Denial of service
attacks, computer viruses, break-ins or other problems caused by third parties
could lead to interruptions, delays or cessation in service to our customers,
which could cause losses to us or our customers or deter businesses from
subscribing to our services. Also, the inappropriate network uses by third
parties described above could jeopardize the security of confidential
information stored in our customers' computer systems and cause commercial
transactions to be delayed, not completed or completed with compromised
security.

We may face liability and may lose existing or potential customers as a result.
Although we intend to continue to implement industry-standard security measures,
these measures occasionally have been circumvented in the past, and others may
be able to circumvent our security measures or the security measures of our
third-party network providers in the future. Eliminating computer viruses and
alleviating other security problems may require significant expenditures,
distractions to management, and interruptions, delays or cessation of service to
our customers, all of which could harm us. Further, until more comprehensive
security technologies are developed, the security and privacy concerns of
existing and potential customers may inhibit Internet service industry growth in
general and our customer base and revenues in particular.

WE MAY REQUIRE SUBSTANTIAL FUTURE CAPITAL TO IMPLEMENT OUR BUSINESS PLAN.

We anticipate that our available cash resources, combined with the net proceeds
from this offering, will be sufficient to meet our anticipated working capital
and capital expenditure requirements for the foreseeable future. However, these
resources may not be sufficient for unanticipated working capital and capital
expenditure requirements. We may need to raise additional funds through public
or private debt or equity financings to take advantage of unanticipated
opportunities, including more rapid expansion or acquisitions of complementary
businesses or technologies or to develop new products or services. Any
additional financing we may need may not be available on terms favorable to us,
or at all.

WE DEPEND ON THIRD PARTIES TO SUPPLY US WITH HARDWARE.

We depend on a number of third-party equipment suppliers. We purchase the
components we use to provide our networking services from third parties,
including wide area data switches supplied by Ascend Communications, Inc. and
high performance routers from Cisco Systems, Inc. The expansion of our network
infrastructure and network services places a significant demand on our
suppliers, some of which have limited resources and production capacity. We have
experienced delayed delivery from suppliers of new communications lines,
switches, routers, terminal servers and other equipment. If our suppliers cannot
adjust to meet increasing demand, the higher demand levels may prevent them from
continuing to supply components and products in the quantities, at the quality
levels and at the times we require, or at all. If we are unable to develop
alternative sources of supply, we could experience delays and increased costs in
expanding our network infrastructure.

WE DEPEND ON OUR PROPRIETARY TECHNOLOGY AND TECHNOLOGICAL EXPERTISE.

available. These third-party technology licenses may not always continue to be
available to us on commercially reasonable terms. The loss of such technology
could require us to obtain substitute technology of lower quality or performance
standards or at greater cost, which could affect us in a material adverse
manner. To date, we have not been notified that we infringe the proprietary
rights of third parties, but there can be no assurance that third parties will
not claim infringement by us. We expect that participants in our markets will be
increasingly subject to infringement claims as the number of technologies and
competitors in our industry grows. Any such claim, whether meritorious or not,
could be time consuming, result in costly litigation, cause service delays or
require us to enter into royalty or licensing agreements. Such royalty or
licensing agreements might not be available on terms acceptable to us or at all.
As a result, any such claim could have a material adverse effect upon our
business, results of operations and financial condition.

THE INTERESTS OF OUR CONTROLLING STOCKHOLDER, JAMES COUCH, MAY CONFLICT WITH OUR
AND YOUR INTERESTS.

After completion of this offering, James Couch will own approximately 66.8% of
our outstanding common stock, 63.3% if the underwriters' over-allotment option
is exercised in full and sold by Mr. Couch, and will continue to be our
President and Chief Executive Officer and Chairman of our Board of Directors. As
a result of his stock ownership and board representation, Mr. Couch will be in a
position to affect corporate actions that could conflict with your interests and
ours. Mr. Couch will have the ability to control all matters submitted to our
stockholders for approval, including the election and removal of directors and
any merger, consolidation or sale of all or substantially all of our assets, and
to control our management and affairs. This ownership concentration may delay,
defer or prevent a change in corporate control, may impede a merger,
consolidation, takeover or other business combination involving us, or
discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of us. These circumstances could cause the price of
our common stock to decline. See "Management" and "Principal and Selling
Stockholders."

MANAGEMENT MAY APPLY THE PROCEEDS OF THIS OFFERING TO USES THAT DO NOT INCREASE
OUR PROFITS OR MARKET VALUE.

Our management will have considerable discretion in the application of the net
proceeds, and you will not have the opportunity, as part of your investment
decision, to assess whether the proceeds are being used appropriately. The net
proceeds may be used for corporate purposes that do not increase our
profitability or our market value. Pending application of the proceeds, they may
be placed in investments that do not produce income or that lose value.

ANTITAKEOVER PROVISIONS COULD NEGATIVELY IMPACT OUR STOCKHOLDERS.

Provisions of our certificate of incorporation, bylaws and the Delaware General
Corporation Law could make it more difficult for a third party to acquire us,
even if a change of ownership would benefit our stockholders. Specifically, our
charter documents:

- - limit the ability to call a special meeting of our stockholders to our Board
of Directors, the chairman of our Board and our president

- - prohibit any action to be taken by stockholders without a meeting

- - require advanced notice to be given for any business or director nominee
brought forward at any stockholder meeting by any of our stockholders

- - require cause and 80% stockholder approval to remove a director

- - provide that our Board of Directors will be divided into three classes of
directors, who will serve for staggered three-year terms.

In addition, Section 203 of the Delaware General Corporation Law generally
prohibits a 15% stockholder from engaging in any business combination with us,
including a merger or a sale of more than 10% of our

19
<PAGE> 24

assets, unless our Board of Directors approves the transaction. For more
information see "Description of Capital Stock."

WE MAY EXPERIENCE SUBSTANTIAL SALES OF OUR COMMON STOCK AFTER THE OFFERING.

Sales of a substantial number of shares of common stock after the offering could
cause the market price of our common stock to decline and could impair our
ability to raise capital through the sale of additional equity securities. Upon
completion of this offering, we will have 24,038,832 shares of common stock
outstanding and 946,320 shares subject to currently outstanding options
exercisable at different times and 24,916,332 shares outstanding if we issue
shares upon exercise of the underwriters over-allotment option. The 5,850,000
shares sold in the offering, or 6,727,500 shares if the underwriters
over-allotment option is fully exercised, will be freely tradable without
restriction or further registration under the federal securities laws unless
purchased by our "affiliates" as that term is defined in Rule 144 under the
Securities Act. The remaining 18,188,832 shares of common stock outstanding on
completion of the offering will be "restricted securities" as that term is
defined in Rule 144.

Our stockholders and stock option holders are generally limited by lock-up
agreements restricting their ability to sell their CRL common stock. These
securityholders cannot sell or otherwise dispose of any shares of our common
stock for a period of at least 180 days after the date of this prospectus
without the prior written consent of CIBC World Markets Corp. When the lock-up
agreements expire, the shares and the shares underlying the options will be
eligible for sale, in some cases only by complying with the volume, manner and
sale notice requirements of Rule 144.

On April 27, 1999, our principal stockholder, James Couch, sold 542,888 shares
of CRL common stock to ZeroDotNet, Inc. at a price equal to $9.21 per share in a
private transaction. Mr. Thor Geir Ramleth, who has agreed to serve as a
director of CRL upon completion of this offering, is the Chief Executive Officer
and a director of ZeroDotNet, Inc. In connection with this sale, CRL granted
registration rights to the buyer, including the right to demand one registration
for at least 50% of the purchased shares at any time during the period beginning
120 days after CRL's initial public offering through the second anniversary of
CRL's initial public offering. The registration rights terminate if all the
purchased shares could be sold in one transaction under Rule 144 without
exceeding the volume limitations of that rule. In addition, if we propose to
register any of our shares of common stock under the Securities Act, the buyer
is entitled to notice of and may include the purchased shares in the
registration. If the registration involves an underwriting, the underwriters may
eliminate shares in the registration and underwriting, and the shares included
in the registration must be allocated first to CRL, then to the buyer. CRL
agreed to provide the registration rights described above in exchange for the
buyer agreeing to enter into the lock-up agreement for a period of 180 days
after the date of this prospectus. The buyer must obtain a waiver of the lock-up
agreement to exercise the registration rights described above during the 180 day
period of the lock-up.

WE EXPECT THE PRICE OF OUR COMMON STOCK TO BE VOLATILE.

The market price of our shares of common stock is likely to be highly volatile
and could be subject to wide fluctuations in response to factors such as, among
others:

- actual or anticipated variations in our results of operations

- announcements of technological innovations

- new services introduced by us or our competitors

- changes in financial estimates by security analysts, conditions and trends
in the Internet and computer industries

- fluctuations in the valuation of companies perceived by investors to be
comparable to us

- any shortfall in reserve or net income or any increase in losses from levels
expected by securities analysts

- general market conditions

20
<PAGE> 25

Furthermore, the stock markets, and in particular Nasdaq, have experienced
extreme price and volume fluctuations that have affected and continue to affect
the market prices of equity securities of many technology companies. These
fluctuations often have been unrelated or disproportionate to the operating
performance of those companies. The trading prices of many technology companies'
stocks are at or near historical highs and reflect price to earnings ratios well
above historical levels. These trading prices and price to earnings ratios may
not be sustained. These broad market factors may cause the market price of our
common stock to decline. These market fluctuations, as well as general economic,
political and market conditions such as political and military conflict,
recessions, interest rate changes or international currency fluctuations, may
negatively impact the market price of our common stock. In the past, following
periods of volatility in the market price of a company's securities, class
action litigation has often been brought against such companies. We may in the
future be the target of similar litigation. Securities litigation could result
in substantial costs and distract management's attention and resources, which
would likely have a material adverse effect on us.

NEW INVESTORS WILL SUFFER IMMEDIATE SUBSTANTIAL DILUTION.

This offering is expected to create a public market for our common stock and
will substantially increase the market value of the initial investments of our
management and other existing stockholders, particularly James Couch, our
President and Chief Executive Officer. As of May 31, 1999, our existing
stockholders held 19,038,832 shares of our common stock. Based on an assumed
initial public offering price of $13.50 per share and the sale by Mr. Couch of
850,000 shares, the value of the shares held by the existing stockholders
following this offering would be approximately $245.5 million, representing an
aggregate increase of approximately $245.4 million over the amount of
consideration paid for those shares by the existing stockholders. In addition,
the initial public offering price is substantially higher than the book value
per share of our outstanding common stock. As a result, investors purchasing
common stock in this offering will incur immediate and substantial dilution of
$10.87 per share in the net tangible book value of the common stock from the
initial public offering price. We also have issued options to acquire common
stock at prices significantly below the initial public offering price. As these
outstanding options are exercised, there will be further dilution. See
"Dilution."

YOU SHOULD NOT RELY ON OUR FORWARD-LOOKING STATEMENTS.

Certain statements under the captions "Summary," "Risk Factors," "How We Intend
to Use the Proceeds from the Offering," "Management's Discussions and Analysis
of Financial Condition and Results of Operations" and "Business," and elsewhere
in this prospectus are forward-looking statements. When used in this prospectus,
the words "anticipate," "believe," "estimate," "will," "may," "should," "plan,"
"future," "intend," "expect" and similar expressions identify some of these
forward-looking statements. These statements may discuss future expectations or
contain projections of results of operations or financial condition or expected
benefits to us resulting from possible acquisitions, transactions or
developments. Although we believe that our plans, intentions and expectations
reflected in these forward-looking statements are reasonable, we can give no
assurance that such plans, intentions or expectations will be achieved. Actual
results, performance or achievements could differ materially from those
contemplated, expressed or implied by the forward-looking statements contained
in this prospectus. Important factors that could cause actual results to differ
materially from our forward-looking statements are contained in this prospectus,
including under the heading "Risk Factors."

21
<PAGE> 26

HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING

Our net proceeds from the sale of the 5,000,000 shares of common stock offered
by us are estimated to be approximately $61,525,000, based on an assumed initial
public offering price per share of $13.50, and after deducting estimated
underwriting discounts and commissions and offering expenses payable by us. If
the underwriters exercise the over-allotment option in full, and the
over-allotment shares are sold by us instead of the selling stockholder, our net
proceeds are estimated to be $72,542,000. See "Underwriting." We will not
receive any proceeds from the sale of shares by the selling stockholder. The
principal purposes of this offering are to obtain additional capital, create a
public market for our common stock and facilitate our future access to the
public capital markets.

We intend to use a portion of the net proceeds to repay amounts then outstanding
under our loan agreements with our banks and our capital lease. As of March 31,
1999, approximately $1,088,000 was outstanding under these agreements as
follows:

<TABLE>
<CAPTION>
BALANCE AT INTEREST RATE AT MATURITY
MARCH 31, 1999 MARCH 31, 1999 DATE
-------------- ---------------- --------------
<S> <C> <C> <C>
General Line of Credit........................ $ 46,000 10.25% September 2002
Capital Lease................................. 68,000 12.55% July 2000
Equipment Line of Credit...................... 382,000 9.50% September 2002
Equipment Line of Credit...................... 592,000 9.25% March 2003
</TABLE>

Amounts borrowed under these agreements are secured by substantially all of our
assets. Various portions of these borrowed amounts must be repaid in full
between July 2000 and March 2003. We also expect to use a portion of the net
proceeds for working capital and other general corporate purposes, including
expansion of our sales and marketing activities.

As part of our growth strategy, we intend to aggressively seek suitable
acquisition candidates, such as regional Internet service providers, that have
an existing customer base that we can add to our customer base, and companies
that have products that will enable us to expand the range of our value-added
network and hosting services. We may use a portion of the net proceeds for those
acquisitions. We have no current plans, agreements or commitments with respect
to any acquisitions, and we are not currently engaged in any negotiations with
respect to any acquisitions.

Pending the uses described above, we will invest our net proceeds in high
quality, income-producing securities such as short-term investment grade or
United States Government interest-bearing securities.

DIVIDEND POLICY

We have not paid and do not anticipate paying any cash dividends on our common
stock in the foreseeable future. We intend to retain our earnings, if any, for
use in our growth and ongoing operations.

22
<PAGE> 27

CAPITALIZATION

The table below sets forth our capitalization as of March 31, 1999, (i) on an
actual basis and (ii) on an as adjusted basis and to reflect our sale of the
5,000,000 shares of common stock offered by us at an assumed initial public
offering price of $13.50, after deducting the estimated underwriting discounts
and commissions and offering expenses, and the anticipated application of the
net proceeds. See "How We Intend to Use the Proceeds From the Offering." The
capitalization information in the table below is qualified by the more detailed
consolidated financial statements and related notes beginning on page F-1 of
this prospectus. The table should be read in conjunction with those consolidated
financial statements and related notes and the sections of this prospectus
titled "Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

The number of shares of common stock in the table below for the purposes of
determining stockholders' equity excludes 946,320 shares issuable upon exercise
of currently outstanding options and 2,000,000 shares available for the grant of
additional options under our 1999 Stock Incentive Plan. See "Management -- Stock
Options."

<TABLE>
<CAPTION>
MARCH 31, 1999
------------------
AS
ACTUAL ADJUSTED
------ --------
<S> <C> <C>
Current portion of long-term obligations.................... $ 280 $ --
====== =======
Long-term obligations, less current portion................. $ 822 $ 14
------ -------
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; none issued and outstanding................
Common stock, $.0001 par value; 70,000,000 shares
authorized; 18,978,832 shares outstanding; 23,978,832
shares outstanding as adjusted for this offering....... 6 61,531
Common Stock options........................................ 1,046 1,046
Deferred stock compensation................................. (739) (739)
Retained earnings........................................... 1,211 1,211
------ -------
Total stockholders' equity........................ 1,524 63,049
------ -------
Total capitalization.............................. $2,346 $63,063
====== =======
</TABLE>

23
<PAGE> 28

DILUTION

At March 31, 1999, our net tangible book value was approximately $1.5 million,
or $0.08 per share of common stock. Net tangible book value per share represents
the amount of our total tangible assets less total liabilities, divided by the
number of shares of common stock outstanding. Net tangible book value dilution
represents the difference between the amount per share of common stock paid by
new purchasers in this offering and the net tangible book value per share after
this offering. Without taking into account any changes in net tangible book
value after March 31, 1999, other than to give effect to the sale of the
5,000,000 shares of common stock offered by us, assuming an initial public
offering price of $13.50 per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses, our
adjusted net tangible book value at March 31, 1999 would have been approximately
$63.2 million, or $2.63 per share of common stock. This amount represents an
immediate increase in net tangible book value of $2.55 per share to the existing
stockholders and an immediate net tangible book value dilution of $10.87 per
share to purchasers of common stock in the offering. The following table
illustrates this per share dilution.

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $13.50
Net tangible book value per share at March 31, 1999....... $0.08
Increase in net tangible book value per share attributable
to new investors....................................... 2.55
Adjusted net tangible book value per share after the
offering.................................................. 2.63
------
Net tangible book value dilution per share to new
investors................................................. $10.87
======
</TABLE>

The table below summarizes, as of March 31, 1999, the difference between the
number of shares of common stock purchased from us, the total cash consideration
paid and the average price per share paid by existing stockholders and to be
paid by new investors purchasing shares in this offering assuming the sale of
5,000,000 shares by us at an assumed initial public offering price of $13.50 per
share.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)............ 18,978,832 79.1% $ 6,000 0.0001% $0.0003
New investors(1).................... 5,000,000 20.9 67,500,000 99.9999 $ 13.50
---------- ---- ----------- -------
Total..................... 23,978,832 100% $67,506,000 100%
========== ==== =========== =======
</TABLE>

- -------------------------
(1) Sales by the selling stockholder in this offering will reduce the number of
shares held by existing stockholders to 18,128,832, or 75.6% of the total
number of shares of common stock outstanding after the offering and will
increase the number of shares held by new investors to 5,850,000 or 24.4%
of the total number of shares of common stock outstanding after the
offering. If the over-allotment option is exercised in full and sold by the
selling stockholder, sales by the selling stockholder in this offering will
increase the number of shares held by new investors to 6,727,500 or 28.0%
of the total number of shares of common stock outstanding after the
offering.

24
<PAGE> 29

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected financial data should be read with the consolidated
financial statements and related notes beginning on page F-1 of this prospectus
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 26 of this prospectus. The consolidated statement
of operations data for each of the three years in the period ended December 31,
1998 and consolidated balance sheet data as of December 31, 1997 and 1998 are
calculated from financial statements that have been audited by Deloitte & Touche
LLP, independent auditors, and are included elsewhere in this prospectus. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

The selected consolidated financial data for the years ended December 31, 1994
and 1995 and for the three months ended March 31, 1998 and 1999 are calculated
from unaudited consolidated financial statements not included in this
prospectus. The unaudited financial statements have been prepared by us on a
basis consistent with our audited consolidated financial statements and include,
in the opinion of our management, all adjustments consisting only of normal
recurring adjustments necessary for a fair presentation of our results of
operations and financial position for those years.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................... $ 1,961 $ 3,831 $ 6,353 $10,375 $11,692 $ 2,981 $ 3,003
------- ------- ------- ------- ------- ------- -------
Costs and expenses:
Cost of revenues.......... 965 2,131 3,346 4,640 6,166 1,499 1,798
Selling and marketing..... 93 380 345 522 371 158 41
General and 411
administrative......... 448 1,840 2,997 4,124 847 1,325
Depreciation expense...... 86 225 512 745 909 190 210
Stock-based compensation --
expense................ -- -- -- 156 - 151
Total costs and 1,555
expenses........ 3,184 6,043 8,904 11,726 2,694 3,525
------- ------- ------- ------- ------- ------- -------
Operating income (loss)..... 406 647 310 1,471 (34) 287 (522)
Net interest income (1)
(expense)................. 1 1 5 (30) (1) (22)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income 405
taxes..................... 648 311 1,476 (64) 286 (544)
Income tax provision 157
(benefit)................. 211 150 591 87 83 (157)
------- ------- ------- ------- ------- ------- -------
Net income (loss)........... $ 248 $ 437 $ 161 $ 885 $ (151) $ 203 $ (387)
======= ======= ======= ======= ======= ======= =======
Net income (loss) per common $ 0.01
share basic and diluted... $ 0.02 $ 0.01 $ 0.05 $ (0.01) $ 0.01 $ (0.02)
Weighted average common
shares outstanding:
Basic..................... 18,979 18,979 18,979 18,979 18,979 18,979 18,979
Diluted................... 18,979 18,979 18,979 19,142 18,979 19,283 18,979
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------- MARCH 31,
1994 1995 1996 1997 1998 1999
---- ------ ------ ------ ------ -----------
(IN THOUSANDS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents..................... $289 $ 210 $ 235 $1,115 $ 840 $ 354
Working capital.......................... (36) 95 (182) 554 430 229
Total assets............................. 777 1,377 2,339 4,455 4,855 4,522
Long-term obligations, excluding current
portion................................ 0 20 76 402 847 822
Stockholders' equity..................... 284 709 870 1,755 1,760 1,524
</TABLE>

25
<PAGE> 30

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The following discussion should be read with the consolidated financial
statements and related notes beginning on page F-1 of this prospectus. The
results shown in this prospectus do not necessarily suggest or predict the
results to be expected in any future periods. This discussion contains
forward-looking statements based on current expectations which involve risks and
uncertainties. Actual results and the timing of events may differ significantly
from those projected in these forward-looking statements due to a number of
factors, including those contained in the section entitled "Risk Factors" and
elsewhere in this prospectus.

OVERVIEW

We are a Tier 1 Internet service provider offering customized Internet and
network management solutions to small and medium-sized businesses. We provide
high quality, reliable and scalable Internet and private network connectivity,
value-added network and hosting services designed to meet our customers' needs.
Our operations are based in San Francisco, California. As a Tier 1 Internet
service provider, we have peering relationships at all of the interexchange
points sanctioned by the National Science Foundation, which also constitute all
of the major domestic network access points at which Internet data is exchanged.
We have private peering relationships with other major Internet service
providers. We are also a national backbone provider with our owned and
controlled private switched network with points of presence in 30 major
metropolitan areas. As a result of our Tier 1 status and network, we are able to
provide high speed and reliable access to the Internet, secure private networks
and hosting services. Our hosting services include colocation services which
allow customers to place their computer equipment inside our facilities for
direct connection to the Internet. Also, our network serves as the platform by
which we are able to deliver value-added services, such as remote management
services, systems and network integration services and network security
services, to our customer base. Historically, we have provided our services to a
variety of customers including businesses of various sizes, other Internet
service providers, government agencies and educational institutions. We intend
to expand our direct and indirect sales force to increase our customer base. We
also intend to cross sell our value-added service offerings to both existing and
future customers in order to provide comprehensive service offerings. We view
being a comprehensive service provider as a key element to our strategy to
increase revenues and reduce customer loss.

Our customers outsource the management of their Internet and network needs to
us. We develop and construct our data switched networks and perform all data
routing and transmission for our customers. Due to the nature of the
telecommunications infrastructure and the fragmented nature of the
telecommunications industry, we lease fiber-optic capacity from third-party
providers over which we transmit data and peer with other telecommunications
providers to exchange data traffic.

In December 1998, we acquired Integral Networking Corporation in a merger
accounted for as a pooling of interests. Integral has a ten-year operating
history in the area of systems integration. Over the past three years, Integral
has developed a proprietary process to manage customer networks from the server
to the desktop while remaining off-site. We are able to capitalize on our
existing network to provide cost effective remote management services to our
customers from a single location operated by CRL. With our remote management
service, customers are able to outsource a portion or all of their information
technology departments as well as add functionality and applications to their
networks. We intend to offer remote management services on a nationwide basis.
Prior to the merger with Integral, we had little experience in, and derived
insignificant revenues from, remote management services and systems integration.

Revenues. We derive our revenues from four principal services:

- Internet and secure private network connectivity

- remote management

26
<PAGE> 31

- hosting services

- systems integration and hardware sales

Revenues from Internet and private network connectivity are typically derived
from monthly fixed prices paid by customers based upon access speed. We offer
dedicated connectivity in a range of access speeds, including fractional T1
(from 64 kilobits per second up to 1.536 megabits per second), T1 (1.536
megabits per second), T3 (45 megabits per second) and OC3 (155 megabits per
second) as well as dial-up access and transit services. We also offer our
customers the ability to upgrade access speeds as their needs increase. We
recently began offering digital subscriber line services but have generated no
revenues from these services. We currently generate Internet and private network
connectivity revenues from a wide range of customers including Internet service
and content providers, businesses, government agencies and educational
institutions. We intend to increase our sales and marketing focus, particularly
on small and medium-sized businesses.

Revenues from our remote management services are typically derived from monthly
fees for a fixed level of service. Pricing for our remote management services is
based on the number of users and a fixed maximum number of calls per month. Our
remote management services are focused on small and medium-sized businesses.
Historically, revenues from value-added services have represented an
insignificant portion of our total revenues and have not been reported
separately in our financial results. With our acquisition of Integral
Networking, we intend to increase our focus on our value-added services, as
evidenced by our recent rollout of remote management services.

Revenues from hosting services are typically derived from renting space to our
customers in which they place their file servers and equipment within our
facilities. The rental fee is based on the size of the space and access speeds.
Our customers can select from a variety of options in terms of access speeds and
space such as rack, half-rack or shelf. Access speeds include switched or
dedicated ethernet service (10 megabits per second), switched or dedicated fast
ethernet service (100 megabits per second) and gigabit fast ethernet services
(1,000 megabits per second). Our customers can purchase additional space and
increase their access speeds as needed. Our current facilities are sufficient to
permit our customers to purchase additional space. However, we will be required
to expand our facilities if future customer demand exceeds our existing
capacity.

Revenues from systems integration services are derived from hardware sales and
consulting fees. Our systems integration services including hardware sales are
currently provided primarily in California. Prior to our merger with Integral
Networking we derived insignificant revenues from hardware sales to customers,
and no revenues from systems integration services.

Cost of Revenues. Cost of revenues from Internet and private network
connectivity consists primarily of backbone costs and monthly access charges by
local exchange carriers to connect our customers to our network and colocation
costs. Backbone costs include all leased fiber-optic capacity to interconnect
our points of presence and to connect to public and private peering points. We
lease our fiber-optic capacity typically under short-term leases and are billed
monthly by our bandwidth providers. Colocation costs consist of monthly fees for
leasing space in facilities in which we colocate with other telecommunications
providers.

Cost of revenues from remote management services consists primarily of personnel
costs to provide customer support and network monitoring services. We believe
our cost of revenues from remote management services and other value-added
services as a percentage of revenues may decline as we increasingly provide
remote management services and other value-added services to existing customers
over the existing connection we provide to the customer.

Cost of revenues from hosting services consists primarily of rent expenses for
colocation space.

Cost of revenues from systems integration services consists primarily of the
cost of hardware purchased.

Selling and Marketing Expense. Selling and marketing expense consists primarily
of sales commissions, travel and entertainment and sales and marketing programs.
We intend to expand our investment in our

27
<PAGE> 32

sales and marketing personnel to achieve and properly support the intended
expansion in our customer base.

General and Administrative Expense. General and administrative expense consists
primarily of personnel expense, occupancy, general operating costs, professional
fee expenses and bad debt. We expect general and administrative expense to
increase in dollar amount in the future, reflecting anticipated growth in our
operations and the costs associated with being a publicly held company.

Stock-Based Compensation Expense. In connection with the grant of stock options
to employees in 1999 and 1998, we recorded an aggregate deferred compensation
expense of approximately $948,000, representing the difference between the
estimated fair market value of the common stock and the option exercise price at
the date of grant. This amount is presented as a reduction of stockholder's
equity and is amortized over the vesting period of the applicable options. These
valuations resulted in charges to operations of $156,000 in the year ended
December 31, 1998, and $151,000 for the three months ended March 31, 1999, and
will result in charges of the remaining $739,000 over the next five years.

Depreciation. Depreciation expense consists primarily of depreciation of
computer equipment, office furniture and leasehold improvements. On January 1,
1998, we changed the estimated useful lives for our switches and routers from
three to five year lives as a result of our determination, based on historical
experience, that the vast majority of assets in this class have service lives of
approximately five years.

RESULTS OF OPERATIONS

The following table sets forth our statement of operations data for the years
indicated as a percentage of revenues. This information should be read in
conjunction with the financial statements and notes included elsewhere in this
prospectus.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------- --------------
1996 1997 1998 1998 1999
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Revenues................................... 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Costs and expenses:
Costs of revenues........................ 52.7 44.7 52.7 50.3 59.9
Selling and marketing.................... 5.4 5.0 3.2 5.3 1.4
General and administrative............... 29.0 28.9 35.3 28.4 44.1
Depreciation............................. 8.1 7.2 7.8 6.4 7.0
Stock-based compensation expense......... -- -- 1.3 -- 5.0
----- ----- ----- ----- -----
Total costs and expenses......... 95.1 85.8 100.3 90.4 117.4
----- ----- ----- ----- -----
Operating income (loss).................... 4.9 14.2 (0.3) 9.6 (17.4)
Net interest (expense)..................... -- -- (0.3) -- (0.7)
Income tax provision (benefit)............. 2.4 5.7 0.7 2.8 (5.2)
----- ----- ----- ----- -----
Net income (loss).......................... 2.5% 8.5% (1.3)% 6.8% (12.9)%
===== ===== ===== ===== =====
</TABLE>

COMPARISON OF QUARTERS ENDED MARCH 31, 1999 TO MARCH 31, 1998

Revenues

Our revenues increased 0.7% to $3.00 million in the quarter ended March 31,
1999, compared to $2.98 million in the quarter ended March 31, 1998. Increased
revenues resulting from two major systems integration sales were offset by a
12.6% reduction in colocation and Internet connectivity revenues.

28
<PAGE> 33

Cost of Revenues

Our cost of revenues increased 20% to $1.8 million in the quarter ended March
31, 1999, compared with $1.5 million in the quarter ended March 31, 1998. This
increase was primarily the result of the increased volume of computer equipment
sold in connection with the increased systems integration sales recognized.

Selling and Marketing

Our sales and marketing expenses decreased 74.1% to $41,000 in the quarter ended
March 31, 1999, compared to $158,000 in the quarter ended March 31, 1998. This
decrease is attributable primarily to sales commissions and costs associated
with a 1998 trade show that were not incurred in the 1999 period.

General and Administrative

General and administrative expenses increased 56.4% to $1.3 million for the
quarter ended March 31, 1999, compared to $847,000 for the quarter ended March
31, 1998. The increase was primarily due to an increase in personnel expense of
$280,000, facilities cost increase of $65,000, and an increase in outside
services and professional fees of $60,000.

Depreciation

Our depreciation expense increased 10.5% to $210,000 in the quarter ended March
31, 1999, compared to $190,000 in the quarter ended March 31, 1998. The increase
is due primarily to the buildout of our new network operations center in 1998.

Stock-Based Compensation

Stock-based compensation of $151,000 was amortized during the quarter ended
March 31, 1999.

Net Interest Income (Expense)

We incurred net interest expense of $22,000 in the quarter ended March 31, 1999,
compared to $1,000 in the quarter ended March 31, 1998. This change was a result
of increased borrowing for network equipment under our lines of credit that was
used to purchase network equipment.

COMPARISON OF YEARS ENDED 1998 TO 1997

Revenues

Our revenues increased 12.7% to $11.7 million in 1998, compared to $10.4 million
in 1997. This growth in revenues resulted from an 11% increase in sales of
dedicated Internet connectivity and hosting services, a tenfold increase in
revenues derived from private network connectivity services and a 34% increase
in sales generated by systems integration services. Dedicated Internet
connectivity service is service provided over a circuit which is available 24
hours-a-day, seven days-a-week for the sole purpose of delivering the Internet
connectivity. Approximately 74% of our 1998 revenues was generated from our
Internet and network connectivity services, approximately 16% from value-added
services and approximately 7% from hosting services. Our revenue increase for
the year ended December 31, 1997 to the year ended December 31, 1998 was less
than we have experienced in previous years, due in part to a reduction in our
sales force. This reduction was due in part to our involvement in negotiations
during 1998 relating to potential business combinations with companies
possessing established sales forces. Offsetting these increases were reductions
in revenues of $545,000 realized from dial-up customers and reduced fees for
installation services. This decrease resulted from our increased focus on
providing dedicated Internet and higher value services to business and
government customers.

29
<PAGE> 34

Cost of Revenues

Our cost of revenues increased 32.9% to $6.2 million in 1998, compared with $4.6
million in 1997. Of this increase, $1.2 million was primarily due to increased
one time connectivity charges arising from the expansion of our network and
installation charges of $139,000. The expansion resulted in incremental unused
capacity. In addition, we had increased costs of $286,000 arising from hardwares
sales with our systems integration services.

Selling and Marketing

Our selling and marketing expenses decreased 28.9% to $371,000 in 1998, compared
to $522,000 in 1997. This decrease is attributable primarily to reduced
commissions expense. Commissions in 1998 were based upon total contract value
equalling the term of the contract multiplied by monthly service fees. The
decrease in commissions expense in 1998 results from fewer sales of longer-term
versus shorter-term contracts than in 1997 and increased purchases by our
existing customer base of increased access speeds and additional space rather
than increases in the number of new customers. The decrease in longer-term
contracts is due to a general industry decrease in the prices for the services
we provide, making customers reluctant to sign longer-term contracts. The
increase in shorter-term contracts does not materially impact the conduct of our
business. We also experienced a reduction in our sales force in 1998 due to a
number of factors including normal attrition and our being involved in
negotiations in the second and third quarters of 1998, relating to potential
business combinations with companies with existing sales forces. We believe our
involvement in these negotiations caused a higher attrition rate for our sales
staff than we have historically experienced. These negotiations, none of which
led to a business combination, also caused us to postpone our efforts to hire
additional and replace lost sales staff.

General and Administrative

General and administrative expenses increased 37.6% to $4.1 million for 1998,
compared to $3.0 million for 1997. Approximately $675,000 of this increase
relates to salaries and benefits resulting from an increase in personnel.
Facilities and related expenses increased by $424,000 primarily as a result of
the expansion of our network infrastructure.

Depreciation

Our depreciation expense increased 22.0% to $909,000 in 1998, compared to
$745,000 in 1997. The increase is due to additional capital expenditures
incurred during 1998 for telecommunications equipment and facilities
improvements. On January 1, 1998, we changed the estimated useful lives for our
switches and routers from three to five-year lives. This change reduced 1998
depreciation by $237,000. We made this change to more accurately reflect our
historical experience with respect to the actual useful lives of the equipment.

Stock-Based Compensation

Stock-based compensation of $156,000 was amortized during the year ended
December 31, 1998, and stock-based compensation of $792,000 will be amortized
over the remaining vesting periods of the related options, including $394,000 in
the year ending December 31, 1999. In addition, we issued stock options to
employees during the first quarter of 1999, which will result in additional
stock-based compensation of $98,000 being recorded in 1999, $50,000 of which
will be amortized as an expense 1999. Based on these issuances of stock options
below the fair value of our stock, we will record a total stock-based
compensation charge in 1999 of approximately $444,000.

Net Interest Income (Expense)

We incurred net interest expense of $30,000 in 1998, compared to $5,000 in
income in 1997. This change was a result of increased borrowing for network
equipment under our lines of credit.

30
<PAGE> 35

COMPARISON OF YEARS ENDED 1997 TO 1996

Revenues

Our revenues increased 63.3% to $10.4 million in 1997, compared to $6.4 million
in 1996. Approximately $4.9 million of this increase is due to growth in
revenues generated by our Internet connectivity services and installation fees.
This increase was slightly offset by a $917,000 aggregate decrease in dial-up
customer and systems integration services revenues.

Cost of Revenues

Our cost of revenues increased 38.7% to $4.6 million in 1997, compared to $3.3
million in 1996. This increase resulted from a $1.4 million increase due to
larger connectivity charges and other costs incurred with our network expansion.
In addition, costs arising from our systems integration services were $118,000
less than the prior year.

Selling and Marketing

Our selling and marketing expenses increased 51.3% to $522,000 in 1997, compared
to $345,000 in 1996. This increase is attributable primarily to increased
commissions and travel and entertainment expenses.

General and Administrative

General and administrative expenses increased 62.9% to $3.0 million in 1997,
compared to $1.8 million in 1996. Salaries and general office expenses increased
by $584,000 as we hired more personnel to keep pace with the growth in demand
for our services. In addition, bad debt expenses increased by $573,000.

Depreciation

Our depreciation expense increased 45.5% to $745,000 in 1997, compared to
$512,000 in 1996. The increase was primarily the result of additional capital
expenditures incurred for telecommunications equipment and facilities
improvements.

FACTORS AFFECTING OPERATING RESULTS

We expect to experience significant fluctuations in our future quarterly and
annual results of operations due to a variety of factors, most of which are
outside our control. For a list of factors affecting our operating results, see
"Risk Factors -- Our operating results in one or more future periods are likely
to fluctuate significantly" and the other risk factors described in this
prospectus. Due to all of these factors, we believe that period-to-period
comparisons of our operating results are not necessarily meaningful and should
not be relied upon as indications of future performance.

YEAR 2000 COMPLIANCE DISCLOSURE

The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. As a result,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. In addition, the year 2000 is a leap year, and some computer
programs may not properly provide for February 29, 2000. System failures and
miscalculations causing disruptions of normal business activities may occur
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. As a result,
many companies' software and computer systems may need to be upgraded or
replaced in order to comply with year 2000 requirements. We are currently in the
process of reviewing our network switching, routing and telephone equipment,
constituting the equipment used in providing our Internet and network connection
services, as well as our internal management information systems, in order to
identify and modify those items and systems that are not year 2000 compliant. We
do not have and are not developing a contingency plan in the event our systems
fail due to year 2000 related problems.

31
<PAGE> 36

Our year 2000 readiness review includes assessment, implementation, testing and
upgrading or replacing non-compliant items as appropriate. We have completed
most of our review of all of our software, switches and routers and other
systems and anticipate completion of our assessment and implementation by
mid-1999 and completion of all year 2000 testing during the third quarter of
1999. To date, we have evaluated our internally developed systems, consisting of
our management information system, provisioning tracking system, technical
information database and customer and network information database and believe
that they are year 2000 compliant. However, we utilize software and hardware
developed by third parties both for our network and internal information
systems. We have reviewed the year 2000 compliance statements issued by,
reviewed publicly available information regarding, or have sought oral and
written assurances from, our significant suppliers. Nine of them, constituting
approximately one-third of our significant suppliers, have indicated that their
products are year 2000 compliant, and none have indicated that remediation
measures are necessary. We intend to continue to seek assurances from our other
suppliers during the course of our year 2000 readiness review. To the extent
that our systems are not year 2000 compliant, we are modifying such systems to
make them compliant. Noncompliant items are replaced or otherwise remediated and
then tested during the review process. To date, we have identified the need to
upgrade our Cascade OpenView Layer 2 network management and switch operating
system software to Ascend Naviscare software. We anticipate completing this
upgrade by mid-1999. Assessment of our telephony systems has not yet been
completed but is currently in process. We expect these modifications will be
made on a timely basis and do not believe that the cost of the modifications
will have a material effect on our business, results of operations or financial
condition. To date, we have not incurred material costs in upgrading and
replacing non-compliant items. Additionally, we are continuing to assess the
year 2000 compliance of our services and systems. We believe our services and
systems assessed to date do not contain material year 2000 deficiencies. We
estimate that the capital and other costs associated with any upgrade and
conversion of our existing services and systems relating to the year 2000 issue
will not be material.

We expect to continue assessing and testing our internal information technology,
which we refer to as IT, and non-IT systems to mid-1999 with the assessment and
remediation process described above. To ensure year 2000 compliance we will
upgrade the server on which our accounting software runs in the third quarter of
1999. We are not currently aware of any material operations issues or costs
associated with preparing our internal IT and non-IT systems for the year 2000.
However, we may experience material unanticipated problems and costs caused by
undetected errors or defects in the technology, including embedded technology,
used in our internal IT and non-IT systems.

Based upon our correspondence with and the publicly available information
regarding our primary equipment, telecommunications and data communications
providers, we are aware that more than three-quarters of these providers are in
the process of reviewing and implementing their own year 2000 compliance
programs. We are in the process of contacting the remaining quarter of our
suppliers to determine the scope of their year 2000 compliance programs. Of the
providers from whom we received correspondence, none of them has indicated that
they have not considered year 2000 compliance, approximately 10% have indicated
that they are currently year 2000 compliant and the remaining 90% have indicated
that they expect to be year 2000 compliant by the end of 1999. At this time, CRL
is not aware of, and cannot determine, apart from the public materials reviewed
and assurances received, how many of its providers are implementing remediation
measures which affect CRL. We do not believe that we will be afforded the
opportunity to test the systems of these providers. If our primary providers
experience business interruptions as a result of the failure to achieve year
2000 compliance, our ability to provide Internet connectivity could be impaired,
which could have a material adverse effect on our business, results of
operations and financial condition.

Our services and systems operate in complex network environments and directly
and indirectly interact with a number of other hardware and software systems. We
face risks to the extent that suppliers of products, services and systems
purchased by us and others with whom we transact business, including those which
form significant portions of our network and may be sole or limited source
suppliers, such as Ascend Communications, Inc., the provider of our Cascade
switches, do not have business systems or

32
<PAGE> 37

products that comply with year 2000 requirements, despite the implementation of
a year 2000 compliance program or assurances of year 2000 compliance by all of
such suppliers. Ascend Communications, Inc.'s public disclosure indicates that
it has a plan in place to become, to the extent it is not already, year 2000
compliant by June 1999. We have received assurances from 11 suppliers,
constituting approximately one third of our suppliers, including our two most
significant equipment suppliers, Ascend and Cisco, regarding their year 2000
compliance of their systems or networks. One has indicated that its systems are
year 2000 compliant and the others have indicated that they are currently in the
remediation or testing stages of their year 2000 review and that they will be
compliant by the end of 1999. If these networks fail, our business will be
significantly impacted.

We do not currently have any information regarding the year 2000 status of our
customers, many of whom are private companies. As is the case with similarly
situated companies, if our customers experience year 2000 problems, which result
in business interruptions or otherwise impact their operations, we could
experience a decrease in the demand for our services, which could have a
material adverse impact on our business, results of operations and financial
condition.

We have not incurred any significant expenses to date associated with our year
2000 plan and are not aware of any material costs associated with our
anticipated year 2000 efforts. Our expectation that we will be able to upgrade
our services and systems to address the year 2000 issue and our expectation
regarding the costs associated with these upgrades are forward-looking
statements subject to a number of risks and uncertainties. Actual results may
vary materially as a result of a number of factors. We cannot assure you that we
will be able to timely and successfully modify our services and systems to
comply with year 2000 requirements. Any failure to do so could have a material
adverse effect on our business, results of operations and financial condition.
Furthermore, despite testing by us and our vendors, our services and systems may
contain undetected errors or defects associated with year 2000 date functions.
In the event any material errors or defects are not detected and fixed or third
parties cannot timely provide us with products, services or systems that meet
the year 2000 requirements, our business, results of operations and financial
condition could be materially adversely affected. Known or unknown errors or
defects that affect the operation of our services or systems could result in
delay or loss of revenues, interruption of network services, cancellation of
customer contracts, diversion of development resources, damage to our
reputation, damages paid to customers and litigation costs.

LIQUIDITY AND CAPITAL RESOURCES

We have historically generated positive cash flows from operating activities and
have financed our growth, as well as necessary capital expenditures and working
capital needs, primarily through the use of internally generated funds and lines
of credit. In addition, we have made limited use of capital lease financing. We
expect to experience a substantial increase in our operating expenses as we
implement our growth strategy and incur expenses for hiring new personnel and
for additional leased network capacity. We also anticipate an increase in our
capital expenditures consistent with our anticipated need for additional network
infrastructure. We expect our operating expenses and capital expenditures will
be a significant use of our cash resources.

We currently have agreements with commercial lenders providing for equipment
financing arrangements. Integral also has a line of credit with a commercial
lender. As of March 31, 1999, approximately $1,088,000 was outstanding under
these agreements. Amounts borrowed under these agreements are secured by
substantially all of our assets and bear interest at a weighted average rate
equal to 9.6% as of May 31, 1999. Various portions of these borrowed amounts
must be repaid in full between July 2000 and March 2003. We intend to use a
portion of the proceeds from the offering to repay the amounts outstanding under
these loan agreements. In addition, we have a $200,000 working capital line of
credit. As of March 31, 1999, we had no cash borrowings with that facility. See
"How We Intend to Use the Proceeds from the Offering."

33
<PAGE> 38

Our net cash flows from operating activities were $705,000 for 1998, $1.7
million for 1997, and $944,000 for 1996. Our borrowings were $703,000 for 1998,
$358,000 for 1997 and zero for 1996. At December 31, 1998, we had $840,000 in
cash and cash equivalents.

Net cash used in investing activities was $1,529,000 for the year ended December
31, 1998, $1,182,000 for the year ended December 31, 1997, and $905,000 for the
year ended December 31, 1996. Cash used in investing activities was primarily
used to purchase property and network equipment.

Net cash provided by (used in) financing activities was $549,000 for the year
ended December 31, 1998, $316,000 for the year ended December 31, 1997 and
$(14,000) for the year ended December 31, 1996. In the years ended December 31,
1998 and 1997, net cash provided by financing activities resulted primarily from
borrowings. Net cash used in financing activities in the year ended December 31,
1996, resulted from debt payments.

We believe that the net proceeds of this offering, together with our existing
cash, cash equivalents and short-term investments and available credit
facilities, will be sufficient to meet our anticipated cash needs for working
capital, repayment of debt and capital expenditures for at least the next 12
months. Thereafter, we may require additional funds to support our working
capital and capital expenditure requirements and may seek to raise additional
funds through public or private equity or debt financings or other sources for
such requirements and acquisitions of technologies, companies and development of
our existing and new services. Any additional financing we may need may not be
available on terms favorable to us, or at all. See "Risk Factors -- We may
require substantial future capital to implement our business plan" and "How We
Intend to Use the Proceeds from the Offering."

RECENTLY ISSUED ACCOUNTING STANDARDS

In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued SOP 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use. SOP 98-1
provides guidance for an enterprise on accounting for the costs of computer
software developed or obtained for internal use. SOP 98-1 is effective for us in
fiscal 1999. We anticipate that accounting for transactions under SOP 98-1 will
not have a material impact on our financial position or results of operations.

In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which defines derivatives, requires that all
derivatives be carried at fair value, and provides for hedge accounting when
conditions specified in SFAS No. 133 are met. SFAS No. 133 is effective for us
in fiscal 2000. We do not believe adoption of this statement will have a
material impact on our financial position or results of operations.

34
<PAGE> 39

BUSINESS

GENERAL

CRL Network Services is a Tier 1 Internet service provider offering customized
Internet and network management solutions to small and medium-sized businesses.
Our services include:

- value-added services, which are additional services delivered over the same
circuit as our connectivity services. Our current value-added services are
remote management of our customer's networks and systems integration, which
includes the resale, installation and configuration of our customers'
computer systems and software.

- hosting, which is the distribution of customers' Internet content from our
facilities.

We believe we were among the first companies involved in the development of
connectivity solutions and services for the commercial Internet. We have
developed our own high speed network, which enables us to reliably and cost
effectively deliver customized, comprehensive solutions. As of May 31, 1999, we
had 30 points of presence in major metropolitan areas that connect to the
interexchange points sanctioned by the National Science Foundation for the
transfer of Internet Protocol-based traffic between Internet backbone networks.
Our network is comprised of several elements, including 24 Cascade switches, 54
Cisco routers, facilities and clear channel fiber-optic bandwidth, which
together provide a fast, secure, high quality network capable of minimizing
outages resulting from hardware or software faults.

INDUSTRY OVERVIEW

To remain competitive, businesses today must have the ability to reliably access
and share information both externally and internally. In response, companies are
increasingly conducting business over the public Internet and their own private
networks. As a result, businesses are expanding their connectivity to the
Internet and use of both local area networks, commonly referred to as LANs, and
wide area networks, commonly referred to as WANs. The Internet's functionality
and accessibility have created an increasingly attractive commercial medium to
quickly and efficiently provide services and distribute information that
historically has been more difficult to obtain through traditional communication
channels. At the same time, businesses are continuing to develop private
networks to distribute and share information, resulting in a dramatic increase
in private network traffic as well as heightened performance requirements for
these networks. Increased use of the Internet and public and private networks
has also driven growth in the amount of sensitive corporate information shared
over networks, causing network security to become a high priority for many
businesses. As a result of these trends, a growing number of businesses view
responsive, reliable and secure networks as integral to their operations. As
these businesses evolve, the effectiveness of their networks depends largely on
the scalability and flexibility of these networks.

The proliferation of Internet use is driven by the emergence of electronic
commerce and availability of applications such as the outsourcing of help desk
functions, Internet Protocol-based voice, fax and video conferencing, purchasing
and provisioning functions, and corporate and product marketing. Businesses are
confronted with increasing customer demand for offerings of products and
services over the Internet as a result of the immediacy and convenience it
affords. As the Internet evolves, companies are transitioning from Internet use
for business-supportive functions such as marketing and customer support, to
functions integral to business such as transaction execution, including sales
orders and customer billing. As Internet

35
<PAGE> 40

use becomes increasingly integral to business, businesses' emphasis on the
reliability and security of their Internet access grows in importance. Also,
many businesses have emerged that focus solely on delivering services over the
Internet through Web sites and electronic commerce applications. Their ability
to offer these kinds of products and services requires high bandwidth Internet
sites and operations which are sufficiently scalable to meet their changing
needs. Due to advances in online security and payment mechanisms, the number of
businesses establishing commerce-enabled Web sites is expected to increase
dramatically. International Data Corporation estimates that the number of
consumers buying goods and services on the Internet will grow from 18 million in
1997 to 128 million in 2002, and that the total value of goods and services
purchased over the Internet will increase from approximately $12 billion in 1997
to approximately $425 billion by 2002. Businesses are positioning themselves to
capture this rapid growth opportunity by enhancing their Internet presence.

The need for businesses to establish secure private wide area networks using the
services of companies like CRL has been driven by the growing importance of
connecting the geographically dispersed sites of their business, their customers
and their suppliers. As networks become a more integral part of day-to-day
operations, many companies seek to minimize network costs and improve operating
efficiencies. Traditional wide area network architectures consist of dedicated
circuits between computing facilities utilizing the same fixed bandwidth
regardless of traffic flow. New switched data technologies such as that utilized
by us share and dynamically allocate bandwidth based on prevailing traffic
patterns. The shared bandwidth of switched data technologies typically results
in wide area networks that are more reliable and cost efficient than those based
on traditional leased-line services.

Local area networks have emerged from businesses' need to access and share
internal electronic information. To enable effective internal communication and
distribution of company information, the local area network is used by
businesses seeking to decentralize their information databases. Local area
networks facilitate access to client/server-based technology such as Web-enabled
databases, shared file servers, e-mail, electronic commerce applications, and
other online information. Use of local area networks and the services of LAN
service providers will continue to grow as businesses increasingly decentralize
information.

As local area networks and wide area networks become more prominent, businesses
increasingly need remote access to their network for mobile workers. Many
businesses recognize the importance of controlling the method by which
electronic automation takes place and ensuring the security of communications
between mobile workers and the proprietary networked resources they access. The
benefits of efficiently distributing proprietary information to those with a
need to know must be weighed carefully against the possibility that unauthorized
access to sensitive information can occur due to failed security mechanisms or
poor network design.

Internet access services provided by Internet service providers interconnect
businesses and individuals to the Internet, private data networks and other
interconnected networks. Access services include high speed dedicated access
used primarily by medium-sized and larger organizations and dial-up access for
individuals and small or home office businesses. In addition to Internet access
services, business-focused Internet service providers such as CRL are
increasingly providing a range of additional communications services, including
remote management, shared and dedicated Web hosting, server colocation, network
security services, electronic commerce applications and new applications such as
Internet Protocol-based voice, fax and video conferencing. Internet service
providers who can bundle several of these communications services can satisfy
more of the needs of their customers and enhance their cross-selling
opportunities.

Several different types of Internet service providers have emerged and are
generally referred to as Tier 1, Tier 2, and Tier 3 network service providers.
International Data Corporation defines a Tier 1 network service provider as an
operator of a high quality, national backbone facility, specializing in leased
line connectivity. Also according to International Data Corporation, most Tier 1
network service providers peer directly at the National Science
Foundation-approved network access points. International Data Corporation
defines Tier 2 and Tier 3 network service providers as those who do not have a
national backbone network.

36
<PAGE> 41

Peering is critical to providing high quality, high speed Internet access. By
peering directly with other networks, Tier 1 Internet service providers such as
CRL are able to send Internet traffic via the most direct and reliable path to
its final destination (the fewest "hops"), thereby minimizing potential delay
and lost or corrupted data. Additionally, Tier 1 Internet service providers
maintain and control their own national backbones and are generally better able
to control the quality of service, level of data integrity and degree of
reliability than non-Tier 1 Internet service providers. Many Tier 1 providers
are also fully peered, which means they can route traffic to every other
Internet destination through peering arrangements without paying transit fees.
Because Tier 1 Internet service providers typically do not pay for the privilege
of interconnecting with other Tier 1 networks with whom they peer, they can
increase their available Internet capacity by expanding existing peering
connections with their peer networks without the high costs associated with the
retail purchase of additional Internet access. The following is a list of
Internet service providers whom we believe to be some of the Tier 1 Internet
service providers: MCI WorldCom, Inc. (UUNET), Cable & Wireless P.L.C., Sprint
Corporation, ICG Communications, Inc. (Netcom), PSINet Inc., GTE Internetworking
Incorporated (BBN Planet), Intermedia Communications Inc. (Digex), AT&T
Corporation and CRL. As the number of Internet service providers has grown, Tier
1 Internet service providers have increased their requirements for peering
arrangements, which has raised the barriers to acquiring and maintaining Tier 1
status.

The internal network design of the Internet service provider's network is also a
significant factor in determining the speed and reliability of data delivery
from source to destination. Traditional networks constructed solely of routing
devices require that a packet of information stop at a router in every point of
presence along the traveled network path. Each of these routed hops requires the
data packet to be examined by the router and a policy-based routing decision to
be made regarding the egress of the packet back onto the network. Many routing
decisions can delay the delivery of the packet to its destination. By contrast,
switched data networks can deliver information directly between the source and
destination without the need to disassemble the data packets during transit. As
a result, switched data networks generally provide higher speeds, less data
delay and overall better quality of service than traditionally routed networks.

THE MARKET OPPORTUNITY

Overview

Internet and private network operations are increasingly becoming integral to
the commercial and communication operations of businesses. The evolution and
expansion of Internet services and the networks over which they are delivered
has led to a growing need for comprehensive, bundled Internet and network
services such as those offered by CRL.

The Need for Internet Connectivity Services

The Internet continues to increase in size and importance as its role in
integral business operations expands. Businesses are looking to third-party
providers for expertise in implementing their Internet strategies. According to
Forrester Research, Internet access revenues from businesses are expected to
increase from less than $1 billion in 1997 to more than $16 billion in 2002.
Internet service providers are ideally positioned to capitalize on this growing
need of businesses to access and utilize more of the Internet.

Demand for Secure Private Networks

Historically, data communications services offered over private leased lines
were expensive, not monitored or managed for quality of service nor capable of
deflecting outages from software or hardware faults. Seeking a less expensive
alternative, some businesses use the public Internet for communications but are
confronted with potential problems inherent in the Internet, such as
unauthorized access and data loss and reduced transmission speed, commonly
referred to as degradation. Virtual private networks are also used as another
less expensive alternative, but similarly include security concerns and
unreliable performance due

37
<PAGE> 42

to their reliance on the Internet for data transmission. By contrast, Layer 2,
switched private networks used by providers like CRL offer a networking option
which is more cost effective than traditional point-to-point private leased
lines but is an owned and controlled network not depending upon the Internet for
data transfer, eliminating security concerns and permitting lower and more
stable delay levels than data communications alternatives relying upon the
Internet.

Enhanced Network Management Services

Businesses need to ensure that their networks, information systems and
applications operate continuously as their reliance on public and private
networks increases. While large businesses are able to build and maintain
information technology departments capable of servicing their networks,
information systems and applications, small and medium-sized businesses find it
difficult to cost effectively maintain information technology departments
capable of ensuring the continuous availability of complex networks running
multiple applications. It is also difficult and expensive for small and
medium-sized businesses to continuously train their information technology
departments to support new technologies and applications. As a result, many
small and medium-sized businesses have chosen to outsource their information
technology department functions to network service providers capable of offering
a full range of these services. Traditionally, outsourcing information
technology services has required site visits from the service provider even for
routine problems often resulting in lengthy delays. As a result, small and
medium-sized businesses are seeking the ability to affordably outsource their
information technology departments to network service providers capable of
rapidly responding to problems and minimizing network downtime. International
Data Corporation reports that the U.S. market for network monitoring and
management was $2.4 billion in 1998 and is projected to reach $4.7 billion in
2002, representing an 18% annual growth rate.

Hosting Services

As Internet presence becomes increasingly critical to business operations, many
businesses are seeking to outsource hosting services, including Internet
colocation, to network service providers. By outsourcing these functions,
businesses can establish a strong Internet presence while remaining focused on
their core business operations. According to Forrester Research, revenues from
complex Web hosting will increase from approximately $200 million in 1997 to $8
billion in 2002, while intranet hosting will generate nearly $400 million in
revenues for Internet service providers by 2002. Traditional hosting companies
operate geographically dispersed networks that are subject to increased risks of
data delay and degradation or loss, as data travels across multiple network
connections, or hops. Many hosting companies also do not have the flexibility,
peering arrangements or capacity to quickly scale their services to meet the
sharp growth and high bandwidth requirements of Internet operations integral to
business. Network service providers who are able to overcome these obstacles
will be well positioned to capitalize on the growth of the Web hosting market.

OUR SOLUTION

Through our national, facilities-based fully-peered network, we offer our
customers high quality, flexible and scalable services, including:

- value-added services delivered over the same circuit as our connectivity
services in addition to those services, consisting of remote network
management of our customers' networks and systems integration services

- hosting services

Approximately 74% of our 1998 revenues was generated from our Internet and
network connectivity services, approximately 16% from value-added services and
approximately 7% from hosting services.

38
<PAGE> 43

Our comprehensive suite of services enables our customers to easily and more
cost effectively address their networking needs without having to assemble
services from different vendors including resellers, Internet service providers
and information technology service providers. Our ability to provide "one-stop,"
customized network solutions facilitates our customers' ability to exploit
opportunities created by the Internet and other network systems on a timely
basis. Key advantages of our solution are:

High-Quality Performance and Reliability. We believe our high speed, private
switched network, coupled with our status as a Tier 1 Internet service provider,
enables us to provide our customers with fast and reliable data transmission
solutions. Our network operations center controls and monitors the switches,
routers and fiber-optic capacity for all data transmitted over our network 24
hours-a-day, seven days-a-week, allowing our staff to be immediately aware and
responsive to problems as they arise. This control of our network infrastructure
allows us to improve quality of service by minimizing network down time.

Management of Businesses' Critical and Support Operations. We offer our clients
the ability to outsource their network management operations to us. The services
we offer are performed by CRL, allowing us to control the quality of these
services. Through an off-site connection and our proprietary process, we can
manage our customers' internal networks as well as solving common problems that
our customers encounter. When end-users encounter a problem, we are able to
attach in real-time to our customer's desktop computers and servers to evaluate
and solve the problem as if located on-site at the customer's premises from our
facilities. In addition, we proactively monitor our customers' networks to
predict and, in some cases, prevent outages. The ability to manage our
customers' systems remotely enables us to offer custom, cost-effective network
management solutions. Businesses able to outsource many aspects of an
information technology department, from the "help desk" to enterprise-wide
server maintenance, can implement more complex applications without being
constrained by a lack of in-house computer professionals. We believe that our
services can enable our customers to implement selected intranet and extranet
business functions such as electronic commerce, free of any information
technology-related concerns. Our solutions allow our customers to more rapidly
grow their businesses with relatively modest initial and recurring information
technology-related expenditures.

Scalability and Flexibility. Our services are designed to be highly scalable and
flexible in order to meet the needs of our customers as their Internet, network
operations, and bandwidth requirements expand. Our network is designed to
provide our customers with available and uncongested bandwidth during network
traffic spikes by maintaining excess capacity and additional sources of
bandwidth. We also provide flexibility for our customers by supporting most
leading Internet hardware and software systems vendor platforms.

Bundled Service Offerings. Many enterprises today, especially those in the small
and medium-sized business market, often purchase services from a number of
vendors. For example, a company may receive its Internet access, file/Web server
connection and colocation space all from different vendors. We are able to offer
these services under customized packages through a single network connection and
also offer additional customer support and management expertise. We are able to
serve our customers' Internet and network management requirements without the
need for any additional service providers or connections.

STRATEGY

Our objective is to become the leading nationwide provider of customized
comprehensive Internet and network services to small and medium-sized
businesses. To achieve this objective, we intend to:

Further Capitalize On Our Existing Network Infrastructure. Through our direct
participation in the development and evolution of the commercial Internet, we
believe we are one of a limited number of fully-peered, Tier 1 Internet service
providers, which means we have legacy peering relationships with major Internet
service providers, including MCI WorldCom, Inc., Sprint Corporation and Cable &
Wireless P.L.C. As a result, we can transfer traffic efficiently to other
networks without paying the costs typically associated with transport. During
the past year, we became a licensed competitive local exchange carrier in the
State of California and have begun the application process to become a
competitive local exchange carrier in several other states to complement our
national backbone network. As a competitive local
39
<PAGE> 44

exchange carrier in any particular state, we are able to purchase unbundled
network elements from the applicable regional Bell operating company operating
in that state rather than purchase retail local loops, resulting in a
significant cost savings to us. Also, our 15 years of experience developing our
network provides us with an in-depth understanding of the key elements of
network connectivity technology. As a result, over the past decade we have built
a national backbone network which currently consists of clear channel
fiber-optic capacity, Cascade switches and Cisco routers, which are controlled
through our network operations center. Our network is fast, secure and reliable,
as well as scalable to approximately one hundred times the traffic our current
customers generate. We intend to aggressively further capitalize on our existing
network infrastructure to cost-effectively expand our customer base and deliver
additional service to our customers.

Cross Sell Value-Added Services. We intend to capitalize on our existing
customer base and future customers by aggressively cross selling our value-added
services. We are committed to offering our customers reliable value-added
network services necessary to address their Internet and network management
requirements. We believe we are currently one of only a few companies remotely
managing the customer's network from the Internet all the way to the desktop.
Based on our existing network infrastructure and expertise, we are able to offer
these services continuously, reliably and on a cost effective basis. Through
acquisitions or development of relationships with providers of leading Internet
and other network technologies, we intend to enhance and increase the services
we offer to include other value-added services, such as enhanced network
security solutions, that address our customers' rapidly evolving critical
networking needs such as electronic commerce.

Provide Bundled, Comprehensive Networking Solutions. The fragmentation among
Internet and other network service providers has resulted in users often faced
with an overwhelming array of providers and services from which to choose. For
example, it is typical for a user to purchase local loop connectivity from a
regional Bell operating company or a competitive local exchange carrier, to
purchase Internet or other wide area network connectivity from a separate
Internet or other network service provider, and to purchase network services,
like remote management, systems integration and network security, from one or
more other companies. We believe the Internet and network service provider model
is evolving towards providers who are capable of providing comprehensive
solutions by bundling several or all of these functions efficiently, reliably
and on a cost effective basis. By combining our network infrastructure with our
existing and planned array of value-added networking services, we believe we are
well positioned to become one of the premier providers of comprehensive, bundled
networking solutions to small and medium-sized businesses. Additionally, we
believe that by offering bundled services, we can reduce customer loss, increase
network usage by existing customers, cross sell additional services to existing
customers and differentiate ourselves from our competitors.

Expand Customer Base and Sales Efforts. We intend to expand our customer base by
significantly increasing our direct and indirect sales forces as well as our
marketing efforts. Our direct sales force consisted of 17 persons in four sales
offices located in San Francisco, Sacramento, Anaheim and San Diego as of May
31, 1999. Our sales force is supported in their efforts by sales engineers and,
in many instances, our senior management. We intend to increase the number of
our sales offices and to significantly expand the size of our direct sales force
with the goal of having an effective selling presence in all major domestic
metropolitan and regional markets. In addition, we are exploring other
strategies to grow our direct sales force, including developing an inside sales
center to generate additional sales. We also intend to establish and expand
relationships with potential channel partners including hardware vendors,
value-added resellers, system integrators and Web hosting companies to leverage
their sales organizations and existing customer bases. By combining an expanding
direct sales force with the sales and marketing power of targeted channel
partners, we believe we will be able to effectively market and sell our
comprehensive networking solutions to a large potential customer base throughout
the United States.

Drive Revenue Growth by Increasing Hosting Services. Our physical presence at
key network access points provides attractive opportunities for many customers
to lease a portion of our space and purchase our colocation services. Our
hosting services permit our customers to install their equipment in close
physical proximity to major Internet access points. These connections at the
"edge" of the Internet are among the
40
<PAGE> 45

most reliable connections available. Our presence in these locations, as well as
the hardware we have installed there, are designed to satisfy the electronic
commerce and other requirements of the most demanding Internet service
providers, content providers, businesses and government agencies. We intend to
aggressively market our existing hosting services to service these applications
that are integral to business.

Accelerate Growth Through Targeted Acquisitions. The goal of our acquisition
strategy is to accelerate market penetration, build upon our core competencies
and expand our technical staff and sales force. We evaluate acquisition
candidates based on their fit with our overall business plan. When a candidate
is acquired, we will integrate our existing Internet and network connectivity
and value-added services with the service offerings of the acquired company and
use the acquired sales force and customer base to expand market opportunities.
The types of acquisitions we target include business Internet service providers
and companies with leading edge network connectivity and services technologies
that expand or enhance our existing services. Other types of targeted
acquisitions include local or regional business Internet service providers in
markets where we have established points of presence and would benefit from the
acquired company's local sales force and installed customer base through the
potential increase in our network utilization. Our recent acquisition of
Integral Networking Corporation, a systems integrator and developer of advanced
remote management services, is an example of the implementation of this
strategy.

SERVICES

We currently offer customized, comprehensive Internet and private network
solutions as well as network connectivity and value-added network services to
our customers. The diversity of services we offer permits each customer to
purchase individual services or a bundle of services that provide the most
efficient, reliable and cost effective solution to that customer's particular
needs.

Network Connectivity Services

We are a national provider of connectivity services, including a variety of
dedicated and dial-up access and customized wide area networking solutions in
both stand-alone and bundled packages, which provide high-speed continuous
access to the Internet and other networks for our customers. We also provide
turnkey configuration solutions encompassing such services as domain name
registration, leased-line ordering and installation assistance, Internet
Protocol address assignment, router configuration, installation and management,
and technical consultation services. All of our connectivity customers receive
24 hour-a-day, seven day-a-week technical support.

Dedicated Access. We offer a broad line of high speed dedicated connectivity
services providing business customers with direct access to a full range of
Internet applications. Our dedicated access service provides companies with
robust, full-time, dedicated Internet connectivity in a range of access speeds,
including fractional T1 (from 64 kilobits per second up to 1.536 megabits per
second), T1 (1.536 megabits per second), T3 (45 megabits per second) and OC3
(155 megabits per second). We recently began offering digital subscriber line
services but have generated no revenues from these services. Our dedicated
Internet access is designed to help ensure bandwidth availability for priority
business applications. We believe that the traffic-management advantages of the
data switching technology deployed in our network provide our customers with
fully integrated Internet access and improved performance.

Customized Wide Area Networking Solutions. We are dedicated to providing
effective, privately managed wide area networking services. Our customized wide
area networking services combine the high performance of private lines with the
redundancy and bandwidth efficiency of a switched service. These wide area
networking services utilize the superior line management features and cost
effectiveness of data switching technology to provide a high performance and
secure wide area network that is scalable to our customers' growing network
demands.

The versatility of data switching technology allows our customers to easily
manage connectivity to multiple sites at a wide range of connection speeds. With
our customized wide area networking services, our engineers can help a customer
design a network to match the specific needs of the customer. Locations

41
<PAGE> 46

can be partially or fully-meshed, offering route redundancy where necessary, and
allowing the customer to provision only the bandwidth they need.

By linking a wide area network with our Internet backbone, our customers can
optimize the bandwidth of their businesses and minimize expenses. We also offer
service level guarantees and extensive 24 hour-a-day, seven day-a-week customer
support with all of our integrated solution products.

Dial-Up Access. Our dial-up services offer a cost effective, entry-level
Internet solution that provides access to our advanced network backbone via
ordinary telephone lines at speeds of up to 56 kilobits per second using V.90
protocol.

Transit Service. Our transit service is designed for other, non-Tier 1 Internet
service providers whose networks are insufficient to transmit their customers'
data to the peering points of other networks. Our transfer service provides the
necessary link for these Internet service providers to transmit and receive data
to other networks on the Internet. This service can usually be installed in a
short time frame and gives our customers the flexibility they need to expand
their operations.

Value-Added Services

We believe that businesses will continue to increase their use of the Internet
and private networks to remain competitive and will increasingly rely upon an
expanding range of value-added services to enhance productivity, reduce costs
and improve service reliability. We offer value-added services consisting of
remote management and systems integration services. As part of our strategic
plan, we also intend to offer network security services. In addition, to
capitalize on our technologically advanced, high-capacity network
infrastructure, we intend to continue developing new value-added services that
facilitate customer use of the Internet and other networks, including
bandwidth-intensive multimedia services such as video conferencing.

Remote Management Services. Traditional network management solutions outsourced
by businesses to network service providers require network problems to be
diagnosed and resolved at the customer's site, which often results in a lengthy
response time. Through our alarm notification capability, our monitoring service
immediately alerts us to our customers' network problems and details the reason
for the problem. We can manage our customers' internal networks and solving
common problems encountered by our customers through an off-site connection and
proprietary process which permits us to attach in real-time to our customers'
desktop computers and servers and evaluate and solve the problem as if located
on-site at our customers' premises. For these reasons, our remote management
services help to significantly reduce the necessary time and expense to diagnose
and resolve network and application-oriented problems. We structure our remote
management solution to be scalable to our customers' growing needs.

Systems and Network Integration. We provide integration services such as local
and wide area network configurations, Web and database server integration and
application-specific software solutions. We configure equipment by loading
customer programs, connecting equipment to the network and servicing hardware
and software. Our staff of engineers works closely with our customers to design,
assemble, configure and install a network architecture meeting our customers'
requirements.

Firewall Solutions. The sensitive nature of business Internet traffic demands
protection from unauthorized access. Our firewall solutions provide users with
secure access to the Internet as well as create an electronic barrier between a
customer's internal network and the public Internet. Our firewalls can also
restrict access between departments as well as track communications to ensure
that these communications follow a customer's established security procedures.
We work with a variety of vendors to provide customized firewall solutions for
each of our customers with specialized security needs.

Hosting Services

Our existing network infrastructure, with its physical presence of network
equipment at major domestic network access points connecting all of the
interexchange points sanctioned by the National Science Foundation, provides an
easy and cost-effective solution for businesses to directly connect their
equipment
42
<PAGE> 47

through CRL to the Internet and other networks through our existing nationwide
backbone. Our colocation facilities allow our customers to install their
equipment as close to our network core as physically possible and are configured
in a manner to satisfy their networking and Internet operations that are
integral to business. Our infrastructure supports the Internet hardware and
software vendor platforms of most leading vendors, including Intel Corporation,
Microsoft Corporation and Sun Microsystems, Inc. The flexibility and scalability
of our network infrastructure permits our customers to purchase additional space
and power as needed, and to install and maintain their own hardware and
software. Our primary colocation facilities have uninterruptible AC or DC power
supply and back up equipment, fire suppression equipment, HVAC (heating,
ventilation and air conditioning), separate cooling zones, seismically-braced
racks and high levels of physical security, including card key access and video
surveillance.

Customers can select from a variety of options including shared rack facilities,
highly secure cabinets and enclosed cage facilities based upon their business
and technical requirements. Because many applications are dynamic and require
immediate hardware and software upgrades to maintain or achieve targeted service
levels, our colocation customers are offered 24 hour-a-day, seven day-a-week
physical and remote access to our facilities. We offer five options to satisfy
our customers' needs:

- Switched Ethernet Service, which is a 10 megabit per second service
connection onto our backbone router shared by other customers

- Dedicated Ethernet Service, which is a 10 megabit per second service
connection directly onto our backbone router not shared with any other
customers

- Switched Fast Ethernet Service, which is a switched ethernet service with a
100 megabit per second Internet connection

- Dedicated Fast Ethernet Service, which is a dedicated ethernet service with
a 100 megabit per second Internet connection

- Gigabit Fast Ethernet Service, which is a switched ethernet service with a
1,000 megabit per second Internet connection

The majority of our revenues from hosting services during 1998 and the first
quarter of 1999 was generated by our Dedicated Fast Ethernet Service. While the
Switched Ethernet Service is currently used by the greatest number of our
hosting service customers, our customers are able to choose the speed that best
suits their diverse needs which is generally based on our customers' projections
of the quantity of data to be delivered from their respective Web sites.

CUSTOMERS

We have established a diverse customer base including Internet service and
content providers, businesses, government agencies and educational institutions
to whom we offer a wide range of services including Internet and network
connectivity, value-added and hosting services. In addition, we provide dial-up
Internet access services to consumers. No customer accounted for more than 2.6%
of our revenues in either 1997 or 1998. The revenues derived from our top 10
customers accounted for 16% of our total revenues in 1998. The following is a
representative list of customers as of May 31, 1999 including the

43
<PAGE> 48

customers from each area of business from which CRL generated the largest amount
of revenue in 1998 or that were among the top 20 customers on the basis of
revenues to CRL during the first quarter of 1999:

<TABLE>
<S> <C> <C> <C>
------------------------------------------------------------------------------------------
INTERNET SERVICE INTERNET CONTENT BUSINESSES ENGAGED GOVERNMENTAL AGENCIES
PROVIDERS PROVIDERS IN ELECTRONIC AND EDUCATIONAL
--------------------- --------------------- COMMERCE INSTITUTIONS
--------------------- ---------------------
CTSNET AdForce, Inc. Citizen One Software City of Vallejo
(Imgis.com) Police
GST Call America Intersat Department
Digiweb Inc. Interprovincial
Harvard Net/Comstor Satellite Services Pacific Union College
Information Access Limited
Interaccess Co. Technologies, Inc. Tustin Unified School
Red Storm District
Internet America, Pathlink Technology Entertainment, Inc.
Inc. Corporation U.S. Department of
Ulead Systems, Inc. Commerce
Lightspeed Software Walnut Creek
CDROM, Wilshire Associates U.S. Federal Reserve
Incorporated Incorporated Board
------------------------------------------------------------------------------------------
</TABLE>

We aggressively pursue small and medium-sized business customers and seek to
provide them with connectivity and customized, cost-effective network management
solutions. The following are representative examples of the needs of our
customers and the core solutions we currently provide to our customers.

WALNUT CREEK CDROM, INCORPORATED: Walnut Creek CDROM, Incorporated is an
Internet-based freeware site using file transfer protocol, a tool used to
download files from the Internet and is our customer with the highest volume of
data. Typical of the demands of our customers who are high bandwidth content
users, Walnut Creek CDROM needed a reliable, Tier 1 provider to support its
traffic flows, which can often reach 98 megabits per second for a sustained
period of time. Walnut Creek CDROM uses our 100 megabits per second dedicated
fast ethernet service to connect directly to our core backbone at our San
Francisco network operations center. This high speed, direct Internet solution
meets our customer's bandwidth requirements and increases network reliability by
reducing the number of router hops to the Internet. We provide the 24
hour-a-day, seven day-a-week network management required to deliver Walnut Creek
CDROM's round-the-clock Internet applications.

J. LINNEMAN & CO.: J. Linneman & Co., a reinsurance agency associated with
Lloyd's of London, like many of our customers using our wide area network
services, required a reliable, private data switched network to handle sensitive
and mission-critical information. Without a managed network to facilitate
internal company communication, company officials were concerned that
underwriters could potentially over-insure national clients. Using our wide area
networking services, we developed and deployed a customized data network between
J. Linneman's headquarters in San Francisco and regional offices in Atlanta,
Chicago and Hartford. An Internet connection was also secured for each location.
In order to meet J. Linneman's demand for scalability and cost control, we
provide varying bandwidth to each city, with the option for an increase at any
time.

RIVER CITY PETROLEUM: River City Petroleum, Inc. is a fleet fueling and
wholesale fuels provider and is one of our largest remote management services
customers. River City Petroleum had built a local area network but had little
expertise to install new network elements, nor, like many of our value-added
service customers, did they want to oversee the day-to-day management and
administration activities a network requires. Using our proprietary remote
management services, we developed and deployed a customized solution for River
City Petroleum that reduces costly systems administrator fees and protects the
firm's mission-critical data by handing off the day-to-day management to us.
River City Petroleum can now focus on continuing its acquisition-oriented
growth, not its local area network.

These customers and the services which we provide them reflect our focus on
small and medium-sized businesses.

44
<PAGE> 49

Our success substantially depends on the continued growth of our customer base
and retention of our customers. Our ability to attract new customers will depend
on a variety of factors, including the willingness of businesses to outsource
their mission-critical networking and Internet operations, the reliability and
cost effectiveness of our services and our ability to effectively market such
services. Substantially all of our customer contracts have terms ranging from
one to three years.

A failure on our part to develop these relationships could materially and
adversely impact our ability to generate increased revenues, which would
negatively affect our financial results. We also intend to significantly
increase our sales and marketing expenditures, which may not necessarily result
in increased sales of our services. For a detailed discussion of the risks, see
"Risk Factors -- We are subject to the risks from our lengthy sales cycle."

OUR NETWORK

Our network enables us to provide our current service offerings and is the
platform from which we intend to expand our service offerings. Our network is
comprised of several elements, including routers, switches, facilities and clear
channel fiber-optic capacity, which together provide a fast, secure, high
quality network capable of reducing the risk of outages resulting from hardware
or software faults. In addition, we have both public and private peering
agreements allowing us to connect directly with all major Internet service
providers. The following map illustrates our network and peering relationships:

[Graphics depict a map of United States Entitled "Networks Built for Business"
with CRL logo, reflecting CRL's network connecting cities nationwide, including
symbols designating CRL's Regional Hubs, CRL Points of Presence or Service
Areas, Internet Protocol Backbone and Switched Backbone]

[MAP]

45
<PAGE> 50

Network Equipment

Our network consists of 24 Cascade data switches and 54 Cisco routers located
throughout our points of presence. Routers are typically used as "Layer 3"
networking devices, which must disassemble each packet of data they receive,
make a policy-based routing destination decision according to Internet
Protocol-based routing tables, and then reassemble the packet and send it to the
destination determined by the routing protocol then in effect. These routing
protocol tables must be frequently updated by the router to reflect changes in
the tables arising from numerous events, including changes in peering
relationships.

Switches are typically "Layer 2" networking devices, which means they make
connections a layer below the Internet. Switches determine routing destinations
based on the Layer 2 addresses attached to each packet without disassembling the
data packets. By operating one layer below the Internet without the need to
disassemble packets, switches can significantly reduce delay and data
degradation, as well as increase security. As a result of the complexity and
multitude of networks that transport information over the Internet, switches are
often an essential component to deliver information in the fastest and most
reliable manner.

We have invested significant capital in switches, which are more expensive than
routers. Switches, when properly configured with routers, enhance the speed and
reliability of networks by:

- minimizing the number of connections, or hops, a data packet must take,
which minimizes the time required to deliver the packet

- reducing the number of times a packet must be disassembled by routers, which
reduces the opportunities for router errors

- decreasing the instances where packets must travel over public networks,
which decreases the likelihood of delay and data degradation

Our national network of switches and routers permits us to customize our network
connectivity by creating an efficient "virtual circuit" for each customer, a
logical connection between the physical devices transmitting, directing and
receiving the data packets.

Switches have other advantages over routers as well. If a network outage occurs,
our Cascade switches can re-route data between our routers so that our network
does not experience an interruption of service during the outage. This process
allows our routers to forward more packets without making complex routing
decisions. Our Cascade switches are multi-protocol capable, allowing us to
operate Internet Protocol and other protocols as required.

Network Facilities

We have constructed a national backbone network with points of presence in 30
cities including 16 of the largest 20 cities in the United States. We control
our points of presence, including our network operations center in San
Francisco, under leases with terms ranging from month-to-month to six years,
that allow us to control the quality and security of the operations. We can
upgrade our points of presence as desired and are able to significantly reduce
the length of time of network interruptions because we control our facilities.
We have points of presence in major population centers around the United States,
including San Francisco, Los Angeles, San Diego, Phoenix, Denver, Dallas, Vienna
(Virginia) and Chicago, which represent the locations of the largest volume of
our data traffic. We also have points of presence in 22 other cities throughout
the United States.

Many of our points of presence are located in, or in close physical proximity
to, "carrier hotels." Carrier hotels are facilities where major interexchange
carriers and Internet service providers have physical points of presence. Our
actual location in, or in close proximity to, the same building in which the
switches and routers of these carriers and providers are located offers us the
ability to quickly and easily interconnect our equipment to theirs by our simply
installing a "pipe" connection between our equipment and theirs. Without this
close physical proximity, the services and expense of a third party, like an
incumbent local exchange carrier or competitive access provider, would be
necessary to connect us to the interexchange
46
<PAGE> 51

carrier or other provider. Our leases in these carrier hotels have expiration
terms ranging from December 2000 to 2003. Based upon our discussions with these
carrier hotels or from our customers who have recently tried to rent space at
these carrier hotels, we believe that at least half of the carrier hotels have
limited availability for new lessees due to a lack of physical space, lack of
infrastructure required for additional lessees or the carrier hotels' desire not
to admit additional lessees because of the nature of such lessees' equipment and
its requirements for the leased space. Because of this limitation, we have an
advantage over many of our competitors who are unable to lease space in the
facility or in close enough proximity to the facility and need the services of a
third party to provide similar connectivity.

As we expand, we expect to increase our number of points of presence. Each point
of presence is monitored through our network operations center on a 24
hour-a-day, seven day-a-week basis, which allows us to rapidly identify and
resolve any service interruptions. All of our points of presence are connected
directly to local operators including regional Bell operating companies and
competitive local exchange carriers. Where practical, our local connections are
made at the DS-3 level, which allows us to install up to 28 customers at a time
on an expedited basis without the need for any wiring or physical changes within
our points of presence.

We currently lease clear channel fiber-optic capacity on networks from companies
such as Qwest Communications Corporation and IXC Communications, Inc. We have
chosen short-term leases of fiber-optic capacity as opposed to acquiring
indefeasible rights of use for fiber-optic capacity due to rapidly declining
bandwidth costs. We believe that our choice has had a significant impact on our
ability to maintain a relatively low cost structure network. Through our leased
fiber-optic capacity, we are able to easily create customized data switched
networks for ourselves or others. As we expand and seek additional leased
fiber-optic capacity, we believe that capacity will be available. Several major
fiber construction projects have commenced in the domestic United States, and
frequently the developer of a fiber route will exchange access with other fiber
carriers in a "route swap." Such "route swaps" bring a new vendor of fiber along
a particular route to the marketplace, and ultimately serve to drive the price
of fiber-optic capacity down.

Our network operations center located in San Francisco is operated on a 24
hour-a-day, seven day-a-week basis. This network operations center functions
primarily to ensure that our backbone network is operational at an optimal level
and has the ability to ingress and egress traffic. In addition, the center
monitors the connections between the backbone network and the customer. If the
customer's network fails, we notify the customer of their network failure and
begin working immediately to correct the failure.

Peering Relationships

We have both public and private peering relationships. A peering relationship
permits the direct connection of two providers to exchange data without the
necessity of paying a third party. We believe we were one of the first companies
to provide commercial Internet access to both consumers and corporations. As the
Internet and Internet interexchange points have evolved, we have been well
positioned to become and have become a significant peering partner. We currently
have public peering at the major interexchange points sanctioned by the National
Science Foundation including the following locations where we experience the
highest volume of data exchange:

- MAE East in Vienna, Virginia

- MAE West at Nasa Ames Research Center in Palo Alto, California

- the Fix West Federal Interconnect Exchange at Nasa Ames Research Center in
Palo Alto, California

- the Sprint Network Access Point in Pensauken, New Jersey

- the AADS Network Access Point in Chicago, Illinois

- the Pacific Bell Network Access Point in San Francisco, California

- the Pacbell Switched Multimegabit Data Service Cloud in Northern California

- the Commercial Internet Exchange router in Santa Clara, California

47
<PAGE> 52

As is typical industry practice, we have reciprocal peering relationships with
other Internet service providers that offer significant traffic exchange. Our
open network policy allows us to make cost-based peering decisions between
public and private peering points to route traffic efficiently.

Subject to few exceptions, our peering relationships generally are not subject
to any written agreements and could be terminated at any time. For those peering
arrangements subject to contracts, there are no minimum or fixed charges for
data exchange. Such agreements generally do impose minimum usage requirements at
levels which CRL has in the past always exceeded. However, these contracts can
be terminated by either party where the peering could have a detrimental impact
on a party's network. Any network may refuse to peer with any other network. As
the Internet has evolved, network service providers have determined whether they
will recognize a second provider as a peer based on the impact on its customers
of failing to do so. The first provider makes this determination by analyzing
how many customers of the second provider rely on it as their sole source of
connectivity to the Internet. If the second provider has customers who look to
that provider as their sole source, and the first and second providers refuse to
peer with one another, the portions of each provider's customer base that are
sole source will be unable to connect with each other over the Internet. Another
basis upon which a network may refuse to peer with another is to avoid peering
with a network run by inexperienced technicians which can result in data being
sent to the wrong location.

As a result of our early involvement in the Internet, we are a Tier 1 Internet
service provider and have peering relationships with other Tier 1 Internet
service providers.

SALES AND MARKETING

Our sales and marketing objective is to achieve broad market penetration and
increase brand name recognition among small and medium-sized businesses,
Internet service and content providers, government agencies and educational
institutions on a national basis through the expansion of our sales organization
and extensive marketing activities. As of May 31, 1999, we employed 24 persons
in sales and marketing. We have developed a multi-tiered sales strategy to sell
and market to our target markets through direct sales, Internet alliances,
channel relationships and customer referrals.

Direct Sales. Our direct sales force currently consists of highly trained
individuals located in San Francisco, California and three other sales offices
in the United States. Approximately 99% of our sales are currently generated by
our direct sales force. Our sales force is supported in their sales efforts by a
sales engineer and, in many instances, by senior management. We believe that the
integration of our sales engineers with our sales account managers assists both
the establishment of customer relationships as well as the migration of
customers to increased use of our services through cross selling of our
value-added services. We have developed programs to attract and retain high
quality, motivated sales representatives with the necessary technical skills,
consultative sales experience and knowledge of their local markets. These
programs include technical and sales process training and instruction in
consultative selling techniques. We have also developed sales compensation plans
that provide significant incentives for exceeding performance targets. We are
actively seeking to expand our direct sales force and sales engineering staff.

Our direct sales process consists of a multifaceted approach to lead generation
and includes direct mail, advertising, Web-based marketing, networking and cold
calling. We target small and medium-sized businesses nationwide with particular
emphasis on those geographic areas where we have points of presence. Prospects
are qualified through a needs-based consultative sales process and, depending
upon the complexity of the client need, sales engineers and senior management
are called upon to develop solutions.

Develop Channel Relationships. We are in the process of developing relationships
with potential channel partners including hardware vendors, value-added
resellers, system integrators and Web hosting companies to leverage their sales
organizations. A channel partner is a CRL customer who acts as a reseller of our
services. Compensation received by our channel partners may consist of a
one-time payment based upon a percentage of the price of the services sold, a
one-time payment and a residual percentage of CRL's monthly customer billings,
or payment based upon the differential between the price at which the channel
48
<PAGE> 53

partner sold the services and CRL's price for such services. We began our
channel partnerships in the first quarter of 1999 and had contracts with 22
partners at May 31, 1999. We believe that by relying upon the sales forces of
these companies, we can attract customers in a cost-effective manner, as well as
provide co-branded Internet and network management service offerings for our
channel partners. We are actively engaged in hiring experienced channel managers
to focus exclusively on developing these relationships.

By providing Internet and network management solutions, our partners can satisfy
the demands of their customers, as well as create opportunities for new
business. We will offer the expertise involved with a complex networking
infrastructure that will allow our partners to focus on their own areas of
expertise. This relationship will provide our partner with the tools needed to
bundle Internet access with a variety of services provided by us or our partner,
and gain the competitive edge needed to attract and maintain more customers,
increase market share and grow.

Because we realize that most companies have specific operating requirements, we
have designed a flexible program to accommodate specific needs. We will both
provide the necessary network connectivity and serve as a technical resource for
our partners. Engineers in our networking operating center monitor the network
around the clock to ensure the highest quality Internet, remote management
service and hosting services and technical support for our partner and its
customers. Instead of spending time and money building a national network
infrastructure, partners will be able to simply add Internet, remote management
service and hosting services to their existing products by becoming part of our
network. By bundling Internet, remote management service and hosting services
with existing products, the partner will be able to offer a high quality network
connection to the Internet with the ease of one bill and one point-of-contact
for customers.

Marketing. Our marketing program is intended to build national and local
strength and brand awareness. We use print advertising and direct mail in
targeted markets and publications to enhance awareness and acquire leads for our
direct sales force. We also use telemarketing programs, Web marketing and joint
promotional efforts.

CUSTOMER SUPPORT

We offer a high level of customer service and quality assurance by understanding
the technical requirements and business objectives of our customers and
addressing their needs proactively on an individual basis. By working closely
with our customers, we are able to enhance the performance of our customers'
Internet and network operations, avoid downtime, rapidly resolve problems and
make appropriate adjustments in services as customer needs change over time. We
work with our customers over time to ensure that we are offering the appropriate
types and quality of service. As of May 31, 1999, we had 14 employees dedicated
to customer service and quality assurance.

Upon receipt of a signed sales contract, the salesperson prepares a sales order
form and sends it to our provisioning department which, after initial review,
forwards the sales order to our finance department for approval and set up on
the billing system.

Within the provisioning department the sales order is logged into a tracking
system that is reviewed by management on a weekly basis. The provisioning
department arranges all internal and external activities to complete the
installation of the sales order. As necessary, they arrange for purchase,
delivery and setup of equipment, arrange for necessary circuits with various
telecommunications vendors and complete necessary changes to our network through
our engineering department.

Upon completion of all necessary installations, the customer is contacted for
testing and acceptance. Customer information is entered into an operations
database and our finance department is notified to begin billing.

Ongoing customer service is provided by our technical support group. Our network
operations center operates and is available for technical support 24
hours-a-day, seven days-a-week, 365 days-a-year. They monitor customer circuits
real-time on the same basis. As problems are identified or customer calls are
received they are logged into a trouble ticket system and worked through to
resolution. Inquiries can be
49
<PAGE> 54

accepted by voice or e-mail and are typically answered within a few minutes or
hours of receipt. Resolution times vary depending upon the problem's severity
and complexity. Resolution times that exceed a few hours are escalated to
management.

Our enhanced customer support systems monitor and track support questions from
our customers. These systems were developed to help the network engineers track
problems efficiently and reliably. They provide an accurate history of each
account enabling the engineers to quickly access support inquiries and provide
us with valuable historical data about each account. Every time a support
question is called in, a historical record, commonly referred to as a
"trouble-ticket," is opened. Until the problem is resolved, the trouble-ticket
remains open. When necessary, the trouble-ticket is escalated in order to reach
the fastest possible resolution. The escalation chart is made available to our
customers.

COMPETITION

Our competitors generally may be divided into four principal groups:

- telecommunications carriers including regional Bell operating companies

- Internet service providers

- network and system integrators

- online network service providers

Telecommunications Carriers. Many long distance companies including AT&T
Corporation, Cable & Wireless P.L.C., Sprint Corporation, MCI WorldCom, Inc.,
Qwest Communications International Inc., Level 3 Communications Inc., IXC
Communications, Inc. and Frontier Corporation offer Internet access services and
network services. Recent reforms in federal regulation of the telecommunications
industry have created greater opportunities for incumbent local exchange
carriers such as PacBell Internet, and competitive local exchange carriers such
as WinStar Communications, Inc., to enter the Internet connectivity market. We
believe that there is a move toward horizontal integration by these kinds of
carriers through acquisitions of, joint ventures with, or the wholesale purchase
of connectivity from, Internet service providers in order to meet the Internet
connectivity requirements of their business customers. Accordingly, we expect
that we will experience increased competition from the traditional
telecommunications carriers. In addition to their greater network coverage,
market presence and financial, technical and personnel resources, many of these
telecommunications carriers also have large existing commercial customer bases.

Internet Service Providers. Our competitors include Internet service providers
with a national or global presence that focus on business customers, such as
PSINet, Inc. and UUNET Technologies, Inc. We also compete with Internet service
providers that cluster in major markets and regional Internet service providers
that have facilities in key metropolitan areas, including Verio, Inc., and
specialized Internet service providers such as Concentric Network Corporation,
Exodus Communications, Inc., AboveNet Communications Inc. and AppliedTheory
Corporation, as well as emerging Internet service providers. While we believe
that our state-of-the-art network infrastructure, quality customer service and
proactive support teams distinguish us from most Internet service providers,
many of these competitors have greater financial, technical, and marketing
resources, larger customer bases, greater name recognition and more established
relationships in the industry.

Network and System Integrators. We compete with large information technology
outsourcing firms such as the Big 5 accounting firms, EDS Corp., Perot Systems
Corporation and similar firms. These firms tend to focus on large customers who
outsource entire information technology functions or re-engineer their
information technology infrastructure. We believe that we are distinguished from
these competitors because we specialize in Internet Protocol-based integration
for the businesses and government agencies focused on Internet and other network
operations. We also compete with smaller network and systems integrators.
However, we believe that our expertise with large and complex systems, our
methodology and our ability to offer one-stop solutions for integration, data
center services and network connectivity set us apart from this segment of the
competition.

50
<PAGE> 55

Online Network Service Providers. In providing consumer Internet access, we
compete with online network service providers such as America Online,
Compuserve, MSN (The Microsoft Network) and Prodigy Communication Corporation.
The services offered by these companies often includes access to content
specific to each company. While we believe that our consumer products are
competitively priced and that our support and proactive network maintenance give
us an advantage over our competitors, many of these competitors have greater
financial, technical and marketing resources, larger customer bases, greater
name recognition, wider customer reach and more established relationships in the
industry.

We believe the primary competitive factors in our markets are:

- a reliable and powerful network infrastructure

- a broad range of services and technical expertise

- quality of customer service

- experienced and knowledgeable sales force and engineers

Many of our competitors may be able to develop and expand their communications
and network infrastructures more quickly, adapt more swiftly to new or emerging
technologies and changes in customer requirements, take advantage of acquisition
and other opportunities more readily, and devote greater resources to the
marketing and sale of their services than we can. In addition, we believe
competition in our markets will intensify as new competitors enter our markets
which have no significant barriers to entry. In addition, some of our
competitors may bundle other services and products, offer their services at more
attractive prices, or offer other high speed data services using alternative
delivery methods.

We do not currently compete internationally. If the ability to provide Internet
access internationally becomes a competitive advantage in the Internet access
industry, we may be at a competitive disadvantage relative to our competitors.

For more information concerning the competition we face and the factors
affecting our ability to compete, see "Risk Factors -- The markets for our
services is characterized by many competing technologies, and the technologies
on which our services are based may not compete effectively," "-- The markets in
which we compete are highly competitive and we may not be able to compete
effectively especially against companies with greater resources" and "-- We may
have to reduce the cost of our services to remain competitive."

INTELLECTUAL PROPERTY RIGHTS

We believe our success depends more upon our technical expertise than our
proprietary rights. We rely upon a combination of copyright, trademark and trade
secret laws and contractual restrictions to protect our proprietary technology
and rights in our services. We have no patented technology that would preclude
or inhibit competitors from entering our market. We have entered into
confidentiality and invention assignment agreements with all of our Integral
Networking Corporation employees and our technical personnel at CRL, and
nondisclosure agreements with our suppliers, distributors and appropriate
customers to control access to and disclosure of our proprietary information.
Despite these precautions, a third party could potentially copy or otherwise
obtain and use our products or technology without authorization or to develop
similar technology independently. We cannot assure you that such measures have
been, or will be, adequate to protect our proprietary technology or deter
third-party development of similar technologies. We also rely on technologies
that we license from third parties such as network management software. We do
not license any other technology that is not generally available. These
third-party technology licenses may not always continue to be available to us on
commercially reasonable terms. The loss of such technology could require us to
obtain substitute technology of lower quality or performance standards or at
greater cost, which could affect us in a material adverse manner. To date, we
have not been notified that we infringe the proprietary rights of third parties,
but there can be no assurance that third parties will not claim infringement by
us. We expect that participants in our markets will be increasingly subject to
infringement claims as the number of technologies and competitors in our
industry grows. Any such claim, whether meritorious or not, could be time
consuming, result in costly litigation, cause service delays or

51
<PAGE> 56

require us to enter into royalty or licensing agreements. Such royalty or
licensing agreements might not be available on terms acceptable to us or at all.
As a result, any such claim could have a material adverse effect upon our
business, results of operations and financial condition.

GOVERNMENT REGULATION

Currently only a small body of laws and regulations directly apply to access to
or commerce on the Internet. However, due to the Internet's increasing
popularity and use, laws and regulations may be adopted at the international,
federal, state and local levels with respect to the Internet, covering issues
such as user privacy, freedom of expression, pricing, characteristics and
quality of products and services, taxation, advertising, intellectual property
rights, information security and the convergence of traditional
telecommunications services with Internet communications. Moreover, a number of
laws and regulations have been proposed and are currently being considered by
federal, state and foreign legislatures with respect to such issues. The nature
of any new laws and regulations and the manner in which existing and new laws
and regulations may be interpreted and enforced cannot be fully determined. The
adoption of any future laws or regulations might decrease the Internet's growth,
decrease demand for our services, impose taxes or other costly technical
requirements or otherwise increase the cost of doing business or in some other
manner have a material adverse effect on us. In addition, applicability to the
Internet of existing laws governing issues such as property ownership,
copyrights and other intellectual property issues, taxation, libel, obscenity
and personal privacy is uncertain. As our services are available over the
Internet in multiple states, and as we facilitate sales by our customers to end
users located in such states, such jurisdictions may claim that we are required
to qualify to do business as a foreign corporation in each such state. Any such
new legislation or regulation, or the application of laws or regulations from
jurisdictions whose laws may not currently apply to our business, could have a
material adverse effect on us.

The Telecommunications Act of 1996 imposes criminal liability on persons sending
or displaying in a manner available to minors indecent material on an
interactive computer service such as the Internet and on an entity knowingly
permitting facilities under its control to be used for such activities. Sections
of the Communications Decency Act of 1996 that, among other things, proposed to
impose criminal penalties on anyone distributing "indecent" material to minors
over the Internet, were held to be unconstitutional by the United States Supreme
Court. Legislation similar to the Communications Decency Act could subject us
and/or our customers to potential liability, which in turn could have an adverse
effect on us. Additionally, the Child Online Protection Act of 1998 prohibits
and imposes criminal penalties and civil liability on anyone engaged in the
business of selling or transferring, by means of the World Wide Web, material
that is harmful to minors without restricting access to such material by persons
under seventeen years of age. Numerous states have adopted or are currently
considering similar types of legislation. The imposition upon us, our customers
or other persons of potential liability for such materials carried on or
disseminated through our systems could require us to implement measures to
reduce our exposure to such liability. Such measures may require the expenditure
of substantial resources or the discontinuation of some of our product or
service offerings. Further, the costs of defending against any such claims and
potential adverse outcomes of such claims could have a material adverse effect
on us. The Child Online Protection Act has been challenged by civil rights
organizations in part on the grounds that it violates the First Amendment. A
United States District Court has preliminary enjoined enforcement of the law
until final resolution of the case. A similar statute was held unconstitutional
by the United States Supreme Court in 1997.

The law relating to the liability of online service providers, private network
operators and Internet service providers for information carried on or
disseminated through the facilities of their networks is continuing to evolve
and remains unsettled. In the past, one federal district court in the northern
district of California, where we conduct business, has ruled that Internet
service providers could be found liable for copyright infringement as a result
of information disseminated through their networks. We cannot assure you that
similar claims will not be asserted in the future. Federal laws have been
enacted, however, which provide Internet service providers with immunity from
publisher or speaker liability for information that is disseminated through
their networks when they are acting as mere conduits of information. A Federal

52
<PAGE> 57

Court of Appeals has recently held that the Telecommunications Act creates
immunity from liability on the part of Internet service providers for libel
claims arising out of information disseminated over their services by
third-party content providers. In addition, the Digital Millennium Copyright
Act, enacted in 1998, creates a safe-harbor from copyright infringement
liability for Internet service providers if:

- the transmission was initiated by or at the direction of a person other than
us

- the transmission or routing is carried out through an automatic technical
process without selection of the material by us

- we do not elect the recipients of the material except as an automatic
response to the request of another person

- a copy of the material in the course of intermediate or transient storage is
maintained on the system in a manner accessible to no one other than the
recipients or for a period longer than is reasonably necessary for the
transmission or routing to occur and

- no modification of the transmission's content occurs through our system

We cannot assure you, however, that the Digital Millennium Copyright Act or any
other legislation will protect us from copyright infringement liability. We
maintain general liability insurance. However, any imposition of liability on us
for alleged negligence, intentional torts such as infringement, or other
liability could have a material adverse effect on us.

Both the provisioning of Internet access service and the provisioning of
underlying telecommunications services are affected by federal, state and local
regulation. The Federal Communications Commission exercises jurisdiction over
all facilities of, and services offered by, telecommunications carriers to the
extent that they involve the provision, origination or termination of
jurisdictionally interstate or international communications, including by
competitive local exchange carriers. The state regulatory commissions retain
jurisdiction over the same facilities and services to the extent they involve
origination or termination of jurisdictionally intrastate communications. In
addition, as a result of the passage of the Telecommunications Act, state and
federal regulators share responsibility for implementing and enforcing the
domestic pro-competitive policies of the Telecommunications Act. In particular,
state regulatory commissions have substantial oversight over the provision of
interconnection and non-discriminatory network access by incumbent local
exchange carriers. Municipal authorities generally have some jurisdiction over
access to rights of way, franchises, zoning and other matters of local concern.

Government agencies do not regulate Internet operations distinctly from their
regulation of businesses generally. However, the Federal Communications
Commission continues to review its regulatory position on the usage of the basic
network and communications facilities by Internet and other network service
providers. In an April 1998 report, the Federal Communications Commission
determined that Internet service providers should not be treated as
telecommunications carriers and should consequently not regulated. However, this
report stated that it expected the regulatory status of Internet service
providers in the future to continue to be uncertain. The report concluded that
some services offered over the Internet, such as phone-to-phone Internet
protocol telephony, may be functionally indistinguishable from traditional
telecommunications service offerings, and their non-regulated status may have to
be re-examined.

Changes in the regulatory structure and environment affecting the Internet
access market, including regulatory changes that directly or indirectly affect
telecommunications costs or increase the likelihood of competition from regional
Bell operating companies or other telecommunications companies, could have an
adverse effect on our business. Although the Federal Communications Commission
has decided not to allow local telephone companies to impose per-minute access
charges on Internet service providers, and that decision has been upheld by the
reviewing court, further regulatory and legislative consideration of this issue
is likely. In addition, some telephone companies are seeking relief through
state regulatory agencies. Such rules, if adopted, are likely to have a greater
impact on consumer-oriented Internet access providers than on business-oriented
Internet service providers, such as us. Nonetheless, the imposition of access
charges would affect our costs of serving dial-up customers and could have a
material adverse effect on us.

53
<PAGE> 58

We have recently received approval to operate as a competitive local exchange
carrier in California and intend to apply to receive similar status in other
states. Where we have competitive local exchange carriers status, regional Bell
operating companies are obligated to provide us with local connectivity loops at
prices that are substantially below the prices paid by Internet and other
network service providers that are not competitive local exchange carriers. As a
provider of domestic basic telecommunications services, particularly competitive
local exchange services, we could become subject to further regulation by the
Federal Communications Commission and/or other regulatory agencies, including
those at the state and local levels. The Telecommunications Act has caused
fundamental changes in the markets for local exchange services. In particular,
the Telecommunications Act and the Federal Communications Commission rules
issued pursuant to it mandate competition in local markets and require that
incumbent local exchange carriers interconnect with competitive local exchange
carriers. Under the provisions of the Telecommunications Act, the Federal
Communications Commission and state public utility commissions share
jurisdiction over the implementation of local competition, the Federal
Communication Commission was required to promulgate general rules and the state
commissions were required to arbitrate and approve individual agreements.
However, the Federal Communication Commission interconnection rules implementing
the Telecommunications Act were appealed and the U.S. Court of Appeals for the
Eighth Circuit issued a decision vacating the FCC's pricing rules, as well as
other portions of the FCC's interconnection rules, on the grounds that the FCC
had improperly intruded into matters reserved for state jurisdiction. On January
25, 1999, the Supreme Court largely reversed the Eighth Circuit's order, holding
that the FCC had general jurisdiction to implement local competition provisions
of the Telecommunications Act. In so doing, the Supreme Court stated that the
FCC has authority to set pricing guidelines for unbundled network elements, to
prevent incumbent local exchange carriers from disaggregating existing
combinations of network elements, and to establish "pick and choose" rules
regarding interconnection agreements (which would permit a carrier seeking
interconnection to "pick and choose" among the terms of service from other
interconnection agreements between the incumbent local exchange carriers and
other competitive local exchange carriers). This action reestablishes the
validity of many of the FCC rules vacated by the Eighth Circuit. Although the
Supreme Court affirmed the FCC's authority to develop pricing guidelines, the
Supreme Court did not evaluate the specific pricing methodology adopted by the
FCC and has remanded the case to the Eighth Circuit for further consideration.
In its decision, however, the Supreme Court also vacated the FCC's rule that
identifies the unbundled network elements that incumbent local exchange carriers
must provide to competitive local exchange carriers. The Supreme Court found
that the FCC had not adequately considered certain statutory criteria for
requiring incumbent local exchange carriers to make those network elements
available to competitive local exchange carriers and must reexamine the matter.
Thus, while the Supreme Court resolved many issues, including the FCC's
jurisdictional authority, other issues remain subject to further consideration
by the courts and the FCC. The Eighth Circuit has not yet reinstated the FCC's
rules that were affirmed by the Supreme Court, and several incumbent local
exchange carriers have asked the Eighth Circuit not to reinstate those rules
until further legal challenges have been resolved. We cannot predict the
ultimate disposition of those matters. The possible impact of this decision,
including the portion dealing with unbundled network elements, on existing
interconnection agreements between incumbent local exchange carriers and
competitive local exchange carriers or on agreements that may be negotiated in
the future also cannot be determined at this time.

A critical issue for competitive local exchange carriers is the right to receive
reciprocal compensation for the transport and termination of Internet traffic.
We believe that, under the Telecommunications Act and current Federal
Communications Commission rules, competitive local exchange carriers are
entitled to receive reciprocal compensation from incumbent local exchange
carriers. However, some incumbent local exchange carriers have disputed payment
of reciprocal compensation for Internet traffic, arguing that Internet service
provider traffic is not local traffic. Most states have required incumbent local
exchange carriers to pay Internet service providers reciprocal compensation.
However, federal regulators and some state regulators are currently considering
the proper jurisdictional classification of local calls placed to an Internet
service provider and whether Internet service provider calling triggers an
obligation to pay reciprocal compensation. On October 30, 1998, the Federal
Communications Commission determined that dedicated digital subscriber line
service is an interstate service and properly tariffed at the interstate level.
On February 25, 1999, the Federal Communications Commission ruled that calls to
Internet service

54
<PAGE> 59

providers for Internet access were long distance, not local, calls. However, the
ruling upheld existing reciprocal compensation agreements in some states,
including California. Because of our reciprocal compensation agreement with
Pacific Bell, we do not expect this ruling will have a material effect on our
operating costs in the near future. If incumbent local exchange carriers charge
fees for carrying Internet traffic and Internet access becomes more expensive in
the longer term, this ruling may have an adverse effect on our potential future
revenues as well as increase our costs.

As we become a competitor in local exchange markets, we will become subject to
state requirements regarding provision of intrastate services. These
requirements may include the filing of tariffs containing rates and conditions.
As a new entrant without market power, we expect to face a relatively flexible
regulatory environment. Nevertheless, it is possible that some states could
impose a variety of requirements on our operations, such as the approval of the
public utilities commission for the issuance of debt or equity or other
transactions that would result in a lien on our property used to provide
intrastate services.

EMPLOYEES

As of May 31, 1999, we had 60 employees, of which 24 were employed in sales and
marketing, 8 were assigned to engineering and service development, 14 were
employed in customer service and technical support, and 14 were in finance and
administration. We believe that our future success will depend in part upon our
continued ability to attract, hire and retain qualified personnel. The
competition for such personnel is intense, and we may not be able to identify,
attract and retain such personnel in the future. None of our employees is
represented by a labor union and management believes that our employee relations
are good.

FACILITIES

Our executive offices are located in San Francisco, California and consist of
approximately 4,650 square feet that are leased pursuant to an agreement that
expires in August 1999 with a three year renewal option. Additionally, we
sublease additional offices in San Francisco, California of approximately 3,500
square feet pursuant to an agreement that expires in September 1999. We also
have a network operating center in San Francisco of approximately 4,000 square
feet under a lease expiring in 2005. Beginning in the third quarter 1999, we
intend to commence relocating and consolidating our San Francisco operations. We
intend to complete the relocation and consolidation in the fourth quarter of
1999. We are also currently in negotiations with the lessor of our San Francisco
network operating center to lease additional space. We also intend to complete
the expansion of our main operational center in Sacramento, California in the
fourth quarter of 1999. This Sacramento facility consists of 4,000 square feet
under a lease agreement that expires in 2001. In addition, we lease
approximately 1,100 square feet in Vienna, Virginia (a major network access
point often referred to as MAE East) under an agreement that expires in 2000
with a five year renewal option. We also lease approximately 1,400 square feet
in the One Wilshire Building in Los Angeles under an agreement that expires in
2001. We lease facilities in 26 other cities throughout the United States for
our sales offices and regional network operating centers.

55
<PAGE> 60

MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

Our directors, director nominees, executive officers and key employees are as
follows:

<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
DIRECTORS AND EXECUTIVE
OFFICERS:
James G. Couch............. 34 President, Chief Executive Officer, Chairman of the
Board and Secretary
Robert B. Murphy, Jr....... 47 Executive Vice President and Chief Financial Officer
John A. Blair.............. 52 Vice President of Business Development
Sam Traznik................ 34 Vice President of Direct Sales
Steven T. Stenberg......... 38 Director and Member of the Audit and Compensation
Committees
Jack M. Fields, Jr......... 47 Director Nominee and Member of the Compensation
Committee
Stephen C. Mott............ 49 Director Nominee
Thor Geir Ramleth.......... 40 Director Nominee and Member of the Audit Committee
KEY EMPLOYEES:
Robyn L. Raschke........... 34 Vice President of Finance
Philip A. Burkhart......... 37 Vice President of Channel Sales
Robert L. Ross............. 30 President, Integral Networking Corporation
Tracy M. Corrington........ 33 Director of Marketing
David L. Greenman.......... 31 Director of Systems Engineering
Richard J. Quosig.......... 45 National Sales Director
</TABLE>

JAMES G. COUCH founded our company in 1983 and has been President, Chief
Executive Officer and Chairman of the Board since incorporation in 1993. He
began developing applications for advanced networking systems with CRL and
worked closely with the National Science Foundation and Bellcore in the
transition of the Internet to a commercial medium.

ROBERT B. MURPHY, JR. has served as our Executive Vice President and Chief
Financial Officer since April 1999. Prior to joining us, Mr. Murphy was the
Executive Vice President/Chief Financial Officer of Savvis Communications
Corporation, a nationwide provider of access and Internet services, from 1997 to
April 1999. From 1992 to 1996, Mr. Murphy was the Senior Vice President/Chief
Financial Officer of Access America Telemanagement, a provider of
telecommunications services to small and medium-sized businesses. Mr. Murphy
also held positions as Vice President/Chief Financial Officer at United
Telemanagement, Inc. from 1989 to 1992 and at Belmac Corporation from 1988 to
1989. Prior to this, Mr. Murphy had seven years of investment banking
experience.

JOHN A. BLAIR has served as Vice President of Business Development since October
1998. Prior to joining us, Mr. Blair had been, since 1996, the President and a
director of Executive Strategies, his own management consulting company that
served the hi-tech and Internet service provider markets. From 1994 to 1996, Mr.
Blair was the Vice President of Operations with DG Systems, a company engaged in
digital distribution of advertising media. Mr. Blair also has more than 15 years
experience with financial institutions including Citibank N.A., Ameritrust and
Crocker Bank.

SAM TRAZNIK has served as our Vice President of Direct Sales since April 1999.
Mr. Traznik has worked previously with GTE Internetworking as its Regional Vice
President and General Manager, Pacific Northwest from 1997 to April 1999. From
1996 to 1997, Mr. Traznik was the President and General Manager of Advanced
Technology Marketing, a provider of Internet consulting services. From 1995 to
1996, Mr. Traznik was the Director of VAR Channels and Sales, Southern
California at Exodus

56
<PAGE> 61

Communications, Inc., an Internet service provider From 1989 to 1995, Mr.
Traznik was the National Sales Manager at Qualstar Corporation, a provider of
data communications and data storage products.

JACK M. FIELDS, JR. has agreed to serve as a director of our company upon
completion of the offering. Since January 1997, Mr. Fields has been the Chief
Executive Officer of Twenty-First Century Group, a government affairs company,
and the Chief Executive Officer of Texana Global, a firm dealing with
entrepreneurial projects in the telecommunications industry. From 1981 to 1996,
Mr. Fields was a member of the United States Congress. During 1995 and 1996, Mr.
Fields served as Chairman of the House Telecommunications and Finance
Subcommittee, which authored the Telecommunications Act of 1996 and has
jurisdiction and oversight over the Federal Communications Commission and the
Securities and Exchange Commission. Mr. Fields is also a director of AIM
Management, Administaff, Inc. and Telscape International, Inc.

STEVEN T. STENBERG has served as a director of our company since March 1999.
Since 1992, Mr. Stenberg has been President and Chief Executive Officer of his
own accounting firm, which currently has seven employees, and is a certified
public accountant.

STEPHEN C. MOTT has agreed to serve as director of our company upon completion
of the offering. Since 1995, Mr. Mott has been the Chief Executive Officer of
CSI Management, Inc., an internet consulting and investment firm. From October
1995 until February 1998, Mr. Mott was the Senior Vice President -- Electronic
Commerce/New Ventures at Mastercard International Incorporated. From 1987 to
1995, Mr. Mott was the Chief Executive Officer, Chief Operating Officer and
Chief Financial Officer of Cognitive Systems, Inc., an artificial intelligence
and database mining technology company, and was the Chief Executive Officer of
Ingenia, Inc. when Ingenia purchased a portion of Cognitive Systems' business
from September 1994 to October 1995.

THOR GEIR RAMLETH has agreed to serve as director of our company upon completion
of the offering. Mr. Ramleth has been the Chief Executive Officer and a director
of ZeroDotNet, Inc. since April 1999. Mr. Ramleth was the President and Chief
Executive Officer of Genuity, Inc., an Internet service provider, from December
1995 to November 1998. Prior to that, Mr. Ramleth was the Manager of Commercial
Systems at Bechtel Group, Inc. from February 1995 to December 1995, where he was
responsible for consolidating all commercial systems activities. From February
1993 to February 1995, Mr. Ramleth was the Practice Director at Oracle
Corporation. Since January 1998, Mr. Ramleth has served as a director at
UWI.com.

ROBYN L. RASCHKE was appointed as our Vice President of Finance effective March
1, 1999. Prior to that, she served as Controller of our company since March
1997. She held the position of Assistant Controller at Greenbrier Capital
Corporation from 1992 to 1997. She has also worked at Touche Ross & Co. as a
senior auditor. Ms. Raschke has a masters degree in accounting from the
University of Georgia and is a certified public accountant.

PHILIP A. BURKHART has served as Vice President of Channel Sales since December
1998. Prior to that, he served as our Vice President of Operations since May
1995. He was instrumental in the build-out of our national backbone network and
developed the technical support/customer service and provisioning departments
within our company. Between 1991 and 1994, Mr. Burkhart worked for KBLCOM/Time
Warner where he managed its data, voice communications and video services and
Internet network throughout South Texas.

ROBERT L. ROSS founded Integral Networking Corporation in 1989 and continues to
serve as its President since our merger with Integral in December 1998. In 1996,
Mr. Ross developed Integral's remote management services. Mr. Ross was
instrumental in the completion of Integral's Network Operations Center, and, as
President of Integral, continues to provide support and vision to the remote
management service program. He has prior experience as a systems engineer at
Microage Corp. and is a Certified Novell Engineer.

TRACY M. CORRINGTON has served as Director of Marketing since September 1998 and
is responsible for marketing communications, marketing product development and
media relations. Ms. Corrington worked
57
<PAGE> 62

previously with Teleport Communications Group, Inc. between 1994 and 1998,
holding management positions in marketing, public relations and communications.
Prior to that, she worked for seven years as a print investigative reporter with
several media/newspaper companies.

DAVID L. GREENMAN has served as Director of Systems Engineering since December
1998. Mr. Greenman has prior systems management and consulting experience at
Walnut Creek CDROM, Incorporated, where he has been the Systems Manager from
1995 to the present. He also was cofounder and principal architect in 1993 of
The FreeBSD Project, an operating support system that is currently used by a
variety of Fortune 500 businesses, and remains active in that project. Mr.
Greenman has also held positions with Artisans Northwest Productions, Telecom
Broadcasting, Inc., Clear View Satellite Systems and Reynolds Media Services.

RICHARD J. QUOSIG has served as National Sales Director since September 1998 and
has 12 years of telecommunications sales experience. Prior to joining us, Mr.
Quosig worked as General Manager of the flagship Silicon Valley office of
Frontier Global Center from 1997 to September 1998. From March 1996 to February
1997, Mr. Quosig worked as a Strategic Account Manager with Teleport
Communications Group, Inc. From January 1995 to January 1996, Mr. Quosig was a
Regional Sales Manager with Winstar Wireless, where he managed the eastern
portion of the United States. Prior to that, Mr. Quosig was a sales manager with
Nynex Mobile Communications from January 1994 to January 1995. Mr. Quosig was
also the national account manager at McCaw Communications (AT&T Wireless) from
January 1992 to January 1994.

BOARD COMMITTEES

The Audit Committee has the responsibility of reviewing our audited financial
statements and accounting practices, and to consider and recommend the
employment of, and approve the fee arrangements with, independent accountants
for both audit functions and for advisory and other consulting services. Upon
completion of the offering, the Audit Committee will be comprised of Messrs.
Ramleth and Stenberg. The Compensation Committee reviews and approves the
compensation and benefits for our key executive officers, administers our
employee benefit plans and makes recommendations to the Board of Directors
regarding such matters. Upon completion of the offering, the Compensation
Committee will be comprised of Messrs. Fields and Stenberg.

DIRECTORS COMPENSATION

Each non-employee director receives an initial option grant for 30,000 shares
upon becoming a director of CRL and a minimum annual option grant under our 1999
Stock Incentive Plan to purchase 5,000 shares. This amount may be increased for
any particular non-employee directors or all non-employee directors at the
discretion of the Board of Directors, but the maximum number of shares
underlying any annual option granted to any non-employee director may not exceed
50,000 shares. The initial option grants and annual option grants generally vest
over a period of three years. See "Management -- Stock Options." We also pay the
expenses of our non-employee directors in attending Board meetings. No
additional compensation is paid to any of our employee directors for serving on
our Board of Directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to this offering, our Board of Directors did not have a compensation
committee and all compensation decisions were made by the full Board of
Directors. In the year ended December 31, 1998, the full Board of Directors,
which solely consisted of James G. Couch, determined the compensation of all
executive officers, including Mr. Couch in his capacity as President and Chief
Executive Officer. Upon completion of this offering, the Compensation Committee
will make all compensation decisions. No interlocking relationship exists
between the Board of Directors or Compensation Committee and the board of
directors or compensation committee of any other company, nor has any such
interlocking relationship existed in the past.

58
<PAGE> 63

EXECUTIVE COMPENSATION

The table below summarizes the annual and long term compensation paid by us
during the fiscal year ended December 31, 1998 to those persons who were, as of
December 31, 1998, (i) our President and Chief Executive Officer and (ii) our
other compensated executive officer whose total annual salary and bonus exceeded
$100,000 during the year ended December 31, 1998.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------ SECURITIES
OTHER UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) OPTIONS(#)
--------------------------- -------- ----- --------------- ------------
<S> <C> <C> <C> <C>
James G. Couch........................ $329,527 $ -- -- --
President, Chief
Executive Officer and Director
Philip Burkhart....................... $115,972 $ -- $8,730 --
Vice President of Channel Sales
</TABLE>

- -------------------------
(1) The figures shown in the last column designated "Other Compensation"
represent our forgiveness of a portion of a loan made by CRL to Mr.
Burkhart. Until December 1998, Mr. Burkhart served as the Vice President of
Operations and was an executive officer of CRL.

No options were granted to the named executives in the last fiscal year.

AGGREGATED OPTION EXERCISES DURING LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES

The table below sets forth information regarding options exercised during the
year ended December 31, 1998 by the executive officers identified in the Summary
Compensation Table above, as well as the aggregate value of unexercised options
held by those executive officers at December 31, 1998. We have no outstanding
stock appreciation rights.

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James G. Couch............ -- -- 38,421 153,685 $125,637 $502,550
Philip Burkhart........... -- -- 38,421 153,685 125,637 502,550
</TABLE>

- -------------------------
(1) There was no public trading market for the common stock as of December 31,
1998. Accordingly, these values have been calculated on the basis of fair
market value of common stock of $5.10 per share. Therefore, the value of
options in the table is calculated based on the $5.10 per share value, less
the applicable exercise price per share, multiplied by the number of shares
underlying these options.

401(k) PLAN

We have an employee profit sharing plan that is intended to qualify as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Under our 401(k) Plan, our officers and other employees may elect to defer up to
15% of their compensation, subject to limitations under the Internal Revenue
Code. We may from time to time also make contributions on behalf of each officer
or other employee, which contributions vest depending on the length of
employment of each respective officer or employee. Amounts deferred are
deposited by us in a trust account for distribution to employees upon
retirement, attaining age 65, permanent disability, death, termination of
employment or the occurrence of conditions constituting extraordinary hardship.
We have not made matching contributions on behalf of our officers and other
employees in the past.

59
<PAGE> 64

STOCK OPTIONS

1997 Equity Incentive Plan

On August 8, 1997, our Board of Directors adopted, and our stockholders
approved, the CRL Network Services, Inc. 1997 Equity Incentive Plan. The 1997
Equity Incentive Plan provides for the grant of incentive and non-statutory
options, restricted stock or stock bonuses to purchase up to an aggregate of the
number of shares of common stock equal to 10% of the total number of shares of
our authorized common stock. Incentive stock options can be granted only to our
full-time employees, including officers and directors who are also employees,
while non-statutory stock options, restricted stock and stock bonuses can be
granted to our employees, officers and directors, consultants and advisors.
Participants in the 1997 Equity Incentive Plan are selected by our Board of
Directors, or by a committee of directors selected by the Board of Directors.
The Board of Directors or the committee is empowered to determine the terms and
conditions of each award granted under the 1997 Equity Incentive Plan, subject
to limitations including that no option can have a term in excess of ten years,
or five years if granted to an employee owning more than 10% of our outstanding
common stock. In the event of:

- a merger or consolidation in which we are not the surviving corporation
(other than a merger or consolidation with a wholly-owned subsidiary or a
reincorporation in a different jurisdiction)

- our dissolution or liquidation

- a sale of all or substantially all of our assets

- any other transaction that qualifies as a "corporate action" under Section
424(a) of the Internal Revenue Code

the number of vested shares under all options granted pursuant to the 1997
Equity Incentive Plan will increase as if the holder had remained our employee
for an additional one year from the date of such event. The Board of Directors
may amend or modify the 1997 Equity Incentive Plan at any time subject to any
required shareholder approval. The 1997 Equity Incentive Plan will terminate on
the earliest of:

- August 7, 2007

- the date in which all shares available for issuance under the 1997 Equity
Incentive Plan have been issued as fully-vested shares

- the termination of all outstanding options in connection with a change of
control in which the successor corporation does not assume the 1997 Equity
Incentive Plan

As of March 31, 1999, options to purchase 1,006,320 shares, at a weighted
average exercise price of $2.18, were outstanding under the 1997 Equity
Incentive Plan. There have been no restricted stock awards or stock bonuses
awarded. We do not intend to make any further option grants under this plan.

1999 Stock Incentive Plan

On March 18, 1999, our Board of Directors adopted, and our stockholders
approved, the CRL Network Services, Inc. 1999 Stock Incentive Plan. The 1999
Stock Incentive Plan does not limit any award to any specified form or
structure. The types and amount of awards will be determined at the discretion
of the Board of Directors or committee of the Board of Directors empowered to
administer the 1999 Stock Incentive Plan. As amended on May 18, 1999, the
maximum number of shares of common stock that may be issued under the 1999 Stock
Incentive Plan is 2,000,000 shares. If incentive stock options are issued, these
options must comply with Section 422 of the Internal Revenue Code. Participants
in the 1999 Stock Incentive Plan are selected by a committee of directors
selected by the Board of Directors as a whole, each member of which must be a
"non-employee director" as this term is defined under the Securities Exchange
Act of 1934, as amended. This committee is also empowered to determine the terms
and conditions of each option or other stock-based award granted under the 1999
Stock Incentive Plan, subject to the limitations regarding incentive stock
options imposed by the Internal Revenue Code. The Board of

60
<PAGE> 65

Directors may amend or modify the 1999 Stock Incentive Plan at any time subject
to any required shareholder approval. The 1999 Stock Incentive Plan will
terminate on March 17, 2009. There are currently no options or other awards
outstanding under the 1999 Stock Incentive Plan.

EMPLOYMENT AGREEMENTS

We entered into an employment agreement with James G. Couch, our President and
Chief Executive Officer, on March 15, 1999. Under the terms of this employment
agreement, Mr. Couch will receive an annual base salary of $320,000, which may
be increased at the discretion of the Board of Directors, and at the discretion
of the Board of Directors, a bonus. The term of this employment agreement ends
on February 28, 2002, and is automatically renewable for consecutive one-year
periods unless advance notice is given by either party. We may terminate Mr.
Couch or Mr. Couch may voluntarily resign at any time. If Mr. Couch is
terminated by us without cause, he will be entitled to receive twelve months'
salary, payable in equal monthly installments over the twelve month period
following termination. We are not obligated to pay any specified amount if we
terminate Mr. Couch for cause.

In connection with our merger with Integral Networking Corporation, we entered
into an employment agreement and a non-competition agreement with Robert L.
Ross, Integral's President, to continue to serve as President of Integral
Networking Corporation, our wholly-owned subsidiary. The employment agreement's
term expires December 21, 2000. Mr. Ross receives a salary of at least $56,500
and a bonus of up to $100,000 based upon targeted personal and company
performance. We may terminate Mr. Ross at any time upon written notice. Mr. Ross
may terminate his employment with us if we fail to cure any breach within 30
days following written notice from him to us describing the breach. In the event
that we terminate Mr. Ross's employment without cause before the end of its
term, we are obligated to pay Mr. Ross his then current salary until the end of
the term or for three months, whichever is less.

For more information regarding our arrangements with our key employees, See
"Risk Factors -- Our success will depend on the continued performance of our key
personnel."

LIMITATION OF LIABILITY AND INDEMNIFICATION

Our Certificate of Incorporation and Bylaws require us to indemnify our
officers, directors, employees and other agents to the full extent permitted by
law, including those circumstances in which indemnification would otherwise be
discretionary. Delaware law provides that a corporation's certificate of
incorporation may contain a provision eliminating or limiting the personal
liability of a director for monetary damages for breach of their fiduciary
duties as directors, except for liability for any breach of their duty of
loyalty to the corporation or its stockholders, acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the Delaware General Corporation Law or any
transaction from which the director derived an improper personal benefit. Our
Bylaws also permit us to advance expenses incurred by an indemnified director or
officer in connection with the defense of any action or proceeding arising out
of such director's or officer's status or service as one of our directors or
officers upon any undertaking by such director or officer to repay such advances
if it is ultimately determined that such director or officer is not entitled to
such indemnification. In addition, our Certificate of Incorporation expressly
authorizes the use of indemnification agreements. We currently have no
indemnification agreements with our officers, directors or employees.

CERTAIN TRANSACTIONS

We were party to an airplane leasing agreement with FBN Holding Corp., the sole
stockholder of which is James G. Couch, our President and Chief Executive
Officer. Under the terms of this agreement, we were able to lease aircraft from
FBN on an hourly basis at FBN's then prevailing rate, which included, without
additional charge, all fuel, insurance, repairs and maintenance. Changes in the
FBN prevailing hourly rate required 30 days written prior notice to us. This
agreement was terminated effective April 30, 1999. During 1998, we paid FBN an
aggregate of approximately $144,000 for our use, at various times during the
year,

61
<PAGE> 66

of an airplane owned by FBN. We believe the rates charged by FBN were equivalent
to the rates we could obtain from unaffiliated third parties.

In August 1995, we made a loan in the amount of $106,000 with an interest rate
of 7.5% to Mr. Couch. The promissory note delivered to us specified that the
entire principal amount plus accrued interest was to be repaid by July 10, 2000.
During 1998, the stockholder repaid the entire remaining amount outstanding
under the promissory note.

We have employment agreements for specified terms with Messrs. Couch and Ross.
See "Management -- Employment Agreements."

All future transactions among us, our directors, principal stockholders and
their affiliates will be approved by a majority of the Board of Directors,
including a majority of the independent and disinterested directors.

62
<PAGE> 67

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of our common stock as of May 31, 1999, and as adjusted to reflect the
sale of 5,000,000 shares by us and the sale of 850,000 shares by the selling
stockholder, by (i) each of our directors and director nominees, (ii) each
person or group known to us to be the beneficial owner of more than 5% of our
outstanding common stock, (iii) our named executive officers whose total salary
and bonus exceeded $100,000 during the year ended December 31, 1998, (iv) the
selling stockholder, and (v) all of our directors and executive officers as a
group. Each of these persons has the sole voting and investment power with
respect to the shares owned. Except as otherwise indicated, the address of each
holder identified below is care of CRL Network Services, Inc., One Kearny
Street, Suite 1450, San Francisco, California 94108.

<TABLE>
<CAPTION>
SHARES NUMBER SHARES
BENEFICIALLY OWNED OF BENEFICIALLY OWNED
PRIOR TO OFFERING(1) SHARES AFTER THE OFFERING(1)
--------------------- BEING ---------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
---- ---------- ------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
James G. Couch.................... 16,953,757(2) 88.9% 850,000 16,103,757 66.9%
Philip Burkhart(3)................ 60,000(4) 0.3% -- 60,000 0.2%
Steven T. Stenberg................ -- -- -- -- --
Jack M. Fields, Jr. .............. -- -- -- -- --
Stephen C. Mott................... -- -- -- -- --
Thor Geir Ramleth................. -- -- -- -- --
All directors and executive
officers as a group (5
persons)........................ 16,953,757(2) 88.9% 850,000 16,103,757 66.9%
</TABLE>

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

(1) In calculating beneficial and percentage ownership, all shares of common
stock that a named stockholder or specified group will have the right to
acquire within 60 days of the date of this prospectus upon exercise of
stock options are deemed to be outstanding for the purpose of computing the
ownership of such stockholder, but are not deemed to be outstanding for the
purpose of computing the percentage of common stock owned by any other
stockholder. As of May 31, 1999, an aggregate of 19,038,832 shares of
common stock were outstanding.

(2) Includes 38,421 shares issuable upon exercise of stock options held by Mr.
Couch but does not include 153,685 shares issuable upon exercise of stock
options that have been granted but are not exercisable within 60 days of
the date of this prospectus.

(3) Until December 1998, Mr. Burkhart was an executive officer of CRL, serving
as Vice President of Operations.

(4) Does not include 132,106 shares issuable upon exercise of stock options
which have been granted but are not exercisable within 60 days of the date
of this prospectus.

63
<PAGE> 68

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 70,000,000 shares of common stock,
$.0001 par value, and 5,000,000 shares of preferred stock, $.01 par value. The
description of our capital stock below and provisions of our charter documents
is not complete and is qualified by our Certificate of Incorporation and Bylaws,
which are included as exhibits to the Registration Statement that this
prospectus is a part of.

COMMON STOCK

As of May 31, 1999, there were 19,038,832 shares of common stock outstanding
that were held of record by five stockholders. Upon completion of this offering,
there will be 24,038,832 shares of our common stock outstanding assuming no
exercise of the underwriters' over-allotment option and no exercise of
outstanding options. Holders of the common stock are entitled to one vote per
share on each matter submitted to a vote of our stockholders. Cumulative voting
for the election of directors is not authorized by our Certificate of
Incorporation, which means that the holders of a majority of the shares voted
can elect all of the directors then standing for election. Subject to
preferences that may be applicable to the holders of any outstanding series of
our preferred stock, each holder of common stock is entitled to receive
dividends, if any, as may be declared by our Board of Directors out of funds
legally available for the payment of dividends. We have not granted dividends in
the past and have no current plans to do so in the future. See "Dividend
Policy." Upon our liquidation, dissolution or winding up, our common
stockholders are entitled to share ratably in all of our assets which are
legally available for distribution, after payment of all debts and other
liabilities and the liquidation preference of any outstanding series of
preferred stock. Holders of common stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of common stock are, and
the shares to be sold by us in the offering will be, when issued and delivered,
validly issued, fully-paid and non-assessable under the Delaware General
Corporation Law.

PREFERRED STOCK

As of May 31, 1999, no shares of preferred stock were outstanding. Our Board of
Directors is authorized, subject to any limitations of the Delaware General
Corporation Law, but without further vote or action by our stockholders, to
issue preferred stock in one or more series. The Board of Directors can
establish the number of shares of each series, to fix the designations, powers,
preferences and rights of the shares of each such series, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices and liquidation preferences. The Board of Directors can also
establish any qualifications, limitations or restrictions of the preferred
stock, and to increase or decrease the number of shares of any such series, but
not below the number of shares of such series then outstanding. The Board of
Directors may authorize the issuance of preferred stock with voting or
conversion rights that could adversely affect the voting power or other rights
of the holders of common stock. While providing flexibility in connection with
possible acquisitions and other corporate purposes, the issuance of preferred
stock may have the effect of delaying, deferring or preventing a change in
control of our company. We have no current plans to issue any shares of
preferred stock.

CERTAIN PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BYLAWS

Stockholder Meetings

Our Bylaws provide that any action required to be taken or that may be taken at
any meeting of our stockholders may only be taken at a meeting of stockholders
and may not be taken by the written consent of the stockholders. Special
meetings of stockholders may only be called by the Board of Directors, the
Chairman of the Board or the President and only such business brought forth by
or at the direction of the Board of Directors or the stockholders may be
conducted. If a stockholder wishes to propose an item for consideration at any
meeting, the stockholder must give written notice to us not less than 90 days
before the meeting or, if later, the tenth day following the date of the first
public announcement of the meeting,

64
<PAGE> 69

or such other date as is necessary to comply with applicable federal proxy
solicitation rules and other regulations.

Board of Directors

Our Bylaws provide that the number of directors may not be less than two nor
more than seven until changed by an amendment duly adopted by the Board of
Directors or stockholders. The Bylaws further provide that the exact number of
directors shall be fixed from time to time, within such range, by the Board of
Directors. Currently, the number of directors is fixed at two. The Bylaws
provide that the Board of Directors will be divided into three classes of
directors, who will serve for staggered three-year terms. The Bylaws do not
provide for cumulation of stockholder votes in the election of directors.
According to the Bylaws, each director may be removed only for cause and only by
the affirmative vote of at least 80% of the outstanding shares of common stock.
The Bylaws provide that nominations for election of directors may be made by the
Board of Directors or any stockholder entitled to vote in the election of
directors. If a stockholder wishes to nominate a director, the stockholder must
give written notice to us not less than 90 days before the meeting or, if later,
the tenth day following the date of the first public announcement of the
meeting.

Amendment of Our Charter Documents

Our Certificate of Incorporation may not be amended without the approval the
holders of a majority of our outstanding voting shares or the approval of at
least a majority of our directors. Our Bylaws contain provisions requiring the
affirmative vote of at least 80% of outstanding shares of common stock to amend,
alter or repeal the provisions of the Bylaws relating to the calling of special
meetings of stockholders, advance notice of stockholder business or nominees,
removal of directors or stockholder action without a meeting.

These provisions of our charter documents may delay, defer or prevent a change
in control without further action by our stockholders, may discourage bids for
the common stock at a premium over the market price of the common stock and may
adversely affect the market price of the common stock.

Effect of Delaware Anti-takeover Statute

We are subject to Section 203 of the Delaware General Corporation Law which,
subject to exceptions, prohibits a Delaware corporation from engaging in any
"business combination" which includes a merger or sale of more than 10% of the
corporation's assets, with any interested stockholder for a period of three
years following the date that such stockholder became an interested stockholder,
unless:

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

- upon completion of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding those shares owned by persons who are
directors and also officers; or

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

In general, Section 203 defines an "interested stockholder" as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation or any entity or person affiliated with or controlling or controlled
by such entity or person. See "Risk Factors -- Anti-takeover provisions could
negatively impact our stockholders."

65
<PAGE> 70

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is ChaseMellon Shareholder
Services, L.L.C. Its address is 400 S. Hope Street, 4th Floor, Los Angeles, CA
90071 and its telephone number is (213) 553-9700.

LISTING

Application has been made to have our common stock approved for quotation on the
Nasdaq National Market under symbol "CRLX."

66
<PAGE> 71

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for our common stock. Future
sales of substantial amounts of our common stock in the public market could
adversely affect prevailing market prices.

Upon completion of this offering, there will be 24,038,832 shares of our common
stock outstanding assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options. Of these shares, the 5,850,000
shares sold in this offering will be freely tradable without restriction or
further registration under the Securities Act, except for any such shares held
by our "affiliates" (as defined below). The remaining 18,188,832 shares held by
existing stockholders are "restricted securities" as that term is defined in
Rule 144 under the Securities Act. Restricted securities and any shares
purchased in the offering by one of our "affiliates" may not be sold in the
public market without registration under the Securities Act or in compliance
with an applicable exemption from registration as provided in Rule 144 or 701
under the Securities Act, which rules are summarized below.

In general, under Rule 144 as currently in effect, a person or persons whose
shares are aggregated who has beneficially owned shares of our common stock for
at least one year including the holding period of any prior owner other than any
of our "affiliates," or who is one of our "affiliates," is entitled to sell
within any three-month period a number of shares or, in the case of an
"affiliate," a number of such restricted securities and shares purchased in the
public market, that does not exceed the greater of:

- 1% of the shares of our common stock then outstanding, equaling
approximately 240,000 shares immediately after this offering, or

- the average weekly trading volume of our common stock in the public market
during the four calendar weeks immediately before such sale.

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

Under Rule 144(k), a person who has not been one of our "affiliates" at any time
during the 90 days before a sale, and who has beneficially owned shares proposed
to be sold for at least two years, is entitled to sell such shares without
regard to the volume limitations, manner of sale provisions or notice
requirements.

Subject to a number of limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 of the Securities Act, as currently
in effect, permits the resale of securities originally purchased from us by our
employees, directors, officers, consultants or advisers prior to the closing of
this offering in connection with a compensatory stock or option plan or written
agreement, by persons who are not our "affiliates" subject only to the
manner-of-sale provisions of Rule 144 and by our affiliates under Rule 144
without compliance with its minimum holding period requirement.

All of our officers, directors and stockholders have generally agreed that they
will not, without the prior written consent of CIBC World Markets Corp., which
consent may be withheld in its sole discretion, and subject to limited
exceptions, directly or indirectly, sell, offer, contract or grant any option to
sell, make any short sale, pledge, transfer, establish an open "put equivalent
position" within the meaning of Rule 16a-1(h) under the Exchange Act, or
otherwise dispose of any shares of common stock, options or warrants to acquire
common stock, or securities exchangeable or exercisable for or convertible into
common stock currently owned either of record or beneficially by them or
announce the intention to do any of the acts listed above, for a period
beginning on the date of this prospectus and continuing to the date which is 180
days after the date of this prospectus. CIBC World Markets Corp. may, in its
sole discretion and any time without notice, release all or any portion of the
securities subject to these lock-up agreements. In addition, we have agreed
that, for a period of 180 days after the date of this prospectus, we will not,
without the consent of CIBC World Markets Corp., issue, offer, sell or grant
options to purchase or otherwise dispose of any equity securities or securities
convertible into or exchangeable for equity securities except for (i) the
issuance of shares of common stock offered hereby and (ii) the grant of options
to purchase shares of common stock under the 1999 Stock Incentive Plan and
shares of common

67
<PAGE> 72

stock issued upon the exercise of outstanding options on or after the date of
this prospectus. See "Underwriting."

There are no restrictions on resale with respect to any of our securities, other
than restrictions imposed by lock-up agreements and applicable securities laws.
As a result of the lock-up agreements described above and the provisions of Rule
144 and 701, the restricted shares will be available for sale in the public
market immediately upon expiration of the 180 day lock-up period, subject to the
volume limitations and other conditions of Rule 144. Sales of our common stock
by these stockholders could have a material adverse effect on the trading price
of our common stock.

We have granted options to purchase up to 1,006,320 shares of common stock under
the 1997 Equity Incentive Plan of which, options to purchase 60,000 shares have
been exercised as of May 31, 1999. Concurrently with the sale of the shares
offered hereby, we intend to grant options to purchase an additional 350,000
shares of common stock pursuant to the 1999 Equity Incentive Plan. An additional
1,650,000 shares currently are reserved for issuance under the 1999 Stock
Incentive Plan. No options are outstanding under the 1999 Stock Incentive Plan.
Immediately after this offering, we intend to register the sale of the shares of
common stock issued and issuable under the 1997 Equity Incentive Plan and 1999
Stock Incentive Plan under the Securities Act. See "Management -- Stock
Options." Accordingly, as awards under the stock option plans vest, shares
issued upon exercise of these stock options will be freely tradable and
available for sale in the open market, immediately after the 180-day lock-up
agreements expire, except such shares as may be acquired by one of our
"affiliates."

68
<PAGE> 73

UNDERWRITING

CRL Network Services, Inc. and the selling stockholder have entered into an
underwriting agreement with the underwriters named below. CIBC World Markets
Corp. and Lehman Brothers Inc. are acting as representatives of the
underwriters.

The underwriting agreement provides for the purchase of a specific number of
shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter has severally agreed to purchase
the number of shares of common stock set forth opposite its name below:

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
CIBC World Markets Corp. ...................................
Lehman Brothers Inc.........................................
DLJdirect Inc...............................................

---------
Total....................................................... 5,850,000
=========
</TABLE>

This is a firm commitment underwriting. This means that the underwriters have
agreed to purchase all of the shares offered by this prospectus (other than
those covered by the over-allotment option described below) if any are
purchased.

The representatives have advised CRL and the selling stockholder that the
underwriters propose to offer the shares directly to the public at the public
offering price that appears on the cover page of this prospectus. In addition,
the representatives may offer some of the shares to selected securities dealers
at such price less a concession of $ per share. The underwriter may also
allow, and such dealers may reallow, a concession not in excess of $ per
share to other dealers. After the shares are released for sale to the public,
the representatives may change the offering price and other selling terms at
various times. An electronic prospectus is available on the website maintained
by DLJdirect Inc.

CRL and the selling stockholder have granted the underwriters an over-allotment
option. This option, which is exercisable for up to 30 days after the date of
this prospectus, permits the underwriters to purchase a maximum of 877,500
additional shares from the selling stockholder or, at the selling stockholder's
option, CRL, to cover over-allotments. If the underwriters exercise all or part
of this option, they will purchase shares covered by the option at the initial
public offering price that appears on the cover page of this prospectus, less
the underwriting discount. If this option is exercised in full from the selling
stockholder, the total price to public will be $ , the total proceeds to
CRL will be $ and the total proceeds to the selling stockholder will be
$ . If this option is exercised in full from CRL, the total proceeds to
CRL will be $ and the total proceeds to the selling stockholder will be
$ . The underwriters have severally agreed that, to the extent the
over-allotment option is exercised, they will each purchase a number of
additional shares proportionate to the underwriter's initial amount reflected in
the foregoing table.

69
<PAGE> 74

The following table provides information regarding the amount of the discount to
be paid to the underwriters by CRL and the selling stockholder.

<TABLE>
<CAPTION>
TOTAL WITH FULL TOTAL WITH FULL
EXERCISE OF EXERCISE OF
TOTAL WITHOUT EXERCISE OF OVER-ALLOTMENT OVER-ALLOTMENT
PER SHARE OVER-ALLOTMENT OPTION OPTION(1) OPTION(2)
--------- ------------------------- --------------- ---------------
<S> <C> <C> <C> <C>
CRL Network Services, Inc.........
Selling Stockholder...............
Total...................
</TABLE>

- -------------------------
(1) Assumes the over-allotment shares are sold by the selling stockholder.

(2) Assumes the over-allotment shares are sold by CRL.

CRL estimates that the total expenses of the offering to be paid by CRL,
excluding the underwriting discount, will be approximately $1,250,000.

CRL and the selling stockholder have agreed to indemnify the underwriters
against some specified liabilities, including liabilities under the Securities
Act of 1933.

CRL, its officers and directors and other stockholders have generally agreed to
a 180-day "lock up" with respect to 18,128,832 shares of common stock and other
CRL securities that they beneficially own, including securities that are
convertible into shares of common stock and securities that are exchangeable or
exercisable for shares of common stock. This means that, for a period of 180
days following the date of this prospectus, CRL and such persons may not offer,
sell, pledge or otherwise dispose of these CRL securities without the prior
written consent of CIBC World Markets Corp.

The representatives have informed CRL that they do not expect discretionary
sales by the underwriters to exceed five percent of the shares offered by this
prospectus.

There is no established trading market for the shares. The offering price for
the shares has been determined by CRL and the representatives, based on the
following factors:

- negotiations among CRL and the representatives

- prevailing market and economic conditions

- the financial information of CRL

- the history of, and the prospects for CRL

- CRL and the industry in which it competes

- an assessment of CRL management, its past and present operations, the
prospects for, and timing of, future revenues of CRL

- the present stage of CRL's development and the above factors in relation to
market values and valuation measures of other companies engaged in
activities similar to those of CRL's

The initial public offering price set forth on the cover page of this prospectus
should not, however, be considered an indication of the actual value of the
common stock. Such price is subject to change as a result of market conditions
and other factors. There can be no assurance that an active trading market will
develop for the common stock or that the common stock will trade in the public
market subsequent to this offering at or above the initial offering price.

Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of the shares
is completed. However, the underwriters may engage in the following activities
in accordance with the rules of the Securities and Exchange Commission:

- Stabilizing transactions -- The representatives may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of the shares,
so long as stabilizing bids do not exceed a specified maximum.

- Over-allotments and syndicate covering transactions -- The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short

70
<PAGE> 75

position is created in connection with the offering, the representatives may
engage in syndicate covering transactions by purchasing shares in the open
market. The representatives may also elect to reduce any short position by
exercising all or part of the over-allotment option.

- Penalty bids -- If the representatives purchase shares in the open market in
a stabilizing transaction or syndicate covering transaction, they may
reclaim a selling concession from the underwriters and selling group members
who sold those shares as part of this offering.

Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of such transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.

Neither CRL nor the underwriters makes any representation or prediction as to
the effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market or otherwise.
If such transactions are commenced, they may be discontinued without notice at
any time.

LEGAL MATTERS

Certain legal matters with respect to the legality of the issuance of the shares
of common stock offered hereby will be passed upon for us and the selling
stockholder by Gibson, Dunn & Crutcher LLP, San Francisco, California. Certain
legal matters in connection with this offering will be passed upon for the
underwriters by Brobeck, Phleger & Harrison LLP, San Francisco, California.

EXPERTS

The financial statements included in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein in the registration statement, and have been so included in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.

WHERE YOU CAN FIND MORE INFORMATION

We filed with the Securities and Exchange Commission a Registration Statement on
Form S-1 under the Securities Act with respect to the shares of common stock
offered hereby. This prospectus does not contain all of the information
contained in the Registration Statement and the exhibits and schedule filed with
the Registration Statement. For further information with respect to CRL Network
Services, Inc. and the common stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules filed as a part of the
Registration Statement. Statements contained in this prospectus concerning the
contents of any contract or any other document referred to are not necessarily
complete; reference is made in each instance to the copy of such contract or
document filed as an exhibit to the Registration Statement. Each such statement
is qualified in all respects by such reference to such exhibit. The Registration
Statement, including exhibits and schedules thereto, may be inspected without
charge at the Securities and Exchange Commission's public reference facilities
in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Securities and Exchange Commission's regional offices located at the Northwest
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
Seven World Trade Center, 13th Floor, New York, New York 10048, and copies of
all or any part of the Registration Statement may be obtained from such offices
after payment of fees prescribed by the Securities and Exchange Commission. The
Securities and Exchange Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Securities and Exchange Commission
at http://www.sec.gov.

71
<PAGE> 76

CRL NETWORK SERVICES, INC. AND SUBSIDIARY

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998
and as of March 31, 1999 (unaudited)...................... F-3
Consolidated Statements of Operations for the Years ended
December 31, 1996, 1997 and 1998 and the Three Months
Ended March 31, 1998 and 1999 (unaudited)................. F-4
Consolidated Statements of Stockholders' Equity for the
Years ended December 31, 1996, 1997
and 1998 and March 31, 1999 (unaudited)................... F-5
Consolidated Statements of Cash Flows for the Years ended
December 31, 1996, 1997 and 1998 and the Three Months
Ended March 31, 1998 and 1999 (unaudited)................. F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 77

INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors of
CRL Network Services, Inc.:

We have audited the accompanying consolidated balance sheets of CRL Network
Services, Inc. and subsidiary as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of CRL Network Services, Inc. and
subsidiary as of December 31, 1997 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles.

/s/ DELOITTE & TOUCHE LLP

San Francisco, California
March 18, 1999 (April 28, 1999 as to the last paragraph in Note 12)

F-2
<PAGE> 78

CRL NETWORK SERVICES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1997 1998 1999
------ ------ -----------
(UNAUDITED)
(NOTE 1)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and equivalents...................................... $1,115 $ 840 $ 354
Accounts receivable, net of allowances for doubtful
accounts of $162, $484 and $484, respectively.......... 1,229 1,309 1,008
Deferred tax assets....................................... 101 85 85
Other..................................................... 161 131 645
------ ------ ------
Total current assets................................... 2,606 2,365 2,092
Property and equipment, net................................. 1,801 2,445 2,385
Other assets................................................ 48 45 45
------ ------ ------
Total assets...................................... $4,455 $4,855 4,522
====== ====== ======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 637 $ 892 $ 814
Deferred revenue.......................................... 603 594 217
Accrued liabilities....................................... 628 170 546
Current portion of long-term obligations.................. 166 270 280
Other..................................................... 18 9 6
------ ------ ------
Total current liabilities.............................. 2,052 1,935 1,863
Deferred tax liabilities.................................... 246 313 313
Long-term obligations....................................... 402 847 822
------ ------ ------
Total liabilities...................................... 2,700 3,095 2,998
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized; none issued and outstanding................
Common stock, $0.0001 par value, 70,000,000 shares
authorized; 18,978,832 shares issued and outstanding... 6 6 6
Common stock options...................................... 948 1,046
Deferred stock compensation............................... (792) (739)
Retained earnings......................................... 1,749 1,598 1,211
------ ------ ------
Total stockholders' equity............................. 1,755 1,760 1,524
------ ------ ------
Total liabilities and stockholders' equity........ $4,455 $4,855 4,522
====== ====== ======
</TABLE>

See notes to the consolidated financial statements.
F-3
<PAGE> 79

CRL NETWORK SERVICES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------- ----------------
1996 1997 1998 1998 1999
------ ------ ------ ------ ------
(UNAUDITED)
(NOTE 1)
<S> <C> <C> <C> <C> <C>
REVENUES:
Colocation and internet connectivity........ $4,600 $8,873 $9,681 $2,452 $2,142
Systems integration and hardware sales...... 1,753 1,502 2,011 529 861
------ ------ ------ ------ ------
Total revenues...................... 6,353 10,375 11,692 2,981 3,003
------ ------ ------ ------ ------
COSTS AND EXPENSES:
Cost of colocation and internet
connectivity............................. 2,219 3,631 4,871 1,211 1,229
Cost of system integration and services..... 1,127 1,009 1,295 288 569
Selling and marketing....................... 345 522 371 158 41
General and administrative.................. 1,840 2,997 4,124 847 1,325
Depreciation................................ 512 745 909 190 210
Stock-based compensation expense............ 156 151
------ ------ ------ ------ ------
Total costs and expenses............ 6,043 8,904 11,726 2,694 3,525
------ ------ ------ ------ ------
OPERATING INCOME (LOSS)....................... 310 1,471 (34) 287 (522)
Net interest income (expense)................. 1 5 (30) (1) (22)
------ ------ ------ ------ ------
Income (loss) before income taxes............. 311 1,476 (64) 286 (544)
Income tax provision (benefit)................ 150 591 87 83 (157)
------ ------ ------ ------ ------
NET INCOME (LOSS)............................. $ 161 $ 885 $ (151) $ 203 $ (387)
====== ====== ====== ====== ======
Net income (loss) per common share --
Basic and diluted........................... $ 0.01 $ 0.05 $(0.01) $ 0.01 $(0.02)
Weighted average common shares outstanding:
Basic....................................... 18,979 18,979 18,979 18,979 18,979
Diluted..................................... 18,979 19,142 18,979 19,283 18,979
</TABLE>

See notes to the consolidated financial statements.
F-4
<PAGE> 80

CRL NETWORK SERVICES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
COMMON STOCK COMMON DEFERRED TOTAL
------------------- STOCK STOCK RETAINED STOCKHOLDERS'
SHARES AMOUNT OPTIONS COMPENSATION EARNINGS EQUITY
---------- ------ ------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996........... 18,978,832 $6 $ $ $ 703 $ 709
Net income......................... 161 161
---------- -- ------ ----- ------ ------
Balance, December 31, 1996......... 18,978,832 6 864 870
Net income......................... 885 885
---------- -- ------ ----- ------ ------
Balance, December 31, 1997......... 18,978,832 6 1,749 1,755
Compensatory stock arrangements.... 948 (948)
Amortization of deferred stock
compensation..................... 156 156
Net loss........................... (151) (151)
---------- -- ------ ----- ------ ------
Balance, December 31, 1998......... 18,978,832 6 948 (792) 1,598 1,760
Compensatory stock arrangements
(unaudited)...................... 98 (98)
Amortization of deferred stock
compensation (unaudited)......... 151 151
Net loss (unaudited)............... (387) (387)
---------- -- ------ ----- ------ ------
Balance, March 31, 1999
(unaudited)...................... 18,978,832 $6 $1,046 $(739) $1,211 $1,524
========== == ====== ===== ====== ======
</TABLE>

See notes to the consolidated financial statements.
F-5
<PAGE> 81

CRL NETWORK SERVICES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- ---------------
1996 1997 1998 1998 1999
----- ------- ------- ------- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)................................. $ 161 $ 885 $ (151) $ 203 $(387)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation................................... 512 745 909 190 210
Stock-based compensation expense............... 156 151
Loss on disposal of fixed assets............... 13 3
Deferred taxes................................. 52 50 89 (14)
Changes in assets and liabilities:
Accounts receivable, net..................... (372) (588) (80) (119) 301
Other assets................................. 4 (64) 9 39 (514)
Accounts payable and accrued expenses........ 337 535 (209) (344) 298
Other liabilities............................ 250 170 (18) 34 (380)
----- ------- ------- ------- -----
Net cash provided by (used in) operating
activities.............................. 944 1,746 705 (11) (318)
----- ------- ------- ------- -----
Cash Flows from Investing Activities:
Additions to property and equipment............... (988) (1,336) (1,553) (275) (159)
Proceeds from sale of property and equipment...... 17 143 6
Decrease in notes receivable from related parties,
net............................................ 66 11 24
----- ------- ------- ------- -----
Net cash used in investing activities..... (905) (1,182) (1,529) (275) (153)
----- ------- ------- ------- -----
Cash Flows from Financing Activities:
Credit line borrowings............................ 358 703 136 48
Principal payments on borrowings.................. (14) (42) (154) (36) (63)
----- ------- ------- ------- -----
Net cash provided by (used in) financing
activities.............................. (14) 316 549 100 (15)
----- ------- ------- ------- -----
Net Increase (Decrease) in Cash and Equivalents..... 25 880 (275) (186) (486)
Cash and Equivalents at Beginning of Period......... 210 235 1,115 1,115 840
----- ------- ------- ------- -----
Cash and Equivalents at End of Period............... $ 235 $ 1,115 $ 840 $ 929 $ 354
===== ======= ======= ======= =====
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest............................ $ 7 $ 23 $ 70 $ 13 $ 22
Cash paid for taxes............................... 165 166 577 351
Supplemental Disclosure of Noncash Financing
Activities:
Equipment acquired under capital lease............ $ 133 $ 133
</TABLE>

See notes to the consolidated financial statements.
F-6
<PAGE> 82

CRL NETWORK SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998, AND
THE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE INFORMATION)

NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY -- CRL Network Services, Inc. and subsidiary ("CRL" or the
"Company") was incorporated in the state of California in 1993. CRL is a Tier 1
Internet service provider focused on offering tailored Internet and network
management solutions to small and medium-sized businesses across the United
States through a national fiber-optic data network.

UNAUDITED INTERIM FINANCIAL INFORMATION -- The interim financial information as
of March 31, 1999 and for the three months ended March 31, 1998 and 1999 is
unaudited and has been prepared on the same basis as the audited financial
statements. In the opinion of management, such unaudited information includes
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the interim information. Operating results for the three
months ended March 31, 1999 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1999.

PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the
accounts of CRL and its wholly owned subsidiary. All intercompany balances and
transactions have been eliminated.

USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and 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 EQUIVALENTS -- The Company considers all highly liquid monetary
instruments with an original maturity of three months or less from the date of
purchase to be cash equivalents.

PROPERTY AND EQUIPMENT -- Property and equipment are recorded at cost and
depreciated using the straight-line method over their useful lives. Equipment
held under capital leases is amortized on the straight-line method over the
shorter of the lease term or the estimated useful life of the asset. Estimated
useful lives are as follows:

<TABLE>
<S> <C>
Machinery, equipment and purchased software................. 3 to 5
Furniture and fixtures...................................... 5 to 7
Airplane.................................................... 10
</TABLE>

REVENUE RECOGNITION -- Revenues from colocation and internet connectivity
include internet and secure private network connectivity, remote management
services and hosting services. Revenues from these services are generally earned
from fixed term contracts lasting from 12 to 36 months. Revenues are recognized
on a pro rata basis when the services are performed. Deferred revenue represents
amounts billed in advance of services not yet provided. Revenues from systems
integration and hardware sales result from short term contracts and revenue is
recognized when hardware is shipped and the installation and integration is
complete.

ADVERTISING EXPENSES -- All costs related to marketing and advertising the
Company's products are expensed in the periods incurred. Advertising expenses
were $80, $27 and $60 for 1996, 1997 and 1998, respectively.

INCOME TAXES -- The Company accounts for income taxes using the asset and
liability method in accordance with Statement of Financial Accounting Standards
No. 109 ("SFAS 109"). Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial

F-7
<PAGE> 83
CRL NETWORK SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.

STOCK-BASED COMPENSATION -- The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25,
Accounting for Stock Issued to Employees. Accordingly, no accounting recognition
is given to stock options granted at fair market value until they are exercised.
Compensation expense related to employee stock options is recorded if, on the
date of grant, the fair value of the underlying stock exceeds the exercise
price.

CONCENTRATION OF CREDIT RISK -- Financial instruments that potentially subject
the Company to concentration of credit risk consist of trade receivables. The
Company's receivables are subject to geographic concentrations of credit risk.
This risk is mitigated by the Company's credit evaluation process and the
reasonably short collection terms. The Company does not require collateral or
other security to support accounts receivable and maintains reserves for
potential credit losses.

FINANCIAL INSTRUMENTS -- The Company's financial instruments include cash and
equivalents, accounts receivable and debt. At December 31, 1997 and 1998, the
carrying amounts of these instruments approximates their fair values.

IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF -- The
Company evaluates its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets or
intangibles may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to future
undiscounted net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.

NET INCOME (LOSS) PER SHARE -- Basic income (loss) per share excludes dilution
and is computed by dividing net income (loss) by the weighted-average number of
common shares outstanding for the period. Diluted income (loss) per share
reflects the potential dilution that could occur if options to issue common
stock were exercised.

STOCKHOLDERS' EQUITY -- In August 1997, the Company's Board of Directors
authorized a 2,318 for 1 stock split. The stock split was effective and
distributed to the sole stockholder of record on August 8, 1997. Additionally,
in December 1998, the Company's Board of Directors authorized a 20 for 1 stock
split. The stock split was effective and distributed to the sole stockholder of
record on December 2, 1998. All share information in the financial statements
has been restated to give retroactive recognition to the stock splits.

In December 1998, the Board also authorized an increase in the number of
authorized shares of common stock to 200,000,000 (not giving effect to the
reincorporation).

COMPREHENSIVE INCOME -- There are no differences between comprehensive income
and net income as reported in the Company's statements of operations.

RECLASSIFICATIONS -- Certain prior years amounts have been reclassified to
conform to the current year presentation. Such reclassifications had no effect
on stockholders' equity or net income (loss).

RECENTLY ISSUED ACCOUNTING STANDARDS -- In March 1998, the Accounting Standards
Executive Committee of the American Institute of Certified Public Accountants
issued SOP 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. SOP 98-1 provides guidance for an enterprise on
accounting for the costs of computer software developed or obtained for internal
use. SOP 98-1 is

F-8
<PAGE> 84
CRL NETWORK SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
effective for the Company in fiscal 1999. The Company anticipates that
accounting for transactions under SOP 98-1 will not have a material impact on
the Company's financial position or results of operations.

In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which defines derivatives, requires that all
derivatives be carried at fair value, and provides for hedge accounting when
conditions specified in SFAS No. 133 are met. SFAS No. 133 is effective for the
Company in fiscal 2000. The Company does not believe adoption of this statement
will have a material impact on the Company's financial position or results of
operations.

NOTE 2 -- MERGER

On December 21, 1998, the merger of Integral Networking Corporation ("Integral")
was completed. Under the terms of the Integral merger, which was accounted for
as a pooling-of-interests, 434,832 shares of CRL common stock were exchanged for
all of the outstanding Integral common shares at an exchange ratio of 5.80
shares of CRL for each share of Integral.

The financial information for all prior periods presented has been restated to
present the combined financial condition and results of operations for both
companies as if the merger had been in effect for all periods presented.

The following table presents a reconciliation of net sales and net income (loss)
previously reported by the company to those presented in the accompanying
consolidated financial statements.

<TABLE>
<CAPTION>
1996 1997 1998
------ ------- -------
<S> <C> <C> <C>
Net sales:
CRL.......................................... $5,206 $ 9,340 $ 9,929
Integral..................................... 1,147 1,035 1,763
------ ------- -------
Combined....................................... $6,353 $10,375 $11,692
------ ------- -------
Net income (loss):
CRL.......................................... $ 237 $ 891 $ (123)
Integral..................................... (76) (6) (28)
------ ------- -------
Combined....................................... $ 161 $ 885 $ (151)
====== ======= =======
</TABLE>

NOTE 3 -- ALLOWANCES FOR DOUBTFUL ACCOUNTS

Allowances for doubtful accounts are estimated and established based on
historical experience and specific circumstances of each customer. Additions to
the allowance are charged to general and administrative expenses. Accounts
receivable are written off against the allowance for doubtful accounts when an
account is deemed uncollectible. Recoveries on accounts receivable previously
charged off as uncollectible are credited to the allowance for doubtful
accounts. Changes in the allowance for doubtful accounts were as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
1996 1997 1998 MARCH 31, 1999
---- ----- ---- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Beginning balance................. $ 7 $ 96 $162 $ 484
Additions......................... 112 624 508 126
Writeoffs......................... (23) (558) (186) (126)
---- ----- ---- -----
Balance, end of period............ $ 96 $ 162 $484 484
==== ===== ==== =====
</TABLE>

F-9
<PAGE> 85
CRL NETWORK SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 -- PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Machinery, equipment and purchased software................ $2,892 $4,208
Furniture and equipment held under capital lease........... 265 135
Furniture and fixtures..................................... 191 558
Airplane................................................... 40 40
------ ------
Total............................................ 3,388 4,941
Less accumulated depreciation.............................. (1,587) (2,496)
------ ------
Total............................................ $1,801 $2,445
====== ======
</TABLE>

On April 15, 1997, the Company sold an airplane with book value of $148 for
$143.

The accumulated depreciation associated with furniture and equipment held under
capital lease was $70 and $67 at December 31, 1997 and 1998, respectively.

Effective January 1, 1998, the Company changed the estimated service lives of
its switches and routers from three to five years. The effect of this change in
estimate increased 1998 operating income by $237, increased net income by $142
and increased diluted earnings per share by $0.01.

NOTE 5 -- LONG-TERM OBLIGATIONS

On September 2, 1997, the Company entered into a revolving line of credit
agreement for $50 with a bank. As of December 31, 1998, the line had no
available credit and a variable interest rate that is 2.5% above the prime rate
(10.25% at December 31, 1998). All borrowings are to be repaid over a period of
no more than five years.

On September 26, 1997, the Company entered into a line of credit agreement for
$500 with a bank. As of December 31, 1998 the line has no available credit and
has a variable interest rate that is 1.75% above the prime rate (9.5% at
December 31, 1998). All borrowings are personally guaranteed by the Chief
Executive Officer and are to be repaid over a period of no more than 8 years. On
March 30, 1998, the Company entered into an equipment line of credit agreement
for $692 with a bank. The equipment line is available for one year at an
interest rate of prime plus 1.5% (9.25% at December 31, 1998). As of December
31, 1998 the line had $95 of available credit. All borrowings are personally
guaranteed by the Chief Executive Officer and are to be repaid over a period of
no more than eight years. At December 31, 1998, principal repayments under these
credit agreement are required as follows:

<TABLE>
<S> <C>
1999........................................................ $ 222
2000........................................................ 223
2001........................................................ 222
2002........................................................ 257
2003........................................................ 104
------
Total............................................. $1,028
======
</TABLE>

In September 1998 the Company entered into two additional credit agreements with
a bank. The first agreement makes $200 available for one year at an interest
rate of prime plus 1.5% for general business purpose. The second agreement is an
equipment line of credit for $650. The equipment line of credit is available for
one year with a variable interest rate of prime plus 1.8%. As of December 31,
1998 the Company has had no borrowings under these agreements. All future
borrowings are to be repaid over a period of no more than eight years.

F-10
<PAGE> 86
CRL NETWORK SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 -- LONG-TERM OBLIGATIONS (CONTINUED)
Amounts borrowed under these agreements are secured by substantially all of the
Company's assets.

NOTE 6 -- INCOME TAXES

Income taxes consist of the following at December 31:

<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Current:
Federal............................................. $ 72 $412 $ 21
State............................................... 26 129 (23)
---- ---- ----
Total current............................... 98 541 (2)
---- ---- ----
Deferred:
Federal............................................. 42 49 41
State............................................... 10 1 48
---- ---- ----
Total deferred.............................. 52 50 89
---- ---- ----
Total provision............................. $150 $591 $ 87
==== ==== ====
</TABLE>

The primary components of the deferred tax accounts as of December 31 are as
follows:

<TABLE>
<CAPTION>
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Current deferred tax assets (liabilities):
Allowance for bad debts and other................ $ 27 $ 111 $ 120
Deferred rent.................................... (48) 1
Other............................................ 46 (10) (36)
----- ----- -----
Total current deferred tax assets........ $ 25 $ 101 $ 85
===== ===== =====
Noncurrent deferred tax assets (liabilities):
Deferred rent.................................... $ 8 $ 8 $ 9
Depreciation..................................... (84) (215) (386)
Federal net operating loss....................... 89
Cash to accrual adjustment....................... (42) (33) (25)
Other............................................ (6)
----- ----- -----
Total noncurrent deferred tax
liabilities............................ $(118) $(246) $(313)
===== ===== =====
</TABLE>

F-11
<PAGE> 87
CRL NETWORK SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 -- INCOME TAXES (CONTINUED)
The Company's effective tax rate differs from the federal statutory tax rate as
follows:

<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Federal statutory tax rate.............................. 34% 34% (34)%
State taxes, net of federal benefit..................... 6 6 (6)
Tax effect of permanent items........................... 72
50% disallowance of state tax net operating loss........ 7
Nondeductible compensation expense...................... 97
Disallowance of net operating losses.................... 12
Other................................................... (4) (1)
-- -- ---
Effective tax rate...................................... 48% 39% 136%
== == ===
</TABLE>

No valuation allowance has been established for the deferred tax asset.
Management believes that the Company will be able to realize the tax benefit of
the deferred tax assets based on expected future taxable income and the future
reversal of taxable temporary differences.

NOTE 7 -- STOCK OPTION AND OTHER EMPLOYEE BENEFIT PLANS

401(K) PLAN -- In September 1997, the Company implemented a 401(k) plan covering
all employees who have met eligibility requirements specified in the 401(k)
plan. Under the 401(k) plan, employees may elect to contribute up to 15% of
their eligible compensation (to a maximum of $10) to the 401(k) plan, subject to
limitations. The Company may make matching contributions at its discretion. As
of December 31, 1997 and 1998, the Company had not made any contributions to the
401(k) plan.

STOCK BASED COMPENSATION PLAN -- In August 1997, the Board of Directors approved
and the Company adopted the 1997 Equity Incentive Plan (the "Plan"). Under the
Plan, the Company may grant options to purchase 1,812,107 shares of common stock
to officers and employees. These options generally expire 10 years from the date
of grant and vest over a period of five years.

Option activity under the plans is as follows:

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Balance, January 1, 1997........................... -- $ --
Granted............................................ 647,547 1.83
Canceled........................................... (66,667) 1.83
--------- -----
Balance, December 31, 1997 (no shares vested)...... 580,880 1.83
Granted............................................ 468,773 2.40
Canceled........................................... (96,666) 1.83
--------- -----
Balance, December 31, 1998......................... 952,987 $2.11
Granted (unaudited)................................ 53,333 3.41
--------- -----
Balance, March 31, 1999 (unaudited)................ 1,006,320 $2.18
========= =====
</TABLE>

At December 31, 1998, 96,843 shares were exercisable and 899,120 were available
for grant under the 1997 stock option plan.

During the year ended December 31, 1998, deferred compensation of $948 was
recorded for options granted of which $156 was amortized to compensation
expense. The remaining deferred compensation will be amortized over the balance
of the five-year vesting period of the stock options.

F-12
<PAGE> 88
CRL NETWORK SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 -- STOCK OPTION AND OTHER EMPLOYEE BENEFIT PLANS (CONTINUED)
During the first quarter, CRL granted 43,333 stock options at a weighted average
exercise price of $2.73. These grants were made under the 1997 Equity Incentive
Plan. These options were granted below the fair market value of the stock on the
grant date. These transactions resulted in total deferred compensation expense
of $98. The compensation expense will be recorded over the five-year vesting
period of the options.

The following table summarizes information about currently outstanding and
vested stock options at December 31, 1998:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED
--------------------------------------- -----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
OUTSTANDING AT REMAINING AVERAGE VESTED AT AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICE 1998 LIFE PRICE 1998 PRICE
-------------- -------------- ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$1.83............................ 484,213 8.69 $1.83 96,843 $1.83
2.28............................ 332,107 9.71 2.28
2.73............................ 136,667 9.98 2.73
--------- ----- ------- -----
952,987 $2.11 96,843 $1.83
========= ===== ======= =====
</TABLE>

ADDITIONAL STOCK PLAN INFORMATION -- As discussed in Note 1, the Company
accounts for its stock-based awards to employees using the intrinsic value
method in accordance with APB No. 25, Accounting for Stock Issued to Employees,
and its related interpretations.

SFAS No. 123, Accounting for Stock-Based Compensation, requires the disclosure
of pro forma net income (loss) and earnings (loss) per share had the Company
adopted the fair value method since the Company's inception. Under SFAS No. 123,
the fair value of stock-based awards to employees is calculated through the use
of option pricing models, even though such models were developed to estimate the
fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option awards.

The Company's calculations for employee grants were made using the minimum
option pricing model with the following weighted average assumptions:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------
1997 1998
---- ----
<S> <C> <C>
Dividend yield.............................................. None None
Risk free interest rate..................................... 5.7% 4.4%
Expected term, in years..................................... 5.5 3
</TABLE>

The weighted average minimum value per option as of the date of grant for
options granted during 1997 and 1998 was $0.48 and $2.13, respectively.

If the computed minimum values of the Company's stock-based awards to employees
had been amortized to expense over the vesting period of the awards as specified
under SFAS No. 123, loss attributable to

F-13
<PAGE> 89
CRL NETWORK SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 -- STOCK OPTION AND OTHER EMPLOYEE BENEFIT PLANS (CONTINUED)
common stockholders and basic and diluted loss per share on a pro forma basis
(as compared to such items as reported) would have been:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------
1997 1998
----- ------
<S> <C> <C>
Net income (loss) attributable to common stockholders:
As reported............................................... $ 885 $ (151)
Pro forma................................................. 828 (192)
Diluted net income (loss) per share:
As reported............................................... $0.05 $(0.01)
Pro forma................................................. 0.04 (0.01)
</TABLE>

NOTE 8 -- NET INCOME (LOSS) PER SHARE

The following is a reconciliation of the denominators used in computing basic
and diluted net income (loss) per share (in thousands):

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------- ------------------
1996 1997 1998 1998 1999
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Shares used in the computation of Basic EPS... 18,979 18,979 18,979 18,979 18,979
Effect of dilutive stock options.............. 163 304
------ ------ ------ ------ ------
Shares used in the computation of Diluted
EPS......................................... 18,979 19,142 18,979 19,283 18,979
====== ====== ====== ====== ======
</TABLE>

The Company had options to purchase 952,987 and 1,006,320 shares of common stock
at December 31, 1998, and March 31, 1999, respectively outstanding which could
potentially dilute basic earnings per share in the future, but were excluded in
the computation of diluted net loss per share in the periods presented, as their
effect would have been antidilutive.

NOTE 9 -- RELATED PARTY TRANSACTIONS

In August 1995, the Company received a 7.5% promissory note for $106 from a
stockholder for cash. The note specified that the entire principal plus accrued
interest were to be paid by July 10, 2000. During 1998, the stockholder repaid
the remaining amount outstanding.

In April 1996, the Company received an 8% promissory note for $25 from an
employee. The note specified that payment of principal and interest is to be
paid annually in the amount of $5 plus accrued interest until fully paid. At
December 31, 1998, the remaining balance on this note was $15.

In 1997 CRL entered into an agreement with FBN Holding Co. ("FBN") to lease
aircraft time. The sole owner of FBN is also the President and Chief Executive
Officer of CRL. This agreement may be canceled at any time by either party with
30-day notice. The amount paid to FBN for travel services under the agreement
amounted to $0, $104 and $144 for the years ended December 31, 1996, 1997 and
1998, respectively.

NOTE 10 -- GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS

CRL operates in a single industry segment encompassing internet access and
related managed data services and equipment sales. All of CRL's revenues in each
year is received from customers based in the

F-14
<PAGE> 90
CRL NETWORK SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 -- GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS (CONTINUED)
United States. Approximately $5,221, $8,181 and $8,950 of CRL's revenues were
received from customers in the thirteen Western U.S. states and $5,010, $7,653
and $8,174 was received from customers in California for 1996, 1997 and 1998,
respectively.

No single customer accounted for 10% or more of CRL's net sales in any year.

NOTE 11 -- COMMITMENTS AND CONTINGENCIES

LEASES -- CRL leases office and storage space under operating leases with terms
ranging from month-to-month to six years at various times through 2005. Rent
expense under all leases was $145, $224 and $377 for 1996, 1997 and 1998,
respectively. Future minimum lease payments for capital lease obligations and
net lease payments under noncancelable operating leases with remaining terms in
excess of one year at December 31, 1998 are as follows:

<TABLE>
<CAPTION>
CAPITAL LEASE OPERATING
OBLIGATIONS LEASES
------------- ---------
<S> <C> <C>
Year ending December 31:
1999............................................... $49 $ 453
2000............................................... 38 326
2001............................................... 253
2002............................................... 205
2003............................................... 121
Thereafter......................................... 201
--- ------
Total minimum lease payments............... 87 $1,559
======
Less amount representing interest.................... (9)
---
Capital lease obligations............................ 78
Less current portion................................. (49)
---
Long-term portion.................................... $29
===
</TABLE>

TELECOMMUNICATIONS AND PEERING ARRANGEMENTS -- CRL enters into
telecommunications agreements with telephone companies who provide local access
for dial-up customers to CRL's Internet backbone. The terms of the service
agreements vary from one to two years and provide CRL with preferred rates. If
CRL prematurely cancels one of these service contracts, the service provider, at
its discretion, can charge the difference between their regular rates and the
preferred rate over the term of the service. Accordingly, the financial
commitment under these agreements would be the cancellation fee. In the past, no
service provider has exercised this option. Management believes that potential
additional charges, if any, from early cancellation of vendor service contracts
would not have a material effect on the financial statements.

CRL is party to numerous peering arrangements with other internet providers to
allow for the exchange of internet traffic. CRL does not record any revenue or
expense associated with these non-cash transactions as such transactions do not
represent the culmination of the earnings process and the fair value of such
transactions are not reasonably determinable. There is no financial commitment
under these peering arrangements.

Subject to few exceptions, CRL's peering relationships are not subject to any
written agreements and could be terminated at any time. For those peering
arrangements subject to contracts, there are no minimum fixed charges for data
exchange. Such agreements generally do impose minimum usage requirements at
levels which CRL has in the past always exceeded.

F-15
<PAGE> 91
CRL NETWORK SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEGAL MATTERS -- CRL is involved in a limited number of claims and legal actions
arising out of the normal course of business. Management does not expect that
the outcome of these cases will have a material effect on CRL's financial
position, results of operations or cash flow.

QWEST DISPUTE -- CRL is currently in a dispute with Qwest Communications
Corporation involving fiber cable they own connecting several cities. Qwest
agreed to lease fiber that was to be installed and available to CRL by specified
dates. Qwest did not complete installation as agreed. CRL believes that Qwest is
obligated to provide free service as a result of the installation delay. As of
December 31, 1998, Qwest has demanded payment of $136 which includes a credit of
$108 for free service. CRL disputes the installation dates and application of
service order terms and is seeking to negotiate a settlement of the dispute. As
of December 31, 1998, no accrual had been made for the Qwest dispute.

NOTE 12 -- SUBSEQUENT EVENTS

On March 11, 1999, CRL terminated its relationship with FBN effective April 30,
1999 (see Note 9).

On March 18, 1999, the Board of Directors adopted, subject to stockholder
approval, the 1999 Stock Incentive Plan. A total of 1,000,000 shares of common
stock have initially been reserved for issuance under the 1999 Stock Incentive
Plan.

On March 18, 1999, the Board of Directors adopted, subject to stockholder
approval, the reincorporation of CRL in the State of Delaware and the associated
exchange of one share of common stock of CRL for every three shares of common
stock of CRL's California predecessor. Such reincorporation and stock exchange
will become effective prior to the effective date of the initial public offering
contemplated by CRL. All share and per share amounts in these financial
statements have been adjusted to give effect to the reincorporation and one for
three stock exchange. In addition, upon reincorporation in the State of
Delaware, the Board of Directors is authorized to issue up to 5,000,000 shares
of preferred stock in one or more series.

On April 28, 1999 CRL completed the reincorporation of CRL in the State of
Delaware and the associated exchange of one share of common stock of CRL for
every three shares of common stock of CRL's California predecessor.

F-16
<PAGE> 92

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

LOGO

5,850,000 SHARES

COMMON STOCK

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

PROSPECTUS
--------------------

, 1999

CIBC WORLD MARKETS

LEHMAN BROTHERS

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

DLJdirect INC.

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

YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE PROSPECTIVE INVESTORS WITH DIFFERENT OR ADDITIONAL
INFORMATION FROM THAT CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN
OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY
CIRCUMSTANCES WHERE THE OFFER OR SALE IS UNLAWFUL. THE INFORMATION CONTAINED IN
THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF
THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.

DEALER PROSPECTUS DELIVERY OBLIGATION: UNTIL , 1999 (25 DAYS AFTER
THE DATE OF THIS PROSPECTUS), ALL DEALERS THAT BUY, SELL OR TRADE THESE SHARES
OF COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 93

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following costs and expenses, other than underwriting discounts and
commissions, payable by the Registrant in connection with this offering. All
amounts are estimates except the SEC registration fee, the NASD filing fee and
the Nasdaq National Market listing fee.

<TABLE>
<S> <C>
SEC registration fee........................................ $ 28,054
NASD fee.................................................... 10,592
Nasdaq National Market listing fee.......................... 95,000
Printing and engraving costs................................ 140,000
Legal fees and expenses..................................... 450,000
Accounting fees and expenses................................ 375,000
Blue Sky fees and expenses.................................. 3,000
Transfer agent and registrar fees and expenses.............. 3,500
Miscellaneous............................................... 144,854
----------
Total............................................. $1,250,000
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the General Corporation Law of the State of Delaware provides for
the indemnification of officers and directors under certain circumstances
against expenses incurred in successfully defending against a claim and
authorizes Delaware corporations to indemnify their officers and directors under
certain circumstances against expenses and liabilities incurred in legal
proceedings involving such persons because of their being or having been an
officer or director. Article VIII of the Registrant's Certificate of
Incorporation and the Registrant's Bylaws provide that all persons who the
Registrant is empowered to indemnify pursuant to the provisions of Section 145
of the Delaware General Corporation Law (or any similar provision or provisions
of applicable law at the time in effect), shall be indemnified by the Registrant
to the full extent permitted thereby. The foregoing right of indemnification
shall not be deemed to be exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors, or otherwise.

Section 102(b) of the Delaware General Corporation Law permits a corporation, by
so providing in its certificate of incorporation, to eliminate or limit
director's liability to the corporation and its stockholders for monetary
damages arising out of certain alleged breaches of their fiduciary duty. Section
102(b)(7) provides that no such limitation of liability may affect a director's
liability with respect to any of the following: (i) breaches of the director's
duty of loyalty to the corporation or its stockholders; (ii) acts or omissions
not made in good faith or which involve intentional misconduct of knowing
violations of law; (iii) liability for dividends paid or stock repurchased or
redeemed in violation of the Delaware General Corporation Law; or (iv) any
transaction from which the director derived an improper personal benefit.
Section 102(b)(7) does not authorize any limitation on the ability of the
corporation or its stockholders to obtain injunctive relief, specific
performance or other equitable relief against directors.

Reference is made to the Underwriting Agreement, the proposed form of which is
filed as Exhibit 1.1, pursuant to which the underwriters agree to indemnify the
directors and certain officers of the Registrant and certain other persons in
certain circumstances.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Since January 1, 1996, the Registrant's predecessor company has issued and sold
the following securities:

On December 21, 1998, in connection with the Registrant's merger with Integral
Networking Corporation, the Registrant issued 413,091 shares of its common stock
to Robert Ross and 21,741 shares of its common stock to Jim and Judy Linstruth
(giving effect to the Registrant's reincorporation in Delaware and the
associated exchange of one share of common stock of the Registrant for every
three shares of common
II-1
<PAGE> 94

stock of CRL's California predecessor), the three former shareholders of
Integral Networking Corporation, as consideration for all the outstanding shares
of Integral Networking Corporation.

The issuance and sale of the above securities were exempt from registration
under the Securities Act in reliance upon Section 4(2) of the Securities Act
promulgated thereunder. The recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof, and
appropriate legends were affixed to the share certificates issued in such
transactions. All recipients had adequate access to information about the
Registrant.

On April 27, 1999, Philip Burkhart exercised an option to purchase 60,000 shares
of the Registrant's common stock for an aggregate exercise price of $109,800.
The issuance of these securities was exempt from registration under the
Securities Act in reliance on Rule 701 promulgated under the Securities Act.
Such issuance was made pursuant to the Registrant's 1997 Equity Incentive Plan.

On April 28, 1999, CRL Network Services, Inc., a California corporation ("CRL
California"), merged with and into its wholly-owned subsidiary, CRL Network
Services, Inc., a Delaware corporation ("CRL Delaware"). In connection with the
merger, CRL Delaware issued shares of its common stock to the holders of common
stock of CRL California, such that the holders of common stock of CRL California
received a proportionate interest in CRL Delaware common stock. The issuance of
the securities and such reincorporation were exempt from the registration
requirements of the Securities Act, due to the exemptions from registration
provided by Sections 3(a)(9) and 4(2) thereof.

ITEM 16. EXHIBITS

(a) Exhibits

II-2
<PAGE> 95

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.10 Wells Fargo Bank $650,000 Equipment Line of Credit made
available to CRL Network Services dated September 29,
1998.(1)
10.11 Wells Fargo Bank $200,000 PrimeLine of Credit made available
to CRL Network Services dated September 28, 1998.(1)
10.12** Agreement between Pacific Bell and CRL Network Services
dated as of September 22, 1998.(4)
10.13** Master Services Agreement between GST-Telecom California
Inc. and CRL Network Services dated August 31, 1998.(4)
10.14 Domestic (U.S.) Direct Peering Agreement between MCI
Telecommunications Corporation and CRL Network Services
dated August 1, 1998.(2)
10.15** Agreement between CRL Network Services, Inc. and the
National Aeronautics and Space Administration dated July 16,
1998.(4)
10.16** Service Agreement between IXC Carrier, Inc. and CRL Network
Services dated April 22, 1996.(4)
10.17** Amendment #1 to Service Agreement between IXC Carrier, Inc.
and CRL Network Services dated April 16, 1997.(4)
10.18** Terms and Conditions Governing the Provision of Network
Connectivity Products and Services by Sprint dated January
6, 1998.(4)
10.19** Private Line Services Agreement between Qwest Communications
Corporation and CRL Network Services dated October 10,
1997.(4)
10.20 Reimbursable Space Act Agreement between the National
Aeronautics and Space Administration Ames Research Center
and CRL Network Services, Inc. dated December 3, 1996 and
executed March 7, 1997.(1)
10.21 Office Lease Agreement between Maria Chen, as Lessor and the
Registrant dated December 5, 1995.(1)
10.22 Amendment to lease by and between Maria Chen and the
Registrant dated December 1, 1998.(1)
10.23 The 120 Montgomery Street Office Lease dated February 4,
1994 between the Equitable Montgomery Company and Orrell &
Company, Inc.(1)
10.24 Sublease between Orrell & Company, Inc., 120 Montgomery
Associates, LLC and the Registrant dated February 20,
1998.(1)
10.25 Office Lease between WHLNF Real Estate Limited Partnership
and the Registrant dated August 28, 1998.(1)
10.26 Office Lease between One Wilshire Arcade Imperial, Ltd. by
Paramount Group, Inc. and the Registrant dated March 8,
1998.(1)
10.27 Deed of Lease between Gosnell Properties, Inc. and the
Registrant dated September 20, 1996.(1)
10.28 Standard Industrial Lease -- Multi Tenant between Robert A.
Bell and Bob Ross, d/b/a/ Integral Network Corporation dated
March 30, 1998.(1)
10.29 Qualified Retirement Plan and Trust Defined Contribution
Basic Plan Document.(1)
10.30 Defined Contribution Plan and Trust Adoption Agreement.(1)
10.31 Agreement and Plan of Reorganization among the Registrant,
Integral Networking Corporation, RMS Sub Inc. and the
shareholders of Integral Networking Corporation dated
December 21, 1998.(1)
10.32 U.S. Simply Business Premium Line Agreement between Integral
Networking Corporation and U.S. Bank dated September 2,
1997.(1)
10.33 Airplane Leasing Agreement dated February 15, 1999, between
the Registrant and FBN Holding Corp.(1)
21.1 Subsidiaries of the Registrant.(1)
</TABLE>

II-3
<PAGE> 96

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
23.1 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit
5.1).
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Jack M. Fields, Jr.(1)
23.4 Consent of Steven T. Stenberg.(1)
23.5 Consent of John A. Blair.(1)
23.6 Consent of Thor Geir Ramleth.(1)
23.7 Consent of Stephen C. Mott(4)
24.1 Power of Attorney.(1)
24.2 Power of Attorney for Robert B. Murphy, Jr.(3)
27.1 Financial Data Schedule.(1)
</TABLE>

- -------------------------
** Certain information in this exhibit was omitted and filed separately with
the Securities and Exchange Commission pursuant to a confidential treatment
request as to omitted portions of the exhibit.

(1) Previously filed as an exhibit to the Registrant's Registration on Form S-1
(File No. 333-34793) filed with the Commission on March 22, 1999.

(2) Previously filed as an exhibit to Amendment No. 1 to the Registration
Statement filed with the Commission on April 2, 1999.

(3) Previously filed as an exhibit to Amendment No. 2 to the Registration
Statement filed with the Commission on April 28, 1999.

(4) Previously filed as an exhibit to Amendment No. 4 to the Registration
Statement filed with the Commission on May 20, 1999.

ITEM 17. UNDERTAKINGS

The Registrant hereby undertakes to the underwriters at the closing specified in
the underwriting agreement to provide certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Securities Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the Delaware General
Corporation Law, the Registrant's Certificate of Incorporation, the Registrant's
Bylaws, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(i) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act is part of this Registration Statement as of the time
it was declared effective.

(ii) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement for the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 97

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 5 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Francisco, State of California, on the 1st day of June 1999.

CRL Network Services, Inc.

By: /s/ JAMES G. COUCH
------------------------------------
James G. Couch
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 5 to the Registration Statement on Form S-1 has been signed below
by the following persons in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ JAMES G. COUCH President, Chief Executive Officer, June 1, 1999
- ------------------------------------------ Chairman of the Board and Secretary
James G. Couch (Principal Executive Officer)

* Executive Vice President and Chief June 1, 1999
- ------------------------------------------ Financial Officer (Principal Financial
Robert B. Murphy, Jr. Officer)

* Vice President of Finance (Principal June 1, 1999
- ------------------------------------------ Accounting Officer)
Robyn L. Raschke

* Director June 1, 1999
- ------------------------------------------
Steven T. Stenberg
</TABLE>

* By: /s/ JAMES G. COUCH
-------------------------
James G. Couch
Attorney-in-fact

II-5
<PAGE> 98

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1.1 Form of Underwriting Agreement.(1)
2.1 Certificate of Merger between the Registrant and CRL Network
Services, Inc., a California corporation ("CRL
California").(3)
3.1 Articles of Incorporation of CRL California.(1)
3.2 Certificate of Incorporation of the Registrant.(1)
3.3 Bylaws of CRL California.(1)
3.4 Bylaws of the Registrant.(3)
4.1 Specimen form of Registrant's Common Stock Certificate.(4)
5.1 Opinion of Gibson, Dunn & Crutcher LLP.(4)
10.1 Employment Agreement between the Registrant and James G.
Couch dated as of March 15, 1999.(1)
10.2 Employment Agreement between the Registrant and Robert A.
Ross dated December 21, 1998.(1)
10.3 1997 Equity Incentive Plan.(1)
10.4 1999 Stock Incentive Plan, as amended.(4)
10.5 Equipment Lease between Saddleback Financial Corporation and
CRL Network Services, Inc. executed on June 12, 1997.(1)
10.6 Addendum to Lease between Saddleback Financial Corporation
and CRL Network Services, Inc. executed June 12, 1997.(1)
10.7 Mandatory Purchase Option Letter between Saddleback
Financial Corporation and CRL Network Services, Inc.
executed June 12, 1997.(1)
10.8 Wells Fargo Bank $500,000 Equipment Line of Credit made
available to CRL Network Services dated September 25,
1997.(1)
10.9 Wells Fargo Bank $692,000 Equipment Line of Credit made
available to CRL Network Services dated March 30, 1998.(1)
10.10 Wells Fargo Bank $650,000 Equipment Line of Credit made
available to CRL Network Services dated September 29,
1998.(1)
10.11 Wells Fargo Bank $200,000 PrimeLine of Credit made available
to CRL Network Services dated September 28, 1998.(1)
10.12** Agreement between Pacific Bell and CRL Network Services
dated as of September 22, 1998.(4)
10.13** Master Services Agreement between GST-Telecom California
Inc. and CRL Network Services dated August 31, 1998.(4)
10.14 Domestic (U.S.) Direct Peering Agreement between MCI
Telecommunications Corporation and CRL Network Services
dated August 1, 1998.(2)
10.15** Agreement between CRL Network Services, Inc. and the
National Aeronautics and Space Administration dated July 16,
1998.(4)
10.16** Service Agreement between IXC Carrier, Inc. and CRL Network
Services dated April 22, 1996.(4)
10.17** Amendment #1 to Service Agreement between IXC Carrier, Inc.
and CRL Network Services dated April 16, 1997.(4)
10.18** Terms and Conditions Governing the Provision of Network
Connectivity Products and Services by Sprint dated January
6, 1998.(4)
10.19** Private Line Services Agreement between Qwest Communications
Corporation and CRL Network Services dated October 10,
1997.(4)
</TABLE>

<PAGE> 99

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.20 Reimbursable Space Act Agreement between the National
Aeronautics and Space Administration Ames Research Center
and CRL Network Services, Inc. dated December 3, 1996 and
executed March 7, 1997.(1)
10.21 Office Lease Agreement between Maria Chen, as Lessor and the
Registrant dated December 5, 1995.(1)
10.22 Amendment to lease by and between Maria Chen and the
Registrant dated December 1, 1998.(1)
10.23 The 120 Montgomery Street Office Lease dated February 4,
1994 between the Equitable Montgomery Company and Orrell &
Company, Inc.(1)
10.24 Sublease between Orrell & Company, Inc., 120 Montgomery
Associates, LLC and the Registrant dated February 20,
1998.(1)
10.25 Office Lease between WHLNF Real Estate Limited Partnership
and the Registrant dated August 28, 1998.(1)
10.26 Office Lease between One Wilshire Arcade Imperial, Ltd. by
Paramount Group, Inc. and the Registrant dated March 8,
1998.(1)
10.27 Deed of Lease between Gosnell Properties, Inc. and the
Registrant dated September 20, 1996.(1)
10.28 Standard Industrial Lease -- Multi Tenant between Robert A.
Bell and Bob Ross, d/b/a/ Integral Network Corporation dated
March 30, 1998.(1)
10.29 Qualified Retirement Plan and Trust Defined Contribution
Basic Plan Document.(1)
10.30 Defined Contribution Plan and Trust Adoption Agreement.(1)
10.31 Agreement and Plan of Reorganization among the Registrant,
Integral Networking Corporation, RMS Sub Inc. and the
shareholders of Integral Networking Corporation dated
December 21, 1998.(1)
10.32 U.S. Simply Business Premium Line Agreement between Integral
Networking Corporation and U.S. Bank dated September 2,
1997.(1)
10.33 Airplane Leasing Agreement dated February 15, 1999, between
the Registrant and FBN Holding Corp.(1)
21.1 Subsidiaries of the Registrant.(1)
23.1 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit
5.1).
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Jack M. Fields, Jr.(1)
23.4 Consent of Steven T. Stenberg.(1)
23.5 Consent of John A. Blair.(1)
23.6 Consent of Thor Geir Ramleth.(1)
23.7 Consent of Stephen C. Mott(4)
24.1 Power of Attorney.(1)
24.2 Power of Attorney for Robert B. Murphy, Jr.(3)
27.1 Financial Data Schedule.(1)
</TABLE>

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

** Certain information in this exhibit was omitted and filed separately with
the Securities and Exchange Commission pursuant to a confidential treatment
request as to the omitted portions of the exhibit.

(1) Previously filed as an exhibit to the Registrant's Registration Statement on
Form S-1 (File No. 333-34793) (the "Registration Statement") filed with the
Commission on March 22, 1999.

(2) Previously filed as an exhibit to Amendment No. 1 to the Registration
Statement filed with the Commission on April 2, 1999.

(3) Previously filed as an exhibit to Amendment No. 2 to the Registration
Statement filed with the Commission on April 28, 1999.

(4) Previously filed as an exhibit to Amendment No. 4 to the Registration
Statement filed with the Commission on May 20, 1999.

<PAGE> 1
EXHIBIT 23.2

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Amendment No. 5 to Registration Statement
No. 333-74793 of CRL Network Services, Inc. of our report dated March 18, 1999
(April 28, 1999 as to the last paragraph in Note 12), appearing in the
Prospectus, which is part of such Registration Statement, and to the reference
to us under the headings "Selected Consolidated Financial Data" and "Experts"
in such Prospectus.

/s/ Deloitte & Touche LLP
San Francisco, California
June 1, 1999