<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 8-K/A

                                 CURRENT REPORT

                     PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


                                  JULY 31, 2000
                                 Date of Report
                             (Date of earliest event
                                    reported)


                      INTERNAP NETWORK SERVICES CORPORATION
             (Exact name of registrant as specified in its charter)

          WASHINGTON                000-27265                91-1896926

         (State or other        (Commission File           (IRS Employer
         jurisdiction of              No.)               Identification No.)
         incorporation)

                            601 Union St., Suite 1000
                            SEATTLE, WASHINGTON 98101
          (Address of principal executive offices, including zip code)


                                 (206) 441-8800
              (Registrant's telephone number, including area code)


                                   Page 1 of 9
                             Exhibit Index on Page 9





<PAGE>




ITEM 2.  ACQUISITION OR DISPOSITION OF ASSETS

The undersigned Registrant hereby amends in the manner set forth below and in 
the pages attached hereto Item 7 and the exhibits of its Current Report on 
Form 8-K, filed on August 14, 2000, relating to the Registrant's acquisition 
of VPNX.com, Inc. on July 31, 2000 as described in such Current Report.


ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS

(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED

See Exhibit 99.3 for the audited financial statements of VPNX.com, Inc.

(b) PRO FORMA FINANCIAL INFORMATION

UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION

On July 31, 2000, InterNAP Network Services Corporation ("InterNAP") completed
the acquisition of certain assets and liabilities of VPNX.com, Inc. ("VPNX").
The acquisition was recorded by InterNAP using the purchase method of accounting
under APB Opinion No. 16. InterNAP issued 2,027,092 shares of common stock,
assumed options to purchase 278,963 shares of common stock, and incurred certain
costs of acquisition, resulting in an aggregate purchase price of $88.0 million.

CO Space, Inc. ("CO Space") was acquired on June 20, 2000 for 6,881,018 shares
of common stock, $200,000 in cash and assumption of options and the results of
its operations since that date are included with those of InterNAP. Financial
information for CO Space is included in Form 8-K/A filed September 5, 2000.
InterNAP's balance sheet as of June 30, 2000 on Form 10-Q as filed with the
Securities and Exchange Commission on August 11, 2000 reflects the acquisition
of CO Space.

The unaudited pro forma combined condensed balance sheet is based on the
individual historical balance sheets of InterNAP and VPNX and has been prepared
to reflect the acquisition by InterNAP of VPNX as if the transaction had
occurred on June 30, 2000.

The unaudited pro forma combined condensed statements of operations are based on
individual historical results of operations of InterNAP, CO Space and VPNX for
the year ended December 31, 1999 and for the six months ended June 30, 2000, as
if the acquisitions of CO Space and VPNX had occurred on January 1, 1999.

The unaudited pro forma condensed statements of operations should be read in
conjunction with the historical financial statements and notes thereto of
InterNAP included in its 1999 annual report on Form 10-K and VPNX included
herein. The pro forma adjustments and assumptions described in the accompanying
notes to the unaudited pro forma combined condensed statements of operations are
based on estimates, evaluations, and other data currently available. The
unaudited pro forma combined condensed statements of operations are presented
for illustrative purposes only and are not necessarily indicative of results of
operations that would have actually occurred had the acquisitions CO Space and
VPNX been effected on the dates assumed.





                                          2.



<PAGE>



                           Unaudited Pro Forma Combined Condensed Balance Sheet
                                               June 30, 2000
                                              (in thousands)


<TABLE>
<CAPTION>
                                                                                     Pro Forma              Pro Forma
                                                            InterNAP      VPNX      Adjustments             Combined
                                                            --------   ----------   -----------            -----------
<S>                                                      <C>          <C>          <C>         <C>       <C>
ASSETS
Current assets:
   Cash and cash equivalents..........................     $  123,266  $    3,946                          $  127,212
   Short-term investments and investment income                                                                        
     receivable.......................................        125,097                                         125,097
   Accounts receivable, net...........................         10,527          10                              10,537
   Prepaid expenses and other assets..................          1,614          60                               1,674
                                                           ----------  ----------                          -----------
         Total current assets.........................        260,504       4,016                             264,520
Property and equipment, net...........................         91,001         856                              91,857
Patents and trademarks, net...........................            194                                             194
Restricted cash.......................................          4,620                                           4,620
Investments...........................................         52,355                                          52,355
Goodwill and other intangible assets, net.............        256,691               $   70,489     (A)        327,180
Deposits and other assets, net........................          3,986         116                               4,102
                                                           ----------  ----------   ----------             ----------
         Total assets.................................     $  669,351  $    4,988   $   70,489             $  744,828
                                                           ==========  ==========   ==========             ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
   Accounts payable and accrued liabilities...........     $   43,820  $      679   $      950   (A),(B)   $   45,449
   Deferred revenue...................................            545       4,156       (2,224)    (F)          2,477
   Notes payable, current portion.....................          1,723       2,531                               4,254
   Line of credit.....................................          1,525                                           1,525
   Capital lease obligations, current portion.........         11,269                                          11,269
                                                           ----------  ----------   ----------             ----------
         Total current liabilities....................         58,882       7,366       (1,274)                64,974
Deferred revenue......................................          8,870                                           8,870
Notes payable, less current portion...................          2,724         291                               3,015
Capital lease obligations, less current portion.......         19,367                                          19,367
                                                           ----------  ----------   ----------             ----------
         Total liabilities............................         89,843       7,657       (1,274)                96,226
                                                           ----------  ----------   ----------             ----------
Commitments and contingencies
Shareholders' equity (deficit)
   Convertible preferred stock........................                          6           (6)    (D)
   Common stock.......................................            145          10          (10)    (D)            147
                                                                                             2     (C)
   Additional paid-in capital.........................        688,023       9,539       (9,539)    (D)        780,253
                                                                                        92,230   (A),(C)
   Full recourse notes receivable.....................                         (3)                                 (3)
   Deferred stock compensation........................        (11,604)     (1,707)      (5,135)    (E)        (16,739)
                                                                                         1,707     (D)
   Accumulated deficit................................       (102,878)    (10,514)      10,514     (D)       (120,878)
                                                                                       (18,000)    (A)
   Accumulated items of other comprehensive income....          5,822                                           5,822
                                                           ----------  ----------   ----------             ----------
         Total shareholders' equity (deficit).........        579,508      (2,669)      71,763                648,602
                                                           ----------  ----------   ----------             ----------
         Total liabilities and shareholders' equity                                                                    
           (deficit)..................................     $  669,351  $    4,988   $   70,489             $  744,828
                                                           ==========  ==========   ==========             ===========
</TABLE>


     See accompanying notes to the unaudited pro forma combined condensed 
financial information


                                          3.



<PAGE>



             Unaudited Pro Forma Combined Condensed Income Statement
                                 (in thousands)


<TABLE>
<CAPTION>

                                         Six Months ended June 30, 2000
                           -----------------------------------------------------------------
                                                                 Pro Forma        Pro Forma
                           InterNAP     CO Space      VPNX       Adjustments       Combined
                           --------    ---------    --------    ------------      ---------
<S>                       <C>         <C>          <C>          <C>              <C>
Revenues.................  $ 22,538    $     994    $  1,215                      $  24,747
                           --------    ---------    --------                      ---------
Costs and expenses
   Cost of network and                                                             
     customer support....    35,801        6,622                                     42,423
   Product development...     3,441                    3,033                          6,474
   Sales and marketing...    15,689        2,480         738                         18,907
   General and
     administrative......     9,694        4,384         727                         14,805
   Amortization of
     deferred stock
     compensation........     5,624        1,412          83     $     1,284  (E)     8,403
   Amortization of
     goodwill and other
     intangibles.........     2,157                                   52,732  (A)    54,889
                           --------    ---------    --------     -----------       --------
     Total operating
         costs and
         expenses........    72,406       14,898       4,581          54,016        145,901
                           --------    ---------    --------     -----------       --------
Loss from operations.....   (49,868)     (13,904)     (3,366)        (54,016)      (121,154)
Other income (expense)
   Interest income.......     7,338          122         205                          7,665
   Interest and
     financing expense...      (890)                    (113)                        (1,003)
                           --------    ---------    --------     -----------       --------
     Net loss............  $(43,420)   $ (13,782)   $ (3,274)    $  (54,016)       $(114,492)
                           ========    =========    ========     ===========       =========
Basic and diluted  net
   loss per share........  $  (0.32)                                               $   (0.79)
                           ========                                                =========
Weighted average shares                                                             
   used in computing                                                                
   basic and diluted net                                                            
   loss per share........   135,406                                    8,908  (G)    144,314
                           ========                               ==========       =========
</TABLE>




<TABLE>
<CAPTION>
                                    Twelve Months ended December 31, 1999
                           -------------------------------------------------------------------
                                                              Pro Forma      Pro Forma
                           InterNAP    CO Space      VPNX     Adjustments    Combined
                           --------    --------    -------    -----------    ---------
<S>                       <C>         <C>         <C>        <C>             <C>
Revenues.................  $ 12,520    $    258    $ 3,867                   $  16,645
                           --------    --------    -------                   ---------
Costs and expenses
   Cost of network and
     customer support....    27,412       2,706                                 30,118
   Product development...     3,919                  6,128                      10,047
   Sales and marketing...    17,523         488      1,283                      19,294
   General and
     administrative......     8,328       2,970      1,201                      12,499
   Amortization of
     deferred stock
     compensation........     7,569          89                $    2,568 (E)   10,226
   Amortization of
     goodwill and other
     intangibles.........                                         109,779 (A)   109,779
                           --------    --------    --------    ----------     ---------
     Total operating
      costs and
         expenses........    64,751       6,253       8,612       112,347       191,963
                           --------    --------    --------    ----------     ---------
Loss from operations.....   (52,231)     (5,995)     (4,745)     (112,347)     (175,318)
Other income (expense)
   Interest income.......     3,388          38         330                       3,756
   Interest and
     financing expense...    (1,074)                    (86)                     (1,160)
                           --------    --------    --------    ----------     ---------
     Net loss............  $(49,917)   $ (5,957)   $ (4,501)   $ (112,347)    $(172,722)
                           ========    ========    ========    ==========     =========
Basic and diluted  net                                                            
   loss per share........  $  (1.31)                                          $   (3.68)
                           ========                                           =========
Weighted average shares                                                          
   used in computing                                                            
   basic and diluted net                                                            
   loss per share........    37,994                                 8,908 (G)    46,902
                           ========                            ==========     =========
</TABLE>

     See accompanying notes to the unaudited pro forma combined condensed 
financial information



                                          4.



<PAGE>

      NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION


PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION

(A)   InterNAP estimates the purchase price for CO Space and VPNX to be
      approximately $275.3 million and $88.0 million, respectively, based on the
      consideration to be paid to shareholders including common stock issued,
      assumption of options, plus acquisition related expenses incurred.

      For purposes of estimating the value of the CO Space purchase
      consideration for the pro forma presentation, the value of the InterNAP
      common stock to be issued for the acquisition of CO Space was based on the
      closing price of InterNAP's common stock on June 16, 2000, the date the
      total number of shares to be issued was determined per the merger
      agreement, multiplied by the InterNAP shares to be issued based upon the
      exchange ratio set forth in the merger agreement. The fair value of
      options to be assumed was estimated using the Black Scholes valuation
      model assuming no expected dividends and the following weighted average
      assumptions: risk-free interest rate of 6%; volatility of 100%; and an
      expected life of three years.

      For purposes of estimating the value of the VPNX purchase consideration
      for the pro forma presentation, the value of the InterNAP common stock to
      be issued for the acquisition of VPNX was based on the average closing
      price of InterNAP's common stock over the three day periods before and
      after July 6, 2000, the date the acquisition was announced, multiplied by
      the InterNAP shares to be issued based upon the exchange ratio set forth
      in the merger agreement. The fair value of options to be assumed was
      estimated using the Black Scholes valuation model assuming no expected
      dividends and the following weighted average assumptions: risk-free
      interest rate of 6%; volatility of 100%; and an expected life of three
      years.

      InterNAP is currently in the process of finalizing its assessment of the
      fair value of the net assets acquired. For purposes of the preparation of
      the pro form combined condensed financial information, InterNAP has
      allocated $16.5 million and $(0.4) million of the purchase prices of CO
      Space and VPNX, respectively, to the tangible assets acquired from each of
      these respective companies net of liabilities assumed, based on the book
      value as of June 30, 2000. In addition, InterNAP has allocated $18.0
      million of the VPNX purchase price to in-process research and development
      which, for purposes of the pro forma presentation, has been excluded from
      expense. The remainder of the purchase price has been allocated to
      intangible assets acquired from CO Space and VPNX, which include:


<TABLE>
<CAPTION>
                                                     CO Space              VPNX
                                                    ----------          ----------
                                                            (in thousands)
<S>                                                <C>               <C>
              Completed real estate leases........  $   19,300
              Customer relationships..............       1,800
              Workforce in place including                                        
                covenants not to compete..........       2,000          $   15,100
              Trademarks..........................       2,800
              Developed technologies..............                           3,400
              Goodwill............................     232,948              51,989
                                                    ----------          ----------
                                                    $  258,848          $   70,489
                                                    ==========          ==========
</TABLE>


      Based on an estimated useful life of three years for such intangible
      assets, the unaudited pro forma combined condensed financial information
      includes adjustments of $54.9 million and $109.8 million for amortization
      expense for the six months ended June 30, 2000 and year ended December 31,
      1999, respectively. The allocation of the purchase prices to tangible and
      intangible assets, as well as the related amortization expense may change
      materially as a result of the completion of InterNAP's evaluation of the
      fair value or the net assets acquired and changes in purchase
      consideration.

(B)   Increase in accrued expenses for estimated acquisition related expenses.

(C)   Increase in shareholders' equity for the issuance of shares of InterNAP
      common stock.

(D)   Elimination of VPNX shareholder equity accounts.

(E)   The Financial Accounting Standards Board has issued Financial
      Interpretation No. 44 which is effective for acquisitions after June 30,
      2000, and requires that the portion of the intrinsic value of unvested
      options assumed in purchase business combination be recognized as deferred
      stock compensation and amortized to deferred stock compensation expense
      over the remaining vesting period. Accordingly, InterNAP has estimated the
      intrinsic 



                                          5.


<PAGE>

      value of the unvested options assumed in the VPNX acquisition to
      be $5.1 million, and has included related pro forma adjustments of $1.3
      million and $2.5 million for the six months ended June 30, 2000 and year
      ended December 31, 1999, respectively. The intrinsic value associated with
      unvested options was deducted from the fair value of the awards for
      purposes of the allocation of the purchase price to the other assets
      acquired.

(F)   The deferred revenue balance recorded by VPNX at the date of acquisition
      has been reduced by a pro forma adjustment to reflect the cost of services
      to be provided subsequent to the acquisition date plus an allowance for 
      normal profit on those services.

(G)   The unaudited pro forma combined per share amounts are based on the pro
      forma combined weighted average number of shares of InterNAP common stock,
      which equals InterNAP's weighted average number of shares of InterNAP
      common stock outstanding for the period plus shares of InterNAP common
      stock that were issued at the completion of the acquisitions of CO Space
      and VPNX. All potential common stock equivalents of InterNAP, CO Space and
      VPNX have been excluded from the calculation of pro forma net loss from
      operations per common share as their inclusion would be anti-dilutive.


                                          6.




<PAGE>


          (c) EXHIBITS

         The following exhibits are filed as part of this report:


<TABLE>
<CAPTION>
           Exhibit
           NUMBER       DESCRIPTION
           ------       -----------
<S>                  <C>
            2.1*        Agreement and Plan of Merger and Reorganization,
                        dated as of July 6, 2000, by and among Registrant,
                        Virginia Acquisition Corp., a Delaware corporation,
                        and VPNX.com, Inc., a Delaware corporation.

            4.1*        Form of Registration Rights Agreement by and among
                        Registrant and the stockholders of VPNX.com, Inc., a
                        Delaware corporation.

           99.1*        Press Release entitled "InterNAP to Add VPN
                        Technology Expertise to Its Ranks through the Planned
                        Acquisition of VPNX.com," issued July 6, 2000.

           99.2*        Press Release entitled "InterNAP Completes
                        Acquisition of VPNX.com," issued July 31, 2000.

           99.3         VPNX.com, Inc. Financial Statements (Audited).
</TABLE>

      ---------------
      * - Previously filed.



                                          7.



<PAGE>





                           SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.

                                          INTERNAP NETWORK SERVICES CORPORATION

Dated:   October 4, 2000                  By: /s/  Paul E. McBride             
      -----------------------             -------------------------------------
                                          Paul E. McBride
                                          Senior Vice President and
                                          Chief Financial Officer



                                          8.


<PAGE>





                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>

           Exhibit
           NUMBER          DESCRIPTION
           -------         -----------
<S>                      <C>
            2.1*           Agreement and Plan of Merger and Reorganization,
                           dated as of July 6, 2000, by and among Registrant,
                           Virginia Acquisition Corp., a Delaware corporation,
                           and VPNX.com, Inc., a Delaware corporation.

            4.1*           Form of Registration Rights Agreement by and among
                           Registrant and the stockholders of VPNX.com, Inc., a
                           Delaware corporation.

           99.1*           Press Release entitled "InterNAP to Add VPN
                           Technology Expertise to Its Ranks through the Planned
                           Acquisition of VPNX.com," issued July 6, 2000.

           99.2*           Press Release entitled "InterNAP Completes
                           Acquisition of VPNX.com," issued July 31, 2000.

           99.3            VPNX.com, Inc. Financial Statements (Audited).
      ---------------
      * - Previously filed.
</TABLE>



                                          9.






<PAGE>

FINANCIAL STATEMENTS

VPNX.com, INC. (a development stage company) 
YEARS ENDED DECEMBER 31, 1998 AND 1999 AND THE PERIOD FROM 
JUNE 19, 1996 (INCEPTION) TO DECEMBER 31, 1999 
WITH REPORT OF INDEPENDENT AUDITORS




<PAGE>



                                 VPNX.com, Inc.
                         (a development stage company)


                          INDEX TO FINANCIAL STATEMENTS


<TABLE>

<S>                                                                                                    <C>
Report of Ernst & Young LLP, Independent Auditors......................................................F-2
Balance Sheets.........................................................................................F-3
Statements of Operations...............................................................................F-4
Statement of Stockholders' Equity......................................................................F-5
Statements of Cash Flows...............................................................................F-7
Notes to Financial Statements..........................................................................F-8
</TABLE>



                                      F-1


<PAGE>





                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
VPNX.com, Inc.

We have audited the accompanying balance sheets of VPNX.com, Inc. (a development
stage company) as of December 31, 1998 and 1999, and the related statements of
operations, stockholders' equity (deficit), and cash flows for each of the three
years in the period ended December 31, 1999 and for the period from June 19,
1996 (inception) to December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of VPNX.com, Inc. at December 31,
1998 and 1999, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999 and for the period from
June 19, 1996 (inception) to December 31, 1999, in conformity with accounting
principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that VPNX.com,
Inc. will continue as a going concern. As more fully described in Note 1, the
Company has incurred operating losses since inception and has an accumulated
deficit at December 31, 1999 of $7,239,909. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. The financial
statements of VPNX.com, Inc. do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.

/s/ ERNST & YOUNG LLP

February 4, 2000



                                      F-2


<PAGE>

                                 VPNX.com, Inc.
                          (a development stage company)

                                 Balance Sheets


<TABLE>
<CAPTION>

                                                                         DECEMBER 31,
                                                              ------------------------------------       JUNE 30,
                                                                            1998             1999          2000
                                                              ------------------------------------------------------
                                                                                                       (Unaudited)
<S>                                                           <C>                    <C>              <C>
ASSETS
Current assets:
   Cash and cash equivalents                                        $  4,146,036     $  3,390,454     $   3,946,009
   Short-term investments                                                498,663               -                -
   Accounts receivable                                                   851,853               -             10,021
   Prepaid expenses and other current assets                              61,028          137,857            60,136
                                                              ------------------------------------------------------
Total current assets                                                   5,557,580        3,528,311         4,016,166

Property and equipment:
   Computer equipment                                                    578,542          916,776           899,819
   Furniture and office equipment                                        805,803          823,174           823,174
   Leasehold improvements                                                187,275          194,665           202,639
                                                              ------------------------------------------------------
                                                                       1,571,620        1,934,615         1,925,632
Accumulated depreciation and amortization                                388,698          834,668         1,069,793
                                                              ------------------------------------------------------
                                                                       1,182,922        1,099,947           855,839
Deposits and other assets                                                 80,460          116,400           116,400
                                                              ------------------------------------------------------
Total assets                                                        $  6,820,962     $  4,744,658     $   4,988,405
                                                              ======================================================

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
   Accounts payable                                                      $53,749         $196,390           $92,170
   Accrued payroll and related expenses                                  240,072          377,683           241,828
   Other accrued liabilities                                             149,273          205,348           345,362
   Notes payable, current portion                                        580,933          528,057           531,430
   Deferred revenue                                                      183,333          374,257         4,155,695
   Bridge loans                                                              -          2,000,000         2,000,000
                                                              ------------------------------------------------------
Total current liabilities                                              1,207,360        3,681,735         7,366,485

Notes payable, less current portion                                      603,716          548,194           290,739

Commitments

Stockholders' equity (deficit): 
Series A preferred stock, $0.001 par value:
     Authorized shares - 3,131,341
     Issued and outstanding shares - 3,131,341
     Liquidation preference of $2,600,000                                  3,131            3,131             3,131
   Series B preferred stock, $0.001 par value:
     Authorized shares - 3,140,987
     Issued and outstanding shares - 3,140,987
     Liquidation preference of $3,999,995                                  3,141            3,141             3,141
   Common stock, $0.001 par value:
     Authorized shares - 20,000,000
     Issued and outstanding shares - 9,966,116 in 1998 and
       1999 and 9,990,306 in 2000                                          9,966            9,966             9,990
   Additional paid-in capital                                          7,741,372        7,741,372         9,538,604
   Notes receivable                                                      (8,917)          (2,972)           (2,972)
   Deferred compensation                                                     -                 -        (1,707,000)
   Deficit accumulated during the development stage                  (2,738,807)      (7,239,909)      (10,513,713)
                                                              ------------------------------------------------------
Total stockholders' equity (deficit)                                   5,009,886          514,729       (2,668,819)
                                                              ------------------------------------------------------
Total liabilities and stockholders' equity (deficit)                $  6,820,962     $  4,744,658     $   4,988,405
                                                              ======================================================
</TABLE>


                              See accompanying notes.

                                      F-3


<PAGE>

                                 VPNX.com, Inc.
                          (a development stage company)
                            Statements of Operations


<TABLE>
<CAPTION>

                                                                                      PERIOD FROM 
                                                                                     JUNE 19, 1996
                                                                                     (INCEPTION) TO
                                        YEARS ENDED DECEMBER 31,                       DECEMBER 31,        SIX MONTHS ENDED JUNE 30,
                              ------------------------------------------------------------------------------------------------------
                                        1997             1998              1999             1999              1999           2000
                              ------------------------------------------------------------------------------------------------------
                                                                                                          (Unaudited)   (Unaudited)
<S>                             <C>                <C>             <C>              <C>               <C>              <C>
Net revenues                    $  1,604,098       $3,866,795      $  3,866,627     $  9,337,520      $    300,050     $  1,215,214

Operating expenses:
   Research and development        1,846,389        2,949,755         6,128,003       11,425,744         2,713,577        3,033,155
   General and administrative        646,852          873,779         1,200,870        3,010,778           552,700          726,993
   Sales and marketing               396,384          763,599         1,282,618        2,551,899           556,508          738,134
   Amortization of deferred
     compensation                         -                 -                -                 -                -            83,000
                              ------------------------------------------------------------------------------------------------------
Total operating expenses           2,889,625        4,587,133         8,611,491       16,988,421         3,822,785        4,581,282
                              ------------------------------------------------------------------------------------------------------

Operating loss                   (1,285,527)        (720,338)       (4,744,864)      (7,650,901)       (3,522,735)      (3,366,068)

Interest and other income             51,576          173,518           330,251          546,866           174,169          205,686
Interest expense                     (7,842)         (41,543)          (86,489)        (135,874)          (46,655)        (113,422)
                              ------------------------------------------------------------------------------------------------------
Net loss                        $(1,241,793)       $(588,363)      $(4,501,102)     $(7,239,909)      $(3,395,221)     $(3,273,804)
                              ======================================================================================================

Basic and diluted net loss
   per share                    $     (0.15)       $   (0.07)      $     (0.46)                       $     (0.35)     $     (0.33)
                              ======================================================================================================
Shares used to compute basic
   and diluted net loss per
   share                           8,319,357        8,977,842         9,719,583                          9,701,276        9,951,128
                              ======================================================================================================

</TABLE>

                             See accompanying notes.

                                       F-4



<PAGE>

                                 VPNX.com, Inc.
                          (a development stage company)
                  Statements of Stockholders' Equity (Deficit)
           Period from June 19, 1996 (inception) to December 31, 1999


<TABLE>
<CAPTION>
                                                                                                                                
                                                                                                                                
                                                                                                                     
                                                                PREFERRED STOCK             COMMON STOCK             ADDITIONAL 
                                                          ---------------------------------------------------------  PAID-IN
                                                              SHARES        AMOUNT        SHARES        AMOUNT       CAPITAL    
                                                          ----------------------------------------------------------------------
<S>                                                       <C>               <C>           <C>           <C>          <C>
   Issuance of common stock in July for business plan                 -        $ -         5,635,035        $5,635       $50,715
   Sale of common stock in July and August at $0.24 per
     share                                                            -             -      1,934,415         1,934       458,066
   Sale of common stock in September at $0.24 per share               -             -         50,000            50        11,840
   Sale of common stock in November at $0.30 per share                -             -      1,333,333         1,334       398,666
   Stock issuance costs                                               -             -            -             -         (7,607)
   Net loss                                                           -             -            -             -             -  
                                                          ----------------------------------------------------------------------
Balance at December 31, 1996                                          -             -      8,952,783         8,953       911,680
   Sale of common stock in March at $0.30 per share                   -             -        833,333           833       249,167
   Sale of Series A preferred stock in April at $0.83 per
     share, less issuance costs of $30,856                     3,010,905         3,011           -             -       2,466,133
   Sale of Series A preferred stock in September at $0.83
     per share                                                   120,436           120           -             -          99,880
   Issuance of common stock due to exercise of stock
     options at $0.30 per share                                       -             -        100,000           100        29,900
   Net loss                                                           -             -            -             -             -  
                                                          ----------------------------------------------------------------------
Balance at December 31, 1997                                   3,131,341         3,131     9,886,116         9,886     3,756,760
   Sale of Series B preferred stock in March at $1.27 per
     share, less issuance costs of $35,527                     3,140,987         3,141           -             -       3,961,327
   Issuance of common stock due to exercise of stock
     options at $0.24 per share                                       -             -         10,208            10         2,417
   Issuance of common stock due to exercise of stock
     options at $0.30 per share                                       -             -         80,000            80        23,920
   Repurchase of common stock from employee in March at
     $0.30 per share                                                  -             -       (10,208)          (10)       (3,052)
   Payment by stockholder on note                                     -             -            -             -             -  
   Net loss                                                           -             -            -             -             -  
                                                          ----------------------------------------------------------------------
Balance at December 31, 1998                                   6,272,328         6,272     9,966,116         9,966     7,741,372

<CAPTION>

                                                                                    DEFICIT                            
                                                                                   ACCUMULATED                         
                                                                                    DURING THE        TOTAL            
                                                                    NOTES          DEVELOPMENT    STOCKHOLDERS'        

                                                                   RECEIVABLE        STAGE       EQUITY (DEFICIT)      
                                                                 --------------------------------------------------    
<S>                                                              <C>               <C>           <C>                 
   Issuance of common stock in July for business plan                $ -            $ -                    $56,350     
   Sale of common stock in July and August at $0.24 per                                                                
     share                                                                   -               -             460,000     
   Sale of common stock in September at $0.24 per share                (11,890)              -                 -       
   Sale of common stock in November at $0.30 per share                       -               -             400,000     
   Stock issuance costs                                                      -               -             (7,607)     
   Net loss                                                                  -         (908,651)         (908,651)     
                                                                 --------------------------------------------------    
Balance at December 31, 1996                                           (11,890)        (908,651)                92     
   Sale of common stock in March at $0.30 per share                          -               -             250,000     
   Sale of Series A preferred stock in April at $0.83 per                                                              
     share, less issuance costs of $30,856                                   -               -           2,469,144     
   Sale of Series A preferred stock in September at $0.83                                                              
     per share                                                               -               -             100,000     
   Issuance of common stock due to exercise of stock                                                                   
     options at $0.30 per share                                              -               -              30,000     
   Net loss                                                                  -       (1,241,793)       (1,241,793)     
                                                                 --------------------------------------------------    
Balance at December 31, 1997                                           (11,890)      (2,150,444)         1,607,443     
   Sale of Series B preferred stock in March at $1.27 per                                                              
     share, less issuance costs of $35,527                                   -               -           3,964,468     
   Issuance of common stock due to exercise of stock                                                                   
     options at $0.24 per share                                              -               -               2,427     
   Issuance of common stock due to exercise of stock                                                                   
     options at $0.30 per share                                              -               -              24,000     
   Repurchase of common stock from employee in March at                                                                
     $0.30 per share                                                         -               -             (3,062)     
   Payment by stockholder on note                                         2,973              -               2,973     
   Net loss                                                                  -         (588,363)         (588,363)     
                                                                 --------------------------------------------------    
Balance at December 31, 1998                                            (8,917)      (2,738,807)         5,009,886     
                                                                                                                       
</TABLE>


                            See accompanying notes.

                                       F-5


<PAGE>

                                 VPNX.com, Inc.
                          (a development stage company)
            Statements of Stockholders' Equity (Deficit) (continued)

           Period from June 19, 1996 (inception) to December 31, 1999


<TABLE>
<CAPTION>

                                                  PREFERRED STOCK               COMMON STOCK           ADDITIONAL             
                                            ----------------------------------------------------------  PAID-IN        NOTES   
                                                SHARES        AMOUNT        SHARES         AMOUNT       CAPITAL      RECEIVABLE
                                            -------------------------------------------------------------------------------------
<S>                                         <C>               <C>           <C>            <C>         <C>           <C>
Balance at December 31, 1998                     6,272,328        $6,272      9,966,116        $9,966    $7,741,372      $(8,917)
   Payment by stockholder on note                       -             -            -              -             -           5,945
   Net loss                                             -             -            -              -             -              - 
                                            -------------------------------------------------------------------------------------
Balance at December 31, 1999                     6,272,328         6,272      9,966,116         9,966     7,741,372       (2,972)
   Exercise of Stock options/warrants 
     (unaudited)                                        -             -          24,190            24         7,232            - 
   Deferred compensation (unaudited)                    -             -            -              -       1,790,000            - 
   Amortization of deferred compensation
      (unaudited)                                       -             -            -              -             -              - 
   Net loss (unaudited)                                 -             -            -              -             -              - 
                                            -------------------------------------------------------------------------------------
Balance at June 30, 2000 (unaudited)             6,272,328        $6,272      9,990,306        $9,990    $9,538,604      $(2,972)
                                            =====================================================================================

<CAPTION>

                                                                      DEFICIT                
                                                                   ACCUMULATED                                           
                                                                   DURING THE           TOTAL           
                                                     DEFERRED       DEVELOPMENT     STOCKHOLDERS'       
                                                   COMPENSATION        STAGE        EQUITY (DEFICIT)    
                                                  ----------------------------------------------------  
<S>                                               <C>               <C>             <C>
Balance at December 31, 1998                          $ -              $(2,738,807)        $5,009,886   
   Payment by stockholder on note                               -              -                5,945   
   Net loss                                                     -       (4,501,102)       (4,501,102)   
                                                  ----------------------------------------------------  
Balance at December 31, 1999                                    -       (7,239,909)           514,729   
   Exercise of Stock options/warrants
     (unaudited)                                                -              -                7,256   
   Deferred compensation (unaudited)                   (1,790,000)             -                  -     
   Amortization of deferred compensation
     (unaudited)                                           83,000              -               83,000   
   Net loss (unaudited)                                         -       (3,273,804)       (3,273,804)   
                                                  ----------------------------------------------------  
Balance at June 30, 2000 (unaudited)                  $(1,707,00)     $(10,513,713)      $(2,668,819)   
                                                  ====================================================  
</TABLE>


                            See accompanying notes.
                                       F-6


<PAGE>
                                 VPNX.com, Inc.
                          (a development stage company)
                            Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                         PERIOD FROM
                                                                                       JUNE 19, 1996
                                                                                        (INCEPTION) TO
                                                   YEARS ENDED DECEMBER 31,              DECEMBER 31,     SIX MONTHS ENDED JUNE 30,
                                              --------------------------------------------------------------------------------------
                                                   1997          1998          1999          1999            1999           2000
                                              --------------------------------------------------------------------------------------
                                                                                                              (Unaudited) 
<S>                                           <C>             <C>         <C>           <C>             <C>            <C>
OPERATING ACTIVITIES
Net loss                                      $(1,241,793)    $(588,363)  $(4,501,102)  $(7,239,909)    $(3,395,221)   $(3,273,804)
Adjustments to reconcile net loss to net
   cash provided by (used in) operating
   activities:
     Depreciation and amortization                 169,558       155,628       445,970       834,668         220,421        235,125
     Write-off of technology and licensing          85,000           -              -        149,754             -               -
       agreement
     Amortization of deferred compensation              -            -              -             -              -           83,000
     Changes in assets and liabilities:
       Accounts receivable-trade                 (833,138)       (1,853)       851,853            -          851,853        (10,021)
       Prepaid expenses and other current         (42,052)       (8,756)      (76,829)      (81,507)        (61,832)         77,721
         assets
       Account payable                              10,412        26,642       142,641       196,390        (38,602)       (104,220)
       Accrued payroll and related expenses         43,010       112,073       137,611       377,683          24,907       (135,855)
       Other accrued liabilities                    25,084       110,189        56,075       214,115        (15,005)        140,014
       Deferred revenue                           (76,000)       183,333       190,924       374,257       3,150,000      3,781,438
                                              --------------------------------------------------------------------------------------
Net cash provided by (used in) operating       (1,859,919)      (11,107)   (2,752,857)   (5,174,549)         736,521        793,398
   activities

INVESTING ACTIVITIES
Acquisition of property, plant, and equipment    (177,946)   (1,193,272)     (362,995)   (1,749,369)       (225,084)             -
Proceeds from (purchases of) short-term                 -      (498,663)       498,663            -         498,663              -
   investments
Proceeds from sales of equipment                        -           -              -              -              -        $   8,983
Other assets                                      (34,133)      (44,890)      (35,940)     (116,400)        (30,417)             -
                                              --------------------------------------------------------------------------------------
Net cash provided by (used in) investing         (212,079)   (1,736,825)        99,728   (1,865,769)        243,162           8,983
   activities

FINANCING ACTIVITIES
Proceeds from issuance of Series A preferred     2,569,144           -              -      2,569,144             -               -
   stock
Proceeds from issuance of Series B preferred            -      3,964,468            -      3,964,468             -               -
   stock
Proceeds from issuance of common stock, net
   of repurchases                                  280,000        23,365            -      1,155,758             -            7,256
Proceeds from payment of stockholder notes              -          2,973         5,945         8,918             -               -
Proceeds from issuance of notes payable, net       483,572       753,788       621,832     1,859,192         306,764             -
Repayments of notes payable                      (280,000)     (116,478)     (730,230)   (1,126,708)        (345,286)      (254,082)
Proceeds from bridge loans                              -            -       2,000,000     2,000,000             -               -
                                             ---------------------------------------------------------------------------------------
Net cash provided by (used in) financing         
   activities                                    3,052,716     4,628,116     1,897,547    10,430,772        (38,522)       (246,826)
                                             ---------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash           980,718     2,880,184     (755,582)     3,390,454         941,161        555,555
   equivalents
Cash and cash equivalents at beginning of          
   period                                          285,134     1,265,852     4,146,036            -        4,146,036      3,390,454
                                             ---------------------------------------------------------------------------------------
Cash and cash equivalents at end of period      $1,265,852    $4,146,036    $3,390,454    $3,390,454      $5,087,197     $3,946,009
                                             =======================================================================================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
   INFORMATION
Note payable issued in exchange for
   technology, royalty considerations, and         $85,000    $ -           $ -           $  335,000       $ -            $ -
   fixed assets
Common stock issued in exchange for note      $ -             $ -           $ -           $   11,890       $ -            $ -
Common stock issued in exchange for business  $ -             $ -           $ -           $   56,350       $ -            $ -
   plan
Interest paid                                 $ -             $    41,543       $86,489   $  135,874       $  46,655      $ 113,422
</TABLE>

                            See accompanying notes.
                                       F-7

<PAGE>

                                 VPNX.com, Inc.
                          (a development stage company)
                          Notes to Financial Statements
          (Information as of June 30, 2000 and for the six months ended
                      June 30, 1999 and 2000 is unaudited)


1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BUSINESS

VPNX.com, Inc. (VPNX or the Company) was incorporated on June 19, 1996 in the
state of Delaware. The Company conducts its business within one industry segment
and was formed for the purpose of developing and marketing policy software for
controlling network infrastructure. In the later part of 1999, the Company began
shifting its focus to the virtual private network market. In 1999, the product
was in the development stage with a product launch scheduled for 2000. Since
inception, the Company has primarily been involved in performing research and
development activities, establishing development contracts, and raising capital.
Accordingly, the Company is in the development stage.

GOING CONCERN

The Company has incurred losses since inception and will require additional
financing in order for the Company to continue its operations. Management
believes it will be able to secure additional sources of funding through a
private stock offering and intends to pursue this course of action. There can be
no assurance that the Company will be able to secure the necessary financing to
continue operations. These facts raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments relating to the recoverability of recorded asset amounts or the
amount and classification of liabilities that might be necessary should the
Company be unable to raise sufficient capital to continue operations.

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 amounts reported in the financial statements and accompanying notes.
Actual results may differ from these estimates.


                                    F-8


<PAGE>

                                 VPNX.com, Inc.
                          (a development stage company)
                          Notes to Financial Statements (continued)
          (Information as of June 30, 2000 and for the six months ended
                      June 30, 1999 and 2000 is unaudited)


1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

The Company considers as a cash equivalent any highly liquid investment that
matures within three months of its purchase date. At December 31, 1999 and June
30, 2000, cash equivalents consisted of money market funds. The Company
considers as a short-term investment any highly liquid investment with an
original maturity greater than three months but less than one year. The Company
considers all short-term investments as "available-for-sale." No adjustments
have been made to the carrying value of short-term investments as the carrying
value at December 31, 1998 approximated fair market value. In addition, no
realized gains or losses were recognized from the sale of short-term investments
in 1997, 1998, or 1999.

Estimated fair values of financial instruments are based on quoted market
prices. The following is a summary of available-for-sale securities (in
thousands) at December 31, 1998. At December 31, 1998, the fair value of
securities approximated cost.


<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                                 1998
                                                           -----------------
<S>                                                        <C>
                 Money market fund                                $3,043,018
                 Commercial paper                                    979,893
                 Corporate bonds                                     500,000
                                                           -----------------
                                                                  $4,522,911
                                                           =================
                 Classified as:
                    Cash equivalents                              $4,024,248
                    Short-term investments                           498,663
                                                           -----------------
                                                                  $4,522,911
                                                           =================
</TABLE>


PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, which are
generally two to five years. Leasehold improvements are amortized over the
shorter of their useful lives or the term of the lease.


                                     F-9

<PAGE>

                                 VPNX.com, Inc.
                          (a development stage company) 
                          Notes to Financial Statements (continued
          (Information as of June 30, 2000 and for the six months ended
                      June 30, 1999 and 2000 is unaudited)


1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

REVENUE RECOGNITION

Substantially all of the Company's revenue relates to research and development
work performed under development contracts. The Company recognizes this 
revenue when earned, which generally occurs when agreed upon deliverables are 
provided or milestones are met and confirmed by customers, and in any case 
not in excess of the amount that would be recognized using the percentage of 
completion method. Due to technological risk factors, the costs of these 
contracts are expensed as incurred. Costs incurred under development 
contracts of $483,000, $1,265,000, $4,242,000 and $6,095,000 in 1997, 1998, 
1999 and for the period from June 19, 1996 (inception) to December 31, 1999 
respectively are included in research and developments in the statements of 
operations.

INTERIM FINANCIAL INFORMATION

The interim financial information at June 30, 2000 and for the six-month periods
ended June 30, 1999 and 2000 is unaudited but, in the opinion of management,
includes all adjustments, consisting only of normal recurring accruals, which
the Company considers necessary for a fair presentation of the financial
position and results of operations for the interim periods. The results of
operations for the six-month period ended June 30, 2000 are not necessarily
indicative of the results to be expected for the full fiscal year.


                                      F-10


<PAGE>

                                 VPNX.com, Inc.
                          (a development stage company)
                          Notes to Financial Statements (continued)
          (Information as of June 30, 2000 and for the six months ended
                      June 30, 1999 and 2000 is unaudited)


1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CONCENTRATION OF CREDIT RISK

A limited number of customers have historically accounted for a substantial
portion of the Company's revenue. The following table summarizes the Company's
significant customers:


<TABLE>
<CAPTION>

                                       YEARS ENDED                     SIX MONTHS ENDED
                                       DECEMBER 31,                        JUNE 30,
                      -----------------------------------------  ----------------------------
      CUSTOMER            1997            1998          1999          1999         2000
--------------------- -------------- ------------- ------------  -------------  -------------
<S>                   <C>            <C>           <C>           <C>            <C>
         A                   -%             65%           10%           33%           83%
         B                   87%            35%           16%           67%           -%
         C                   -%             -%            80%           -%            -%
</TABLE>


The Company performs ongoing credit evaluations of its customers and considers
reserves for potential credit losses, and such losses have been within
management's expectations. The Company generally does not require collateral
from its customers.

RESEARCH AND DEVELOPMENT

Research and development expenditures are generally charged to operations as
incurred. Statement of Financial Accounting Standards No. 86, "Accounting for
the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed,"
requires the capitalization of certain software development costs subsequent to
the establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon the
completion of a working model. To date, no costs have qualified for
capitalization, and accordingly, the Company has charged all such costs to
research and development expense in the accompanying statements of operations.

COMPREHENSIVE INCOME

Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (FAS 130). The Company's
comprehensive net loss was the same as its net loss for all periods presented.


                                      F-11


<PAGE>

                                 VPNX.com, Inc.
                          (a development stage company)
                          Notes to Financial Statements (continued)
          (Information as of June 30, 2000 and for the six months ended
                      June 30, 1999 and 2000 is unaudited)


1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ADVERTISING COSTS

Advertising costs are expensed as incurred and have been immaterial through June
30, 2000.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of the Company's long-term debt is estimated using a discounted
cash flow analysis based on the Company's current incremental borrowing rate for
similar types of borrowing arrangements. The carrying value of the Company's
long-term debt approximates fair value.

STOCK BASED COMPENSATION

The Company accounts for stock-based awards to employees under the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB Opinion No. 25), and has adopted
the disclosure-only alternative of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (FAS 123).

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). FAS 133 provides a comprehensive
and consistent standard for the recognition and measurement of derivatives and
hedging activities. In June 1999, the FASB issued FAS 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133," which deferred the effective date of FAS 133 until
fiscal years beginning after June 15, 2000. The Company believes that the
adoption of FAS 133 will not have a significant impact on the Company's
operating results or cash flows.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 "Revenue Recognition in Financial Statements" (SAB 101). SAB
101 provides guidance on the recognition, presentation, and disclosure of
revenue in financial statements. SAB 101 is effective for years beginning after
December 15, 1999 and is required to be reported beginning in the quarter ended
December 31, 2000. SAB 101 is not expected to have a significant effect on the
Company's consolidated results of 


                                     F-12


<PAGE>


                                 VPNX.com, Inc.
                          (a development stage company)
                          Notes to Financial Statements (continued)
          (Information as of June 30, 2000 and for the six months ended
                      June 30, 1999 and 2000 is unaudited)


operations, financial position, or cash flows.


                                      F-13


<PAGE>


                                 VPNX.com, Inc.
                          (a development stage company)
                          Notes to Financial Statements (continued)
          (Information as of June 30, 2000 and for the six months ended
                      June 30, 1999 and 2000 is unaudited)


1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation - an Interpretation of APB
Opinion No. 25" (FIN 44). FIN 44 clarifies the application of APB Opinion No. 25
and, among other issues, clarifies the following: the definition of an employee
for purposes of applying APB Opinion No. 25, the criteria for determining
whether a plan qualifies as a noncompensatory plan, the accounting consequences
of various modifications to the terms of the previously fixed stock options or
awards, and the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 is effective July 1, 2000, but certain conclusions
in FIN 44 cover specific events that occurred after either December 15, 1998 or
January 12, 2000. The Company does not expect the application of FIN 44 to have
a material impact on the Company's results of operations, financial position, or
cash flows.

2. NOTES PAYABLE

Notes payable consisted of the following:


<TABLE>
<CAPTION>

                                                                     DECEMBER 31,                
                                                           ---------------- -----------------     JUNE 30,
                                                                1998              1999             2000
                                                           ---------------- ----------------- ----------------
<S>                                                        <C>              <C>               <C>
Notes payable to Phoenix Leasing, Inc., due in monthly
   installments through 2001 secured by the Company's
   equipment                                                      $748,539          $984,561         $761,042
Note payable to bank, due in monthly installments
   through 2001 with interest at prime (8.5%), some of
   which is secured by the Company's equipment                     436,110            91,690           61,127
                                                           ---------------- ----------------- ----------------
                                                                 1,184,649         1,076,251          822,169
Less current portion                                               580,933           528,057          531,430
                                                           ---------------- ----------------- ----------------
                                                                  $603,716          $548,194         $290,739
                                                           ================ ================= ================
</TABLE>



In June 1999, the Company's $1,200,000 equipment line with Phoenix Leasing, Inc.
expired. In September 1999, the Company entered into an agreement for an
additional equipment line of $1,500,000. The total outstanding obligations under
the combined credit lines cannot exceed $2,000,000. At December 31, 1999, the
Company had borrowed approximately $1,376,000 under these arrangements of which
$984,561 remains outstanding and is reflected in the notes payable balance.


                                     F-14


<PAGE>


                                 VPNX.com, Inc.
                          (a development stage company)
                          Notes to Financial Statements (continued)
          (Information as of June 30, 2000 and for the six months ended
                      June 30, 1999 and 2000 is unaudited)


2. NOTES PAYABLE (CONTINUED)

At December 31, 1999, future minimum principal payments on notes payable are as
follows:


<TABLE>
<S>              <C>
    2000              $528,057
    2001               485,012
    2002                63,182
                    ----------
                    $1,076,251
                    ==========
</TABLE>


3. BRIDGE LOAN

In December 1999, the Company received $2,000,000 in funding from some of its
current investors in the form of a Promissory Note. The term of the note is six
months and includes warrants for 471,149 shares of common stock at an exercise
price of $1.273 per share. The warrants are exercisable through December 2004.
The fair value of the warrants issued was immaterial.

If the Company enters into an agreement to issue new securities for an aggregate
amount of not less than $5,000,000 before the maturity date of the note, the
investor may convert the principal and interest of the note into the new
securities. If the new securities are issued at more than one equity closing,
conversion shall occur at the first equity closing where at least $2,000,000 in
new securities are issued. If elected, the note shall be converted into new
securities by dividing the principal and interest by the unit price of the new
securities.

If the Company does not enter into an agreement to issue new securities for an
aggregate current value amount of not less than $5,000,000 before the maturity
date of the note, the investor may elect to convert the principal and interest
of the note into Series B preferred stock at a price per share of $1.273.

If the Company enters into an agreement to sell, merge, or consolidate its
assets with another corporation before the maturity date of the loan, the
investor may elect to convert the principal and interest of the note into Series
B preferred stock at a price per share of $1.273.

In June 2000, the bridge loan was extended for an additional six months.


                                     F-15


<PAGE>


                                 VPNX.com, Inc.
                          (a development stage company)
                          Notes to Financial Statements (continued)
          (Information as of June 30, 2000 and for the six months ended
                      June 30, 1999 and 2000 is unaudited)


4. COMMITMENTS

The Company currently leases its two facilities under noncancelable operating
leases that expire in July 2000 and September 2003. Future minimum lease
payments under the operating leases at December 31, 1999 are as follows:


<TABLE>
<S>                             <C>
              2000                $  576,455
              2001                   548,335
              2002                   563,393
              2003                   431,204
                                  ----------
 Total minimum lease payments     $2,119,387
                                  ==========
</TABLE>


Rental expense under operating leases was approximately $89,000, $255,000,
$616,000, and $979,000 for the years ended December 31, 1997, 1998, 1999, and
for the period from June 19, 1996 (inception) to December 31, 1999,
respectively, and $307,000 for each of the six months ended June 30, 1999 and
2000.

5. STOCKHOLDERS' EQUITY

CONVERTIBLE PREFERRED STOCK

The holders of Series A and B preferred stock are entitled to annual
noncumulative cash dividends out of legally available funds, when and if
declared by the Board of Directors, in the amounts of $0.07 and $0.10 per share,
respectively. As of December 31, 1999, there were no dividends paid or declared
by the Company.


                                     F-16


<PAGE>


                                 VPNX.com, Inc.
                          (a development stage company)
                          Notes to Financial Statements (continued)
          (Information as of June 30, 2000 and for the six months ended
                      June 30, 1999 and 2000 is unaudited)


5. STOCKHOLDERS' EQUITY (CONTINUED)

CONVERTIBLE PREFERRED STOCK (CONTINUED)

In the event of any liquidation, dissolution, or winding up of the Company,
whether voluntary or not, the holders of each share of preferred stock shall be
entitled to be paid out of the Company's assets that are available for
distribution to its stockholders before any payment or declaration shall be made
with respect to the holders of common stock. Series A and B stockholders are
entitled to a liquidation preference of $0.830 and $1.273 per share,
respectively, plus all declared but unpaid dividends (collectively, the
Preference Amount). The remaining balance of proceeds is paid equally to the
common stockholders and to the holders of Series A and B preferred stock until
the holders of preferred stock have received an aggregate of three times their
preference amount. Any remaining funds shall then be distributed entirely to the
holders of common stock. Additionally, preferred stockholders have voting rights
equal to the number of common shares that would be held upon conversion.

The holders of Series A and B preferred stock have the right, at the option of
the holder, at any time, to convert their shares into common stock at a price of
$0.830 and $1.273 per share, respectively, subject to adjustments for future
dilution. Series A and B preferred stock automatically convert into common stock
at the then applicable conversion rate (currently one-for-one) upon a public
offering of the Company's common stock at a per share price of not less than
$4.00, subject to adjustments for future dilution, with aggregate proceeds in
excess of $10,000,000.

STOCK OPTION PLANS

The Company adopted the Founders' 1996 Stock Option Plan (the Founders' Plan)
and the 1997 Stock Option Plan (the 1997 Plan), under which officers, employees,
directors, and consultants may be granted Incentive Stock Options (ISOs) and
Nonstatutory Stock Options (NSOs) to purchase shares of the Company's common
stock. The Founders' Plan and the 1997 Plan permit ISOs and NSOs to be granted
at exercise prices of not less than 100% and 85%, respectively, of the fair
value on the date of grant as determined by the Board of Directors. Options that
expire (generally ten years from the grant date) or are canceled are returned to
the respective plan. The options generally vest 25% upon completion of one year
and 1/48 per month thereafter.


                                    F-17



<PAGE>


                                 VPNX.com, Inc.
                          (a development stage company)
                          Notes to Financial Statements (continued)
          (Information as of June 30, 2000 and for the six months ended
                      June 30, 1999 and 2000 is unaudited)


5. STOCKHOLDERS' EQUITY (CONTINUED)

STOCK OPTION PLANS (CONTINUED)

A summary of activity under the option plans is as follows:


<TABLE>
<CAPTION>

                                                                 OPTIONS OUTSTANDING               WEIGHTED
                                               SHARES        -----------------------------------   AVERAGE 
                                             AVAILABLE         NUMBER OF         PRICE PER         EXERCISE
                                             FOR GRANT          SHARES             SHARE            PRICE
                                          ----------------- ---------------- ------------------ ---------------
<S>                                       <C>               <C>              <C>                <C>
   Authorized                                      941,050              -          $ -               $ -
   Granted                                       (832,500)          832,500    $0.24 - $0.30         $0.24
                                          ----------------- ----------------
Balance at December 31, 1996                       108,550          832,500    $0.24 - $0.30         $0.24
   Authorized                                    1,146,450              -          $ -               $ -
   Granted                                       (485,000)          485,000            $0.30         $0.30
   Exercised                                          -           (100,000)            $0.30         $0.30
   Canceled                                         37,500         (37,500)    $0.24 - $0.30         $0.29
                                          ----------------- ----------------
Balance at December 31, 1997                       807,500        1,180,000    $0.24 - $0.30         $0.26
   Authorized                                      700,000              -          $ -               $ -
   Granted                                       (750,500)          750,500            $0.30         $0.30
   Exercised                                          -            (90,208)    $0.24 - $0.30         $0.29
   Canceled                                         24,792         (24,792)            $0.24         $0.24
                                          ----------------- ----------------
Balance at December 31, 1998                       781,792        1,815,500    $0.24 - $0.30         $0.27
   Granted                                       (808,944)          808,944            $0.30         $0.30
   Canceled                                        364,665        (364,665)            $0.30         $0.30
                                          ----------------- ----------------
Balance at December 31, 1999                       337,513        2,259,779    $0.24 - $0.30         $0.28
                                          ================= ================
</TABLE>



At December 31, 1997, 1998, and 1999, $344,375, 661,479, and 1,150,206 options,
respectively, were exercisable. The weighted average remaining contractual life
of outstanding options was 8.15 years at December 31, 1999. The weighted average
fair value of options granted during 1997, 1998, and 1999 was $0.08, $0.07, and
$0.07, respectively.


                                      F-18


<PAGE>


                                 VPNX.com, Inc.
                          (a development stage company)
                          Notes to Financial Statements (continued)
          (Information as of June 30, 2000 and for the six months ended
                      June 30, 1999 and 2000 is unaudited)



5. STOCKHOLDERS' EQUITY (CONTINUED)

VALUATION OF STOCK OPTIONS

The Company has elected to follow APB Opinion No. 25 and related interpretations
in accounting for its employee stock options because the alternative fair value
accounting provided for under Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (FAS 123), requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB Opinion No. 25, when the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.

Pro forma information regarding net loss is required by FAS 123 which also
requires that the information be determined as if the Company has accounted for
its employee stock options under the fair value method of FAS 123. The fair
value for these options was estimated at the date of grant using the minimum
value method with the following weighted average assumptions:


<TABLE>
<CAPTION>
                                                                1997              1998             1999
                                                        ----------------- ----------------- ----------------
<S>                                                     <C>               <C>               <C>
         Risk-free interest rate                              6.5%              5.2%             5.5%
         Dividend yield                                          -                 -                -
         Weighted average expected life                    5 years           5 years          5 years
</TABLE>


For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. If compensation cost
for the Company's stock-based compensation plan had been determined based on the
fair value at the grant dates for awards under this plan consistent with the
method provided for under FAS 123, then the Company's net loss would have been
as indicated in the pro forma amount below:


<TABLE>
<CAPTION>

                                                                     YEARS ENDED DECEMBER 31,
                                                        ----------------------------------------------------
                                                                1997              1998             1999
                                                        ----------------- ----------------- ----------------
<S>                                                     <C>               <C>               <C>
Net loss as reported                                        $(1,241,793)          $588,363     $(4,501,102)
Pro forma net loss                                          $(1,258,093)          $611,828       $4,532,551
Net loss per share as reported, basic and diluted                $(0.15)           $(0.07)          $(0.46)
Pro forma net loss per share, basic and diluted                  $(0.15)           $(0.07)          $(0.47)
</TABLE>



                                     F-19


<PAGE>


                                 VPNX.com, Inc.
                          (a development stage company)
                          Notes to Financial Statements (continued)
          (Information as of June 30, 2000 and for the six months ended
                      June 30, 1999 and 2000 is unaudited)


5. STOCKHOLDERS' EQUITY (CONTINUED)

VALUATION OF STOCK OPTIONS (CONTINUED)

The pro forma impact of FAS 123 will not be fully reflected until 2000 and is
not expected to be indicative of the effects on net income (loss) in future
years.

STOCK SUBJECT TO REPURCHASE

In 1996 and 1997, the Company issued 2,083,340 shares of common stock to its
President and 150,000 shares of common stock to other members of the Board of
Directors, which are subject to repurchase should the individuals discontinue
service to the Company. The Company's repurchase rights for these shares expire
at various times through 2001. At December 31, 1999, 54,167 of the shares issued
to the Company's Board of Directors were subject to repurchase by the Company.

DEFERRED COMPENSATION

During the six-month period ended June 30, 2000, the Company recorded aggregate
deferred compensation of $1,790,000 representing the difference between the
exercise price of stock options granted and the then deemed fair value of the
Company's common stock. These amounts are being amortized as charges to
operations, using the straight-line method, over the vesting periods of the
individual stock options, generally four years. For the six-month period ended
June 30, 2000, the Company amortized $83,000 of deferred compensation.


                                     F-20


<PAGE>


                                 VPNX.com, Inc.
                          (a development stage company)
                          Notes to Financial Statements (continued)
          (Information as of June 30, 2000 and for the six months ended
                      June 30, 1999 and 2000 is unaudited)


5. STOCKHOLDERS' EQUITY (CONTINUED)

SHARES RESERVED

Common stock reserved for future issuance is as follows:


<TABLE>
<CAPTION>

                                                                                   DECEMBER 31, 1999    JUNE 30, 2000
                                                                                  ------------------- ----------------
<S>                                                                               <C>                 <C>
Stock option plans (the 1996 Founders' Plan and the 1997 Plan):
     Outstanding                                                                       2,259,779         2,544,490
     Reserved for future grants                                                          337,513           751,007
                                                                                  ------------------- ----------------
                                                                                       2,597,292         3,295,497

     Conversion of preferred stock                                                     6,272,328         6,272,328
     Warrants issued to note holders                                                     471,149           471,149
                                                                                  ------------------- ----------------
Total common stock reserved for future issuance                                        9,340,769        10,038,974
                                                                                  =================== ================

</TABLE>


6. EMPLOYEE BENEFIT PLAN

The Company has a Savings Plan that qualifies under Section 401(k) of the 
Internal Revenue Code. Under the plan, participating employees may defer up 
to 15% of their pretax salary but not more than statutory limits. The Company 
may elect to make matching contributions to the plan. For the fiscal year 
ending December 31, 1999, the Company matched employees' contributions, 
dollar for dollar, up to $500. The total cost of the contribution was 
$26,000. For the fiscal years ended December 31, 1998 and before, the Company 
made no matching contributions. Expenses related to the plan are immaterial.


                                      F-21


<PAGE>


                                 VPNX.com, Inc.
                          (a development stage company)
                          Notes to Financial Statements (continued)
          (Information as of June 30, 2000 and for the six months ended
                      June 30, 1999 and 2000 is unaudited)


7. INCOME TAXES

Due to operating losses and the inability to recognize benefits therefrom, there
is no provision for income taxes for the periods ended December 31, 1998, 1999,
and the period from April 10, 1997 through December 31, 1997.

Deferred income taxes reflect the net effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets are as follows (in thousands):


<TABLE>
<CAPTION>

                                                               YEARS ENDED DECEMBER 31,
                                                           ----------------------------------
                                                                     1998              1999
                                                           ----------------   ---------------
<S>                                                        <C>                <C>
Deferred tax assets:
   Net operating loss carryforwards                               $  383            $1,586
   Tax credit carryforwards                                          125              4000
   Deferred revenue                                                   62               128
   Other accruals and reserves not currently deductible              130               689
                                                           ---------------- -----------------
Total deferred tax assets                                            700             2,800
Valuation allowances                                                (700)           (2,800)
                                                           ================ =================
Net deferred tax assets                                           $    -            $    -
                                                           ================ =================
</TABLE>


Realization of deferred tax assets is dependent on future earnings, if any, the
timing and amount of which are uncertain. Accordingly, a valuation allowance, in
an amount equal to the net deferred tax asset as of December 31, 1999 and 1998
has been established to reflect these uncertainties. The change in valuation was
a net increase of approximately $400,000 and $2,100,000 for the fiscal years
ended December 31, 1998 and 1999, respectively.

As of December 31, 1999, the Company had federal and California net operating
loss carryforwards of approximately $4,100,000 and $3,300,000, respectively. The
Company also had federal research and development tax credit carryforwards of
approximately $400,000. The net operating loss and credit carryforwards will
expire at various dates beginning in 2003 through 2019, if not utilized.

Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.


                                     F-22


<PAGE>


                                 VPNX.com, Inc.
                          (a development stage company)
                          Notes to Financial Statements (continued)
          (Information as of June 30, 2000 and for the six months ended
                      June 30, 1999 and 2000 is unaudited)



7. INCOME TAXES (CONTINUED)

Through April 9, 1997, the Company was a Subchapter S corporation, and as such,
all items of income and expense were taxed directly to its stockholders.

8. RELATED PARTY TRANSACTION

The Company received legal services of approximately $30,000, $72,000, $51,000,
and $172,000 in 1997, 1998, 1999, and the period from June 19, 1996 (inception)
to December 31, 1999, respectively, from a stockholder's law firm. In addition,
the Company received legal services for approximately $34,000 and $56,000 for
the six months ended June 30, 1999 and 2000, respectively, from the same
stockholder's law firm.

9. NET LOSS PER SHARE

The Company follows the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share." Basic and diluted net loss per share
are computed by dividing the net loss by the weighted average number of common
shares outstanding during the period less outstanding nonvested shares.
Outstanding nonvested shares are not included in the computation of basic net
loss per share until the time-based vesting restrictions have lapsed.


<TABLE>
<CAPTION>

                                           YEARS ENDED DECEMBER 31,               SIX MONTHS ENDED JUNE 30,
                                 ----------------------------------------------- ------------------------------
                                         1997         1998            1999            1999           2000
                                 --------------- --------------- --------------- --------------- --------------
<S>                              <C>             <C>             <C>             <C>             <C>
Net loss (numerator)                 $(1,241,793)      $(588,363)    $(4,501,102)    $(3,395,221)   $(3,273,804)
                                 =============== =============== =============== =============== ==============
Shares used in computing basic  
  and diluted net loss per 
   share (denominator):
     Weighted average common
       shares outstanding
                                       9,672,227       9,959,449       9,966,116       9,966,116      9,978,211
     Less shares subject to
       repurchase                     (1,352,870)       (981,607)       (246,533)       (264,840)       (27,083)
                                 --------------- --------------- --------------- --------------- --------------
     Denominator for basic and
       diluted net loss per
       share                           8,319,357       8,977,842       9,719,583       9,701,276      9,951,128
                                 =============== =============== =============== =============== ==============
</TABLE>



                                      F-23


<PAGE>


                                 VPNX.com, Inc.
                          (a development stage company)
                          Notes to Financial Statements (continued)
          (Information as of June 30, 2000 and for the six months ended
                      June 30, 1999 and 2000 is unaudited)


10. SUBSEQUENT EVENTS

On July 6, 2000, the Company signed a definitive agreement to be acquired by
InterNAP Network Services. The transaction closed on July 31, 2000.


                                     F-24