<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K/A
                                AMENDMENT NO. 1

     [X]  Annual  Report  Pursuant  to  Section  13 or 15(d)  of the  Securities
Exchange Act of 1934 For the fiscal year ended September 30, 1999

                                       or

     [ ]  Transition  Report  Pursuant to Section 13 of 15(d) of the  Securities
Exchange  Act of 1934 For the  transition  period  from  ___________________  to
________________
                          Commission file number 1-7725
                                 COMDISCO, INC.

                            (a Delaware Corporation)

                              6111 North River Road
                            Rosemont, Illinois 60018
                            Telephone (847) 698-3000

                I.R.S. Employer Identification Number 36-2687938
           Securities registered pursuant to Section 12(b) of the Act:

                                                        NAME OF EACH EXCHANGE
TITLES OF EACH CLASS                                     ON WHICH REGISTERED
----------------------------                        ----------------------------

Common Stock                                             New York Stock Exchange
$.10 par value                                      Chicago Stock Exchange, Inc.
Common Stock Purchase Rights                             New York Stock Exchange
                                                    Chicago Stock Exchange, Inc.

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports)  and  (2)  has  been  subject  to such  filing
requirements for the past 90 days. Yes XX No.

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The  aggregate  market  value of the common stock held by  nonaffiliates  of the
Registrant as of December 1, 1999 was approximately $2,560,000,000. For purposes
of the foregoing  calculation only, all directors and executive  officers of the
registrant  have been deemed  affiliates.  As of September 30, 1998,  there were
152,100,362   shares  of  the  Registrant's   common  stock,   $.10  par  value,
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: NONE


                                      -1-
<PAGE>
EXPLANTORY  NOTE:
         This  Amendment No. 1 is being filed by the  undersigned  registrant to
correct certain  typographical  and table footing errors included in information
provided in response to Part 1, Item 1 of its Annual Report on Form 10-K for the
fiscal year ended  September  30, 1999 filed with the  Securities  and  Exchange
Commission  on December 22, 1999.  The  following  changes have been made within
that section:

o             Under the heading "Leasing; General," on page 8, the parenthetical
              phrase   "including   International   Operations"  is  changed  to
              "excluding International Operations."

o             In the narrative  Ventures business  description,  in the table on
              page  14  ("15  Largest  Commitments")  and the  table on  page 15
              ("Largest Public Equity Stakes"),  certain  numerical  corrections
              have been made to amounts provided.

o             In the narrative Prism business description,  in the chart on page
              21, the references to "960 Mbps" in the "Speed To End User" column
              are changed to "960 Kbps."

         The  entire  text of Part I,  Item  1,  reflecting  the  aforementioned
corrections, is set forth in the attached pages.

PART I.

Item 1. Business

A.       GENERAL DEVELOPMENT OF BUSINESS

OVERVIEW

Comdisco,  Inc. (with its  subsidiaries,  the "Company" or "Comdisco")  provides
global   technology   services  to  help  its  customers   maximize   technology
functionality,  predictability and availability.  The Company provides equipment
leasing, continuity, managed network services, and desktop management solutions.
These  services are designed to provide  integrated,  long-term,  cost effective
asset and  technological  planning  as well as data and voice  availability  and
recovery to users of high technology  equipment.  Through its subsidiary,  Prism
Communication  Services,  Inc.  ("Prism"),  Comdisco is developing a high-speed,
always-on  digital  network,  which will  provide  customers  with  leading-edge
connectivity.  Through its Ventures group,  Comdisco provides  equipment leasing
and other  financing to venture capital backed  start-up  companies.  Additional
information about each of the business groups is include later in this section.

The  executive  offices of the Company are located in the Chicago  area, at 6111
North River Road,  Rosemont,  Illinois 60018,  and its telephone number is (847)
698-3000.

GENERAL DEVELOPMENT OF BUSINESS

The Company was founded in 1969 and  incorporated in Delaware in 1971. Since its
incorporation,  the Company's  business,  its markets and the services it offers
and the way it conducts its business has changed  significantly  and is expected
to continue  to change and evolve.  These  changes are  primarily  the result of
rapid  changes  in  technology   (including   declining   prices,   manufacturer
consolidations and the rise of new industries such as  telecommunications),  the
rise of new  dominant  technologies  (such as the  Internet)  and their  related
impact on customers'  needs and  requirements.  Initially,  Comdisco was engaged
primarily in the procurement  and placement of new and used computer  equipment,
principally  mainframe and related  peripherials.  Comdisco  developed  disaster
recovery  and  contingency  planning  services in 1980.  In the  mid-1980's  the
company expanded its operations to include the leasing of non-computer equipment
(office equipment,  PBX,  point-of-sale,  and other high-technology  equipment),
eventually adding healthcare,  communications,  semiconductor  manufacturing and
other industry specific  equipment leasing,  remarketing and other services.  In
1987,   Comdisco  formed  Comdisco   Ventures.   Comdisco   Ventures  has  grown
significantly  in the last three fiscal years and has become a  significant  and
material contributor to the Company's earnings.

On March 24, 1999,  the Company  announced a major shift in corporate  strategy,
including  its  intent  to  focus on  high-margin  service  businesses  and shed
low-margin  businesses,  such as its  mainframe  leasing  portfolio  and medical
refurbishing  business.  In  conjunction  with its  repositioning,  the  Company
recorded a one-time  pre-tax  charge of $150 million,  $96 million after tax, or
approximately  $0.59  per  share,  in the  quarter  ended  March 31,  1999.  The
components  of this pretax  charge  include  $100  million  associated  with the
Company's plans to exit the mainframe residual leasing business,  $20 million to
exit  the  medical  refurbishing  business  and $30  million  associated  with a
realignment  of the service  businesses.  The Company  completed the sale of its
mainframe  computer leasing  portfolio and the sale of the medical  refurbishing
business in the fiscal  quarter ended June 30, 1999. In addition to these sales,
the  Company  completed  the  sale of  substantially  its  entire  vendor  lease
portfolio in September, 1999.

The Company  finalized the  acquisition  of Prism during the quarter ended March
31, 1999.

                                      -3-
<PAGE>
The  industry  in which the company  operates is in a state of constant  change,
and, as part of this  environment,  the  company's  business  is  becoming  more
service   oriented,   with  the  business   driven  by  the  company's   service
capabilities.  Accordingly,  Comdisco  has  realigned  to  focus  on  technology
services,  ventures,  Prism,  and on global leasing  businesses in  historically
high-margin areas such as electronics,  communications,  medical, laboratory and
scientific.

      INVESTMENT CONSIDERATIONS

      FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE

Certain  statements  herein and in the future  filings by the  Company  with the
Securities  and  Exchange  Commission  and in the  company's  written  and  oral
statements  made by or with the  approval  of an  authorized  executive  officer
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the  Securities  Exchange Act of 1934,
and the company intends that such  forward-looking  statements be subject to the
safe  harbors  created  thereby.  The words and  phrases  "looking  ahead,"  "is
confident,"  "should  be,"  "will"  "predicted,"  "believe,"  "plan,"  "intend,"
"estimates,"   "likely,"  "expect"  and  "anticipate"  and  similar  expressions
identify forward-looking statements.

These  forward-looking  statements  reflect  the  company's  current  views with
respect to future  events and  financial  performance,  but are  subject to many
uncertainties  and factors  relating to the  Company's  operations  and business
environment  which may affect the  accuracy of  forward-looking  statements  and
cause the actual  results of the  company to be  materially  different  from any
future results expressed or implied by such forward-looking statements.

The Company's actual revenues and results of operations could differ  materially
from  those  anticipated  in these  forward-looking  statements  as a result  of
certain factors, including those set forth in the "Risk Factors." As a result of
these and other factors,  in some future quarter the company's operating results
may fall below the expectations of securities analysts and investors. In such an
event,  the  trading  price  of the  company's  common  stock  would  likely  be
materially  and  adversely  affected.  Many of the factors  that will  determine
results of operations are beyond the Company's ability to control or predict.

      RISK FACTORS

      OPERATING RESULTS ARE SUBJECT TO QUARTERLY FLUCTUATIONS

The Company's operating results are subject to quarterly  fluctuations resulting
from a variety of factors,  including  earnings  contributions  from remarketing
activities  and  services,  product  announcements  by  manufacturers,  economic
conditions and variations in the financial mix of leases written.  The financial
mix of leases  written is a result of a combination of factors,  including,  but
not limited to,  changes in customer  demands and/or  requirements,  new product
announcements,  price changes, changes in delivery dates, changes in maintenance
policies  and  the  pricing  policies  of  equipment  manufacturers,  and  price
competition from other lessors and finance companies.

THE COMPANY'S GROWTH STRATEGY DEPENDS ON PRODUCT AND MARKET DEVELOPMENT

The markets for the Company's  principal  products are  characterized by rapidly
changing  technology,  evolving industry  standards,  and declining prices.  The
company's  operating results will depend to a significant  extent on its ability
to continue to  introduce  new services  and to control  and/or  reduce costs on
existing services.  The success of these and other new offerings is dependent on
several factors, including proper identification of customer needs, cost, timely
completion  and  introduction,  differentiation  from offerings of the company's
competitors and market acceptance.

                                      -4-
<PAGE>
THE  COMPANY'S  SUCCESS  DEPENDS IN PART ON  ANTICIPATING  AND  ADAPTING  TO NEW
TECHNOLOGICAL DEVELOPMENTS AND CHANGING MARKET CONDITIONS.

Lower margins on large systems transactions (mainframes and related peripherals,
including  DASD and tape  drives)  have  resulted  in lower  margins on leasing.
Although the Company has sold its mainframe residual leasing business, which may
have a positive  impact on leasing  margins in future  quarters,  the market for
leasing  and  services is  characterized  by rapid  technological  developments,
evolving   customer   demands  and  frequent  new  product   announcements   and
enhancements.  Failure to anticipate or adapt to new technological  developments
or to recognize  changing market conditions could adversely affect the Company's
business, including its lease volume, leasing revenue and earnings contributions
from leasing.

REMARKETING IS AN IMPORTANT CONTRIBUTOR TO ANNUAL AND QUARTERLY EARNINGS

Notwithstanding the sale of the mainframe lease portfolio,  remarketing has been
and will continue to be an important factor in determining  quarterly  earnings.
To meet earnings goals for fiscal 2000, remarketing contributions, primarily for
the company's global equipment leasing businesses, must be at the level achieved
in fiscal  1999.  Quarterly  operating  results  depend  substantially  upon the
remarketing  transactions  within the quarter,  which are  difficult to forecast
accurately.   While  the  Company  is  devoting  resources  to  its  remarketing
activities,  there  can be no  assurance  that  the  Company  will  achieve  the
appropriate level of activity necessary to meet or match the Company's prior and
desired operating results.

THE COMPANY'S GROWTH STRATEGY DEPENDS IN PART ON THE COMMUNICATIONS INDUSTRY. IF
THAT INDUSTRY  DOES POORLY,  THE  COMPANY'S  BUSINESS AND FINANCIAL  RESULTS MAY
SUFFER

The   emergence  of  the   communications   market--facilities-based   broadband
communications    companies,    Internet    Service    Providers    and    other
telecommunications  carriers--and the growth of broadband networks, provides the
Company  with an  industry  in which  leasing is an  attractive  alternative  to
ownership.  The  Company's  communications  equipment  customers  are  generally
companies with accumulated net deficits and extensive liquidity requirements. To
the extent that these  companies  are unable to meet their  business  plans,  or
unable to obtain  funding or  funding  at  reasonable  rates to  complete  their
business plans,  there could be an increase in the Company's credit losses above
historical levels.

THE  COMPANY'S  SUCCESS IS HIGHLY  DEPENDENT ON  DEVELOPING  AND  EXPANDING  ITS
SERVICES'  BUSINESS.  THE  SERVICES  BUSINESS  MAY BE LESS  PREDICTABLE  AND THE
REVENUE  IS LESS  RECURRING  THAN  CONTRACTUAL  LEASE  AND  CONTINUITY  SERVICES
REVENUE.  COMPETITION IN SERVICES MAY NEGATIVELY  IMPACT THE COMPANY'S  BUSINESS
STRATEGY. REVENUE RECOGNITION CAN BE NEGATIVELY AFFECTED BY LONGER SALES CYCLES

As a result of the evolving nature of its services  business,  particularly  the
emerging  desktop  management  and  managed  network  services,  the Company has
limited  meaningful  historical  data in  which to base  its  planned  operating
expenses.  Accordingly,  a significant  portion of the company's  expense levels
(investment in continuity facilities and hardware, consultants, experts and back
office  personnel) are based in part on its  expectations  as to future services
revenues, and are, to a large extent, fixed.  Conversely,  the Company's revenue
base has  become  more  diverse  with the  growth of other  technology  services
revenue. To attain its services earnings contribution goals for fiscal 2000, the
Company must: meet its obligations under the agreements underlying  transactions
in process at September 30, 1999 (also  referred to by the company as its "sales
backlog");  expand its contract subscription base (through new contract signings
and contract  renewals);  increase its revenues from other technology  services,
develop, promote and sell additional service products, such as IT CAP Solutions,
advanced recovery services,  availability options, remote computing services and
web hosting;  and contain costs. The Company must also successfully compete with
organizations  offering similar  services.  The Company's  ability to obtain new
business  and  realize  revenue on its sales  backlog  depends on its ability to
anticipate technological changes, develop services to meet customer requirements
and achieve delivery of services that meet customer  requirements.  In addition,
there can be no  assurance  that the  Company  will be able to  maintain  and/or
increase its margins on technology services in fiscal 2000.

                                      -5-
<PAGE>
One impact of the Company's  changing  business model is the  lengthening of the
sales cycle--the length of time between initial sales contact and final delivery
of contracts--as compared to its traditional leasing business.  This increase in
sales cycle results in an increase in negotiations in progress which  ultimately
impacts the timing of revenue, earnings and volume recognition.

COMDISCO  VENTURES  CUSTOMERS  ARE IN AN EARLY STAGE OF  DEVELOPMENT  AND MAY BE
UNABLE TO COMPLETE THEIR BUSINESS  PLANS.  EQUITY  INSTRUMENTS  HELD BY COMDISCO
VENTURES  ARE RISKY  INVESTMENTS  AND THE PUBLIC  MARKET FOR THESE  COMPANIES IS
EXTREMELY VOLATILE. TO THE EXTENT THESE COMPANIES DO NOT MEET THEIR PLANS OR THE
COMPANY IS UNABLE TO DISPOSE OF ITS EQUITY  SECURITIES,  THE COMPANY'S  BUSINESS
AND FINANCIAL RESULTS MAY SUFFER.

The Company has made loans to and equity  investments in various  privately held
companies.  These companies  typically are in an early stage of development with
limited operating  histories,  and limited or no revenues and may be expected to
incur substantial  losses.  Accordingly,  investments in these companies may not
result in any  return and the  Company  may lose its  entire  investment  and/or
principal balance.

Equity  instruments  held  by the  Company  are  subject  to  lockup  agreements
restricting  its ability to sell until  several  months after an initial  public
offering.  The  public  market for high  technology  and other  emerging  growth
companies  is extremely  volatile.  Such  volatility  may  adversely  affect the
ability of the  company to  dispose  of the equity  securities  and the value of
those securities on the date of sale.

The  Company has  established  working  relationships  with  successful  venture
capital organizations. There can be no assurance that these relationships can be
maintained  or  sustained.  To the extent that the company is unable to maintain
these  relationships,  its  ability  to  identify  potential  customers  may  be
substantially impaired.

The current  economic  environment has been sustained over a number of years and
is currently the longest continuous period of economic growth in the last thirty
years.  This environment has encouraged  entrepreneurs to conceive,  develop and
bring to market new products and services. The Company targets these early-stage
companies  for its services and products.  A slow down in economic  growth could
materially affect the market in which the Company operates.  Furthermore, a slow
down would impact  potential  investors in any limited  partnerships the Company
may form,  and this in turn,  would  have a  material  impact  on  the  Ventures
liquidity and access to funds.

Many of the companies to which the Company  provides  financing are dependent on
third parties for  liquidity.  Any  significant  change in the  availability  of
funds,  would  have a  material  impact on the  Company's  customer  base,  and,
potentially,  its loan collectability,  as well as, the fair market value of its
equity instruments.

If companies with which Ventures has effected transactions are not successful or
the markets become unfavorable,  Ventures' customers may not be able to complete
securities  offering and Ventures   may not be able to generate gains or receive
proceeds from the sale of securities.

Fluctuations  in future  periods may be greater that those  experienced  in past
periods as a result of Ventures' focus on companies  related to the Internet and
telecommunications.  Furthermore,  for those customers whose  securities are not
publicly  traded,  the  realizable  value of Ventures'  interests may ultimately
prove  to  be  lower  than  the  carrying  value  currently   reflected  in  the
consolidated and the separate Ventures' financial statements.

In the past  Ventures  financed its  operations  with  inter-company  loans from
Comdisco. Ventures my need to obtain funding from outside sources and may not be
able to obtain  funding from outside  sources.  Furthermore,  even if funding is
available,  such  financing  may not be on terms as favorable as those  obtained
from Comdisco.

Ventures depends on certain important  employees and the loss of those employees
could harm and disrupt Ventures' business.

                                      -6-
<PAGE>

THE COMPANY'S PRISM SUBSIDIARY IS A START UP COMPANY WITH AN AGGRESSIVE BUSINESS
PLAN IN A NEW AND UNPROVEN INDUSTRY.

Prism is a start up company that has incurred  operating  losses since inception
and the company expects that Prism's  operating losses will continue to increase
as it  introduces  its  services  throughout  New York  City  and the  Northeast
corridor.  In addition,  Prism will require  substantial  additional  capital to
support its data  network,  to expand its  services,  to increase  its sales and
marketing  efforts and to support the its growth. To the extent that revenues do
not grow at  anticipated  rates or that  increases  in such  operating  expenses
precede or are not subsequently followed by commensurate  increases in revenues,
or that the company is unable to adjust operating  expense levels and/or capital
expenditures of Prism accordingly, the company's business, results of operations
and  financial  condition  could  be  significantly  affected.  There  can be no
assurance  that in the future Prism will be  profitable on a quarterly or annual
basis.

Prism operates in a highly regulated environment. Changes in regulatory policies
may adversely  impact its ability to provide  services and increase the costs of
providing those services.

Prism's business  strategy is largely  unproven.  A number of factors may affect
Prism's ability to attain its business plan, including the following:

o    its ability to  successfully  market it's existing and planned  services to
     current and new customers;
o    its  ability  to  generate  customer  demand  for it's  services  in target
     markets;
o    the development of its target market and market opportunities;
o    market pricing for its services and for competing services;
o    the extent of increasing competition;
o    ability to acquire funds to expand its network;
o    the ability of its equipment and service suppliers to meet its needs;
o    trends in regulatory, legislative and judicial developments;
o    its ability to manage growth of its operations;
o    its ability to access regions and enter into suitable  interconnection
     agreements with traditional telephone companies;
o    its  ability  to improve its existing services and  introduce  new  service
     offering  without  interruption  or  interference with its operations, in a
     timely and cost effective manner;
o    its ability to improve  its   technology   infrastructure   to  respond  to
     technological change and new industry standards;
o    its ability and that of its customers to be year 2000 compliant;
o    its reliance on third parties,  including  some of its  competitors   and
     potential   competitors  to  develop  and  provide  Prism  with  access  to
     communications and networking technology;
o    its ability to rapidly expand the geographic coverage of its services;
o    its ability to attract, retain and motivate qualified persons;
o    its ability to rapidly install high-speed access lines;
o    its ability to effectively manage growth of operations; and
o    its ability to deliver additional value-added services to its customers.

Furthermore,  Prism's operating results are likely to fluctuate significantly in
the future as a result of  numerous  factors,  many of which are  outside of its
control.  These  factors  include,  but are not  limited  to:

o    the  timing  and willingness of traditional telephone companies to provide
     it with central office space and the prices,  terms and conditions on which
     they make  available  the space to Prism;
o    the amount and timing of capital  expenditures  and other costs relating to
     the expansion of its networks and the marketing of its services
o    delays in the  commencement of operations in new regions and the generation
     of  revenue  because  certain  network  elements  have lead  times that are
     controlled by traditional telephone companies and other third parties;
o    the  ability to develop  and  commercialize  new  services  by Prism or its
     competitors
o    the ability to deploy on a timely basis its services to adequately  satisfy
     end-user demand
o    the ability to successfully operate its networks;

                                      -7-
<PAGE>
o    the rate at which customers subscribe to its services;
o    decreases in the prices for its services due to  competition,  volume-based
     pricing and other factors;
o    the  mix  of  line  orders  between   consumer   end-users    and  business
     end-users (which typically have higher margins);
o    the success of its relationship  with Williams,  Nortel and potential third
     parties;
o    the development and operation of Prism's  billing and  collection  systems
     and other operational systems and processes;
o    the  rendering  of accurate  and  verifiable  bills by Prism's  traditional
     telephone suppliers and resolution of billing disputes;
o    the  incorporation of enhancements,  upgrades and new software and hardware
     products  into  its  network  and  operation   processes   that  may  cause
     unanticipated disruptions; and
o    the  interpretation  and enforcement of regulatory  developments  and court
     rulings  concerning  the  1996  telecommunications   act,   interconnection
     agreements and the anti-trust laws.

Prism's business strategy is largely unproven.

ECONOMIC  CONDITIONS  AND OTHER  FACTORS  MAY  NEGATIVELY  IMPACT  THE COMPANY'S
OPERATIONS

With respect to economic conditions,  a recession can cause customers to put off
new investments and increase the company's bad debt experience.

Other uncertainties include continued business conditions,  trend of movement to
client/server  environment,   competition,   including  competition  from  other
technology  service  providers,  reductions  in  technology  budgets and related
spending plans, price competition from other technology  service providers,  and
the Year 2000  readiness  of the  company's  customers,  suppliers  and business
partners.

B.       FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

See Note 16 of  Notes to  Consolidated  Financial  Statements  on page 52 of the
Annual  Report  to  Stockholders  for the  year  ended  September  30,  1999 for
financial information about the Company's segments.

C.       NARRATIVE DESCRIPTION OF BUSINESS

Principal Services:

The  Company's   operations  are  organized  into  four  reportable   groups  of
businesses. These groups are Leasing, Services, Ventures and Prism.

The following is a narrative description of the Leasing and Services businesses.

 Leasing:

General:   Leasing  and   remarketing   services   for   distributed   computing
systems--servers,   workstations,  PCs,  local  area  networks  and  other  high
technology equipment;  acquisition  management,  expenditures tracking and other
services that facilitate equipment procurement and expense tracking.

The Company buys,  sells and leases and remarkets PCs and  workstations  made by
most of the leading manufacturers. The Company's lease transactions also include
high-end servers,  printers and other desktop related  equipment.  The Company's
strategy  for  the   distributed   systems  market  is  to  provide   financing,
professional  services and software  tools (see  "Services") to its existing and
prospective customers.  The Company estimates that approximately 34% of the cost
of equipment placed on lease by the Company (excluding International operations)
in fiscal 1999 was distributed equipment

                                      -8-
<PAGE>
Industry Specific: Leasing and remarketing,  asset management and reconditioning
services for industry specific equipment, including semiconductor manufacturers,
communication and pharmaceutical companies.

ELECTRONICS  GROUP:  The Company leases new and used  electronic  manufacturing,
testing and monitoring equipment,  including semiconductor production equipment,
automated  test  equipment  and assembly  equipment.  Additionally,  the Company
maintains  a dedicated  refurbishing  and sales  facility in the Silicon  Valley
area.  The  semiconductor  manufacturing  industry is  characterized  by rapidly
advancing technology, high capital outlays, increased competition, and a growing
concern  over the total cost of  ownership  in high  technology  equipment.  The
Company assists its customers in developing an effective  strategy for acquiring
and managing its high-tech assets.

HEALTHCARE  GROUP:  Through its  healthcare  subsidiaries,  the  Company  leases
medical and other high technology equipment to healthcare  providers,  including
used,   reconditioned  medical  equipment.   The  Company's  portfolio  includes
angiography,  MRI systems, CT Scanners,  nuclear imaging devices, test equipment
such as  oscilloscopes,  analyzers and testers and laboratory  equipment such as
microscopes and centrifuges.

LABORATORY AND SCIENTIFIC  GROUP: The Company's  laboratory and scientific group
assists organizations in the pharmaceutical,  chemical, research, healthcare and
biotechnology  industries through the implementation of an equipment  life-cycle
management strategy. Its marketing strategy includes financing,  technology risk
management and remarketing.

Services:

CONTINUITY  SERVICES:  These  services  include  continuity  services  for large
central processing sites, client/server,  workstation and PC environments, local
and wide area networks and voice availability and recovery capabilities, as well
as  consulting  services  in  continuity  planning,  network  services  and data
protection,  and other related data  processing  services  throughout the United
States,  Canada and Europe. The Company provides backup  capabilities for, among
others,  Digital  Equipment  Corporation,  Hitachi Data  Systems,  IBM,  Hewlett
Packard, Sequent, Stratus, Sun Micro Systems, Tandem and Unisys equipment users.
Comdisco's services are designed to help customers avoid and minimize the impact
of a significant  interruption to critical business functions as a result of the
inaccessibility  to the  customer's  data  processing  facility,  communications
network(s) or workstations.

Through its network and facilities strategy entitled CCS Net, the Company offers
customers  access to its North  American  facilities,  including a range of data
processing recovery services at hot sites,  Customer Control Centers ("CCC") and
shell sites.  Hot sites are equipped  computer  facilities  that include central
processing units,  peripherals and  communications  equipment.  A CCC interfaces
customers to geographically  separated hot sites by means of  telecommunications
lines. Most facilities also include workstation and/or desktop recovery,  voice,
and network capabilities.  Capabilities also include client/server platforms and
midrange  systems.  These facilities also are used for the Company's  Millennium
Testing  Services,  which allows  customers  to test their Year 2000  conversion
projects.

Of the Company's  approximately forty continuity  locations,  nine serve as data
center  recovery  environments  providing  hot site and/or shell site  services.
These nine regional recovery centers serve major commercial  centers,  including
New York, Chicago, Northern and Southern California,  Texas, Georgia, as well as
a location in Southern  New Jersey  that  serves the  Mid-Atlantic  region and a
center  located in Toronto,  Canada.  Each recovery  center has at least one hot
site or CCC and  includes  telecommunications  capabilities,  conference  rooms,
office space,  support  areas,  and  appropriate  on-site  technical  personnel.
Comdisco  believes it operates  one of the  largest  communications  networks in
North America.

                                      -9-
<PAGE>
MANAGED NETWORK SERVICES:  Comdisco Network Services offers network  assessment,
design, implementation,  help desk and professional management services designed
to reduce the total cost of network  technology.  The Company's customer base is
primarily North American-based enterprises as its monitoring and on-site support
capabilities are predominantly within the United States.

IT CAP: The Company provides strategic solutions for desktop management services
to its customers to assist them in managing their information  technology assets
with the objective of increasing  productivity and reducing  technology cost and
risk.  These  technology  service  solutions  are built  around the  collection,
integration,  and  management of  information  on enterprise  assets through the
implementation of an integrated  database of asset information.  These solutions
may also include improving,  supporting,  and managing  distributed  systems and
critical  business  processes  through a single point of contact.  The services,
which are designed to  complement  the  Company's  leasing  activities,  include
transitional  strategies,  integration  planning and  implementation,  financing
(hardware and  software),  and  continuity  planning.  The Company's  integrated
desktop  management  software tools let customers order,  track and manage their
inventory of distributed systems equipment.

The  Company's  operations  are conducted  through its  principal  office in the
Chicago area and approximately one hundred offices in the United States, Canada,
Europe and the Pacific Rim.  Subsidiaries  in Europe and Canada  offer  services
similar to those offered in the United States.

The  Company's  services are provided  through  separate  business  units.  Each
business  is  directed  by its own  management  team  and  has  its  own  sales,
marketing,  product  development,  operations  and customer  support  personnel.
Overall  corporate  control and coordination  are achieved  through  centralized
budgeting,  financial and legal reporting, cash management,  additional customer
support and strategic planning.

The Company may, from time-to-time, enter into marketing relationships with high
technology equipment  manufacturers and value-added resellers in order to expand
its customer base and name recognition. In its marketing operations, the Company
attempts to cross-sell services where and when appropriate.

Customers and Raw Materials

Comdisco's  business  is  diversified  by  customer,  customer  type,  equipment
segments,  geographic  location of its  customers  and maturity of its lease and
notes receivables.  The Company's  customers include "Fortune 1000" corporations
or  companies  of a similar  size as well as  smaller  organizations,  including
privately-held  corporations.  The Company's businesses are not dependent on any
single customer or on any single source for the  purchasing,  selling or leasing
of equipment, or in connection with its continuity services.

Competition

The Company  competes as a lessor and as a dealer of new and used  computer  and
selected other high technology  equipment.  The Company  competes with different
firms in each of its activities.  The Company's  competition  includes equipment
manufacturers such as IBM, Hewlett Packard ("HP"), Amdahl, Hitachi Data Systems,
AT&T,  Rolm,  Hitachi  Medical  Systems,  Siemens  Medical  Systems  and General
Electric,  other equipment  dealers,  brokers and leasing  companies  (including
captive or related leasing companies of IBM, HP and General Electric and others)
as well as financial  institutions,  including  commercial  banks and investment
banking firms. While its competitive  methodologies will differ, in general, the
Company competes mainly on the basis of its expertise in remarketing  equipment,
terms offered in its  transactions,  its reliability in meeting its commitments,
its  independence  from the  manufacturer  and its  ability to develop and offer
alternative solutions and options to high technology equipment users.

Primarily as a result of technological changes, competition has increased in the
leasing industry and the number of companies offering competitive services, such
as  desktop  management  and  other  high  technology   equipment  leasing,  has
increased. Competitive alliances have also impacted the leasing industry.

                                      -10-
<PAGE>
In  PCs,  workstations,  electronics,  healthcare  and  telecommunications,  the
Company  believes it competes with the  manufacturers  and their captive leasing
companies and approximately  three  significant  leasing  companies,  as well as
banks and other lessors and financial and lending  institutions  throughout  the
United  States and Canada.  In its other  services,  the Company  competes  with
manufacturers   and  other   national  and  regional   consulting  and  services
organizations.

In continuity services,  the Company believes that its major competitors are IBM
and SunGard Data Systems, Inc. Additionally,  it competes with regional firms in
the  domestic,  Canadian  and  European  marketplace,   which  provide  contract
continuity  services.  Comdisco  believes  that it is the largest  international
provider of such services.

In managed network services, the Company competes with telecommunications firms,
such as AT&T and MCI Communications,  consulting organizations, such as Andersen
Consulting and EDS, and other local and regional providers.

In desktop  management,  the Company believes it competes with a number of large
general  contractors such as AT&T, GE Capital ITS,  Hewlett-Packard and IBM, all
companies  with  significant  resources  and  with  experience  in  leasing  and
financing.  In addition,  other companies,  such as Amdahl and Unisys--companies
that  have  traditionally   focused  on  equipment   break/fix  and  maintenance
services--have begun offering more comprehensive asset management strategies.

The  Company's  continued  ability to compete is also affected by its ability to
attract and retain well qualified personnel and the availability of financing.

Other

The Company does not own any patents, licenses, or franchises which it considers
to be material to the Company's businesses.

The Company's businesses are not seasonal,  however,  quarter-to-quarter results
from operations can vary significantly.

The Company currently believes that the amount of backlog orders is not material
to understanding the Company's business.

Because of the nature of the Company's business,  the Company is not required to
carry  significant  amounts of inventory either for delivery  requirements or to
assure continuous availability of goods from suppliers.

At September 30, 1999, the Company had approximately 3600 full-time employees.

                                      -11-

<PAGE>


Ventures:

The following is a narrative description of the Ventures business.


Overview

Ventures is a leading provider of financing to venture capital-backed companies.
Its long-term  relationships  with certain  leading  venture  capital firms help
Ventures   identify   well-positioned   companies  in  attractive   high  growth
industries.  Ventures offers companies a broad range of innovative equity-linked
financing products,  primarily venture debt and venture leases,  which are loans
or leases combined with warrants or equity conversion options that give Ventures
the  right  to  purchase  or  convert  into  common  or  preferred  stock  at  a
predetermined  price. In addition to venture debt and leases,  Ventures may also
purchase direct equity stakes in companies.  Its financing  products  complement
equity from venture capital firms and debt from commercial banks and asset-based
lenders.

Ventures  was  formed in 1987,  and since  that  time,  Ventures  has  committed
approximately $1.7 billion in venture debt, venture leasing and equity financing
to over six hundred  seventy-five  venture-backed  companies.  Of the  companies
Ventures has helped  finance,  over one hundred  fifty have gone public and over
one hundred ten have been acquired.  During the last two years, some of its most
successful  customers include Ariba  Technologies,  Ask Jeeves,  Copper Mountain
Networks,  Critical Path, e-Loan, e.Piphany,  e-Toys, Extreme Networks, Gadzoox,
Inktomi, Next Card, Northpoint Communications, Siara Systems, and Stratum One.

Venture  debt and  venture  leasing  can be  utilized  at  various  stages  of a
company's development and for various purposes including the following:

o    Early stage  capital to  supplement  the  initial  venture  capital  raised
     and support growth  requirements;

o    Expansion capital between  venture  capital  rounds  to  enable an emerging
     company to reach  milestones  and  increase  the prospect of raising future
     capital at higher valuations;

o    Capital to help a company acquire  additional equipment,  technology, and
     businesses;

o    Late  stage  capital  to  provide  financial  flexibility  to deal with the
     uncertainty of a liquidity  event such as an initial public offering or the
     sale of the company; and

o    Various  other  stages of  capital  to provide  financing  flexibility  and
     negotiating strength versus mezzanine and corporate equity rounds.

As a result of the  specialized  nature of  venture  debt and  venture  leasing,
providers of these products must have expertise in  technology-related  industry
sectors,  access to capital,  the  ability to assess  risk,  relationships  with
venture  capital  firms,  access to deal  flow,  and the  ability  to  structure
transactions appropriately.

Markets

Ventures  focuses its  activities  on what it believes  are the most  attractive
emerging  industries.  Within these industries,  Ventures leverages its industry
knowledge and strong  relationships  to provide  financing to the most promising
emerging companies.  Ventures identified the following common characteristics of
potential customers, which help to guide financing decisions:

          Growth.  Ventures seek to fund customers that have or are projected to
          have significant and sustainable  growth in their business  operations
          and industry sectors.

          Foreseeable  liquidity event. Prior to entering into a commitment with
          a customer,  Ventures reviews the likelihood of a liquidity event in a
          time frame acceptable to us and estimate the fair market value,  which
          could be  realized  from such a  liquidity  event.  Typical  liquidity
          events  include an initial  public  offering or a sale of the company.
          Liquidity  events  historically  have  enhanced the value of Ventures
          equity-linked and equity interests in many cases.

                                      -12-
<PAGE>
Providing capital through innovative products

Ventures success has been fueled by its ability to identify the capital needs of
its customers and to develop and customize  attractive  financings to meet those
needs.  Its initial  venture lease products have evolved and expanded over time.
Ventures currently offers a broad spectrum of innovative financing alternatives.
Its primary financing products currently are leases with warrants,  subordinated
debt with warrants, as well as direct investments in convertible preferred stock
and common stock.

Typically,  Ventures products are structured as commitments to provide financing
in one or more advances  during a specified  period of time.  This commitment to
finance is typically  subject to the absence of any default or material  adverse
change under the loan or lease and compliance with other loan requirements.

Ventures  generally receives warrants to purchase equity securities or the right
to convert some of the debt into equity securities of the customer in connection
with the lease and debt financings.  Warrants typically  represent less than 10%
of the  customer's  ownership  at the  date of  origination.  The  terms  of the
warrants or equity conversion, including the expiration date, exercise price and
terms of the equity  security  for which the warrant may be  exercised,  will be
negotiated  individually with each customer,  and will likely be affected by the
price and terms of securities issued by the customer to its venture  capitalists
and other holders.  Based upon its past experience,  it is anticipated that most
warrants  will be  exercisable  for a term of three  to ten  years.  The  equity
securities for which the warrant will be exercised generally will be convertible
preferred  stock or common  stock (of which  there may be one or more  classes).
Substantially  all  the  warrants  and  underlying  equity  securities  will  be
restricted securities.

Venture Leasing

Ventures'  equipment-based  venture lease and loans activities consist primarily
of the  direct  origination  of  non-cancelable,  full-payout  leases  or  loans
structured  like  leases  (collectively  "Venture  Leasing").  These  leases are
generally  for  a  variety  of  equipment  including   information   technology,
scientific hardware,  facilities,  software and production equipment. The rental
rate and all other transaction terms are individually negotiated.

Substantially  all  equipment  leases that  Ventures  originate  have  specified
non-cancelable  initial terms  ranging from 2 to 5 years.  The general terms and
conditions of all of its leases are substantially  similar and are embodied in a
master lease agreement.  For each lessee,  the lease term, rent interval,  lease
rate factor and other specific terms for each piece of leased  equipment are set
forth on equipment schedules, which also incorporate the terms and conditions of
its master  lease  agreement.

Venture Debt

Most  subordinated  and other debt financings are made pursuant to subordinated,
secured  loan  agreements.  The loans bear  fixed  interest  rates with  coupons
currently ranging from 8.0% to 13.0% per annum,  although the effective rate may
be  greater.  These  loans are  generally  scheduled  to be repaid in 36 monthly
installments;  with a varying  number of  installments  of  interest  only,  the
balance being  amortizing  installments of principal and interest.  In addition,
fees, typically ranging from 0.75% to 1.25% of the principal amount of the loan,
may be paid at closing.

Subordinated  loans are often times  secured by a lien on all of the  borrower's
assets,  which,  in most cases,  is  subordinated  to the lien of the borrower's
senior  lenders.  Loan documents  generally do not contain  extensive  financial
covenants,  although the documentation usually contains cross-default provisions
linked to any  defaults  by the  customer on any debt  outstanding  and may have
specific provisions governing future financing or pledging of assets.

                                      -13-
<PAGE>
Direct Equity Investments

Ventures also  provides  equity  financing to customers by purchasing  common or
preferred  convertible stock. Ventures generally purchases equity at a valuation
based on the most recent previous financing round to venture  capitalists or, as
applicable, a current or contemplated financing round.


During the fiscal  years  ended  September  30,  1998 and  September  30,  1999,
Ventures made direct equity  investments with 36 and 91 customers,  representing
$7 million and $39 million, respectively. As of September 30, 1999, Ventures has
made total direct investments with an original cost of $61 million.

The  following  table shows  total new lease,  debt and equity  commitments  for
Ventures in the last five years.

                   Total New Commitments By Year-Last 5 Years
                              (Dollars in Millions)

                 1995     1996     1997     1998     1999
                -----   ------   ------   ------   ------
Leases.....     $77.3   $103.5   $144.3   $220.6   $332.1
Debt.......       2.5      7.5     19.5     67.7    367.1
Equity.....       1.6      3.1      3.7      7.4     39.0
                -----   ------   ------   ------   ------
Total......     $81.4   $114.1   $167.5   $295.7   $738.2
                =====   ======   ======   ======   ======



The following  table shows the 15 largest  original  commitments for Ventures at
September 30, 1999

                             15 Largest Commitments
                              (Dollars in millions)

<TABLE>
<CAPTION>

                                           As of September 30, 1999
                                   Original           Book           Open
                                  Commitment(1)     Value (2)  Commitments(3)
                                  ----------         -----       -----------
<S>                                   <C>             <C>           <C>
HomeGrocer.com, Inc. ...........      $18.1           $2.8           $10.2
Avici Systems, Inc. ............       15.3            9.6             2.5
Digital Generation Systems, Inc.       15.0            2.0              --
Equinix, Inc. ..................       15.0            7.4             5.3
CORVIS Corporation .............       14.0           13.7              --
Telocity, Inc. .................       11.6            7.7             0.6
NextCard, Inc. .................       11.2           10.2              --
Concur Technologies, Inc. ......       10.4            7.5              --
Living.com, Inc. ...............       10.3            9.3             0.8
Acusphere, Inc. ................       10.1            7.5              --
RemarQ Communities, Inc. .......        9.8            7.9             0.7
Integral Development Corporation        9.5            6.0             0.9
StockPower, Inc. ...............        9.3            8.0             0.9
PlanetRx, Inc. .................       12.7           10.7             2.0
FlyCast Communications Corp. ...        9.1            7.7             0.1
                                     ------         ------           -----
Total ..........................     $181.4         $118.0           $24.0
                                     ======         ======           =====
<FN>

 (1) Since inception.
 (2) Book Value  represents  total  capital  currently  owed by  customers as of
     September 30, 1999 and/or cost of equity investment.
 (3) Open commitments equal the total amount of commitments that customers have
     the right to draw upon.

</FN>
</TABLE>

     CURRENT  EQUITY  STAKES.  Ventures  exercises  its  warrants  only  after a
liquidity event, such as an initial public offering or acquisition/merger. Using
an outside  manager,  Ventures  generally sells its equity  positions as soon as
reasonably possible after an initial public offering and in a manner intended to
maximize  the  return  on its  original  investment  subject  in most  cases  to
securities law restrictions on transfer and contractual lock-up provisions which
restrict its ability to sell its equity  position  for several  months after the
initial public offering.

                                      -14-
<PAGE>

As of September 30, 1999,  Ventures  current public equity holdings had a market
value of $194 million and represented ownership in 65 companies.  The 10 largest
equity holdings  represented 74% of the total of these holdings and was composed
of the following companies:



<TABLE>
<CAPTION>

                                Largest Public Equity Stakes held by Ventures as of September 30, 1999

Company                                    Industry Sector         Date of Original Commitment       Shares Held
--------------------------           ---------------------------   ---------------------------       -----------
<S>                                  <C>                           <C>                                 <C>
e.Piphany, Inc.                      Software & Computer Services  June 10, 1999                       389,062
BabyCenter, Inc.                     Internet                      October 18, 1998                    360,762
FlyCast Communications Corp.         Internet                      December 1, 1997                    502,051
Agile Software Corporation           Software & Computer Services  August 22, 1995                     158,301
NextCard, Inc.                       Consumer Related              May 29, 1998                        412,945
Vignette Corporation(1)              Internet                      December 8, 1998                    180,716
Northpoint Communications, Inc.      Communications & Networking   December 8, 1997                    394,710
Critical Path, Inc.                  Software & Computer Services  May 6, 1998                         161,603
Lightera Networks, Inc.              Communications & Networking   June 4, 1998                        151,976
Copper Mountain Networks, Inc.       Communications & Networking   September 30, 1997                  160,211

<FN>

 (1) Shares listed as held at September 30, 1999 reflect the  two-for-one  stock
     split that occurred subsequent to September 30, 1999.

</FN>
</TABLE>

In addition to its public  equity  holdings,  as of September  30, 1999 Ventures
held warrants and other equity positions in approximately 360 companies that are
still private.

Expanding its funding sources

Historically,  Comdisco has funded Ventures' business with inter-division  loans
and retained earnings.  In order to continue to capitalize on increasing demand,
Comdisco  is  pursuing  alternative  means  of  funding  Ventures,   activities,
including,  but not limited to, the  establishment of a limited  partnership and
the  offering  of  partnership  interests  to a  limited  number  of  accredited
investors,   including   Comdisco.   The   limited   partnership,   or  possibly
partnerships,  could become a  significant  source of liquidity for Ventures for
fiscal 2000. In addition,  Ventures may use public  markets or any other funding
sources.

Capitalizing on the Comdisco affiliation

As a division of Comdisco, Ventures is able to bring a number of benefits to its
customers.   First,  as  a  result  of  Comdisco's  experience  in  leasing  and
remarketing  equipment and Comdisco's  equipment  purchasing power,  Ventures is
able to offer its customers an equipment  procurement  service  designed to save
them time, effort and money. Second,  because all of Comdisco's other businesses
are  technology  related and the bulk of its customers are  technology  related,
some natural business  relationships evolve with Comdisco,  as either vendor to,
or  customer  of, its  customers.  Comdisco  can supply  network  bandwidth  and
co-location space, serve as a beta test site, enter into marketing  arrangements
and supply business continuity services to its customers. Comdisco also provides
more traditional  leasing services to its customers once they develop beyond the
venture stage.

Competition

Ventures primary competitors include financial  institutions,  equipment lessors
and  manufacturers,  venture  capital  firms,  large  corporate  investors,  and
non-traditional  lenders that provide debt and/or equity  financing to emerging,
high technology  companies.  Ventures believes that it competes effectively with
these   competitors   based  on  creative  and  innovative   deal   structuring,
flexibility,  reputation,  quality of service, timely credit analysis and timely
decision-making.

                                      -15-
<PAGE>
Employees

As of September 30, 1999,  Ventures  employed 38 people on a full time basis. 10
personnel were involved in marketing and sales, 25 were in processing, servicing
and  administrative  support and 3 were  executive  employees.  No employees are
represented  by a labor union.  Ventures  believes that its future  success will
depend in part on its  continued  ability to attract,  hire and retain qualified
personnel.  Competition  for those  personnel  is intense,  and  Ventures may be
unable to identify, attract and retain those personnel in the future.

Legal Proceedings

Ventures is not currently a party to any material litigation.

Additional Information

FOR INFORMATIONAL  PURPOSES ONLY, Ventures financial  statements are attached to
this Form 10-K as  Exhibit  99.02.  These  statements  are not  incorporated  by
reference  in  this  or any  other  filing  with  the  Securities  and  Exchange
Commission.  THESE  STATEMENTS  SHOULD BE READ IN CONJUNCTION WITH THE COMDISCO,
INC. CONSOLIDATED  FINANCIAL STATEMENTS AND THIS INFORMATION IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.

                                      -16-
<PAGE>


Prism:

The following is a narrative description of the Prism business:

Overview

Prism intends to become a leading integrated  communications carrier by directly
offering  communications  services  that  enhance  productivity.  Its  array  of
services  will include  high-speed  data  connectivity,  local and long distance
voice, video  conferencing,  virtual private networks,  business  continuity and
teleworking solutions. Prism will provide these services over a facilities-based
network  consisting  of  splitterless,  integrated  data  and  voice  line  card
technology  from Nortel  Networks(TM)  ("Nortel")  and an optical  backbone that
enables the Company to efficiently transport voice and data traffic from network
edge to the Internet,  a LAN/WAN or other  destinations.  Prism intends to build
long-term relationships with target customers, which include small and mid-sized
businesses,  teleworkers  and residential  power users,  by initially  providing
affordable,  reliable data and voice services  supported by  integrated,  simple
billing and excellent  customer service.  Prism intends to build its brand, RED,
because the Company believes a  well-recognized  brand can reduce costs required
to acquire new customers,  lower customer  turnover and serve as a platform from
which to sell additional, complementary business and communications services. In
the future,  Prism plans to expand its  applications  offerings,  utilizing  its
customers'   high-speed  data   connectivity  to  offer  broadband  content  and
business-to-business  services. Over time, Prism believes such applications will
increase  in  importance  to its  customers  and  business  model.  Through  its
relationship   with  Comdisco,   Prism  plans  to  further  extend  its  service
distribution by utilizing Comdisco's strong customer  relationships among larger
corporations.

Prism launched its RED high-speed data connectivity services in February 1999 in
New  York  City.  Initially,   Prism  focused  on  the  greater  New  York  City
metropolitan  area because of its population  density,  robust telephone network
infrastructure,  and perceived high user demand.  Since February,  approximately
1,000 customers have been placed in service,  and Prism has expanded its service
territory  in  the  greater  New  York  City  market  from  six  to  thirty-nine
collocations  and points of presence.  These  points of presence  allow Prism to
provide  services  to  Manhattan,  Brooklyn,  Queens,  and areas of  Westchester
County,  Long Island and  Connecticut.  In addition,  Prism recently  opened the
northern New Jersey market and is providing  service out of ten  collocations in
the state. Based on the response to its service offering in the greater New York
City metropolitan  area, Prism has initiated a nationwide rollout of its network
and services to  thirty-three  of the largest  markets in the United States,  as
well as three markets in Canada.

Prism currently offers three high-speed data  connectivity  services that enable
customers to access the  Internet at speeds  ranging from 56 Kilobits per second
(Kbps) to 1.0 Megabits per second  (Mbps).  In the first quarter of 2000,  Prism
will upgrade its current high-speed data services to speeds of up to 1.3 Mbps in
the downstream  direction and 320 Kbps in the upstream  direction.  Beginning in
the second quarter of 2000, Prism plans to offer a burst, rate adaptive ethernet
technology that delivers  bandwidth of up to 6 Mbps in either  direction.  Prism
also  intends  to offer  services  at speeds  of up to 7 Mbps in the  downstream
direction,  and up to 2 Mbps in the upstream  direction.  These services will be
packaged in a combination  of symmetrical  and  asymmetrical  product  offerings
depending on customer requirements, distance between the premise and the traffic
aggregation  equipment,  and the  copper  binder  group  environment  that these
services will run through.

Based on its market  research,  Prism believes its primary target market,  small
and  medium  sized  businesses,  prefer to have  their  voice and data  services
provided by a single company. Prism is testing its voice services in the greater
New York City metropolitan  area and plans to commence a commercial  offering in
the first  quarter  of 2000.  Its voice  services  include  local and local toll
calling,  long  distance  calling,  and a  bundle  of four  features-  three-way
calling, call waiting, call forwarding and caller ID.

In  preparation  for its  national  expansion,  Prism has  aggressively  pursued
obtaining the necessary legal and regulatory  qualifications to offer integrated
voice and data services in its  thirty-three  target  markets.  Prism has signed
interconnection  agreements  with  Bell  Atlantic,   BellSouth,   Ameritech  and
Cincinnati  Bell covering  seventeen  states and obtained  Certificate of Public
Convenience and Necessity status in twenty-one  states.  As a result,  Prism has
                                      -17-
<PAGE>
obtained authority as a competitive local exchange carrier or has been permitted
to  operate  as a  competitive  local  exchange  carrier  in  twenty-six  of its
thirty-three  target markets.  Prism anticipates  obtaining the remainder of the
necessary  approvals and entering into the remaining  necessary  interconnection
agreements  by March  2000,  although  Prism is  dependent  on state  and  local
authorities,  as  well  as  incumbent  local  exchange  companies  to  meet  its
expectations.

In addition to its regulatory activities,  Prism has proceeded with establishing
a national  network.  Prism has  approximately  130  collocations  in its target
markets,  of  which  49  are  ready  to  receive  customers.  Prism  anticipates
approximately  350  more   collocations  by  March  2000,   bringing  its  total
collocations  to  approximately  480.  Further,   Prism  plans  to  bring  total
collocations to over 750 by the fourth quarter of 2000.

Prism has entered into an  agreement  with Nortel to purchase up to $460 million
of switches,  integrated line cards,  customer  premise  equipment and ancillary
technology  to  establish a  national,  facilities-based  network.  Based on its
financial  commitments to date, Prism will deploy the largest amount of Nortel's
digital modem  technology in the United States,  and because of the magnitude of
its relationship with Nortel,  Prism expects to further benefit from advances in
Nortel's future network technology, such as its optical Internet platform. Prism
believes its network  architecture,  centered on Nortel's  integrated  voice and
data approach, offers cost benefits and could reduce provisioning time lags. See
"Customer  Service--Hot  Cut  Provisioning"  As  part  of the  Nortel  strategic
relationship, Prism recently issued to Nortel $10 million of its common stock.

Because it is its aim to achieve  carrier class  reliability and security in its
network,  Prism  recently  entered  into an  agreement  to  purchase  a  20-year
indefeasible right to use ("IRU")  approximately  2,500 miles of dark fiber from
Williams  Communications,  Inc. ("Williams").  This purchase will allow Prism to
transport data and voice  traffic,  utilizing  dense wave division  multiplexing
("DWDM") and high speed SONET technology, over its own dedicated fibers covering
the Eastern half of the United  States for the  foreseeable  future.  Prism also
agreed to purchase a minimum of  approximately  $110 million of network capacity
from  Williams  over the next 20 years to convey voice and data traffic in areas
not covered by its dark fiber IRU purchase.  In return, Prism issued to Williams
$10 million of common stock and will pay for the remainder of its  obligation to
Williams with cash as capacity is used or as Prism accepts  segments of the dark
fiber IRU. With this transaction and the Nortel relationship,  Prism believes it
can achieve  carrier class network  reliability and  performance,  a world class
benchmark for all telecommunications companies.

Market Opportunity

Prism  believes that a substantial  market  opportunity  exists as a result of a
number of factors including:

o    the growing demand for and increased  adoption of high-speed  data networks
     in order to increase productivity in the workplace;

o    the need among small and mid-sized businesses for integrated communications
     solutions which include bundled services, competitive pricing and excellent
     customer service;

o    the inherent  limitations  of current data  network  connectivity  options,
     including dial-up modems; and

o    the  growing  willingness  of  consumers  and  businesses  to  switch  from
     traditional  telephone  companies to competitive  local  exchange  carriers
     ("CLECs") offering more options at competitive prices.

                                      -18-
<PAGE>
Additionally,   Prism   believes   current   research   supports  its  strategy.
International  Data Corporation  projects that the small business data and voice
markets  will grow  substantially  over the next  three  years,  as noted  below
(dollars in millions):

                                                             COMPOUND ANNUAL
                               1999             2002           GROWTH RATE
                               ----             ----           -----------

High speed lines             60,000        1,700,000              205%
High speed  revenue             $50           $1,690              222%
Voice lines              63,300,000       84,600,000               10%
Voice revenue               $58,123          $75,684                9%



Prism  believes its  strategy and network  positions it to gain a portion of the
rapidly growing data market while also participating in the multi-billion  local
and long distance voice markets.

NEEDS OF SMALL AND MID-SIZED  BUSINESSES  FOR INTEGRATED  COMMUNICATIONS.  Prism
expects that a significant  portion of the growth in data communications will be
generated by small and mid-sized businesses with up to 500 employees. Within the
business market, the small and medium business segment is perceived by many data
communications  providers  as the largest  untapped  market for their  services.
Industry sources estimate that there are over 10 million  businesses in the U.S.
with between 1 and 500  employees.  Following the high  penetration  of personal
computers (98% or more have a personal  computer),  the perceived  importance of
the Internet in future business activity and the limited financial  resources of
many of these  businesses,  it has  become  increasingly  important  to  develop
technologies  to connect these personal  computers  cost-effectively.  DSL-based
technologies have emerged as the high-speed,  cost-effective  solution for these
customers.

GROWING  DEMAND FOR  HIGH-SPEED  DATA  COMMUNICATION  SERVICES.  Businesses  are
implementing  internal  networks using Internet  technology,  or intranets,  and
remote local area networks to enable employees to work from remote locations and
home, and to create private networks that connect corporate networks in multiple
locations.  Gartner  Group  estimates  that the U.S.  market  for  packet-based,
virtual  private  network and Internet data services will grow from $3.4 billion
in 1997 to $18.5  billion in 2002,  a  compounded  annual  growth rate of 40.3%.
Gartner also indicates that business demand for Internet access,  e-mail,  video
and audio services, Web hosting and electronic commerce is increasing.

High-speed data  communications  have become important to businesses in part due
to the dramatic  increase in Internet  usage.  According to  International  Data
Corporation,  the number of Internet users worldwide  reached  approximately  69
million in 1997 and is forecasted to grow to approximately  320 million by 2002.
International  Data  Corporation  also  estimates  that the  value of goods  and
services sold  worldwide  through the Internet will increase from $12 billion in
1997  to  over  $400  billion  in  2002.  To  remain   competitive,   businesses
increasingly need high-speed  connections to maintain complex Web sites,  access
critical  business  information and communicate more efficiently with employees,
customers and business partners.

NEEDS OF HOME OFFICE AND TELEWORKERS.  Prism expects that people using computers
from their homes to connect to corporate networks or to the Internet for in-home
business  purposes  will also be a significant  source of demand for  high-speed
data connectivity.  According to International  Data Corporation,  there were 26
million  residences  with  computers  in their home offices in the U.S. in 1998,
growing to an  estimated  39.2  million by 2002.  A  significant  number of home
office and teleworkers need access to corporate networks and/or the Internet for
a variety of applications,  including e-mail, databases and corporate intranets.
According to The Yankee Group, the market for remote access services is expected
to grow from $460 million in 1998 to $2 billion by 2002.

LIMITATIONS  OF DIAL-UP  MODEMS AND ISDN.  Neither the slow  dial-up  modems and
integrated services digital network ("ISDN") service nor the expensive T1 option
is an adequate  solution for most small- and mid-sized  businesses,  home office
and teleworkers.  The lack of optimal price-performance solutions has left these
end users underserved.

                                      -19-
<PAGE>
Traditionally,  small and mid-sized businesses, home office and teleworkers have
relied on  low-speed  connectivity  options  for data  transport.  For  example,
according to IDC,  approximately  78% of Internet access  revenues  derived from
small- and mid-sized  businesses in 1997 were generated  through the traditional
telephone  system,  using relatively slow 28.8 Kbps to 56 Kbps dial-up modems or
ISDN lines. For higher speed  connections,  these end users have had to purchase
T1 service,  a digital  transmission  link which  operates at (1.544  Mbps) and,
while always on, is expensive for these markets (typically up to $1000 per month
depending upon distance and region).

EMERGENCE OF BROADBAND AND PACKET-BASED TECHNOLOGIES.  The full potential of the
Internet and remote local area network  applications  cannot be realized without
removing the performance bottlenecks of the local telephone networks.  Broadband
technology  removes this performance  bottleneck by increasing the data carrying
capacity of copper telephone lines from the 56 kbps speeds available with common
dial-up  modems  and 128  kbps  speeds  available  on  ISDN.  Because  broadband
technology  reuses existing copper telephone lines,  broadband  requires a lower
initial fixed investment than that needed for existing alternative technologies,
such as cable modems, fiber,  wireless,  and satellite  communications  systems.
Subsequent  investments  in broadband  technology  are  directly  related to the
number of paying customers.

For companies such as Prism to provide  broadband  services,  they must become a
CLEC to gain  access  to the  traditional  telephone  company's  or  incumbent's
central office which is granted only to CLECs.  Over the last two years, the FCC
has taken a series of steps to make it easier for  competitors to gain access to
the central office. One recent move requires the traditional telephone companies
to offer "cageless" collocation,  thereby eliminating the need for CLECs to rent
a cage of  predetermined  size and a fixed number of racks in a central  office.
This order should permit CLECs to extend the reach of their  broadband  networks
more easily and inexpensively. The process of ordering space in a central office
and then ordering lines can take up to six months,  requiring  advance planning.
The state regulatory  commissions are also undertaking  initiatives  intended to
improve  the  ability of  competitive  carriers  offering  advanced  services to
compete in the marketplace.  For example, the New York Public Service Commission
recently  held a  series  of  collaboratives  and  working  groups  between  the
competitive data carriers and Bell Atlantic to develop  processes to address the
ordering,  provisioning  and  maintenance  issues  unique to  advanced  services
offerings.

WILLINGNESS OF CONSUMERS AND BUSINESSES TO SWITCH  TELECOMMUNICATION  PROVIDERS.
The Yankee  Group  estimates  that from 1984 to 1999,  AT&T's  share of the long
distance  voice market  declined  from 68% to 39%.  Further,  since 1993,  CLECs
offering local voice  services have also been  successful in taking market share
from incumbent local exchange  carriers  ("ILECs").  The Federal  Communications
Commission  ("FCC")  reports  that CLECs have grown from 0.2% of the local voice
market to 2.4% today.  Consumer and business experience with choice in the local
and long distance  voice market  enhances  CLEC  prospects to garner more market
share in the future.

The RED Solution

PRISM DATA SERVICES. In February 1999, Prism began commercially offering its RED
services.  RED  uses a  variety  of  DSL  technologies  to  provide  high  speed
continuously  connected packet- based and channelized  communications  services.
RED currently connects business users to the Internet,  And in the future,  will
connect customers to LAN/WANS and extranets,  using broadband  technologies over
traditional  copper telephone lines. As Prism completes its national  expansion,
RED customers  will be able to connect to its regional  network  either within a
city or between cities, to obtain high capacity, secure and reliable connections
between geographically  dispersed locations.  Prism plans to deliver a true wide
area, virtual private network with the capacity, speed, reliability and level of
service that its customers require.
                                      -20-
<PAGE>
Prism offers three high-speed data services  designed to answer the needs of its
various target market segments:

o    RED HomeWork and RED PowerWork are applicable primarily for single users in
     residential  or small office  settings  requiring a dedicated,  "always-on"
     connection  to the  Internet  and,  in the  future,  a  LAN/WAN,  or  other
     destinations.

o    RED NetWork  serves the small to  medium-sized  business  with capacity for
     multiple  users.  Prism includes a router and multiple e-mail accounts with
     each NetWork  package,  and customers  have the option to support their own
     Web and e-mail servers behind the router.

The chart below shows the service, speed, retail price (which includes equipment
installed  at the  customer's  location),  range  and  performance  of  its  RED
services, as of December, 1999:
<TABLE>
<CAPTION>

                                                                    RETAIL LIST
                           SPEED    TO  SPEED       RETAIL LIST     PRICE             RANGE FROM
                           END          FROM END    PRICE FOR       FOR  MONTHLY      CENTRAL
SERVICE                    USER         USER        ACTIVATION      SERVICE           OFFICE (FEET)  MARKET/USAGE
-------------------------- ------------ ----------- --------------- ----------------- -------------- -------------------
<S>                        <C>          <C>         <C>            <C>                <C>            <C>

RED HOMEWORKSM             960 Kbps     120 Kbps     $299            $80               18,000         SOHO, Teleworker
RED POWERWORKSM            960 Mbps     120 Kbps     $299            $150              18,000         Small Business
RED NETWORKSM              960 Mbps     320 Kbps     $399            $300-$350         18,000         Small to Medium
                                                                                                      Business
</TABLE>

In addition to the  services  noted above,  Prism is  developing a new family of
higher-speed  data and voice  products,  some of which  Prism is  testing in the
greater New York City metropolitan  area. These products fall into the following
categories:

o    Burst,  rate adaptive ethernet  technology that delivers  bandwidth up to 6
     Mbps in either  direction  over copper loops.  This solution uses Etherloop
     technology  from  Elastic  Networks,  an  independent  unit of Nortel,  and
     allocates bandwidth dynamically based on changing  transmission  conditions
     and crosstalk environment detected within a copper binder group.

o    Higher-speed  broadband  services at speeds up to 7 Mbps in the  downstream
     direction, and up to 2 Mbps in the upstream directions. These services will
     be  packaged in a  combination  of  symmetrical  and  asymmetrical  product
     offerings depending on customer requirements,  distance between the premise
     and the  location of the  broadband  aggregation  equipment  and the copper
     binder group environment that these services will run through.

Prism  plans to  bundle  together  and  differentiate  these  services  based on
customers'  preferences  for  transmission  speeds,  security and flexibility to
choose  transmission  paths.  Prism anticipates  offering some of these services
beginning in the second quarter of 2000.

Prism also offers standard 56k and ISDN dial-up  services to those customers who
are  not  located  in a  high-speed  service  area  or who do not  wish  to take
high-speed service. Prism prices such services as $8.00 and $19.95 per month for
unlimited use,  respectively.  Prism plans to solicit this base of approximately
3,000 customers for upgrades to its high-speed  access services,  as well as for
voice services.

PRISM VOICE  SERVICES.  Prism  plans to offer voice  services in the greater New
York City  metropolitan  area in the first quarter of 2000 and expects to make a
similar offering in every market entered. Prism voice services include local and
local  toll  calling,  long  distance  calling,  and a bundle of four  features-
three-way calling,  call waiting, call forwarding and caller ID. In addition, as
a standard voice carrier,  Prism is required to provide emergency (911) services
and  directory  and  operator  assistance.  To be  consistent  with  its goal of
offering its customers  simple,  integrated  billing,  Prism plans to offer such
services for a flat monthly charge,  plus flat rate per minute charges for local
toll and long distance services.

                                      -21-
<PAGE>
Prism  prices for voice  services  will vary from market to market  depending on
local competitive conditions and regulatory considerations.  Further, the prices
listed above may change over time.

ADDITIONAL  PRISM SERVICES.  Prism either offers or is planning to offer several
services  to RED  customers  by the first  quarter of calendar  2000,  including
domain name hosting, on-line data back-up and web hosting, as described below:

o    Domain name hosting- RED  customers can switch from their current  Internet
     service  providers  to its services  without  having to change their e-mail
     addresses.  Prism offers  three types of domain name  hosting  based on the
     size of the customer and whether they have their own mail servers.

o    On-line data back-up- Prism plans to offer automatic data backup service to
     RED customers  together with its  high-speed  data  services.  This service
     stores  redundant  copies of files from  customer  desktops  and servers as
     often as requested by the customer, protecting customers against unexpected
     loss of critical data.

o    Web hosting- Prism intends to host Web addresses for both  residential  and
     small and medium sized business Web sites.  Prism basic Web hosting service
     includes 10 Mbps of web space, one e-mail  address and online  tutorial and
     support. Heavy-user business Web site hosting will include 25 to 50 Mbps of
     Web space,  eight e-mail  accounts and security  features to ensure  secure
     communications between a server and Web browser.

Later in calendar year 2000,  Prism plans to introduce  virtual  private network
capability and broadband content such as media and entertainment  presentations.
Over  the  next  several  years,   Prism  believes  that   enhancements  to  the
applications  described above,  together with new  applications,  will be key to
retaining  existing  customers,  attracting new ones,  and offsetting  potential
revenue declines from competition in high speed data and voice services.

The Prism Strategy

Prism intends to become a leading integrated  communications carrier by directly
offering  customers,  namely small and  mid-sized  businesses,  teleworkers  and
residential  power users,  communications  services  that enhance  productivity.
Prism's array of services will include high-speed  connectivity,  local and long
distance voice,  video  conferencing and secure  applications  such as automatic
data  storage  and  recovery  and  teleworking   solutions  currently  utilizing
broadband  technology.  Prism  believes  there  are five key  components  of its
strategy that will enable us to achieve its objective:

o    Build a national,  facilities-based  network to offer  integrated  data and
     voice  services to the largest and most densely  populated  markets.
o    Pursue multiple marketing  channels  supported by brand advertising.
o    Focus on building  customer  relationships.
o    Develop  applications  that benefit  from  high-speed  connectivity.
o    Leverage  the key benefits of its  strategic  relationship  with  Comdisco.


Customers, Sales And Marketing

CUSTOMERS.   Prism  offers  its  services  to  small-to  mid-sized   businesses,
teleworkers  and  residential  power  users.  Currently,  more  than half of its
customers are small and medium sized  businesses.  The average recurring monthly
revenue per customer is slightly in excess of $160.

                                      -22-
<PAGE>
PRISM  MARKETS  SERVICES  THROUGH  PRINT  AND  BROADCAST  ADVERTISING,  OUTBOUND
TELEMARKETING,  direct sales force, indirect value - added resale agreements and
through its relationship with Comdisco.

ADVERTISING.  Prism has  established a strong brand  identity in the greater New
York City metropolitan  area through its advertising on television,  billboards,
and in newspapers,  as well as by selectively  sponsoring  public  relations and
other  events.  Prism  intends  to  accompany  the  launch of its voice and data
services in other markets with similar advertising efforts as appropriate.

DIRECT  SALES.  Prism  markets  its  services  in  the  greater  New  York  City
metropolitan  area  through  a direct  sales  force  of 20  people.  Prism  also
generates   lead   referrals  for  its  direct  sales  force  through   in-house
telemarketing  efforts.  Prism  intends  to  increase  the size of its sales and
technical  support force to sell and support these services as Prism expands its
business.  Prism plans to have up to 20  salespersons  in each of its designated
market areas  depending upon market size.  Prism's  direct sales  process,  from
initial  solicitation to  installation,  generally ranges from 30 to 60 days for
small and medium  businesses and individuals,  while sales to larger  businesses
with more complex  communications  requirements may require more time to develop
customized solutions. The large business sales process may take up to six months
and may involve:

o         coordination with other Comdisco-offered services;
o         a significant technical evaluation;
o         an initial trial roll-out of its services; and
o         a commitment of capital and other resources by the customer.

INDIRECT SALES CHANNELS.  Prism also markets  services,  under the RED brand, to
small and medium businesses  through indirect channels,  value-added  resellers,
and integrators. RED is available in New York City from select high-end computer
retail  outlets,   including  DataVision  and  J&R  Computer,   as  well  as  67
valued-added  resellers.  Prism intends to pursue indirect sales channels in its
other markets as it expands.

WEB SITE SALES.  Prism  recently  upgraded  its Web site to enable  customers to
order  dial-up and  high-speed  data  services  electronically.  This  automated
process  generates a completed  customer  contract  and  authorizes  and charges
credit cards for payment. All 56k and ISDN dial-up orders are routed through its
Web site,  reducing its costs of processing  and billing these lower price point
customers.

FUTURE INTEGRATED  COMMUNICATIONS  SERVICES  DEVELOPMENT.  Prism believes it can
develop a significant  competitive  advantage by bundling core service offerings
(high-speed data connectivity and voice service) with other applications,  tools
and content that have been tailored to meet the specific  needs of an individual
or a business. These bundled communications packages will be comprised of a full
suite of complementary  services including voice, data  connectivity,  broadband
applications,  software, content, as well as appropriate equipment and corporate
incentives  for those  businesses  with needs across  multiple  locations.  This
integral  solution  will  capitalize  on  favorable   partnership   arrangements
including its unique  relationship with Comdisco.  For example, a medical office
that needs imaging  equipment in addition to the  appropriate  imaging  software
will be  able to  realize  significant  savings  through  favorable  leasing  of
equipment through Comdisco's Lab/Scientific division.

Prism has designed the flexibility into its network to support this evolutionary
strategy  and Prism  believes it will enable us to fully  support its promise to
deliver a bundled service and billing  solution to its customers.  Additionally,
these  services  will  be  made  available  to  customers  in an  online  retail
environment via the Web. A vertically- and geographically-driven  user interface
will enable  prospective  customers to select (or Prism to  recommend)  services
packages that are  commensurate  with their needs.  Prism's  marketing  approach
within  this  environment  will  allow  us to  offer  real-time  promotions  and
incentives  e.g.,  vertical  market or corporate group  discounts.  In this way,
Prism  believes  it will  be  able to  differentiate  Prism  from  others  whose
offerings  and  network  capacities  have  not been  designed  to  support  this
integrated strategy.

                                      -23-
<PAGE>
Customer Service

Prism  offers   customers  a  single   point  of  contact  for   implementation,
maintenance,  and billing.  Prism's network  operations  center in New York City
provides both proactive and customer initiated  maintenance  services 24 hours a
day, seven days a week.

Prism's comprehensive solution includes:

o         Customer line installation.
o         "Hot Cut" provisioning.
o         End user premises wiring and modem configuration.
o         Network monitoring.
o         Customer reporting and billing.
o         Customer service and technical support.
o         Operating support systems.

Prism believes that "Hot Cut"  provisioning will enable Prism to provision voice
and data  customers  faster than other  companies that are required to provide a
new copper  telephone line as part of the service.  Hot Cut Provision avoids the
customer  line  installation  process by simply  re-terminating  the  customer's
existing  local loop from the ILEC switch to Prism's  switch  within the central
office collocation space.

Network Architecture

OVERVIEW. Prism intends to deploy a national, facilities-based network utilizing
Nortel's  high-speed  digital modem technology.  Prism believes this technology,
combined with its network architecture, will yield cost savings in three areas:

o    INITIAL CAPITAL COST OF EQUIPMENT-  Because its network will transport both
     data  and  voice,  Prism  believes  its  initial  investment  in  switching
     equipment is lower than if Prism  attempted to build a voice network first,
     and then overlaid additional data switching capabilities. Prism believes it
     is one of the first  companies,  if not the first, to initiate the building
     of a network in this fashion.

     While  Prism  believes  its costs may be lower due to its  network  design,
     Prism  also  is  planning  for  service  flexibility.  Prism  believes  the
     broadband  services  market is still in its  infancy,  and  technology  and
     products  are  evolving  rapidly.  Prism  plans to deploy  ITU-standardized
     G992.2  G.Lite  splitterless  modems  if and when this  technology  becomes
     ubiquitous in the  marketplace.  To hedge against this possible  technology
     discontinuity, Prism is deploying multiple services access shelf technology
     from  Nortel  that will  support  its  current  services as well as G.Lite,
     full-rate ADSL, and SDSL access  applications for both voice and high-speed
     data.  Furthermore,  this  multiple  services  access shelf  technology  in
     collocations  permits us to offer a suite of services  from the same access
     platform,  reducing overall network  provisioning  and operations  costs. A
     multiple  services  platform allows us to invest in one network  management
     and operations support system infrastructure,  instead of seeking solutions
     with multiple access platforms and backend network products.

o    PROVISIONING  AND  INSTALLATION-  A 1998 Bellcore  white paper compared the
     provisioning  and  operating  costs of a digital  subscriber  line   access
     multiplexer  ("DSLAM") network to an integrated line card network (like the
     one Prism is  deploying)  and found that the  integrated  line card network
     resulted in operations cost savings. These savings result primarily from an
     ability to offer both data and voice transport over the same copper circuit
     between the customer and its remote node, thereby  potentially  eliminating
     the  need  for  an  installation   visit  by  ILEC   technicians  or  Prism

                                      -24-
<PAGE>
     installation  technicians.  Further,  Nortel's digital modem and integrated
     line  card  technology  has been  approved  by the  Federal  Communications
     Commission ("FCC") and is the only high speed data technology that has been
     specifically  authorized by the FCC to operate on regular  telephone loops,
     rather than qualified data loops. By purchasing non-qualified POTS loops to
     offer its services  using Nortel's  technology,  Prism is able to avoid the
     nonrecurring charges associated with the DSL qualified loops offered by the
     incumbent carriers.

o    NETWORK  FACILITIES-  By  utilizing   asynchronous  transfer  mode  ("ATM")
     technology,  Prism has the ability to transport  both data and voice over a
     single network,  thereby more efficiently using facilities that connect its
     network elements.  Prism plans to use a combination of ILEC and competitive
     access providers for intra-city facilities, and both dark fiber and network
     capacity  provided  through  the  agreement  with  Williams  (see  "Optical
     Backbone" below) for longer distances.

Prism is constructing a voice network using Nortel DMS-500, Access Node Express,
RSC, and multiple services access shelf technology using the Universal Edge 9000
and  Succession   9000  products.   Prism  is  building  its  voice  network  to
carrier-grade  voice  standards  found  in many of  today's  copper-based  voice
networks. Prism believes its carrier-grade standard will enable Prism to provide
high network  reliability  and  consistent  data bandwidth  availability  to its
customers.

Prism's network is designed to be highly secure between the subscriber's premise
and the integrated line card located in its collocation. Prism broadband service
gateway  technology  is based on a powerful  IP  Services  platform  that offers
firewall and IP address  anti-spoofing  capabilities for public  high-speed data
access  networks.  Prism  security  solution  means that data and voice  traffic
cannot be  viewed by others  until it  reaches  a  provider  network,  such as a
corporate network, or the Internet,  and upon reaching its destination,  traffic
is shared as directed by the  customer and subject to rules  established  by the
customer.  In the future, Prism plans to provide virtual private network ("VPN")
services to its customers  that will offer  equivalent  or enhanced  security to
today's frame relay or ATM managed network  offerings.  For RED HomeWork and RED
PowerWork subscribers, Prism will also optionally configure and package personal
firewall   software  to  provide   additional   protection  from  accidental  or
intentional  attacks to the subscriber's  personal  computer from other Internet
users.

COMPONENTS.   Prism  components  are  integrated  into  networks  across  local,
metropolitan and wide areas that combine speed and balanced capacity in a manner
designed to deliver a high performance networking experience for its customers.

o    CUSTOMER EQUIPMENT.  Prism leases to the customer a Nortel digital modem as
     part of its complete service offering, the cost of which is included in the
     list price of the service.  Prism configures and installs these modems with
     the end user's  computer  AND  NETWORK  EQUIPMENT  ALONG WITH ANY  REQUIRED
     ON-site  wiring needed to connect the modem and the telephone  line.  Under
     FCC  policies,  a customer  also is free to obtain  compatible  modems from
     sources  other than us.  For  customers  with  multiple  users,  Prism also
     provides routers that efficiently  route data traffic over a single digital
     modem and copper circuit.

o    COPPER  TELEPHONE  LINES.  Prism leases copper  telephone  lines,  known as
     unbundled  network  elements,  or local  loops,  which run from its network
     access  points in central  offices or other remote node  locations,  to the
     customer location under terms specified in  telecommunications  regulations
     and its  interconnection  agreements.  Prism works closely with traditional
     telephone companies to define specifications that ensure the quality of the
     copper  telephone lines Prism receives,  thereby  ensuring the transmission
     speed of end user connections.

o    CENTRAL OFFICE COLLOCATION SPACES AND OTHER REMOTE NODE LOCATIONS.  Through
     FCC  and  state  telecommunications  regulatory  policies  as  well  as its
     interconnection  agreements with  traditional  telephone  companies,  Prism
     secures collocation space in central offices from which it desires to offer
     services.  These  collocation  spaces are  designed  to offer the same high
     reliability and availability  standards as traditional  telephone company's
     other central office space. In approximately 85% of its collocation spaces,

                                      -25-
<PAGE>
     Prism has  installed  or plans to install its own switch in a secure  cage,
     accessible only by its switch operations technicians. In the limited number
     of cases  where  Prism has been unable to obtain  physical  space  within a
     desired  central office,  Prism has obtained SCOPE or cageless  collocation
     rights. With SCOPE collocation,  Prism installs and maintains its equipment
     in the traditional  telephone company's central offices,  but its access to
     the space is  non-exclusive.  Pursuant to a recent order by the FCC,  Prism
     expects in the future to be entitled  to  additional  collocation  options,
     including  adjacent  collocation.  Typical equipment in a collocation space
     includes a Nortel remote  switching  device,  such as an access node,  with
     integrated line cards used to process both data and voice traffic.

o    HOST SITES. A host site is a physical  location where Prism connects all of
     its  remote  nodes and  aggregate  voice and data  traffic  in one city for
     transport to other cities, the Internet,  LAN's/WAN's and other networks. A
     typical Prism host site  includes a Nortel  switch,  such as a DMS-500,  as
     well as additional equipment used to efficiently switch and route voice and
     data traffic. Prism currently has a host site in New York City, has secured
     leases  for an  additional  26  sites,  and is  currently  installing  host
     switches in eight of such sites.

o    OPTICAL BACKBONE.  In the Eastern half of the United States, Prism plans to
     connect  hub sites to  regional  hubs using a  dedicated  backbone of fiber
     Prism  obtained in its  agreement  with  Williams.  Prism plans to purchase
     Nortel optical  Internet  equipment to enable us to  efficiently  transport
     data and voice traffic over this  dedicated  fiber.  In other areas,  Prism
     intends to lease  network  capacity  from  Williams and other  providers as
     needs dictate.  In those areas where Prism does not have  dedicated  fiber,
     Prism will  establish data hubs in regional  offices  throughout the United
     States as traffic requires.

o    NETWORK  OPERATIONS  CENTER.  Prism  manages its  network  from its network
     operations  center  located in New York  City.  Prism  provides  end-to-end
     network management to its customers using advanced network management tools
     on a 24-hour-a-day,  seven-day-a-week  basis.  This enhances its ability to
     address  performance or connectivity issues before they affect the end user
     experience.  From its  network  operations  center,  Prism can  monitor its
     network,  including  the equipment  and circuits in its  metropolitan  area
     networks  and  central  offices,  and its  customers'  networks,  including
     individual end user lines and DSL modems.

o    NORTEL NETWORKS  MONITORING  CENTER.  Through its relationship with Nortel,
     Prism also has the  monitoring  and diagnosis  capabilities  of its network
     management center (NMC).  This facility  provides network  surveillance and
     analysis to remotely  address  trouble  reports and establish  preventative
     maintenance  in advance of problems.  In  addition,  Nortel  personnel  are
     available for dispatch to assist us in the field.

Competition

Prism  believes  that  its  most  direct   competition   for   high-speed   data
communications services will come from traditional telephone companies and other
major DSL  providers  operating  in its  target  markets.  However,  Prism  also
anticipates competition from service providers using other technologies.

TRADITIONAL TELEPHONE COMPANIES.  Traditional telephone companies present in its
target markets are conducting  technical  and/or market trials or have commenced
commercial  deployment  of  DSL-based  services.   Prism  recognizes  that  each
traditional  telephone company has the potential to quickly overcome many of the
obstacles that Prism believes have delayed widespread deployment of DSL services
by  traditional  telephone  companies in the past..  The  traditional  telephone
companies have an established  brand name, a large number of existing  customers
and a reputation  for high  quality in their  service  areas.  They also possess
sufficient capital to deploy DSL equipment rapidly,  have their own copper lines
and can bundle digital data services with their  existing  analog voice services
to achieve  economies  of scale in serving  customers.  In the absence of strong
oversight  by the  FCC  and  state  telecommunications  regulators,  traditional
telephone  companies  also have an economic  incentive to benefit  their own DSL
retail  operations  by providing  themselves  with the copper  telephone  lines,
collocation,  support  services and other  essential DSL service  inputs on more

                                      -26-
<PAGE>
favorable  terms  than they  provide  these  facilities  and  services  to their
broadband competitors, ;like Prism. These factors give the traditional telephone
companies a potential  competitive  advantage compared with Prism.  Accordingly,
Prism may be unable to compete  successfully  against Bell Atlantic or the other
traditional  telephone companies,  and any failure to do so would materially and
adversely affect its business, operating results and financial condition.

MAJOR DSL  PROVIDERS.  Other  competitive  telecommunications  companies plan to
offer or have begun offering  DSL-based access services in its targeted markets,
and  others are likely to do so in the  future.  Competitive  telecommunications
companies  that  provide DSL service  include  Covad  Communication  Group Inc.,
Rhythms  NetConnections Inc.,  NorthPoint  Communications Group Inc. and Network
Access  Solutions  Corp.,  but  currently,  Prism  believes such  companies only
provide data services.

OTHER SERVICE  PROVIDERS.  Many of its  competitors  are  offering,  or may soon
offer,  technologies  and  services  that will  compete  with some or all of its
broadband service offerings.  These technologies include T1, integrated services
digital network, satellite, cable modems and analog modems and could be provided
by:

o         Cable Modem Service Providers
o         Traditional Long Distance Carriers
o         Interexchange Carriers
o         Internet Service Providers
o         Wireless and Satellite Data Service Providers

VOICE SERVICES.  In each designated  market area in which Prism introduces voice
services, it will face, and expect to continue to face, significant  competition
from the traditional  telephone companies,  which currently dominate their local
telecommunications  markets.  Prism  competes  with  the  traditional  telephone
companies  for  local  exchange  services  on the  basis of  product  offerings,
reliability,  state-of-the-art  technology,  price,  route  diversity,  ease  of
ordering and customer service. However, the traditional telephone companies have
long-standing  relationships  with their  customers and provide those  customers
with various transmission and switching services that Prism, in many cases, does
not  currently  offer.  Prism has sought,  and will continue to seek, to achieve
parity  with the  traditional  telephone  companies  in order to become  able to
provide a full range of local telecommunications  services. Existing competition
for private  line and special  access  services is based  primarily  on quality,
capacity and reliability of network  facilities,  customer service,  response to
customer needs,  service features and price, and is not based on any proprietary
technology.

Prism will also face competition  from other potential  competitors with respect
to its local and long distance voice  services.  In addition to the  traditional
telephone  companies and competitive  access  providers,  potential  competitors
capable of offering  switched  local and long  distance  services  include  long
distance carriers such as AT&T Corp., MCI WorldCom and Sprint Corporation, cable
television companies,  such as  Tele-Communications,  Inc. and Time Warner Inc.,
electric utilities,  microwave carriers, wireless telephone system operators and
private networks built by large end-users.

Prism believes that the 1996 Telecom Act as well as a recent series of completed
and proposed  transactions  between  traditional  telephone  companies  and long
distance  companies and cable companies increase the likelihood that barriers to
local  exchange  competition  will be removed.  The 1996 Telecom Act states that
regional  Bell  operating   companies  must  meet  certain   requirements   that
essentially  lower  barriers to entry to  competitive  carriers  before they are
permitted to provide in-region,  interLATA services.  When traditional telephone
companies that are regional Bell operating company subsidiaries are permitted to
provide  those  services,  they will be in a  position  to offer  single  source
service.  Traditional  telephone  companies that are not regional Bell operating
company subsidiaries may offer single source service presently.

                                      -27-
<PAGE>
In some cases,  cable  television  companies are upgrading  their  networks with
fiber optics and installing facilities to provide fully interactive transmission
of broadband voice, video and data communications.  In addition,  under the 1996
Telecom Act, electric utilities may install fiber optic telecommunications cable
and  may  facilitate  provision  of  telecommunications   services  by  electric
utilities over those networks if granted regulatory authority to do so. Cellular
and PCS providers may also be a source of competitive local telephone service.

A  continuing   trend  toward  business   combinations   and  alliances  in  the
telecommunications industry may create significant new competitors. In addition,
many of its existing and potential  competitors  have  financial,  personnel and
other resources, including name recognition, significantly greater than Prisms'.

Prism  also  competes  with long  distance  carriers  in the  provision  of long
distance services. Although the long distance market is dominated by three major
competitors,  AT&T,  MCI WorldCom and Sprint,  hundreds of other  companies also
compete in the long distance marketplace.

Relationship with Traditional Telephone Companies

Prism's  relationships with traditional  telephone companies are critical to its
business.  Prism depends on  traditional  telephone  companies  for  collocation
facilities, copper telephone lines, support services and some of the fiber optic
transport that Prism uses for its network.  Prism's  interconnection  agreements
with each of the traditional telephone companies in its market areas govern much
of this critical relationship.  Prism has signed interconnection agreements with
Bell  Atlantic  in New  York,  New  Jersey,  Pennsylvania,  Maryland,  Virginia,
Connecticut,  Delaware,  Massachusetts  and Washington  D.C.,  with Ameritech in
Illinois,  Ohio,  Indiana,  Michigan and Wisconsin  and with  BellSouth in North
Carolina, Florida, Georgia and Kentucky and with Cincinnati Bell for the greater
Cincinnati area.

These interconnection agreements all have terms which expire within the next two
years,  subject to certain regulatory  mandated  extensions.  Thus, Prism may be
required to renegotiate its agreements in the future.  Although Prism expects to
renew its interconnection  agreements,  there can be no assurance that Prism can
extend or renegotiate agreements on favorable terms.

Additionally,  the FCC, state telecommunications  regulators and the courts have
authority to interpret its interconnection agreements and to resolve disputes in
the event of a disagreement between a contracting  traditional telephone company
and Prism.  There can be no assurance  that these bodies will not  interpret the
terms or prices of its  interconnection  agreements in ways that could adversely
affect its business, operating results and financial condition.

In order to expand into other regions, Prism is also negotiating interconnection
agreements  with the other  incumbent  LECs,  including U S WEST, SBC (including
Southwestern Bell and PacBell) and GTE.

Government Regulation

The  facilities  and  services  that Prism  obtains from  traditional  telephone
companies in order to provide its services are regulated  extensively by the FCC
and state  telecommunications  regulatory agencies.  To a lesser extent, the FCC
and state telecommunications  regulators exercise direct regulatory control over
the terms under which Prism provides services to the public. Municipalities also
regulate limited aspects of the  telecommunications  business by imposing zoning
requirements,   permit  or   right-of-way   procedures  or  fees,   among  other
regulations.  The FCC and state regulatory agencies generally have the authority
to  condition,  modify,  cancel,  terminate or revoke  operating  authority  for
failure to comply with applicable laws, or rules, regulations or policies. Fines
or other penalties also may be imposed for these violations. Prism cannot assure
you that  regulators  or third  parties  would not raise  issues  regarding  its
compliance  or  non-compliance  with  applicable  laws  and  regulations.  Prism
believes that it operates its business in compliance  with  applicable  laws and
regulations  of the various  jurisdictions  in which  Prism  operate and that it
possesses the approvals necessary to conduct its current operations.

                                      -28-
<PAGE>
Employees

As of December 1999 Prism had approximately  285 employees.  Prism believes that
its future success will depend in part on its continued ability to attract, hire
and retain qualified personnel.  Competition for those personnel is intense, and
Prism may be unable to  identify,  attract  and retain  those  personnel  in the
future.  None of its  employees  are  represented  by a labor  union  or are the
subject of a collective bargaining agreement. Prism has never experienced a work
stoppage and believes that its employee relations are good.

Legal Proceedings

Prism is not currently  involved in any legal  proceedings  that Prism  believes
could  have a  material  adverse  effect on its  business,  financial  position,
results  of  operations  or cash  flows.  Prism is,  however,  subject  to state
telecommunications  regulators,  FCC and court  decisions  as they relate to the
interpretation  and  implementation  of  the  1996  Telecomm  Act,  the  Federal
Communications  Act  of  1934,  as  amended,  various  state  telecommunications
statutes and regulations,  the interpretation of competitive  telecommunications
company   interconnection   agreements  in  general,   and  its  interconnection
agreements in particular.  In some cases, Prism may be deemed to be bound by the
results of ongoing  proceedings  of these bodies or the legal  outcomes of other
contested  interconnection  agreements that are similar to its  agreements.  The
results of any of these  proceedings could have a material adverse affect on its
business, operating results, and financial condition.

Additional Information

FOR INFORMATIONAL PURPOSES ONLY, Prism financial statements are attached to this
Form 10-K as Exhibit 99.03.  These  statements are not incorporated by reference
in this or any other filing with the Securities and Exchange  Commission.  THESE
STATEMENTS  SHOULD BE READ IN CONJUNCTION WITH THE COMDISCO,  INC.  CONSOLIDATED
FINANCIAL  STATEMENTS  AND THIS  INFORMATION  IS  QUALIFIED  IN ITS  ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.

D.  FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES

See Note 16 of Notes to Consolidated  Financial Statements for information about
foreign and domestic operations.


<PAGE>
SIGNATURES

Pursuant to the  requirements  of Section 13 or 15(d) of the  Securities  Act of
1934,  the  Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

                                                       COMDISCO, INC.

DATE: February 10, 2000                               BY:   /S/ DAVID J. KEENAN
                                                       -------------------------
                                                       David J. Keenan
                                                       Senior Vice President and
                                                       Corporate Controller

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


/S/  NICHOLAS K. PONTIKES
Nicholas K. Pontikes
CHIEF EXECUTIVE OFFICER                                /S/PHILIP A. HEWES
(Principal Executive Officer),                         Philip A. Hewes
President and  Director                                Director

/S/ JOHN J. VOSICKY
John J. Vosicky                                        James Voelker
Chief Financial Officer (Principal                     Director
Financial Officer) and Director

/S/  DAVID J. KEENAN                                   /S/ WILLIAM N. PONTIKES
David J. Keenan                                        William N. Pontikes
Senior Vice President                                  Director
(Principal Accounting Officer)
and Corporate Controller


Robert A. Bardagy                                      Thomas H. Patrick
Director                                               Director


Harry M. Jansen Kraemer, Jr.                           Rick Kash
Director                                               Director

/s/ C. KEITH HARTLEY                                   /S/ CAROLYN L. MURPHY
C. Keith Hartley                                       Carolyn L. Murphy
Director                                               Director

                                                Each of the above signatures is
                                                AFFIXED AS OF  FEBRUARY 10, 2000