THE FOLLOWING IS FOR  INFORMATIONAL  PURPOSES  ONLY.  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.










PRISM COMMUNICATION SERVICES, INC.
AND SUBSIDIARIES

Consolidated Financial Statements
September 30, 1998 and 1999
With Independent Auditors' Report Thereon)


<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Stockholders
Prism Communication Services, Inc.:

We  have  audited  the  accompanying   consolidated   balance  sheets  of  Prism
Communication   Services,  Inc.  and  subsidiaries  as  of  September  30,  1998
(Predecessor)  and 1999 (Successor) and the related  consolidated  statements of
operations,  stockholders' equity and cash flows for the period from November 6,
1997 (inception) to September 30, 1998 (Predecessor), the period from October 1,
1998 to February 26, 1999 (Predecessor) and the period from February 27, 1999 to
September 30, 1999 (Successor).  These consolidated financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Prism Communication
Services,  Inc. and subsidiaries as of September 30, 1998 (Predecessor) and 1999
(Successor)  and the  results of their  operations  and their cash flows for the
period from November 6, 1997  (inception)  to September 30, 1998  (Predecessor),
the period from  October 1, 1998 to  February  26,  1999  (Predecessor)  and the
period from  February 27, 1999 to September 30, 1999  (Successor)  in conformity
with generally accepted accounting principles.

As discussed in note 1 to the consolidated financial statements, on February 26,
1999,  Comdisco,  Inc.  acquired a controlling  interest in Prism  Communication
Services,  Inc. As a result of the change in control, the financial  information
for the period  after the change in control is  presented  on a  different  cost
basis than that for the period before the change in control and,  therefore,  is
not comparable.

/s/ KPMG LLP

November 22, 1999



<PAGE>

PRISM COMMUNICATION SERVICES, INC.
AND SUBSIDIARIES

Consolidated Balance Sheets
September 30, 1998 and 1999
($ in thousands)
<TABLE>
<CAPTION>

                                                                       1998         1999
                                                              -------------  -----------
                                                              (PREDECESSOR)  (SUCCESSOR)
<S>                                                           <C>            <C>
ASSETS
Current assets:
    Cash and cash equivalents ................................   $   2,126    $     902
    Accounts receivable, net .................................          19          361
    Prepaid expenses and other current assets ................         409          985
                                                                 ---------    ---------
                   Total current assets ......................       2,554        2,248
                                                                 ---------    ---------

Property, plant and equipment, net (note 3) ..................      10,030       63,394
Goodwill, net of accumulated amortization of $3,601 (note 1) .          --       58,070
Other assets .................................................         357        5,901
                                                                 ---------    ---------
                                                                 $  12,941    $ 129,613
                                                                 =========    =========


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable .........................................   $   2,258    $  16,690
    Accrued liabilities ......................................         152        5,812
    Equipment purchases payable ..............................       7,920        5,000
    Due to parent (note 9) ...................................          --       82,461
                                                                 ---------    ---------
                   Total current liabilities .................      10,330      109,963
                                                                 ---------    ---------

Stockholders' equity:
    Common stock, $0.01 par value.  Authorized 900,000 shares,
       issued and outstanding 340,000 shares in 1998
       and 446,111 shares in 1999 ............................           3            4
    Additional paid-in capital ...............................       7,359       54,650
    Accumulated deficit ......................................      (4,751)     (35,004)
                                                                 ---------    ---------
                   Total stockholders' equity ................       2,611       19,650
                                                                 ---------    ---------
                                                                 $  12,941    $ 129,613
                                                                 =========    =========


See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>

PRISM COMMUNICATION SERVICES, INC.
AND SUBSIDIARIES

Consolidated Statements of Operations

Period  from   November  6,  1997   (inception)   to
September  30,  1998,  period  from  October 1, 1998 to
February 26, 1999 and the period from
February 27, 1999 to September 30, 1999

($ in thousands)
<TABLE>

                                                        PERIOD FROM    PERIOD FROM    PERIOD FROM
                                                        NOVEMBER 6,     OCTOBER 1,   FEBRUARY 27,
                                                   1997 (INCEPTION)        1998 TO        1999 TO
                                                   TO SEPTEMBER 30,   FEBRUARY 26,  SEPTEMBER 30,
                                                               1998           1999           1999
                                                   ----------------  -------------  -------------
                                                     (PREDECESSOR)   (PREDECESSOR)   (SUCCESSOR)
<S>                                                <C>               <C>            <C>
Net sales and service revenues .................           $    22        $    56      $    671

Operating expenses:

    Cost of sales and services .................             1,515          2,511         8,496
    Selling, general and administrative expenses             6,063         18,238        19,035
    Stock based compensation expense ...........                --          6,664           718
    Depreciation and amortization ..............               105            439         5,633
                                                           -------       --------      --------
                   Total operating expenses ....             7,683         27,852        33,882
                                                           -------       --------      --------
                   Operating loss ..............            (7,661)       (27,796)      (33,211)

Interest income (expense), net .................                70             74        (1,793)
                                                           -------       --------      --------
                   Net loss ....................           $(7,591)      $(27,722)     $(35,004)
                                                           =======       ========      ========


See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>

PRISM COMMUNICATION SERVICES, INC.
AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity

Period  from   November  6,  1997   (inception)   to
September  30,  1998,  period  from  October 1, 1998 to
February 26, 1999 and the period from
February 27, 1999 to September 30, 1999

(Amounts in thousands)
<TABLE>

                                                                     ADDITIONAL           TOTAL
                                          SHARES   COMMON  PAID-IN  ACCUMULATED   STOCKHOLDERS'
                                     OUTSTANDING    STOCK  CAPITAL      DEFICIT          EQUITY
                                     -----------   ------  -------  -----------   -------------
<S>                                  <C>           <C>     <C>      <C>           <C>
(PREDECESSOR)

Balances at November 6, 1997 .....        --       $  --   $    --    $     --         $     --
Issuances of common stock ........       151           1     1,649          --            1,650
Issuances of common stock
    in consideration of
    services rendered ............        82           1       888          --              889
Reclass of LLC losses to
    additional paid-in capital ...        --          --     (2,840)      2,840              --
Issuance of common stock .........       100           1     7,499          --            7,500
Conversion of loan to equity .....         7          --        163         --              163
Net loss .........................        --          --        --      (7,591)          (7,591)
                                     -------      ------   -------    --------         --------
Balances at September 30, 1998 ...       340           3     7,359      (4,751)           2,611
Net loss from October 1, 1998 to
    February 26, 1999 ............      --           --        --      (27,722)         (27,722)
                                     -------      ------   -------    --------         --------
Balances at February 26, 1999 ....       340      $    3   $ 7,359    $(32,473)        $(25,111)


(SUCCESSOR)

Effect of acquisition of shares by
    Comdisco .....................        --         --     36,574      32,473          69,047
Conversion of preferred
    stock to common stock ........       100          1      9,999          --          10,000
Issuance of common stock .........         6         --        718          --             718
Net loss from February 27, 1999 to
    September 30, 1999 ...........        --         --         --     (35,004)        (35,004)
                                     -------    -------    -------    --------        --------
Balance at September 30, 1999 ....       446    $     4    $54,650    $(35,004)       $ 19,650
                                     =======    =======    =======    ========        ========


See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>

PRISM COMMUNICATION SERVICES, INC.
AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Period from November 6, 1997 (inception) to September 30,  1998,
period from  October 1, 1998 to February 26, 1999 and the period from
February 27, 1999 to September 30, 1999

($ in thousands)
<TABLE>

                                                                 PERIOD FROM     PERIOD FROM     PERIOD FROM
                                                                 NOVEMBER 6,      OCTOBER 1,    FEBRUARY 27,
                                                            1997 (INCEPTION)         1998 TO         1999 TO
                                                            TO SEPTEMBER 30,    FEBRUARY 26,   SEPTEMBER 30,
                                                                        1998            1999            1999
                                                            ----------------   -------------   -------------
                                                              (PREDECESSOR)    (PREDECESSOR)    (SUCCESSOR)
<S>                                                         <C>                <C>             <C>
Cash flows from operating activities:

    Net loss ...............................................     $(7,591)         (27,722)        (35,004)
    Adjustments to reconcile net loss to net cash
       used in operating activities:
          Depreciation and amortization ....................         105              439           5,633
          Stock issued in consideration of services rendered         889               --              --
          Compensation expense .............................          --            6,664             718
          Increase in accounts receivable ..................         (19)              (9)           (333)
          (Increase) decrease in other current assets ......        (409)          (2,103)          1,527
          (Increase) decrease in other assets ..............        (347)             301          (5,845)
          Increase in accounts payable .....................       2,258            4,781           9,651
          Increase in accrued liabilities ..................         152            5,420             240
          Increase in due to parent ........................          --               14           4,392
                                                                 -------          -------         -------
                   Net cash used in operating activities ...      (4,962)         (12,215)        (19,021)
                                                                 -------          -------         -------

Cash flows from investing activities:

    Capital expenditures ...................................      (2,215)          (2,585)        (55,458)
    Purchase of investments ................................         (10)              --              --
                                                                 -------          -------         -------
                   Net cash used in investing activities ...      (2,225)          (2,585)        (55,458)
                                                                 -------          -------         -------

Cash flows from financing activities:

    Proceeds from issuances of common stock ................       9,150               --              --
    Proceeds from issuance of convertible redeemable
       preferred stock .....................................          --           10,000              --
    Proceeds from loans ....................................         663               --              --
    Payments under loan agreements .........................        (500)              --              --
    Proceeds from debt financing from parent ...............          --            6,000          72,055
                                                                 -------          -------         -------
                   Net cash provided by financing activities       9,313           16,000          72,055
                                                                 -------          -------         -------
                   Net increase in cash and cash equivalents       2,126            1,200          (2,424)
Cash and cash equivalents at beginning of period ...........          --            2,126           3,326
                                                                 -------          -------         -------
Cash and cash equivalents at end of period .................     $ 2,126            3,326             902
                                                                 =======          =======         =======

Noncash activities:

    Equipment supplier financing ...........................     $ 7,920          $    --         $    --
                                                                 =======          =======         =======
    Conversion of loan to equity ...........................     $   163          $    --         $    --
                                                                 =======          =======         =======


See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>





                       PRISM COMMUNICATION SERVICES, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           September 30, 1998 and 1999

               ($ in thousands except share and per share amounts)

                                  (Continued)
(1)    DESCRIPTION OF BUSINESS AND ACQUISITION BY COMDISCO INC.

       Prism Communication Services, Inc. (the "Company") (formerly ExtraCom LLC
       and Transwire  Communications,  LLC) was incorporated on November 6, 1997
       as a Delaware  corporation  for the purpose of providing  high speed data
       connectivity,  local and long  distance  voice and other  services over a
       communications  network using digital  subscriber line (DSL)  technology.
       The Company  began  offering  its services in the New York City market in
       February 1999.

       At  September  30,  1998,  Comdisco,  Inc.  ("Comdisco")  held an  equity
       interest  in the Company  which it acquired on June 11, 1998  through the
       purchase of 100,000  shares of common  stock for $7,500.  On February 26,
       1999,  Comdisco acquired the then remaining  outstanding  common stock of
       the Company by purchasing  240,000  shares of common stock and the rights
       to an additional  60,000 shares of common stock for $117.50 per share and
       for each right to a share for an aggregate purchase price of $35,250. The
       acquisition was accounted for as a step purchase transaction. As a result
       of the  acquisition  and change in  control,  the  financial  information
       subsequent to February 26, 1999 has been presented on the push down basis
       of  accounting  and is not  comparable  to periods  prior to February 26,
       1999.

       The total purchase price for the  acquisition was allocated to assets and
       liabilities as follows:

          Current assets                                            $     5,866
          Property, plant and equipment                                  12,774
          Goodwill                                                       61,671
          Other noncurrent assets                                            56
          Current liabilities                                           (26,431)
          Convertible redeemable preferred stock (see note 7)           (10,000)
                                                                    ------------
                                   Total purchase price             $    43,936
                                                                    ============

       All of the  purchase  price in excess of the fair value of net assets was
       allocated to goodwill.  The Company amortizes goodwill over a life of ten
       years.

       Currently, the Company's primary source of funding is Comdisco.  Comdisco
       has indicated  its intent to continue to provide the necessary  operating
       and capital  funding  until the earlier of the  completion of a public or
       private  offering that will provide the  necessary  operating and capital
       funding or January 1, 2001.


<PAGE>


(2)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

       (A)    PRINCIPLES OF CONSOLIDATION

              The accompanying  consolidated  financial  statements  include the
              transactions and balances of Prism  Communication  Services,  Inc.
              and its wholly owned  subsidiaries.  All significant  intercompany
              transactions and balances have been eliminated in consolidation.

       (B)    USE OF ESTIMATES

              The  preparation  of  financial   statements  in  conformity  with
              generally accepted  accounting  principles  requires management to
              make estimates and assumptions that affect the reported amounts of
              assets and  liabilities  and  disclosure of contingent  assets and
              liabilities  at the  financial  statement  date,  as  well  as the
              reported  amounts of revenues  and expenses  during the  reporting
              period.   Actual  results  could  differ  from  those   estimates.
              Estimates  are used in  determining  the  allowance  for  doubtful
              accounts,  depreciation  and  amortization  and the recognition of
              deferred tax assets.

       (C)    REGULATORY RISKS AND UNCERTAINTIES

              The  regulatory  environment  in which  the  Company  operates  is
              undergoing  significant  change.  As  the  regulatory  environment
              evolves,  changes may occur which could  create  greater or unique
              competitive advantages for all or some of the Company's current or
              potential competitors,  or could make it easier for other entities
              to provide competitive services.

       (D)    CREDIT CONCENTRATIONS AND BUSINESS RISKS

              Most of the  Company's  customers are located in New York City. No
              single customer  represented  over 2.5% of the Company's  revenues
              from November 6, 1997  (inception)  through  September 30, 1998 or
              the Company's accounts receivable at September 30, 1998. No single
              customer  represented over 1% of the Company's revenues during the
              periods  ended  February  26,  1999 or  September  30, 1999 or the
              Company's accounts receivable at September 30, 1999.

              The Company is dependent on a small number of major  suppliers and
              service providers. One vendor supplies the Company with all of its
              telecommunications  switching  equipment,   software,  high  speed
              digital modems and line cards.

              The  Company is subject to  significant  risks and  uncertainties,
              including   competitive,   financial,   managerial,   operational,
              technological,  regulatory  and other  risks  faced by a  start-up
              company.


<PAGE>


       (E)    REVENUE RECOGNITION

              Revenue  is  recognized  in  the  period  services  are  provided.
              Payments received in advance of providing services are recorded as
              deferred  revenue  until the period such  services  are  provided.
              Installation  fees are  recognized  to the extent of  installation
              costs.  Installation  fees in excess of related costs are deferred
              and amortized over the lives of the related customer agreements.

       (F)    CASH AND CASH EQUIVALENTS

              The  Company  considers  all  highly  liquid  investments  with  a
              maturity of three months or less to be cash equivalents.

       (G)    PROPERTY, PLANT AND EQUIPMENT, NET

              Property,  plant and equipment are recorded at cost.  Depreciation
              of   property,   plant  and   equipment  is   calculated   on  the
              straight-line  method  over  the  estimated  useful  lives  of the
              assets.  Leasehold  improvements are amortized over the shorter of
              the  lease  term  or the  estimated  useful  life  of  the  asset.
              Maintenance  and  repairs  are  charged  to  expense in the period
              incurred,  and improvement  and betterments  which extend the life
              are  capitalized.  The  estimated  useful  lives of assets  are as
              follows:

                  Network, communication and customer
                     premise equipment                              1 to 7 years
                  Computers and software                            3 to 5 years
                  Leasehold improvements                5 to 10 years or life of
                                                            the lease if shorter
                  Furniture and fixtures and office equipment            5 years

              The  Company  capitalizes  costs  associated  with the  design and
              implementation of the Company's  network including  internally and
              externally developed software. Capitalized external software costs
              include  the  actual  costs to  purchase  existing  software  from
              vendors.  Capitalized  internal  software costs generally  include
              personnel costs incurred in the enhancement and  implementation of
              purchased software packages. For the periods from November 6, 1997
              (inception) to September 30, 1998, October 1, 1998 to February 26,
              1999 and February 27, 1999 to September  30, 1999,  $11,  $160 and
              $1,280, respectively, of internal software costs were capitalized.

              Customer premise equipment  consists of  communications  equipment
              that will be  installed  at customer  premises for the duration of
              their service agreement with the Company.


<PAGE>


       (H)    IMPAIRMENT  OF  LONG-LIVED  ASSETS  AND  LONG-LIVED  ASSETS  TO BE
              DISPOSED OF

              The Company accounts for long-lived  assets in accordance with the
              provisions of Statement of Financial  Accounting  Standards (SFAS)
              No. 121,  "Accounting for the Impairment of Long-Lived  Assets and
              for Long-Lived Assets to Be Disposed OF." This Statement  requires
              that  long-lived  assets and certain  identifiable  intangibles be
              reviewed   for   impairment   whenever   events  or   changes   in
              circumstances  indicate  that the carrying  amount of an asset may
              not be recoverable.  Recoverability  of assets to be held and used
              is measured by a comparison of the carrying  amount of an asset to
              future net cash flows  expected to be generated  by the asset.  If
              such assets are  considered to be impaired,  the  impairment to be
              recognized is measured by the amount by which the carrying  amount
              of the assets  exceeds the fair value of the assets.  Assets to be
              disposed of are  reported at the lower of the  carrying  amount of
              fair value less costs to sell.

       (I)    ADVERTISING COST

              Advertising  costs  consist of  advertising  production  costs and
              media  costs.   Advertising  production  costs  are  deferred  and
              recognized  in the period in which the  advertisement  first airs.
              Advertising media costs are expensed in the period incurred. As of
              September 30, 1999, deferred advertising production costs were $0.
              Advertising  expense  was $490,  $7,909 and $3,813 for the periods
              from November 6, 1997  (inception) to September 30, 1998,  October
              1, 1998 to February  26, 1999 and  February  27, 1999 to September
              30, 1999, respectively.

       (J)    INCOME TAXES

              From  November 6, 1997 to May 18, 1998,  the Company was a limited
              liability  corporation  (LLC).  As a LLC,  the Company did not pay
              Federal income taxes on its taxable income.  Instead,  the members
              were  liable for Federal  income  taxes on the  Company's  taxable
              income  during  this  period.  From May 19,  1998,  the Company is
              taxable  as a  C-Corporation  and  under  the  provisions  of  the
              Internal  Revenue Code, the Company  assumed the carrying basis in
              assets and  liabilities  of the LLC and became  liable for Federal
              income taxes. As a result, the accumulated  deficit for the period
              when the Company was a LLC was reclassified to paid-in-capital.

              As a result  of the  acquisition  described  in notes 1 and 7, the
              Company  will  be  included  in the  consolidated  tax  return  of
              Comdisco for periods  subsequent  to February  26, 1999.  There is
              presently  no tax  sharing  agreement  between  Comdisco  and  the
              Company. The Company accounts for income taxes using the liability
              method in accordance with SFAS No. 109 as if it were a stand alone
              entity.  Under this method,  current income tax expense or benefit
              represents  income taxes  expected to be payable or refundable for
              the current period. Deferred income tax assets and liabilities are
              established  for  both  the  impact  of  differences  between  the
              financial  reporting bases and tax bases of assets and liabilities
              and for the  expected  future tax  benefit to be derived  from tax
              credits and tax loss carryforwards. Deferred income tax expense or
              benefit


<PAGE>


              represents  the  change  during  the  reporting  period in the net
              deferred  income tax assets and  liabilities.  Deferred tax assets
              are  reduced by a  valuation  allowance  when,  in the  opinion of
              management, it is more likely than not that some portion or all of
              the deferred tax assets will not be realized.

       (K)    FAIR VALUE OF FINANCIAL INSTRUMENTS

              The  fair  value  of the  Company's  cash  and  cash  equivalents,
              accounts receivable,  accounts payable and debt approximates their
              respective carrying value due to their short maturity.

       (L)    COMPREHENSIVE INCOME

              In June 1998, the Financial Accounting Standards Board issued SFAS
              130,  "Reporting  Comprehensive  Income." SFAS 130 establishes the
              standards for reporting and presentation of  comprehensive  income
              and its  components  in a full set of  financial  statements.  The
              Company  has  no  components  of  comprehensive  loss;  therefore,
              comprehensive loss consists entirely of net loss.

       (M)    START-UP COSTS

              The  Company  accounts  for  start-up  costs  in  accordance  with
              Statement of Position 98-5 (SOP 98-5),  "Reporting on the Costs of
              Start-Up  Activities," which requires costs of start-up activities
              and organization costs to be expensed as incurred.

       (N)    STOCK OPTION PLAN

              The Company  accounts for its stock option plan in accordance with
              SFAS No.  123  which  allows  entities  to  continue  to apply the
              provisions of Accounting  Principles  Board ("APB") Opinion No. 25
              and provide pro forma net income and pro forma  earnings per share
              disclosures  for  employee  stock  option  grants made in 1995 and
              future years as if the fair-value-based method, as defined in SFAS
              No. 123,  had been  applied.  The Company has elected to apply the
              provisions  of APB  Opinion  No.  25 and  provide  the  pro  forma
              disclosure required by SFAS No. 123.


<PAGE>


(3)    PROPERTY, PLANT AND EQUIPMENT

       Property, plant and equipment consist of the following assets:
<TABLE>

                                                       SEPTEMBER  30,
                                                        1998        1999
                                                   ---------   ---------
<S>                                                <C>         <C>
Network, communication and customer premise ....   $  7,701    $ 26,944
    equipment
Uninstalled customer premise equipment .........        384       3,180
Computers and software .........................        666       9,653
Leasehold improvements .........................      1,219      24,085
Furniture, fixtures and office equipment .......        165       1,331
Construction work-in-progress ..................         --         777
                                                   ---------   ---------
         Total property, plant and equipment ...     10,135      65,970

Less:  accumulated depreciation and amortization       (105)     (2,576)
                                                   ---------   ---------
         Property, plant and equipment, net ....   $ 10,030    $ 63,394
                                                   =========   =========
</TABLE>

       For the periods from November 6, 1997  (inception) to September 30, 1998,
       October 1, 1998 to February  26, 1999 and  February 27, 1999 to September
       30, 1999 depreciation and amortization expense was $105, $439 and $2,032,
       respectively.

(4)    INCOME TAXES

       The  statutory  Federal tax rate for the period from May 18, 1998 through
       September  30, 1998 and for the periods  from October 1, 1998 to February
       26, 1999 and  February  27,  1999 to  September  30,  1999 was 35%.  From
       November 6, 1998 to May 18,  1999,  the  Company was a limited  liability
       corporation (LLC). As a LLC, the Company did not pay Federal income taxes
       on its taxable  income.  The  effective tax rate was zero for the periods
       ended September 30, 1998, February 26, 1999 and September 30, 1999 due to
       the Company  incurring net operating  losses for which no tax benefit was
       recorded.

       For Federal tax purposes,  the Company has unused net operating losses of
       approximately $32,500 expiring in 2018. For state and local tax purposes,
       the  Company has unused net  operating  losses of  approximately  $63,600
       expiring  in  2018.   The   availability   of  the  net  operating   loss
       carryforwards  to offset income in future years is restricted as a result
       of the acquisition of the Company's  outstanding common stock by Comdisco
       on February 26, 1999.


<PAGE>


       As a result of the Comdisco acquisition,  the Company will be included in
       the  consolidated  tax  return of  Comdisco  for  periods  subsequent  to
       February  26, 1999 and losses  subsequent  to that date of  approximately
       31,100 will be utilized on Comdisco's consolidated federal tax return.

       The tax effects of temporary  differences  that give rise to  significant
       portions of the deferred tax assets are as follows:
<TABLE>

                                                                           SEPTEMBER 30,     SEPTEMBER 30,
                                                                                    1998              1999
                                                                           -------------     -------------
                                                                           (predecessor)      (successor)
         <S>                                                              <C>               <C>
          Federal net operating loss (pre-February 27, 1999)                    $  1,365        $  11,386
          Federal net operating loss (post-February 26, 1999)                         --           10,872
          State and local net operating losses                                       802            7,048
          Start-up costs amortized for tax purposes                                  833              654
          Equipment expenses capitalized for tax purposes                             --              257
          Organization costs amortized for tax purposes                               81               64
          Other                                                                       --              152
                       Total gross deferred tax losses                             3,081           30,433
          Depreciation                                                                --             (162)
                       Total deferred tax liability                                   --             (162)
          Net deferred tax asset (liability)                                       3,081           30,271

          Less valuation allowance                                                (3,081)         (30,271)
                                                                                ---------       ---------
                          Net deferred tax assets                               $     --        $      --
                                                                                =========       =========
</TABLE>

       In  assessing  the  realizability  of  deferred  tax  assets,  management
       considers  whether it is more likely than not that some portion or all of
       the deferred tax assets will not be realized. The ultimate realization of
       deferred tax assets is dependent  upon the  generation of future  taxable
       income  during the periods in which those  temporary  differences  become
       deductible.  Management  considers the scheduled reversal of deferred tax
       liabilities,  projected  future taxable income and tax planning in making
       these assessments.

       Since there is presently no tax sharing agreement between the Company and
       Comdisco,  it is  uncertain  whether or in what manner the  Company  will
       realize the benefits of the net operating  losses  subsequent to February
       26, 1999. As a result,  a full  valuation  allowance  has been  recorded.
       Should a future tax sharing  agreement  provide the Company with all or a
       portion of the benefit of these losses the  valuation  allowance  will be
       adjusted accordingly.


<PAGE>


(5)    EQUIPMENT PURCHASES PAYABLE

       The Company  entered into a master  equipment  deployment  agreement with
       Northern Telecom (Nortel) in November 1998, pursuant to which the Company
       committed to deploy switches,  lines cards, modems and other equipment to
       establish a nationwide network.

       On June 16,  1999,  the Company  entered  into a revised  agreement  with
       Nortel.  The revised  agreement  replaced  and  superceded  the  original
       agreement.  Pursuant to the revised  agreement,  the Company committed to
       pay  $30,955  for  historical   and  scheduled   equipment  and  software
       deployment,  including those delivered under the prior agreement, through
       September  30,  1999.  In  addition,  the Company  committed to deploy an
       additional $120,226 of equipment and software from Nortel by December 31,
       1999 and an additional $20,000 by June 30, 2000. The agreement expires on
       August 5, 2001.

       The  Company has paid  approximately  $22,813 of the  September  30, 1999
       commitment  of  $30,955  under the terms of the  revised  agreement.  The
       Company will pay the difference as it receives the  additional  equipment
       from Nortel.

(6)    COMMITMENTS AND CONTINGENCIES

       REGULATORY

       The Company is subject to regulation by various governmental agencies and
       jurisdictions.  The  Company  believes  it  is  in  compliance  with  all
       applicable   laws   and   regulations.    However,   implementation   and
       interpretation  of the  Telecommunications  Act of 1996 (the  "Act")  are
       ongoing  and  subject to  litigation  within  various  federal  and state
       agencies and courts. As a result, the impact of the Act on the Company is
       not yet completely  determinable and future  interpretations  and rulings
       may impact the  financial  position  and  results  of  operations  of the
       Company.

       OPERATING LEASES

       The  Company  leases  office  space  and  equipment  under  noncancelable
       operating leases.  The leases range in term from one to ten years, and in
       certain  cases,  provide for options to extend the term.  As of September
       30, 1999,  future minimum lease payments  under  operating  leases are as
       follows:

                              PERIOD ENDING SEPTEMBER 30
           -----------------------------------------------------------------
           2000                                                $       3,085
           2001                                                        3,276
           2002                                                        3,269
           2003                                                        3,247
           2004                                                        3,145
           Thereafter                                                 16,780
                                                               -------------
                                           Total               $      32,802
                                                               =============


<PAGE>


       Rent expense  from November 6, 1997  (inception)  to  September 30, 1998,
       October  1,  1998  to  February  26,  1999   and   February  27, 1999  to
       September 30, 1999 was $193, $573 and $3,469, respectively.

       LITIGATION

       From time to time,  the  Company is subject to  litigation  in the normal
       course  of  business.   In  the  opinion  of  management,   the  ultimate
       disposition  of these matters will not have a material  adverse effect on
       the Company's financial position, results of operations or liquidity.

       COLLOCATION AND INTERCONNECTION AGREEMENTS

       The  Company  has  entered  into  interconnection  agreements  with three
       incumbent  local exchange  carriers  (ILECs).  These  agreements  cover a
       number of aspects of Prism's relationships with the ILECs,  including the
       price and terms for  collocation of Prism equipment in the ILECs' control
       offices.  Such agreements  require monthly rentals and are cancellable at
       any time.

       EMPLOYMENT CONTRACTS

       On February 26, 1999,  the Company  entered into an employment  agreement
       with the founder of the  Company,  the terms of which  expire on February
       26,  2001 and are  subject  to earlier  termination  as  provided  in the
       agreement.  Such agreement provides for minimum salary levels,  incentive
       bonuses that are payable if specified  management  goals are attained and
       certain  equity  grants from a Management  Equity Pool that Comdisco will
       establish.

(7)    STOCKHOLDERS' EQUITY

       In accordance  with the  Company's  Amended and Restated  Certificate  of
       Incorporation,  the  Company is  authorized  to issue  900,000  shares of
       common stock at $0.01 par value and 100,000 shares of preferred  stock at
       $1.00 par value. As of September 30, 1999, the Company had issued 446,111
       shares of common stock.

       From  November 13, 1997 through  April 15,  1998,  Prism  Communications,
       Inc.,  received  capital  contributions  of $1,650 from two investors and
       services with a value of $889 from two  additional  investors in exchange
       for equity in the Company. In June 1998, pursuant to a May 1998 operating
       agreement, the Company issued 233,063 shares to these investors.

       In 1998, the Company received $163 and entered into a loan  agreement and
       during  May  1998,  this  loan  was converted into 6,937 shares of common
       stock.



<PAGE>


       On June 11,  1998,  the Company and Comdisco  entered into an  Investment
       Agreement (the Investment  Agreement) in which Comdisco agreed to make an
       equity  investment  of up to $17,500 in the  Company.  On June 11,  1998,
       pursuant to the Investment  Agreement,  the Company issued 100,000 shares
       of common stock to Comdisco for $7,500.

       Pursuant to the  Investment  Agreement on October 16,  1998,  the Company
       issued  100,000  shares  of 9%  convertible  redeemable  preferred  stock
       ("Preferred  Stock")  at a  price  of  $100.00  per  share  to  Comdisco.
       Dividends  were to accrue for two years from issuance and become  payable
       on June 30 and December 31 of each year  thereafter.  The Preferred Stock
       was  mandatorily  redeemable on June 30, 2003, and  convertible  into the
       Company's common stock on a one for one basis. On July 21, 1999, Comdisco
       converted the Preferred Stock into 100,000 shares of common stock.

       On January 11, 1999,  the board of directors  authorized  the creation of
       the  Management  Equity  Stock  Pool  (MESP).  Under  the  MESP,  CERTAIN
       CONSULTANTS AND employees were granted rights to a total of 60,000 shares
       of common stock.  The rights to these shares were acquired by Comdisco in
       connection  with the acquisition of common shares by Comdisco in February
       1999 (see below). The MESP was discontinued subsequent to the acquisition
       by Comdisco.

       On January 25,  1999,  the  shareholders  of Prism  entered  into a stock
       purchase  agreement with Comdisco whereby Comdisco purchased all of their
       common  stock and the rights to common stock  granted  under the MESP for
       total  consideration of $35,250.  As a result of such transaction,  which
       was  completed on February 26,  1999,  the Company  became a wholly owned
       subsidiary of Comdisco.

(8)    STOCK OPTION PLAN

       On April 1, 1999, the Company  adopted the 1999 Long-Term Stock Ownership
       Incentive  Plan (the  "Plan")  pursuant to which the  Company's  Board of
       Directors may grant stock  options,  shares of  restricted  common stock,
       stock  appreciation  rights,  performance  units and stock bonuses to the
       Company's  employees,  officers and directors.  The Plan authorizes up to
       49,000 shares of common stock for issuance upon exercise of awards or for
       payment  of  benefits  in  connection  with the Plan.  Awards to a single
       participant in any one-year period may not exceed 10,000 shares of common
       stock.  Stock  options  are granted  with an exercise  price equal to the
       stock's fair market value at the date of grant.

       On April 1, 1999, the Company  granted 6,111 shares of common stock to an
       officer.  The Company  recorded  compensation  expense of $718 related to
       this grant.

       During 1999,  the Company  granted  options to purchase  33,246 shares of
       common  stock.  A portion of such  options  vested  immediately,  and the
       remainder  vest at the one-year  anniversary  of grant date.  All options
       have a ten-year term. At September 30, 1999,  there were 9,643 additional
       shares available for grant under the Plan.

       No  compensation  expense has been recognized for the stock option grants
       in the consolidated financial statements, since the exercise price of the
       options  equaled or exceeded  the fair  market  value of the stock on the
       grant date. If the Company had accounted for stock option grants pursuant
       to SFAS No. 123, and recognized compensation cost based on the fair value
       of the stock  options at grant date,  the  Company's  net loss would have
       increased to the pro forma amount indicated below:

                                                                     PERIOD FROM
                                                              BRUARY 27, 1999 TO
                                                              SEPTEMBER 30, 1999
                                                              ------------------

            Net loss as reported                             $          (35,004)
            Pro forma compensation expense                               (2,648)
                                                              ------------------
                  Pro forma net loss                         $          (37,652)
                                                              ------------------


       Pro forma net loss reflects all options  granted since the acquisition of
       Prism by Comdisco on February 26, 1999.  The per share  weighted  average
       fair value of stock options  granted  during 1999 was $115.80 on the date
       of grant using the Black Scholes option pricing model.  To arrive at fair
       value,  the  Company  assumed  an  expected  dividend  yield of  0.0%,  a
       risk-free interest rate of 6.5% and an expected life of ten years.

       Stock option  activity  during the period from April 1, 1999 to September
       30, 1999 is as follows:
<TABLE>

                                                                WEIGHTED-AVERAGE
                                          NUMBER OF SHARES        EXERCISE PRICE
                                          ----------------      ----------------
<S>                                       <C>                   <C>

Balance at April 1, 1999                          --           $          --
    Granted                                     33,246                  117.50
    Exercised                                     --                      --
    Forfeited                                     --                      --
    Expired                                       --                      --
                                           ----------------      ---------------
Balance at September 30, 1999                   33,246           $      117.50
                                           ================      ===============
</TABLE>

       At September 30, 1999, the exercise price for all options was $117.50 and
       the weighted average  remaining  contractual life of outstanding  options
       was 9.62 years.

       At September 30, 1999,  there were 11,086 stock options  exercisable at a
       weighted average exercise price of $117.50.


<PAGE>


                                                      17
(9)    RELATED PARTY TRANSACTIONS

       An  officer of the  Company  owns 100% of the  capital  stock of a former
       shareholder of the Company which also provided management  SERVICES.  THE
       COMPANY'S  PAYMENTS  TO A  FORMER  SHAREHOLDER  FOR  MANAGEMENT  SERVICES
       TOTALED  $1,621 from November 6, 1997  (inception)  to September 30, 1998
       and  the  Company  had  $79  and $0 of  accounts  payable  to the  former
       shareholder at September 30, 1998 and 1999, respectively.

       During the period from  November 6, 1997  (inception)  to  September  30,
       1998, two shareholders made loans to the Company aggregating $500, all of
       which were repaid by September 30, 1998.

       During the periods from November 6, 1997 to September  30, 1998,  October
       1, 1998 to February 26, 1999 and February 27, 1999 to September 1999, the
       Company  reimbursed  related  parties  for  travel and  related  business
       expenses in the amount of $130, $312 and $368,  respectively.  During the
       period from  February  27, 1999 to September  30,  1999,  the Company was
       charged $2,555 by Comdisco for management and back-office services.

       During  February  1999,  Comdisco  provided  $6,000 of  financing  to the
       Company  by  issuing  three  promissory  notes.  Each of the  notes  bore
       interest of 8.9378% and had a one-month maturity.  On March 10, 1999, the
       Company  converted the three promissory notes into borrowings under a new
       $100,000  revolving credit facility  provided by Comdisco.  The revolving
       credit  facility bears interest at LIBOR plus 4%, and may be cancelled at
       any time, upon notice by Comdisco or the Company.

       As of  September  30,  1999,  Prism  had  $79,906  outstanding  under the
       facility which included accrued interest of $1,865. On November 12, 1999,
       the  maximum  amount   available  under  revolving  credit  facility  was
       increased to $250,000.

(10)   SUBSEQUENT EVENT (UNAUDITED)

       Effective  November 30, 1999, Prism entered into a 20-year agreement with
       Williams  Communications,  Inc. to purchase (i) an indefeasible  right to
       use approximately  2,500 miles of dark fiber and (ii)  approximately $110
       million of network  capacity on a take-or-pay  basis,  for the purpose of
       transporting  voice  and  data  traffic  across  the  United  States.  In
       aggregate,  Prism will pay  Williams  approximately  $120  million,  plus
       related  maintenance and collocation  charges,  over a 20-year period for
       such rights and  facilities.  To satisfy $10 million of such  obligation,
       Prism  issued  to  Williams  shares  of its  common  stock.  As a result,
       Williams has an approximate  1%  fully-diluted  interest in Prism.  Prism
       will make the  remaining  payments  on a  monthly  basis,  regardless  of
       whether it orders network  capacity,  and as it accepts major segments of
       dark fiber.

       To further the  relationship  between  Prism and Nortel,  on December 17,
       1999, Nortel purchased shares of Prism common stock for $10 million. As a
       result of this  transaction,  Nortel has an approximate 1%  fully-diluted
       ownership position in Prism.