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

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

                                   FORM 10-KSB

[X]               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                       OR

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

               FOR THE TRANSITION PERIOD FROM         TO

                         COMMISSION FILE NUMBER 0-27709

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

                         PENTASTAR COMMUNICATIONS, INC.
           (Name of Small Business Issuer as Specified in Its Charter)


<TABLE>
<S>                                             <C>
                DELAWARE                             84-1502003
        (State of Incorporation)                  (I.R.S. Employer
                                                Identification No.)

1660 WYNKOOP STREET, SUITE 1010, DENVER, CO            80202
(Address of Principal Executive Offices)             (Zip Code)
</TABLE>

                                 (303) 825-4400
                (Issuer's Telephone Number, Including Area Code)

       Securities registered under Section 12(b) of the Exchange Act: NONE

         Securities registered under Section 12(g) of the Exchange Act:

                         Common Stock, $.0001 par value

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

    Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [X]
No [ ]

<PAGE>   2

    Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [X]

    The issuer's revenues were $27,798,000 for the fiscal year ended December
31, 2000.

    As of March 26, 2001, the aggregate market value of the voting and
non-voting common equity held by non-affiliates was $88,946,220, based on the
closing sale price of the common stock on that date.

    The number of shares outstanding of the issuer's common stock, $.0001 par
value, as of March 26, 2001 was 5,580,189.

    Transitional Small Business Disclosure Format (check one):  Yes [ ]  No [X]

                       DOCUMENTS INCORPORATED BY REFERENCE

    The definitive proxy statement for the issuer's 2001 annual meeting (to be
filed within 120 days after the end of the issuer's fiscal year ended December
31, 2000) is incorporated by reference in Items 9, 10, 11 and 12 of this Annual
Report on Form 10-KSB.


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                         PENTASTAR COMMUNICATIONS, INC.

                                      INDEX

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<CAPTION>
                                                                                        PAGE
                                                                                        ----


                                    PART I
<S>                                                                                     <C>
Item 1.     Description of Business...................................................   4
Item 2.     Description of Property...................................................  14
Item 3.     Legal Proceedings.........................................................  14
Item 4.     Submission of Matters to a Vote of Security Holders.......................  14

                                   PART II
Item 5.     Market for Common Equity and Related Stockholder Matters..................  14
Item 6.     Management's Discussion and Analysis of Financial Condition And
            Results of Operations.....................................................  15
Item 7.     Financial Statements......................................................  25
Item 8.     Changes in and Disagreements with Accountants on Accounting And
            Financial Disclosure......................................................  25

                                   PART III
Item 9.     Directors, Executive Officers, Promoters and Control
            Persons; Compliance With Section 16(a) of the Exchange
            Act.......................................................................  26
Item 10.    Executive Compensation....................................................  26
Item 11.    Security Ownership of Certain Beneficial Owners and
            Management................................................................  26
Item 12.    Certain Relationships and Related Transactions............................  26
Item 13.    Exhibits and Reports on Form 8-K..........................................  26
</TABLE>


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              CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

    Certain matters discussed in this Annual Report on Form 10-KSB are
"forward-looking statements," intended to qualify for the safe harbor from
liability established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can generally be identified as such because the
context of the statement includes words such as "anticipates," "expects,"
"estimates," "plans," "believes" and "intends" or other similar words.
Similarly, statements that describe our future plans, objectives or goals are
also forward-looking statements. All forward-looking statements are subject to
certain risks and uncertainties that could cause actual results or outcomes to
differ materially from those currently anticipated. Factors that could affect
actual results or outcomes are described in detail in Item 1 of this Form 10-KSB
and our Registration Statement on Form SB-2 (Registration No. 333-85281) under
the heading "Risk Factors" and include:

     o    Our lack of combined operating history and our untested business
          model.

     o    Our success in carrying out our acquisition strategy.

     o    Our reliance on regional bell operating companies and other service
          providers for communications services.

     o    Our ability to increase revenues from service providers other than
          local access service providers.

    Shareholders, potential investors and other readers are urged to consider
these factors in evaluating the forward-looking statements and are cautioned not
to place undue reliance on such forward-looking statements. The forward-looking
statements included herein are only made as of the date hereof and we undertake
no obligation to publicly update such forward-looking statements to reflect
subsequent events or circumstances.

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

BUSINESS OVERVIEW

         PentaStar Communications, Inc. is the nation's largest communications
services agent. We design, procure and facilitate the installation and use of
communications services for small to medium-size businesses that generally
cannot afford in-house communications management resources. Our goal is to
provide our customers with a comprehensive communications solution, utilizing
the infrastructure of existing communications services providers. By analyzing
and selecting from a variety of available communications services providers and
technologies, other than for local access where we primarily offer regional bell
operating company (RBOC) service, we offer our customers a custom-designed,
cost-effective solution for local access, long distance, wireless and Internet
services for voice and data communications services. As communications solutions
become increasingly important to business success and as communications
alternatives become more complex, we believe our services will become more
valuable to our customers. References in this annual report on Form 10-KSB to
"PentaStar," the "Company," "we," "us," and "our" refer to PentaStar
Communications, Inc. and its subsidiaries on a combined basis, unless the
context otherwise indicates.

         We currently market communications services in 30 metropolitan markets
and service approximately 40,000 customers. We have strategic agency
relationships with all regional bell operating companies, and other
communications services providers including AT&T, Cable & Wireless, Global
Crossing, Intermedia Communications, Qwest, Sprint and WorldCom.

         As of March 15, 2001, we currently market communications services in
the following metropolitan markets:

<TABLE>
<CAPTION>
                       Region                     Metropolitan Markets
                       ------                     --------------------
<S>                                           <C>
                  Pacific Northwest           Seattle, WA; Portland, OR;

                  Northern California         San Francisco and Oakland, CA

                  Southwest                   Phoenix and Tucson, AZ
</TABLE>


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<TABLE>
<S>                                           <C>
                  Rocky Mountain              Denver and Colorado Springs, CO

                  South Central               Houston, TX

                  Midwest                     Chicago and Peoria, IL;
                                              Indianapolis, South Bend and
                                              Evansville, IN; St. Louis, MO;
                                              Cleveland, Columbus and Akron, OH;
                                              Green Bay, Madison and Milwaukee,
                                              WI; Louisville, KY; Grand Rapids,
                                              MI

                  Southeast                   Atlanta, GA

                  Northeast                   Boston, MA; New York and Albany,
                                              NY; Montclair, NJ; Warwick, RI;
                                              Burlington, VT
</TABLE>

ORGANIZATION AND HISTORY

         PentaStar, a Delaware corporation, was founded on March 15, 1999, to
become a multi-regional communications services agent for small to medium-size
business customers. Prior to October 26, 1999, we had not conducted any
operations, and all of our activities were related to the organization of
PentaStar, the acquisitions described below and our initial public offering of
common stock (the offering). On October 26, 1999, PentaStar, through
wholly-owned subsidiaries, acquired DMA Ventures, Inc., dba Access
Communications, with operations in Denver and Colorado Springs, Colorado, and
ICM Communications Integration, Inc., with operations in Seattle, Washington and
Portland, Oregon (together, the predecessor companies), completed the offering
and commenced business operations as a communications services agent.

    ICM was formed in 1990 as a division of International Communications
Management, Inc., a corporation that provided training for communications
service providers. ICM was formed to provide communications consulting and sell
communications services to small to medium-size businesses in the Pacific
Northwest. In January 1995, the ICM division was spun-off into a separate
corporation owned by International Communications Management, Inc. In July 1997,
ICM was spun-off as a separate corporation to the shareholders of International
Communications Management, Inc. ICM has been a Qwest Communications
International, Inc. (f/k/a U S WEST, Inc.) (Qwest) agent since 1991.

    Access was formed in 1995. Originally, Access acted as an agent for Qwest
and sold local area network and wide area network hardware for computer systems
in the Denver, Colorado metropolitan area. In April 1999, Access discontinued
its hardware business to focus on selling Qwest's communications services.
Access has been a Qwest agent since 1995.

ACQUISITIONS

    In fiscal year 2000, we acquired additional communications services agents
in other metropolitan areas. Following is a summary of our acquisitions.

    USTeleCenters, Inc. and Vermont Network Services Corporation. In the first
quarter of fiscal 2000, we acquired the assets of USTeleCenters, Inc. and
Vermont Network Services Corporation (collectively referred to as UST). UST,
founded in 1986 and headquartered in Boston, Massachusetts, is a full-service
communications agent focusing on small business customers located throughout
Verizon Communications' (f/k/a Bell Atlantic) 13 state Northeast and
Mid-Atlantic region. UST has agency agreements with service providers including
Verizon Communications, Bell South, Southwestern Bell and Sprint. The purchase
consideration consisted of $277,000 in cash, 5,980 shares of our common stock
with a fair market value of $100,000 and the assumption of liabilities.

    NCI Communications, Inc. In the first quarter of fiscal 2000, we acquired
the assets of NCI Communications, Inc. NCI is primarily a long distance
communications services agent located in Seattle, Washington. NCI has agency
agreements with Qwest, AT&T and GST Telecom. NCI was owned by certain of the
previous shareholders of ICM, who, upon our acquisition of ICM, became
shareholders of PentaStar. The purchase price paid for the assets consisted of
$18,000 in cash and the cancellation of a $601,000 note receivable from NCI to
PentaStar.


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<PAGE>   6
    ParTel, Inc. In the first quarter of fiscal 2000, we acquired ParTel, Inc.
ParTel, founded in 1982, is a full-service communications agent based in
Phoenix, Arizona primarily servicing customers in the Phoenix and Tucson
metropolitan markets. ParTel is an agent of Qwest and sells primarily high-end,
data-oriented services. The purchase consideration consisted of $606,000 in cash
and 30,310 shares of our common stock with a fair market value of $539,000.
Concurrent with the acquisition of ParTel, we loaned $500,000 (interest at the
prime rate plus 1%-10.75% at December 31, 2000) to a corporation controlled by
the former shareholders of ParTel. The loan will be due not later than December
31, 2001, and is personally guaranteed by the former ParTel shareholders. In
addition, the agreement provides for additional consideration in the form of
cash and our common stock if certain operating performance criteria are met by
ParTel for the year ended December 31, 2000, subject to adjustments through
March 31, 2001.

    Resource Communications, Inc. In the first quarter of fiscal 2000, we
acquired Resource Communications, Inc. Resource, based in Dublin, California, is
a full-service communications agent, which furnishes communication solutions to
customers in Northern California. Resource is one of the largest Cable &
Wireless long distance master agents and a significant Pacific Bell authorized
sales representative. The initial purchase consideration consisted of $1,037,000
of cash and 81,250 shares of our common stock. Of the 81,250 of issued shares,
50,000 shares with a fair market value of $919,000 were placed in an
indemnification escrow until March 31, 2001. The remaining 31,250 shares were
placed in escrow until March 15, 2001 to be released upon Resource attaining
certain performance criteria for the year ended December 31, 2000. The
performance criteria were not attained and the 31,250 shares have been released
from escrow to PentaStar. In addition, the agreement provides for additional
consideration in the form of cash and our common stock if certain operating
performance criteria are met by Resource for the period from January 1, 2000 to
June 30, 2001.

    Eastern Telecom, Inc. In the second quarter of fiscal 2000, we acquired the
assets of VSI Network Solutions, Inc. dba Eastern Telecom, Inc., or ETI. ETI,
founded in 1992, is a full-service communications agent based in Warwick, Rhode
Island, primarily servicing customers in Boston, New York, Albany, Providence
and Warwick. ETI is an authorized agent for Verizon and BellSouth. The initial
purchase consideration consisted of $2,009,000 of cash, 57,122 shares of our
common stock with a fair market value of $961,000, the assumption of $758,000 in
debt and the assumption of operating liabilities. The assumed debt was paid at
closing. The 57,122 shares of common stock were placed in an indemnification
escrow until November 18, 2001. In addition, the agreement provides for
additional consideration in the form of cash and our common stock if certain
combined operating performance criteria of ETI and UST are met by ETI for the
year ended December 31, 2000. The combined operating performance criteria were
not attained and thus no additional purchase consideration was recognized.

    Telecomm Industries Corp. In the second quarter of fiscal 2000, we acquired
the assets of the Network Services Agency Division of Telecomm Industries Corp.,
or TCMM. TCMM's Network Services Agency Division is Ameritech's largest
distributor of voice and data services. TCMM is also an authorized distributor
for BellSouth. The initial purchase consideration consisted of $1,362,000 of
cash, 278,949 shares of our common stock with a fair market value of $6,494,000
and the assumption of certain debt and operating liabilities of TCMM. The
assumed debt included $1,260,000 of short-term obligations which were paid at
closing. The remaining assumed debt of $4,463,000 is secured by approximately
$6,557,000 of future commissions due to PentaStar from existing Ameritech
contracts, which we expect will be realized over the next several years. In
addition to the initial purchase consideration, the agreement provides for
additional consideration in the form of cash and our common stock if certain
operating performance criteria are met by TCMM for the period from April 1, 2000
through March 31, 2001. As of December 31, 2000, we have paid $388,000 in cash
as additional purchase consideration. The 278,949 shares of our common stock
were placed in a general indemnification escrow until the date at which the
final earn-out amount is determined. The total purchase consideration, including
cash, stock and the short-term debt obligation paid at closing, cannot exceed
$18 million.

    NetLink, Inc. In the third quarter of fiscal 2000, PentaStar acquired the
Circuits Business of NetLink, Inc. NetLink, located in St. Louis, Missouri, is a
full-service communications agent for Southwestern Bell and primarily sells
high-end data services. NetLink is also an Ameritech distributor of voice and
data services in Southern Illinois. The initial purchase consideration consisted
of $204,000 in cash, 42,544 shares of our common stock with a fair market value
of $1,010,000, the assumption of $299,000 in debt and the assumption of
operating liabilities. The assumed debt was paid at closing. In addition, the
agreement provides for additional consideration in the form of cash and our
common stock if certain operating performance criteria are met by NetLink for
the period from August 1, 2000 through July 31, 2001.

    Vision Communications, Inc. In the fourth quarter of fiscal 2000, we
acquired Vision Communications Group, Inc. Vision, based in Montclair, New
Jersey, is a communications services agent selling primarily data-oriented local
and long distance services in the Mid-Atlantic market. Vision is an authorized
agent for Verizon. The initial purchase consideration consisted of $326,000 in
cash and 51,934 shares of our common stock with a fair market value of
$1,207,000. Of the 51,934 of issued shares, 38,950 with a fair market value of
$904,000 were placed in escrow and will be released upon Vision attaining
certain performance criteria for the period from July 1, 2000 through June 30,
2001. In addition, the agreement provides for additional consideration in the
form of cash and our


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common stock if certain operating performance criteria are met by Vision for the
period from July 1, 2000 through June 30, 2001.

    Linear Communications, Inc. In the fourth quarter of fiscal 2000, we
acquired Lynx Communications, Inc dba Linear Communications, Inc. Linear, based
in Atlanta, Georgia, is BellSouth's largest communications services agent,
focused on selling voice, data, and Internet services in BellSouth's nine-state
region. The initial purchase consideration consisted of $704,000 in cash and
65,960 shares of our common stock with a fair market value of $1,554,000. Of the
65,960 of issued shares, 36,627 with a fair market value of $863,000 were placed
in escrow and will be released upon Linear attaining certain performance
criteria for the period from October 1, 2000 through September 30, 2001. In
addition, the agreement provides for additional consideration in the form of
cash and our common stock if certain operating performance criteria are met by
Linear for the period from October 1, 2000 through September 30, 2001.

    Digistar Networks, Inc. In the fourth quarter of fiscal 2000, we acquired
the assets of the communications agency business of Digistar Networks, Inc., dba
The Network Group. The Network Group is a communications services agent focused
on selling data oriented local and long distance services. It has operations in
Chicago and Peoria, Illinois, Atlanta, Georgia and Houston, Texas. The initial
purchase consideration consisted of $431,000 in cash and the assumption of
certain operating liabilities. Also, as part of the acquisition of The Network
Group, we loaned Digistar $650,000 (interest at 15%), payable on or before
December 31, 2001. Digistar used the loan proceeds to pay bank debt secured by
the acquired assets. The loan is secured by the guarantee of some of the owners
of Digistar. In addition, the agreement provides for additional consideration in
the form of cash and our common stock if certain operating performance criteria
are met by The Network Group for the period from October 1, 2000 through
September 30, 2001.

RECENT DEVELOPMENTS

    Subsequent to December 31, 2000, we acquired Digital Sales Support Net,
Inc., or Digital and RKK Consulting Group, Inc., or RKK. Digital, headquartered
in New York, New York, is a communications services agent focused on selling
primarily Verizon data communications services. The owners of RKK, who will
manage the combined operations of Digital and RKK, have been focused on selling
Verizon data oriented local products and long distance services in the New York
and New Jersey markets. The initial purchase consideration for Digital consisted
of $200,000 in cash and 30,374 shares of our common stock with a fair market
value of $800,000. Of the 30,374 of issued shares, 18,984 with a fair market
value of $500,000 were placed in escrow and will be released upon Digital
attaining certain performance criteria for the period from January 1, 2001
through December 31, 2001. In addition, the agreement provides for additional
consideration in the form of cash and our common stock if certain operating
performance criteria are met by Digital for the period from January 1, 2001
through December 31, 2001. The initial purchase consideration for RKK consisted
of 37,968 of our common stock with a fair market value of $1,000,000. Of the
37,968 of issued shares, 36,070 with a fair market value of $950,000 were placed
in escrow and will be released upon RKK attaining certain performance criteria
for the period from February 1, 2001 through January 31, 2002. In addition, the
agreement provides for additional consideration in the form of cash and our
common stock if certain operating performance criteria are met by RKK for the
period from February 1, 2001 through January 31, 2002.

MARKET OPPORTUNITY

    The telecommunications industry is highly competitive, which creates an
abundance of choices for consumers. In addition, there are many new technologies
being developed that make telecommunications decisions increasingly complex. On
a more micro level, the communications services agent industry is highly
fragmented and characterized by hundreds of local companies with no large
national competitors. With our growing market presence and broadening services,
we are able to provide a local and/or national communications solutions for our
customers. In addition, as communications solutions become more complex and
abundant, we believe that we can service customers in a broad range of
industries, including retail, wholesale, manufacturing, service, distribution
and professional services.

Some of the major benefits we provide our customers are:

     o    assistance in sorting through the abundance of confusing technology
          options;

     o    handling multiple RBOC orders for companies with offices in multiple
          regions;

     o    management of the ordering and installation of communications
          services;

     o    more effective and timely responses to problems encountered with
          communications services providers than can generally be obtained by an
          individual customer;


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     o    ongoing evaluation of new solutions that could better suit the future
          communications needs of our customers; and

     o    payment of most of our fees by the communications services provider.

In addition, we believe that we offer compelling reasons for communications
services providers to view us as a strategic partner. Those reasons are as
follows:

     o    we are an effective sales force for our service providers, with a
          competitive, cost effective and variable cost solution for them;

     o    we provide the ability to retain customers and increase revenues from
          customers;

     o    we provide a professional staff to handle the installation of services
          and ongoing interface between the customer and the service provider;

     o    we can sell into markets that may not be economical for the service
          providers to support directly; and

     o    we can act as a distribution channel for certain services that some
          service providers, the RBOCs in particular, are prohibited by law from
          offering. This provides their customers with a complete communications
          solution.

OUR STRATEGY

    Our objective is to be a leading multi-regional provider of custom-designed
communications solutions to small and medium-size businesses. Our strategy
includes the following key elements:

Provide Comprehensive Communications Solutions

    We offer comprehensive communications solutions by providing customers with
the benefit of our independent analysis of multiple technologies and pricing
plans, except in local access where we work primarily with RBOCs with whom we
have agency relationships. In addition to selling basic communications services,
our focus is to provide solutions for more complex, high-end data-oriented
products or advanced communications services such as Frame Relay or ATM
(asynchronous transfer mode) services. We believe that by purchasing a package
of local access, long distance, wireless and Internet services from one
communications service provider, the customer may not have the opportunity to
choose the solutions that best meet its communications needs. By engaging our
services, the customer is able to select different providers for each type of
service to best meet its needs.

    We will continue to evaluate technology alternatives of both existing and
developing communications services technologies and to evaluate changing pricing
programs of various service providers. Our goal is to seek technology and
pricing solutions that best address the needs of our customers. This assists our
field sales personnel in customizing the services that we recommend for each
customer.

Grow Through Acquisitions

    In fiscal year 2000, we completed 10 acquisitions establishing our presence
in 30 metropolitan markets. We will continue to build a multi-regional presence
in the communications market by acquiring agency companies in metropolitan
areas. Our acquisition strategy will focus on new service territories, as well
as in-filling existing markets in which we currently have a presence. We will
focus our efforts on markets with the highest concentration of potential
customers. We strive to acquire companies that are well managed, have a strong
customer base, and would benefit from the additional resources that we intend to
provide. Our goal is to structure these acquisitions so that the owners who
manage the on-going business of each acquired agent receive a significant amount
of their portion of the purchase price in our common stock.

    We believe the companies targeted for acquisition will be attracted to, and
benefit from, the opportunity to join us because we plan to offer them:

     o    shared systems, administration and infrastructure support;


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     o    lower costs resulting from planned economies of scale;

     o    improved commission structures in certain cases, resulting from
          aggregating sales;

     o    availability of multiple long distance, wireless and Internet options;

     o    access to on-going analysis of available communications and Internet
          technologies and pricing plans;

     o    access to other acquired companies' "best practices" models;

     o    greater access to capital for future growth;

     o    add-on sales to local operations of regional customers; and

     o    consolidated order entry and processing of certain communications
          services.

Increase Revenues of Acquired Companies

We intend to grow our business by focusing on several key areas:

      Introduce New Agent Services. The companies we have acquired and the
companies we intend to acquire primarily sell local access services for RBOCs.
We currently sell and will continue to sell Internet services, long distance and
wireless for voice and data communications through other service provider
relationships. This will enable our customers to use PentaStar as the single
resource for all their communications needs.

      Focus Sales on High End Data-Oriented Products. We will continue to
increase the focus of our sales efforts on selling high-end data oriented
products. These data-oriented products typically pay higher commissions. We
continue to invest in the training of our sales people toward these high-end
data products, as well as focus on recruiting experienced, high-end
salespersons.

      Increase Revenues Through Commission Strategies. As a result of creating a
larger organization, our commission rates are in certain cases, enhanced by
meeting volume requirements in existing commission contracts. We have and expect
to continue to negotiate more favorable commission arrangements than are
available to individual agents.

      Enhance Selling and Advertising Efforts. We continue to expect to attract
new customers by increasing our direct selling and in some cases, advertising
efforts. We continue to accomplish this in part by allowing the managers of
acquired agents to have more time to focus on selling as a result of relieving
them of the administrative functions that will be consolidated into our
headquarters or regional centers. We believe advertising has not been used in
any significant way by agents. We have developed marketing materials and
presentations to be used by management and the sales personnel of our agents.

Utilize our Size to Increase Efficiencies in the Operating Regions.

      We have and will continue to consolidate functions that are not critical
to control at the local level into our corporate headquarters. These functions
include human resources, information systems, legal services and tax matters.
Additionally, we have and will continue to consolidate some aspects of
accounting, order processing and after-sales management into regional centers to
be established at designated local sites. The purchasing of insurance, equipment
and certain external services are being managed from our corporate headquarters.

Implement a Best Practices Program.

     The companies we have acquired are operating with a high degree of autonomy
in their regions, which we expect to be the case with future acquisitions.
However, we will continue to implement a best practices program under which each
acquired company will be able to adopt successful business practices developed
by our other agents. This allows each acquired company to develop a best
practices model that works for it. Our corporate management team is actively
facilitating this process.


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Create Strong Incentives for Management to Increase Earnings

    We have established two strong incentives for our agent managers, who are
generally the former owners of the acquired agents, to increase their region's
earnings. The first incentive is the opportunity to earn a greater percentage of
the total shares of our common stock issued to acquire the agents based on each
agent's future performance. The second incentive is a bonus plan pursuant to
which each agent manager may receive a cash bonus based upon his area's
operating earnings before amortization expense. We expect that managers of other
agents we acquire will also participate in bonus programs based upon their
operating earnings before amortization expense and will also participate in our
stock option plan.

OUR SERVICES

Our services are represented by a variety of service providers. Here is a
sampling of some of our major providers:

<TABLE>
<CAPTION>
                                            Provider                   Region Availability
                                            --------                   -------------------
<S>                                         <C>                        <C>
         Local Access                       Ameritech                  Midwest
                                            Qwest                      Rocky Mountain; Southwest; Pacific Northwest
                                            Verizon                    Northeast
                                            Pac Bell                   Northern California
                                            Bell South                 Southeast
                                            Southwestern Bell          South Central

         Long Distance                      WorldCom                   National
                                            Sprint                     National
                                            Global Crossing            National
                                            AT & T                     National
                                            Cable & Wireless           National
                                            Intermedia                 National

         Wireless                           Ameritech                  Midwest
                                            Qwest                      Rocky Mountain; Southwest; Pacific Northwest
                                            Verizon                    Northeast
                                            Pac Bell                   Northern California
                                            Bell South                 Southeast


         Internet                           Ameritech                  Midwest
                                            Qwest                      Rocky Mountain; Southwest; Pacific Northwest
                                            Verizon                    Northeast
                                            Pac Bell                   Northern California
                                            Bell South                 Southeast
                                            WorldCom                   National
                                            Sprint                     National
                                            Global Crossing            National
                                            AT & T                     National
                                            Cable & Wireless           National
                                            Intermedia                 National
                                            Epoch Internet             National
                                            XO                         National
                                            North Atlantic Internet    Northeast
</TABLE>

Local Access

    The comprehensive local access services we sell include basic dial tone and
advanced communications services. Basic dial tone services are telephone
connections, voice messaging and call management. More advanced communications
services we sell include:

     o    data transmission oriented services;


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     o    dedicated high-capacity transmission services;

     o    high speed real time communications access, including digital
          subscriber line, or DSL;

     o    packet-based transmission for wide area networks, including frame
          relay service; and

     o    an advanced digital network for data, video, voice and Internet
          traffic, including integrated services digital network, or ISDN.

Long Distance

    Our relationships with these long distance providers allow us to offer our
customers the pricing, quality and add-on features that they require for their
specific long distance communications.

Wireless

    We concentrate on providing our customers with services and capabilities
that will allow them to better utilize wireless technology and make this
technology an integral part of their voice and data communications strategy.
These wireless services include cellular, paging and integrated voice and data
communications services.

Internet

    We find that customers are often confused by the process of selecting an
Internet Service Provider, or ISP, connecting to the ISP and integrating the
service into their internal systems. Many ISPs do not provide installation and
start-up assistance or assistance in internal cabling and networking for their
customers. As a result, the customers must coordinate with local access
providers, networking/cabling consultants and the ISP to obtain service. To
address this problem, we offer a turnkey solution to our customers through our
agent relationships, connection expertise and relationships with
networking/cabling companies.

Value-Added Services

    The combination of wireless technologies, computer networking integration,
telephone system integration and Internet technologies creates significant
challenges for small to medium-size businesses attempting to implement an
overall communications solution. In addition, keeping up with the developments
of new technologies can be often confusing to the customer. We believe that our
customers can benefit from our consultative, no-charge approach toward analyzing
their communication solutions. We continue to offer comprehensive communications
services, assistance in the selection of hardware and cabling providers,
supervision of the installation and integration of all the communications
services components and, to a limited extent, the installation of hardware. We
also offer project management to customers who have larger, more complex
projects requiring significant planning, resource management and coordination.
We believe that providing these additional services further strengthens our
customer relationships and provide for incremental revenue opportunities with
our existing customers.

SALES AND MARKETING

    As of March 15, 2001, we employed an experienced sales force of
approximately 200 employees, of which 155 are direct sales employees and 45 are
telesales employees. Our direct sales efforts are conducted at the local level
by our direct sales force. Members of our direct sales team meet face-to-face
with prospective customers, discuss their communications needs and in many cases
utilize our local project management staff to design a comprehensive package of
communications services. Our telesales employees are experienced
telecommunications telemarketers focused on the sale of basic dial tone and
voice long distance products and services.

    We continue to focus on improving our project management staff and
capabilities and developing programs to recruit and train motivated sales people
with good technical and customer skills. Our goal is to establish a long-term
relationship as the customer's total solution provider.

    Our sales representatives also establish additional customer referral
relationships with others, such as equipment vendors, resellers and network and
telephone integrators. We customarily pay a referral fee to these companies or
reciprocate in the sharing of market opportunities. New customer contacts are
also generated through a variety of methods including client referrals, personal
sales calls, direct mailings to targeted customers, telemarketing and trade
shows.


                                       11
<PAGE>   12

    In addition, we maintain a database that documents various components of our
customer's communications services, as well as critical contact information. We
believe that this database will be a valuable tool for providing enhanced
services to these customers.

COMPETITION

Agent Business

    The market for communications services is extremely competitive and rapidly
changing. We expect competition to increase as communications service providers
expand their traditional service offerings. Many of our largest competitors are
national communications service providers that have significantly greater
financial, marketing and other resources than we. These competitors may adopt
more aggressive pricing policies and offer more attractive terms to customers
than the carriers we represent. In addition, some of our current and potential
competitors have established, or may establish, cooperative relationships among
themselves or with third parties to compete more effectively. Specifically, on a
national scale, we encounter multiple competitors that include:

     o    the direct sales forces of communications services providers, such as
          the RBOCs, AT&T, WorldCom and numerous competitive local exchange
          carriers, or CLECs;

     o    other communications services agents;

     o    system integrators and other telecommunications equipment and install
          providers that address a customer's network needs; and

     o    communications consultants, such as groups within Electronic Data
          Systems and Accenture.

We believe the primary competitive factors in our market include:

     o    the ability to provide a solution that satisfies all the customer's
          communications needs and can be installed on a timely basis;

     o    pricing;

     o    customer service during and after installation;

     o    quality and reliability of communications services;

     o    access to multiple communications services provider options; and

     o    development of customer loyalty.

    Although we face a broad range of competition from a variety of
communications services providers, we seek to compete effectively by acting as a
sales agent primarily for RBOC services in the local access market, along with
long distance, wireless and Internet services from providers in those markets,
with a strong focus on customer service.

GOVERNMENT REGULATION

Agent Business

    We are not directly subject to any government regulations other than normal
business regulations. However, the communications service providers for whom we
act as a sales agent are subject to varying degrees of federal, state and local
regulation. Because of the regulated status of our clients, we are indirectly
affected by the regulations of the FCC and the various state public utility
commissions. In addition, the FCC, in particular, has emphasized on numerous
occasions that the actions of a carrier's marketing agents do not relieve that
carrier of its independent obligation to ensure compliance with the FCC's rules.
Rather, under the Communications Act of 1934, the acts or omissions of an agent
or other person acting for a common carrier are deemed to be the acts or
omissions of the carrier itself.


                                       12
<PAGE>   13

    Generally, the FCC exercises jurisdiction over all communications service
providers to the extent they provide services involving the supplying of
interstate or international communications. The Telecommunications Act of 1996
expanded the FCC's jurisdiction to include certain interconnection and related
issues that traditionally have been considered subject primarily to state
regulation. The state regulatory commissions also retain jurisdiction over
significant aspects of the provision of intrastate communications services.

    The Telecommunications Act of 1996 was intended ultimately to permit service
providers in the long distance and local communications services markets, as
well as cable television providers, to compete freely in all communications
markets. For example, the Telecommunications Act of 1996 permits the RBOCs to
compete fully in the provision of in-region long distance services upon the
satisfaction of the statutorily mandated criteria. The 1996 Act also allows long
distance carriers to provide local services in the RBOCs' territories. Long
distance carriers are also permitted to offer combined packages of long distance
and resold RBOC local services. However, large long distance carriers are not
permitted to market long distance and resold RBOC local services through a
"single transaction" meaning that these carriers may not use the same sales
agent to market both products to the same customer in the same communication.
Also, the telecommunications carrier may not offer long distance and RBOC resold
local exchange services as a bundled package under an integrated pricing
schedule.

    The Telecommunications Act of 1996 also generally requires RBOCs to provide
competitors with interconnection and nondiscriminatory access to their local
exchange network on more favorable terms than have been available in the past.
As required by the 1996 Act, the FCC adopted in August 1996 new rules
implementing the interconnection and resale provisions of the Telecommunications
Act of 1996, which are intended to minimize regulatory, economic and operational
impediments to full competition for local services.

    In general, we are unable to determine what effect the Telecommunications
Act of 1996 and other laws and regulations will have on the communications
industry in general and on us in particular. Numerous FCC, state and local
regulatory decisions are expected regarding issues that may materially affect us
because they will have an impact on:

     o    the services and the pricing that can be offered by RBOCs; and

     o    who can compete with RBOCs in various markets and the prices they will
          be able to offer.

    Also, the communications service providers whose services we will market are
affected by the laws and changes in the laws affecting the provision of
telecommunications. These laws and changes may have an indirect effect on
PentaStar. For instance, on February 26, 1998, the FCC established rules that
restricted telecommunications carrier use of customer proprietary network
information, or CPNI. The rules prohibit carriers from using information gleaned
from providing one type of service (local, long distance or wireless) to market
another type of service, without first obtaining that customer's consent. This
means that a carrier could not give PentaStar a local service customer's
marketing information in order for PentaStar to market that carrier's long
distance, wireless or Internet services without first obtaining that customer's
consent to use his or her CPNI. However, the U.S. Court of Appeals for the Tenth
Circuit vacated portions of the FCC's CPNI rules. The FCC filed a petition for
rehearing of this case that was denied on November 30, 1999. Also, on June 5,
2000, the Supreme Court of the United States denied a petition for writ of
certiorari on this case.

    The communications service providers for which we act as a sales agent must
also comply with the FCC's verification requirements enacted to prevent
slamming, the unauthorized change of a customer's presubscribed carrier
selection. The slamming rules govern the manner in which telecommunications
carriers effectuate and verify selection by consumers of preferred providers of
local exchange and interexchange services. When we successfully sell a customer
our client's telecommunications service that replaces that customer's present
telecommunications service, our client must comply with the FCC's slamming and
verification procedures in order to switch that customer's service.

Employees

    As of March 15, 2001, we had 370 employees, all of whom were full-time
employees. Of our full-time employees, 11 are corporate headquarter employees,
200 are in sales and marketing, 106 are in operations and engineering support,
and 53 are in administration.

    We believe that our relations with our employees are satisfactory. We are
not party to any collective bargaining agreements and we have never experienced
a work stoppage. As we continue to grow and acquire new companies, we expect to
hire additional personnel.


                                       13
<PAGE>   14

ITEM 2. DESCRIPTION OF PROPERTY

    As of December 31, 2000 we maintain our corporate headquarters at 1660
Wynkoop Street, Suite 1010, Denver, Colorado. We lease 3,945 square feet under a
lease which expires August 31, 2005. Additionally, we lease the following
facilities for use as office space:

<TABLE>
<CAPTION>
                             LOCATION               SQ. FT.       TERM
                    -------------------------       ------  -----------------
<S>                                                 <C>     <C>
                    Denver, Colorado..............   4,800  Expires 12/31/01
                    Colorado Springs, Colorado ...     300  Expires 3/31/02
                    Seattle, Washington...........   5,506  3,003 sq. ft. expires
                                                            11/30/02 2,503 sq. ft. expires
                                                            11/30/02
                    Portland, Oregon..............   3,238  Expires 6/28/01
                    Warwick, RI...................   6,427  Expires 10/31/04
                    Albany, NY....................   1,937  Expires 5/31/02
                    Burlington/Rutland, VT........   1,303  650 sq.ft.expires 4/30/01
                                                            653 sq.ft.expires 3/31/01
                    Boston, MA....................  21,778  14,331 sq. ft. expires
                                                            8/31/01 3,038 sq. ft. expires
                                                            3/31/03 2,609 sq. ft. expires
                                                            9/30/05 1,800 sq. ft. expires
                                                            9/30/03
                    Phoenix, AZ...................   5,598  Expires 3/31/01
                    Dublin, CA....................   1,829  Expires 8/31/01
                    Chicago, IL...................   6,317  2,622 sq. ft. Expires 10/30/02
                                                            2,295 sq. ft. Expires 12/31/01
                                                            1,400 sq. ft. Expires 12/31/01
                    Indianapolis, IN..............   7,800  Expires 5/31/05
                    Evansville, IN................   1,838  Expires 8/31/01
                    South Bend, IN................   1,730  Expires 3/31/03
                    Louisville, KY................   1,572  Expires 7/31/03
                    Columbus, OH..................   2,431  Expires 6/30/03
                    Dayton, OH....................   2,142  Expires 5/31/02
                    Cleveland, OH.................   3,030  1,575 Expires 12/31/04
                                                            1,455 Expires 11/30/03
                    Green Bay, WI.................   1,249  Expires 12/31/04
                    St. Louis, MO.................   3,200  Expires 5/31/01
                    Montclair, NJ.................   4,914  Expires 10/31/02
                    Atlanta, GA...................   4,500  Expires 11/14/02
                    Peoria, IL....................   1,380  Expires 1/31/02
</TABLE>

    We believe that our facilities are adequate for our current needs and
additional space is available for expansion.

ITEM 3. LEGAL PROCEEDINGS

    There are no material legal proceedings pending or, to our knowledge,
threatened against us.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    There were no matters which were submitted to a vote of security holders
during the fiscal quarter ended December 31, 2000.

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

    Since September 7, 2000, our common stock has traded on the Nasdaq National
Market under the symbol "PNTA." From October 26, 1999 through September 6, 2000
our common stock traded on the Nasdaq SmallCap Market under the same symbol.
Prior to October 26, 1999, there was no public trading market for our common
stock. As of March 26, 2001, we had 51 holders of record. The following table
sets forth the high and low bid prices for our common stock as reported on
Nasdaq for the period we were quoted on the Nasdaq SmallCap Market and the high
and low sale prices for the period we were quoted on the Nasdaq National Market
System.


                                       14
<PAGE>   15

<TABLE>
<CAPTION>
                                                                           HIGH      LOW
                                                                           ----      ---
<S>                                                                      <C>       <C>
                  YEAR ENDED DECEMBER 31, 2000
                  First Quarter ......................................    $20.000  $14.500
                  Second Quarter .....................................    $23.250  $18.500
                  Third Quarter ......................................    $24.125  $23.000
                  Fourth Quarter .....................................    $24.375  $20.000

                  FOR THE PERIOD FROM INCEPTION (MARCH 15, 1999)
                  THROUGH DECEMBER 31, 1999:
                  Fourth Quarter (from October 26, 1999): ............    $15.688  $10.438
</TABLE>

    The high and low bid prices reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.

    Effective during the period from October 1, 2000 through December 31, 2000,
we sold unregistered securities as follows:

     o    On October 26, 2000, we issued 51,934 shares of common stock to the
          sole shareholder of Vision Communications Group, Inc. as partial
          consideration for the acquisition of Vision Communications Group, Inc.

     o    On November 15, 2000, we issued 65,960 shares of common stock to the
          shareholders of Lynx Communications, Inc. dba Linear Communications,
          Inc. as partial consideration for the acquisition of Lynx
          Communications, Inc.

    The sales and issuance of securities in the transactions described in the
above paragraphs were deemed to be exempt from registration under the Securities
Act by virtue of Rule 506. The persons to whom the shares were issued are
accredited investors.

DIVIDENDS

    We have not paid any dividends on our common stock as of December 31, 2000.
We do not anticipate declaring or paying cash dividends on our common stock at
any time in the foreseeable future. The decision whether to apply legally
available funds to the payment of dividends on our common stock will be made by
the board from time to time in the exercises of business judgement, taking into
account, among other things, results of operations and financial condition, any
then existing or proposed commitments by it for the use of available funds, and
our obligations with respect to the holders of any then outstanding indebtedness
or preferred stock. In addition, we may in the future issue debt securities or
preferred stock or enter into loan agreements or other arrangements that
restrict the payment of dividends on, and repurchases of, our common stock.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

OVERVIEW

    The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and related notes as of December 31, 2000 and 1999 and for the year
ended December 31, 2000, the period from inception (March 15, 1999) through
December 31, 1999, and the predecessor financial statements of Access and ICM as
of October 25, 1999 and December 31, 1998 and for the period from January 1,
1999 to October 25, 1999 and the year ended December 31, 1998, included in Part
II, Item 7 of this Form 10-KSB.

    We were incorporated on March 15, 1999 under Delaware law. For the period
from inception (March 15, 1999) through October 25, 1999, we did not conduct any
operations, and all activity in the period related to organizing PentaStar,
developing our business plan, management and corporate structure, pursuing
acquisitions of the predecessor companies and activities in connection with our
offering. Upon the closing of the acquisitions of the predecessor companies and
the offering on October 26, 1999, we commenced our business operations as a
communications services agent for communications services including local
access, long distance, wireless and Internet services for voice and data
communications. We design, procure and facilitate the installation and use of
communications services to best meet our customers needs.

    Through the acquisitions of existing communications services agents in
metropolitan areas, we have become the nation's largest communications services
agent. We currently act as a sales agent for more than twelve communications
services providers. We plan to continue to acquire other communications services
agents and to enter into agency agreements with other communications services
providers.

     On October 26, 1999, we successfully completed our initial public offering.
The offering resulted in the sale of 1,297,845 shares of our common stock, for
proceeds of $10,714 net of cash offering costs of $2,265. Immediately prior to
the offering, we completed


                                       15
<PAGE>   16
the acquisitions of the predecessor companies. Access, located in Denver,
Colorado, was a Qwest (f/k/a U S WEST) agent. Purchase consideration for Access
consisted of $241 in cash, 205,000 shares of PentaStar's common stock and
assumption of liabilities. ICM, located in Bellevue, Washington, was a Qwest
(f/k/a U S WEST) agent. Purchase consideration for ICM consisted of $1,641 in
cash, 165,000 shares of our common stock and assumption of liabilities.

Acquisition Activities

    During the year ended December 31, 2000, we completed the acquisitions of
ten communications services agents. Following is a summary of our acquisition
activity.

    In the first quarter of fiscal 2000, we acquired the assets of
USTeleCenters, Inc. and Vermont Network Services Corporation (collectively
referred to as UST). UST, founded in 1986 and headquartered in Boston,
Massachusetts, is a full-service communications agent focusing on small business
customers located throughout Verizon Communications' (f/k/a Bell Atlantic) 13
state Northeast and Mid-Atlantic region. UST has agency agreements with service
providers including Verizon Communications, Bell South, Southwestern Bell and
Sprint. The purchase consideration consisted of $277 in cash, 5,980 shares of
our common stock with a fair market value of $100 and the assumption of
liabilities.

    In the first quarter of fiscal 2000, we acquired the assets of NCI
Communications, Inc. NCI is primarily a long distance communications services
agent located in Seattle, Washington. NCI has agency agreements with Qwest, AT&T
and GST Telecom. NCI was owned by certain of the previous shareholders of ICM,
who, upon our acquisition of ICM, became shareholders of PentaStar. The purchase
price paid for the assets consisted of $18 in cash and the cancellation of a
$601 note receivable from NCI to PentaStar.

    In the first quarter of fiscal 2000, we acquired ParTel, Inc. ParTel,
founded in 1982, is a full-service communications agent based in Phoenix,
Arizona primarily servicing customers in the Phoenix and Tucson metropolitan
markets. ParTel is an agent of Qwest and sells primarily high-end, data-oriented
services. The purchase consideration consisted of $606 in cash and 30,310 shares
of our common stock with a fair market value of $539. Concurrent with the
acquisition of ParTel, we loaned $500 (interest at the prime rate plus 1% -
10.75% at December 31, 2000) to a corporation controlled by the former
shareholders of ParTel. The loan will be due not later than December 31, 2001,
and is personally guaranteed by the former ParTel shareholders. In addition, the
agreement provides for additional consideration in the form of cash and our
common stock if certain operating performance criteria are met by ParTel for the
year ended December 31, 2000, subject to adjustments through March 31, 2001.

    In the first quarter of fiscal 2000, we acquired Resource Communications,
Inc. Resource, based in Dublin, California, is a full-service communications
agent, which furnishes communication solutions to customers in Northern
California. Resource is one of the largest Cable & Wireless long distance master
agents and a significant Pacific Bell authorized sales representative. The
initial purchase consideration consisted of $1,037 of cash and 81,250 shares of
our common stock. Of the 81,250 of issued shares, 50,000 shares with a fair
market value of $919 were placed in an indemnification escrow until March 31,
2001. The remaining 31,250 shares were placed in escrow until March 15, 2001 to
be released upon Resource attaining certain performance criteria for the year
ended December 31, 2000. The performance criteria were not attained and the
31,250 shares have been released from escrow to PentaStar. In addition, the
agreement provides for additional consideration in the form of cash and
PentaStar's common stock if certain operating performance criteria are met by
Resource for the period from January 1, 2000 to June 30, 2001.

    In the second quarter of fiscal 2000, we acquired the assets of VSI Network
Solutions, Inc. dba Eastern Telecom, or ETI. ETI, founded in 1992, is a
full-service communications agent based in Warwick, Rhode Island, primarily
servicing customers in Boston, New York, Albany, Providence and Warwick. ETI is
an authorized agent for Verizon and BellSouth. The initial purchase
consideration consisted of $2,009 of cash, 57,122 shares of our common stock
with a fair market value of $961, the assumption of $758 in debt and the
assumption of operating liabilities. The assumed debt was paid at closing. The
57,122 shares of common stock were placed in an indemnification escrow until
November 18, 2001. In addition, the agreement provides for additional
consideration in the form of cash and our common stock if certain combined
operating performance criteria of ETI and UST are met by ETI for the year ended
December 31, 2000. The combined operating performance criteria were not attained
and thus no additional purchase consideration was recognized.

    In the second quarter of fiscal 2000, we acquired the assets of the Network
Services Agency Division of Telecomm Industries Corp., or TCMM. TCMM's Network
Services Agency Division is Ameritech's largest distributor of voice and data
services. TCMM is also an authorized distributor for BellSouth. The initial
purchase consideration consisted of $1,362 of cash, 278,949 shares of our common
stock with a fair market value of $6,494 and the assumption of certain debt and
operating liabilities of TCMM. The assumed debt included $1,260 of short-term
obligations which were paid at closing. The remaining assumed debt of $4,463 is
secured by


                                       16
<PAGE>   17
approximately $6,557 of future commissions due to PentaStar from existing
Ameritech contracts, which we expect will be realized over the next several
years. In addition to the initial purchase consideration, the agreement provides
for additional consideration in the form of cash and our common stock if certain
operating performance criteria are met by TCMM for the period from April 1, 2000
through March 31, 2001. As of December 31, 2000, we have paid $388 in cash as
additional purchase consideration. The 278,949 shares of our common stock were
placed in a general indemnification escrow until the date at which the final
earn-out amount is determined. The total purchase consideration, including cash,
stock and the short-term debt obligation paid at closing, cannot exceed $18
million.

    In the third quarter of fiscal 2000, we acquired the Circuits Business of
NetLink, Inc. NetLink, located in St. Louis, Missouri, is a full-service
communications agent for Southwestern Bell and primarily sells high-end data
services. NetLink is also an Ameritech distributor of voice and data services in
Southern Illinois. The initial purchase consideration consisted of $204 in cash,
42,544 shares of our common stock with a fair market value of $1,010, the
assumption of $299 in debt and the assumption of operating liabilities. The
assumed debt was paid at closing. In addition, the agreement provides for
additional consideration in the form of cash and our common stock if certain
operating performance criteria are met by NetLink for the period from August 1,
2000 through July 31, 2001.

    In the fourth quarter of fiscal 2000, we acquired Vision Communications
Group, Inc. Vision, based in Montclair, New Jersey, is a communications services
agent selling primarily data-oriented local and long distance services in the
Mid-Atlantic market. Vision is an authorized agent for Verizon. The initial
purchase consideration consisted of $326 in cash and 51,934 shares of our common
stock with a fair market value of $1,207. Of the 51,934 of issued shares, 38,950
with a fair market value of $904 were placed in escrow and will be released upon
Vision attaining certain performance criteria for the period from July 1, 2000
through June 30, 2001. In addition, the agreement provides for additional
consideration in the form of cash and our common stock if certain operating
performance criteria are met by Vision for the period from July 1, 2000 through
June 30, 2001.

    In the fourth quarter of fiscal 2000, we acquired Lynx Communications, Inc
dba Linear Communications, Inc. Linear, based in Atlanta, Georgia, is
BellSouth's largest communications services agent, focused on selling voice,
data, and Internet services in BellSouth's nine-state region. The initial
purchase consideration consisted of $704 in cash and 65,960 shares of our common
stock with a fair market value of $1,554. Of the 65,960 of issued shares, 36,627
with a fair market value of $863 were placed in escrow and will be released upon
Linear attaining certain performance criteria for the period from October 1,
2000 through September 30, 2001. In addition, the agreement provides for
additional consideration in the form of cash and our common stock if certain
operating performance criteria are met by Linear for the period from October 1,
2000 through September 30, 2001.

    In the fourth quarter of fiscal 2000, we acquired the assets of the
communications agency business of Digistar Networks, Inc., dba The Network
Group. The Network Group is a communications services agent focused on selling
data oriented local and long distance services. It has operations in Chicago and
Peoria, Illinois, Atlanta, Georgia and Houston, Texas. The initial purchase
consideration consisted of $431 in cash and the assumption of certain operating
liabilities. Also, as part of the acquisition of The Network Group, we loaned
Digistar $650 (interest at 15%), payable on or before December 31, 2001.
Digistar used the loan proceeds to pay bank debt secured by the acquired assets.
The loan is secured by the guarantee of some of the owners of Digistar. In
addition, the agreement provides for additional consideration in the form of
cash and our common stock if certain operating performance criteria are met by
The Network Group for the period from October 1, 2000 through September 30,
2001.

    Except for UST and ETI, the principal shareholders of the acquired companies
that have received PentaStar common stock as purchase consideration, have
entered into escrow and contingent stock agreements with PentaStar on closing of
the acquisitions. These agreements adjust the final consideration paid to those
shareholders in return for their interests in the acquired companies. Under
these agreements, shares of PentaStar common stock were placed into escrow.
Based upon the earnings performance of an acquired company relative to that of
all other acquired companies for the 12-month period prior to the earlier of a
sale of substantially all of our assets or stock or five years, the shareholder
associated with that company or seller of that company will receive back from
escrow all, some or none of the shares such shareholder or seller placed in
escrow. In addition, based upon the relative earnings performance of the
acquired company, such shareholder or seller may receive additional shares of
common stock from us. At our discretion, we may distribute cash to such
shareholder or seller in lieu of some or all of the additional shares in an
amount equal to the fair market value of the additional shares not distributed.
The agreements are designed, however, so that there will be no net change to the
total number of shares of our common stock outstanding after the combined
adjustments are made for all of the acquired companies. We expect that the
owners who manage other agent companies that we acquire will be required to
receive a significant amount of the purchase price in our common stock and place
into escrow a percentage of this common stock pursuant to similar arrangements.

    These acquisitions were accounted for under the purchase method of
accounting.


                                       17
<PAGE>   18

Subsequent Acquisitions

    Subsequent to December 31, 2000, we acquired Digital Sales Support Net,
Inc., or Digital and RKK Consulting Group, Inc., or RKK. Digital, headquartered
in New York, New York, is a communications services agent focused on selling
primarily Verizon data communications services. The owners of RKK, who will
manage the combined operations of Digital and RKK, have been focused on selling
Verizon data oriented local products and long distance services in the New York
and New Jersey markets. The initial purchase consideration for Digital consisted
of $200 in cash and 30,374 shares of our common stock with a fair market value
of $800. Of the 30,374 of issued shares, 18,984 with a fair market value of $500
were placed in escrow and will be released upon Digital attaining certain
performance criteria for the period from January 1, 2001 through December 31,
2001. In addition, the agreement provides for additional consideration in the
form of cash and our common stock if certain operating performance criteria are
met by Digital for the period from January 1, 2001 through December 31, 2001.
The initial purchase consideration for RKK consisted of 37,968 of our common
stock with a fair market value of $1,000. Of the 37,968 of issued shares, 36,070
with a fair market value of $950 were placed in escrow and will be released upon
RKK attaining certain performance criteria for the period from February 1, 2001
through January 31, 2002. In addition, the agreement provides for additional
consideration in the form of cash and our common stock if from certain operating
performance criteria are met by RKK for the period from February 1, 2001 through
January 31, 2002.

Financing Activities

    During the year ended December 31, 2000, we completed certain financing
transactions to assist in the funding of our acquisition activity. Following is
a summary of our financing transactions.

    In connection with the acquisition of The Network Group, three of our
directors loaned us $650, evidenced by three separate promissory notes. Each
note provides for interest to accrue quarterly at a rate of 12% to be paid
quarterly unless restricted pursuant to the provisions of the Wells Fargo Bank
West Credit Agreement discussed below. Principal and accrued interest is due and
payable in full on the earlier of December 31, 2002 or a change in control as
defined in the notes.

    On July 18, 2000 we entered into a credit and security agreement with Wells
Fargo Bank West, National Association. Terms of the credit agreement provide for
maximum borrowings of $10 million limited to 75% of eligible accounts
receivable, as defined. The credit agreement is secured by accounts receivable
and by substantially all of the remaining assets of PentaStar. Advances under
the credit agreement may be used for short-term working capital needs and future
acquisitions. There are no compensating balance requirements and the credit
agreement requires compliance with financial loan covenants related to debt
levels compared to annualized cash flows from operations. The credit agreement
terminates and is payable in full on July 31, 2001. Interest is payable monthly
at the prime rate or, if we so elect, the LIBOR rate plus 2.50% (9.75% at
December 31, 2000). A commitment fee in the amount of .25% is payable quarterly
in arrears based on the average daily unused portion of the total commitment. As
of December 31, 2000, $3,100 was outstanding under the credit agreement and
$1,784 was available to be drawn.

    On September 1, 2000, we closed a private placement of 156,313 shares of our
common stock, resulting in proceeds of $3,118, net of cash offering costs of
$182. The shares of common stock are restricted and were sold to three selected
institutional investors and a private investor. The investors participating in
the private placement may demand registration of the securities upon written
request. The investors have two "demand" registration rights and also have
"piggyback" registration rights on other registration statements we file.

    During the year ended December 31, 2000, the founders of PentaStar entered
into additional contractual arrangements whereby restrictions on 3,129,997
shares of common stock have been extended to October 26, 2001. Excluding the
restricted private placement shares described above and the shares held by the
founders of PentaStar, 984,049 shares of our common stock at December 31, 2000,
are held in escrow or are subject to arrangements that prevent the owners from
selling the shares. These shares represent the common stock issued in connection
with our acquisitions of various communications services agents. When these
arrangements expire, the owners will be free to sell the shares. If the owners
decide to sell these shares, the availability of these shares could
significantly affect our stock price. These arrangements expire as follows:

<TABLE>
<CAPTION>
                          Years Ending December 31 --
<S>                                                      <C>
                          2001.......................     200,263
                          2002.......................     346,735
                          2003.......................          --
                          2004.......................     437,051
                                                         --------
                          ...........................     984,049
                                                         ========
</TABLE>


                                       18
<PAGE>   19

Overview of Operations

    Substantially all of our revenues are generated from the commissions we
receive from selling communications services as agents for communications
services providers. Currently we primarily sell advanced communications services
and basic dial tone services for the local access market to facilitate data,
voice and video communications. We expect that, over time, the percentage of
advanced communications services revenues will increase as a percentage of
revenues because of increased demand for, and availability of, these services.
Basic dial tone services in general are telephone connections, voice messaging
and call management services. Advanced communications services are all other
voice and data communications services, including:

     o    data transmission oriented services;

     o    dedicated high-capacity transmission services;

     o    high speed real time communications access, including digital
          subscriber line, or DSL;

     o    packet-based transmission for wide area networks, including frame
          relay service; and

     o    an advanced digital network for data, video, voice and Internet
          traffic, including integrated services digital network, or ISDN.

    We currently act as a sales agent for Ameritech, Qwest, Verizon, Pacific
Bell, Bell South, Southwestern Bell, WorldCom, Sprint, Global Crossing, AT&T,
Cable & Wireless, Intermedia, Epoch Internet and other communications services
providers. The following communications services providers, together with their
respective percentage of the total revenue recognized, each account for 5% or
greater of our total revenue:

<TABLE>
<CAPTION>
                                               FOR THE PERIOD ENDED
                                                   DECEMBER 31,
                                               --------------------
                                                 2000        1999
                                               --------   ---------
<S>                                              <C>        <C>
                      Verizon..................  35%         --
                      Ameritech................  25%         --
                      Qwest (f/k/a U S WEST)...  22%         99%
</TABLE>

    In addition to acting as a sales agent for local access, long distance,
wireless and Internet, we also offer, to a limited extent, products such as
telephone equipment and the related hardware installation.

    Salaries and commissions expenses consist principally of salary and
incentive compensation that our operating companies pay their sales and
marketing, operations and engineering support and administrative staff.

    Cost of product sales consists of the cost of the product sold and any
subcontract labor incurred in installing the equipment.

    General and administrative expenses include communications expenses, office
rent and utilities, travel and marketing for the operating companies. These
expenses also include the operations and staffing related to our corporate
office.

    We experience some seasonal variations in our business. Orders for
communications services tend to slow in the last quarter of the calendar year
due to customers' budgetary constraints. Generally, orders increase in the first
quarter of the following year. Because of the time lag between order and
installation, revenues in the first four months of each calendar year are
typically below the average of revenues for the remaining portion of the year.

Significant Accounting Policies and Procedures

    When we obtain an order for communications services, we generate a
commission from the communications services provider that is paid by the
provider and recognized by us as revenue, pursuant to one of the following four
methods:

     o    we receive the full value of the commission after the service is fully
          installed. It is not until the final installation is completed by the
          communications services provider that we recognize the revenue for the
          commission.

     o    we receive an up-front payment of a portion of the commission we are
          entitled to receive for the whole order. This initial payment is
          accounted for as deferred revenue. After the service is fully
          installed, we become entitled to receive the remaining


                                       19
<PAGE>   20
          portion of the commission. It is not until the final installation is
          completed by the communications services provider that we recognize
          the revenue for the total commission, including the initial payment
          and the final payment.

     o    we receive a portion of the total commission as an up-front payment
          after the service is fully installed with the remaining portion of the
          total commission to be paid in the form of a residual stream over the
          life of the customer contract. This residual stream can be in the form
          of equal monthly installments or based on a percentage of customer
          monthly usage value. It is not until the final installation is
          completed by the communications services provider that we recognize
          revenue for the amount of the up-front payment. We recognize revenue
          for the future residual streams at the time of cash receipt.

     o    we receive the total commission in the form of a residual stream over
          the life of the customer contract with no up-front payment. This
          residual stream can be in the form of equal monthly installments or
          based on a percentage of customer monthly usage value. We recognize
          revenue for the future residual streams at the time of cash receipt.

    In the ordinary course of business, the time lag between order and
installation of communications services can range from less than one month to up
to nine months depending on the type of service and the communications services
provider with whom the service has been ordered. Certain of the advanced
communications services sold by us experience greater time lags from order to
installation due to the complexity of the services and the current lack of
available facilities within the communications services providers network. As we
migrate to selling a larger percentage of these types of services, we will
experience variations in our revenues as these order to installation time lags
continue to fluctuate.

    In the ordinary course of business, we experience delays in payments on
commissions earned from the communications services providers. These delays are
generally attributable to procedural issues within the providers' organizations
such as information system changes and staffing level issues. Delays can also be
experienced as a result of disputed items. Disputed items represent accounts
receivable in dispute for installed services and arise primarily from
differences in documentation between us and the communications services
providers relating to:

     o    the commission percentages earned;

     o    the type of services sold; and

     o    the service installation dates.

    Generally, the communications services providers do not pay any portion of
the commission when an amount is in dispute, including any residual payments. We
believe, based upon extensive review of the disputed items for each of the
communications services providers, that the actual amounts in dispute are
substantially less than the gross amount of the commissions being withheld as a
result of the disputes. As of December 31, 2000 and 1999, we have established
allowances to reduce the disputed accounts receivables for each of the
communications services providers to amounts that we believe represent the
estimated net realizable value of the disputed items. As a result of our
continuing and increasing strategic partner relationships with the
communications services providers, changes are being implemented in the process
of receiving payment for installed services, which continue to result in
disputed receivables being cleared in a more timely manner.

    In connection with our acquisitions, we have recorded goodwill of $24,751,
which represents the excess of the purchase price paid over the net tangible
book value. The goodwill amount is being amortized over its estimated useful
life of 20 years. The assignment of an amortization period of 20 years was
influenced by the attributes and market position of each of our acquisitions.
Future events or changes in circumstances may result in a reduction in the
20-year amortization period, which would result in increased annual goodwill
expense. We have and anticipate acquiring additional communications services
agents in the future and expect to record goodwill in those acquisitions. Future
acquisitions may warrant amortization periods of less than 20 years.

    The Financial Accounting Standards Board has issued a draft of a new
accounting standard that would require us to stop amortizing goodwill. If this
standard were to be issued in its present form, we would be required to reduce
goodwill only if the fair value of the goodwill were less than what we have
recorded on our balance sheet or upon sale of the business that gave rise to the
goodwill.

RESULTS OF OPERATIONS

PENTASTAR COMMUNICATIONS, INC.


                                       20
<PAGE>   21

YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE PERIOD FROM INCEPTION (MARCH 15,
1999) THROUGH DECEMBER 31, 1999

    Revenues. Total revenues of $27,798 and $694 were recorded for the year
ended December 31, 2000 and for the period from inception (March 15, 1999)
through December 31, 1999, respectively. The increase was partially attributable
to the longer reporting period. Additionally, twelve acquired companies
contributed to revenue in 2000 compared to two acquired companies contributing
in 1999. Advanced communications services revenues increased from $622 for the
period from inception (March 15, 1999) through December 31, 1999 to $17,349 for
the year ended December 31, 2000 for the reasons discussed above. Basic dial
tone services revenues increased from $72 for the period from inception (March
15, 1999) through December 31, 1999 to $8,749 for the year ended December 31,
2000 for the reasons discussed above. The acquisition of UST provided us with a
telemarketing sales division. The telemarketing group focuses on high volume,
lower revenue services, which contributes to the significant amount of basic
dial tone services revenues recorded for the year ended December 31, 2000.
Product sales and other revenue of $1,700 was recorded for the year ended
December 31, 2000. No product sales and other revenue was recorded for the
period from inception (March 15, 1999) through December 31, 1999. The
acquisitions of UST and ETI provided us, to a limited extent, with revenues
related to the sales of telephone equipment and the related hardware
installation.

    Costs and expenses. Salaries and commissions expense of $22,407 and $796
were recorded for the year ended December 31, 2000 and for the period from
inception (March 15, 1999) through December 31, 1999, respectively. The increase
was partially attributable to the longer reporting period. Additionally, twelve
acquired companies incurred expenses in 2000 compared to two acquired companies
incurring expenses in 1999. Salaries and commissions expense consists
principally of costs of operations, sales, management and administrative
personnel at the operating companies. Cost of product sales of $677 was recorded
for the year ended December 31, 2000 and consists of the equipment and
subcontract labor attributable to the product sales. No cost of product sales
was recorded for the period from inception (March 15, 1999) through December 31,
1999 as a result of no revenue recognized during this period for product sales.
Other general and administrative expenses of $6,352 and $558 were recorded for
the year ended December 31, 2000 and for the period from inception (March 15,
1999) through December 31, 1999, respectively. This increase is attributable for
the same reasons as the salaries and commissions increase discussed above. Other
general and administrative expenses consist principally of the overhead expenses
of the operating companies such as rent, telephone and supplies and the expenses
applicable to our corporate office such as personnel costs, travel, insurance
and professional fees. For the period from inception (March 15, 1999) through
December 31, 1999, the corporate expenses included approximately $171 of
consulting services expense, of which $126 of noncash expense was associated
with the issuance of common stock options at the offering and $45 was paid in
cash. We were formed on March 15, 1999 and, accordingly, began incurring
expenses, but did not have any operations until the acquisition of the
predecessor companies on October 26, 1999. Depreciation and amortization expense
of $1,917 and $74 were recorded for the year ended December 31, 2000 and for the
period from inception (March 15, 1999) through December 31, 1999, respectively.
This increase is primarily attributable to the additional ten acquisitions
completed during the year ended December 31, 2000. Depreciation and amortization
expense consists of depreciation expense on property and equipment and the
amortization of goodwill associated with our acquisitions.

    Loss from operations. A loss from operations of $3,555 and $734 was recorded
for the year ended December 31, 2000 and for the period from inception (March
15, 1999) through December 31, 1999, respectively.

    Other (income) expense, net. Other (income) expense, net, of $298 and ($57)
was recorded for the year ended December 31, 2000 and for the period from
inception (March 15, 1999) through December 31, 1999, respectively. This
difference was the result of us utilizing our credit facility in 2000 to fund
our acquisitions versus the interest income earned on the remaining invested
cash proceeds from the offering still outstanding as of December 31, 1999. We
also disposed of certain fixed assets at a loss of $79 during 2000.

    Income taxes. A benefit of $1,326 and $244 was recorded for the year ended
December 31, 2000 and for the period from inception (March 15, 1999) through
December 31, 1999, respectively, representing an effective tax rate of 34.4% and
36.1%, respectively. The difference between the federal statutory rate of 35%
and the effective rate is due to state income taxes offset by nondeductible
goodwill amortization and other permanent differences.

    We have recorded a deferred tax asset of $1,609 at December 31, 2000 because
we believe we will generate sufficient taxable income in the future to recover
that asset. We based our belief upon our internal projections and the historical
results of our acquired companies which have been generating taxable income
prior to our acquisition. However, we cannot provide any assurance that we will
in fact generate taxable income sufficient to utilize the deferred tax assets we
have recorded on the balance sheet. If our views about the prospects of
generating future taxable income were to change, then we would have to record a
charge to income to write-off some or all of those deferred taxes.


                                       21
<PAGE>   22

    Net loss. For the reasons discussed above, a net loss of $2,527 and $433 was
recognized for the year ended December 31, 2000 and for the period from
inception (March 15, 1999) through December 31, 1999, respectively.

PREDECESSOR COMPANIES -- ICM Communications Integration, Inc.

    "Management's Discussion And Analysis of Financial Condition And Results Of
Operations" consists primarily of comparisons of the historical financial
statements. The information may not be reflective of the continuing results of
operations and financial condition of ICM as one of our wholly-owned
subsidiaries, because of certain non-recurring expenses related to the
acquisition and the elimination of redundant costs.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE PERIOD FROM JANUARY 1, 1999 TO
OCTOBER 25, 1999

    Revenues. Total revenues of $4,275 and $3,245 were recorded for the year
ended December 31, 1998 and for the period from January 1, 1999 to October 25,
1999, respectively. The decrease was attributable to the shorter reporting
period and diversion of ICM's management's and employee's attention prior to
October 25, 1999, as a result of the acquisition by PentaStar and the Offering.
Advanced communications services revenues decreased from $3,681 for the year
ended December 31, 1998 to $2,718 for the period January 1, 1999 to October 25,
1999 for the reasons discussed above. Basic dial tone services revenues
decreased from $594 for the year ended December 31, 1998 to $527 for the period
January 1, 1999 to October 25, 1999. This decrease was smaller than that of the
advanced communications services revenue decrease as a result of the creation of
a specific group dedicated to selling basic dial tone services that was
established in the first half of 1999.

    Costs and expenses. Salaries and commissions of $2,746 and $2,322 were
recorded for the year ended December 31, 1998 and for the period from January 1,
1999 to October 25, 1999, respectively. This decrease was attributable to the
shorter reporting period and lower revenues. The salaries and commissions as a
percentage of revenue were higher for the period from January 1, 1999 to October
25, 1999 as a result of the fixed cost component of these costs attributable to
management, operations, sales, and administrative personnel not affected by the
revenue decrease. Other general and administrative expenses of $952 and $1,285
were recorded for the year ended December 31, 1998 and for the period from
January 1, 1999 to October 25, 1999, respectively. This increase was primarily
due to professional fees and other non-recurring costs associated with the
acquisition by PentaStar and the Offering.

    Income (loss) from operations. Income from operations of $577 was recorded
for the year ended December 31, 1998 and a loss from operations of $362 was
recorded for the period from January 1, 1999 to October 25, 1999. This change
was the result of the above discussed changes in revenues and costs and
expenses.

    Other (income) expense, net. Other (income) expense, net, of ($8) and $9 was
recorded for the year ended December 31, 1998 and for the period from January 1,
1999 to October 25, 1999, respectively. This difference was the result of ICM
utilizing its line of credit in the 1999 period to fund its cash needs versus
interest income earned on excess cash balances in the 1998 period.

    Income taxes. A provision for income taxes of $200 was recorded for the year
ended December 31, 1998 and a benefit for income taxes of $137 was provided for
the period from January 1, 1999 to October 25, 1999. The effective tax rate was
34.2% in the 1998 period and increased to 36.9% in the 1999 period.

    Net income (loss). For the reasons discussed above, net income of $385 was
recorded in the year ended December 31, 1998 and a net loss of $234 was recorded
for the period from January 1, 1999 to October 25, 1999.

PREDECESSOR COMPANIES -- DMA Ventures, Inc. dba Access Communications

    "Management's Discussion And Analysis of Financial Condition And Results Of
Operations" consists primarily of comparisons of the historical financial
statements. The information may not be reflective of the continuing results of
operations and financial condition of Access as a wholly-owned subsidiary of the
Company, because of certain non-recurring expenses related to the acquisition
and the elimination of redundant costs.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE PERIOD FROM JANUARY 1, 1999 TO
OCTOBER 25, 1999

    Revenues. Total revenues of $2,382 and $1,568 were recorded for the year
ended December 31, 1998 and for the period from January 1, 1999 to October 25,
1999, respectively. The decrease was attributable to the shorter reporting
period and diversion of


                                       22
<PAGE>   23
Access' managements' and employees' attention prior to October 25, 1999, as a
result of the acquisition by PentaStar and the Offering. Advanced communications
services revenues decreased from $2,038 for the year ended December 31, 1998 to
$1,457 for the period from January 1, 1999 to October 25, 1999 for the reasons
discussed above. Basic dial tone services revenues decreased from $344 for the
year ended December 31, 1998 to $111 for the period from January 1, 1999 to
October 25, 1999 due to a decreased focus on basic communications services and
the reasons discussed above.

    Costs and expenses. Salaries and commissions of $1,201 and $1,138 were
recorded for the year ended December 31, 1998 and for the period from January 1,
1999 to October 25, 1999, respectively. This decrease was attributable to the
shorter reporting period and lower revenues. The salaries and commissions as a
percentage of revenue was higher for the period from January 1, 1999 to October
25, 1999 as a result of the fixed cost component of these costs attributable to
management, operations, sales and administrative personnel not affected by the
revenue decrease. Other general and administrative expenses of $577 and $479
were recorded for the year ended December 31, 1998 and for the period from
January 1, 1999 to October 25, 1999, respectively. This decrease was
attributable to the shorter reporting period. The amount as a percentage of
revenue was higher for the period from January 1, 1999 to October 25, 1999 as a
result of professional fees and other non-recurring costs associated with the
acquisition by PentaStar and the Offering.

    Income (loss) from operations. Income from operations of $604 was recorded
for the year ended December 31, 1998 and a loss from operations of $49 was
recorded for the period from January 1, 1999 to October 25, 1999. This change
was the result of the above discussed changes in revenues and costs and
expenses.

    Other (income) expense, net. Other (income) expense, net, of $49 and $64 was
recorded for the year ended December 31, 1998 and for the period from January 1,
1999 to October 25, 1999, respectively. These amounts are comprised primarily of
interest expense on Access's borrowings. The difference was the result of Access
utilizing its line of credit in the 1999 period to fund its cash needs.

    Income taxes. A provision for income taxes of $212 was provided for the year
ended December 31, 1998 and a benefit for income taxes of $41 was provided for
the period from January 1, 1999 to October 25, 1999. The effective tax rate was
38.2% in the 1998 period and decreased to 36.3% in the 1999 period.

    Loss from discontinued operations. Losses from discontinued operations were
$370 and $74 for the year ended December 31, 1998 and for the period from
January 1, 1999 to October 25, 1999, respectively. The loss from discontinued
operations is net of income tax benefits of $219 for the year ended December 31,
1998 and $42 for the period from January 1, 1999 to October 25, 1999.

    Net loss. For the reasons discussed above, net losses of $27 and $146 were
recorded for the year ended December 31, 1998 and for the period from January 1,
1999 to October 25, 1999, respectively.

LIQUIDITY AND CAPITAL RESOURCES

PENTASTAR COMMUNICATIONS, INC.

    Our operations used net cash of $3,067 for the year ended December 31, 2000
as compared to the net cash provided of $68 for the period from inception (March
15, 1999) through December 31, 1999. This increase in cash used was primarily
attributable to the net loss recognized during the year ended December 31, 2000
and the payment of accounts payable and accrued liabilities. The acquisition of
UST included the assumption of approximately $2,441 in current liabilities. This
use of cash primarily represents the payment of the assumed liabilities.

    We used cash of $9,359 and $2,731 in investing activities for the year ended
December 31, 2000 and for the period from inception (March 15, 1999) through
December 31, 1999, respectively, primarily as a result of our acquisition
activity. The increase for the year ended December 31, 2000 was attributable to
the acquisition of 10 companies, the issuance of promissory notes and the
purchase of property and equipment. We used cash of $6,081 to fund the cash
consideration of our acquisitions in 2000. In connection with the acquisition of
Partel and The Network Group we issued promissory notes in the amounts of $500
and $650, respectively to the selling shareholders. Principal and accrued
interest on both notes is due no later than December 31, 2001. In connection
with the acquisitions of ETI and NetLink we assumed $1,057 of debt which was
immediately paid at closing of the acquisitions. Property and equipment of $618
was purchased for the year ended December 31, 2000.

    Our financing activities provided cash of $4,610 and $10,800 for the year
ended December 31, 2000 and for the period from inception (March 15, 1999)
through December 31, 1999, respectively. The cash provided for the year ended
December 31, 2000 was


                                       23
<PAGE>   24
primarily the $3,100 borrowings outstanding under our credit facility, the
$3,118 of net proceeds from the private placement of common stock and the
proceeds from the related party borrowings as discussed below, offset by the
payments of debt assumed in the TCMM acquisition. The cash provided for the
period from inception (March 15, 1999) through December 31, 1999 was primarily
as a result of the offering.

    In connection with the acquisition of The Network Group, three of our
directors loaned us $650, evidenced by three separate promissory notes. Each
note provides for interest to accrue quarterly at a rate of 12% per annum to be
paid quarterly unless restricted pursuant to the provisions of the Wells Fargo
Bank West credit agreement. Principal and accrued interest is due and payable in
full on the earlier of December 31, 2002 or a change in control as defined in
the notes.

    On September 1, 2000, we closed a private placement of 156,313 shares of our
common stock, resulting in proceeds of $3,118, net of cash offering costs of
$182. The shares of common stock are restricted and were sold to three selected
institutional investors and a private investor. The investors participating in
the private placement may demand registration of the securities upon written
request. The investors have two "demand" registration rights and also have
"piggyback" registration rights on other registration statements we file.

    On July 18, 2000 we entered into a credit and security agreement with Wells
Fargo Bank West, National Association. Terms of the agreement provide for
maximum borrowings of $10 million limited to 75% of eligible accounts
receivable, as defined. The agreement is secured by accounts receivable and by
substantially all of our other remaining assets. Interest is payable monthly at
the prime rate or, if we so elect, the LIBOR rate plus 2.50% (9.75% at December
31, 2000). As of December 31, 2000, borrowings of $3,100 were outstanding and
$1,784 was available to be drawn.

    During 1999, we issued promissory notes in the amount of $86 to BACE
Investments, LLC for funds loaned by BACE Investments, LLC to us to pay expenses
associated with the organization of PentaStar, the acquisitions of the
predecessor companies and the offering. Immediately prior to the offering, we
issued 86 shares of Series A preferred stock to BACE Investments, LLC as payment
in full of the principal amount of the notes. BACE Investments, LLC is our
largest shareholder.

    On October 26, 1999, we successfully completed our initial public offering.
The offering resulted in the sale of 1,297,845 shares of our common stock,
resulting in proceeds of $10,714, net of cash offering costs of $2,265.

    We believe that cash flow from operations and debt financing will be
sufficient to satisfy our anticipated cash requirements for the next 12 months.
We will likely require additional equity or debt financing beyond that period,
and possibly sooner, dependent upon the scope of our acquisition activity.

PREDECESSOR COMPANIES -- ICM Communications Integration, Inc.

    ICM's operations provided net cash of $9 for the period from January 1, 1999
to October 25, 1999, which is a decrease from the $291 provided for the year
ended December 31, 1998. ICM used net cash to purchase property and equipment as
well as to fund advances to related parties of ICM of $290 and $321 for the
period from January 1, 1999 to October 25, 1999 and for the year ended December
31, 1998, respectively. Net cash of $145 was provided from financing activities
for the period from January 1, 1999 to October 25, 1999 as compared to the use
of net cash of $13 for the year ended December 31, 1998. This difference was
primarily attributable to the difference in the outstanding balance under the
line of credit. PentaStar repaid all interest bearing indebtedness when it
acquired ICM. The cash portion of the purchase price otherwise payable to the
shareholders of ICM at the closing was reduced by the amount of interest bearing
indebtedness so repaid.

PREDECESSOR COMPANIES -- DMA Ventures, Inc. dba Access Communications

    Access's operations used net cash of $266 for the period from January 1,
1999 to October 25, 1999, which is an increase from the $224 used for the year
ended December 31, 1998. Access used net cash to purchase and sell property and
equipment of $9 and $13 for the period from January 1, 1999 to October 25, 1999
and for the year ended December 31, 1998, respectively. Net cash of $193 was
provided from financing activities for the period from January 1, 1999 to
October 25, 1999 as compared to the use of net cash of $271 for the year ended
December 31, 1998. This difference was primarily attributable to the outstanding
balance under the line of credit at October 25, 1999 and a capital contribution
by the shareholder during the period January 1, 1999 to October 25, 1999.
PentaStar repaid all interest bearing indebtedness when it acquired Access. The
cash portion of the purchase price otherwise payable to the shareholder of
Access at the closing was reduced by the amount of interest bearing indebtedness
so repaid.


                                       24
<PAGE>   25

INFLATION

    As a result of the relatively low levels of inflation during the last three
years, inflation did not have a significant impact on the results of operations
in those periods of any of the businesses we have acquired.

NEW ACCOUNTING PRONOUNCEMENTS

    In fiscal 2001, we will adopt Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. Among other things, the
statement requires that an entity recognize all derivative instruments on the
balance sheet as either assets or liabilities, and to account for those
instruments at fair value. To date, we have not entered into any derivative
financial instruments or hedging activities and therefore believe the impact of
SFAS No. 133 will not be material.

ITEM 7. FINANCIAL STATEMENTS

    See Financial Statements beginning on page F-1.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

    None


                                       25
<PAGE>   26

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT

    The information required by Item 9 is incorporated herein by reference to
our definitive proxy statement for our 2001 annual meeting of shareholders,
which will be filed with the Securities and Exchange Commission within 120 days
of our fiscal year ended December 31, 2000.

ITEM 10. EXECUTIVE COMPENSATION

    The information required by Item 10 is incorporated herein by reference to
our definitive proxy statement for our 2001 annual meeting of shareholders,
which will be filed with the Securities and Exchange Commission within 120 days
of our fiscal year ended December 31, 2000.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The information required by Item 11 is incorporated herein by reference to
our definitive proxy statement for our 2001 annual meeting of shareholders,
which will be filed with the Securities and Exchange Commission within 120 days
of our fiscal year ended December 31, 2000.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The information required by Item 12 is incorporated herein by reference to
our definitive proxy statement for our 2001 annual meeting of shareholders,
which will be filed with the Securities and Exchange Commission within 120 days
of our fiscal year ended December 31, 2000.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

    (a) The following exhibits are attached or incorporated by reference to the
documents indicated that have previously been filed with the Securities and
Exchange Commission.

<TABLE>
<CAPTION>
        EXHIBIT
        NUMBER                DESCRIPTION OF DOCUMENT
        -------               -----------------------
<S>               <C>
         2.1(1)   Agreement and Plan of Merger dated August 13, 1999 among
                  PentaStar Communications, Inc., OC Mergerco 1, Inc., DMA
                  Ventures, Inc. and its principal shareholder, Jeffrey A.
                  Veres.

         2.2(1)   Agreement and Plan of Merger dated August 13, 1999 among
                  PentaStar Communications, Inc., OC Mergerco 2, Inc., ICM
                  Communications Integration, Inc. and the shareholders of ICM
                  Communications Integration, Inc.

         2.3(2)   Letter Agreement amending Agreement and Plan of Merger dated
                  as of August 13, 1999 by and among PentaStar Communications,
                  Inc., OC Mergerco 2, Inc., ICM Communications Integration,
                  Inc. and the Shareholders of ICM Communications Integration,
                  Inc. dated October 20, 1999.

         2.4(2)   Second Letter Agreement amending letter agreement dated as of
                  October 20, 1999 by and among PentaStar Communication, Inc.,
                  OC Mergerco 2, Inc., ICM Communications Integration, Inc. and
                  the Shareholders of ICM Communications Integration, Inc. which
                  amended the Agreement and Plan of Merger dated as of August
                  13, 1999 by and among the same parties, dated December 27,
                  1999.

         2.5(2)   Letter Agreement amending Agreement and Plan of Merger dated
                  as of August 13, 1999 by and among PentaStar Communications,
                  Inc., OC Mergerco 1, Inc., DMA Ventures, Inc. and Jeffery
                  Veres, dated October 20, 1999.

         2.6(3)   Purchase Agreement dated January 7, 2000 among PentaStar
                  Communications, Inc., OC Mergerco 3, Inc., Network
                  Communications Integration, Inc. and the Shareholders of
                  Network Communications Integration, Inc.

         2.7(6)   Asset Purchase Agreement dated as of December 31, 1999 among
                  OC Mergerco 4, Inc., USTeleCenters, Inc., Vermont Network
                  Services Corporation and View Tech, Inc.
</TABLE>


                                       26
<PAGE>   27

<TABLE>
<S>               <C>
         2.8(3)   Purchase Agreement dated February 18, 2000 among PentaStar
                  Communications, Inc., OC Mergerco 4, Inc., VSI Network
                  Solutions, Inc. and the Shareholder of VSI Network Solutions,
                  Inc.

         2.9(3)   Agreement and Plan of Merger dated January 1, 2000 among
                  PentaStar Communications, Inc., Partel, Inc. and the
                  Shareholders of Partel, Inc.

         2.10(7)  Agreement and Plan of Merger among PentaStar Communications,
                  Inc. PentaStar Acquisition Corp. VI, Resource Communications,
                  Inc. and The Shareholders of Resource Communications, Inc.

         2.11(4)  Letter Agreement dated May 17, 2000 among PentaStar
                  Communications, Inc., OC Mergerco 4, Inc., VSI Network
                  Solutions, Inc. and the Shareholder of VSI Network Solutions,
                  Inc.

         2.12(8)  Purchase Agreement among PentaStar Communications, Inc.,
                  PentaStar Corporation and Telecomm Industries Corp. as of
                  April 15, 2000

         2.13(8)  Letter Agreement among PentaStar Communications, Inc.,
                  PentaStar Corporation and Telecomm Industries Corp. as of
                  April 15, 2000

         2.14(5)  Agreement and Plan of Merger among PentaStar Communications,
                  Inc., NetLink, Inc. and the Shareholders of NetLink, Inc.
                  dated September 29, 2000.

         2.15     Agreement and Plan of Merger among PentaStar Communications,
                  Inc., PentaStar Acquisition Corp. V, Vision Communications
                  Group, Inc. and the Shareholder of Vision Communications
                  Group, Inc. dated as of October 25, 2000.

         2.16     Amended and Restated Agreement and Plan of Merger among
                  PentaStar Communications, Inc., PentaStar Acquisition Corp.
                  VII, Lynx Communications, Inc. and the Shareholders of Lynx
                  Communications, Inc. dated as of November 14, 2000.

         2.17     Purchase Agreement among PentaStar Communications, Inc.,
                  PentaStar Acquisition Corp. IX, Digistar Networks, Inc. and
                  the Shareholders of Digistar Networks, Inc. dated as of
                  December 29, 2000.

         3.1(2)   Restated Certificate of Incorporation.

         3.2(2)   Certificate of Amendment to Restated Certificate of
                  Incorporation.

         3.3(2)   Restated Bylaws.

         4.1(1)   Specimen stock certificate representing shares of common stock
                  of PentaStar Communications, Inc.

         4.2(2)   Warrant for the purchase of common stock.

         4.3(2)   Certificate of Designation of Series A Preferred Stock.

         4.4(5)   PentaStar Communications, Inc. Common Stock Purchase Agreement
                  Dated September 1, 2000.

         10.1(1)  PentaStar Communications, Inc. Stock Option Plan.(9)

         10.2(1)  Strategic Agent Sales Agreement by and between U S WEST
                  Communications, Inc. and Access Communications dated February
                  15, 1998, as amended by memorandum dated March 24, 1999.

         10.3(1)  Strategic Agent Sales Agreement by and between U S WEST
                  Communications, Inc. and ICM Communications Integration, Inc.
                  dated February 13, 1998, as amended by memorandum dated March
                  24, 1999.

         10.4(1)  Consulting Agreement effective September 1, 1999 between
                  Optimal Communications, Inc. (nka PentaStar Communications,
                  Inc.) and BIBD, LLC.

         10.5(1)  Employment and Noncompetition Agreement entered into as of
                  August 13, 1999 between PentaStar Communications, Inc. and
                  Jeffrey A. Veres.**

         10.6(2)  Amended and Restated Principal Stockholder's Escrow and
                  Contingent Stock Agreement among PentaStar Communications,
                  Inc., OC Mergerco 1, Inc. and Jeffrey A. Veres.

         10.8(1)  Lease Agreement between BACE Real Estate, LLC and PentaStar
                  Communications, Inc.

         10.9(1)  Stock Purchase Agreement dated March 31, 1999 between Optimal
                  Communications, Inc. (nka PentaStar Communications, Inc.) and
                  Robert S. Lazzeri and Lock-up Agreement dated October 8, 1999
                  among PentaStar Communications, Inc., Schneider Securities,
                  Inc., BACE Investments, LLC, Black Diamond Capital, LLC,
                  Robert S. Lazzeri and Jeffrey A. Veres.

         10.10(1) Stock Purchase Agreement dated March 31, 1999 between Optimal
                  Communications, Inc. (nka PentaStar Communications, Inc.) and
                  Black Diamond Capital, LLC and Lock-up Agreement dated October
                  8, 1999 among PentaStar Communications, Inc., Schneider
                  Securities, Inc., BACE Investments, LLC, Black Diamond
                  Capital, LLC, Robert S. Lazzeri and Jeffrey A. Veres.
</TABLE>


                                       27
<PAGE>   28
<TABLE>
<S>               <C>

         10.11(1)  Stock Purchase Agreement dated March 31, 1999 between Optimal
                   Communications, Inc. (nka PentaStar Communications, Inc.) and
                   Jeffrey A. Veres and Lock-up Agreement dated October 8, 1999
                   among PentaStar Communications, Inc., Schneider Securities,
                   Inc., BACE Investments, LLC, Black Diamond Capital, LLC,
                   Robert S. Lazzeri and Jeffrey A. Veres.

         10.12(1)  Lock-up Agreement dated October 8, 1999 among PentaStar
                   Communications, Inc., Schneider Securities, Inc., BACE
                   Investments, LLC, Black Diamond Capital, LLC, Robert S.
                   Lazzeri and Jeffrey A. Veres.

         10.13(1)  Business Lease dated April 10, 1996 between Jeffrey and Linda
                   Veres and DMA Ventures, Inc. (dba Access Communications) and
                   First Amendment to Lease dated August 13, 1999.

         10.14(2)  Escrow Agreement among BACE Investments, LLC, Black Diamond
                   Capital, LLC, PentaStar Communications, Inc., Schneider
                   Securities, Inc. and American Securities Transfer & Trust,
                   Inc.

         10.15(3)  Bell Atlantic Authorized Agent Network Services Marketing
                   Agreement By and Between Bell Atlantic Network Services, Inc.
                   and USTeleCenters Effective Date: January 1, 1999. (10)

         10.16(4)  Credit and Security Agreement by and among PentaStar
                   Communications, Inc., PentaStar Acquisition Corp. I,
                   PentaStar Acquisition Corp. II, PentaStar Acquisition Corp.
                   III, PentaStar Acquisition Corp. IV, PentaStar Acquisition
                   Corp. VI, PentaStar Internet, Inc., PentaStar Holding
                   Corporation, PentaStar Telemarketing, Inc. and PentaStar
                   Corporation as borrowers and Wells Fargo Bank West, N.A.
                   dated as of July 10, 2000.

         10.17(4)  Authorized Distributor Agreement Between Ameritech and
                   Telecomm Industries Corp. (10)

         10.18     Lock-Up Letter Agreement between PentaStar Communications,
                   Inc., BACE Investments, LLC, Black Diamond Capital, LLC and
                   Robert S. Lazzeri dated October 17, 2000.

         10.19     Promissory Note between PentaStar Communications, Inc. and
                   Craig J. Zoellner dated December 29, 2000.

         10.20     Promissory Note between PentaStar Communications, Inc. and
                   Richard M. Tyler dated December 29, 2000.

         10.21     Promissory Note between PentaStar Communications, Inc. and
                   Robert S. Lazzeri dated December 29, 2000.

         10.22(11) Amendment to the PentaStar Communications, Inc. Stock Option
                   Plan. (9)

         21.1      Subsidiaries of PentaStar Communications, Inc.

         23.1      Consent of Independent Public Accountants.
</TABLE>

----------
(1)  Incorporated by reference from the Company's Registration Statement on Form
     SB-2 (Registration No. 333-85281).

(2)  Incorporated by reference from the Company's Annual Report on Form 10-KSB
     for the period from inception (March 15, 1999) through December 31, 1999.

(3)  Incorporated by reference from the Company's Quarterly Report on Form
     10-QSB for the quarterly period ended March 31, 2000.

(4)  Incorporated by reference from the Company's Quarterly Report on Form
     10-QSB for the quarterly period ended June 30, 2000.

(5)  Incorporated by reference form the Company's Quarterly Report on Form
     10-QSB for the quarterly period ended September 30, 2000.

(6)  Incorporated by reference from the Company's Current Report on Form 8-K
     dated February 18, 2000.

(7)  Incorporated by reference from the Company's Current Report on Form 8-K
     dated March 31, 2000.

(8)  Incorporated by reference from the Company's Current Report on Form 8-K
     dated July 19, 2000.

(9)  Management contract or compensatory plan or arrangement.

(10) The Company has applied for confidential treatment for portions of this
     Exhibit.

(11) Incorporated by reference from Appendix 2 to the Company's Definitive
     Proxy Statement dated April 26, 2000 for its 2000 annual meeting.

 (b) The issuer filed the following reports on Form 8-K during the fiscal
quarter ended December 31, 2000:

     o    Current Report on Form 8-K dated October 25, 2000
     o    Current Report on Form 8-K dated November 14, 2000


                                       28
<PAGE>   29

                                   SIGNATURES

    In accordance with Section 13 or 15 (d) of the Securities and Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on April 2, 2001.

                                       PENTASTAR COMMUNICATIONS, INC.

                                       By: /s/ ROBERT S. LAZZERI
                                           ------------------------------------
                                           Director and Chief Executive Officer

                                       By: /s/ DAVID L. DUNHAM
                                           ------------------------------------
                                           David L. Dunham
                                           Chief Financial Officer

    In accordance with Section 13 or 15 (d) of the Securities and Exchange Act
of 1934, this report has been signed by the following persons on behalf of the
Registrant and in the capacities and the dates indicated.

<TABLE>
<CAPTION>
                         SIGNATURE            TITLE          DATE
                         ---------            -----          ----
<S>                                          <C>          <C>
                   /s/ CRAIG J. ZOELLNER     Director     April 2, 2001
                   ---------------------
                       Craig J. Zoellner

                   /s/ RICHARD M. TYLER      Director     April 2, 2001
                   ---------------------
                       Richard M. Tyler

                   /s/ REYNALDO U. ORTIZ     Director     April 2, 2001
                   ---------------------
                       Reynaldo U. Ortiz

                   /s/ CARLETON A. BROWN     Director     April 2, 2001
                   ---------------------
                       Carleton A. Brown
</TABLE>


                                       29
<PAGE>   30

                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                      PAGE
                                                                      ----
<S>                                                                   <C>
                PENTASTAR COMMUNICATIONS, INC.
                  Report of Independent Public Accountants..........   F-2
                  Consolidated Balance Sheets.......................   F-3
                  Consolidated Statements of Operations.............   F-4
                  Consolidated Statements of Shareholders' Equity...   F-5
                  Consolidated Statements of Cash Flows.............   F-6
                  Notes to Consolidated Financial Statements........   F-7

                ICM COMMUNICATIONS INTEGRATION, INC.
                  Report of Independent Public Accountants..........   F-20
                  Balance Sheets....................................   F-21
                  Statements of Operations..........................   F-22
                  Statements of Shareholders' Equity................   F-23
                  Statements of Cash Flows..........................   F-24
                  Notes to Financial Statements.....................   F-25

                DMA VENTURES, INC., dba ACCESS COMMUNICATIONS
                  Report of Independent Public Accountants..........   F-30
                  Balance Sheets....................................   F-31
                  Statements of Operations..........................   F-32
                  Statements of Shareholder's Equity................   F-33
                  Statements of Cash Flows..........................   F-34
                  Notes to Financial Statements.....................   F-35
</TABLE>



                                      F-1
<PAGE>   31

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To PentaStar Communications, Inc.:

    We have audited the accompanying consolidated balance sheets of PentaStar
Communications, Inc. (a Delaware corporation) and subsidiaries as of December
31, 2000 and 1999, and the related consolidated statements of operations,
shareholders' equity and cash flows for the year ended December 31, 2000 and for
the period from inception (March 15, 1999) through December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PentaStar Communications,
Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for the year ended December 31, 2000 and for the
period from inception (March 15, 1999) through December 31, 1999 in conformity
with accounting principles generally accepted in the United States.

                                         /s/ ARTHUR ANDERSEN LLP

Denver, Colorado,
March 9, 2001.



                                      F-2
<PAGE>   32

                 PENTASTAR COMMUNICATIONS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                        AS OF DECEMBER 31, 2000 AND 1999
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                             ASSETS                           2000            1999
                                                                            --------         --------
<S>                                                                         <C>              <C>
Current assets:
  Cash and cash equivalents ........................................        $    321         $  8,137
  Accounts receivable, net .........................................           6,336            1,092
  Inventory ........................................................             138               --
  Prepaid commissions expense ......................................             983               45
  Prepaid expenses and other .......................................             565              158
  Amounts due from related parties .................................             268               --
  Related party notes receivable ...................................           1,191              601
                                                                            --------         --------
          Total current assets .....................................           9,802           10,033
Property and equipment, net ........................................           2,560              555
Deferred income taxes ..............................................           1,609              226
Prepaid commissions expense, net of current portion ................           1,174               --
Other assets .......................................................              70               45
Goodwill, net ......................................................          23,717            4,459
                                                                            --------         --------
          Total assets .............................................        $ 38,932         $ 15,318
                                                                            ========         ========

          LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable .................................................        $    827         $    170
  Other accrued liabilities ........................................             470               65
  Acquisition related payables .....................................             180              326
  Accrued compensation .............................................           1,951              541
  Deferred revenue .................................................           1,873              393
  Current portion of capital lease obligations .....................              71               --
  Current portion of long-term debt ................................           3,992               --
  Income taxes payable .............................................              99               --
                                                                            --------         --------
          Total current liabilities ................................           9,463            1,495

  Capital lease obligations, net of current portion ................             110               --
  Related party notes payable ......................................             650               --
  Long-term debt, net of current portion ...........................           3,272               --
                                                                            --------         --------
          Total liabilities ........................................          13,495            1,495
                                                                            --------         --------
Commitments and contingencies
Shareholders' equity:
  Series A preferred stock, $1,000 stated value; 1,000,000
     shares authorized; 86 shares issued and outstanding ...........              90               86
  Common stock, $.0001 par value; 20,000,000 shares
     authorized; shares issued and outstanding -
     5,568,870 as of December 31, 2000 and 4,797,842
     as of December 31, 1999 .......................................               1                1
  Additional paid-in capital .......................................          28,310           14,169
  Accumulated deficit ..............................................          (2,964)            (433)
                                                                            --------         --------
          Total shareholders' equity ...............................          25,437           13,823
                                                                            --------         --------
          Total liabilities and shareholders' equity ...............        $ 38,932         $ 15,318
                                                                            ========         ========
</TABLE>


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


                                      F-3
<PAGE>   33

                 PENTASTAR COMMUNICATIONS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      FOR THE YEAR ENDED DECEMBER 31, 2000
  AND FOR THE PERIOD FROM INCEPTION (MARCH 15, 1999) THROUGH DECEMBER 31, 1999
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                                2000                1999
                                                             -----------         -----------
<S>                                                          <C>                 <C>
Revenue:
  Advanced communications services ..................        $    17,349         $       622
  Basic dial tone services ..........................              8,749                  72
  Product sales and other ...........................              1,700                  --
                                                             -----------         -----------
                                                                  27,798                 694
                                                             -----------         -----------
Costs and expenses:
  Salaries and commissions ..........................             22,407                 796
  Cost of product sales .............................                677                  --
  General and administrative expenses ...............              6,352                 432
  Noncash consulting expense ........................                 --                 126
  Depreciation and amortization .....................              1,917                  74
                                                             -----------         -----------
                                                                  31,353               1,428
                                                             -----------         -----------
          Loss from operations ......................             (3,555)               (734)
                                                             -----------         -----------
Other (income) expense:
  Interest income ...................................               (204)                (58)
  Interest expense ..................................                429                  --
  Loss on disposal of fixed assets ..................                 79                  --
  Other .............................................                 (6)                  1
                                                             -----------         -----------
          Other (income) expense, net ...............                298                 (57)
                                                             -----------         -----------
Loss before benefit for income taxes ................             (3,853)               (677)
Benefit for income taxes ............................              1,326                 244
                                                             -----------         -----------
Net loss ............................................        $    (2,527)        $      (433)
                                                             ===========         ===========

Basic and diluted net loss per common share .........        $     (0.49)        $     (0.12)
Weighted-average common shares outstanding ..........          5,132,624           3,507,116
                                                             ===========         ===========
</TABLE>


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



                                      F-4
<PAGE>   34

                 PENTASTAR COMMUNICATIONS, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                      FOR THE YEAR ENDED DECEMBER 31, 2000
  AND FOR THE PERIOD FROM INCEPTION (MARCH 15, 1999) THROUGH DECEMBER 31, 1999
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                     PREFERRED STOCK           COMMON STOCK         ADDITIONAL
                                                  --------------------    ----------------------     PAID-IN       ACCUMULATED
                                                    SHARES    AMOUNT        SHARES      AMOUNT       CAPITAL         DEFICIT
                                                  --------- ----------    ----------  ----------   ------------   -------------
<S>                                               <C>       <C>           <C>         <C>          <C>            <C>
Balances, March 15, 1999 .....................        --      $  --               --     $  --        $    --        $    --
Issuance of common stock for initial
  capitalization of Company ..................        --         --        3,129,997        --             --             --
Issuance of common stock for cash,
  net of offering costs of $2,754 ............        --         --        1,297,845         1         10,224             --
Issuance of warrants to underwriter ..........        --         --               --        --            489             --
Issuance of options to consultant ............        --         --               --        --            126             --
Issuance of common stock for
  acquisitions ...............................        --         --          370,000        --          3,330             --
Issuance of Series A preferred
  stock for retirement of notes
  payable ....................................        86         86               --        --             --             --
Net loss .....................................        --         --               --        --             --           (433)
                                                   -----      -----        ---------     -----        -------        -------
Balances, December 31, 1999 ..................        86         86        4,797,842         1         14,169           (433)
Issuance of common stock for cash,
  net of offering costs of $182 ..............        --         --          156,313        --          3,118             --
Issuance of common stock for
  acquisitions ...............................        --         --          614,049        --         11,017             --
Issuance of common stock for
  stock options exercised ....................        --         --              666        --              6             --
Preferred stock dividends ....................        --          4               --        --             --             (4)
Net loss .....................................        --         --               --        --             --         (2,527)
                                                   -----      -----        ---------     -----        -------        -------
Balances, December 31, 2000 ..................        86      $  90        5,568,870     $   1        $28,310        $(2,964)
                                                   =====      =====        =========     =====        =======        =======

<CAPTION>

                                                      TOTAL
                                                   SHAREHOLDERS'
                                                      EQUITY
                                                  --------------
<S>                                               <C>
Balances, March 15, 1999 .....................        $     --
Issuance of common stock for initial
  capitalization of Company ..................              --
Issuance of common stock for cash,
  net of offering costs of $2,754 ............          10,225
Issuance of warrants to underwriter ..........             489
Issuance of options to consultant ............             126
Issuance of common stock for
  acquisitions ...............................           3,330
Issuance of Series A preferred
  stock for retirement of notes
  payable ....................................              86
Net loss .....................................            (433)
                                                      --------
Balances, December 31, 1999 ..................          13,823
Issuance of common stock for cash,
  net of offering costs of $182 ..............           3,118
Issuance of common stock for
  acquisitions ...............................          11,017
Issuance of common stock for
  stock options exercised ....................               6
Preferred stock dividends ....................              --
Net loss .....................................          (2,527)
                                                      --------
Balances, December 31, 2000 ..................        $ 25,437
                                                      ========
</TABLE>


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

                                      F-5
<PAGE>   35

                 PENTASTAR COMMUNICATIONS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      FOR THE YEAR ENDED DECEMBER 31, 2000
  AND FOR THE PERIOD FROM INCEPTION (MARCH 15, 1999) THROUGH DECEMBER 31, 1999
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                         2000        1999
                                                                       -------     -------
<S>                                                                   <C>         <C>
Cash flows from operating activities:
  Net loss ........................................................    $(2,527)   $   (433)
  Adjustments to reconcile net loss to net cash
     (used in) provided by operating activities--
     Depreciation and amortization  ...............................      1,917          74
     Issuance of options to consultant ............................         --         126
     Amortization of deferred financing costs .....................         17          --
     Provision for chargebacks and adjustments ....................        158          --
     Loss on disposal of fixed assets .............................         79          --
     Deferred income tax benefit ..................................     (1,425)       (244)
     Changes in operating assets and liabilities--
       Accounts receivable ........................................       (152)        533
       Inventory ..................................................         38          --
       Prepaid expenses and other .................................       (630)        (83)
       Accounts payable and accrued liabilities ...................     (1,644)         38
       Deferred revenue ...........................................      1,102          57
                                                                       -------    --------
          Net cash (used in) provided by operating activities......     (3,067)         68
                                                                       -------    --------

Cash flows from investing activities:
  Acquisitions, net of cash acquired ..............................     (6,081)     (1,878)
  Purchase of property and equipment ..............................       (618)        (91)
  Proceeds from sale of property and equipment ....................         65          --
  Amounts advanced against contingent purchase
    consideration .................................................     (1,150)         --
  Acquisition related payables ....................................       (147)       (708)
  Payment of additional purchase consideration ....................       (388)         --
  Payment of assumed acquisition debt .............................     (1,057)         --
  Advances to related parties .....................................         --          (9)
  Other ...........................................................         17         (45)
                                                                       -------    --------
          Net cash used in investing activities ...................     (9,359)     (2,731)
                                                                       -------    --------
  Cash flows from financing activities:
    Payments on capital lease obligations .........................        (75)         --
    Payments on long-term debt ....................................       (369)         --
    Payments on short-term acquisition debt obligation ............     (1,734)         --
    Payment of financing costs ....................................        (86)         --
    Issuance of common stock for cash, net ........................      3,118      10,714
    Issuance of common stock for stock options ....................          6          --
    Borrowings on line of credit ..................................      3,100          --
    Proceeds from related party debt ..............................        650          86
                                                                       -------    --------
          Net cash provided by financing activities ...............      4,610      10,800
                                                                       -------    --------
Net (decrease) increase in cash and cash equivalents ..............     (7,816)      8,137
Cash and cash equivalents, beginning of period ....................      8,137          --
                                                                       -------    --------
Cash and cash equivalents, end of period ..........................    $   321    $  8,137
                                                                       =======    ========
</TABLE>


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


                                      F-6
<PAGE>   36

                 PENTASTAR COMMUNICATIONS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          (DOLLAR AMOUNTS IN THOUSANDS)

1. BUSINESS AND ORGANIZATION

    PentaStar Communications, Inc., a Delaware corporation ("PentaStar" or the
"Company"), was founded on March 15, 1999. The Company is a multi-regional
company that designs, sells and facilitates the installation and usage of
communications services for small and medium-size business customers. Prior to
October 26, 1999, PentaStar had not conducted any operations, and all of its
activities were related to its formation and the offering discussed below. On
October 26, 1999 PentaStar, through its wholly-owned subsidiaries, acquired the
outstanding capital stock and other equity interests of DMA Ventures, Inc., dba
Access Communications ("Access") and ICM Communications Integration, Inc.
("ICM") (together, the "Predecessor Companies") and completed an initial public
offering of its common stock (the "Offering").

    Upon closing of the acquisitions of the Predecessor Companies and the
Offering, PentaStar commenced its business operations as a sales agent for
communications services including local access, long distance, wireless and
internet services for voice and data communications. PentaStar designs, procures
and facilitates the installation and use of communications services to best meet
its customers' specific needs. During the year ended December 31, 2000 the
Company acquired 10 communications services agents to expand its operations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

    The consolidated financial statements include the accounts of the Company
and its subsidiaries which are all wholly-owned. All significant intercompany
accounts and transactions are eliminated in consolidation.

Cash Equivalents

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

Revenue Recognition

    The Company earns commissions from the sale of communications services as an
agent for communications services providers. Revenues are recognized on the date
the respective service is installed by the provider, net of an amount for
estimated chargebacks by the service provider. Chargebacks relate to
cancellations by the customer for a defined period of time subsequent to
installation. These chargebacks have historically been insignificant and
predictable based upon the related revenues. The Company also receives
compensation in the form of future residual streams. Residual streams can be in
the form of a percentage of customer monthly usage or equal monthly payments
over the life of the customer contract. Any portion of the commission to be paid
by the service provider in the form of a future residual stream is not
recognized as revenue until the commission is received by the Company. Amounts
collected in advance of the service installation date are recorded as deferred
revenue until the installation occurs.

    Revenues from product sales are recognized upon acceptance of the equipment
by the customer.

    In December 1999, the staff of the Securities and Exchange Commission
released Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in
Financial Statements". SAB No. 101 provides interpretive guidance on the
recognition, presentation and disclosure of revenue in financial statements. The
Company's accounting policies are consistent with the guidance provided in SAB
No. 101 and its implementation as of January 1, 2000 did not have an effect on
the Company's financial position or results of operations.




                                      F-7
<PAGE>   37

Prepaid Commissions

    Commissions are paid in advance of installation, chargebacks and collection
of residual streams. The commissions are recoverable by the Company in the event
of cancellation by the customer prior to installation or in the event of
chargebacks by the service provider. Noncurrent prepaid commissions relate to
residual streams which have not been collected by the Company.

Use of Estimates

    The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires the use of estimates
and assumptions by management in determining the reported amounts of assets and
liabilities, the disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

    The fair values of cash and cash equivalents, accounts receivable and
accounts payable approximate their carrying amounts because of their short-term
nature. The fair value of borrowings approximate their carrying amounts based
upon interest rates currently available to the Company.

    Accounts receivable are recorded net of an allowance of $727 and $353 at
December 31, 2000 and 1999, respectively, for estimated chargebacks and
adjustments with the service providers.

Concentration of Credit Risk

    The Company's financial instruments exposed to concentrations of credit risk
consist primarily of cash and accounts receivable. The Company maintains its
cash in institutions that the Company considers of high credit quality. The
balances, at times, may exceed federally insured limits. The Company's accounts
receivable are unsecured. Credit risk with respect to accounts receivable is
limited due to the credit worthiness of the Company's primary customers, the
regional Bell operating companies. Management does not anticipate significant
credit losses from such financial instruments.

Inventories

    Inventories consist of finished goods and refurbished and used equipment
held for resale in the ordinary course of business. Inventories are carried at
the lower of cost or market. Cost is determined on a FIFO (first-in, first-out)
basis.

Property and Equipment

    Property and equipment is stated at cost and depreciated using the
straight-line method over the estimated useful lives of the related assets.
Leasehold improvements are capitalized and amortized using the straight-line
method over the shorter of the useful lives or the remaining lease term.

    Expenditures for repairs and maintenance are expensed as incurred.
Expenditures for major renewals and betterments, which extend the useful lives
of existing equipment, are capitalized and depreciated. Upon retirement or
disposition of property and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized.

    Property and equipment consists of the following as of December 31, 2000 and
1999:

<TABLE>
<CAPTION>
                                             ESTIMATED USEFUL
                                               LIFE IN YEARS      2000     1999
                                             ----------------     ----     ----
<S>                                          <C>               <C>       <C>
Computer and telephone equipment .....              3-7         $ 1,806    $ 295
Office furniture and equipment .......             3-10           1,174      162
Leasehold improvements ...............             2-10             448      116
Vehicles .............................              3-5              21       14
                                                                -------    -----
                                                                  3,449      587
Less: accumulated depreciation .......                             (889)     (32)
                                                                -------    -----
Property and equipment, net ..........                          $ 2,560    $ 555
                                                                =======    =====
</TABLE>

    Depreciation expense was $925 and $32 for 2000 and 1999, respectively.



                                      F-8
<PAGE>   38

Goodwill

    The excess of acquisition cost over fair value of net tangible assets of
businesses acquired has been recorded as goodwill and is being amortized on a
straight-line basis over its estimated life of 20 years:

<TABLE>
<CAPTION>
                                                       2000       1999
                                                       ----       ----
<S>                                                  <C>         <C>
Goodwill .........................................   $ 24,751    $ 4,501
Less: accumulated amortization ...................     (1,034)       (42)
                                                     --------    -------
Goodwill, net ....................................   $ 23,717    $ 4,459
                                                     ========    =======
</TABLE>

    Amortization expense was $992 and $42 for 2000 and 1999, respectively.

Long-lived Assets

    The Company evaluates whether its long-lived assets may be impaired whenever
events or changes in circumstances indicate that the carrying amounts may not be
recoverable from the future undiscounted cash flows. If the Company concludes a
long-lived asset is impaired, the asset is written down to its estimated fair
value.

Advertising and Promotion

    Advertising and promotional related costs are expensed when incurred or the
first time the advertising appears. Advertising and promotional related expense
was $97 for the year ended December 31, 2000. The Company did not incur any
advertising costs for the period from inception (March 15, 1999) through
December 31, 1999.

Stock-Based Compensation

    The Company accounts for its stock-based employee compensation agreements
using the intrinsic value method under which no compensation is recognized for
options granted to employees with an exercise price equal to or greater than the
fair market value of the underlying stock as of the measurement date. Equity
instruments granted to non-employees are recorded at fair value on the date of
grant.

Income Taxes

    Deferred tax assets and liabilities are provided for differences between the
financial statement and tax basis of assets and liabilities using enacted tax
rates. The provision for income taxes includes the amount due for the current
period and the change in deferred taxes between periods. A valuation allowance
is provided for a portion or all of the deferred tax asset when it is more
likely than not that the Company will not be able to realize the benefits of the
deferred tax assets in future years.

Earnings Per Share

    Basic earnings per share is computed by dividing earnings available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution of
stock options and warrants when their inclusion is dilutive.

<TABLE>
<CAPTION>
                                                            2000          1999
                                                            ----          ----
<S>                                                     <C>            <C>
Net income (loss) ...................................   $    (2,527)   $      (433)
Preferred dividends .................................            (4)            --
                                                        -----------    -----------
Earnings available to common shareholders ...........        (2,531)          (433)
                                                        ===========    ===========
Weighted-average shares outstanding .................     5,132,624      3,507,116
                                                        ===========    ===========
Net income (loss) per share .........................   $     (0.49)   $     (0.12)
                                                        ===========    ===========
</TABLE>

    Options and warrants excluded from the calculation of diluted loss per share
solely because the effect was antidilutive are as follows:

<TABLE>
<CAPTION>
                                                     2000       1999
                                                     ----       ----
<S>                                                <C>         <C>
Options ........................................   1,080,148   441,725
Warrants .......................................     125,000   125,000
                                                   ---------   -------
Total ..........................................   1,205,148   566,725
                                                   =========   =======
</TABLE>



                                      F-9
<PAGE>   39

Reclassifications

    Certain reclassifications have been made to the accompanying financial
statements as of December 31, 1999 and for the period from inception (March 15,
1999) through December 31, 1999 to conform to the current year presentation.

Recent Accounting Pronouncements

    In fiscal 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. Among other things, the
statement requires that an entity recognize all derivative instruments on the
balance sheet as either assets or liabilities, and to account for those
instruments at fair value. The Company has not entered into any derivative
financial instruments or hedging activities and therefore the adoption of SFAS
No. 133 had no impact on the Company's financial position or results of
operations.

3. BUSINESS COMBINATIONS

    Predecessor Companies

    On October 26, 1999, PentaStar acquired Access and ICM. Purchase
consideration for Access consisted of $241 in cash, the issuance of 205,000
shares of the Company's common stock and assumption of liabilities. Purchase
consideration for ICM consisted of $1,641 in cash, the issuance of 165,000
shares of the Company's common stock and assumption of liabilities. During 2000,
goodwill has been reduced by $321 for cash post-closing purchase consideration
adjustments of $50 and a $271 revaluation of certain assets acquired and
allocated in the original purchase price allocations.

    2000 Acquisitions

    During the year ended December 31, 2000, PentaStar completed the
acquisitions of 10 communications services agents. Following is a summary of the
acquisitions.

    In the first quarter of fiscal 2000, PentaStar, through a wholly-owned
subsidiary, acquired the assets of USTeleCenters, Inc. and Vermont Network
Services Corporation (collectively referred to as "UST"). UST, founded in 1986
and headquartered in Boston, Massachusetts, is a full-service communications
agent focusing on small business customers located throughout Verizon
Communications (f/k/a Bell Atlantic) 13 state Northeast and Mid-Atlantic region.
UST has agency agreements with service providers including Verizon
Communications, Bell South, Southwestern Bell and Sprint. The purchase
consideration consisted of $277 in cash, the issuance of 5,980 shares of
PentaStar's common stock with a fair market value of $100 and the assumption of
liabilities.

    In the first quarter of fiscal 2000, PentaStar, through a wholly-owned
subsidiary, acquired the assets of NCI Communications, Inc. ("NCI"). NCI is
primarily a long distance communications services agent located in Seattle,
Washington. NCI has agency agreements with Qwest, AT&T and GST Telecom. NCI was
owned by certain of the previous shareholders of ICM, who, upon the Company's
acquisition of ICM, became shareholders of the Company. The purchase
consideration consisted of $18 in cash and the cancellation of a $601 note
receivable from NCI to PentaStar.

    In the first quarter of fiscal 2000, PentaStar acquired ParTel, Inc.
("ParTel"). ParTel, founded in 1982, is a full-service communications agent
based in Phoenix, Arizona primarily servicing customers in the Phoenix and
Tucson metropolitan markets. ParTel is an agent of Qwest and sells primarily
high-end, data-oriented services. The purchase price consideration consisted of
$606 in cash and the issuance of 30,310 shares of PentaStar's common stock with
a fair market value of $539. Concurrent with the acquisition of ParTel, the
Company loaned $500 (interest at the prime rate plus 1% - 10.75% at December 31,
2000) to a corporation controlled by the former shareholders of ParTel. The loan
will be due not later than December 31, 2001, and is personally guaranteed by
the former shareholders. In addition, the agreement provides for additional
consideration in the form of cash and PentaStar common stock if certain
operating performance criteria are met by ParTel for the year ended December 31,
2000 subject to adjustments through March 31, 2001.

    In the first quarter of fiscal 2000, PentaStar, through a wholly-owned
subsidiary, acquired Resource Communications, Inc. ("Resource"). Resource, based
in Dublin, California, is a full-service communications agent, which furnishes
communication solutions to customers in Northern California. Resource is one of
the largest Cable & Wireless long distance master agents and a significant
Pacific Bell authorized sales representative. The initial purchase consideration
consisted of $1,037 of cash and the issuance of 81,250 shares of the Company's
common stock. Of the 81,250 of issued shares, 50,000 shares with a fair market
value of $919 were




                                      F-10
<PAGE>   40

placed in an indemnification escrow until March 31, 2001. The remaining 31,250
shares were placed in escrow until March 15, 2001 to be released upon Resource
attaining certain performance criteria for the year ended December 31, 2000. The
performance criteria were not attained and the 31,250 shares have been released
from escrow to PentaStar. In addition, the agreement provides for additional
consideration in the form of cash and PentaStar's common stock if certain
operating performance criteria are met by Resource for the period from January
1, 2000 to June 30, 2001.

    In the second quarter of fiscal 2000, PentaStar, through a wholly-owned
subsidiary, acquired the assets of VSI Network Solutions, Inc. dba Eastern
Telecom ("ETI"). ETI, founded in 1992, is a full-service communications agent
based in Warwick, Rhode Island, primarily servicing customers in Boston, New
York, Albany, Providence and Warwick. ETI is an authorized agent for Verizon and
Bell South. The initial purchase consideration consisted of $2,009 of cash, the
issuance of 57,122 shares of PentaStar's common stock with a fair market value
of $961, the assumption of $758 in debt and the assumption of operating
liabilities. The assumed debt was paid at closing. The 57,122 shares of common
stock were placed in an indemnification escrow until November 18, 2001. In
addition, the agreement provides for additional consideration in the form of
cash and PentaStar's common stock if certain combined operating performance
criteria of ETI and UST are met by ETI for the year ended December 31, 2000. The
combined operating performance criteria were not attained and thus no additional
purchase consideration was recognized.

    In the second quarter of fiscal 2000, PentaStar, through a wholly-owned
subsidiary, acquired the assets of the Network Services Agency Division of
Telecomm Industries Corp. ("TCMM"). TCMM's Network Services Agency Division is
Ameritech's largest distributor of voice and data services. TCMM is also an
authorized distributor for BellSouth. The initial purchase consideration
consisted of $1,362 of cash, the issuance of 278,949 shares of PentaStar's
common stock with a fair market value of $6,494 and the assumption of certain
debt and operating liabilities of TCMM. The assumed debt included $1,260 of
short-term obligations which were paid at closing. The remaining assumed debt of
$4,463 is secured by approximately $6,557 of future commissions due to PentaStar
from existing Ameritech contracts, which the Company expects to realize over the
next several years. In addition to the initial purchase consideration, the
agreement provides for additional consideration in the form of cash and
PentaStar's common stock if certain operating performance criteria are met by
TCMM for the period from April 1, 2000 through March 31, 2001. As of December
31, 2000, PentaStar has paid $388 in cash as additional purchase consideration.
The 278,949 shares of PentaStar common stock were placed in a general
indemnification escrow until the date at which the final earn-out amount is
determined. The total purchase consideration, including cash, stock and the
short-term debt obligation paid at closing, cannot exceed $18 million.

    In the third quarter of fiscal 2000, PentaStar acquired the Circuits
Business of NetLink, Inc. ("NetLink"). NetLink, located in St. Louis, Missouri,
is a full-service communications agent for Southwestern Bell and primarily sells
high-end data services. NetLink is also an Ameritech distributor of voice and
data services in Southern Illinois. The initial purchase consideration consisted
of $204 in cash, the issuance of 42,544 shares of PentaStar's common stock with
a fair market value of $1,010, the assumption of $299 in debt and the assumption
of operating liabilities. The assumed debt was paid at closing. In addition, the
agreement provides for additional consideration in the form of cash and
PentaStar's common stock if certain operating performance criteria are met by
NetLink for the period from August 1, 2000 through July 31, 2001.

    In the fourth quarter of fiscal 2000, PentaStar, through a wholly-owned
subsidiary, acquired Vision Communications Group, Inc. ("Vision"). Vision, based
in Montclair, New Jersey, is a communications services agent selling primarily
data-oriented local and long distance services in the Mid-Atlantic market.
Vision is an authorized agent for Verizon. The initial purchase consideration
consisted of $326 in cash and the issuance of 51,934 shares of PentaStar's
common stock with a fair market value of $1,207. Of the 51,934 of issued shares,
38,950 with a fair market value of $904 were placed in escrow and will be
released upon Vision attaining certain performance criteria for the period from
July 1, 2000 through June 30, 2001. In addition, there are potential earnout
payments to Vision based upon certain operating performance criteria during the
period from July 1, 2000 through June 30, 2001.

    In the fourth quarter of fiscal 2000, PentaStar, through a wholly-owned
subsidiary, acquired Lynx Communications, Inc dba Linear Communications, Inc.
("Linear"). Linear, based in Atlanta, Georgia, is BellSouth's largest
communications services agent, focused on selling voice, data, and Internet
services in BellSouth's nine-state region. The initial purchase consideration
consisted of $704 in cash and the issuance of 65,960 shares of PentaStar's
common stock with a fair market value of $1,554. Of the 65,960 of issued shares,
36,627 with a fair market value of $863 were placed in escrow and will be
released upon Linear attaining certain performance criteria for the period from
October 1, 2000 through September 30, 2001. In addition, there are potential
earn-out payments to Linear based upon certain operating performance criteria
during the period from October 1, 2000 through September 30, 2001.



                                      F-11
<PAGE>   41

    In the fourth quarter of fiscal 2000, PentaStar, through a wholly-owned
subsidiary, acquired the assets of the communications agency business of
Digistar Networks, Inc. ("Digistar"), known as The Network Group. The Network
Group is a communications services agent focused on selling data oriented local
and long distance services. It has operations in Chicago and Peoria, Illinois,
Atlanta, Georgia and Houston, Texas. The initial purchase consideration
consisted of $431 in cash and the assumption of certain operating liabilities.
Also, as part of the acquisition of The Network Group, PentaStar loaned Digistar
$650 (interest at 15%), payable on or before December 31, 2001. Digistar used
the loan proceeds to pay bank debt secured by the acquired assets. The loan is
secured by the guarantee of certain owners of Digistar. In addition, there are
potential earn-out payments to Digistar based upon certain operating performance
criteria during the period from October 1, 2000 through September 30, 2001.
Included in the accompanying consolidated balance sheet at December 31, 2000, is
approximately $180 to be distributed to Digistar Networks for post closing
working capital adjustments.

    Except for UST and ETI, the principal shareholders of the acquired companies
that have received PentaStar common stock as purchase consideration, have
entered into escrow and contingent stock agreements with PentaStar upon closing
of the acquisitions. These agreements adjust the final consideration paid to
those shareholders in return for their interests in the acquired companies.
Under these agreements, shares of PentaStar common stock were placed into
escrow. Based upon the earnings performance of an acquired company relative to
that of all other acquired companies for the 12-month period prior to the
earlier of a sale of substantially all of the assets or stock of PentaStar or
five years, the shareholder associated with that company or seller of that
company will receive back from escrow all, some or none of the shares such
shareholder or seller placed in escrow. In addition, based upon the relative
earnings performance of the acquired company, such shareholder or seller may
receive additional shares of common stock from PentaStar. PentaStar, at its
discretion, may distribute cash to such shareholder or seller in lieu of some or
all of the additional shares in an amount equal to the fair market value of the
additional shares not distributed. The agreements are designed, however, so that
there will be no net change to the total number of shares of PentaStar common
stock outstanding after the combined adjustments are made for all of the
acquired companies.

    The acquisitions discussed above were recorded using the purchase method of
accounting under which the purchase consideration was allocated to the
identifiable assets and liabilities of the acquired companies and the excess of
the purchase consideration over the fair value of the net assets acquired was
recorded as goodwill. The allocation of the purchase consideration for
acquisitions made during the year ended December 31, 2000 and for the period
from inception (March 15, 1999) through December 31, 1999 was as follows:


<TABLE>
<CAPTION>
                                                2000        1999        TOTAL
                                                ----        ----        -----
<S>                                            <C>         <C>         <C>
Purchase Consideration:
Cash .......................................   $  5,823    $  1,808    $  7,631
PentaStar common stock .....................     11,017       3,330      14,347
Acquisition costs ..........................      1,151          74       1,225
Purchase consideration adjustments .........       (222)        (50)       (272)
Additional purchase consideration ..........        388          --         388
                                               --------    --------    --------
                                               $ 18,157    $  5,162    $ 23,319
                                               ========    ========    ========
</TABLE>

<TABLE>
<CAPTION>
                                                2000        1999       TOTAL
                                                ----        ----       -----
<S>                                            <C>         <C>       <C>
Purchase Allocation:
Property and equipment .....................   $  2,346    $   496   $  2,842
Net working capital ........................     (1,200)       486       (714)
Noncurrent assets ..........................      1,040         --      1,040
Noncurrent liabilities .....................     (4,600)        --     (4,600)
Goodwill ...................................     20,571      4,180     24,751
                                               --------    -------   --------
                                               $ 18,157    $ 5,162   $ 23,319
                                               ========    =======   ========
</TABLE>

    The financial statements reflect a preliminary allocation of the purchase
price for acquisitions completed during the year ended December 31, 2000, to be
finalized upon evaluation of the fair market value of certain assets and
liabilities acquired. During 2000, goodwill has been reduced by $991 for cash
post-closing purchase consideration adjustments of $222 and $769 resulting from
the revaluation of certain assets and liabilities acquired and allocated in the
original purchase price allocations.

    The Company has entered into various contingent purchase price arrangements
under which additional consideration will be paid to the selling shareholders if
established criteria are achieved by the acquired company. The maximum amount of
additional purchase consideration possibly payable under these arrangements in
the form of cash, common stock or a combination thereof was approximately
$17,607 at December 31, 2000.

    The following unaudited pro forma condensed consolidated financial
information presents the consolidated results of operations of the Company as if
the acquisitions described above had occurred as of January 1, 1999. The
unaudited pro forma financial data does



                                      F-12
<PAGE>   42

not purport to represent what PentaStar's combined results of operations would
actually have been if such transactions in fact had occurred on that date and
are not necessarily representative of PentaStar's combined results of operations
for any future period. Since the acquired companies were not under common
control or management, historical combined results may not be comparable to, or
indicative of, future performance.

<TABLE>
<CAPTION>
                                                             FOR THE YEAR ENDED
                                                                DECEMBER 31,
                                                             ------------------
                                                              2000        1999
                                                             ------      ------
                                                                 (UNAUDITED)
<S>                                                       <C>            <C>
Revenue ..................................................   $ 35,361     $ 44,392
Net income (loss) from continuing operations .............     (2,318)         815
Net income (loss) from continuing operations per .........   $  (0.42)    $   0.15
  share-- basic and diluted
</TABLE>

4. SHAREHOLDERS' EQUITY

Preferred Stock

    The Board of Directors has the authority, without further action by the
shareholders, to issue up to 1,000,000 shares of preferred stock, in one or more
series and to determine dividends and other rights and preferences for the
preferred stock.

    The Company issued Series A preferred stock to BACE Investments, LLC on
October 25, 1999 as payment in full of the principal amount of notes payable
issued by BACE Investments, LLC to the Company for financing of the Company's
operations prior to the Offering. The Series A preferred stock has a stated
value of $1,000 per share and bears dividends on the stated value at a rate of
5% per annum, payable annually. In the event of dissolution, liquidation or
winding up of the Company, the Series A preferred stock has a preference to the
holders of the common stock in an amount equal to the stated value, plus the
unpaid dividends, whether or not declared, thereon. The Series A preferred stock
has no voting rights, redemption or conversion features and rates junior to any
other preferred stock.

Common Stock

    In connection with the organization and initial capitalization of PentaStar,
the Company issued 3,129,997 shares of common stock at $.0001 par value which
gives retroactive effect to a 3,417.96 for 1 stock split during 1999.

    On October 26, 1999, the Company successfully completed the Offering which
resulted in the sale of 1,297,845 shares of common stock for net proceeds of
$10,714.

    Upon completion of the Offering, the Company sold to the representative of
the underwriters for a nominal cost, warrants to purchase 125,000 shares of
common stock. These warrants became exercisable October 26, 2000 at a per share
exercise price of $12 and will expire October 26, 2004. The common stock
issuable upon exercise of the warrants is subject to certain adjustments to
protect the holder from dilution. Upon completion of the Offering, the Company
issued options to purchase 20,000 shares to a consultant for executive placement
services. The options were immediately vested and are exercisable at the initial
public offering price of $10. The options expire in 10 years. The fair value of
the warrants and options issued was $489 and $126 respectively, as determined by
the Black-Scholes pricing model. The weighted average assumptions used in
determining the fair value of the options and warrants was the contractual life
of the instrument, a risk free interest rate of 5.6%, expected volatility of 42%
and no dividend yield.

    On September 1, 2000, the Company closed a private placement of 156,313
shares of its common stock, resulting in net proceeds of $3,118, net of cash
offering costs of $182. The shares of common stock are restricted and were sold
to three selected institutional investors and a private investor. The investors
participating in the private placement may demand registration of the securities
upon written request. The investors have two "demand" registration rights and
also have "piggyback" registration rights on other registration statements the
Company files.

    During the year ended December 31, 2000, the founders of PentaStar entered
into additional contractual arrangements whereby restrictions on 3,129,997
shares of common stock have been extended to October 26, 2001. Excluding the
restricted private placement shares described above and the shares held by the
founders of the Company, 984,049 shares of the Company's common stock at
December 31, 2000, are held in escrow or are subject to arrangements that
prevent the owners from selling the shares. These shares represent the common
stock issued in connection with the Company's acquisitions of various
communications services agents in 1999 and 2000. When these arrangements expire,
the owners will be free to sell the shares. If the owners decide to sell these
shares, the availability of these shares could significantly affect the
Company's stock price. These arrangements expire as follows:



                                      F-13
<PAGE>   43

<TABLE>
<CAPTION>
          Years Ending December 31--
          <S>                                              <C>
          2001 .........................................   200,263
          2002 .........................................   346,735
          2003 .........................................        --
          2004 .........................................   437,051
                                                           -------
                                                           984,049
                                                           =======
</TABLE>

    The Company adopted its stock option plan on August 13, 1999. The Company
reserved 1,000,000 shares of its common stock for issuance pursuant to the
exercise of options granted under the Company's stock option plan. In April
2000, the Company authorized the amendment of the plan to increase the number of
shares available under the plan by 500,000 shares. The amendment was approved by
the Company's shareholders' at its annual shareholders' meeting in May 2000.

5.  BORROWINGS

Line of Credit

    On July 18, 2000, the Company entered into a Credit and Security Agreement
(the "Credit Agreement") with Wells Fargo Bank West, National Association
("Wells Fargo"). Terms of the Credit Agreement provide for maximum borrowings of
$10 million limited to 75% of eligible accounts receivable, as defined. The
Credit Agreement is secured by accounts receivable and by substantially all of
the remaining assets of PentaStar, excluding any rights to future residual
commission payments due to PentaStar from existing Ameritech contracts acquired
in connection with the TCMM acquisition. Advances under the Credit Agreement may
be used for short-term working capital needs and acquisitions. There are no
compensating balance requirements and the Credit Agreement requires compliance
with financial loan covenants related to debt levels compared to annualized cash
flows from operations. The Credit Agreement terminates and is payable in full on
July 31, 2001. Interest is payable monthly at the prime rate or, if elected by
the Company, the LIBOR rate plus 2.50% (9.75% at December 31, 2000). A
commitment fee in the amount of .25% is payable quarterly in arrears based on
the average daily unused portion of the total commitment. As of December 31,
2000, $3,100 was outstanding under the Credit Agreement and $1,784 was available
to be drawn.

Related Party Notes Payable

    In connection with the acquisition of The Network Group, three directors of
the Company loaned the Company $650, evidenced by three separate promissory
notes. Each note provides for interest at an annual rate of 12% to be paid
quarterly, unless restricted pursuant to the provisions of the Credit Agreement.
Principal and accrued interest is due and payable in full on the earliest of
December 31, 2002 or a change in control as defined in the notes.

Long-Term Debt

    On July 17, 2000, the Company entered into a Reducing Revolver Loan and
Security Agreement (the "Loan") with Merrill Lynch Business Financial Services,
Inc. Terms of the Loan provide for borrowings of $4,463. The Loan is secured by
approximately $6,557 of future residual commission payments due to PentaStar
from existing Ameritech contracts acquired in connection with the acquisition of
TCMM. Interest accrues at 2.4% over the 30-day Dealer Commercial Paper Rate
(8.95% effective rate at December 31, 2000) and is payable monthly. Monthly
equal principal payments of approximately $74 are due with a balloon payment due
on July 31, 2003 of $1,859.

    As of December 31, 2000, maturities of related party notes payable and
long-term debt are as follows:

<TABLE>
<CAPTION>
                                                          RELATED
                                                           PARTY
                                                           NOTES  LONG-TERM
                                                          PAYABLE    DEBT    TOTAL
                                                          ------- ---------  -----
          <S>                                              <C>      <C>      <C>
          Years Ending December 31--
          2001 .........................................   $   --   $  892   $  892
          2002 .........................................      650      892    1,542
          2003 .........................................       --    2,380    2,380
                                                           ------   ------   ------
                                                           $  650   $4,164   $4,814
                                                           ======   ======   ======
</TABLE>

    Interest of $398 was paid in 2000 (none in 1999).




                                      F-14
<PAGE>   44

Capital Leases

    The Company leases certain office furniture and equipment under leases.
Equipment acquired pursuant to capital lease agreements was $110 in 2000 (none
in 1999). The Company also acquired certain assets subject to capital leases
during 2000 in connection with its acquisition activity. The net book value of
assets under capital leases at December 31, 2000 totaled $172. As of December
31, 2000, future minimum lease payments required under capital leases, together
with their present value are as follows.

<TABLE>
<CAPTION>
          Years Ending December 31--
          <S>                                            <C>
          2001 .......................................   $  91
          2002 .......................................      72
          2003 .......................................      36
          2004 .......................................      12
          2005 .......................................       6
                                                         -----
          Net minimum lease payments .................     217
          Less interest amounts ......................     (36)
                                                         -----
          Present value of obligation ................     181
          Less current obligation ....................     (71)
                                                         -----
          Long-term capital lease obligation .........   $ 110
                                                         =====
</TABLE>

6. COMMITMENTS AND CONTINGENCIES

Operating Leases

    The Company leases various office facilities and equipment from unrelated
parties and from certain shareholders under long-term leases. The Company
subleases portions of certain leases to both unrelated and related parties.
Generally, the Company is required to pay executory costs such as property
taxes, maintenance and insurance.

    As of December 31, 2000, future minimum lease payments required under
operating leases are as follows:

<TABLE>
<CAPTION>
                                                                                 NET
                                                        MINIMUM       TOTAL   OBLIGATION
                                            GROSS      SUBLEASE        NET    TO RELATED
                                         OBLIGATION   COMMITMENTS  OBLIGATION   PARTIES
                                         ----------   -----------  ---------- ----------
<S>                                      <C>          <C>          <C>        <C>
          Years Ending December 31--
          2001.......................      $2,031       $ 261        $1,770      $ 181
          2002.......................         943         125           818        139
          2003.......................         496          41           455         76
          2004.......................         379          28           351         77
          2005.......................         132          --           132         39
          Thereafter.................          --          --            --         --
                                           ------       -----        ------      -----
                                           $3,981       $ 455        $3,526      $ 512
                                           ======       =====        ======      =====
</TABLE>

    Total facilities rent expense, net of sublease payments, was $1,139 and $52
for 2000 and 1999, respectively, of which, $166 and $18 represents rent expense
for the related party leases, respectively.

Litigation

    The Company is involved in litigation arising in the ordinary course of
business. It is the opinion of management that the outcome of such litigation
will not have a material effect on the Company's results of operations or
financial position.

7. STOCK OPTIONS

    On August 13, 1999, the Board of Directors adopted the PentaStar
Communications, Inc. Stock Option Plan (the "Stock Option Plan") for the purpose
of attracting and retaining certain key employees of the Company. The Stock
Option Plan will terminate on the tenth anniversary of the date of its adoption,
unless earlier terminated by the Board of Directors pursuant to the terms of the
Stock Option Plan. The Stock Option Plan is administered by the Incentive Plan
Committee which is comprised of members of the Board of Directors. The Stock
Option Plan, as amended, provides that an aggregate of 1,500,000 of the
Company's authorized shares be reserved for future grants under the Stock Option
Plan. The exercise price of incentive stock options granted pursuant to the
Stock Option Plan cannot be less than 100% of the fair market value of the
common stock on the date of the grant and the term of these options cannot
exceed ten years.



                                      F-15
<PAGE>   45

    The Stock Option Plan activity for the period from inception (March 15,
1999) through December 31, 2000 is as follows:

<TABLE>
<CAPTION>
                                                                  WEIGHTED
                                                                  AVERAGE
                                                                  EXERCISE
                                                       OPTIONS     PRICE
                                                       -------    --------
<S>                                                  <C>          <C>
Options outstanding at March 15, 1999 ............           --    $   --
Granted ..........................................      441,725     10.27
Exercised ........................................           --        --
                                                     ----------    ------
Options outstanding at December 31, 1999 .........      441,725     10.27
Granted ..........................................      826,345     19.20
Exercised ........................................         (666)    10.00
Forfeited ........................................     (187,256)    16.94
                                                     ----------    ------
Options outstanding at December 31, 2000 .........    1,080,148    $16.00
                                                     ==========    ======
Options exercisable at December 31, 2000 .........      205,867    $10.14
                                                     ==========    ======
</TABLE>

    Exercise prices for employee awards outstanding as of December 31, 2000 are
as follows:

<TABLE>
<CAPTION>
                                                OPTIONS OUTSTANDING                  OPTIONS EXERCISABLE
                   RANGE OF       ---------------------------------------------    -----------------------
                   EXERCISE                      REMAINING LIFE      WEIGHTED                   WEIGHTED
                     PRICE           NUMBER        (IN YEARS)     AVERAGE PRICE     NUMBER   AVERAGE PRICE
                ----------------  ------------   --------------   -------------    -------   -------------
<S>                               <C>            <C>                               <C>         <C>
                     $10.00          389,098         8.81           $ 10.00        198,367        $10.00
                $13.63 to $19.88     400,675         9.20           $ 17.63          7,500        $13.97
                $20.00 to $24.13     290,375         9.79           $ 21.78             --            --
                                   ---------                        -------        -------        ------
                                   1,080,148                        $ 16.00        205,867        $10.14
                                   =========                        =======        =======        ======
</TABLE>


    The following table reflects the pro forma net loss if the Company had
elected to record employee option grants at fair value on the date of grant:

<TABLE>
<CAPTION>
                                               2000       1999
                                               ----       ----
<S>                                          <C>       <C>
Net loss:
   As reported ...........................   $(2,527)   $(433)
   Pro forma .............................   $(3,450)   $(812)
Earnings per share:
   As reported basic and diluted .........   $ (0.49)   $(0.12)
   Pro forma basic and diluted ...........   $ (0.72)   $(0.23)
</TABLE>

    The weighted-average fair value of options granted during 2000 and 1999 was
$8.91 and $3.46 per share, respectively. The estimated fair value of each option
granted is calculated using the Black-Scholes option-pricing model. The
weighted-average assumptions used in the model were as follows:

<TABLE>
<CAPTION>
                                           2000     1999
                                           ----     ----
<S>                                       <C>      <C>
Risk-free interest rate ...............    6.2%    5.6%
Expected years until exercise .........      5       4
Expected stock volatility .............     44%     42%
Dividend yield ........................    0.0%    0.0%
</TABLE>

8. RELATED-PARTY TRANSACTIONS

    The Company is a party to a consulting agreement with BIBD, LLC, a venture
between BACE Industries, LLC (an affiliate of BACE Investments, LLC, the largest
shareholder of the Company) and Black Diamond Capital, LLC (a significant
shareholder of the Company). Under the agreement, BIBD assists in identifying
potential acquisition candidates and other financial consulting. The agreement
commenced on September 1, 1999 and provides for reimbursement of defined
expenses and the payment of a monthly fee that varies depending on the Company's
annualized revenues. The Company made payments to BIBD, LLC of $338 and $67
during 2000 and 1999, respectively.

    The Company leases facilities from the previous shareholders of certain of
the acquired companies for an aggregate $22 per month. These leases expire at
various dates through November 14, 2002. The Company also is the sublessor under
an agreement with a previous shareholder under which it receives monthly
rentals of $8.

    The Company and previous shareholders of certain acquired companies have
agreed to share certain office service costs. The amounts due from related
parties as of December 31, 2000 includes $92 due from previous shareholders for
their portion of the shared office service costs.



                                      F-16
<PAGE>   46


    Concurrent with the acquisition of The Network Group, the Company loaned
$650 to Digistar Networks, Inc. Interest accrues at 15% per annum. The loan,
together with accrued interest is due not later than December 31, 2001. As of
December 31, 2000 the loan, together with accrued interest had an outstanding
balance of $650.

    Concurrent with the acquisition of ParTel, the Company loaned $500 to
Par.com, a corporation controlled by the former shareholders of ParTel. Interest
accrues at the prime rate plus 1% (10.75% at December 31, 2000). The loan,
together with accrued interest is due not later than December 31, 2001. As of
December 31, 2000 the loan, together with accrued interest had an outstanding
balance of $541.

    The Company receives fees for the referral of equipment hardware business to
Telecomm Industries Corp. ("Telecomm"), the previous owner of TCMM. The amounts
due from related parties as of December 31, 2000, includes $176 due from
Telecomm for equipment hardware referral fees.

    As of December 31, 2000, three directors of the Company had loaned the
Company $650.

    In connection with the acquisition of ICM, the Company acquired a note
receivable from NCI. NCI is owned by certain of the previous shareholders of
ICM, who, upon the Company's acquisition of ICM, became shareholders of the
Company. At December 31, 1999, NCI owed the Company $601 under the terms of the
note receivable for cash advances, commissions payable to ICM and shared
expenses. In the first quarter of 2000, the Company acquired the assets of NCI
and forgave the note receivable as part of the purchase consideration.

9. INCOME TAXES

    The benefit for income taxes consists of the following for the year ended
December 31, 2000 and for the period from inception (March 15, 1999) through
December 31, 1999:

<TABLE>
<CAPTION>
                                           2000      1999
                                         -------    ------
<S>                                      <C>        <C>
Current provision:
  Federal ............................   $    --    $  --
  State ..............................        99       --
                                         -------    -----
          Total current ..............        99       --
                                         -------    -----
Deferred (benefit):
  Federal ............................    (1,265)    (211)
  State ..............................      (160)     (33)
                                         -------    -----
          Total deferred .............    (1,425)    (244)
                                         -------    -----
  (Benefit) for income taxes .........   $(1,326)   $(244)
                                         =======    =====
</TABLE>

    A reconciliation of the statutory income tax rate to the benefit for income
taxes for the year ended December 31, 2000 and for the period from inception
(March 15, 1999) is as follows:

<TABLE>
<CAPTION>
                                                    2000     1999
                                                    ----     ----
<S>                                                 <C>      <C>
Federal income tax at statutory rate ............   35.0%    35.0%
State income taxes, net of federal tax effect ...    1.7      3.3
Goodwill amortization and other .................   (2.3)    (2.2)
                                                    ----     ----
          Total benefit .........................   34.4%    36.1%
                                                    ====     ====
</TABLE>

    Deferred income taxes arising from differences in the tax basis of assets
and liabilities and their carrying amounts for financial reporting purposes are
as follows:

<TABLE>
<CAPTION>
                                              2000       1999
                                              ----       ----
<S>                                          <C>        <C>
Receivables, inventory and accrued
  expenses ...............................   $   327    $(168)
Property basis ...........................      (167)     (35)
Net operating losses .....................     1,449      382
Other ....................................        --       47
                                             -------    -----
          Net deferred tax asset .........   $ 1,609    $ 226
                                             =======    =====
</TABLE>

    In connection with the acquisition of Access, the Company acquired operating
loss carryforwards for federal income tax purposes of approximately $585,
expiring in various years from 2013 to 2018. These operating loss carryforwards
may be subject to limitation under Internal Revenue Code Section 382. During the
year ended December 31, 2000 and for the period from inception (March 15, 1999)
through December 31, 1999, the Company generated approximately $2,760 and $540
of additional operating loss carryforward which will expire in 2020 and 2019,
respectively.


                                      F-17
<PAGE>   47

    There were no payments made for income taxes in 2000 and 1999.

10. MAJOR CUSTOMERS

    The Company operates in one business segment: the sale of communications
services. Substantially all of the Company's revenues are generated from a
limited number of communications services providers as follows:


<TABLE>
<CAPTION>
                                                 CONTRACT
                                               RENEWAL DATES    2000  1999
                                               -------------    ----  ----
<S>                                          <C>                <C>    <C>
Verizon ..................................   December 31, 2001   35%   --
Ameritech ................................     January 1, 2002   25%   --
Qwest (f/k/a U S WEST) ...................   December 31, 2001   22%   99%
</TABLE>

    In its capacity as an agent, the Company earns commissions from these
providers by selling the providers' communications services to small and
medium-size businesses. The Company's agent services to these providers are
performed pursuant to contractual arrangements that are subject to periodic
renegotiation and renewal. The Company has historically not encountered any
difficulties in renewing the arrangements. However, the inability to renew the
agreements or a diminution in the relationship with any of these major customers
would have a material adverse impact on the Company's operations.

11. UNAUDITED QUARTERLY DATA

    The following summarizes the Company's unaudited quarterly results of
operations for 2000 and 1999:

<TABLE>
<CAPTION>
                                                            QUARTER     QUARTER    QUARTER       QUARTER
                                                             ENDED       ENDED      ENDED         ENDED
                                                            MARCH 31    JUNE 30   SEPTEMBER 30  DECEMBER 31
                                                            --------   --------   ------------  -----------
<S>                                                        <C>         <C>        <C>            <C>
(dollars in thousands, except per share amounts)

Year Ended December 31, 2000:
 Total revenues ..........................................   $ 4,440    $ 7,550       $ 6,955     $ 8,853
  Net loss ...............................................      (501)      (718)       (1,203)       (105)
  Basic and diluted loss per share .......................     (0.10)     (0.14)        (0.23)      (0.02)
  Earnings before interest, taxes, depreciation
    and amortization (EBITDA) ............................      (543)      (352)       (1,122)        379

Inception (March 15, 1999) to December 31, 2000:
  Total revenues .........................................   $    --    $    --       $    --     $   694
  Net loss ...............................................        --         (2)           (6)       (425)
  Basic and diluted loss per share .......................        --         --            --       (0.10)
  Earnings before interest, taxes, depreciation
    and amortization (EBITDA) ............................        --         (2)           (5)       (653)
</TABLE>

    "Earnings before interest, taxes, depreciation and amortization" (EBITDA)
represents the income (loss) from operations before interest, other expense
(income), income tax expense (benefit), depreciation and amortization. EBITDA
does not represent cash flow for the periods presented and should not be
considered as an alternative to net earnings (loss) as an indicator of the
Company's operating performance or as an alternative to cash flows as a source
of liquidity, and may not be comparable with EBITDA as defined by other
companies.

12. SUBSEQUENT EVENTS

    Subsequent to December 31, 2000, PentaStar, through a wholly-owned
subsidiary, acquired Digital Sales Support Net, Inc. ("Digital") and RKK
Consulting Group, Inc. ("RKK"). Digital, headquartered in New York, New York, is
a communications services agent focused on selling primarily Verizon data
communications services. The owners of RKK, who will manage the combined
operations of Digital and RKK, have been focused on selling Verizon data
oriented local products and long distance services in the New York and New
Jersey markets. The initial purchase consideration for Digital consisted of $200
in cash and the issuance of 30,374 shares of PentaStar's common stock with a
fair market value of $800. Of the 30,374 of issued shares, 18,984 with a fair
market value of $500 were placed in escrow and will be released upon Digital
attaining certain performance criteria for the period from January 1, 2001
through December 31, 2001. In addition, the agreement provides for additional
consideration in the form of cash and PentaStar's common stock if certain
operating performance criteria are met by Digital for the period from January 1,
2001 through December 31, 2001. The initial purchase consideration for RKK
consisted of 37,968 of PentaStar's common stock with a fair market value of




                                      F-18
<PAGE>   48
$1,000. Of the 37,968 of issued shares, 36,070 with a fair market value of $950
were placed in escrow and will be released upon RKK attaining certain
performance criteria for the period from February 1, 2001 through January 31,
2002. In addition, the agreement provides for additional consideration in the
form of cash and PentaStar's common stock if certain operating performance
criteria are met by RKK for the period from February 1, 2001 through January 31,
2002.



                                      F-19
<PAGE>   49


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
ICM Communications Integration, Inc.:

    We have audited the accompanying balance sheets of ICM Communications
Integration, Inc. (a Washington corporation) as of October 25, 1999 and December
31, 1998, and the related statements of operations, shareholders' equity and
cash flows for the period from January 1, 1999 to October 25, 1999, and for the
year ended December 31, 1998. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

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

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ICM Communications
Integration, Inc. as of October 25, 1999 and December 31, 1998, and the results
of its operations and its cash flows for the period from January 1, 1999 to
October 25, 1999, and for the year ended December 31, 1998 in conformity with
accounting principles generally accepted in the United States.



                                         ARTHUR ANDERSEN LLP

Denver, Colorado,
January 19, 2000.



                                      F-20
<PAGE>   50

                      ICM COMMUNICATIONS INTEGRATION, INC.

                                 BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                    OCTOBER 25,  DECEMBER 31,
                                                                       1999         1998
                                                                    ----------   -----------
<S>                                                                 <C>          <C>
                            ASSETS

Current assets:
  Cash and cash equivalents .....................................      $    2      $  138
  Accounts receivable, net ......................................       1,306       1,229
  Related party receivable ......................................          --          27
  Prepaid expenses and other ....................................         100          79
                                                                       ------      ------
          Total current assets ..................................       1,408       1,473
Related party note receivable ...................................         568         281
Property and equipment, net .....................................         150         178
                                                                       ------      ------
          Total assets ..........................................      $2,126      $1,932
                                                                       ======      ======

              LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable and accrued expenses .........................      $  324      $  101
  Compensation related accruals .................................         561         465
  Deferred revenue ..............................................         260         159
  Shareholder note payable ......................................          29          31
  Line of credit ................................................         151           4
  Income taxes payable ..........................................          37          37
  Deferred income taxes .........................................         146         302
                                                                       ------      ------
          Total current liabilities .............................       1,508       1,099
                                                                       ------      ------
Deferred income taxes ...........................................          19          --
Commitments and contingencies
Shareholders' equity:
  Common stock, no par value; 1,000,000 shares authorized;
      514,000 shares issued and outstanding .....................          --          --

  Retained earnings .............................................         599         833
                                                                       ------      ------
          Total shareholders' equity ............................         599         833
                                                                       ------      ------
          Total liabilities and shareholders' equity ............      $2,126      $1,932
                                                                       ======      ======
</TABLE>


                 The accompanying notes to financial statements
                 are an integral part of these balance sheets.


                                      F-21
<PAGE>   51

                      ICM COMMUNICATIONS INTEGRATION, INC.

                            STATEMENTS OF OPERATIONS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                            PERIOD FROM
                                                            JANUARY 1 TO     YEAR ENDED
                                                             OCTOBER 25,    DECEMBER 31,
                                                                1999           1998
                                                            ------------    -----------
<S>                                                          <C>            <C>
Revenues:
  Advanced communications services ......................      $ 2,718       $ 3,681
  Basic dial tone services ..............................          527           594
                                                               -------       -------
                                                                 3,245         4,275
                                                               -------       -------
Costs and expenses:
  Salaries and commissions ..............................        2,322         2,746
  Other general and administrative expenses .............        1,285           952
                                                               -------       -------
                                                                 3,607         3,698
                                                               -------       -------
          Income (loss) from operations .................         (362)          577
                                                               -------       -------
Other (income) expense:
  Interest income .......................................           (1)           (9)
  Interest expense ......................................           10             1
                                                               -------       -------
          Other (income) expense, net ...................            9            (8)
                                                               -------       -------
Income (loss) before provision for income taxes .........         (371)          585
Provision (benefit) for income taxes ....................         (137)          200
                                                               -------       -------
Net income (loss) .......................................      $  (234)      $   385
                                                               =======       =======
</TABLE>


                 The accompanying notes to financial statements
                 are an integral part of these balance sheets.


                                      F-22
<PAGE>   52

                      ICM COMMUNICATIONS INTEGRATION, INC.

                       STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                   COMMON STOCK                     TOTAL
                                                ------------------    RETAINED   SHAREHOLDERS'
                                                 SHARES    AMOUNT     EARNINGS      EQUITY
                                                --------  --------    --------   ------------
<S>                                              <C>       <C>        <C>        <C>
Balances, December 31, 1997 ................       520       $ 10       $ 476       $ 486
  Retirement of repurchased shares .........        (6)       (10)        (28)        (38)
  Net income ...............................        --         --         385         385
                                                  ----       ----       -----       -----
Balances, December 31, 1998 ................       514         --         833         833
  Net loss .................................        --         --        (234)       (234)
                                                  ----       ----       -----       -----
Balances, October 25, 1999 .................       514       $ --       $ 599       $ 599
                                                  ====       ====       =====       =====
</TABLE>


                 The accompanying notes to financial statements
                 are an integral part of these balance sheets.


                                      F-23
<PAGE>   53

                      ICM COMMUNICATIONS INTEGRATION, INC.

                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                    PERIOD FROM
                                                                    JANUARY 1 TO  YEAR ENDED
                                                                     OCTOBER 25,  DECEMBER 31,
                                                                        1999         1998
                                                                    ------------  -----------
<S>                                                                 <C>           <C>
Cash flows from operating activities:
  Net income (loss) ..............................................      $(234)      $ 385
  Adjustments  to reconcile net income (loss) to net
     cash provided by operating activities--
     Deferred income tax benefit .................................       (137)        (47)
     Depreciation ................................................         38          37
     Gain on disposition of assets ...............................         (7)         --
     Provision for uncollectible accounts ........................        116         141
     Changes in operating assets and liabilities--
       Accounts receivable, net ..................................       (166)       (621)
       Prepaid expenses and other ................................        (21)        (28)
       Accounts payable and accrued expenses .....................        319         154
       Income taxes payable ......................................         --         160
       Deferred revenue ..........................................        101         110
                                                                        -----       -----
          Net cash provided by operating activities ..............          9         291
                                                                        -----       -----
Cash flows from investing activities:
  Purchase of property and equipment .............................        (11)        (96)
  Advances to related parties ....................................       (287)       (225)
  Proceeds from disposition of assets ............................          8          --
                                                                        -----       -----
          Net cash used in investing activities ..................       (290)       (321)
                                                                        -----       -----
Cash flows from financing activities:
  Net change in line of credit ...................................        147           4
  Treasury stock repurchase ......................................         (2)         (7)
  Payments on capital lease obligations ..........................         --         (10)
                                                                        -----       -----
          Net cash provided by (used in) financing
            activities ...........................................        145         (13)
                                                                        -----       -----
Net decrease in cash and cash equivalents ........................       (136)        (43)
Cash and cash equivalents, beginning of period ...................        138         181
                                                                        -----       -----
Cash and cash equivalents, end of period .........................      $   2       $ 138
                                                                        =====       =====
Supplemental schedule of noncash investing and financing
  activities:
  Acquisition of treasury stock for note payable .................      $  --       $  38
                                                                        =====       =====
Supplemental disclosure of cash flow information:
  Cash paid for interest .........................................      $  10       $   1
                                                                        =====       =====
  Cash paid for taxes ............................................      $  --       $  88
                                                                        =====       =====
</TABLE>


                 The accompanying notes to financial statements
                 are an integral part of these balance sheets.


                                      F-24
<PAGE>   54


                      ICM COMMUNICATIONS INTEGRATION, INC.

                          NOTES TO FINANCIAL STATEMENTS
                          (DOLLAR AMOUNTS IN THOUSANDS)

1. BUSINESS AND ORGANIZATION

    The financial statements reflect the historical cost of assets and
liabilities and results of operations of ICM Communications Integration, Inc., a
Washington corporation (the "Company"), incorporated on January 3, 1995. On
October 26, 1999, PentaStar Communications, Inc. ("PentaStar"), through a wholly
owned subsidiary, closed an Agreement and Plan of Merger, pursuant to which the
Company was merged into PentaStar.

Dependence Upon U S WEST

    The Company acts as a sales agent for and generated substantially all of its
revenues from U S WEST Communications, Inc. ("U S WEST"), a regional Bell
operating company. The loss of the relationship with U S WEST or a material
diminishment in the volume of business with U S WEST would adversely affect the
Company. Management believes the Company could become a sales agent for another
provider with comparable terms if it were to lose its relationship with U S
WEST.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash Equivalents

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

Property and Equipment

    Property and equipment is stated at cost and depreciated using the
straight-line method over the estimated useful lives of the related assets.
Expenditures for repairs and maintenance are expensed as incurred. Expenditures
for major renewals and betterments, which extend the useful lives of existing
equipment, are capitalized and depreciated. Upon retirement or disposition of
property and equipment, the cost and related accumulated depreciation are
removed from the accounts and any resulting gain or loss is recognized in the
statements of operations. Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                  ESTIMATED USEFUL  OCTOBER 25,  DECEMBER 31,
                                                   LIFE IN YEARS      1999          1998
                                                  ----------------  ----------  -------------
<S>                                               <C>               <C>         <C>
Computer and telephone equipment ................      3-5            $ 177        $ 191
Office furniture and fixtures ...................        7               63           40
                                                                      -----        -----
                                                                        240          231
Less: accumulated depreciation ..................                       (90)         (53)
                                                                      -----        -----
          Property and equipment, net ...........                     $ 150        $ 178
                                                                      =====        =====
</TABLE>

    Depreciation expense was approximately $38 and $37 for the period from
January 1, 1999 to October 25, 1999, and for the year ended December 31, 1998,
respectively.

Revenue Recognition

    Revenue and the related commissions expense are recognized in the month when
services are installed by U S WEST. Deferred revenue in the accompanying balance
sheets represents cash collected from U S WEST on uninstalled services.

    Beginning in 1998, the Company received advanced communication service
commissions from a related entity for telecommunication agency services not
related to U S WEST. The revenue approximated $83 and $32 for the period from
January 1, 1999 to October 25, 1999, and for the year ended December 31, 1998,
respectively.



                                      F-25
<PAGE>   55

    The Company has not received payment for certain installed services of $865
and $1,018 at October 25, 1999 and December 31, 1998, respectively. The delay in
payment for these disputed items has been due to deficiencies in documentation
between the Company and U S WEST and discrepancies in the amounts believed
receivable from U S WEST. An allowance of $238 and $240 at October 25, 1999 and
December 31, 1998, respectively, has been established for these disputed
receivables.

Use of Estimates

    The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities, the
disclosures of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Significant estimates
which could change in the near future include the allowance provided for
disputed receivables.

Fair Value of Financial Instruments

    The Company's financial instruments consist of cash and cash equivalents,
investments, accounts receivable, accounts payable and borrowings. The carrying
value of these financial instruments on the accompanying balance sheets
approximates their fair value because of their short-term nature.

Concentration of Credit Risk

    The Company's financial instruments exposed to concentrations of credit risk
consist primarily of cash and accounts receivable. The Company maintains their
cash in institutions, which the Company considers of high credit quality. The
balances, at times, may exceed federally insured limits. Credit risk with
respect to accounts receivable is limited due to the credit worthiness of the
Company's major customer, U S WEST. Management does not anticipate significant
credit losses from such financial instruments.

Asset Impairment

    The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Long-lived assets, which are held and used in operations would
be impaired if the undiscounted future cash flows related to the asset did not
exceed the net book value. If an asset is determined to be impaired, it is
written down to its fair value.

Advertising and Promotion

    Advertising and promotional related expenses are charged to operations when
incurred or the first time the advertising occurs. Advertising expense totaled
$18 and $30 for the period from January 1, 1999 to October 25, 1999 and for the
year ended December 31, 1998, respectively.

Income Taxes

    Deferred tax assets and liabilities are provided for differences between the
financial statement and tax basis of assets and liabilities using current
enacted tax rates. The provision for income taxes includes the amount due for
the current period and the change in deferred taxes between periods.

    A valuation allowance is provided for a portion or all of the deferred tax
asset when it is more likely than not that the Company will not be able to
realize the benefits of the deferred tax assets in future years.

Reclassifications

    Certain prior year amounts have been reclassified to conform to the current
year presentation.

Recent Accounting Pronouncements

    In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
The Company is required to adopt SFAS No. 133 no later than the first fiscal
quarter of 2001.



                                      F-26
<PAGE>   56


SFAS No. 133 establishes methods of accounting for derivative financial
instruments and hedging activities related to those instruments as well as other
hedging activities. To date, the Company has not entered into any derivative
financial instruments or hedging activities. The Company has not determined the
impact of adopting SFAS No. 133.

3. BORROWINGS

Line of Credit

    In June 1997, the Company established a line of credit with SeaFirst Bank,
which permits the Company to borrow up to $50 at a rate equal to the prime rate
plus 3% (11.25% and 10.75% at October 25, 1999, and December 31, 1998,
respectively). The line of credit expires on November 5, 1999. A related party,
who is a shareholder and director, guarantees borrowings under the agreement.
The credit line was increased to $150 in April of 1999 and three additional
shareholders and directors became guarantors. The Company had outstanding
balances under this line of credit of $151 and $4 at October 25, 1999, and
December 31, 1998, respectively. Subsequent to October 25, 1999, in connection
with the acquisition of the Company by PentaStar, the line of credit was paid in
full.

4. OPERATING LEASES

    The Company leases three office facilities in Bellevue, Washington and
Portland, Oregon. The Company sublet a portion of one of the Bellevue,
Washington leases to a related party through August 1999 and began subletting to
an unrelated party in September 1999. The Company is required to pay executory
costs such as property taxes, maintenance and insurance under its operating
leases.

    As of October 25, 1999, future minimum lease payments required under
operating leases, net of sublease payments, are as follows:

<TABLE>
<CAPTION>

                                                                          MINIMUM
                                                              GROSS       SUBLEASE           NET
                                                           OBLIGATION    COMMITMENTS     OBLIGATION
                                                          ------------   ------------   ------------
<S>                                                       <C>            <C>            <C>
Period from October 26, 1999 to December 31, 1999 .....   $         34   $          8   $         26
Years ended December 31--
  2000 ................................................            208             51            157
  2001 ................................................            190             51            139
  2002 ................................................            157             38            119
                                                          ------------   ------------   ------------
                                                          $        589   $        148   $        441
                                                          ------------   ------------   ------------
</TABLE>

    Rent expense, net of sublease payments, charged to operations totaled
approximately $129 and $106 for the period from January 1, 1999 to October 25,
1999 and for the year ended December 31, 1998, respectively. Sublease charges to
the related party were $33 and $16 for the period from January 1, 1999 to
October 25, 1999 and for the year ended December 31, 1998, respectively.

5. INCOME TAXES

    The (benefit) provision for income taxes consists of the following:

<TABLE>
<CAPTION>

                                                     PERIOD FROM
                                                     JANUARY 1 TO     YEAR ENDED
                                                      OCTOBER 25,    DECEMBER 31,
                                                         1999           1998
                                                     ------------    ------------

<S>                                                  <C>             <C>
Current (benefit) provision:
  Federal ........................................   $         --    $        213
  State ..........................................             --              34
                                                     ------------    ------------
          Total current ..........................             --             247
                                                     ------------    ------------
Deferred (benefit) provision:
  Federal ........................................           (119)            (41)
  State ..........................................            (18)             (6)
                                                     ------------    ------------
          Total deferred .........................           (137)            (47)
                                                     ------------    ------------
  (Benefit) provision for income taxes ...........   $       (137)   $        200
                                                     ============    ============
</TABLE>


                                      F-27
<PAGE>   57

    A reconciliation of the statutory income tax rate to the provision for
income taxes is as follows:

<TABLE>
<CAPTION>

                                                     PERIOD FROM
                                                     JANUARY 1 TO      YEAR ENDED
                                                      OCTOBER 25,      DECEMBER 31,
                                                         1999             1998
                                                     ------------     ------------
<S>                                                  <C>              <C>
Federal income tax at statutory rate .............           34.0%            34.0%
State income taxes, net of federal tax  effect....            3.3              3.3
Other ............................................           (0.4)            (3.1)
                                                     ------------     ------------
          Total provision ........................           36.9%            34.2%
                                                     ============     ============
</TABLE>

    The tax effects of temporary differences, representing deferred tax assets
and liabilities, result principally from the following:

<TABLE>
<CAPTION>
                                                      OCTOBER 25,    DECEMBER 31,
                                                         1999           1998
                                                     ------------    ------------
<S>                                                  <C>             <C>
Current deferred tax assets (liabilities):
  Accounts receivable, prepaids and other ........   $       (644)   $       (595)
  Deferred revenue ...............................             97              59
  Payables and accruals ..........................            343             144
  Allowance for disputed receivables .............             58              90
                                                     ------------    ------------
          Net current deferred tax liability .....   $       (146)   $       (302)
                                                     ============    ============
Deferred tax liability:
  Property basis .................................   $        (19)   $         --
</TABLE>

6. RETIREMENT SAVING PLAN

    The Company adopted an IRA plan in October 1997. Under the plan, qualified
employees may elect to defer up to $6 of their calendar year compensation. The
plan provides for contributions by the Company to match the first 3% of the
qualified compensation. The Company may match less than 3%, but not below 1%, in
no more than two out of the past five years. Alternatively, the Company may
contribute 2% of compensation to all eligible employees, whether or not they
participate in the plan. The Company's contributions were $24 for both the
period from January 1, 1999 to October 25, 1999, and the year ended December 31,
1998.

7. RELATED-PARTY TRANSACTIONS

Noncurrent Receivable

    The Company has a note receivable from a related entity. The related entity
and the Company have some common shareholders. The receivable consists of cash
advances, commissions receivable from sales made on behalf of the related entity
and shared expenses. Management believes that the amount is fully collectible
and repayments will begin in the year 2000. The balance was approximately $568
and $281 at October 25, 1999 and December 31, 1998, respectively.

    Amounts charged to the related entity for the shared expenses, commissions
earned from the sales made on behalf of the related entity and cash advances to
the related entity were as follows:

<TABLE>
<CAPTION>
                                           PERIOD FROM
                                           JANUARY 1 TO    YEAR ENDED
                                            OCTOBER 25,   DECEMBER 31,
                                               1999           1998
                                           ------------   ------------
<S>                                        <C>            <C>
Commission earned ......................   $         83   $         32
Salaries and bonuses ...................             67             53
Other expenses .........................             41             63
Cash advances ..........................             96            102
</TABLE>

Current Receivables

    The Company had a note receivable from one of its shareholders. Interest
accrued at 12% per annum and the monthly principal and interest payments were
$1. The note was paid in July 1999.

    The Company had a $25 non-interest bearing receivable from a related entity
outstanding at December 31, 1998. The advance was repaid in July 1999.



                                      F-28
<PAGE>   58

Shareholder Notes Payable

    In November of 1998, the Company repurchased six shares of no-par stock from
a shareholder for $38. Consideration for the repurchase was a note payable with
monthly payments of $3, maturing in October of 1999. Interest accrued at a rate
of 6% per annum.

Sublease Income

    From October 1998 through August 1999, the Company sublet space to a related
entity. The terms of the sublease mirrored the terms of the master lease. The
related entity was responsible for all lease payments and related property
expenses.

Guarantees

    In June 1997, a shareholder and director guaranteed the Company's line of
credit from SeaFirst Bank. Subsequent to December 31, 1998, the loan was
amended, to include among other things, additional shareholders and directors as
guarantors.

8. COMMITMENTS AND CONTINGENCIES

Litigation

    The Company is involved in litigation arising in the ordinary course of
business. It is the opinion of management that the outcome of this litigation
will not have a material effect on the financial position of the Company.

9. SUBSEQUENT EVENT

    On October 26, 1999, the Company was merged into PentaStar. The purchase
consideration consisted of approximately $1,619 in cash, 165,000 shares of
PentaStar common stock and assumption of liabilities. Additional shares of
PentaStar common stock may be issued to one of the shareholders based upon the
relative earnings performance of the Company to that of other acquired companies
of PentaStar.

    In determining the cash portion of the consideration, the purchase agreement
distinguishes, by definition, the liabilities of the Company at October 25,
1999, between retained and non-retained liabilities. Non-retained liabilities
represent pre-acquisition liabilities deducted from the cash consideration
otherwise payable to the shareholders and consist of the following at October
25, 1999:

<TABLE>


<S>                                                       <C>
Accounts payable and accrued expenses .................   $  294
Income taxes payable ..................................       37
Shareholder note payable ..............................       29
Line of credit ........................................      151
Related-party note payable ............................       25
                                                          ------
                                                          $  536
                                                          ======
</TABLE>


                                      F-29
<PAGE>   59


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
DMA Ventures, Inc., dba Access Communications:

    We have audited the accompanying balance sheets of DMA Ventures, Inc. dba
Access Communications (a Colorado corporation) as of October 25, 1999 and
December 31, 1998, and the related statements of operations, shareholder's
equity and cash flows for the period from January 1, 1999 to October 25, 1999
and for the year ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of DMA Ventures, Inc. as of
October 25, 1999 and December 31, 1998, and the results of its operations and
its cash flows for the period from January 1, 1999 to October 25, 1999 and for
the year ended December 31, 1998 in conformity with accounting principles
generally accepted in the United States.



                                                      ARTHUR ANDERSEN LLP

Denver, Colorado,
February 2, 2000.



                                      F-30
<PAGE>   60



                               DMA VENTURES, INC.
                            dba ACCESS COMMUNICATIONS

                                 BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>


                                                                 OCTOBER 25,   DECEMBER 31,
                                                                    1999          1998
                                                                 ----------    ----------
                                 ASSETS


<S>                                                              <C>           <C>
Current assets:
  Cash and cash equivalents ..................................   $        1    $       83
  Accounts receivable, net ...................................          319           179
  Prepaid expenses and other .................................           20            46
  Deferred income taxes ......................................          163           149
  Net current assets of discontinued operations ..............           --            60
                                                                 ----------    ----------
          Total current assets ...............................          503           517
                                                                 ----------    ----------
Property and equipment, net ..................................          346           399
                                                                 ----------    ----------
          Total assets .......................................   $      849    $      916
                                                                 ==========    ==========

                LIABILITIES AND SHAREHOLDER'S EQUITY

Current liabilities:
  Related party borrowings ...................................   $        4    $        5
  Current maturities of long-term borrowings .................           76            72
  Current maturities of capital leases .......................           45            63
  Line of credit .............................................          202            --
  Accounts payable ...........................................           40            71
  Accrued expenses ...........................................          182           161
  Income taxes payable .......................................           --            82
  Deferred revenue ...........................................           76           114
                                                                 ----------    ----------
          Total current liabilities ..........................          625           568
                                                                 ----------    ----------
Long-term borrowings .........................................           87           185
Capital lease obligations ....................................            9            18
Deferred income taxes ........................................           16            --
Commitments and contingencies
Shareholder's equity:
  Common stock, no par value; 25,000,000 shares authorized;
     10,000,000 shares issued and outstanding ................          114             1
  Preferred stock, no par value; 10,000,000 shares
     authorized; no shares issued and outstanding ............           --            --
  Retained (deficit) earnings ................................           (2)          144
                                                                 ----------    ----------
          Total shareholder's equity .........................          112           145
                                                                 ----------    ----------
          Total liabilities and shareholder's equity .........   $      849    $      916
                                                                 ==========    ==========
</TABLE>



                 The accompanying notes to financial statements
                 are an integral part of these balance sheets.




                                      F-31
<PAGE>   61



                               DMA VENTURES, INC.
                            dba ACCESS COMMUNICATIONS

                            STATEMENTS OF OPERATIONS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>

                                                          PERIOD FROM
                                                          JANUARY 1 TO   YEAR ENDED
                                                           OCTOBER 25,   DECEMBER 31,
                                                              1999          1998
                                                           ----------    ----------

<S>                                                        <C>           <C>
Revenues:
  Advanced communications services .....................   $    1,457    $    2,038
  Basic dial tone services .............................          111           344
                                                           ----------    ----------
                                                                1,568         2,382
                                                           ----------    ----------
Costs and expenses:
  Salaries and commissions .............................        1,138         1,201
  Other general and administrative expenses ............          479           577
                                                           ----------    ----------
                                                                1,617         1,778
                                                           ----------    ----------
          Income (loss) from operations ................          (49)          604
                                                           ----------    ----------
Other (income) expense:
  Interest income ......................................           --            (3)
  Interest expense .....................................           37            52
  Other expense ........................................           27            --
                                                           ----------    ----------
          Other (income) expense, net ..................           64            49
                                                           ----------    ----------
Income  (loss)  from  continuing  operations  before
provision ..............................................         (113)          555
  for income taxes
Provision (benefit) for income taxes ...................          (41)          212
                                                           ----------    ----------
Net income (loss) from continuing operations ...........          (72)          343
Loss from  discontinued  operations (less applicable
income .................................................          (74)         (370)
                                                           ----------    ----------
  tax benefit of $42 and $219, respectively)
          Net loss .....................................   $     (146)   $      (27)
                                                           ==========    ==========
</TABLE>


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



                                      F-32
<PAGE>   62


                               DMA VENTURES, INC.
                           dba ACCESS COMMUNICATIONS

                       STATEMENTS OF SHAREHOLDER'S EQUITY
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>


                                         COMMON STOCK            PREFERRED STOCK       RETAINED        TOTAL
                                   -----------------------   -----------------------   EARNINGS     SHAREHOLDER'S
                                     SHARES       AMOUNT       SHARES      AMOUNT      (DEFICIT)       EQUITY
                                   ----------   ----------   ----------   ----------   ----------   -------------

<S>                                <C>          <C>          <C>          <C>          <C>           <C>
Balances, December 31, 1997 ....   10,000,000   $        1           --   $       --   $      239    $      240
  Distributions to
     shareholder ...............           --           --           --           --          (68)          (68)
  Net loss .....................           --           --           --           --          (27)          (27)
                                   ----------   ----------   ----------   ----------   ----------    ----------
Balances, December 31, 1998 ....   10,000,000            1           --           --          144           145
  Contribution from
     shareholder ...............           --          113           --           --           --           113
  Net loss .....................           --           --           --           --         (146)         (146)
                                   ----------   ----------   ----------   ----------   ----------    ----------
Balances, October 25, 1999 .....   10,000,000   $      114           --   $       --   $       (2)   $      112
                                   ==========   ==========   ==========   ==========   ==========    ==========
</TABLE>


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



                                      F-33
<PAGE>   63



                               DMA VENTURES, INC.
                           dba ACCESS COMMUNICATIONS

                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>

                                                             PERIOD FROM
                                                             JANUARY 1 TO         YEAR ENDED
                                                             OCTOBER 25,         DECEMBER 31,
                                                                 1999               1998
                                                            ---------------    ---------------
Cash flows from operating activities:
<S>                                                         <C>                <C>
  Net loss ..............................................   $          (146)   $           (27)
  Adjustments  to reconcile  net loss to net cash used in
     operating activities-- .............................                 2                203
     Deferred income tax provision
     Depreciation .......................................                62                 79
     Provision for uncollectible accounts ...............                27                 10
     Changes in operating  assets and liabilities
                                                                       (167)               (65)
       Accounts receivable, net
       Prepaid expenses and other .......................                26                (17)
       Payables and accrued expenses ....................               (92)              (340)
       Deferred revenue .................................               (38)                19
       Discontinued operations ..........................                60                (86)
                                                            ---------------    ---------------
          Net cash used in operating activities .........              (266)              (224)
                                                            ---------------    ---------------
Cash flows from investing activities:
  Purchase of property and equipment ....................               (35)               (13)
  Proceeds from sale of property and equipment ..........                26                 --
                                                            ---------------    ---------------
          Net cash used in investing activities .........                (9)               (13)
                                                            ---------------    ---------------
Cash flows from financing activities:
  Increase in line of credit ............................               202                 --
  Principal payments on related-party borrowings ........                (1)               (67)
  Principal payments on long-term borrowings ............               (94)               (49)
  Payments on capital lease .............................               (27)               (87)
  Distributions to shareholder ..........................                --                (68)
  Capital contribution ..................................               113                 --
                                                            ---------------    ---------------
          Net cash provided by (used in) financing
            activities ..................................               193               (271)
Net decrease in cash and cash equivalents ...............               (82)              (508)
Cash and cash equivalents, beginning of period ..........                83                591
                                                            ---------------    ---------------
Cash and cash equivalents, end of period ................   $             1    $            83
                                                            ===============    ===============
Supplemental disclosures of cash flow information:
  Cash paid for interest ................................   $            37    $            67
                                                            ===============    ===============
  Cash paid for taxes ...................................   $            --    $            12
                                                            ===============    ===============
</TABLE>



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




                                      F-34
<PAGE>   64




                               DMA VENTURES, INC.
                           dba ACCESS COMMUNICATIONS

                          NOTES TO FINANCIAL STATEMENTS
                          (DOLLAR AMOUNTS IN THOUSANDS)

1. BUSINESS AND ORGANIZATION

    The financial statements reflect the historical cost of assets and
liabilities and results of operations of DMA Ventures, Inc. dba Access
Communications, a Colorado corporation (the "Company") incorporated on August
10, 1993. Prior to May 1, 1999, the Company was a network integrator, focused on
converging technologies for voice, data and video communication ("Hardware
Business") and a sales agent for U S WEST Communications, Inc. ("U S WEST"), a
regional Bell operating company. During 1999, the Company decided to discontinue
the operations of the Hardware Business. On October 26, 1999, PentaStar
Communications, Inc. ("PentaStar"), through a wholly-owned subsidiary, closed an
Agreement and Plan of Merger, pursuant to which the Company was merged into
PentaStar.

Fiscal Year

    The Company's fiscal year ends on July 31. The accompanying financial
statements have been conformed to a December 31 year end in connection with the
acquisition of the Company by PentaStar.

Dependence Upon U S WEST

    The Company acts as a sales agent for and generated all of its continuing
revenues from U S WEST. The loss of the relationship with U S WEST or a material
diminishment in the volume of business with U S WEST would adversely affect the
Company. Management believes the Company could become a sales agent for another
provider with comparable terms if it were to lose its relationship with U S
WEST.

2. SUMMARY OF  SIGNIFICANT ACCOUNTING POLICIES

Cash Equivalents

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

Property and Equipment

    Property and equipment is stated at cost and depreciated using the
straight-line method over the estimated useful lives of the related assets.
Leasehold improvements are capitalized and amortized using the straight-line
method over the shorter of the useful lives or the remaining lease term.

    Expenditures for repairs and maintenance are expensed as incurred.
Expenditures for major renewals and betterments, which extend the useful lives
of existing equipment, are capitalized and depreciated. Upon retirement or
disposition of property and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the statements of operations.

    Property and equipment consists of the following:

<TABLE>
<CAPTION>

                                          ESTIMATED USEFUL  OCTOBER 25,  DECEMBER 31,
                                           LIFE IN YEARS      1999          1998
                                          ----------------  -----------  ------------

<S>                                            <C>          <C>            <C>
Computer and telephone equipment ..........    3-6          $    282       $   250
Office furniture and equipment.............   5-10               111           112
Leasehold improvements.....................   3-10               139           140
Vehicles...................................      5                39            74
                                                            --------       -------
                                                                 571           576
Less: accumulated depreciation............                      (225)         (177)
                                                            --------       -------
Property and equipment, net...............                  $    346       $   399
                                                            ========       =======
</TABLE>




                                      F-35
<PAGE>   65

    Depreciation expense was $62 and $79 for the period from January 1, 1999 to
October 25, 1999, and for the year ended December 31, 1998, respectively.

Revenue Recognition

    Revenue and the related commissions expense are recognized in the month when
services are installed by U S WEST. Deferred revenue in the accompanying balance
sheets represents cash collected from U S WEST on uninstalled services.

    The Company has not received payment for certain installed services of $247
and $150, as of October 25, 1999, and December 31, 1998, respectively, due to a
dispute with U S WEST. The delay in payment for these disputed items has been
due to deficiencies in documentation between the Company and U S WEST and
discrepancies in the amounts believed receivable from U S WEST. An allowance of
$115 and $180 at October 25, 1999, and December 31, 1998, respectively, has been
established for the Company's receivables.

Use of Estimates

    The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Significant estimates
which could change in the near future include the allowance for disputed
receivables.

Fair Value of Financial Instruments

    The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable and borrowings. The carrying value of
these financial instruments in the accompanying balance sheets approximates
their fair value because of their short-term nature.

Concentration of Credit Risk

    The Company's financial instruments exposed to concentrations of credit risk
consist primarily of cash and accounts receivable. The Company maintains their
cash in institutions which the Company considers of high credit quality. The
balances, at times, may exceed federally insured limits. Credit risk with
respect to accounts receivable is limited due to the credit worthiness of the
Company's primary customer, U S WEST. Management does not anticipate significant
credit losses from such financial instruments.

Asset Impairment

    The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Long-lived assets which are held and used in operations would be
impaired if the undiscounted future cash flows related to the asset did not
exceed the net book value. If an asset is determined to be impaired, it is
written down to its fair value.

Advertising and Promotion

    Advertising and promotional related expenses are charged to operations when
incurred or the first time the advertising appears. Advertising expense for the
period from January 1, 1999 to October 25, 1999, and for the year ended December
31, 1998 was not significant.

Income Taxes

    Deferred tax assets and liabilities are provided for differences between the
financial statement and tax basis of assets and liabilities using current
enacted tax rates. The provision for income taxes includes the amount due for
the current period and the change in deferred taxes between periods.



                                      F-36
<PAGE>   66

    A valuation allowance is provided for a portion or all of the deferred tax
asset when it is more likely than not that the Company will not be able to
realize the benefits of the deferred tax assets in future years.

Stock-Based Compensation

    The Company accounts for its stock-based employee compensation agreements
using the intrinsic value method under which no compensation is generally
recognized for options granted to employees with an exercise price equal to or
greater than the fair market value of the underlying stock. Equity instruments
granted to non-employees are recorded at fair value on the date of grant.

Reclassifications

    Certain prior year amounts have been reclassified to conform to current year
classifications.

Recent Accounting Pronouncements

    In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
The Company is required to adopt SFAS No. 133 no later than the first fiscal
quarter of 2001. SFAS No. 133 establishes methods of accounting for derivative
financial instruments and hedging activities related to those instruments as
well as other hedging activities. To date, the Company has not entered into any
derivative financial instruments or hedging activities. The Company has not
determined the impact of adopting SFAS No. 133.

3. BORROWINGS

Line of Credit

    The Company had a line of credit with Colorado Business Bank, N.A. which
permitted the Company to borrow up to $350 at a rate equal to the prime rate
plus 1% (9.25% and 8.75% at October 25, 1999 and December 31, 1998,
respectively). The line of credit was renewed on a yearly basis. Borrowings
under the agreement were collateralized by all accounts, inventory, equipment
and general intangibles of the Company, as well as shareholder owned marketable
securities and the shareholder's life insurance policy. The Company's borrowings
were limited to 75% of the total accounts receivable balance less than ninety
days (approximately $154 borrowing limitation at October 25, 1999). At October
25, 1999, there was an outstanding balance of $202 under this line. Subsequent
to October 25, 1999, in connection with the acquisition of the Company by
PentaStar, the line of credit was paid in full.

Notes Payable

    At October 25, 1999, and December 31, 1998 notes payable consisted of the
following:

<TABLE>
<CAPTION>

                                                                              OCTOBER 25,     DECEMBER 31,
                                                                                 1999            1998
                                                                              ------------    ------------
<S>                                                                           <C>             <C>

Note payable to Colorado Business Bank, N.A., Denver, Colorado;
interest at 9.5% per annum; collateralized by all accounts,
inventory, equipment, general intangibles, and shareholder owned
marketable securities; cross collateralized with the line of
credit; co-borrower with the Company's shareholder and an
officer; payable in monthly installments of $6.3; due April 2002 ..........   $        163    $        220


Note payable to Lexus Financial Services Corporation; interest at
8.5% per annum; collateralized by a vehicle; payable in monthly
principal and interest installments of $.884; due April 2002
Paid October 1999 .........................................................             --              31

Note payable to Colorado Business Bank, N.A., Littleton,
Colorado; interest at 10.5% per annum; collateralized by a
vehicle; payable in monthly principal and interest installments
of $.798; paid August 1999 ................................................             --               6

Note payable to shareholder; interest at the annual federal rate
(5.5% and 5.1% at October 25, 1999 and December 31, 1998,
respectively), unsecured ..................................................              4               5
                                                                              ------------    ------------
                                                                                       167             262
                                                                              ------------    ------------

Less: current maturities ..................................................            (80)            (77)
                                                                              ------------    ------------
Long-term borrowings, net of current maturities ...........................   $         87    $        185
                                                                              ============    ============
</TABLE>







                                      F-37
<PAGE>   67

    Subsequent to October 25, 1999, in connection with the acquisition of the
Company by PentaStar, outstanding balances under notes payable were paid in
full.

Capital Leases

    The Company leased certain office furniture and equipment under agreements
which were classified as capital leases. Cost of such assets at October 25,
1999, and December 31, 1998 totaled $258 and $237, respectively and accumulated
amortization totaled $98 and $76, respectively. Subsequent to October 25, 1999,
in connection with the acquisition of the Company by PentaStar, all capital
lease obligations were paid in full.

4. OPERATING LEASES:

    The Company leases office and warehouse facilities from its shareholder and
other office space and equipment from unrelated parties under long-term leases
expiring in various years through the year 2001. Generally, the Company is
required to pay executory costs such as property taxes, maintenance and
insurance.

    As of October 25, 1999, future minimum lease payments required under
operating leases were as follows:

<TABLE>
<CAPTION>

                                                                                                RELATED
                                                                                    OTHERS      PARTIES
                                                                                  ----------   ----------

<S>                                                                               <C>          <C>
For the period from October 26, 1999 to December 31, 1999 .....................   $        8   $        6
Years ending December 31,
 2000 .........................................................................           27           36
 2001 .........................................................................           --           36
 2002 .........................................................................           --           --
 2003 .........................................................................           --           --
 Thereafter ...................................................................           --           --
                                                                                  ----------   ----------
                                                                                  $       35   $       78
                                                                                  ==========   ==========
</TABLE>



    Total rent expense charged to income for leases totaled $73 and $79 for the
period from January 1, 1999 to October 25, 1999, and for the year ended December
31, 1998, respectively, of which, $30 and $36 represents rent expense for
related-party leases, respectively.

5. INCOME TAXES:

    The (benefit) provision for income taxes consists of the following:

<TABLE>
<CAPTION>

                                  OCTOBER 25,    DECEMBER 31,
                                     1999           1998
                                 ------------    ------------

<S>                              <C>             <C>
Current (benefit):
  Federal ....................   $        (74)   $       (182)
  State ......................            (11)            (28)
                                 ------------    ------------
          Total current ......            (85)           (210)
Deferred provision:
  Federal ....................              2             176
  State ......................             --              27
                                 ------------    ------------
          Total deferred .....              2             203
                                 ------------    ------------
  Benefit for income taxes ...   $        (83)   $         (7)
                                 ============    ============
</TABLE>


    A reconciliation of the statutory income tax rate to the benefit for income
taxes from continuing operations is as follows:

<TABLE>
<CAPTION>

                                                               OCTOBER 25,      DECEMBER 31,
                                                                  1999              1998
                                                               ------------     -------------

<S>                                                            <C>              <C>
Federal income tax at statutory rate .......................           34.0%             34.0%
State income taxes, net of federal tax effect ..............            3.3               3.3
Other ......................................................           (1.0)               .9
                                                               ------------     -------------
   Total provision .........................................           36.3%             38.2%
                                                               ============     =============
</TABLE>

    Deferred income taxes result from differences in the tax basis of assets and
liabilities and their carrying amounts for financial reporting purposes. The tax
effects of these temporary differences, representing deferred tax assets and
liabilities, result principally from the following:





                                      F-38
<PAGE>   68

<TABLE>
<CAPTION>

                                                      OCTOBER 25,    DECEMBER 31,
                                                         1999            1998
                                                     ------------    ------------

<S>                                                  <C>             <C>
Current deferred tax assets (liabilities):
  Accounts receivable and allowance ..............   $       (114)   $        (52)
  Accrued expenses ...............................             59             127
  Net operating loss carry forward ...............            218              56
  Other ..........................................             --              18
                                                     ------------    ------------
     Net current deferred tax asset ..............   $        163    $        149
                                                     ============    ============
  Deferred tax liability:
     Property basis ..............................   $        (16)   $         --
</TABLE>

    The Company has generated net operating losses of approximately $585 for
federal income tax purposes, expiring in various years from 2013 to 2018.

6. STOCK OPTION PLAN

    In February 1998, the Company adopted a stock option plan, which provides
for the granting of options to employees, directors and consultants. A maximum
of 700,000 shares of common stock may be issued under the plan. The option
price, number of shares and grant date are determined at the discretion of the
Company's Board of Directors. The exercise price of the options granted has been
established at no less than the fair value at the date of grant. Options granted
under the plan expire ten years after the grant date and vest 1/12th on the last
day of each fiscal quarter.

    A summary of option transactions for the year ended December 31, 1998 and
for the period from January 1, 1999 to October 25, 1999 and options outstanding
at October 25, 1999 and December 31, 1998 are shown below:

<TABLE>
<CAPTION>

                                             NUMBER OF
                                              SHARES      EXERCISE PRICE
                                           ------------   --------------

<S>                                        <C>             <C>
Options Granted in 1998 ................        551,500    $       0.33
Exercised ..............................             --              --
                                           ------------    ------------
 Outstanding at December 31, 1998 ......        551,500            0.33
Options Granted in 1999 ................         22,500            0.33
Forfeited ..............................       (310,000)           0.33
Exercised ..............................             --              --
                                           ------------    ------------
 Outstanding at October 25, 1999 .......        264,000    $       0.33
                                           ============    ============
Exercisable at December 31, 1998 .......        140,250    $       0.33
                                           ============    ============
Exercisable at October 25, 1999  .......        121,792    $       0.33
                                           ============    ============
</TABLE>

<TABLE>
<CAPTION>

                     OPTIONS OUTSTANDING               OPTIONS EXERCISABLE
                ---------------------------------  --------------------------------
                                         WEIGHTED                         WEIGHTED
                           REMAINING      AVERAGE                          AVERAGE
  RANGE OF                    LIFE       EXERCISE                          EXERCISE
EXERCISE PRICE   NUMBER    (IN YEARS)     PRICE     NUMBER      PRICE      PRICE
--------------  ---------    -------      ------   --------     ------     ------

<S>            <C>           <C>       <C>       <C>         <C>        <C>
$ 0.33            241,500       8.42      $ 0.33    119,501     $ 0.33     $ 0.33
$ 0.33             22,500       9.57      $ 0.33      2,291     $ 0.33     $ 0.33
                ---------    -------      ------   --------     ------     ------
                  264,000       8.52      $ 0.33    121,792     $ 0.33     $ 0.33
                =========    =======      ======   ========     ======     ======
</TABLE>

    The fair value of the options granted was $0.06 and $0.05 per share for
options granted during 1999 and 1998, respectively. Had the Company's stock
based compensation cost been determined using their fair value at the grant
date, the Company's net income would have been reduced to the pro forma amounts
indicated below:

<TABLE>
<CAPTION>

                                                       OCTOBER 25,       DECEMBER 31,
                                                          1999               1998
                                                     ---------------    ---------------
<S>                                                  <C>                <C>
Net Income:
  As reported ....................................   $          (146)   $           (27)
  Pro forma ......................................              (150)               (32)
</TABLE>

    The above fair value was determined using the minimum value method (no
volatility assumed), a risk free interest rate of 5.6% and 4.55% for 1999 and
1998, respectively, an expected life of four years and no dividend payout.




                                      F-39
<PAGE>   69

7. RETIREMENT SAVING PLAN

    The Company maintains a qualified retirement savings plan under Section
401(k) of the Internal Revenue Code. Under the plan, employees may elect to
defer up to 15% of their compensation, subject to Internal Revenue Service
limits. The plan allows for discretionary contributions to be made by the
Company. No Company contributions were made for the period from January 1, 1999
to October 25, 1999, or for the year ended December 31, 1998. The plan is
administered by a third party.

8. COMMITMENTS AND CONTINGENCIES

Guarantees

    In December 1995, the Company, acting as a co-borrower with its shareholder
and an officer, obtained a loan from Key Bank ("Key Bank"). The funds were used
to purchase, among other items, real estate owned by the shareholder and
officer. The loan was secured by the real estate, through a Deed of Trust dated
December 28, 1995. In May 1996, the U.S. Small Business Administration ("SBA")
guaranteed the Key Bank loan, which resulted in the Deed of Trust being
transferred to the SBA. In August 1998, the Key Bank debt balance was paid in
full, with proceeds obtained by the shareholder and officer from the Colorado
Business Bank. The Company is a guarantor on the Colorado Business Bank note.
The real estate securing the note has been leased by the Company since April
1996.

    The Colorado Business Bank note bears interest at 9% and is due in monthly
principal and interest installments of $1. The note is secured by a first deed
of trust and an assignment of rents between the Company and its shareholder. In
November 1999, the shareholder paid off the outstanding balance of $116 and,
accordingly, the Company no longer guarantees the note.

Litigation

    The Company is involved in litigation arising in the ordinary course of
business. It is the opinion of management that the outcome of any such
litigation will not have a material effect on the financial statements of the
Company.

9. DISCONTINUED OPERATIONS

    During February 1999, management approved a formal plan to dispose of the
Company's Hardware Business. Operations related to this business ceased on April
30, 1999, with the completion of all installations. The Company reduced its
labor force, eliminated all inventories, and wrote-down the value of the
property and equipment. As a result of this decision, the Company has reflected
the operations of the Hardware Business as discontinued operations in the
accompanying financial statements.

    Net current assets of discontinued operations as of December 31, 1998 are as
follows:

<TABLE>

<S>                                                    <C>
Current Assets:
  Accounts receivable, net .........................   $        284
  Inventory ........................................            178
                                                       ------------
     Total current assets ..........................            462
                                                       ------------
Current Liabilities:
  Accounts payable and accrued expenses ............   $        274
     Deferred revenue ..............................            128
                                                       ------------
     Total current liabilities .....................   $        402
                                                       ------------
     Net assets of discontinued operations .........   $         60
                                                       ============
</TABLE>


    The results of discontinued operations were as follows:

<TABLE>
<CAPTION>

                                           PERIOD FROM
                                           JANUARY 1 TO     YEAR ENDED
                                            OCTOBER 25,    DECEMBER 31,
                                               1999            1998
                                           ------------    ------------
<S>                                        <C>             <C>
Revenues ...............................   $        817    $      3,223
Costs and expenses .....................            933           3,812
                                           ------------    ------------
 Loss from discontinued operations .....   $       (116)   $       (589)
                                           ============    ============
</TABLE>




                                      F-40
<PAGE>   70

10. SUBSEQUENT EVENT

    On October 26, 1999, the Company was merged into PentaStar. The purchase
consideration consisted of approximately $189 in cash, 205,000 shares of
PentaStar common stock and assumption of liabilities. Additional shares of
PentaStar common stock may be issued to one of the shareholders based upon the
relative earnings performance of the Company to that of other acquired companies
of PentaStar.

    In determining the cash portion of the consideration, the purchase agreement
distinguishes, by definition, the liabilities of the Company at October 25,
1999, between retained and non-retained liabilities. Non-retained liabilities
represent preacquisition liabilities deducted from the cash consideration
otherwise payable to the sole shareholder and consist of the following at
October 25, 1999:


<TABLE>

<S>                                                  <C>
Related party borrowings .........................   $        4
Long term borrowings .............................          163
Capital leases ...................................           54
Line of credit ...................................          202
Accounts payable .................................           19
Accrued expenses .................................           56
                                                     ----------
                                                     $      498
                                                     ==========
</TABLE>



                                      F-41

<PAGE>   71



                                  EXHIBIT INDEX


<TABLE>
<CAPTION>

EXHIBIT
NUMBER              DESCRIPTION
-------             -----------

<S>                 <C>
2.1(1)              Agreement and Plan of Merger dated August 13, 1999 among
                    PentaStar Communications, Inc., OC Mergerco 1, Inc., DMA
                    Ventures, Inc. and its principal shareholder, Jeffrey A.
                    Veres.

2.2(1)              Agreement and Plan of Merger dated August 13, 1999 among
                    PentaStar Communications, Inc., OC Mergerco 2, Inc., ICM
                    Communications Integration, Inc. and the shareholders of ICM
                    Communications Integration, Inc.

2.3(2)              Letter Agreement amending Agreement and Plan of Merger dated
                    as of August 13, 1999 by and among PentaStar Communications,
                    Inc., OC Mergerco 2, Inc., ICM Communications Integration,
                    Inc. and the Shareholders of ICM Communications Integration,
                    Inc. dated October 20, 1999.

2.4(2)              Second Letter Agreement amending letter agreement dated as
                    of October 20, 1999 by and among PentaStar Communication,
                    Inc., OC Mergerco 2, Inc., ICM Communications Integration,
                    Inc. and the Shareholders of ICM Communications Integration,
                    Inc. which amended the Agreement and Plan of Merger dated as
                    of August 13, 1999 by and among the same parties, dated
                    December 27, 1999.

2.5(2)              Letter Agreement amending Agreement and Plan of Merger dated
                    as of August 13, 1999 by and among PentaStar Communications,
                    Inc., OC Mergerco 1, Inc., DMA Ventures, Inc. and Jeffery
                    Veres, dated October 20, 1999.

2.6(3)              Purchase Agreement dated January 7, 2000 among PentaStar
                    Communications, Inc., OC Mergerco 3, Inc., Network
                    Communications Integration, Inc. and the Shareholders of
                    Network Communications Integration, Inc.

2.7(6)              Asset Purchase Agreement dated as of December 31, 1999 among
                    OC Mergerco 4, Inc., USTeleCenters, Inc., Vermont Network
                    Services Corporation and View Tech, Inc.

2.8(3)              Purchase Agreement dated February 18, 2000 among PentaStar
                    Communications, Inc., OC Mergerco 4, Inc., VSI Network
                    Solutions, Inc. and the Shareholder of VSI Network
                    Solutions, Inc.

2.9(3)              Agreement and Plan of Merger dated January 1, 2000 among
                    PentaStar Communications, Inc., Partel, Inc. and the
                    Shareholders of Partel, Inc.

2.10(7)             Agreement and Plan of Merger among PentaStar Communications,
                    Inc. PentaStar Acquisition Corp. VI, Resource
                    Communications, Inc. and The Shareholders of Resource
                    Communications, Inc.

2.11(4)             Letter Agreement dated May 17, 2000 among PentaStar
                    Communications, Inc., OC Mergerco 4, Inc., VSI Network
                    Solutions, Inc. and the Shareholder of VSI Network
                    Solutions, Inc.

2.12(8)             Purchase Agreement among PentaStar Communications, Inc.,
                    PentaStar Corporation and Telecomm Industries Corp. as of
                    April 15, 2000

2.13(8)             Letter Agreement among PentaStar Communications, Inc.,
                    PentaStar Corporation and Telecomm Industries Corp. as of
                    April 15, 2000

2.14(5)             Agreement and Plan of Merger among PentaStar Communications,
                    Inc., NetLink, Inc. and the Shareholders of NetLink, Inc.
                    dated September 29, 2000.

2.15                Agreement and Plan of Merger among PentaStar Communications,
                    Inc., PentaStar Acquisition Corp. V, Vision Communications
                    Group, Inc. and the Shareholder of Vision Communications
                    Group, Inc. dated as of October 25, 2000.

2.16                Amended and Restated Agreement and Plan of Merger among
                    PentaStar Communications, Inc., PentaStar Acquisition Corp.
                    VII, Lynx Communications, Inc. and the Shareholders of Lynx
                    Communications, Inc. dated as of November 14, 2000.

2.17                Purchase Agreement among PentaStar Communications, Inc.,
                    PentaStar Acquisition Corp. IX, Digistar Networks, Inc. and
                    the Shareholders of Digistar Networks, Inc. dated as of
                    December 29, 2000.

3.1(2)              Restated Certificate of Incorporation.

3.2(2)              Certificate of Amendment to Restated Certificate of
                    Incorporation.


</TABLE>




<PAGE>   72

<TABLE>

<S>                 <C>
3.3(2)              Restated Bylaws.

4.1(1)              Specimen stock certificate representing shares of common
                    stock of PentaStar Communications, Inc.

4.2(2)              Warrant for the purchase of common stock.

4.3(2)              Certificate of Designation of Series A Preferred Stock.

4.4(5)              PentaStar Communications, Inc. Common Stock Purchase
                    Agreement Dated September 1, 2000.

10.1(1)             PentaStar Communications, Inc. Stock Option Plan.(9)

10.2(1)             Strategic Agent Sales Agreement by and between U S WEST
                    Communications, Inc. and Access Communications dated
                    February 15, 1998, as amended by memorandum dated March 24,
                    1999.

10.3(1)             Strategic Agent Sales Agreement by and between U S WEST
                    Communications, Inc. and ICM Communications Integration,
                    Inc. dated February 13, 1998, as amended by memorandum dated
                    March 24, 1999.

10.4(1)             Consulting Agreement effective September 1, 1999 between
                    Optimal Communications, Inc. (nka PentaStar Communications,
                    Inc.) and BIBD, LLC.

10.5(1)             Employment and Noncompetition Agreement entered into as of
                    August 13, 1999 between PentaStar Communications, Inc. and
                    Jeffrey A. Veres.**

10.6(2)             Amended and Restated Principal Stockholder's Escrow and
                    Contingent Stock Agreement among PentaStar Communications,
                    Inc., OC Mergerco 1, Inc. and Jeffrey A. Veres.

10.8(1)             Lease Agreement between BACE Real Estate, LLC and PentaStar
                    Communications, Inc.

10.9(1)             Stock Purchase Agreement dated March 31, 1999 between
                    Optimal Communications, Inc. (nka PentaStar Communications,
                    Inc.) and Robert S. Lazzeri and Lock-up Agreement dated
                    October 8, 1999 among PentaStar Communications, Inc.,
                    Schneider Securities, Inc., BACE Investments, LLC, Black
                    Diamond Capital, LLC, Robert S. Lazzeri and Jeffrey A.
                    Veres.

10.10(1)            Stock Purchase Agreement dated March 31, 1999 between
                    Optimal Communications, Inc. (nka PentaStar Communications,
                    Inc.) and Black Diamond Capital, LLC and Lock-up Agreement
                    dated October 8, 1999 among PentaStar Communications, Inc.,
                    Schneider Securities, Inc., BACE Investments, LLC, Black
                    Diamond Capital, LLC, Robert S. Lazzeri and Jeffrey A.
                    Veres.

10.11(1)            Stock Purchase Agreement dated March 31, 1999 between
                    Optimal Communications, Inc. (nka PentaStar Communications,
                    Inc.) and Jeffrey A. Veres and Lock-up Agreement dated
                    October 8, 1999 among PentaStar Communications, Inc.,
                    Schneider Securities, Inc., BACE Investments, LLC, Black
                    Diamond Capital, LLC, Robert S. Lazzeri and Jeffrey A.
                    Veres.

10.12(1)            Lock-up Agreement dated October 8, 1999 among PentaStar
                    Communications, Inc., Schneider Securities, Inc., BACE
                    Investments, LLC, Black Diamond Capital, LLC, Robert S.
                    Lazzeri and Jeffrey A. Veres.

10.13(1)            Business Lease dated April 10, 1996 between Jeffrey and
                    Linda Veres and DMA Ventures, Inc. (dba Access
                    Communications) and First Amendment to Lease dated August
                    13, 1999.

10.14(2)            Escrow Agreement among BACE Investments, LLC, Black Diamond
                    Capital, LLC, PentaStar Communications, Inc., Schneider
                    Securities, Inc. and American Securities Transfer & Trust,
                    Inc.

10.15(3)            Bell Atlantic Authorized Agent Network Services Marketing
                    Agreement By and Between Bell Atlantic Network Services,
                    Inc. and USTeleCenters Effective Date: January 1, 1999. (10)

10.16(4)            Credit and Security Agreement by and among PentaStar
                    Communications, Inc., PentaStar Acquisition Corp. I,
                    PentaStar Acquisition Corp. II, PentaStar Acquisition Corp.
                    III, PentaStar Acquisition Corp. IV, PentaStar Acquisition
                    Corp. VI, PentaStar Internet, Inc., PentaStar Holding
                    Corporation, PentaStar Telemarketing, Inc. and PentaStar
                    Corporation as borrowers and Wells Fargo Bank West, N.A.
                    dated as of July 10, 2000.

10.17(4)            Authorized Distributor Agreement Between Ameritech and
                    Telecomm Industries Corp. (10)

10.18               Lock-Up Letter Agreement between PentaStar Communications,
                    Inc., BACE Investments, LLC, Black Diamond Capital, LLC and
                    Robert S. Lazzeri dated October 17, 2000.


</TABLE>




<PAGE>   73
<TABLE>
<S>                 <C>
10.19               Promissory Note between PentaStar Communications, Inc. and
                    Craig J. Zoellner dated December 29, 2000.

10.20               Promissory Note between PentaStar Communications, Inc. and
                    Richard M. Tyler dated December 29, 2000.

10.21               Promissory Note between PentaStar Communications, Inc. and
                    Robert S. Lazzeri dated December 29, 2000.

10.22(11)           Amendment to the PentaStar Communications, Inc. Stock Option
                    Plan.(9)

21.1                Subsidiaries of PentaStar Communications, Inc.

23.1                Consent of Independent Public Accountants.
</TABLE>


(1)       Incorporated by reference from the Company's Registration Statement on
          Form SB-2 (Registration No. 333-85281).

(2)       Incorporated by reference from the Company's Annual Report on Form
          10-KSB for the period from inception (March 15, 1999) through December
          31, 1999.

(3)       Incorporated by reference from the Company's Quarterly Report on Form
          10-QSB for the quarterly period ended March 31, 2000.

(4)       Incorporated by reference from the Company's Quarterly Report on Form
          10-QSB for the quarterly period ended June 30, 2000.

(5)       Incorporated by reference form the Company's Quarterly Report on Form
          10-QSB for the quarterly period ended September 30, 2000.

(6)       Incorporated by reference from the Company's Current Report on Form
          8-K dated February 18, 2000.

(7)       Incorporated by reference from the Company's Current Report on Form
          8-K dated March 31, 2000.

(8)       Incorporated by reference from the Company's Current Report on Form
          8-K dated July 19, 2000.

(9)       Management contract or compensatory plan or arrangement.

(10)      The Company has applied for confidential treatment for portions of
          this Exhibit.

(11)      Incorporated by reference from Appendix 2 to the Company's Definitive
          Proxy Statement dated April 26, 2000 for its 2000 annual meeting.