SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-K




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

For the fiscal year ended September 30, 2006Commission File No. 1-14168

Globix Corporation

(Exact name of registrant as specified in its charter)

|                                                      |  |                      
|----------------------------------------------------- |  | ---------------------
|Delaware                                              |  | 13-3781263           
|(State
  or other jurisdiction of                     |  | (I.R.S.
  Employer   
|incorporation
  or organization)                      |  | Identification
  No.)
|                                                      |  |                      
|2200
  West Park Drive, Westborough, MA               |  | 01581                
|(address
  of principal executive offices)            |  | (Zip
  Code)         
|                                                      |  |                      
|Registrants
  Telephone number, including area code: |  | (508)
  616-7800     

Securities registered pursuant to Section 12(b) of the
Act:

|                               |  |                                            
|------------------------------ |  | -------------------------------------------
|TITLE
  OF EACH CLASS          |  | NAME
  OF EACH EXCHANGE ON WHICH REGISTERED
|                               |  |                                            
|                              
|Common
  Stock, $.01 par value |  | American
  Stock Exchange                  

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes o No x

Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act. Yes o No x

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

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

Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer or a
non-accelerated filer. See definition of accelerated filer and larger
accelerated filer in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer o                              Accelerated
filer x                              Non-accelerated
filer o

Indicate by check mark
whether the registrant is a shell company (as defined in Exchange Act Rule
12b-2). Yes o No x

As of March 31, 2006 the
aggregate market value of voting stock held by non-affiliates of the
registrant, based upon the closing sales price for the registrants common
stock, as reported on the American Stock Exchange, was approximately $36.7
million (calculated by excluding shares owned beneficially by directors, named
executive officers and other affiliates).

Number of shares of
registrants common stock outstanding as of December 20, 2006 was 48,727,511.

Indicate by check mark
whether the registrant has filed all documents and reports required to be filed
by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a court. Yes x No o

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DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the registrants
definitive proxy statement for its 2007 annual meeting of stockholders which is
expected to be filed with the Securities and Exchange Commission not later than
January 28, 2007, are incorporated by reference into Part III of this report on
Form 10-K. In the event such proxy statement is not filed by January 28, 2007,
the required information will be filed as an amendment to this report on Form
10-K no later than that date.

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GLOBIX CORPORATION

Table of Contents

|           |  |              |    |                                                                                                                                                                                    |    | 
|---------- |  | ------------ | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -- | 
|Part I     |  |              |    |                                                                                                                                                                                    |    | 
|           |  | Item 1.      |    | Business                                                                                                                                                                           | 1  | 
|           |  | Item 1A.     |    | Risk Factors                                                                                                                                                                       | 7  | 
|           |  | Item 2.      |    | Properties                                                                                                                                                                         | 14 | 
|           |  | Item 3.      |    | Legal
  Proceedings                                                                                                                                                                | 14 | 
|           |  | Item 4.      |    | Submission
  of Matters To a Vote of Security Holders                                                                                                                              | 14 | 
|Part II    |  |              |    |                                                                                                                                                                                    |    | 
|           |  | Item 5.      |    | Market For
  Registrants Common Equity, Related Stockholder Matters and Issuer Purchases
  of Equity Securities                                                                   | 15 | 
|           |  | Item 6.      |    | Selected
  Financial Data                                                                                                                                                          | 16 | 
|           |  | Item 7.      |    | Managements Discussion and Analysis of Financial Condition and
  Results of Operations                                                                                            | 19 | 
|           |  | Item 7A.     |    | Quantitative
  and Qualitative Disclosures About Market Risk                                                                                                                       | 30 | 
|           |  | Item 8.      |    | Financial
  Statements and Supplementary Data                                                                                                                                      | 30 | 
|           |  | Item 9.      |    | Changes in
  and Disagreements with Accountants on Accounting and Financial Disclosure                                                                                             | 31 | 
|           |  | Item 9A.     |    | Controls
  and Procedures                                                                                                                                                          | 31 | 
|           |  | Item 9B.     |    | Other
  Information                                                                                                                                                                | 34 | 
|Part III   |  |              |    |                                                                                                                                                                                    |    | 
|           |  | Item 10.     |    | Incorporated by reference
  to the Registrants proxy statement for its 2006 Annual Meeting of
  Stockholders (except for information in response to Item 406 of Regulation
  S-K) | 35 | 
|           |  | Items 11-14. |    | Incorporated by reference
  to the Registrants proxy statement for its 2006 Annual Meeting of
  Stockholders                                                                      | 35 | 
|Part IV    |  |              |    |                                                                                                                                                                                    |    | 
|           |  | Item 15.     |    | Exhibits
  and Financial Statement Schedules                                                                                                                                       | 36 | 
|          
|Signatures |  |              | 38 |                                                                                                                                                                                   

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PART I

ITEM 1. BUSINESS

OUR COMPANY

For the majority of our
fiscal year ending on September 30, 2006, our business was comprised of two
business units. These units are referred to as our hosting and transport
businesses. The transport business predominantly sells high capacity bandwidth
over our fiber optic network to other companies within the telecommunications
industry. The hosting business provided various Internet services to small to
large businesses. The transport services are sold through our subsidiary NEON
Communications, Inc. (NEON) and the hosting services were sold through Globix
Corporation and its subsidiaries Globix Hosting (UK) Limited and Globix Hosting
LLC.

During 2006, we conducted a
strategic review which led to the divestiture of our hosting business segment.
The proceeds from the divestitures were used to pay down our outstanding debt,
and leave us sufficient funds to support the current operations of our
remaining transport business. As a result of the actions taken during the year
ended September 30, 2006 and the following two months, we now are a company
without any substantial long-term indebtedness focused on one business;
transport services through our NEON subsidiary. We contemplate growing this
business organically and by taking advantage of possible synergistic
acquisition opportunities.

Our employees are located in
New York, New York and Westborough, Massachusetts. Our principal executive
offices are located, at 2200 West Park Drive, Westborough, MA 01581 and the
telephone number for this office if (508) 616-7800. Through May 31, 2007 we
will also maintain offices at 139 Centre Street, New York, New York 10013.

Although we maintain a
website at www.globix.com, we do not intend that the information available
through our website be incorporated into this annual report. Our SEC filings
are available on our website. The public may read and copy any materials we
file with the Securities and Exchange Commission (SEC) at the SECs
Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information
on the operation of the Public Reference Room may be obtained by calling the
SEC at (800) SEC-0330. In addition, the SEC maintains an internet site that contains
our reports, proxy, and information statements at www.sec.gov.

NEON
Transport Business

NEONs business strategy is
to provide highly reliable data transport services and infrastructure to
carriers and a small number of non-carrier customers, including universities,
colleges and financial institutions, in various markets in the Northeast and
mid-Atlantic regions, such as Boston, New York, Philadelphia, Newark,
Baltimore, Washington, DC, Portland, Manchester Albany, Providence, Hartford,
and smaller communities along our network routes. NEON focuses on providing and
developing unique network connectivity solutions to customer locations as well
as targeting Tier 2 and 3 markets such as Springfield, Worcester, White Plains,
Hackensack, Vienna, Burlington and Portsmouth. This strategy has allowed NEON
to avoid some of the competition and pricing pressures common in other segments
of the telecommunications business.

Since its merger with
Globix, NEON has experienced steady quarter over quarter revenue growth,
increasing from $13.2 million in the third fiscal quarter of 2005, the first
full quarter after the merger with Globix, to $17.8M in the fourth quarter of
fiscal 2006, a 34.6% increase. Organic growth has come from and is expected to
continue to come from the growing bandwidth needs of its existing customers and
deeper penetration of existing markets, as well as expansion into new markets
and adding new services and targeting new customers.

We will also seek to grow
opportunistically through acquisition. In pursuing acquisitions, we will seek
companies with similar business models where there are market and cost
synergies. Our ability to complete transactions will be dependent on
identifying appropriate parties and being able to put in place cost effective
financing.

We offer the following
services:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | LIT FIBER TRANSPORT
  SERVICES  Over our fiber optic network, we deliver both electrical and
  optical transmission of signals on fiber optic telecommunications circuits
  that are dedicated to our customers. We install and maintain network
  equipment that powers, sends and receives the electrical and optical signals.
  Once network equipment is installed on a fiber, the network is considered to
  be lit. Specific service offerings include: SONET Private Line services at
  bandwidth levels including DS-3, OC-3, OC-12, OC-48, and OC-192; Wavelength
  (DWDM) services enabling flexible and scalable high capacity transport at 2.5
  and 10 Gbps; and Ethernet services via dedicated, point-to-point connectivity
  offered as Fast Ethernet (FastE) at 50 or 100 Mbps and Gigabit Ethernet
  (GigE) at 600 or 1000 Gbps.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | DARK FIBER SERVICES - In
  limited instances, we lease individual strands of fiber to customers. When
  leasing individual strands of fiber in this manner, we do not provide any of
  the network equipment that powers, sends and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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| |   |                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | receives signals over the
  fibers. This service is referred to as a dark service as it does not yet
  have the ability to transmit electrical or optical signals. Our customers install
  and operate their own network equipment to create their own lit service.                   
| |   |                                                                                                                                                                                                                                                                                         
| |  | CO-LOCATION SERVICES - We
  offer co-location solutions for customers who choose to own and maintain
  their own servers and or optronics, but require the physically secure,
  climate-controlled environment provided by our co-location facilities and
  connectivity to our network.

On March 7, 2005, Globix
acquired NEON through the merger of a wholly owned subsidiary of Globix with
and into NEON, resulting in NEON becoming a wholly owned subsidiary of Globix.

Globix
Hosting Business

At the start of our fiscal
year, we also operated our Globix hosting business which provided Internet
services to small to large-sized businesses in a broad range of industries.
These Internet services included Internet hosting and co-location, managed
services, network services and Internet access. In September 2006, we sold all
of our shares in Globix Hosting (UK) Limited, our London based hosting business
and, in November 2006, we sold all of our shares in Globix Hosting LLC, our US
hosting business. We no longer have a hosting business.

The hosting business
operated Internet data centers in New York, New York; Santa Clara, California;
and London England. This business offered co-location services for customers
who owned and maintained their own computer servers but preferred the
physically secure, climate-controlled environment provided by our Internet data
centers and connectivity to our network. Through these divested businesses, we
also offered hosting services in a dedicated server environment. The hosting
services included providing integrated hardware usage, bandwidth, and managed
computer services to meet customer-specific needs. The managed services
included a wide-variety of maintenance administration, and problem resolution
services for many popular operating systems, Internet network devices,
software, security solutions, web-based applications, and streaming media
services.

Strategic
Transactions

In early 2006, we engaged
The Bank Street Group, an investment banking firm, and GVA Williams, a real
estate brokerage firm, to help our board of directors review strategic
alternatives related to our businesses and properties. Over the course of a
process conducted during the third and fourth quarters of fiscal 2006, we
considered various proposals from numerous potential strategic partners. As a
result of this process, we ultimately completed three separate transactions to
sell our US hosting business, our UK hosting business, and the property where
our New York City headquarters is located. We used a portion of the proceeds
from these transactions to repay substantially all of our long term
indebtedness.

On September 6, 2006, we
closed the sale of our UK hosting business. The total sales price was $62
million, subject to various working capital adjustments. Of the total sales
price, $3.1 million is being held in an escrow account until March 31, 2008 to
cover potential indemnification claims. We also entered into a transition
services agreement with the purchaser of the UK hosting business to provide
certain services until mid-2007.

On September 29, 2006, we
completed the sale of our building at 139 Centre Street, New York, New York. We
received approximately $51.8 million in cash, after reducing the agreed $55
million fair market value of the property by $3.2 million in partial
satisfaction of amounts owed to the former owner of the property on account of
the sale. From this cash amount, we paid in full an existing mortgage, a
remaining payment owed to the former owner of the property and other fees and
expenses. The arrangements relating to the sale of this property include a
lease permitting us to remain in the building until May 31, 2007 and to
sublease a portion of the building to the acquirer of our US hosting business.

On October 20, 2006, we paid
the entire $5 million principal amount of our 9% Senior Notes due 2008 as well
as the accrued interest from October 1, 2006.

As of September 30, 2006,
accounting criteria for the classification of our US hosting business had been
met which resulted in the results of operations of the US hosting business
being reported as discontinued operations for all periods presented and the
assets and liabilities being reflected as held for sale at September 30, 2006.
On November 1, 2006, we closed the sale of our US hosting business. The total
sales price was $20 million, subject to various working capital adjustments. Of
the total sales price, $2 million is being held in an escrow account until May
31, 2007 to cover potential indemnification obligations. We also entered into a
transition services agreement with the purchaser of the US hosting business to
receive and provide certain services until mid-2007. The buyer of our US
hosting business agreed to assume responsibility for the transition services
agreement entered into in connection with the sale of our UK hosting business.

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Also on November 1, 2006, we
discharged substantially all of our remaining obligations under our 11% Senior
Notes due 2008 and associated interest payable under the terms of these Notes
by depositing the sum of $ 76,165,002 with the Indenture Trustee, thereby
redeeming the 11% Senior Notes in full. Globix continues to carry a liability
of $3,158,437 which may become due under a reserve arrangement established in
connection with our bankruptcy proceeding in 2002. Globix is working with the
Indenture Trustee to determine how to dispose of any obligations under this
escrow.

WHAT WE OFFER OUR CUSTOMERS

Our fiber network is
primarily optical and consists of fiber optic communication paths for
transmission of voice, data and video communications. Fiber optic systems use
laser generated light waves to transmit voice, data and video in digital
formats through ultra-thin strands of glass. Fiber optic systems are generally
characterized by large circuit capacity, are resistant to external signal
interference and connect directly to optical equipment.

We offer end-to-end fiber
optic capacity utilizing bi-directional SONET ring architecture, which has the
ability to route customer traffic in two directions around a ring, thereby
minimizing service interruptions due to fiber cuts. Our network is continuously
monitored on a 24-hour, 7 day a week basis from our network control center in
Westborough, Massachusetts, to maintain quality control and to alert us of any
degradation of signal or loss of fiber capacity and to identify locations of
such difficulty, enabling us to repair or replace impaired fiber quickly.

We use rights-of-way and
licenses from utilities for major portions of our network in the Northeast and
mid-Atlantic regions. These utility rights-of-way and licenses provide rights
to install cable in existing underground conduits and ducts or on existing
towers and poles. Other forms of rights-of-way and licenses, such as those
along roadways, require burying cables in trenches.

In 2003, NEON acquired all
of the equity interests in Columbia Transmission Communications Corporation
(Columbia Transmission). Columbia Transmission became a wholly owned
subsidiary of NEON and was renamed NEON Transcom, Inc. NEON Transcom utilizes
traditional rights-of-way, in the form of easement agreements, that were
established with individual land owners by Columbia Transmission before it was
acquired by NEON. This part of our network runs from New York City to the
greater Washington, DC, area and represents a relatively small portion of our
entire network. This part of the network provides a redundant section of
network that parallels NEONs original network from New York City to the
Washington, DC areas.

Our network provides
services to other telecommunications companies as well as customers such as
financial institutions, colleges and universities. Our network enables these
companies to link their network facilities that are geographically dispersed
with primary or redundant connections in their networks. Our facilities also
enable many of our customers to connect their networks directly into the
premises of their customers.

Our network serves
approximately 120 customers, including telephone company common carriers,
wireless service providers, Internet infrastructure companies, international
communication providers and other customers that are not telecommunications
companies. Revenue from our network is derived principally from lit fiber
services under contracts ranging from one to seven years that provide for
monthly payments. Dark fiber service contracts have terms of approximately 20
years and generally provide for monthly payments. In addition, the contracts
typically provide for outage related credits, a predetermined reduction or
offset against the customers lease rate when a customers leased facility is
non-operational or does not meet the customers operating parameters, and also
typically require us to maintain adequate insurance coverage, including product
liability coverage.

Our networks customer base
includes the following:

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Wireless
  Communication Companies.Wireless companies typically require connections between their
  facilities, including their cell towers, to other network facilities such as
  an incumbent local exchange carriers central office. Microwave carriers
  typically require fiber optic capacity to replace microwave service as their
  primary source of communications capacity.                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Incumbent
  Local Exchange Carriers and Independent Telcos.Incumbent local exchange carriers (which
  are traditional telephone companies) typically require some interstate
  network services for internal communications, signal control and operator
  services. Incumbent local exchange carriers also require intrastate network
  services to connect to their major network facilities, as well as their
  customers.                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Facilities
  Based Interexchange Carriers. Interexchange carriers (which are companies providing long distance
  telephone service) typically require regional network services from their
  national network facilities to originate and terminate telecommunications
  traffic deeper into the customer base; redundant routing to ensure
  reliability in their networks; and additional capacity for their customers as
  minutes of use and IP bandwidth requirements increase.

3

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| |                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Competitive
  Local Exchange Carriers.Competitive local exchange carriers (which are other
  telecommunications companies that are now allowed to compete with incumbent
  local exchange carriers) typically require interconnection between their
  local networks and extensions further into the community.            
|
| | Internet
  Service Providers.
  Internet Service Providers (ISP) typically require distribution channels to
  interexchange carriers and local exchange carrier switches as well as
  interconnection to other ISP switches to provide access to the Internet to
  consumers and commercial customers via local networks.
|
| | Cable
  Television Companies.Cable
  companies typically require fiber optic capacity to upgrade their systems to
  higher speed bandwidths, which allow them to increase the number of channels
  available, add interactive programming and Internet and data transfer
  capabilities.                                   

We also provide services to
several international communications providers and non-carrier customers. We
sell our services primarily through our own sales force.

GOVERNMENT REGULATION

Fiber Optic Network Business

The core business of our
network is that of a carriers carrier and, therefore, the core business is not
directly subject to common carrier regulation. Several of our subsidiaries,
however, have been certified to provide common carrier services through their
authorizations as competitive local exchange carriers, or CLECs. These authorizations
for CLECs are granted by state governments, but subject these subsidiaries to
regulation under the Communications Act of 1934, as amended by the
Telecommunications Act of 1996 as well as state laws. The telecommunications
industry as a whole is highly regulated by federal, state and local governments
whose regulatory actions are often subject to judicial modification. In light
of the changes that are occurring in the regulation of telecommunications, we
cannot forecast whether or not we will be subject to additional regulation in
the future.

Federal Regulation

Federal regulation has the
greatest impact on the telecommunications industry and has undergone major
changes in recent years as the result of the adoption by Congress of the
Telecommunications Act of 1996 on February 8, 1996 ( Telecommunications Act).
The Telecommunications Act is the most comprehensive reform of the nations
telecommunications laws since the Communications Act of 1934 was enacted. The
Telecommunications Act imposes a number of access and interconnection
requirements on telecommunications carriers and on all local exchange
providers, including competitive local exchange carriers, with additional
requirements imposed on incumbent local exchange carriers. The Telecommunications
Act provides a detailed list of items which are subject to these
interconnection requirements, as well as a detailed set of duties for all
affected carriers. All telecommunications carriers must interconnect with the
facilities of other carriers and not install features that will interfere with
the interoperability of networks.

After lengthy legal
proceedings, the Federal Communications Commission (FCC) adopted revised
guidelines implementing the interconnection and local competition provisions of
the Telecommunications Act. To foster competition in the local exchange market,
the FCC required incumbent local exchange carriers to offer unbundled access to
their telecommunications networks to competitive local exchange carriers at
cost-based rates, including access to dark fiber. In December of 2004, during
its triennial review, the FCC restricted access to or eliminated some unbundled
network elements (UNEs) such as dark fiber local loops. This decision has
created both an opportunity and a challenge for us. As our NEON business has
not used UNEs extensively in the past, this order has had only marginal impact
on our current business. However, the elimination of UNEs could make it more
challenging for us to cost-effectively expand into new markets. At the same
time, this ruling provides the opportunity for us to sell lit services to
carriers who need to replace lost UNEs.

Aside from the impact of
this change, we believe that federal regulation does not affect our core
business directly because it is not currently regulated as a common carrier
under federal law. Federal law imposes certain legal requirements on common
carriers who engage in interstate or foreign communication by wire or radio.
These legal requirements apply to telecommunications carriers to the extent
they engage in the provision of telecommunications services as defined by the
Communications Act of 1934. Telecommunications carriers that provide
telecommunications services and common carriers are essentially the same. Each
provides communications services directly to the public or to some group of
potential users on a nondiscriminatory basis subject to standardized rates,
terms and conditions. We do not believe that our core business offers its fiber
capacity in this manner, because we enter into individual agreements on a
selective basis with prospective customers who use our services and facilities
to support their own functions such as carriers carrier or common carriers
services. We, therefore, do not believe that our core business provision of
dark or lit fiber capacity constitutes telecommunications service or common
carriage as defined by the FCC or under

4

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the common carrier
provisions of the Communications Act of 1934. In our core business we provide
lit and dark fiber on a private basis as a carriers carrier. It is possible,
however, that the leasing of lit or dark fiber may become subject to further
regulation under the Communications Act of 1934.

Accordingly, it is
conceivable that the FCC would subject our provision of fiber capacity to
common carrier regulation. In 1994, the U.S. Court of Appeals for the District
of Columbia Circuit remanded to the FCC the question of the FCCs authority to
regulate dark fiber. In addition, the FCC has been petitioned by certain
railroad, power and telecommunications associations, none of which are
affiliated with us, to clarify the regulatory status of fiber capacity
providers. To date, the FCC has not indicated an intention to rule on this
remand.

If, and to the extent that,
our NEON subsidiary were deemed to be a common carrier it would be required to
comply with several regulatory requirements, including, but not limited to, the
duty to:

| |   |                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | provide such services
  indiscriminately upon any reasonable request;                                                                                                    
| |   |                                                                                                                                                                          
| |  | charge rates and adopt
  practices, classifications and regulations that are just and reasonable;                                                                        
| |   |                                                                                                                                                                          
| |  | avoid unreasonable
  discrimination in charges, practices, regulations, facilities and services;                                                                         
| |   |                                                                                                                                                                          
| |  | pay into federal funds for
  Telecommunications Relay Services, the North American Numbering
  Administration and Local Number Portability;                              
| |   |                                                                                                                                                                          
| |  | limit its use of Customer
  Proprietary Network Information to provisioning of the services in connection
  with which the Customer Proprietary Network was obtained; and
| |   |                                                                                                                                                                          
| |  | comply with various
  reporting, regulatory fee payment and publication of rates.                                                                                        

NEON might also be required
to file tariffs setting forth the rates for its services or to make its rates
otherwise publicly available. These regulatory requirements could impose substantial
burdens on NEON.

As a provider of interstate
telecommunications, NEONs revenues from sales to customer that are end users
are subject to contributions to the FCCs Universal Service Fund. The Universal
Service Fund is a fund that was established to ensure the availability of
affordable basic telecommunications services. As a general matter, revenues
received from other telecommunications carriers for fiber capacity NEON
provides are not subject to contribution to the Universal Service Fund. However,
NEONs revenues from the provision of fiber capacity to telecommunications
carriers who themselves are exempt from contributing to the Universal Service
Fund because their contribution would be less than $10,000 would be subject to
such contribution if the carrier notifies NEON that it is not contributing
directly, in which case the carrier is considered to be an end user. In
addition, if a carrier purchasing NEONs capacity uses it for its own purposes,
then NEON would be subject to such contribution for the revenue generated from
that carrier because it too would be considered an end user. Because certain
Internet service providers are deemed end users, NEONs revenues received
pursuant to fiber capacity leases to such entities would be subject to contributions
to the Universal Service Fund. If such contribution would be less than $10,000,
NEON would qualify for a de minimus exemption from contribution to the
Universal Service Fund. The assessment rate is calculated quarterly and is
currently set at 9.1% of gross end-user revenues. The assessment rate may be
higher in subsequent years. However, the majority of NEONs current revenue
does not qualify as end-user revenue. NEONs required contributions to the
Universal Service Fund for the year ended December 31, 2005 and the nine-months
ended September 30, 2006, were approximately $265,000 and $233,000,
respectively. The FCC is currently reviewing its rules for recovery of
Universal Service Fund contributions and evaluating who is required to contribute
to the Universal Service Fund. The outcome of these proceedings could affect
the amount NEON is required to contribute to the Universal Service Fund in the
future.

State Regulation

The Telecommunications Act
prohibits state and local governments from enforcing any law, rule or legal
requirement that prohibits or has the effect of prohibiting any person from
providing any interstate or intrastate telecommunications service. In addition,
under current FCC policies, any dedicated transmission service or facility that
is used more than 10% of the time for the purpose of interstate or foreign
communication is subject to FCC jurisdiction to the exclusion of any state
regulation. Notwithstanding these prohibitions and limitations, states regulate
telecommunications services, through certification of providers of intrastate
services (or competitive local exchange carriers), regulation of intrastate
rates and service offerings, and other regulations and retain jurisdiction
under the Telecommunications Act to adopt, on a competitively neutral basis,
regulations necessary to preserve and advance universal service, protect the
public safety and welfare, ensure the continued quality of telecommunications
services and safeguard the rights of consumers. Accordingly, the degree of
state involvement in local telecommunications services may be substantial.

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The state regulatory
environment varies substantially from state to state. At present, we do not
anticipate that the regulatory requirements to which NEON is subject in the
Northeast and mid-Atlantic markets will have any material adverse effect on its
operations. In some jurisdictions, NEONs pricing flexibility for intrastate
services may be limited because of regulation, although its direct competitors
are subject to similar restrictions. However, there can be no assurance that
future regulatory, judicial or legislative action will not have a material
adverse effect on NEON.

Local Government Regulation

In addition to federal and
state laws, local governments exercise legal authority that may impact NEONs
business. For example, local governments, such as the City of Boston and the
City of New York, typically retain the ability to license public rights-of-way,
subject to the limitation that local governments may not prohibit persons from
providing telecommunications services. Local authorities affect the timing and
costs associated with NEONs use of public rights-of-way. These regulations may
have an adverse effect on NEONs business.

Distribution of Copyrighted Material

The Digital Millennium
Copyright Act (DMCA) includes a limitation on liability of on-line service
providers for copyright infringement for transmitting, routing or providing
connections, transient storage, caching or storage at the direction of a user.
This limitation on liability applies if the service provider had no actual
knowledge or awareness of the copyright infringement and if certain other
conditions are met. It is not yet clear how the DMCA will be applied to limit
liability that we may face in the future for any possible copyright
infringement or copyright-related issues relating to the activities of our
customers. The DMCA also requires Internet service providers to follow certain
notice and take-down procedures in order to be able to take advantage of the
limitation on liability provided for in the DMCA.

We have implemented the
procedures required by the DMCA and require our users to agree to an
acceptable use policy which prohibits the use of our facilities for illegal
purposes. There can be no assurance, however, that our procedures and
acceptable use policy will shield us from liability. Despite enactment of the
DMCA, the law relating to the liability of companies that provide
Internet-related information carried on or disseminated through their networks
remains largely unsettled. Claims could be made against us under currently
existing or future laws in the United States or other jurisdictions for
defamation, obscenity, negligence, copyright, trademark infringement or other
legal theories based on the nature and content of the materials disseminated
through our networks.

COMPETITION

The telecommunications
industry is highly competitive, and we face substantial competition in the
markets served by transport business. Many of our existing and prospective
competitors have financial, managerial and other resources that are
substantially greater than ours, as well as other competitive advantages,
including established reputations in the communications market. Our current and
projected competitors in this market generally fall into five segments:

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Incumbent
  Local Exchange Carriers and Interexchange Carriers. Incumbent local exchange carriers include
  regional Bell operating companies, such as Verizon. Interexchange carriers
  include such companies as AT&T and Sprint. These communications carriers
  currently own or lease fiber optic networks in our service areas. Incumbent
  local exchange carriers and interexchange carriers dominate their respective
  local markets in the cities connected by our network.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | National
  Long-Haul Fiber Carriers.Carriers such as Qwest Communications, Global Crossing and Level 3
  Communications own or lease fiber optic networks in our service areas and
  employ advanced technology comparable to that of its network.                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | Regional
  Carriers.Regional
  carriers include Cavalier/Elantic and PPL Telecom.                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | Dark
  Fiber Providers.Providers
  of dark fiber include AboveNet, NEESCom (National Grid), NSTAR, FiberTech and
  Sunesys.                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | Metro
  Carriers.Metro
  carriers include RCN Commercial Division and FiberNet.                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | Wireless
  Carrier:Companies
  that offer transport services utilizing wireless technologies such as
  Gigabeam and 5th Avenue.                                                                                                                                                                                                                                                                                                                                                       

Some of the strategies we
employ to offset these competitive forces include pursuing unique rights of way
as well as targeting underserved markets within the Northeast and mid-Atlantic
corridor.

6

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TRADEMARKS AND PATENTS

We currently have five registered service marks and one service mark pending with the United States
Patent and Trademark Office.

EMPLOYEES AND EMPLOYEE RELATIONS

As of September 30, 2006, we
had approximately 282 full-time employees: all of whom worked in the United
States. Following the sale of our US hosting business on November 1, 2006, we
had 145 employees. In addition to our full-time employees, we also employ
part-time personnel from time to time in various departments to meet
fluctuations in work levels. None of our employees are covered by a collective
bargaining agreement.

ITEM 1A. RISK FACTORS

An investment in our securities
involves a high degree of risk. There are a number of important factors that
could affect our business and future operating results, including without
limitation, the factors set forth below. The information contained in this
annual report should be read in light of such factors.

Risks Related to Our Financial Condition and Capital
Requirements

We have a history of losses which, if continued in the
future, could eventually make us unable to meet our financial obligations.

We have experienced
significant losses since we began operations. Though we had net income attributable
    to common stockholders in fiscal 2006 of $23,763,000, we had a loss from
    continuing operations of $24,504,000.

We may continue to need capital to maintain and upgrade our
systems and support our operations.

We may require additional
cash in order to expand the geographic coverage and the range of services
offered by our fiber optic network in order to be competitive with other
service providers and to meet customer demands. Historically NEON has expended
substantial amounts on construction of this network from the proceeds of its
financing activities and has generated negative cash flow. In fiscal 2006, we
invested approximately $19.0 million in capital expenditures for our NEON
business segment.

Failure to make needed capital
investments in our fiber optic network business could result in a loss of
revenues and customers and prevent us from being able to offer competitive
services.

We may need new financing to fund our existing business and
plans for expansion. We may not be able to secure financing on terms acceptable
to us, if at all. Any new financing could contain terms that limit our
financial and operating flexibility and place us at a competitive disadvantage.

While we have paid our
previously outstanding 11% and 9% notes, we may need to borrow additional
funds. There is no assurance that additional funding will be available and, if
it is, what interest rate we will have to pay, or what other terms would be
required of us.

Risks Related to Our Acquisition and Divestiture Strategy

Our acquisition strategy may prove to be unsuccessful, which
could result in further losses and an inability to meet our financial
obligations.

In order to increase our
revenue base, we may make investments in or acquire businesses, products,
services or technologies. Consequently, we are subject to the following risks:

| |   |                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we may not be able to make
  investments or acquisitions on terms which prove advantageous;                                                                                                                                          
| |   |                                                                                                                                                                                                                                      
| |  | acquisitions may cause a
  disruption in our ongoing business, distract our management and other
  resources and make it difficult to maintain the operations, organization and
  procedures of our company or the acquired business.
| |   |                                                                                                                                                                                                                                      
| |  | we may not be able to
  retain key employees of the acquired business or to maintain good relations
  with its customers or suppliers;                                                                                               
| |   |                                                                                                                                                                                                                                      
| |  | we may not be able to
  obtain financing to complete a transaction; and                                                                                                                                                              
| |   |                                                                                                                                                                                                                                      
| |  | we may not be able to
  identify and/or afford suitable acquisitions.                                                                                                                                                                

7

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We may not be able to use some of our net operating losses
for U.S. federal income tax purposes, which may increase our future tax liability.

Prior to our acquisition of
NEON, changes in the ownership of NEON securities as a result of NEONs 2002
plan of reorganization have caused there to be an annual limitation on the use
of net operating loss carry forwards that arose prior to the effective date of
NEONs plan of reorganization. Similarly, changes in the ownership of Globixs
securities as a result of our 2002 plan of reorganization have caused there to
be an annual limitation on the use of net operating loss carry forwards that
arose prior to the effective date of Globixs plan of reorganization. As a
result of the merger with NEON and the open market divestiture of significant
amounts of shares of Globix stock by former NEON shareholders, both Globix and
NEON experienced ownership changes in March 2005 and April 2006, respectively.
The availability of NOL carryforwards to reduce the Companys future Federal
income tax liability is subject to limitations under Section 382 of the
Internal Revenue Code. Additional limitations on our ability to use net
operating losses could increase our U.S. federal income tax liability.

We continue to have indemnification obligations and other
possible post-closing liabilities relating to the hosting business we divested
and the headquarters building we sold.

The agreements under which
we sold our U.K. and U.S. hosting business and our 139 Centre Street sale
provide for potential indemnification obligations and other possible post-closing
liabilities. Funds have been escrowed under each of the hosting business
transactions to cover remaining obligations and liabilities, but under limited
circumstances we could be held liable for more than the escrowed amounts. Under
the 139 Centre Street sale, we have a requirement to vacate the building by May
31, 2007 and would be subject to penalties if we failed to do so. We have not
yet been released from all obligations related to real estate under lease with
the US and UK hosting businesses, and there is the potential that full release
will not be realized despite the buyers contractual obligations to obtain such
releases.

Risks Related to Our Business Generally

Our revenues could decline significantly if we lose customers
or if our existing customers reduce their level of spending on our services.

We may experience declines
in revenues in the transport services business due to customers leaving us or
staying with us but choosing to decrease their spending on our services.

Intense competition, overcapacity
and a slow down in demand in the telecommunications market could also result in
a decline in revenues in the fiber optic services business.

Continued declines in
revenue could eventually result in an inability to meet our financial
obligations.

Our largest five customers represent approximately 54.9% of
our revenues from continuing operations in 2006.

While we expect to continue
to provide service to these customers, if one or more of these customers were
to discontinue service it could have a material effect on our revenues and
results of operations.

If we are unable to maintain and upgrade our network and
facilities, we could lose customers and revenues or be unable to offer
competitive services.

A key element of our
business strategy is the maintenance and upgrading of our facilities and
network, which has required, and will continue to require, management time and
the periodic expenditure of capital.

Our business could suffer from a loss of management
personnel, which may reduce our efficiency and control over our
operations and reduce our revenues or earnings.

Since our emergence from
bankruptcy, we have undertaken a number of changes in management as well as
reductions in staffing. As a result, our business has experienced a lack of continuity
in management from time to time (and may continue to do so). Our ability to
operate effectively depends largely on the experience, skills and performance
of our senior management team. The loss or unavailability to us of any member
of our senior management team may reduce our efficiency and control over
operations and may reduce our revenues or earnings.

We may not be able to attract or retain the personnel we need
in critical areas of our business, which could reduce our efficiency, impair
the quality of our services or otherwise adversely affect the ability of our
business to perform its functions.

We may experience
difficulties in attracting and retaining key personnel for management,
technical, sales and marketing and customer support positions. The failure to
attract or retain qualified personnel in any of these critical areas could
adversely affect the

8

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ability of our business to
perform its functions. Further efforts to control management costs, given our
flat organizational structure, could have an additional adverse impact on
employee morale.

Our communications systems, network and infrastructure are
vulnerable to physical damage, catastrophic outages, power loss, service
limitations and other disruptions, which could result in immediate loss of
revenues, payment of outage credits to our customers and, more importantly, the
loss of customer confidence and business reputation.

Interruptions and service
limitations in our fiber optic network services could result from natural
disasters as well as power loss, our inability to acquire fuel for our backup
generators, capacity limitations, software defects, breaches of security,
telecommunications failure, terrorist attacks and similar events. We also lease
telecommunications lines from local, regional and national carriers, whose
service may be interrupted. Any damage, failure or limitation that interrupts
or delays our operations or limits our ability to provide service could result
in the loss of customers and revenues.

Our agreements with network
customers typically provide for the payment of outage related credits (a
predetermined reduction or offset against our lease rate when a customers
leased facility is non-operational or otherwise does not meet certain operating
parameters) or damages in the event of a disruption in service. These credits
or damages could be substantial and could significantly decrease our net
revenues.

If our security measures proved to be inadequate, we could
lose customers.

Our infrastructure is
potentially vulnerable to physical or electronic break-ins, viruses, denial of
service attacks or similar problems. A breach of our security measures could
jeopardize the security of confidential and proprietary information and cause
interruptions in our operations. We could be required to make significant
additional investments to protect against or remedy security breaches. The
occurrence of these problems could result in liability and harm our business
and reputation.

Intense competition in the telecommunications industry from a
broad range of competitors may prevent us from obtaining customers, require us
to lower prices and reduce our revenues.

Our fiber optic network
business faces substantial competition from companies with significantly
greater financial and other resources, whose capacity is interchangeable with
the capacity that we offer, including incumbent local telephone companies,
national long-haul and regional carriers, dark fiber providers and metro
carriers. In addition, potential competitors capable of offering services
similar to those we offer include other communications service providers that
own and operate their own networks and equipment, including cable television
companies, electric utilities, microwave carriers, satellite carriers, wireless
communication system operators and end-users with private communications
networks.

Many of the targeted
customers of our fiber optic network are also potential competitors. If our
services are not satisfactory or cost competitive, our targeted customers may
utilize other providers where available, or construct their own networks, which
would reduce their need for our services and create future sources of
competition for us.

Our business relies on third-party data communications and
telecommunications providers that could increase prices or interrupt service,
which in turn could cause us to lose customers and revenues.

Our existing network relies
on many third-party data communications and telecommunications providers. These
carriers are subject to price constraints, including tariff controls, that in
the future may be relaxed or lifted. Price increases or the lack of service
availability and quality could increase the costs of maintaining our network
and result in the loss of customers and revenues.

We may not be able to obtain hardware and software on the
scale and at the times we need at an affordable cost, and failure to do so
could cause us to lose customers or be unable to offer competitive service.

We rely on outside vendors
to supply us with computer hardware, software and networking equipment. Our
fiber optic network relies on equipment from Nortel Networks, Cisco Systems,
Lucent Technologies and ECI Telecom. Consequently, our expertise is
concentrated in products from these manufacturers. If we are unable over an
extended period of time to obtain the products and services that we need on a
timely basis and at affordable prices, it could result in the loss of customers
and revenues.

Our dependence on a limited number of telecommunications
carriers exposes us to possible interruptions that could delay or prevent us
from providing our services.

Approximately 31.3% of the
cost of revenues of continuing operations for the year ended September 30, 2006
was derived from services provided by 3 major telecommunication carriers. While
we believe that most of these services can be obtained from other alternative
carriers, an interruption in service from one of these carriers or other
suppliers could limit our ability to serve customers, which would adversely
affect our results of operations.

9

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Our business requires us to adapt to technological changes,
and significant technological changes could render our existing services
obsolete.

We must adapt to our rapidly
changing market by continually improving the responsiveness, functionality and
features of our services to meet our customers needs. If we are unable to
respond to technological advances and conform to emerging industry standards in
a cost-effective and timely basis, we could lose customers and there could cease
to be a market for our services.

Due to rapidly evolving technologies in the fiber optic
network industry and the uncertainty of future government regulation, our
current business plan may become obsolete and we may lose customers and revenue
if we are unable to successfully adjust our products, services and business
strategies as required.

In the future, we may become
subject to more intense competition due to the development of new technologies,
an increased supply of domestic and international transmission capacity, the
consolidation in the industry among local and long distance service providers
and the effects of deregulation resulting from the Telecommunications Act of
1996. The introduction of new services and products or the emergence of new technologies
may change the cost or increase the supply of services and products similar to
those that it provides. We cannot predict which of many possible future product
and service offerings will be crucial to maintain our competitive position or
what expenditures will be required to develop profitably and provide such
products and services. Prices for our services to carriers specifically, and
interstate services in general, may decline over the next several years due
primarily to price competition to the extent that network providers continue to
install networks that compete with our fiber optic network. We also believe
that there will be technological advances that will permit substantial
increases in the transmission capacity of both new and existing fiber.

We could be liable for violating the intellectual property
rights of third parties, which could result in us having to pay a license fee
or damages to third parties, which would reduce our revenues.

Despite our efforts to
protect the intellectual property that is important to the operation of our
business, a third party could bring a claim of infringement against us or any
of our material suppliers. If such a claim were settled or adjudicated against
us or one of our material suppliers, we could be forced to pay for a license to
continue using the intellectual property. There is no guarantee that we could
obtain such a license, or that it would be available on reasonable terms.
Alternatively, we could be forced to defend ourselves against infringement claims,
which could be costly and which could result in us having to pay damages to
third parties.

The cost-effective expansion of our fiber optic network
within the Northeast and mid-Atlantic regions is crucial to our business plan,
and depends upon numerous factors beyond our control.

Our ability to achieve our
strategic objectives depends in large part upon the expansion of our fiber
optic network within the Northeast and mid-Atlantic regions. Significant
changes in the competitive market in these regions could restrict our growth or
ability to offer services in a cost-effective manner.

We could lose the contract rights upon which we rely to
operate and maintain our fiber optic network in the event of bankruptcy
proceedings relating to one or more of the third parties that have granted to
us the right to build and operate our fiber optic network using their
rights-of-way.

The construction and
operation of our fiber optic network depends upon contract rights known as
indefeasible rights-of-use. Indefeasible rights-of-use are commonly used in the
telecommunications industry, but remain a relatively new concept in property
law. Although indefeasible rights-of-use give the holder a number of rights to
control the relevant rights-of-way or fiber optic filaments, legal title
remains with the grantor of the rights. Therefore, the legal status of
indefeasible rights-of-use remains uncertain, and our indefeasible
rights-of-use might be voidable in the event of bankruptcy of the grantor. If
we were to lose an indefeasible right-of-use in a key portion of the network,
our ability to service network customers could become seriously impaired and we
could be required to incur significant expense to resume the operation of the
fiber optic network in the affected areas.

Despite our existing rights-of-way, we may be forced to make
substantial additional payments to the affected landowners or remove our
network from their property, which would significantly harm our business and
results of operations.

Our indefeasible rights-of-use
and other rights-of-way depend on the grantors interest in the property on
which our network is located. To the extent that a grantor of an indefeasible
right-of-use or other rights-of-way has a limited easement in the underlying
property and not full legal title, the adequacy of our indefeasible
rights-of-use or other rights-of-way could be challenged in court. We believe
that the easements granted by a substantial number of landowners to grantors of
our indefeasible rights-of-use are similar in scope to those with respect to
which claims have been asserted, and we cannot guarantee that claims will not
be made in the future.

10

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Because significant portions of our fiber optic network are
constructed upon rights-of-way controlled by utility companies and
municipalities which generally place the operation of their facilities ahead of
the operation of our fiber optic network, we may be unable to construct and
operate our fiber optic network in the affected areas without periodic
interruptions and delays caused by the day-to-day operations of these entities.

Our rights-of-way agreements
with Northeast Utilities, Central Maine Power and Consolidated Edison
Communications, Inc. and various other entities contain provisions which
acknowledge the right of these entities to make the provision of their services
to their own customers their top priority. These companies are required only to
exercise reasonable care with respect to our facilities and are otherwise
free to take whatever actions they deem appropriate with respect to ensuring or
restoring service to their customers, any of which actions could impair
operation of our network.

Regulatory Risks

Municipal regulation of our access to public rights-of-way is
subject to change and could impose administrative burdens that would result in
additional costs to us or limit our fiber optic network operations.

Local governments typically
retain the ability to license public rights-of-way, subject to the federal
requirement that local governments may not prohibit the provision of
telecommunications services. Changes in local government regulation could
impose additional costs on our business and limit its operations. Local
authorities affect the timing and costs associated with its use of public
rights-of-way.

Federal regulation of the telecommunications industry is
changing rapidly and we could become subject to unfavorable new rules and
requirements which could impose substantial financial and administrative
burdens on us and interfere with our ability to successfully execute our fiber
optic network business strategies.

Regulation of the
telecommunications industry is changing rapidly. Existing and future federal,
state, and local governmental regulations will greatly influence the viability
of our fiber optic network services business. For example, the FCC recently
issued rules under the Telecommunications Act of 1996 which would have required
that competitive local exchange carriers, such as NEON, be allowed to purchase
the use of certain elements of the telecommunications network owned and
operated by incumbent local exchange carriers. By purchasing these elements,
competitive local exchange carriers would have been able to provide services in
a cost-effective manner to their customers. However, the FCCs rules were
challenged in court by the incumbent local exchange carriers. The U.S. Court of
Appeals for the District of Columbia Circuit sided with the incumbent local
exchange carriers and has required the FCC to formulate new rules. Any new
rules issued by the FCC may not provide competitive local exchange carriers
with the ability to purchase the use of all of the elements of the incumbent
local exchange carriers network, and as a result the competitive local
exchange carriers may not be able to continue providing services to their
customers that they are currently providing.

Revenues from telecommunications provided to end-users are
subject to contributions to the FCCs universal service fund, and increases in
the amount of the required contributions could increase our costs unexpectedly.

While we do not generally
provide telecommunications directly to end-users and we are therefore generally
exempt from contributing to the FCCs Universal Service Fund, some of the
customers of our fiber optic network are Internet service providers that are
treated as end-users by the FCC. Our revenues from these customers are
therefore currently subject to an assessment of 9.1%. Such assessments vary and
may increase from quarter to quarter. If the annual contribution amount were
less than $10,000, we would qualify for a de minimus exemption from
contribution to the fund. NEONs required contributions to the Universal
Service Fund for the year ended December 31, 2005 and the nine months ended
September 30, 2006 were approximately $264,000 and $233,000, respectively.

If NEON becomes subject to regulation as a common carrier in
the future, we would be subject to additional regulatory requirements.

We do not believe that NEON
is currently a common carrier, but that status could change based on
differing interpretations of current regulations, regulatory changes and
changes in the way we conduct our fiber optic network business. If NEON becomes
regulated as a common carrier by the FCC, it would have to publicize the rates
for its services and submit other reports, and would be required to contribute
to federal funds including, but not limited to, those established for
Telecommunications Relay Services, for the management of the North American
Numbering Plan and for Local Number Portability. These regulatory requirements
could impose substantial burdens on us.

The Telecommunications Act
of 1996 requires incumbent local telephone companies to provide elements of
their networks to competitors on an unbundled basis. The FCC determined that
dark fiber is a network element that incumbent local telephone

11

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companies must provide to
others. The availability of this alternative source of supply may increase
competition among providers of dark fiber services and could decrease the
demand for our fiber optic network services.

State regulation of companies providing telecommunications
services varies substantially from state to state and NEON may become subject
to burdensome and restrictive state regulations as it expands its fiber optic
network into a broader geographic area, which could interfere with its
operations and our ability to meet our strategic objectives.

Our fiber optic network may
be subject to state regulation, which can vary substantially from state to
state. Our NEON subsidiaries have obtained authority to provide intrastate
telecommunications services on a competitive common carrier basis in its market
area. Therefore, these subsidiaries are subject to the obligations that
applicable law places on all similarly certificated common carriers including
the filing of tariffs, state regulation of certain service offerings, pricing,
payment of regulatory fees and reporting requirements. Compliance with these
regulatory obligations, or any of the regulatory requirements of other states
to which we might become subject, could be costly and burdensome. Moreover,
some of our rights-of-way depend on NEONs status as a common carrier in these
states, and if that status were to be successfully challenged, those
rights-of-way could be terminated.

Risks Relating to Financial Accounting

Failure to hire and train sufficient finance and accounting
resources could impact our ability to file timely financial reports.

During the fourth quarter of
2006 management identified a material weakness related to insufficient
accounting and finance resources. As a result of the insufficient resources,
    we did not adequately address certain complex transactions and properly monitor
internal controls. Management intends to hire additional accounting and finance
employees to address this material weakness. In December 2006, we hired a new
Vice President/Controller. We may not be able to hire and train sufficient
finance and accounting personnel in a timely fashion, however. If we are unable
to hire and train additional finance and accounting personnel, we may not be
able to file timely financial reports. In such event, we would also continue
    to have ineffective internal controls over financial reporting and disclosure
controls and procedures.

Failure to achieve and maintain
effective internal controls in accordance with Section 404 of the
Sarbanes-Oxley Act could have a material adverse effect on our business and
stock price.

Section 404 of the
Sarbanes-Oxley Act requires annual management assessments of the effectiveness
of our internal controls over financial reporting and disclosure controls and
procedures and a report by our Independent Registered Public Accountants
addressing these assessments. At September 30, 2006, management identified a
material weakness resulting in ineffective internal controls over financial
reporting and ineffective disclosure controls and procedures. Management
concluded that additional resources were needed in the accounting and finance
area to properly address complex accounting issues and properly monitor
internal controls. Management also concluded that this material weakness
contributed to an untimely and inadequate evaluation of general computer
controls. Management intends to address this material weakness during fiscal
year 2007. Until we adequately address this material weakness in internal
control, we will be unable to conclude that we have effective internal controls
over financial reporting and disclosure controls and procedures in accordance
with Section 404 of the Sarbanes-Oxley Act. Failure to achieve and maintain an
effective internal control environment could have a material adverse effect on
our stock price and our ability to obtain financing if needed.

Risks Related to Our Common Stock

Because our common stock is thinly traded, prices are more
likely to be volatile and it may be harder for our stockholders to sell any
sizable number of shares.

Our common stock is
currently traded on the American Stock Exchange but an active and liquid
trading market has not fully developed and, if one does develop, it may not
continue. The development of an active public trading market depends upon the

12

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existence of willing buyers
and sellers and is not within our control. For these reasons, we cannot assure
our stockholders that they will be able to resell shares of our common stock
for a price that is equal to or greater than the price of our common stock on
the date the stock is acquired.

If our common stock ceased
to be eligible for listing on the American Stock Exchange, the trading prices
of the stock could decline and it could become more difficult to dispose of the
stock.

Future sales of our common stock may depress our stock price.

If our stockholders or
option holders, including former NEON stockholders and option holders who
received our common stock and stock options in the merger, sell substantial
amounts of our common stock in the public market, the market price of our
common stock could fall.

13

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ITEM 2. PROPERTIES

The NEON network and its
component assets are the principal properties currently owned by NEON or with
respect to which NEON has indefeasible rights of use and leases. NEON owns
substantially all of the communications equipment currently utilized in its
business and holds certain ownership interests in the cable comprising the NEON
network. NEONs installed fiber optic cable is laid along various rights-of-way
and through the provisions of license agreements. Other fixed assets are
located at various leased locations in geographic areas it serves.

NEONs principal office is
in Westborough, Massachusetts. NEON leases this space (approximately 23,500
square feet) pursuant to a lease that expires on October 31, 2007.

We believe that the
facilities that we occupy are adequate for our current needs and that additional
space will be available, either through leasing or purchasing, when needed.

ITEM 3. LEGAL PROCEEDINGS

On January 28, 2002, a
derivative suit was filed in the United States District Court for the Southern
District of New York against our company, as nominal defendant, and certain of
our current and former directors and officers. The action is entitled Susan
Boney, Individually and Derivatively on behalf of Nominal Defendant Globix
Corp, Plaintiff v. the named former Board of Directors (pre-Bankruptcy),
Defendants and Globix Corp, a Delaware Corporation, Nominal Defendant.
Plaintiffs brought the action against the former board and certain executives
seeking damages and expenses for breach of fiduciary duty for violations of
federal and state securities laws alleging misrepresentations of Globixs
financial performance from 2000 through 2001. We believe that the allegations
in this lawsuit are without merit and we intend to vigorously defend against
them. In addition, the plaintiff has not pursued her claims since the filing of
the lawsuit. There have been no actions related to this litigation since
September 2002. Although there can be no assurance as to the outcome or effect
of this lawsuit, we do not believe, based on currently available information,
that the ultimate liabilities, if any, resulting from this lawsuit will have a
material adverse impact on our business, financial condition, results of
operations or cash flows.

On June 25, 2002, we entered
into a Stipulation and Order with the lead plaintiffs in a class action lawsuit
that had been brought against us and certain of our directors and officers. The
Stipulation and Order provides that 229,452 shares of our common stock and
$1,968,000 in aggregate principal amount of the 11% senior notes will be held
in escrow pending the outcome of the class action lawsuit. If a judgment or
settlement in the class action lawsuit had required us to pay an amount in
excess of our liability insurance, we would have been required to issue to the
class action litigants and their attorneys all (in the event that this excess
is $10 million or greater) or a portion of (in the event that this excess is
less than $10 million) the shares of our common stock and the 11% senior notes
being held in escrow. This lawsuit was settled in 2005 for less than our
liability insurance. Accordingly, we expect to distribute the shares of common
stock and 11% senior notes held in escrow to Globix security holders under the
plan of reorganization.

In May 2006, we were served
with a summons and complaint in an action entitled Media Express USA, Ltd. VS. Globix
Corporationwhich is pending in the New York County Supreme Court.
The complaint seeks $250,000 on each of two causes of action based on a claim
that the Company failed to provide plaintiff with certain contracted-for
services. We have filed an answer denying the material allegations of the
complaint and asserting numerous defenses. We have significant strong legal
defenses to the claims and no longer have direct liability since the claim was
assigned as part of the sale of our US hosting business. The plaintiff has
failed to appear for a properly noticed deposition.

We are from time to time
involved in other legal proceedings in the ordinary course of our business
operations. Although there can be no assurance as to the outcome or effect of
any legal proceedings to which we are a party, we do not believe, based on
currently available information, that the ultimate liabilities, if any, arising
from any such legal proceedings would have a material adverse impact on our
business, financial condition, results of operations or cash flows.

ITEM 4. Submission of Matters To a Vote of Security Holders

No matters were submitted to
a vote of security holders during the fourth quarter of fiscal 2006.

14

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PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

On April 13, 2005, Globix
stock began trading on the American Stock Exchange under the symbol GEX.
Prior to that date, Globix common stock was quoted on the OTC Bulletin Board
under the symbol GBXX.OB. Quotations on the OTC Bulletin Board reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may
not necessarily represent actual transactions.

The following table sets
forth the high and low closing sale prices for Globix common stock as reported
on the American Stock Exchange or the OTC Bulletin Board, as applicable, for
the periods indicated:

|               |  |      |      |     |   |      | 
|-------------- |  | ---- | ---- | --- | - | ---- | 
|Fiscal
  2005  |  | High |      | Low |  
|               |  |      |      |     |  
|First Quarter  |  | $    | 3.71 |     | $ | 2.51 | 
|Second Quarter |  | $    | 3.95 |     | $ | 3.15 | 
|Third Quarter  |  | $    | 3.60 |     | $ | 2.45 | 
|Fourth Quarter |  | $    | 2.58 |     | $ | 1.96 | 

|               |  |      |      |     |  
|-------------- |  | ---- | ---- | --- | -
|Fiscal
  2006  |  | High |      | Low |  
|               |  |      |      |     |  
|First Quarter  |  | $    | 2.03 |     | $
|Second Quarter |  | $    | 2.75 |     | $
|Third Quarter  |  | $    | 5.10 |     | $
|Fourth Quarter |  | $    | 4.97 |     | $

On December 1, 2006, there
were 193 record holders of Globix common stock. In addition, the 2002 plan of
reorganization provides that the 268 record holders of the common stock of
Globix on the effective date of the plan will be entitled to receive, in
exchange for claims in respect of such stock, their pro rata portion (which,
under the terms of the Globix plan of reorganization, may be equal to zero) of
164,600 shares of the common stock following the effective date.

Other than payment of
dividends on shares of our preferred stock that were cancelled pursuant to our
plan of reorganization, we have not historically paid dividends, and we do not
anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to finance operations and expand our
business. Any future determination to pay cash dividends will be at the
discretion of our board of directors and will be dependent upon our financial
condition, operating results, capital requirements and other factors that our
board of directors deems relevant. It is not anticipated that cash dividends
will be paid to the holders of our common stock in the foreseeable future.

Under our 6% series A
cumulative convertible preferred stock issued in the NEON merger, dividends
accrue (whether or not declared) on each June 15 and December 15 at a rate of
6% per annum on the liquidation value of $3.60 per share and when and if
declared are payable either in cash or in shares of our common stock valued at
$3.60 per share. As of June 15, 2006, a dividend of $838,000 had accrued on
this preferred stock. To date no dividends have been paid.

In May 2005, the Company
issued a warrant to Further Lane Asset Management, LLC to purchase 250,000
shares at a purchase price of $4.00 per share in a private transaction exempt
from registration under Section 4(2) of the Securities Act of 1933, in exchange
for financial advisory services to be provided to Globix by Further Lane. One twelfth
of the warrants become exercisable in each month so that all warrants would
become vested on May 1, 2006. All of the warrants, however, vested upon the
early

15

---



termination of the
engagement of Further Lane Asset Management, LLC as of January 5, 2006. The
warrants expire on May 1, 2008.

ITEM 6. SELECTED FINANCIAL DATA

The following selected
historical consolidated financial data as of and for the years ended September
30, 2006, September 30, 2005, September 30, 2004, September 30, 2003, five months
ended September 30, 2002 and the seven months ended April 30, 2002 (Predecessor
Company), have been derived from our audited consolidated financial statements
and related notes. As a result of the decision to exit the hosting business,
the results of the hosting operations have been reflected as discontinued
operations.

This information should be
read together with, and is qualified in its entirety by reference to, our
consolidated financial statements included elsewhere in this annual report and
the notes thereto and the information set forth in Item 7 - Managements
Discussion and Analysis of Financial Condition and Results of Operations.

As a result of the
application of fresh start accounting under SOP No. 90-7 as of May 1, 2002 our
financial results for the fiscal year ended September 30, 2002 include two
different bases of accounting and, accordingly, the operating results and cash
flows of the Successor Company and the Predecessor Company have been separately
disclosed. For the purposes of this annual report and the financial statements
and related notes contained in this annual report, references to the
Predecessor Company are references to our company for periods prior to April
30, 2002 (the last day of the calendar month in which we emerged from
bankruptcy) and references to the Successor Company are references to our
company for periods subsequent to April 30, 2002. The Successor Companys
financial statements are not comparable to the Predecessor Companys financial
statements.

16

---



|                                                                                                                                                  |  |                             |            |                              |   |                             |   |                             |            |                                   |   |                                |   |   |            |   |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ---------- | ---------------------------- | - | --------------------------- | - | --------------------------- | ---------- | --------------------------------- | - | ------------------------------ | - | - | ---------- | - | - | ---------- | -
|(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)                                                                                                   | 
|                                                                                                                                                  |  |                             |           
|                                                                                                                                                  |  | SUCCESSOR COMPANY           |            | PREDECESSOR COMPANY          |  
|                                                                                                                                                  |  |                             |            |                              |  
|                                                                                                                                                  |  | YEAR ENDEDSEPTEMBER 30,2006 |            | YEAR ENDEDSEPTEMBER 30,2005* |   | YEAR ENDEDSEPTEMBER 30,2004 |   | YEAR ENDEDSEPTEMBER 30,2003 |            | FIVE MONTHSENDEDSEPTEMBER 30,2002 |   | SEVEN MONTHSENDEDAPRIL 30,2002 |  
|                                                                                                                                                  |  |                             |            |                              |   |                             |   |                             |            |                                   |   |                                |  
|Consolidated Statement of Operations Data:                                                                                                        |  |                             |            |                              |   |                             |   |                             |            |                                   |   |                                |   |   |            |   |   |            |  
|                                                                                                                                                  |  |                             |            |                              |   |                             |   |                             |            |                                   |   |                                |   |   |            |   |   |            |  
|Revenue                                                                                                                                           |  | $                           | 66,429     |                              | $ | 30,646                      |   | $                           |           |                                   | $ |                               |   | $ |           |   | $ |           |  
|Operating costs and expenses:                                                                                                                     |  |                             |            |                              |   |                             |   |                             |            |                                   |   |                                |   |   |            |   |   |            |  
|Cost of revenues (excluding depreciation and amortization)                                                                                        |  |                             | 35,699     |                              |   | 17,760                      |   |                             |           |                                   |   |                               |   |   |           |   |   |           |  
|Selling, general and administrative                                                                                                               |  |                             | 27,016     |                              |   | 18,273                      |   |                             | 9,942      |                                   |   | 12,611                         |   |   | 11,051     |   |   | 21,567     |  
|Loss on sale of corporate headquarters                                                                                                            |  |                             | 3,803      |                              |   |                            |   |                             |           |                                   |   |                               |   |   |           |   |   |           |  
|Loss on impairment of assets                                                                                                                      |  |                             |           |                              |   |                            |   |                             | 17,972     |                                   |   |                               |   |   |           |   |   | 2,578      |  
|Restructuring and other charges (credits)                                                                                                         |  |                             |           |                              |   |                            |   |                             |           |                                   |   | (1,020                         | ) |   |           |   |   | 49,668     |  
|Depreciation and amortization                                                                                                                     |  |                             | 15,380     |                              |   | 8,796                       |   |                             | 2,786      |                                   |   | 6,313                          |   |   | 2,576      |   |   | 4,763      |  
|                                                                                                                                                  |  |                             |            |                              |   |                             |   |                             |            |                                   |   |                                |   |   |            |   |   |            |  
|Total operating costs and expenses                                                                                                                |  |                             | 81,898     |                              |   | 44,829                      |   |                             | 30,700     |                                   |   | 17,904                         |   |   | 13,627     |   |   | 78,576     |  
|Loss from operations                                                                                                                              |  |                             | (15,469    | )                            |   | (14,183                     | ) |                             | (30,700    | )                                 |   | (17,904                        | ) |   | (13,627    | ) |   | (78,576    | )
|Interest and financing expense, net                                                                                                               |  |                             | (10,109    | )                            |   | (9,441                      | ) |                             | (11,143    | )                                 |   | (14,326                        | ) |   | (5,945     | ) |   | (32,804    | )
|Other income (expense)                                                                                                                            |  |                             | 1,074      |                              |   | (681                        | ) |                             | 2,011      |                                   |   | 1,891                          |   |   | (284       | ) |   | 42         |  
|Reorganization items                                                                                                                              |  |                             |           |                              |   |                            |   |                             |           |                                   |   |                               |   |   |           |   |   | (7,762     | )
|Fresh start accounting adjustments                                                                                                                |  |                             |           |                              |   |                            |   |                             |           |                                   |   |                               |   |   |           |   |   | (148,569   | )
|Minority interest in subsidiary                                                                                                                   |  |                             |           |                              |   |                            |   |                             |           |                                   |   |                               |   |   |           |   |   | 5,778      |  
|(Loss) gain on debt discharge                                                                                                                     |  |                             |           |                              |   | (3,182                      | ) |                             | 1,747      |                                   |   | 6,023                          |   |   |           |   |   | 427,066    |  
|                                                                                                                                                  |  |                             |            |                              |   |                             |   |                             |            |                                   |   |                                |   |   |            |   |   |            |  
|(Loss) income from continuing operations before income
taxes                                                                                      |  |                             | (24,504    | )                            |   | (27,487                     | ) |                             | (38,085    | )                                 |   | (24,316                        | ) |   | (19,856    | ) |   | 165,175    |  
|Income tax expense                                                                                                                                |  |                             |           |                              |   |                            |   |                             |           |                                   |   |                               |   |   |           |   |   |           |  
|                                                                                                                                                  |  |                             |            |                              |   |                             |   |                             |            |                                   |   |                                |   |   |            |   |   |            |  
|(Loss) income from continuing operations                                                                                                          |  |                             | (24,504    | )                            |   | (27,487                     | ) |                             | (38,085    | )                                 |   | (24,316                        | ) |   | (19,856    | ) |   | 165,175    |  
|Income (loss) from discontinued operations, net of income taxes of $0
  (includes gain on disposal of discontinued operations of $46,213 in 2006) |  |                             | 48,937     |                              |   | (3,050                      | ) |                             | (3,301     | )                                 |   | (959                           | ) |   | (1,275     | ) |   | (5,241     | )
|                                                                                                                                                  |  |                             |            |                              |   |                             |   |                             |            |                                   |   |                                |   |   |            |   |   |            |  
|Net income (loss)                                                                                                                                 |  |                             | 24,433     |                              |   | (30,537                     | ) |                             | (41,386    | )                                 |   | (25,275                        | ) |   | (21,131    | ) |   | 159,934    |  
|Dividends and accretion on preferred
stock                                                                                                        |  |                             | 670        |                              |   | 366                         |   |                             |           |                                   |   |                               |   |   |           |   |   | 3,178      |  
|                                                                                                                                                  |  |                             |            |                              |   |                             |   |                             |            |                                   |   |                                |   |   |            |   |   |            |  
|Net income (loss) attributable to common stockholders                                                                                             |  | $                           | 23,763     |                              | $ | (30,903                     | ) | $                           | (41,386    | )                                 | $ | (25,275                        | ) | $ | (21,131    | ) | $ | 156,756    |  
|                                                                                                                                                  |  |                             |            |                              |   |                             |   |                             |            |                                   |   |                                |   |   |            |   |   |            |  
|Earnings (loss) per common share from continuing
operations:                                                                                      |  |                             |            |                              |   |                             |   |                             |            |                                   |   |                                |   |   |            |   |   |            |  
|Basic                                                                                                                                             |  | $                           | (0.51      | )                            | $ | (0.80                       | ) | $                           | (2.31      | )                                 | $ | (1.48                          | ) | $ | (1.20      | ) | $ | 4.17       |  
|                                                                                                                                                  |  |                             |            |                              |   |                             |   |                             |            |                                   |   |                                |   |   |            |   |   |            |  
|Diluted                                                                                                                                           |  | $                           | (0.51      | )                            | $ | (0.80                       | ) | $                           | (2.31      | )                                 | $ | (1.48                          | ) | $ | (1.20      | ) | $ | 3.41       |  
|                                                                                                                                                  |  |                             |            |                              |   |                             |   |                             |            |                                   |   |                                |   |   |            |   |   |            |  
|Earnings (loss) per common share from discontinued
operations:                                                                                    |  |                             |            |                              |   |                             |   |                             |            |                                   |   |                                |   |   |            |   |   |            |  
|Basic                                                                                                                                             |  | $                           | 1.00       |                              | $ | (0.09                       | ) | $                           | (0.20      | )                                 | $ | (0.06                          | ) | $ | (0.08      | ) | $ | (0.13      | )
|                                                                                                                                                  |  |                             |            |                              |   |                             |   |                             |            |                                   |   |                                |   |   |            |   |   |            |  
|Diluted                                                                                                                                           |  | $                           | 1.00       |                              | $ | (0.09                       | ) | $                           | (0.20      | )                                 | $ | (0.06                          | ) | $ | (0.08      | ) | $ | (0.11      | )
|                                                                                                                                                  |  |                             |            |                              |   |                             |   |                             |            |                                   |   |                                |   |   |            |   |   |            |  
|Earnings (loss) per common share attributable to common
stockholders:                                                                             |  |                             |            |                              |   |                             |   |                             |            |                                   |   |                                |   |   |            |   |   |            |  
|Basic                                                                                                                                             |  | $                           | 0.49       |                              | $ | (0.89                       | ) | $                           | (2.51      | )                                 | $ | (1.54                          | ) | $ | (1.28      | ) | $ | 3.96       |  
|                                                                                                                                                  |  |                             |            |                              |   |                             |   |                             |            |                                   |   |                                |   |   |            |   |   |            |  
|Diluted                                                                                                                                           |  | $                           | 0.49       |                              | $ | (0.89                       | ) | $                           | (2.51      | )                                 | $ | (1.54                          | ) | $ | (1.28      | ) | $ | 3.30       |  
|                                                                                                                                                  |  |                             |            |                              |   |                             |   |                             |            |                                   |   |                                |   |   |            |   |   |            |  
|                                                                                                                                                 
|Weighted average number of common and common equivalent shares
  outstanding:                                                                     |  |                             |            |                              |   |                             |   |                             |            |                                   |   |                                |   |   |            |   |   |            |  
|Basic                                                                                                                                             |  |                             | 48,702,886 |                              |   | 34,734,506                  |   |                             | 16,460,000 |                                   |   | 16,460,000                     |   |   | 16,460,000 |   |   | 39,618,856 |  
|                                                                                                                                                  |  |                             |            |                              |   |                             |   |                             |            |                                   |   |                                |   |   |            |   |   |            |  
|Diluted                                                                                                                                           |  |                             | 48,702,886 |                              |   | 34,734,506                  |   |                             | 16,460,000 |                                   |   | 16,460,000                     |   |   | 16,460,000 |   |   | 48,507,456 |  
|                                                                                                                                                  |  |                             |            |                              |   |                             |   |                             |            |                                   |   |                                |   |   |            |   |   |            |  

17

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|                                                                          |  |                             |         |                              |   |                             |   |                             |         |                                   |   |                                |   |   |         |   |   |         |  
|------------------------------------------------------------------------- |  | --------------------------- | ------- | ---------------------------- | - | --------------------------- | - | --------------------------- | ------- | --------------------------------- | - | ------------------------------ | - | - | ------- | - | - | ------- | -
|(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
  (CONTINUED)             | 
|                                                                          |  |                             |        
|                                                                          |  | SUCCESSOR COMPANY           |         | PREDECESSOR COMPANY          |  
|                                                                          |  |                             |         |                              |  
|                                                                          |  | YEAR ENDEDSEPTEMBER 30,2006 |         | YEAR ENDEDSEPTEMBER 30,2005* |   | YEAR ENDEDSEPTEMBER 30,2004 |   | YEAR ENDEDSEPTEMBER 30,2003 |         | FIVE MONTHSENDEDSEPTEMBER 30,2002 |   | SEVEN MONTHSENDEDAPRIL 30,2002 |  
|                                                                          |  |                             |         |                              |   |                             |   |                             |         |                                   |   |                                |  
|Other Consolidated Financial Data:                                        |  |                             |         |                              |   |                             |   |                             |         |                                   |   |                                |   |   |         |   |   |         |  
|Net cash provided by (used in) operating activities                       |  | $                           | 10,923  |                              | $ | 1,053                       |   | $                           | (1,568  | )                                 | $ | (12,188                        | ) | $ | 3,679   |   | $ | (59,684 | )
|Net cash provided by (used in) investing activities                       |  | $                           | 82,848  |                              | $ | (3,480                      | ) | $                           | 42,177  |                                   | $ | (858                           | ) | $ | (6,461  | ) | $ | 5,842   |  
|Net cash used in financing activities                                     |  | $                           | (14,754 | )                            | $ | (749                        | ) | $                           | (53,423 | )                                 | $ | (10,539                        | ) | $ | (2,279  | ) | $ | (4,946  | )
|Consolidated Balance Sheet Data:                                          |  |                             |         |                              |   |                             |   |                             |         |                                   |   |                                |   |   |         |   |   |         |  
|Cash, cash equivalent, short-term investments and marketable
  securities |  | $                           | 88,127  |                              | $ | 9,076                       |   | $                           | 20,158  |                                   | $ | 33,260                         |   |   | 54,281  |   |   |         |  
|Restricted cash and investments                                           |  | $                           | 10,637  |                              | $ | 12,369                      |   | $                           | 4,737   |                                   | $ | 6,928                          |   |   | 9,097   |   |   |         |  
|Working capital (deficiency)                                              |  | $                           | 73,394  |                              | $ | (8,378                      | ) | $                           | 15,466  |                                   | $ | 28,449                         |   |   | 42,421  |   |   |         |  
|Total assets                                                              |  | $                           | 259,220 |                              | $ | 257,653                     |   | $                           | 138,542 |                                   | $ | 222,282                        |   |   | 262,720 |   |   |         |  
|Current portion of long-term debt                                         |  | $                           |        |                              | $ | 564                         |   | $                           | 555     |                                   | $ | 1,510                          |   |   | 1,520   |   |   |         |  
|Long-term debt, less current portion                                      |  | $                           | 83,440  |                              | $ | 90,039                      |   | $                           | 95,278  |                                   | $ | 140,389                        |   |   | 151,274 |   |   |         |  
|Cumulative convertible preferred stock                                    |  | $                           | 13,676  |                              | $ | 13,006                      |   | $                           |        |                                   | $ |                               |   |   |        |   |   |         |  
|Stockholders equity                                                      |  | $                           | 115,821 |                              | $ | 94,303                      |   | $                           | 16,875  |                                   | $ | 53,351                         |   |   | 72,547  |   |   |         |  

* Includes the acquired
assets and results of operations of NEON as of March 7, 2005.

18

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ITEM 7. MANAGEMENTS DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion and
analysis of our financial condition and results of operations should be read
together with our consolidated financial statements and the accompanying notes
and Item 6 - Selected Consolidated Financial Data appearing elsewhere in this
annual report. The following discussion contains forward-looking statements.
These forward-looking statements are based on our current expectations,
assumptions, estimates and projections about our company and our industry. Our
results could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including the risks and
uncertainties discussed in Item 1A - Risk Factors and elsewhere in this
annual report. The results shown herein are not necessarily indicative of the
results to be expected in any future periods.

OVERVIEW

For the majority of our
fiscal year ending on September 30, 2006, our business was comprised of two
business units. These units are referred to as our hosting and transport
businesses. The transport business predominantly sells high capacity bandwidth
over our fiber optic network to other companies within the telecommunications
industry. The hosting business provided various Internet services to small to
large businesses. The transport services are sold through our subsidiary NEON
Communications, Inc. (NEON) and the hosting services were sold through Globix
Corporation and its subsidiaries Globix Hosting (UK) Limited and Globix Hosting
LLC.

During 2006, Globix
conducted a strategic review which led to the divestiture of our hosting
business segment. The proceeds from the divestitures were used to pay down our
outstanding debt, and leave us with sufficient funds to support the current
operations of our remaining transport business. As a result of the actions
taken during the year ended September 30, 2006 and the following two months, we
now are a company without any substantial long-term indebtedness focused on one
business; transport services through our NEON subsidiary. We contemplate
growing this business organically and by taking advantage of possible
synergistic acquisition opportunities.

Our employees are located in
New York, New York and Westborough, Massachusetts. Our principal executive
offices are located, at 2200 West Park Drive, Westborough, MA 01581 and the
telephone number for this office if (508) 616-7800. Through May 31, 2007 we
will also maintain offices at 139 Centre Street, New York, New York 10013.

NEON
Transport Business

NEONs business strategy is
to provide highly reliable data transport services and infrastructure to
carriers and a small number of non-carrier customers, including universities,
colleges and financial institutions, in various markets in the Northeast and
mid-Atlantic regions, such as Boston, New York, Philadelphia, Newark,
Baltimore, Washington, DC, Portland, Manchester Albany, Providence, Hartford,
and smaller communities along our network routes. NEON focuses on providing and
developing unique network connectivity solutions to customer locations as well
as targeting smaller metropolitan (Tier 2 and 3) markets such as Springfield,
Worcester, White Plains, Hackensack, Vienna, Burlington and Portsmouth. This
strategy has allowed NEON to avoid some of the competition and pricing
pressures common in other segments of the telecommunications business.

Since its merger with
Globix, NEON has experienced steady quarter over quarter revenue growth,
increasing from $13.2 million in the third fiscal quarter of 2005, the first
full quarter after the merger with Globix, to $17.8M in the fourth quarter of
fiscal 2006, a 34.6% increase. Organic growth has come from and is expected to
continue to come from the growing bandwidth needs of its existing customers and
deeper penetration of existing markets, as well as expansion into new markets
and adding new services and targeting new customers.

We will also seek to grow
opportunistically through acquisition. In pursuing acquisitions, we will seek
companies with similar business models where there are market and cost
synergies. Our ability to complete transactions will be dependent on
identifying appropriate parties and being able to put in place cost effective
financing.

We offer the following
services:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | LIT FIBER TRANSPORT
  SERVICES  Over our fiber optic network, we deliver both electrical and
  optical transmission of signals on fiber optic telecommunications circuits
  that are dedicated to our customers. We install and maintain network
  equipment that powers, sends and receives the electrical and optical signals.
  Once network equipment is installed on a fiber, the network is considered to
  be lit. Specific service offerings include: SONET Private Line services at
  bandwidth levels including DS-3, OC-3, OC-12, OC-48, and OC-192; Wavelength
  (DWDM) services enabling flexible and scalable high capacity transport at 2.5
  and 10 Gbps; and Ethernet services via dedicated, point-to-point connectivity
  offered as Fast Ethernet (FastE) at 50 or 100 Mbps and Gigabit Ethernet
  (GigE) at 600 or 1000 Gbps.

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | DARK FIBER SERVICES - In
  limited instances, we lease individual strands of fiber to customers. When
  leasing individual strands of fiber in this manner, we do not provide any of
  the network equipment that powers, sends and receives signals over the
  fibers. This service is referred to as a dark service as it does not yet
  have the ability to transmit electrical or optical signals. Our customers
  install and operate their own network equipment to create their own lit
  service.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | CO-LOCATION SERVICES - We
  offer co-location solutions for customers who choose to own and maintain
  their own servers and or optronics, but require the physically secure,
  climate-controlled environment provided by our co-location facilities and
  connectivity to our network.                                                                                                                                                                                                                   

On March 7, 2005, Globix
acquired NEON through the merger of a wholly owned subsidiary of Globix with
and into NEON, resulting in NEON becoming a wholly owned subsidiary of Globix.

Globix
Hosting Business

At the start of our fiscal
year, we also operated our Globix hosting business which provided Internet
services to small to large-sized businesses in a broad range of industries.
These Internet services included Internet hosting and co-location, managed
services, network services and Internet access. In September 2006, we sold all
of our shares in Globix Hosting (UK) Limited, our London based hosting business
and, in November 2006, we sold all of our shares in Globix Hosting LLC, our US
hosting business. We no longer have a hosting business.

The hosting business
operated Internet data centers in New York, New York; Santa Clara, California;
and London England. This business offered co-location services for customers
who owned and maintained their own computer servers but preferred the
physically secure, climate-controlled environment provided by our Internet data
centers and connectivity to our network. Through these divested businesses, we
also offered hosting services in a dedicated server environment. The hosting
services included providing integrated hardware usage, bandwidth, and managed
computer services to meet customer-specific needs. The managed services
included a wide-variety of maintenance administration, and problem resolution
services for many popular operating systems, Internet network devices,
software, security solutions, web-based applications, and streaming media
services.

Strategic
Transactions

In early 2006, we engaged
The Bank Street Group, an investment banking firm, and GVA Williams, a real
estate brokerage firm, to help our board of directors review strategic
alternatives related to our businesses and properties. Over the course of a
process conducted during the third and fourth quarters of fiscal 2006, we considered
various proposals from numerous potential strategic partners. As a result of
this process, we ultimately completed three separate transactions to sell our
US hosting business, our UK hosting business, and the property where our New
York City headquarters is located. We used a portion of the proceeds from these
transactions to repay substantially all of our long term indebtedness.

On September 6, 2006, we
closed the sale of our UK hosting business. The total sales price was $62
million, subject to various working capital adjustments. Of the total sales
price, $3.1 million is being held in an escrow account until March 31, 2008 to
cover potential indemnification claims. We also entered into a transition
services agreement with the purchaser of the UK hosting business to provide
certain services until mid-2007.

On September 29, 2006, we
completed the sale of our building at 139 Centre Street, New York, New York. We
received approximately $51.8 million in cash, after reducing the agreed $55
million fair market value of the property by $3.2 million in partial
satisfaction of amounts owed to the former owner of the property on account of
the sale. From this cash amount, we paid in full an existing mortgage, a
remaining payment owed to the former owner of the property and other fees and
expenses. The arrangements relating to the sale of this property include a
lease permitting us to remain in the building until May 31, 2007 and to
sublease a portion of the building to the acquirer of our US hosting business.

On October 20, 2006, we paid
the entire $5 million principal amount of our 9% Senior Notes due 2008 as well
as the accrued interest from October 1, 2006.

On November 1, 2006, we
closed the sale of our US hosting business. The total sales price was $20
million, subject to various working capital adjustments. Of the total sales
price, $2 million is being held in an escrow account until May 31, 2007 to
cover potential indemnification obligations. We also entered into a transition
services agreement with the purchaser of the US hosting business to receive and
provide certain services until mid-2007. The buyer of our US hosting business
agreed to assume responsibility for the transition services agreement entered
into in connection with the sale of our UK hosting business.

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Also on November 1, 2006, we
discharged substantially all of our remaining obligations under our 11% Senior
Notes due 2008 and associated interest payable under the terms of these Notes
by depositing the sum of $ 76,165,002 with the Indenture Trustee, thereby
redeeming the 11% Senior Notes in full. Globix continues to carry a liability
of $3,158,437 which may become due under a reserve arrangement established in
connection with our bankruptcy proceeding in 2002. Globix is working with the
Indenture Trustee to determine how to dispose of any obligations under this
escrow.

Company
History

We were founded in 1989 and
in 1998 undertook a major expansion plan in order to pursue opportunities
resulting from the growth of the Internet. On March 1, 2002, we filed a
voluntary petition under Chapter 11 of the United States Bankruptcy Code,
together with a prepackaged plan of reorganization, with the United States
Bankruptcy Court for the District of Delaware. We continued to operate in
Chapter 11 in the ordinary course of business and received permission from the
bankruptcy court to pay our employees, trade, and certain other creditors in
full and on time, regardless of whether these claims arose prior to or after
the Chapter 11 filing. On April 8, 2002, the bankruptcy court confirmed the
plan of reorganization. Effective April 25, 2002, all conditions necessary for
the plan of reorganization to become effective were satisfied or waived and we
emerged from Chapter 11 bankruptcy protection.

On March 7, 2005, we
completed our acquisition of all of the capital stock of NEON valued at $112.9
million in exchange for common and convertible preferred stock of Globix worth
approximately $96.2 million, options and warrants of Globix common stock worth
approximately $7.9 million, direct closing costs of approximately $3.4 million
and approximately $5.4 million in cash. Simultaneously with the closing of the
acquisition, we exchanged $12.5 million in principal and interest on our 11%
senior notes for 4,545,455 shares of common stock.

Prior to its bankruptcy in
2002, NEON incurred substantial indebtedness to finance the construction and
development of its network. This debt was exchanged for common stock or
cancelled in NEONs bankruptcy.

On December 13, 2005, we
issued and sold $5 million in principal amount of our 9% senior secured notes
due May 1, 2008. For further information about the terms of this financing, see
Indebtedness, below.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis
of financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of our financial statements requires us to make estimates that
affect the reported amounts of assets, liabilities, revenue and expenses and
related disclosures of contingent assets and liabilities. We base our
accounting estimates on historical experience and other factors that are
believed to be reasonable under the circumstances. However, actual results may
vary from these estimates under different assumptions or conditions. The
following is a summary of our critical accounting policies and estimates:

21

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REVENUE RECOGNITION

Revenue in our NEON business
consists primarily of lit fiber services, dark fiber services, and co-location.
Revenue from our discontinued hosting operations consisted primarily of
internet hosting, co-location, managed services, network services and Internet
access.

We recognize revenue in
accordance with the Securities and Exchange Commissions Staff Accounting
Bulletin (SAB), No. 104 Revenue Recognition.

The NEON business segment
offers sales of lit fiber services (fixed amounts of capacity on fiber optic
transmission lines that use optronics equipment installed by us) and longer
term leases of dark fiber (fiber optic transmission lines leased without
optronics equipment installed by us) at fixed cost pricing over multi year
terms. Revenues from fiber optic network services are recognized ratably over
the term of the applicable lease agreements with customers, which range from
one to 20 years, provided there exists persuasive evidence of an arrangement,
the fee is fixed or determinable and collectability of the related receivables
is reasonably assured. Amounts billed in advance of the service provided are
recorded as deferred revenue. We also lease space to customers at our
co-location facilities. Revenues from nonrecurring installation charges and
design, engineering and construction services are recognized ratably over the
multi-year network services terms to which the nonrecurring charges relate
provided there exists persuasive evidence of an arrangement, the fee is fixed
or determinable and collectability of the related receivables is reasonably
assured.

The hosting business segment
recognizes revenue when delivery has occurred, persuasive evidence of an
agreement exists, the fee is fixed or determinable and collectability is
probable. SAB No. 104 expresses the view of the Securities and Exchange
Commissions staff in applying accounting principles generally accepted in the
United States of America to certain revenue recognition issues. Under the
provisions of SAB No. 104, set up and installation revenue are deferred and
recognized over the estimated length of the customer relationship, which in the
case of our Globix segment is approximately 36 months. Monthly service revenue
under recurring agreements related to Internet hosting, co-location, network
services, Internet access and managed services is recognized over the period
that service is provided. Revenue derived from project or event type managed
service engagements is recognized over the life of the engagement. Payments
received in advance of providing services are deferred until the period that
these services are provided.

COST OF REVENUE

Cost of revenue for fiber
services consists primarily of right of way fees, dark fiber leases, real
estate and co-location leases, purchase of last mile circuit services and
network operations and maintenance costs. Right of way fees are paid primarily
to utilities and public and private entities for the right to place fiber optic
cable on their structures and property. Fiber leases are fees paid to other
telecommunications providers for the use of their dark fiber over which we
provide transport services. We lease real estate and co-location space to allow
placement of network equipment to power our network. Last mile circuit services
consist of services from other carriers and local phone companies to extend
transport services beyond our network to a customer location. Network
operations and maintenance consists primarily of labor, contractor services and
utility costs.

Within our discontinued
hosting operations, cost of revenue for Internet services consists primarily of
telecommunications costs for Internet access and managed hosting, payroll and
occupancy which we incur in support of our network operations, systems and
customer services and the cost of purchased hardware and software. Payroll
costs allocated to cost of revenue are based on the primary activity of the
department such as maintaining the network, customer support and systems
operations. Occupancy costs allocated to cost of revenue are based primarily on
the square footage of our various facilities. Cost of revenue excludes
depreciation and amortization. Telecommunications costs include the cost of
providing local loop for connecting dedicated access customers to our network,
leased line and associated costs related to connecting with our peering partners
and costs associated with network services connecting our facilities to its
network and aggregating network facilities.

INTANGIBLE ASSETS

Our intangible assets are as
follows:

| |   |                                        
| | - | ---------------------------------------
| |  | trademarks and trade name;             
| |   |                                        
| |  | revenue backlog; and                   
| |   |                                        
| |  | customer contracts and
  relationships.

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We amortize intangible
assets by the straight-line method over their estimated useful lives.
Trademarks and trade name are amortized over a period of 5 years, revenue backlog
    is amortized over 10 years and the customer contracts and relationships are
    amortized over 10 years.

PROPERTY, PLANT, AND EQUIPMENT

Property, plant and
equipment are stated at depreciated historical cost adjusted for impairment and
include fresh start adjustments. All identifiable assets recognized in
accordance with fresh start accounting were recorded at the April 2002
effective date of the plan of reorganization based upon an independent
appraisal. Depreciation is provided using the straight-line method for
financial reporting purposes and accelerated methods for income tax purposes.
The estimated useful lives of property are as follows:

YEARS

|                                                       |  |    |   |   
|------------------------------------------------------ |  | -- | - | --
|Buildings and buildings
  improvements                 |  | 10 |  | 44
|Computer hardware and
  software and network equipment |  | 2  |  | 7 
|Fiber infrastructure                                   |  | 7  |  | 20
|Office furniture and
  equipment                       |  | 3  |  | 7 

Leasehold improvements are
amortized over the term of the lease or life of the asset, whichever is
shorter. Maintenance and repairs are charged to expense as incurred. The cost
of additions and betterments are capitalized. The cost and related accumulated
depreciation of property retired or sold are removed from the applicable
accounts and any gain or loss is taken into income.

Software obtained for
internal use is stated at depreciated historical cost adjusted for impairments
and fresh start adjustments and is depreciated using the straight-line method
over its estimated useful life.

Our long-lived assets are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount
of an asset to the future undiscounted cash flows expected to be generated by
the assets. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets.

ESTIMATES

The preparation of financial
statements in accordance with U.S. generally accepted accounting principles
requires us to make estimates and assumptions that affect the reported amount
of assets, liabilities, revenue and expenses and related disclosure of
contingent assets and liabilities. Use of estimates and assumptions include,
but is not limited to, purchase price allocation, allowance for doubtful
accounts, credit reserve, the useful lives and ultimate realizability of
property, equipment, intangible assets, deferred tax valuation allowance and
payroll and occupancy cost allocation between cost of revenue and selling,
general and administrative expenses. Estimates and assumptions are reviewed
periodically and the effects of revisions are reflected in the period that they
are determined to be necessary. Actual results may vary from these estimates
under different assumptions or conditions.

ALLOWANCE FOR DOUBTFUL ACCOUNTS AND CREDIT RESERVE

At each reporting period we
evaluate on a specific basis the economic condition of our customers and their
ability and intent to pay their debt. If such evaluation shows that it is
probable that a customer will not settle his full obligation, a reserve against
accounts receivable in general and administrative expense is recorded for the
questionable amount. We also maintain a general bad debt reserve, which is
based on the aging of our customers receivables. In addition, during each
reporting period we must make estimates of potential future credits, which will
be issued in respect of current revenues. We analyze historical credits and
changes in customer demands regarding our current billings when evaluating
credit reserves. If such analysis shows that it is probable that a credit will
be issued, we reserve the estimated credit amount against revenues in the
current period. As of September 30, 2006 and September 30, 2005 the balance of
bad debt reserve amounted to approximately $0.9 million and $2.0 million,
respectively.

ACCOUNTING FOR INCOME TAXES

As part of the process of
preparing our consolidated financial statements, we are required to estimate
our income tax expense in each of the jurisdictions in which we operate. This
process involves us estimating our actual current tax exposure together with

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assessing temporary
differences resulting from differing treatment of items, such as accruals and
reserves, for tax and accounting purposes. These differences result in deferred
tax assets, which are included within our consolidated balance sheet. We must
then assess the likelihood that our deferred tax assets will be recovered from
future taxable income and, to the extent we believe that recovery is not
likely, we must establish a valuation allowance. Management currently estimates
that it is more likely than not that these assets will not be realized in the
foreseeable future and, accordingly, a 100% valuation allowance is recorded
against the deferred tax assets. Management estimates that no taxes will be due
related to the gains recorded on the sale of the UK hosting business and the
sale of the building at 139 Centre Street, New York, New York. As such no tax expense
has been recorded on these transactions.

DISCONTINUED OPERATIONS

On September 6, 2006, we
closed the sale of our UK hosting business. The total sales price was $62
million, subject to various working capital adjustments. Of the total sales
price, $3.1 million is being held in an escrow account until March 31, 2008 to
cover potential indemnification claims. We also entered into a transition
services agreement with the purchaser of the UK hosting business to provide
certain services until mid-2007. The pre-tax and after tax gain on the
disposition of the UK hosting business was approximately $46.2 million. The
results of operations of the UK hosting business are reflected as discontinued
operations for all periods presented.

As of September 30, 2006, accounting criteria for the classification
    of our US hosting business had been met which resulted in the results of
    operations of the US hosting business being reported as discontinued operations
    for all periods presented and the assets and liabilities being reflected
    as held for sale at September 30, 2006. On November 1, 2006, we closed the
    sale of our US hosting business. The total sales price was $20 million, subject
    to various working capital adjustments. Of the total sales price, $2 million
    is being held in an escrow account until May 31, 2007 to cover potential
    indemnification claims. We also entered into a transition services agreement
    with the purchaser of the US hosting business to receive and provide certain
    services until mid-2007. The buyer of our US hosting business agreed to provide
    the services called for under the transition services agreement we had entered
    into in connection with the sale of our UK hosting business. The results
    of operations of the US hosting business are reflected as discontinued operations
    for all periods presented and the assets and liabilities are reflected as
    held for sale at September 30, 2006.

Revenue from discontinued
operations, operating income from discontinued operations, and income/loss from
discontinued operations for the years ended September 30, 2006, 2005, and 2004
are as follows:

| |                                                                                             |  |      |        |      |   |        |   |   |        |  
| | ------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------ | - | - | ------ | -
| | (in thousands)                                                                              |  | 2006 |        | 2005 |   | 2004   |  
| |                                                                                             |  |      |        |      |   |        |  
| | Revenues from discontinued
  operations                                                     |  | $    | 63,084 |      | $ | 65,037 |   | $ | 61,190 |  
| | Operating income (loss)
  from discontinued operations                                      |  | $    | 2,609  |      | $ | (3,215 | ) | $ | (3,175 | )
| | Income (loss) from discontinued operations (includes gain on disposal
  of $46,213 in 2006) |  | $    | 48,937 |      | $ | (3,050 | ) | $ | (3,301 | )
| |                                                                                             |  |      |        |      |   |        |   |   |        |  

The results of discontinued
operations are not included in the discussions below entitled Results of
Operations.

RESULTS OF OPERATIONS

FISCAL YEAR ENDED SEPTEMBER 30, 2006 COMPARED TO THE FISCAL
YEAR ENDED SEPTEMBER 30, 2005

REVENUE, NET. Revenue from continuing operations for the year ended September 30,
2006 increased 116.8% or approximately $35.8 million to $66.4 million from
$30.6 million for the year ended September 30, 2005. This growth in revenue is
primarily attributable to a full year of activity in our continuing NEON
operations in 2006 versus seven months of activity in 2005.

Revenue breakdown for the
major service lines are as follows.

Revenue from Lit Fiber
Services for the year ended September 30, 2006 increased 123.8%, or
approximately $33.0 million, to $59.6 million from $26.6 million for the year
ended September 30, 2005. Revenue from Dark Fiber Services for the year ended
September 30, 2006 increased 54.4%, or approximately $1.7 million, to $4.8
million from $3.1 million for the year ended September 30, 2005. Revenue from
Co-Location increased by $1.1 million, or 122.2%, to $2.0 million in the year
ended September 30, 2006 compared to $0.9 million in the same period in fiscal
year 2005. The growth in these service lines is primarily attributable to a
full year of activity in our continuing NEON operations in 2006 versus seven
months of activity in 2005.

COST OF REVENUE. Cost of revenue for the year ended September 30, 2006 increased
101.0%, or $17.9 million, to $35.7 million from $17.8 million for the year
ended September 30, 2005. This increase is the result of a full year of
activity in the continuing

24

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NEON operations in 2006 as
compared to the seven months of activity included in the year ended September
30, 2005. Our gross margins from continuing operations for the years ended
September 30, 2006 and 2005 were 46.3% and 42.0%, respectively. In 2006,
incremental sales to existing customers exceeded the related incremental costs
resulting in higher margins.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses
were $27.0 million for the year ended September 30, 2006 as compared to $18.3
million for the year ended September 30, 2005. This increase included $4.3
million of selling, general and administrative expenses attributable to a full
year of activity in our continuing NEON operations. The remaining increase of
$4.4 million is primarily the result of the $2.6 million recognition of expense
related to option vesting as required under SFAS 123(R) in the year ended
September 30, 2006, an increase of $1.3 million in professional fees related to
Sarbanes Oxley, Tax, Legal and Audit work, and an increase of $0.3 million in
Directors fees due to an increased number of meetings associated with our
strategic alternative process.

LOSS ON THE SALE OF CORPORATE HEADQUARTERS BUILDING. During September 2006 we completed the sale
of our building at 139 Centre Street, New York, New York. We received
approximately $51.8 million in cash, after reducing the agreed $55 million fair
market value of the property by $3.2 million in partial satisfaction of amounts
owed to the former owner of the property on account of the sale. From this
amount we paid in full an existing mortgage and other fees and expenses. The
loss on the disposition of our headquarters building was $3.8 million.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses for
the year ended September 30, 2006 were $15.4 million compared to $8.8 million
for the year ended September 30, 2005. This increase of $6.6 million is
primarily the result of the full year of activity in our continuing NEON
operations in 2006 versus seven months of activity in 2005.

INTEREST AND FINANCING EXPENSES. Interest and financing expense for the year
ended September 30, 2006 was $10.6 million, compared to $9.7 million for the
year ended September 30, 2005. This increase is primarily the result of our
higher average outstanding balance of the 11% senior notes compared to the same
period in 2005 and our issuance of the 9% senior notes in December 2006.

INTEREST INCOME. Interest income for the year ended September 30, 2006 was $0.5
million, compared to $0.2 million for the year ended September 30, 2005.

OTHER INCOME/EXPENSE, NET. Other income for the year ended September
30, 2006 was $1.1 million, compared to other expense of $0.7 million for the
year ended September 30, 2005. This difference is primarily related to an
increase in rental income during the year ended September 30, 2006 and the
recognition of a $0.9 million loss on the sale of marketable securities during
the year ended September 30, 2005.

NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS.As a result of the factors described above,
we reported a net income attributable to common stockholders of $23.8 million,
or $0.49 basic and diluted income per share attributable to common
stockholders, for the year ended September 30, 2006, as compared to a net loss
attributable to common stockholders of $30.9 million, or $0.89 basic and
diluted loss per share attributable to common stockholders, for the year ended
September 30, 2005.

FISCAL YEAR ENDED SEPTEMBER 30, 2005 COMPARED TO FISCAL YEAR
ENDED SEPTEMBER 30, 2004

On March 7, 2005, we
completed our acquisition of NEON. As a result of the acquisition on March 7
2005, NEON results have been included in operating results since that date. As
the results from our former Globix segment have been reclassified as
discontinued operations, no meaningful comparison of revenue or cost of revenue
is available for fiscal year comparisons between 2005 and 2004.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses
increased by approximately $8.3 million to $18.3 million as compared to $10.0
million for the year ended September 30, 2004. The increase included $7.5
million of selling, general and administrative expenses for NEON. The remaining
increase of $0.8 million is primarily the result of a litigation settlement resulting
in $0.8 million of expense in the year ended September 30, 2005.

LOSS ON IMPAIRMENT OF ASSETS. There were no
impairment charges for the year ended September 30, 2005. Impairment charges for the year ended
September 30, 2004 amounted to approximately $18.0 million as a result of the
write-down of the cost basis of Globixs property located at 415 Greenwich
Street in New York, NY to its market value less cost to sell of approximately
$11.5 million. The sale of the 415 Greenwich Street property was consummated on
January 22, 2004 for total cash consideration of $60.0 million.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization
    increased $6.0 million to $8.8 million for the year ended September 30, 2005,
    as compared to $2.8 million in the year ended September 30, 2004. The increase
is primarily the result of the

25

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acquisition of NEON.

INTEREST AND FINANCING EXPENSES. Interest and financing expense for the year
ended September 30, 2005 was $9.7 million, compared to $11.4 million for the
same period in 2004. The decrease was attributable to the lower average balance
of the 11% senior notes during the year ended September 30, 2005 compared to
the same period in 2004.

INTEREST INCOME. Interest income for the year ended September 30, 2005 was $0.2
million, compared to $0.3 million, for the same period in 2003.

OTHER INCOME/EXPENSE, NET. Other expense for the year ended September
30, 2005 was $0.7 million, compared to other income of $2.0 million, for the
same period in 2004. The difference included the recognition of a loss of $0.9
million on the sale of marketable securities during the year ended September
30, 2005.

GAIN (LOSS) ON DISCHARGE OF DEBT. Loss on discharge of debt for the year ended
September 30, 2005 was $3.2 million compared to a gain of $1.7 million in year
ended September 30, 2004. The $3.2 million loss was the direct result of the
debt for equity swap. The $1.7 million gain for the year ended September 30,
2004 was a direct result of the buyback of $7.0 million face value 11% senior
notes plus accrued interest of $0.3 million for $5.6 million in October of
2003.

NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS. As a result of the factors described above
and including the results from our discontinued operations, we reported net
loss attributable to common stockholders of $30.9 million, or $0.89 basic and
diluted loss per share attributable to common stockholders, for the year ended
September 30, 2005, as compared to a net loss attributable to common
stockholders of $41.4 million, or $2.51 basic and diluted loss attributable to
common stockholders per share, for the year ended September 30, 2004.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2006,
our working capital was $73,394,000 as compared to a working deficit of
$8,378,000 as of September 30, 2005. The increase in working capital as of
September 30, 2006 was primarily due to cash received from the disposition of
our NY headquarters and UK hosting business.

As of September 30, 2006 our
cash and cash equivalents amounted to approximately $88.1 million, or an
increase of approximately $79.1 million from last year. As a result of the net
cash proceeds from the sale of our UK hosting business of $62.6 million, our
139 Centre Street property of $22.0 million, and our US hosting business of
$18.1 million, we paid down substantially all of our $83.4 million indebtedness
related to our 11% and 9% senior notes. Therefore, we believe that the
remaining cash balance is sufficient to meet our fiscal 2007 anticipated day to
day operating expenses, commitments, working capital and capital expenditures.

We have commitments under
standby letters of credit, issued primarily to secure certain leases, totaling
approximately $7.1 million at September 30, 2006. In addition, $3.1 million is
being held in an escrow account until March 31, 2008 to cover post-closing
adjustments to the UK hosting business purchase price and indemnification
claims. We have no financial guarantees or other arrangements securing the
obligations of any third parties or related parties other than our
subsidiaries.

FISCAL YEAR ENDED SEPTEMBER 30, 2006

As of September 30, 2006, we
had cash and cash equivalents, short-term and long-term investments totaling
approximately $88.1 million compared to approximately $9.1 million on September
30, 2005. This increase of $79.0 million was mainly attributable to operating
activities, investing activities and financing activities as described below.

OPERATING ACTIVITIES. Net cash provided by operating activities
during the year ended September 30, 2006 was approximately $10.9 million as
compared to $1.1 million during the year ended September 30, 2005, or a $9.8
million increase. The increase in operating cash flow was due primarily to
improved performance in our transport and hosting businesses.

We had non-cash depreciation
and amortization expenses of $23.9 million, a non-cash loss on the sale of our
corporate headquarters of $3.8 million, and a $46.2 million non-cash gain on
the sale of our UK hosting business. In 2006, changes in assets and liabilities
resulted in an increase to operating cash flow of approximately $2.4 million.

INVESTING ACTIVITIES. Net cash provided by investing activities
during the year ended September 30, 2006 was $82.8 million. This was
attributable primarily to $55.0 million in proceeds from the sale of our NY
headquarters and the $64.2 million in proceeds from the sale of our UK hosting
business partially offset by cash outlays of approximately $14.8 million for
closing costs associated with the two deals and $23.1 million paid for capital
expenditures.

26

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FINANCING ACTIVITIES. Net cash used in financing activities during
the year ended September 30, 2006 was $14.8 million, which was primarily
attributable to the repayments of mortgage payable and capital lease
obligations of $19.8 million and partially offset by the proceeds received from
the issuance of our 9% senior notes in December 2005.

FISCAL YEAR ENDED SEPTEMBER 30, 2005

As of September 30, 2005, we
had cash and cash equivalents, short-term and long-term investments totaling to
approximately $9.1 million compared to approximately $21.7 million on September
30, 2004. This decrease of $12.6 million included a $3.1 million decrease in
cash and cash equivalents to $9.0 million at September 30, 2005 from $12.1
million at September 30, 2004. This was mainly attributable to operating
activities, investing activities and financing activities as described below.

OPERATING ACTIVITIES. Net cash provided by operating activities
during the year ended September 30, 2005 was approximately $1.1 million in
comparison to $1.6 million, which was used in operating activities during the
year ended September 30, 2004. The improvement in our cash burn is due to the
improvement in our operating results and our ongoing focus on cost control by
adjusting our expenditure rate to our revenues.

INVESTING ACTIVITIES. Net cash used in investing activities during
the year ended September 30, 2005 was $3.5 million. This was attributable
primarily to $16.4 million paid for capital expenditures. This was partially
offset by the proceeds from the sale of investments in short-term and long-term
investments of $9.8 million and the net cash proceeds from the acquisition of
NEON of $2.8 million.

FINANCING ACTIVITIES. Net cash used in financing activities during
the year ended September 30, 2005 was $0.7 million, which was attributable to
the repayments of mortgage payable and capital lease obligations.

SEGMENT INFORMATION

We have evaluated our
results of operations based on one reportable segment in accordance with SFAS
No. 131, Disclosures about Segments of an Enterprise and Related Information.
As a result of the acquisition of NEON on March 7, 2005 and the disposition of
UK hosting and US hosting businesses, we now have one reportable segment to
evaluate.

Although we operate in one
reportable segment, there are 3 major service lines, as listed below. The
breakdown of revenues for each service line is as follows:

|                    |  |                             |        |                             |   |                             |  |   |   | 
|------------------- |  | --------------------------- | ------ | --------------------------- | - | --------------------------- |  | - | - | 
|                    |  | YEAR ENDEDSEPTEMBER 30,2006 |        | YEAR ENDEDSEPTEMBER 30,2005 |   | YEAR ENDEDSEPTEMBER 30,2004 | 
|                    |  |                             |        |                             |   |                             | 
|Lit fiber services  |  | $                           | 59,597 |                             | $ | 26,630                      |  | $ |  | 
|Dark fiber services |  |                             | 4,809  |                             |   | 3,115                       |  |   |  | 
|Co-Location         |  |                             | 2,023  |                             |   | 901                         |  |   |  | 
|                    |  |                             |        |                             |   |                             |  |   |   | 
|Revenue, net        |  | $                           | 66,429 |                             | $ | 30,646                      |  | $ |  | 
|                    |  |                             |        |                             |   |                             |  |   |   | 

INCOME TAXES

We are in an accumulated
loss position for both financial and income tax reporting purposes. Globix has
U.S. Federal income tax loss carryforwards of approximately $192.6 million and
state income tax loss carryforwards of approximately $244.1 million at
September 30, 2006. NEON has U.S. Federal income tax loss carryforwards of
approximately $136.7 million and state income tax loss carryforwards of
approximately $82.2 million at September 30, 2006. These Federal net operating
loss (NOL) carryforwards expire beginning in 2020 and will be fully expired
after 2025. The U.S. Federal income tax loss carryforwards were reduced upon
emergence from bankruptcy due to the Internal Revenue Codes rules and
regulations related to the cancellation of indebtedness income that is excluded
from taxable income. Changes in the ownership of NEON securities as a result of
NEONs plan of reorganization have caused there to be an annual limitation on
the use of net operating loss carryforwards that arose prior to the effective
date of NEONs plan of reorganization. Changes in the ownership of the Globix
securities as a result of its plan of reorganization have caused there to be an
annual limitation on the use of NOL carryforwards that arose prior to the
effective date of its plan of reorganization. As a result of the merger with
NEON and the open market divestiture of significant amounts of shares of Globix
stock by former NEON shareholders, both Globix and NEON experienced ownership
changes in March 2005 and April 2006, respectively. The availability of NOL
carryforwards to reduce our future Federal income tax liability is subject to
limitations under Section 382 of the Internal Revenue Code. Due to these
limitations, $139.2 million of the $329.3 million in Federal NOL

27

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carryforwards will be
available for possible utilization for Federal income tax purposes. This amount
is computed based upon the estimated NOL generated after the April 2006
ownership change of NEON plus the $6.5 million annual limitation resulting from
that change of ownership. Subsequent ownership changes, if any, could impose
additional limitations on our NOL carryforwards. The application of the Code in
this area is subject to interpretation by the Internal Revenue Service (IRS).
The NOL carryforwards are subject to examination by the IRS and are thus
subject to adjustment of disallowance resulting from any such IRS examination
Additional limitations would be imposed as a result of any such ownership
change which may increase our U.S. federal income tax liability.

For financial reporting
purposes, deferred tax assets at September 30, 2006 and 2005 are fully offset
by a valuation allowance due to the uncertainty of our ability to realize
income tax benefits by generating taxable income in the future. We estimate
that the no taxes will be due related to the gains recorded on the sale of the
UK hosting business and the sale of the building at 139 Centre Street, New
York, New York. As such, no tax expense has been recorded on these
transactions.

Our emergence from
bankruptcy in fiscal 2002 did not create a new tax reporting entity.
Accordingly, the adjustments required to adopt fresh start accounting are not
applicable for our tax reporting and therefore, deferred tax items were
recognized concurrently with the recognition of the respective fresh start
accounting adjustments. In addition pursuant to SOP No. 90-7, reversals of the
valuation allowance recorded against deferred tax assets that existed as of the
emergence date will first reduce intangibles until exhausted and thereafter are
reported as additional paid in capital as opposed to income tax expense. The
balance of the valuation allowance for which this treatment is required was
approximately $80.4 million at September 30, 2006 and 2005, respectively.

INDEBTEDNESS

Our indebtedness at
September 30, 2006 consisted of approximately $74.9 million in aggregate
principal amount of our 11% senior notes, approximately $5.0 million in
aggregate amount of our 9% senior notes and approximately $3.5 million in
related accrued interest. Total borrowings at September 30, 2006 were approximately
$83.4 million.

On October 20, 2006 we
prepaid $5.0 million in outstanding principal and accrued interest on our 9%
senior notes due 2008, reflecting the full amount due noteholders. On November
1, 2006 we prepaid $76.2 million in outstanding principal and accrued interest
on our 11% senior notes due 2008, reflecting substantially all of the amount
due noteholders. We continue to carry a liability of $3.2 million which may be
payable pursuant to an escrow arrangement established in 2002. We are working
with the trustee under the indenture governing the 11% senior notes to
determine how to dispose of any obligations under this escrow.

COMMITMENTS

As of September 30, 2006, we
had fiber leases for various segments of its network under operating leases
that expire at various dates through December 2034. Additionally, we have
various agreements to lease facilities and equipment and are obligated to make
future minimum lease payments of approximately $24.9 million on operating
leases expiring in various years through 2017.

As of September 30, 2006 we
had contractual obligations due in future periods as follows:

|                                   |  |       |         |                    |   |           |  |           |         |                 |  
|---------------------------------- |  | ----- | ------- | ------------------ | - | --------- |  | --------- | ------- | --------------- | -
|                                   |  |       |         |                    |   |           |  |           |         |                 |  
|(in thousands)                     |  | TOTAL |         | LESS THAN 1
  YEAR |   | 2-3 YEARS |  | 4-5 YEARS |         | AFTER 5
  YEARS |  
|                                   |  |       |         |                    |   |           |  |           |         |                 |  
|Contractual Obligations           
|11% senior notes                   |  | $     | 74,875  |                    | $ |          |  | $         | 74,875  |                 | $
|9% senior notes                    |  |       | 5,000   |                    |   |          |  |           | 5,000   |                 |  
|Senior notes - Accrued Interest    |  |       | 3,565   |                    |   | 3,565     |  |           |        |                 |  
|Operating Leases                   |  |       | 24,864  |                    |   | 3,639     |  |           | 5,466   |                 |  
|Fiber Leases                       |  |       | 158,120 |                    |   | 9,897     |  |           | 19,726  |                 |  
|Telecommunications Commitments     |  |       | 33,912  |                    |   | 2,380     |  |           | 4,961   |                 |  
|                                   |  |       |         |                    |   |           |  |           |         |                 |  
|Total Contractual Cash Obligations |  | $     | 300,336 |                    | $ | 19,481    |  | $         | 110,028 |                 | $
|                                   |  |       |         |                    |   |           |  |           |         |                 |  

In addition to the
commitments listed, we have commitments under standby letters of credit, issued
primarily to secure certain leases, totaled approximately $7.1 million at
September 30, 2006.

28

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RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the
Securities and Exchange Commission issued Staff Accounting Bulletin
No. 108 (Topic 1N). Quantifying
Misstatements in Current Year Financial Statements,(SAB No. 108).
SAB No. 108 addresses how the effect of prior-year uncorrected
misstatements should be considered when quantifying misstatements in
current-year financial statements. SAB No. 108 requires SEC
registrants (i) to quantify misstatements using a combined approach which
considers both the balance-sheet and income-statement approaches, (ii) to
evaluate whether either approach results in quantifying an error that is
material in light of relevant quantitative and qualitative factors, and
(iii) to adjust their financial statements if the new combined approach
results in a conclusion that an error is material. SAB No. 108
addresses the mechanics of correcting misstatements that include effects from
prior years. It indicates that the current-year correction of a material error
that includes prior-year effects may result in the need to correct prior-year
financial statements even if the misstatement in the prior year or years is
considered immaterial. Any prior-year financial statements found to be
materially misstated in years subsequent to the issuance of
SAB No. 108 would be restated in accordance with
SFAS No. 154, Accounting Changes
and Error Corrections.Because the combined approach represents a
change in practice, the SEC staff will not require registrants that followed an
acceptable approach in the past to restate prior years historical financials
statements. Rather, these registrants can report the cumulative effect of
adopting the new approach as an adjustment to the current years beginning
balance of retained earnings. If the new approach is adopted in a quarter other
than the first quarter, financial statements for prior interim periods within
the year of adoption may need to be restated. SAB No. 108 is effective for
fiscal years ending after November 15, 2006, which for the Company would
be its fiscal year beginning October 1, 2007. The Company is currently
evaluating the impact of SAB No. 108.

In September 2006, the
Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measures(SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles (GAAP),
expands disclosures about fair value measurements, and applies under other
accounting pronouncements that require or permit fair value measurements.
SFAS No. 157 does not require any new fair value measurements.
However, the FASB anticipates that for some entities, the application of
SFAS No. 157 will change current practice. SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, which for the Company would be its fiscal year
beginning October 1, 2008.

In July 2006, the FASB
issued FASB Interpretation (FIN) No. 48, Accounting
for Uncertainty in Income Taxes  An Interpretation of FASB Statement
No. 109 (FIN 48). FIN 48 prescribes detailed
guidance for the financial statement recognition, measurement and disclosure of
uncertain tax positions recognized in an enterprises financial statements in
accordance with SFAS No. 109, Accounting
for Income Taxes.Tax positions must meet a more-likely-than-not
recognition threshold at the effective date to be recognized upon the adoption
of FIN 48 and in subsequent periods. FIN 48 will be effective for
fiscal years beginning after December 15, 2006, which for us would be our
fiscal year beginning October 1, 2007, and the provisions of FIN 48
will be applied to all tax positions upon initial adoption of the
Interpretation. The cumulative effect of applying the provisions of this
Interpretation will be reported as an adjustment to the opening balance of
retained earnings for that fiscal year. The Company is currently evaluating the
implementation of FIN 48 and whether it will have a material impact on our
financial position, results of operations or cash flows.

In February 2006, the FASB
issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments  an
amendment of FASB Statements No. 133 and 140. SFAS No. 155 allows companies to
elect to measure at fair value entire financial instruments containing embedded
derivatives that would otherwise have to be accounted for separately. It also
requires companies to identify interests in securitized financial assets that
are freestanding derivatives or contain embedded derivatives that would have to
be accounted for separately, clarifies which interest- and principal-only
strips are subject to SFAS No. 133, and amends SFAS No. 140 to revise the
conditions of a qualifying special purpose entity due to the new requirement to
identify whether interests in securitized financial assets are freestanding
derivatives or contain embedded derivatives. SFAS No. 155 is effective for all
financial instruments acquired, issued or subject to a remeasurement event
after the beginning of a companys first fiscal year that begins after
September 15, 2006. The Company does not expect adoption of SFAS No. 155 to
have a material effect on its results of operations or financial position.

29

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK

At September 30, 2006, $10.6
million of our cash and investments were restricted in accordance with the
terms of certain collateral obligations.

We believe that we have
limited exposure to financial market risks, including changes in interest
rates. The fair value of our investment portfolio or related income would not
be significantly impacted by changes in interest rates due mainly to the
short-term nature of the majority of our investment portfolio. An increase or
decrease in interest rates would not significantly increase or decrease
interest expense on debt obligations, due to the fixed nature of the
substantial majority of our debt obligations.

ITEM 8. FINANCIAL STATEMENTS

Financial Statements are set
forth herein beginning on page F-1.

30

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ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIALS

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

Under the supervision and
with the participation of our management, including the Chief Executive Officer
and Chief Financial Officer, we have evaluated the effectiveness of our
disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as
of the end of the period covered by this report. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that these
disclosure controls and procedures are ineffective as a result of the following
material weakness in internal control over financial reporting. During the
fourth quarter of 2006, we identified a material weakness in internal controls
related to insufficient accounting and finance resources. Management has
concluded that additional accounting and finance resources are required. As a
result of the insufficient resources the Company did not adequately address the
accounting and disclosures for complex transactions, properly monitor
internal controls and did not perform a timely and adequate
evaluation of general computer controls. As a result of the material weakness
there were changes in our internal control over financial reporting during the
quarter ended September 30, 2006 that may materially affect our internal
control over financial reporting.

Our management is
responsible for establishing and maintaining adequate internal control over
financial reporting for the Company. Internal control over financial reporting
is a process to provide reasonable assurance regarding the reliability of our
financial reporting for external purposes in accordance with accounting
principles generally accepted in the United States of America. Internal control
over financial reporting includes maintaining records that in reasonable detail
accurately and fairly reflect our transactions; providing reasonable assurance
that transactions are recorded as necessary for preparation of our financial
statements; providing reasonable assurance that receipts and expenditures of
company assets are made in accordance with management authorization; and
providing reasonable assurance that unauthorized acquisition, use or
disposition of company assets that could have a material effect on our
financial statements would be prevented or detected on a timely basis. Because
of its inherent limitations, internal control over financial reporting is not
intended to provide absolute assurance that a misstatement of our financial
statements would be prevented or detected.

Management conducted an
evaluation of the effectiveness of our internal control over financial
reporting based on the framework in Internal Control  Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this evaluation, management concluded that the Companys internal
control over financial reporting was ineffective for the year ended September
30, 2006. As indicated above, during the fourth quarter management identified a
material weakness in internal control over financial reporting. This material
weakness occurred due to deficiencies in both the design and operating
effectiveness of the internal control environment.

Management identified and is
strengthening the effectiveness and design of internal controls related to the
material weakness. Recently a Vice President/Controller was hired. The new Vice
President/Controller has substantial experience in financial reporting matters,
internal controls and Sarbanes Oxley. He is a Certified Public Accountant, and
a former partner in a national public accounting firm. Most recently, he was
the Vice President, Controller and Chief Accounting Officer of a Fortune 500
company. In that role he was responsible for implementation and continued
compliance of the requirements of the Sarbanes Oxley regulations. Management is
in the process of hiring additional personnel in the accounting and finance
areas. The hiring process is focused on hiring employees with expertise in
Sarbanes Oxley compliance, financial reporting and internal auditing. This
finance and accounting group will be responsible for ensuring compliance with
all aspects of Sarbanes Oxley, ensuring all significant risks over financial
reporting are identified and internal controls to address those risks are
identified, evaluated, tested and remediated. An internal audit staff will be
hired to perform testing of Sarbanes Oxley compliance and other customary
internal control related functions. Management also will perform timely,
adequate evaluation and testing of general computer controls during fiscal year
2007.

Amper, Politziner &
Mattia, P.C. has audited this assessment of our internal control over financial
reporting. The report of their findings follows managements report.

31

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MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING

Management is responsible
for the preparation and integrity of the consolidated financial statements and
other financial information included in this annual report on Form 10-K. Such
financial statements are prepared in accordance with U.S. generally accepted
accounting principles. Accounting principles are selected and information is
reported which, using managements best judgment and estimates, present fairly
Globixs consolidated financial position, results of operations and cash flows.

Globixs management is
responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f)
and 15d-15(f). Under the supervision of management, including our principal
executive officer and our principal financial officer Globix conducted an
evaluation of the effectiveness of internal controls over financial reporting
based on criteria established in Internal Control  Integrated Framework issued
by the Committee of Sponsoring Organizations (COSO) Based on this assessment,
as a result of the material weakness identified below, management concluded
that Globix did not maintain an effective internal control over financial
reporting as of September 30, 2006.

During the fourth quarter of
2006, management identified a material weakness in internal controls related
    to insufficient accounting and financial resources. Management has concluded
    that additional accounting and finance resources are required. As a result
    of the insufficient resources the Company did not adequately address the
    accounting and disclosures for complex transactions, properly monitor internal
controls and did not perform a timely and adequate
evaluation of general computer controls.

Amper, Politziner &
Mattia, P.C., an independent registered public accounting firm, has audited and
reported on the consolidated financial statements of Globix Inc. and consolidated
subsidiaries, managements assessment of the effectiveness of Globixs internal
control over financial reporting and the effectiveness of Globixs internal
control over financial reporting. The reports of the independent auditors are
contained in this Annual Report.

|                         |  |                        
|------------------------ |  | -----------------------
|/s/
  Peter K. Stevenson |  | /s/ Eric
  J. Sandman  
|                         |  |                        
|Peter K. Stevenson       |  | Eric J. Sandman        
|Chief Executive Officer  |  | Chief Financial Officer

32

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Report of Independent
Registered Public Accounting Firm 
To the Board of Directors and 
Stockholders of Globix Corporation

We have audited managements
assessment, included in the accompanying Managements Report on Internal
Controls over financial reporting, that Globix and Subsidiaries (the Company)
did not maintain effective internal control over financial reporting as of
September 30, 2006, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Companys management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on managements
assessment and an opinion on the effectiveness of the companys internal
control over financial reporting based on our audit.

We conducted our audit in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting,
evaluating managements assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other
procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.

A companys internal control
over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with accounting principles
generally accepted in the United States of America. A companys internal
control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of the companys assets that could have a material effect on the financial
statements.

Because of its inherent
limitations, internal control over financial reporting may not prevent or
detect misstatements. Also projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

A material
weakness is a control deficiency, or combination of control deficiencies, that
results in more than a remote likelihood that a material misstatement of the
annual or interim financial statements will not be prevented or detected. The
following material weakness has been identified and included in managements
assessment. This material weakness was considered in determining the nature,
timing, and extent of audit tests applied in our audit of the 2006 financial
statements, and this report does not affect our report dated December 28, 2006,
on those financial statements.

The Company
had inadequate resources in the accounting/finance function. Significant
turnover of personnel caused the Company to not adequately address accounting
and disclosure requirements for complex and unusual transactions, monitoring
of internal controls required by COSO and did not perform a timely and adequate
    evaluation of general computer controls.

In our
opinion, managements assessment that Globix Corporation did not maintain
effective internal control over financial reporting as of September 30, 2006,
is fairly stated, in all material respects, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Also, in our opinion, because
of the effects of the material weakness described above on the achievement of
the objective of the control criteria, the Company has not maintained effective
internal control over financial reporting as of September 30, 2006, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Trading Commission (COSO).

We do not
express an opinion or any other form of assurance on managements statements
relating to new controls being implemented and tested.

/s/ Amper, Politziner & Mattia, P.C.

December 28, 2006
  Edison, New Jersey

33

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ITEM 9B. OTHER INFORMATION

Not applicable.

34

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PART III

Items 10 through 14 (except
for information in response to Item 406 of Regulation S-K) are
incorporated by reference to our proxy statement for our 2006 Annual Meeting of
Stockholders.

CODE OF ETHICS

The Globix Code of Business
Conduct and Ethics, which applies to directors, executive officers and
employees, is included as Exhibit 14 to this annual report on Form 10-K.

35

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PART IV

ITEM 15. EXHIBITS AND FINANCIALS SCHEDULES

Financial Statements and
Financial Statement Schedules

See the financial statements
beginning on page F-1. See Schedule II - Valuation and Qualifying Accounts on
page F-35.

| | (c) Exhibits |                                                                                                                                                                                                                                                                                                                                                                                          
| | ------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |              |                                                                                                                                                                                                                                                                                                                                                                                          
| | EXHIBIT NO.  | EXHIBIT
  DESCRIPTION                                                                                                                                                                                                                                                                                                                                                                    
| |              |                                                                                                                                                                                                                                                                                                                                                                                          
| | 2.1          | Form
  of Securities Exchange Agreement, dated September 15, 2004 (1)                                                                                                                                                                                                                                                                                                                    
| |              |                                                                                                                                                                                                                                                                                                                                                                                          
| | 3.1          | Amended
  and Restated Certificate of Incorporation of Globix (2)                                                                                                                                                                                                                                                                                                                        
| |              |                                                                                                                                                                                                                                                                                                                                                                                          
| | 3.2          | Certificate
  of Designation of Preferences and Relative, Participating, Optional and Other
  Special Rights of Preferred Stock and Qualifications, Limitations and
  Restrictions Thereof of 6% Series A Cumulative Convertible Preferred Stock of
  Globix Corporation (3)                                                                                                             
| |              |                                                                                                                                                                                                                                                                                                                                                                                          
| | 3.3          | Amended
  and Restated Bylaws of Globix (2)                                                                                                                                                                                                                                                                                                                                              
| |              |                                                                                                                                                                                                                                                                                                                                                                                          
| | 4.1          | Form
  of Warrant issued to affiliates of Communication Technology Advisors (3)                                                                                                                                                                                                                                                                                                          
| |              |                                                                                                                                                                                                                                                                                                                                                                                          
| | 4.2          | Form
  of Globix Corporation Warrant to Purchase Shares of Common Stock (3)                                                                                                                                                                                                                                                                                                              
| |              |                                                                                                                                                                                                                                                                                                                                                                                          
| | 10.1         | Registration
  Rights Agreement between Globix and the holders of Globixs securities party
  thereto, dated as of April 23, 2002 (3)                                                                                                                                                                                                                                                    
| |              |                                                                                                                                                                                                                                                                                                                                                                                          
| | 10.2         | Form
  of Employment Agreement, dated October 31, 2005, between Globix and Ted S.
  Lodge (4)                                                                                                                                                                                                                                                                                            
| |              |                                                                                                                                                                                                                                                                                                                                                                                          
| | 10.3         | Letter
  agreement, dated October 18, 2006, between Globix and Ted S. Lodge (5)                                                                                                                                                                                                                                                                                                          
| |              |                                                                                                                                                                                                                                                                                                                                                                                          
| | 10.3         | Employment
  Agreement, dated September 15, 2005, between Globix and Peter K. Stevenson
  (6)                                                                                                                                                                                                                                                                                            
| |              |                                                                                                                                                                                                                                                                                                                                                                                          
| | 10.4         | Amendment
  to Employment Agreement, dated January 4, 2006, between Globix and Peter K.
  Stevenson (7)                                                                                                                                                                                                                                                                                  
| |              |                                                                                                                                                                                                                                                                                                                                                                                          
| | 10.5         | Letter
  agreement, dated September 20, 2005, between Globix and Gene M. Bauer (6)                                                                                                                                                                                                                                                                                                       
| |              |                                                                                                                                                                                                                                                                                                                                                                                          
| | 10.6         | Globix
  Corporation 2003 Stock Option Plan, as amended (8)                                                                                                                                                                                                                                                                                                                              
| |              |                                                                                                                                                                                                                                                                                                                                                                                          
| | 10.7         | Neon Communications, Inc. Stock Incentive Plan
(3)                                                                                                                                                                                                                                                                                                                                       
| |              |                                                                                                                                                                                                                                                                                                                                                                                          
| | 10.8         | First
  Amendment to Neon Communications, Inc. Stock Incentive Plan (3)                                                                                                                                                                                                                                                                                                                  
| |              |                                                                                                                                                                                                                                                                                                                                                                                          
| | 10.9         | Neon
  Communications, Inc. 2003 Directors Stock Option Plan (3)                                                                                                                                                                                                                                                                                                                        
| |              |                                                                                                                                                                                                                                                                                                                                                                                          
| | 10.10        | First
  Amendment to Neon Communications, Inc. 2003 Directors Stock Option Plan (3)                                                                                                                                                                                                                                                                                                     
| |              |                                                                                                                                                                                                                                                                                                                                                                                          
| | 10.11        | 2005
  cash incentive plan (9)                                                                                                                                                                                                                                                                                                                                                           
| |              |                                                                                                                                                                                                                                                                                                                                                                                          
| | 10.12        | Purchase
  Agreement, dated as of September 30, 2006 among Globix Hosting, LLC, Globix
  Corporation, Quality Technology Services Holding, L.L.C. and Quality
  Investment Properties Tech Centre Holding, LLC (10)                                                                                                                                                                      
| |              |                                                                                                                                                                                                                                                                                                                                                                                          
| | 10.13        | Form
  of Purchase and Sale Agreement, dated September 11, 2006 between Globix
  Corporation and Angelo Gordon Real Estate Inc. (11)                                                                                                                                                                                                                                                     
| |              |                                                                                                                                                                                                                                                                                                                                                                                          
| | 10.14        | Purchase
  Agreement, dated as of 20 August, 2006 between Globix Corporation and Inhoco
  3236 plc (12)                                                                                                                                                                                                                                                                                  
| |              |                                                                                                                                                                                                                                                                                                                                                                                          
| | 10.15        | Form
  of Second Amended and Restated Agreement for the Provision of Fiber Optic
  Facilities and Services between Northeast Utilities Service Company, The
  Connecticut Light & Power Company, Western Massachusetts Electric
  Company, Public Service Company of New Hampshire, and Neon Optica, Inc. as
  Successor in Interest to Necom LLC as of December 23, 2002 - Phase One (3)

36

---



| |       |                                                                                                                                                                                                                                                                                                                                                                                          
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.16 | Form
  of Second Amended and Restated Agreement for the Provision of Fiber Optic
  Facilities and Services between Northeast Utilities Service Company, The
  Connecticut Light & Power Company, Western Massachusetts Electric
  Company, Public Service Company of New Hampshire, and Neon Optica, Inc. as
  Successor in Interest to Necom LLC as of December 23, 2002 - Phase Two (3)
| |       |                                                                                                                                                                                                                                                                                                                                                                                          
| | 10.17 | Form
  of Agreement Concerning the Reimbursement of Fees Among The Connecticut Light
  & Power Company Western Massachusetts Electric Company, Public Service
  Company of New Hampshire and Mode 1 Communications, Inc. and Neon
  Optica, Inc. dated as of November 5, 2004 (3)                                                                                                        
| |       |                                                                                                                                                                                                                                                                                                                                                                                          
| | 14    | Code
  of Business Conduct and Ethics (8)                                                                                                                                                                                                                                                                                                                                                
| |       |                                                                                                                                                                                                                                                                                                                                                                                          
| | 21    | List
  of Subsidiaries                                                                                                                                                                                                                                                                                                                                                                   
| |       |                                                                                                                                                                                                                                                                                                                                                                                          
| | 31.1  | Certification
  of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
  Act of 2002                                                                                                                                                                                                                                                                               
| |       |                                                                                                                                                                                                                                                                                                                                                                                          
| | 31.2  | Certification
  of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
  Act of 2002                                                                                                                                                                                                                                                                               
| |       |                                                                                                                                                                                                                                                                                                                                                                                          
| | 32.1  | Certification
  of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350                                                                                                                                                                                                                                                                                                        
| |       |                                                                                                                                                                                                                                                                                                                                                                                          
| | 32.2  | Certification
  of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350                                                                                                                                                                                                                                                                                                        

** Confidential treatment granted for certain
portions of this Exhibit pursuant to Rule 406 promulgated under the Securities
Act of 1933.

| |      |                                                                                                                               
| | ---- | ------------------------------------------------------------------------------------------------------------------------------
| | (1)  | Incorporated by reference
  to our Current Report on Form 8-K filed on October 13, 2004.                                      
| |      |                                                                                                                               
| | (2)  | Incorporated by reference
  to our Quarterly Report on Form 10-Q filed on May 15, 2002.                                       
| |      |                                                                                                                               
| | (3)  | Incorporated by reference
  to our Quarterly Report on Form 10-Q filed on May 13, 2005.                                       
| |      |                                                                                                                               
| | (4)  | Incorporated by reference
  to our Current Report on Form 8-K filed on November 3, 2005.                                      
| |      |                                                                                                                               
| | (5)  | Incorporated by reference
  to our Current Report on Form 8-K filed on October 23, 2006.                                      
| |      |                                                                                                                               
| | (6)  | Incorporated by reference
  to our Annual Report on Form 10-K filed on December 27, 2005.                                     
| |      |                                                                                                                               
| | (7)  | Incorporated by reference
  to our Current Report on Form 8-K filed on January 9, 2006.                                       
| |      |                                                                                                                               
| | (8)  | Incorporated by reference
  to Appendix B to our Definitive Proxy Statement on Schedule 14A filed on
  January 27, 2006.      
| |      |                                                                                                                               
| | (9)  | Incorporated by reference
  to the description in Item 1.01 of the Companys Report on Form 8-K filed on
  September 19, 2005.
| |      |                                                                                                                               
| | (10) | Incorporated by reference
  to our Current Report on Form 8-K filed on October 6, 2006.                                       
| |      |                                                                                                                               
| | (11) | Incorporated by reference
  to our Current Report on Form 8-K filed on September 15, 2006.                                    
| |      |                                                                                                                               
| | (12) | Incorporated by reference
  to our Current Report on Form 8-K filed on August 24, 2006.                                       

37

---



SIGNATURES

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

GLOBIX CORPORATION

| |     |                                      | 
| | --- | ------------------------------------ | 
| | By: | /S/
  PETER K. STEVENSON            
| |     |                                      | 
| |     | Peter K.
  Stevenson                
| |     | President,
  Chief Executive Officer
| |     | Date:
  December 28, 2006           

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

| |                                                             | 
| | ----------------------------------------------------------- | 
| | /S/
  PETER K. STEVENSON                                    | 
| |                                                             | 
| | Peter K.
  Stevenson                                        | 
| | President,
  Chief Executive Officer and                    | 
| | Director                                                    | 
| | (principal
  executive officer)                             | 
| | Date:
  December 28, 2006                                   | 
| |                                                             | 
| | /S/
  ERIC J. SANDMAN                                       | 
| |                                                             | 
| | Eric J.
  Sandman                                           | 
| | Chief
  Financial Officer                                   | 
| | (principal
  financial and accounting officer)              | 
| | Date:
  December 28, 2006                                   | 
| |                                                             | 
| | /S/
  TED S. LODGE                                          | 
| |                                                             | 
| | Ted S.
  Lodge                                              | 
| | Chairman
  of the Board of Directors and Executive Chairman | 
| | Date:
  December 28, 2006                                   | 
| |                                                             | 
| | /S/
  JOSE A. CECIN JR.                                     | 
| |                                                             | 
| | Jose A.
  Cecin Jr.                                         | 
| | Director                                                    | 
| | Date:
  December 28, 2006                                   | 
| |                                                             | 
| | /S/
  JOHN FORSGREN                                         | 
| |                                                             | 
| | John
  Forsgren                                             | 
| | Director                                                    | 
| | Date:
  December 28, 2006                                   | 
| |                                                             | 
| | /S/
  PETER L. HERZIG                                       | 
| |                                                             | 
| | Peter L.
  Herzig                                           | 
| | Director                                                    | 
| | Date:
  December 28, 2006                                   | 

38

---



| |                           | 
| | ------------------------- | 
| | /S/
  STEVEN LAMPE        | 
| |                           | 
| | Steven
  Lampe            | 
| | Director                  | 
| | Date:
  December 28, 2006 | 
| |                           | 
| | /S/
  STEVEN G. SINGER    | 
| |                           | 
| | Steven
  G. Singer        | 
| | Director                  | 
| | Date:
  December 28, 2006 | 
| |                           | 
| | /S/
  RAYMOND L. STEELE   | 
| |                           | 
| | Raymond
  L. Steele       | 
| | Director                  | 
| | Date:
  December 28, 2006 | 

39

---



INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS

|                                                                                                                                             |  |     
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                             |  | PAGE
|                                                                                                                                             |  |     
|                                                                                                                                             |  |     
|Report of
  Independent Registered Public Accounting Firm                                                                                    |  | F-2 
|                                                                                                                                             |  |     
|Consolidated
  Balance Sheets-as of September 30, 2006 and 2005                                                                              |  | F-3 
|                                                                                                                                             |  |     
|Consolidated
  Statements of Operations- For the Years Ended September 30, 2006, 2005 and
  2004                                             |  | F-4 
|                                                                                                                                             |  |     
|Consolidated Statements of Changes in
Stockholders
  Equity and Comprehensive Loss- for the Years Ended September 30, 2006, 2005
  and 2004 |  | F-5 
|                                                                                                                                             |  |     
|Consolidated
  Statements of Cash Flows- for the Years Ended September 30, 2006, 2005, and
  2004                                            |  | F-6 
|                                                                                                                                             |  |     
|Notes to
  Consolidated Financial Statements                                                                                                 |  | F-8 

F-1

---



Report of Independent Registered Public Accounting
Firm

To the Board of Directors
and
Stockholders of Globix Corporation

We have audited the
consolidated balance sheets of Globix Corporation (a Delaware Corporation) and
subsidiaries as of September 30, 2006 and 2005, and the related consolidated
statements of operations, changes in stockholders equity and comprehensive
loss, and cash flows for each of the three years in the period ended September
30, 2006. 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 the standards of the Public Company Accounting Oversight Board
(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
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 consolidated financial position of Globix Corporation and their
Subsidiaries as of September 30, 2006 and 2005, and their consolidated results
of their operations and their cash flows for each of the three years in the
period ended September 30, 2006, in conformity with accounting principles
generally accepted in the United States of America.

We have also audited, in
accordance with the standards of the Public Company Accounting Oversight Board
(United States), the effectiveness of Globix Corporations internal control
over financial reporting as of September 30, 2006, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated
December 28, 2006, expressed an adverse opinion thereon.

In connection with our
audits of the financial statements referred to above, we audited Schedule II -
Valuation and Qualifying Accounts. In our opinion, the financial schedule, when
considered in relation to the financial statements taken as a whole, presents
fairly, in all material respects, the information stated therein.

/s/ Amper, Politziner & Mattia, P.C.

December 28, 2006
  Edison, New Jersey

F-2

---



GLOBIX CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

|                                                                                                                                                                 |  |                 |         |      |   |          |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ------- | ---- | - | -------- | -
|                                                                                                                                                                 |  |                 |        
|                                                                                                                                                                 |  | SEPTEMBER
  30, |        
|                                                                                                                                                                 |  |                 |        
|                                                                                                                                                                 |  | 2006            |         | 2005 |  
|                                                                                                                                                                 |  |                 |         |      |  
|ASSETS                                                                                                                                                           |  |                 |         |      |   |          |  
|Current assets:                                                                                                                                                  |  |                 |         |      |   |          |  
|Cash and cash equivalents                                                                                                                                        |  | $               | 88,127  |      | $ | 9,011    |  
|Short-term investments                                                                                                                                           |  |                 |        |      |   | 65       |  
|Accounts receivable, net of allowance for doubtful accounts of $865
  and $1,950, respectively                                                                   |  |                 | 3,441   |      |   | 11,174   |  
|Prepaid expenses and other current assets                                                                                                                        |  |                 | 1,721   |      |   | 4,007    |  
|Restricted cash                                                                                                                                                  |  |                 | 447     |      |   | 2,559    |  
|Current portion of assets held for sale                                                                                                                          |  |                 | 6,763   |      |   |         |  
|                                                                                                                                                                 |  |                 |         |      |   |          |  
|Total current assets                                                                                                                                             |  |                 | 100,499 |      |   | 26,816   |  
|Restricted cash                                                                                                                                                  |  |                 | 10,190  |      |   | 9,810    |  
|Property, plant and equipment, net                                                                                                                               |  |                 | 125,455 |      |   | 206,230  |  
|Intangible assets, net of accumulated amortization of $884 and
$5,598,
  respectively                                                                            |  |                 | 3,616   |      |   | 10,257   |  
|Assets held for sale, net of current portion                                                                                                                     |  |                 | 16,364  |      |   |         |  
|Other assets                                                                                                                                                     |  |                 | 3,096   |      |   | 4,540    |  
|                                                                                                                                                                 |  |                 |         |      |   |          |  
|Total assets                                                                                                                                                     |  | $               | 259,220 |      | $ | 257,653  |  
|                                                                                                                                                                 |  |                 |         |      |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                             |  |                 |         |      |   |          |  
|Current liabilities:                                                                                                                                             |  |                 |         |      |   |          |  
|Current portion of capital lease obligation and mortgage
payable                                                                                                 |  | $               |        |      | $ | 564      |  
|Accounts payable                                                                                                                                                 |  |                 | 5,113   |      |   | 11,769   |  
|Accrued liabilities                                                                                                                                              |  |                 | 12,525  |      |   | 17,418   |  
|Current portion of deferred revenue                                                                                                                              |  |                 | 2,544   |      |   | 5,443    |  
|Current portion of liabilities held for sale                                                                                                                     |  |                 | 6,923   |      |   |         |  
|                                                                                                                                                                 |  |                 |         |      |   |          |  
|Total current liabilities                                                                                                                                        |  |                 | 27,105  |      |   | 35,194   |  
|Capital lease obligations, net of current portion                                                                                                                |  |                 |        |      |   | 204      |  
|Mortgage payable                                                                                                                                                 |  |                 |        |      |   | 19,270   |  
|11% Senior Notes                                                                                                                                                 |  |                 | 74,875  |      |   | 67,455   |  
|9% Senior Notes                                                                                                                                                  |  |                 | 5,000   |      |   |         |  
|                                                                                                                                                                 |  |                 |         |      |   |          |  
|Accrued interest - Senior Notes                                                                                                                                  |  |                 | 3,565   |      |   | 3,110    |  
|Deferred revenue                                                                                                                                                 |  |                 | 13,791  |      |   | 15,903   |  
|Other long term liabilities                                                                                                                                      |  |                 | 2,191   |      |   | 9,208    |  
|Liabilities held for sale, net of current portion                                                                                                                |  |                 | 3,196   |      |   |         |  
|                                                                                                                                                                 |  |                 |         |      |   |          |  
|Total liabilities                                                                                                                                                |  |                 | 129,723 |      |   | 150,344  |  
|                                                                                                                                                                 |  |                 |         |      |   |          |  
|Cumulative Convertible Preferred Stock                                                                                                                           |  |                 | 13,676  |      |   | 13,006   |  
|                                                                                                                                                                 |  |                 |         |      |   |          |  
|Commitments and contingencies:                                                                                                                                   |  |                 |         |      |   |          |  
|STOCKHOLDERS EQUITY:                                                                                                                                            |  |                 |         |      |   |          |  
|Common stock, $.01 par value; 500,000,000 shares authorized;
  48,725,246 and 48,697,465 issued and outstanding, for September 30, 2006 and
  2005, respectively |  |                 | 487     |      |   | 487      |  
|Additional paid-in capital                                                                                                                                       |  |                 | 210,161 |      |   | 207,314  |  
|Accumulated other comprehensive income                                                                                                                           |  |                 | 105     |      |   | 5,197    |  
|Accumulated deficit                                                                                                                                              |  |                 | (94,932 | )    |   | (118,695 | )
|                                                                                                                                                                 |  |                 |         |      |   |          |  
|Total stockholders equity                                                                                                                                       |  |                 | 115,821 |      |   | 94,303   |  
|                                                                                                                                                                 |  |                 |         |      |   |          |  
|Total liabilities and stockholders
equity                                                                                                                       |  | $               | 259,220 |      | $ | 257,653  |  
|                                                                                                                                                                 |  |                 |         |      |   |          |  

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

F-3

---



GLOBIX CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

|                                                                                                                                            |  |                                |            |                                |   |                                |   |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ---------- | ------------------------------ | - | ------------------------------ | - | - | ---------- | -
|                                                                                                                                            |  |                                |           
|                                                                                                                                            |  | YEAR ENDEDSEPTEMBER 30,
  2006 |            | YEAR ENDEDSEPTEMBER 30,
  2005 |   | YEAR ENDEDSEPTEMBER 30,
  2004 |  
|                                                                                                                                            |  |                                |            |                                |   |                                |  
|Revenue, net                                                                                                                                |  | $                              | 66,429     |                                | $ | 30,646                         |   | $ |           |  
|Operating costs and expenses:                                                                                                               |  |                                |            |                                |   |                                |   |   |            |  
|Cost of revenue (excluding depreciation,
amortization, occupancy and
  certain payroll)                                                     |  |                                | 35,699     |                                |   | 17,760                         |   |   |           |  
|Selling, general and administrative                                                                                                         |  |                                | 27,016     |                                |   | 18,273                         |   |   | 9,942      |  
|Loss on sale of corporate headquarters                                                                                                      |  |                                | 3,803      |                                |   |                               |   |   |           |  
|Loss on impairment of assets                                                                                                                |  |                                |           |                                |   |                               |   |   | 17,972     |  
|Depreciation and amortization                                                                                                               |  |                                | 15,380     |                                |   | 8,796                          |   |   | 2,786      |  
|                                                                                                                                            |  |                                |            |                                |   |                                |   |   |            |  
|Total operating costs and expenses                                                                                                          |  |                                | 81,898     |                                |   | 44,829                         |   |   | 30,700     |  
|                                                                                                                                            |  |                                |            |                                |   |                                |   |   |            |  
|Loss from operations                                                                                                                        |  |                                | (15,469    | )                              |   | (14,183                        | ) |   | (30,700    | )
|Interest and financing expense                                                                                                              |  |                                | (10,602    | )                              |   | (9,682                         | ) |   | (11,419    | )
|Interest income                                                                                                                             |  |                                | 493        |                                |   | 241                            |   |   | 276        |  
|Other income (expense), net                                                                                                                 |  |                                | 1,074      |                                |   | (681                           | ) |   | 2,011      |  
|Gain (loss) on discharge of debt                                                                                                            |  |                                |           |                                |   | (3,182                         | ) |   | 1,747      |  
|                                                                                                                                            |  |                                |            |                                |   |                                |   |   |            |  
|Loss
  from continuing operations before income taxes                                                                                       |  |                                | (24,504    | )                              |   | (27,487                        | ) |   | (38,085    | )
|Income
  tax expense                                                                                                                        |  |                                |           |                                |   |                               |   |   |           |  
|                                                                                                                                            |  |                                |            |                                |   |                                |   |   |            |  
|Loss from continuing operations                                                                                                             |  |                                | (24,504    | )                              |   | (27,487                        | ) |   | (38,085    | )
|Income (loss) from discontinued operations, net of income taxes
(includes
  gain on disposal of discontinued operations of $46,213 in 2006) |  |                                | 48,937     |                                |   | (3,050                         | ) |   | (3,301     | )
|                                                                                                                                            |  |                                |            |                                |   |                                |   |   |            |  
|Net income (loss)                                                                                                                           |  |                                | 24,433     |                                |   | (30,537                        | ) |   | (41,386    | )
|Dividends and accretion on preferred stock                                                                                                  |  |                                | 670        |                                |   | 366                            |   |   |           |  
|                                                                                                                                            |  |                                |            |                                |   |                                |   |   |            |  
|Net loss attributable to common stockholders                                                                                                |  | $                              | 23,763     |                                | $ | (30,903                        | ) | $ | (41,386    | )
|                                                                                                                                            |  |                                |            |                                |   |                                |   |   |            |  
|Earnings (loss) per common share, from continuing
operations:                                                                               |  |                                |            |                                |   |                                |   |   |            |  
|Basic                                                                                                                                       |  | $                              | (0.51      | )                              | $ | (0.80                          | ) | $ | (2.31      | )
|                                                                                                                                            |  |                                |            |                                |   |                                |   |   |            |  
|Diluted                                                                                                                                     |  | $                              | (0.51      | )                              | $ | (0.80                          | ) | $ | (2.31      | )
|                                                                                                                                            |  |                                |            |                                |   |                                |   |   |            |  
|Earnings (loss) per common share, from discontinued
operations:                                                                             |  |                                |            |                                |   |                                |   |   |            |  
|Basic                                                                                                                                       |  | $                              | 1.00       |                                | $ | (0.09                          | ) | $ | (0.20      | )
|                                                                                                                                            |  |                                |            |                                |   |                                |   |   |            |  
|Diluted                                                                                                                                     |  | $                              | 1.00       |                                | $ | (0.09                          | ) | $ | (0.20      | )
|                                                                                                                                            |  |                                |            |                                |   |                                |   |   |            |  
|Earnings (loss) per common share, attributable to common
stockholders:                                                                      |  |                                |            |                                |   |                                |   |   |            |  
|Basic                                                                                                                                       |  | $                              | 0.49       |                                | $ | (0.89                          | ) | $ | (2.51      | )
|                                                                                                                                            |  |                                |            |                                |   |                                |   |   |            |  
|Diluted                                                                                                                                     |  | $                              | 0.49       |                                | $ | (0.89                          | ) | $ | (2.51      | )
|                                                                                                                                            |  |                                |            |                                |   |                                |   |   |            |  
|Weighted average number of common and common equivalent
shares:                                                                             |  |                                |            |                                |   |                                |   |   |            |  
|Basic                                                                                                                                       |  |                                | 48,702,886 |                                |   | 34,734,506                     |   |   | 16,460,000 |  
|                                                                                                                                            |  |                                |            |                                |   |                                |   |   |            |  
|Diluted                                                                                                                                     |  |                                | 48,702,886 |                                |   | 34,734,506                     |   |   | 16,460,000 |  
|                                                                                                                                            |  |                                |            |                                |   |                                |   |   |            |  

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

F-4

---



GLOBIX CORPORATION AND SUBSIDIARIESSTATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY AND COMPREHENSIVE LOSS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

|                                                                                      |  |              |            |                                |   |                          |                       |                                           |         |   |   |                                   |   |   |        |   |   |          |   |   |         |  
|------------------------------------------------------------------------------------- |  | ------------ | ---------- | ------------------------------ | - | ------------------------ | --------------------- | ----------------------------------------- | ------- | - | - | --------------------------------- | - | - | ------ | - | - | -------- | - | - | ------- | -
|                                                                                      |  |              |            | ADDITIONAL
  PAID-IN
  CAPITAL |   | DEFERRED 
  COMPENSATION |                       | ACCUMULATEDOTHERCOMPREHENSIVEINCOME(LOSS) |         |   |   | TOTALSTOCKHOLDERSEQUITY(DEFICIT) |  
|                                                                                      |  |              |            |                                |   |                          |                       |                                           |        
|                                                                                      |  |              |            |                                |   |                          |                       |                                           |        
|                                                                                      |  | COMMON STOCK |            |                                |   |                          | ACCUMULATED
  DEFICIT |                                           |        
|                                                                                      |  | SHARES       |            | AMOUNT                         |   |                          |                       |                                           |         |  
|                                                                                      |  |              |            |                                |   |                          |                       |                                           |         |   |   |                                   |   |   |       
|Balance, September 30, 2003                                                           |  |              | 16,460,000 |                                | $ | 165                      |                       | $                                         | 97,191  |   | $ |                                  |   | $ | 2,401  |   | $ | (46,406  | ) | $ | 53,351  |  
|Capital distribution in minority-owned subsidiary, net                                |  |              |           |                                |   |                         |                       |                                           | (202    | ) |   |                                  |   |   |       |   |   |         |   |   | (202    | )
|Deferred stock-based compensation                                                     |  |              |           |                                |   |                         |                       |                                           | 30      |   |   | (30                               | ) |   |       |   |   |         |   |   |        |  
|Amortization of deferred compensation                                                 |  |              |           |                                |   |                         |                       |                                           |        |   |   | 22                                |   |   |       |   |   |         |   |   | 22      |  
|Purchase of warrants by a consultant                                                  |  |              |           |                                |   |                         |                       |                                           | 25      |   |   |                                  |   |   |       |   |   |         |   |   | 25      |  
|Put-option cancellation                                                               |  |              |           |                                |   |                         |                       |                                           | 2,968   |   |   |                                  |   |   |       |   |   |         |   |   | 2,968   |  
|Comprehensive Loss:                                                                   |  |              |            |                                |   |                          |                       |                                           |         |   |   |                                   |   |   |        |   |   |          |   |   |         |  
|Net loss                                                                              |  |              |           |                                |   |                         |                       |                                           |        |   |   |                                  |   |   |       |   |   | (41,386  | ) |   |         |  
|Unrealized holding losses                                                             |  |              |           |                                |   |                         |                       |                                           |        |   |   |                                  |   |   | (168   | ) |   |         |   |   |         |  
|Reclassification of unrealized holding losses to
net realized losses                  |  |              |           |                                |   |                         |                       |                                           |        |   |   |                                  |   |   | 259    |   |   |         |   |   |         |  
|Foreign currency translation adjustments                                              |  |              |           |                                |   |                         |                       |                                           |        |   |   |                                  |   |   | 2,006  |   |   |         |   |   |         |  
|Total Comprehensive Loss                                                              |  |              |           |                                |   |                         |                       |                                           |        |   |   |                                  |   |   |       |   |   |         |   |   | (39,289 | )
|                                                                                      |  |              |            |                                |   |                          |                       |                                           |         |   |   |                                   |   |   |        |   |   |          |   |   |         |  
|Balance, September 30, 2004                                                           |  |              | 16,460,000 |                                |   | 165                      |                       |                                           | 100,012 |   |   | (8                                | ) |   | 4,498  |   |   | (87,792  | ) |   | 16,875  |  
|Deferred stock-based compensation                                                     |  |              |           |                                |   |                         |                       |                                           | (17     | ) |   | (25                               | ) |   |       |   |   |         |   |   | (42     | )
|Amortization of deferred compensation                                                 |  |              |           |                                |   |                         |                       |                                           |        |   |   | 33                                |   |   |       |   |   |         |   |   | 33      |  
|Stock options exercised                                                               |  |              | 19,004     |                                |   |                         |                       |                                           | 4       |   |   |                                  |   |   |       |   |   |         |   |   | 4       |  
|Common stock issued: NEON acquistion                                                  |  |              | 27,573,006 |                                |   | 276                      |                       |                                           | 83,231  |   |   |                                  |   |   |       |   |   |         |   |   | 83,507  |  
|Common stock issued: Debt for equity swap                                             |  |              | 4,545,455  |                                |   | 45                       |                       |                                           | 15,636  |   |   |                                  |   |   |       |   |   |         |   |   | 15,681  |  
|Common stock issued: Binford settlement                                               |  |              | 100,000    |                                |   | 1                        |                       |                                           | 360     |   |   |                                  |   |   |       |   |   |         |   |   | 361     |  
|Issuance of stock warrants  Furtherlane settlement                                   |  |              |           |                                |   |                         |                       |                                           | 160     |   |   |                                  |   |   |       |   |   |         |   |   | 160     |  
|Issuance of stock options and warrants-NEON acquisition                               |  |              |           |                                |   |                         |                       |                                           | 7,928   |   |   |                                  |   |   |       |   |   |         |   |   | 7,928   |  
|Accretion on preferred stock                                                          |  |              |           |                                |   |                         |                       |                                           |        |   |   |                                  |   |   |       |   |   | (366     | ) |   | (366    | )
|Comprehensive Loss:                                                                   |  |              |            |                                |   |                          |                       |                                           |         |   |   |                                   |   |   |        |   |   |          |   |   |         |  
|Net loss                                                                              |  |              |           |                                |   |                         |                       |                                           |        |   |   |                                  |   |   |       |   |   | (30,537  | ) |   |         |  
|Reclassification of unrealized holding losses to
net realized losses                  |  |              |           |                                |   |                         |                       |                                           |        |   |   |                                  |   |   | 1,062  |   |   |         |   |   |         |  
|Foreign currency translation adjustments                                              |  |              |           |                                |   |                         |                       |                                           |        |   |   |                                  |   |   | (363   | ) |   |         |   |   |         |  
|Total Comprehensive Loss                                                              |  |              |           |                                |   |                         |                       |                                           |        |   |   |                                  |   |   |       |   |   |         |   |   | (29,838 | )
|                                                                                      |  |              |            |                                |   |                          |                       |                                           |         |   |   |                                   |   |   |        |   |   |          |   |   |         |  
|Balance, September 30, 2005                                                           |  |              | 48,697,465 |                                |   | 487                      |                       |                                           | 207,314 |   |   |                                  |   |   | 5,197  |   |   | (118,695 | ) |   | 94,303  |  
|Stock-based compensation                                                              |  |              |           |                                |   |                         |                       |                                           | 2,551   |   |   |                                  |   |   |       |   |   |         |   |   | 2,551   |  
|Amortization of deferred compensation                                                 |  |              |           |                                |   |                         |                       |                                           | 224     |   |   |                                  |   |   |       |   |   |         |   |   | 224     |  
|Stock options exercised                                                               |  |              | 27,781     |                                |   |                         |                       |                                           | 72      |   |   |                                  |   |   |       |   |   |         |   |   | 72      |  
|Accretion on preferred stock                                                          |  |              |           |                                |   |                         |                       |                                           |        |   |   |                                  |   |   |       |   |   | (670     | ) |   | (670    | )
|Comprehensive Loss:                                                                   |  |              |            |                                |   |                          |                       |                                           |         |   |   |                                   |   |   |        |   |   |          |   |   |         |  
|Net income                                                                            |  |              |           |                                |   |                         |                       |                                           |        |   |   |                                  |   |   |       |   |   | 24,433   |   |   |         |  
|Reclassification of unrealized foreign currency
translation
  adjustments to realized |  |              |           |                                |   |                         |                       |                                           |        |   |   |                                  |   |   | (6,467 | ) |   |         |   |   |         |  
|Foreign currency translation adjustments                                              |  |              |           |                                |   |                         |                       |                                           |        |   |   |                                  |   |   | 1,375  |   |   |         |   |   |         |  
|Total Comprehensive Income                                                            |  |              |           |                                |   |                         |                       |                                           |        |   |   |                                  |   |   |       |   |   |         |   |   | 19,341  |  
|                                                                                      |  |              |            |                                |   |                          |                       |                                           |         |   |   |                                   |   |   |        |   |   |          |   |   |         |  
|Balance, September 30, 2006                                                           |  |              | 48,725,246 |                                | $ | 487                      |                       | $                                         | 210,161 |   | $ |                                  |   | $ | 105    |   | $ | (94,932  | ) | $ | 115,821 |  
|                                                                                      |  |              |            |                                |   |                          |                       |                                           |         |   |   |                                   |   |   |        |   |   |          |   |   |         |  

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

F-5

---



GLOBIX CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)

|                                                                                                      |  |                                   |         |                                   |   |                                   |   |   |         |  
|----------------------------------------------------------------------------------------------------- |  | --------------------------------- | ------- | --------------------------------- | - | --------------------------------- | - | - | ------- | -
|                                                                                                      |  |                                   |        
|                                                                                                      |  | YEAR ENDED
  SEPTEMBER 30,
  2006 |         | YEAR ENDED
  SEPTEMBER 30,
  2005 |   | YEAR ENDED
  SEPTEMBER 30,
  2004 |  
|                                                                                                      |  |                                   |         |                                   |   |                                   |  
|Cash Flows From Operating Activities                                                                  |  |                                   |         |                                   |   |                                   |   |   |         |  
|Net income (loss)                                                                                     |  | $                                 | 24,433  |                                   | $ | (30,537                           | ) | $ | (41,386 | )
|Operating activities:                                                                                 |  |                                   |         |                                   |   |                                   |   |   |         |  
|Depreciation and amortization                                                                         |  |                                   | 23,883  |                                   |   | 19,973                            |   |   | 13,828  |  
|(Benefit) provision for uncollectible receivables                                                     |  |                                   | (136    | )                                 |   | 433                               |   |   | 780     |  
|Loss (gain) on debt discharge                                                                         |  |                                   |         |                                   |   | 3,182                             |   |   | (1,747  | )
|Loss on disposal of equipment                                                                         |  |                                   | 42      |                                   |   |                                  |   |   |        |  
|Gain on sale of UK Hosting                                                                            |  |                                   | (46,213 | )                                 |   |                                  |   |   |        |  
|Loss on sale of NY Headquarters                                                                       |  |                                   | 3,803   |                                   |   |                                  |   |   |        |  
|Unrealized loss (gain) on short-term investment                                                       |  |                                   |        |                                   |   | 625                               |   |   | (784    | )
|Loss on impairment of assets                                                                          |  |                                   |        |                                   |   |                                  |   |   | 17,972  |  
|Loss on sale of marketable securities                                                                 |  |                                   |        |                                   |   | 913                               |   |   | 249     |  
|Amortization of deferred compensation and stock
warrants and other stock
  based compensation expense |  |                                   | 2,686   |                                   |   | 511                               |   |   | 22      |  
|Changes in assets and liabilities:                                                                    |  |                                   |         |                                   |   |                                   |   |   |         |  
|Increase in accounts receivable                                                                       |  |                                   | (4,406  | )                                 |   | (3,544                            | ) |   | (100    | )
|(Increase) decrease in prepaid expenses and other
current assets                                      |  |                                   | (294    | )                                 |   | 1,492                             |   |   | 229     |  
|Decrease (increase) in other assets                                                                   |  |                                   | 1,174   |                                   |   | (548                              | ) |   | (357    | )
|Increase (decrease) in accounts payable                                                               |  |                                   | (3,482  | )                                 |   | 1,804                             |   |   | 427     |  
|Increase (decrease) in accrued liabilities                                                            |  |                                   | 4,026   |                                   |   | (1,096                            | ) |   | 324     |  
|Increase in accrued interest                                                                          |  |                                   | 7,875   |                                   |   | 7,514                             |   |   | 9,367   |  
|Other                                                                                                 |  |                                   | (2,468  | )                                 |   | 331                               |   |   | (392    | )
|                                                                                                      |  |                                   |         |                                   |   |                                   |   |   |         |  
|Net Cash Provided by (Used in) Operating Activities                                                   |  |                                   | 10,923  |                                   |   | 1,053                             |   |   | (1,568  | )
|                                                                                                      |  |                                   |         |                                   |   |                                   |   |   |         |  
|Cash Flows From Investing Activities                                                                  |  |                                   |         |                                   |   |                                   |   |   |         |  
|Proceeds from (investments in) short-term and
long-term investments                                   |  |                                   | 65      |                                   |   | 9,782                             |   |   | (1,436  | )
|Proceeds from (investments in) restricted cash                                                        |  |                                   | (499    | )                                 |   | (178                              | ) |   | 2,366   |  
|Proceeds from sale of marketable securities                                                           |  |                                   |        |                                   |   | 594                               |   |   | 1,000   |  
|Proceeds from sale of property plant and equipment                                                    |  |                                   |        |                                   |   |                                  |   |   | 48,694  |  
|Proceeds from exchange of fiber                                                                       |  |                                   | 1,960   |                                   |   |                                  |   |   |        |  
|Proceeds from sale of NY Headquarters                                                                 |  |                                   | 55,000  |                                   |   |                                  |   |   |        |  
|Cash outlay for NY Headquarters closing
costs                                                         |  |                                   | (13,170 | )                                 |   |                                  |   |   |        |  
|Proceeds from sale of UK Hosting                                                                      |  |                                   | 64,193  |                                   |   |                                  |   |   |        |  
|Cash outlay for UK Hosting closing costs                                                              |  |                                   | (1,584  | )                                 |   |                                  |   |   |        |  
|Payment for business acquired from Aptegrity
(Appendix A)                                             |  |                                   |        |                                   |   |                                  |   |   | (2,287  | )
|Deferred acquisition cost                                                                             |  |                                   |        |                                   |   | (42                               | ) |   | (1,465  | )
|Proceeds from NEON acquisition, net of cash paid                                                      |  |                                   |        |                                   |   | 2,768                             |   |   |        |  
|Purchase of property, plant and equipment                                                             |  |                                   | (23,117 | )                                 |   | (16,404                           | ) |   | (4,695  | )
|                                                                                                      |  |                                   |         |                                   |   |                                   |   |   |         |  
|Net Cash Provided by (Used in) Investing Activities                                                   |  |                                   | 82,848  |                                   |   | (3,480                            | ) |   | 42,177  |  
|                                                                                                      |  |                                   |         |                                   |   |                                   |   |   |         |  
|Cash Flows From Financing Activities                                                                  |  |                                   |         |                                   |   |                                   |   |   |         |  
|Repurchase of 11% Senior Notes                                                                        |  |                                   |        |                                   |   |                                  |   |   | (49,573 | )
|Proceeds from the Issuance of 9% Senior
Notes                                                         |  |                                   | 5,000   |                                   |   |                                  |   |   |         |  
|Proceeds from exercise of stock options and
warrants, net                                             |  |                                   | 72      |                                   |   | 4                                 |   |   | 25      |  
|Capital contribution (distribution) in
minority-owned subsidiary, net                                 |  |                                   |         |                                   |   |                                  |   |   | (202    | )
|(Settlement) capital lease obligations                                                                |  |                                   |        |                                   |   |                                  |   |   | (439    | )
|Repayment of long-term note payable                                                                   |  |                                   |        |                                   |   |                                  |   |   | (2,666  | )
|Repayment of mortgage payable and capital lease
obligation                                            |  |                                   | (19,826 | )                                 |   | (753                              | ) |   | (568    | )
|                                                                                                      |  |                                   |         |                                   |   |                                   |   |   |         |  
|Net Cash Provided by (Used in) Financing Activities                                                   |  |                                   | (14,754 | )                                 |   | (749                              | ) |   | (53,423 | )
|Effect of Exchange Rates Changes on Cash and Cash Equivalents                                         |  |                                   | 99      |                                   |   | 112                               |   |   | 386     |  
|                                                                                                      |  |                                   |         |                                   |   |                                   |   |   |         |  
|Increase (decrease) in Cash and Cash Equivalents                                                      |  |                                   | 79,116  |                                   |   | (3,064                            | ) |   | (12,428 | )
|Cash and Cash Equivalents, Beginning of year                                                          |  |                                   | 9,011   |                                   |   | 12,075                            |   |   | 24,503  |  
|                                                                                                      |  |                                   |         |                                   |   |                                   |   |   |         |  
|Cash and Cash Equivalents, End of year                                                                |  | $                                 | 88,127  |                                   | $ | 9,011                             |   | $ | 12,075  |  
|                                                                                                      |  |                                   |         |                                   |   |                                   |   |   |         |  

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

F-6

---



GLOBIX CORPORATION AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)

|                                                         |  |                                     |       |                                     |   |                                     |  |   |        |  
|-------------------------------------------------------- |  | ----------------------------------- | ----- | ----------------------------------- | - | ----------------------------------- |  | - | ------ | -
|                                                         |  |                                     |      
|                                                         |  | YEAR
  ENDED
  SEPTEMBER 30,
  2006 |       | YEAR
  ENDED
  SEPTEMBER 30,
  2005 |   | YEAR
  ENDED
  SEPTEMBER 30,
  2004 | 
|                                                         |  |                                     |       |                                     |   |                                     | 
|Supplemental Disclosure of
  Cash Flow Information:      |  |                                     |       |                                     |   |                                     |  |   |        |  
|Cash paid for interest                                   |  | $                                   | 2,446 |                                     | $ | 2,056                               |  | $ | 5,797  |  
|Cash paid for income taxes                               |  | $                                   |      |                                     | $ |                                    |  | $ | 179    |  
|Non-cash investing and
  financing activities:           |  |                                     |       |                                     |   |                                     |  |   |        |  
|11% Senior Notes issued in
  payment of accrued interest |  | $                                   | 7,420 |                                     | $ | 6,685                               |  | $ | 7,155  |  
|Cumulative dividends and
  accretion on preferred stock  |  | $                                   | 1,036 |                                     | $ | 366                                 |  | $ |       |  
|Mandatorily redeemable
  convertible preferred stock     |  | $                                   |      |                                     | $ | 12,639                              |  | $ |       |  
|Accreted dividend on
  preferred stock                   |  | $                                   | 670   |                                     | $ | 366                                 |  | $ |       |  
|Issuance of common stock
  for Neon acquistion           |  | $                                   |      |                                     | $ | 83,507                              |  | $ |       |  
|Put-option                                               |  | $                                   |      |                                     | $ |                                    |  | $ | (2,968 | )

APPENDIX A - PAYMENT FOR BUSINESS ACQUIRED
FROM APTEGRITY:

|                                |  |                                   |   |                                   |   |                                   |  |   |        |  
|------------------------------- |  | --------------------------------- | - | --------------------------------- | - | --------------------------------- |  | - | ------ | -
|                                |  |                                   |  
|                                |  | YEAR ENDED
  SEPTEMBER 30,
  2006 |   | YEAR ENDED
  SEPTEMBER 30,
  2005 |   | YEAR ENDED
  SEPTEMBER 30,
  2004 | 
|                                |  |                                   |   |                                   |   |                                   | 
|Current
  assets                |  | $                                 |  |                                   | $ |                                  |  | $ | (696   | )
|Property,
  plant and equipment |  |                                   |  |                                   |   |                                  |  |   | (738   | )
|Current
  liabilities           |  |                                   |  |                                   |   |                                  |  |   | 347    |  
|Other
  intangible assets       |  |                                   |  |                                   |   |                                  |  |   | (1,200 | )
|                                |  |                                   |   |                                   |   |                                   |  |   |        |  
|                                |  | $                                 |  |                                   | $ |                                  |  | $ | (2,287 | )
|                                |  |                                   |   |                                   |   |                                   |  |   |        |  

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

F-7

---



GLOBIX CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL

Globix
Corporation and its subsidiaries (Globix or the Company), through its
subsidiary NEON Communications, Inc. (NEON), owns and operates a high
bandwidth fiber optic network that supplies transport services to carriers and
enterprise customers in the twelve-state Northeast and mid-Atlantic market. The
Company currently offers services from facilities in New York City, New York
and Westborough, Massachusetts.

Approximately
31.4% of the Companys revenue from continuing operations for the year ended
September 30, 2006 comes from its two largest customers, and approximately
54.9% of the Companys revenue from continuing operations for the year comes
from its five largest customers. The Companys five largest customers are
Cingular Wireless, Verizon Wireless, Verizon, T-Mobile, and Qwest. The Company
expects to continue to provide service to these customers. However, if one or
more of these customers were to discontinue service it could have a material effect
on the Companys revenues and results of operations.

Approximately
31.3% of the Companys cost of revenue from continuing operations for the year
ended September 30, 2006 is derived from services provided by 3 major
telecommunication carriers. While the Company believes that most of these
services can be obtained from other alternative carriers, an interruption in
services from one of these carriers or other suppliers could limit the
Companys ability to serve its customers, which would adversely affect the
Companys results of operations.

As a result of
the decision to exit the hosting business, the results of the hosting
operations have been reflected as discontinued operations for all periods
presented.

2. DISCONTINUED OPERATIONS

On September
6, 2006, the Company closed the sale of its UK hosting business. The total
sales price was $62 million, subject to various working capital adjustments. Of
the total sales price, $3.1 million is being held in an escrow account until
March 31, 2008 to cover indemnification claims. The Company also entered into a
transition services agreement with the purchaser of the UK hosting business to
provide certain services until mid-2007. Included in the results from
discontinued operations for the year ended September 30, 2006 is the pre-tax
gain on the disposition of the UK hosting business of approximately $46.2
million.

As of
September 30, 2006, accounting criteria for the classification of the Companys
US hosting business had been met which resulted in the results of operations of
the US hosting business being reported as discontinued operations for all
periods presented and the assets and liabilities being reflected as held for
sale at September 30, 2006. (see Note 24. SUBSEQUENT EVENTS for further
description).

The UK and the
US hosting businesses are both components of the discontinued operations.

The table
below presents the significant components of operating results included in
income from discontinued operations for the years ended September 30, 2006,
2005 and 2004, respectively.

|                                                                                                                                             |  |                    |        |                    |   |                    |   |   |        |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ------------------ | - | ------------------ | - | - | ------ | -
|                                                                                                                                             |  | Years Ended        |       
|                                                                                                                                             |  |                    |       
|(in thousands)                                                                                                                               |  | September 30, 2006 |        | September 30, 2005 |   | September 30, 2004 |  
|                                                                                                                                             |  |                    |        |                    |   |                    |  
|Revenues                                                                                                                                     |  | $                  | 63,084 |                    | $ | 65,037             |   | $ | 61,190 |  
|                                                                                                                                             |  |                    |        |                    |   |                    |   |   |        |  
|Income (loss) from discontinued operations
  before income taxes (includes gain on disposal of discontinued operations of
  $46,213 in 2006) |  |                    | 48,937 |                    |   | (3,050             | ) |   | (3,301 | )
|Income tax
  expense                                                                                                                         |  |                    |       |                    |   |                   |   |   |       |  
|                                                                                                                                             |  |                    |        |                    |   |                    |   |   |        |  
|Income
  (loss) from discontinued operations, net of tax                                                                                     |  | $                  | 48,937 |                    | $ | (3,050             | ) | $ | (3,301 | )
|                                                                                                                                             |  |                    |        |                    |   |                    |   |   |        |  

F-8

---



GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The assets and
liabilities of the US Hosting business reflected as held for sale in the
consolidated balance sheet as of September 30, 2006 are shown below.

|                                                                   |  |                   |        | 
|------------------------------------------------------------------ |  | ----------------- | ------ | 
|(in thousands)                                                     |  | September30, 2006 |       
|                                                                   |  |                   |       
|Accounts
  receivable, net                                         |  | $                 | 5,656  | 
|Prepaid
  expenses and other current assets                        |  |                   | 1,107  | 
|                                                                   |  |                   |        | 
|Total
  current assets                                             |  | $                 | 6,763  | 
|                                                                   |  |                   |        | 
|Property and
  equipment, net                                      |  | $                 | 11,448 | 
|Intangible
  assets, net                                           |  |                   | 4,916  | 
|                                                                   |  |                   |        | 
|Total
  long-term assets                                           |  | $                 | 16,364 | 
|                                                                   |  |                   |        | 
|Current
  portion of capital lease obligation and mortgage payable |  | $                 | 156    | 
|Accounts
  payable                                                 |  |                   | 1,870  | 
|Accrued
  liabilities                                              |  |                   | 4,456  | 
|Current
  portion of deferred revenue                              |  |                   | 440    | 
|                                                                   |  |                   |        | 
|Total current
  liabilities                                        |  | $                 | 6,922  | 
|                                                                   |  |                   |        | 
|Capital
  lease obligations, net of current portion                |  | $                 | 54     | 
|Deferred
  revenue                                                 |  |                   | 368    | 
|Other long
  term liabilities                                      |  |                   | 2,774  | 
|                                                                   |  |                   |        | 
|Total non
  current liabilities                                    |  | $                 | 3,196  | 
|                                                                   |  |                   |        | 

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The
consolidated financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.

MANAGEMENT ESTIMATES

The preparation
of the Companys financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions. Such estimates and assumptions affect the reported
amounts of assets, liabilities, revenue and expenses and related disclosures of
contingent assets and liabilities.

Significant
estimates include estimates of the collectibility of accounts receivable, the
useful lives and ultimate realizability of property, equipment, intangibles and
deferred tax assets. Estimates and assumptions are reviewed periodically and
the effects of revisions are reflected in the period that they are determined
to be necessary. Actual results may vary from these estimates under different
assumptions or conditions.

REVENUE RECOGNITION

Revenue in the
Companys NEON business consists primarily of lit fiber services, dark fiber
services and co-location. Revenue from its discontinued hosting operations
consisted primarily of Internet hosting, co-location, managed services, network
services and Internet access.

The Company
recognizes revenue in accordance with the Securities and Exchange Commissions
Staff Accounting Bulletin (SAB), No. 104 Revenue Recognition.

The NEON
business segment offers leases of lit fiber (fixed amounts of capacity on fiber
optic transmission lines that use optronics equipment installed by the Company)
and longer term leases of dark fiber (fiber optic transmission lines leased
without optronics equipment installed by the Company) at fixed cost pricing
over multi year terms. Revenues from fiber optic network services are
recognized ratably over the term of the applicable lease agreements with
customers, which range from one to 20 years, provided

F-9

---



GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

there exists
persuasive evidence of an arrangement, the fee is fixed or determinable and
collectability of the related receivables is reasonably assured. Amounts billed
in advance of the service provided are recorded as deferred revenue. The
Company also leases space to customers at its co-location facilities. Revenues
from nonrecurring installation charges and design, engineering and construction
services are recognized ratably over the multi-year network services terms to
which the nonrecurring charges relate provided there exists persuasive evidence
of an arrangement, the fee is fixed or determinable and collectability of the
related receivables is reasonably assured.

The hosting
business segment recognizes revenue when delivery has occurred, persuasive
evidence of an agreement exists, the fee is fixed or determinable and
collectability is probable. SAB No. 104 expresses the view of the Securities
and Exchange Commissions staff in applying accounting principles generally
accepted in the United States of America to certain revenue recognition issues.
Under the provisions of SAB No. 104, set up and installation revenue are
deferred and recognized over the estimated length of the customer relationship,
which in the case of our Globix segment is approximately 36 months. Monthly
service revenue under recurring agreements related to Internet hosting,
co-location, network services, Internet access and managed services is
recognized over the period that service is provided. Revenue derived from
project or event type managed service engagements is recognized over the life
of the engagement. Payments received in advance of providing services are
deferred until the period that these services are provided.

COST OF REVENUE

Cost of
revenue for fiber services consists primarily of right of way fees, dark fiber
leases, real estate and co-location leases, last mile circuit leases and
network operations and maintenance costs. Right of way fees are paid primarily
to utilities and public and private entities for the right to place fiber optic
cable on their structures and property. Fiber leases are fees paid to other
telecommunications providers for the use of their dark fiber over which we
provide transport services. We lease real estate and co-location space to allow
placement of optronics equipment to power our network. Last mile circuit leases
consist of services from other carriers and local phone companies to extend
transport services beyond our network to a customer location. Network
operations and maintenance consists primarily of labor, contractor services and
utility costs.

Within the
Companys discontinued hosting operations, cost of revenue for Internet
services consists primarily of telecommunications costs for Internet access and
managed hosting, payroll and occupancy which it incurs in support of its
network operations, systems and customer services and the cost of hardware and
software purchased for resale to customers. Payroll costs allocated to cost of
revenue are based on the primary activity of the department such as maintaining
the network, customer support and systems operations. Occupancy costs allocated
to cost of revenue are based primarily on the square footage of our various
facilities. Cost of revenue excludes depreciation and amortization.
Telecommunications costs include the cost of providing local loop for
connecting dedicated access customers to the Companys network, leased line and
associated costs related to connecting with its peering partners and costs
associated with leased lines connecting its facilities to its backbone and
aggregation points of presence.

CONCENTRATIONS OF CREDIT RISK

Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents, short-term investments,
restricted cash, marketable securities and accounts receivable. The Company
maintains cash and cash equivalents, short-term investments and restricted cash
with various major financial institutions, which invest primarily in U.S.
Government instruments, high quality corporate obligations, certificates of
deposit and commercial paper. The Companys cash and cash equivalent and
investments in the U.S may be in excess of insured limits and are not insured
in other jurisdictions. The Company believes that the financial institutions
that hold the Companys investments are financially sound and, accordingly,
minimal credit risk exists with respect to these investments.

The Company
believes that concentrations of credit risk with respect to trade accounts
receivable are limited due to the credit quality of the Companys largest
customers. The Company performs ongoing credit evaluations of these and other
customers and maintains reserves for potential losses. Approximately 31.4% of
the Companys revenue for the year ended September 30, 2006 comes from its two
largest customers and approximately 54.9% of the Companys revenue for the year
comes from its five largest transport customers.

Short-term
investments and marketable securities are well diversified and, accordingly,
minimal credit risk exists with respect to these investments.

F-10

---



GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CASH, CASH EQUIVALENTS AND RESTRICTED CASH
AND INVESTMENTS

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

The
classification is determined based on the expected term of the collateral
requirement or the availability of the funds and not the maturity date of the
underlying securities. In addition, the Company has restricted cash in a money
market and an escrow account primarily to secure certain NEON leases.

Included in
long-term restricted cash as of September 30, 2006 are approximately $3,100,000
held in escrow related to the sale of the Companys UK hosting business and
$7,090,000 related to the Companys letters of credit.

Included in
long-term restricted cash as of September 30, 2005 are amounts held in escrow
related to the lease of the Companys facility located at Prospect House, 80
New Oxford Street, London, United Kingdom of approximately $2,000,000 and
$7,090,000 related to the Companys letters of credit.

ACCOUNTS RECEIVABLE

Accounts receivable
are recorded at the invoiced amount and are non-interest bearing. At each
reporting period the Company evaluates, on a specific basis, the economic
condition of its customers and their ability and intent to pay their debt. If
such evaluation shows that it is probable that a customer will not settle their
full obligation, a reserve against accounts receivable in general and
administrative expense is recorded for the non-recoverable amount. The Company
also maintains a general bad debt reserve based on the aging of its customers
receivables and historical trends. In addition, during each reporting period
the Company must make estimates of potential future credits, which will be
issued in respect of current revenues. The Company analyzes historical credits
and changes in customer demands regarding its current billings when evaluating
credit reserves. If such analysis shows that it is probable that a credit will
be issued, the Company reserves the estimated credit amount against revenues in
the current period.

PROPERTY, PLANT AND EQUIPMENT

Property,
plant and equipment are stated at depreciated historical cost adjusted for
impairment and include fresh start adjustments. All identifiable assets
recognized in accordance with fresh start accounting were recorded at the
Effective Date of the Plan based upon an independent appraisal. Depreciation is
provided using the straight-line method for financial reporting purposes and
accelerated methods for income tax purposes. The estimated useful lives of
property are as follows:

YEARS

|                                                       |    |   |   
|------------------------------------------------------ | -- | - | --
|Buildings
  and buildings improvements                 | 10 |  | 44
|Computer
  hardware and software and network equipment | 2  |  | 7 
|Fiber
  infrastructure                                 | 7  |  | 20
|Office
  furniture and equipment                       | 3  |  | 7 

Leasehold
improvements are amortized over the term of the lease or life of the asset,
whichever is shorter. Maintenance and repairs are charged to expense as
incurred. The cost of additions and betterments are capitalized. The cost and
related accumulated depreciation of property retired or sold are removed from
the applicable accounts and any gain or loss is taken into income.

Software
obtained for internal use is stated at depreciated historical cost adjusted for
impairments and fresh start adjustments and is depreciated using the
straight-line method over its estimated useful life.

The Companys
long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to the future undiscounted cash
flows expected to be generated by the assets. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets.

F-11

---



GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INTANGIBLE ASSETS

The Companys
intangible assets are as follows:

| |   |                                        
| | - | ---------------------------------------
| |  | trademarks
  and trade name;           
| |   |                                        
| |  | revenue backlog; and                   
| |   |                                        
| |  | customer
  contracts and relationships.

The Company
amortizes intangible assets by the straight line method over their estimated
useful lives. Trademarks and trade name are amortized over a period of 5
years, revenue backlog is  being amortized over 10 years and the
customer contracts and relationships are amortized over 10 years.

Intangible
assets were reviewed for impairment as of September 30, 2006 and 2005. No
impairment of intangible assets was recognized during the years ended September
30, 2006 and 2005.

INCOME TAXES

Deferred
income taxes are provided for differences between financial statement and
income tax bases of assets and liabilities using enacted tax rates in effect in
the years in which the differences are expected to reverse. The Company
provides a valuation allowance on net deferred tax assets when it is more
likely than not that these assets will not be realized. Certain tax benefits
existed as of the Effective Date of the Plan but were offset by valuation allowances.
The utilization of these benefits to reduce income taxes paid to U.S. Federal
and state and foreign jurisdictions does not reduce the Companys income tax
expense. Realization of net operating loss, tax credits and other deferred tax
benefits from pre-emergence attributes will first reduce intangible assets
until exhausted, and thereafter will be credited to additional paid in capital.

COMPREHENSIVE LOSS

Comprehensive
income is a more inclusive financial reporting method that includes amounts
that historically have not been recognized in the calculation of net income.
Comprehensive Loss and Accumulated Other Comprehensive Loss includes net loss,
foreign currency translation, and unrealized gain (loss) on financial
instruments and is included in the Consolidated Statements of Changes in
Stockholders Equity.

FOREIGN CURRENCY TRANSLATION

The financial
statements of the Companys foreign subsidiaries have been translated as
follows: assets and liabilities are translated into U.S. Dollars at the year-end
rate of exchange. Income and expense items are translated at the average
exchange rate during the year. The resulting foreign currency translation
adjustment is included in stockholders equity as a component of accumulated
other comprehensive loss. Transaction gains and losses are recorded in the
consolidated statement of operations.

STOCK-BASED COMPENSATION

Effective
October 1, 2005, Globix adopted SFAS 123(R) Share-based Payment, which
requires, among other things, that the estimated fair value of stock options be
charged to earnings. Significant management judgment is required to determine
the appropriate assumptions for inputs such as volatility and expected term
necessary to estimate the fair value of options at the date of grant. In
addition, management judgment is required to analyze the terms of the plans and
awards granted thereunder to determine if awards will be treated as equity
awards or liability awards, as defined by SFAS 123(R). SFAS 123(R) requires
that cost resulting from all share-based transactions be recognized in the
financial statements. Globix adopted SFAS 123(R) using the modified prospective
method of adoption, as permitted. Accordingly, prior period amounts have not
been restated. Under this method, Globix is required to record compensation
expense for all awards granted after the date of adoption and for the unvested
portion of previously granted awards that remain outstanding at the date of
adoption. The compensation cost recognized for awards granted prior to October
1, 2005 is based on the estimated grant date fair value and expense attribution
methodology originally determined under SFAS 123. Prior to the adoption of SFAS
123(R), Globix applied Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees (APB 25), to account for its stock-based
awards. Under APB 25 compensation cost for stock options was generally not
recognized as long as the stock options granted had an exercise price equal to
or greater than the market price of Globixs common stock on the date of grant.
With the adoption of SFAS 123(R), Globix recorded stock-based compensation
expense for the cost of stock options. In 2006 Globix incurred compensation
costs of $2,551,000 related to stock options as a result of the adoption of SFAS
123(R) effective October 1, 2005. As of September 30, 2006, there was $132,000
of

F-12

---



GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

unrecognized
compensation cost related to Globixs option awards. The weighted-average
periods over which the costs are expected to be recognized are .27 years.

EARNINGS (LOSS) PER SHARE

Basic earnings
or loss per share is computed on the basis of the weighted average number of
shares of common stock outstanding during the period. Diluted earnings or loss
per share is computed on the basis of the weighted average number of common
shares outstanding, adjusted for potentially dilutive securities calculated
using the treasury stock method. The following table summarizes the equivalent
number of common shares attributable to the related securities that were
outstanding for each of the periods presented:

|                                         |  |                                   |           |                                   |  |                              |  |  |           | 
|---------------------------------------- |  | --------------------------------- | --------- | --------------------------------- |  | ---------------------------- |  |  | --------- | 
|                                         |  |                                   |          
|                                         |  | YEAR ENDED
  SEPTEMBER 30,
  2006 |           | YEAR ENDED
  SEPTEMBER 30,
  2005 |  | ENDED
  SEPTEMBER 30,
  2004 | 
|                                         |  |                                   |           |                                   |  |                              | 
|Employee Stock
  Options                 |  |                                   | 4,415,349 |                                   |  | 4,457,471                    |  |  | 1,184,853 | 
|Cumulative
  Convertible Preferred Stock |  |                                   | 2,971,753 |                                   |  | 2,971,753                    |  |  |          | 
|Warrants                                 |  |                                   | 1,578,620 |                                   |  | 1,578,620                    |  |  | 500,000   | 
|                                         |  |                                   |           |                                   |  |                              |  |  |           | 
|                                         |  |                                   | 8,965,722 |                                   |  | 9,007,844                    |  |  | 1,684,853 | 
|                                         |  |                                   |           |                                   |  |                              |  |  |           | 

For the year
ended September 30, 2006, 2005 and 2004 all equivalent shares were not included
in the calculation of diluted loss per share because the Company had loss from
continuing operations for all years presented and therefore eqivalent shares
are antidilutive.

RECENT ACCOUNTING PRONOUNCEMENTS

In September
2006, the Securities and Exchange Commission issued Staff Accounting Bulletin
No. 108 (Topic 1N). Quantifying
Misstatements in Current Year Financial Statements,(SAB No. 108).
SAB No. 108 addresses how the effect of prior-year uncorrected
misstatements should be considered when quantifying misstatements in
current-year financial statements. SAB No. 108 requires SEC
registrants (i) to quantify misstatements using a combined approach which
considers both the balance-sheet and income-statement approaches, (ii) to
evaluate whether either approach results in quantifying an error that is
material in light of relevant quantitative and qualitative factors, and
(iii) to adjust their financial statements if the new combined approach
results in a conclusion is that an error is material. SAB No. 108
addresses the mechanics of correcting misstatements that include effects from
prior years. It indicates that the current-year correction of a material error
that includes prior-year effects may result in the need to correct prior-year
financial statements even if the misstatement in the prior year or years is
considered immaterial. Any prior-year financial statements found to be
materially misstated in years subsequent to the issuance of
SAB No. 108 would be restated in accordance with
SFAS No. 154, Accounting Changes
and Error Corrections.Because the combined approach represents a
change in practice, the SEC staff will not require registrants that followed an
acceptable approach in the past to restate prior years historical financials
statements. Rather, these registrants can report the cumulative effect of
adopting the new approach as an adjustment to the current years beginning
balance of retained earnings. If the new approach is adopted in a quarter other
than the first quarter, financial statements for prior interim periods within
the year of adoption may need to be restated. SAB No. 108 is effective for
fiscal years ending after November 15, 2006, which for the Company would
be its fiscal year beginning October 1, 2007. The Company is currently
evaluating the impact of SAB No. 108.

In September
2006, the Financial Accounting Standards Board (FASB) issued
SFAS No. 157, Fair Value
Measures(SFAS No. 157). SFAS No. 157 defines
fair value, establishes a framework for measuring fair value in generally
accepted accounting principles (GAAP), expands disclosures about fair value
measurements, and applies under other accounting pronouncements that require or
permit fair value measurements. SFAS No. 157 does not require any new
fair value measurements. However, the FASB anticipates that for some entities,
the application of SFAS No. 157 will change current practice.
SFAS No. 157 is effective for financial statements issued for fiscal
years beginning after November 15, 2007, which for the Company would be
its fiscal year beginning October 1, 2008.

F-13

---



GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In July 2006,
the FASB issued FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes  An
Interpretation of FASB Statement No. 109 (FIN 48).
FIN 48 prescribes detailed guidance for the financial statement
recognition, measurement and disclosure of uncertain tax positions recognized
in an enterprises financial statements in accordance with
SFAS No. 109, Accounting for
Income Taxes.Tax positions must meet a more-likely-than-not
recognition threshold at the effective date to be recognized upon the adoption
of FIN 48 and in subsequent periods. FIN 48 will be effective for
fiscal years beginning after December 15, 2006, which for us would be our
fiscal year beginning October 1, 2007, and the provisions of FIN 48
will be applied to all tax positions upon initial adoption of the Interpretation.
The cumulative effect of applying the provisions of this Interpretation will be
reported as an adjustment to the opening balance of retained earnings for that
fiscal year. The Company is currently evaluating the impact of its adoption.

In February
2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial
Instruments  an amendment of FASB Statements No. 133 and 140. SFAS No. 155
allows companies to elect to measure at fair value entire financial instruments
containing embedded derivatives that would otherwise have to be accounted for
separately. It also requires companies to identify interests in securitized
financial assets that are freestanding derivatives or contain embedded
derivatives that would have to be accounted for separately, clarifies which
interest- and principal-only strips are subject to SFAS No. 133, and amends
SFAS No. 140 to revise the conditions of a qualifying special purpose entity
due to the new requirement to identify whether interests in securitized financial
assets are freestanding derivatives or contain embedded derivatives. SFAS No.
155 is effective for all financial instruments acquired, issued or subject to a
remeasurement event after the beginning of a companys first fiscal year that
begins after September 15, 2006. The Company does not expect adoption of SFAS
No. 155 to have a material effect on its results of operations or financial
position.

RECLASSIFICATIONS

Certain prior
period amounts have been reclassified to conform to current year presentations.

4. MERGERS AND ACQUISITIONS

On March 7,
2005, Globix completed its acquisition of NEON purchasing all of the capital
stock of NEON. The purchase price of $112,862,000 consisted of $5,349,000 in
cash, the issuance of 27,573,000 shares of common stock with a fair value of
$83,507,000 (based on the average share price during the three day period
before and after the announcement of the merger), the issuance of 2,972,000
shares of cumulative convertible preferred stock with a fair market value of $12,639,000,
the issuance of 3,381,000 shares of stock options and warrants with a fair
value of $7,928,000 and approximately $3,439,000 of other direct acquisition
costs. NEON owns and operates a high bandwidth fiber optic network, extending
from Portland, ME to Washington, DC. Through this network NEON provides metro
and intercity communications coverage, as well as co-location space, to local
and long distance telecommunications carriers and a small number of non-carrier
customers, including universities, colleges and financial institutions, in
various markets in the Northeast and mid-Atlantic regions, including Boston,
New York, Philadelphia, Newark, Baltimore, Washington, DC, Portland,
Portsmouth, Springfield, Worcester, Albany, White Plains, Providence, Hartford,
Hackensack, Vienna, Virginia and smaller communities along our network routes.
The final allocation of the purchase price is summarized below:

|                                                       |  |   |         |  
|------------------------------------------------------ |  | - | ------- | -
|(amounts
  in thousands)                               |  |   |         |  
|Cash and
  cash equivalents acquired                   |  | $ | 8,116   |  
|Accounts
  receivable acquired                         |  |   | 1,976   |  
|Prepaid and
  other assets acquired                    |  |   | 1,228   |  
|Restricted
  cash and investments acquired             |  |   | 7,501   |  
|Fair value
  of property, plant and equipment acquired |  |   | 117,292 |  
|Identifiable
  intangible assets acquired              |  |   | 4,500   |  
|Other assets
  acquired                                |  |   | 3,625   |  
|Accounts
  payable and accrued liabilities assumed     |  |   | (11,949 | )
|Deferred
  revenue assumed                             |  |   | (17,363 | )
|Other
  liabilities assumed                            |  |   | (2,064  | )
|                                                       |  |   |         |  
|                                                       |  | $ | 112,862 |  
|                                                       |  |   |         |  

F-14

---



GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following
table shows the details of the intangible assets acquired in the NEON purchase:

|                                       |  |               |       |                    |  |          | 
|-------------------------------------- |  | ------------- | ----- | ------------------ |  | -------- | 
|(amounts in thousands)                 |  | Asset
  Value |       | Amortizable
  Life | 
|                                       |  |               |       |                    | 
|Trademarks
  and trade names           |  | $             | 1,076 |                    |  | 5 years  | 
|Customer
  contracts and relationships |  |               | 2,250 |                    |  | 10 years | 
|Backlog                                |  |               | 1,174 |                    |  | 10 years | 
|                                       |  |               |       |                    |  |          | 
|                                       |  | $             | 4,500 |                    |  |          | 
|                                       |  |               |       |                    |  |          | 

The following
pro forma combined results of operations assume that the acquisition occurred
on October 1, 2003.

|                                                                     |  |                      |            |                      |   |            |  
|-------------------------------------------------------------------- |  | -------------------- | ---------- | -------------------- | - | ---------- | -
|                                                                     |  | Unaudited            |           
|(amounts
  in thousands, except share and per share amounts)         |  | September 30,
  2005 |            | September 30,
  2004 |  
|                                                                     |  |                      |            |                      |  
|Revenue                                                              |  | $                    | 51,990     |                      | $ | 46,550     |  
|Loss from continuing operations                                      |  |                      | (27,179    | )                    |   | (41,743    | )
|                                                                     |  |                      |            |                      |   |            |  
|Basic and diluted loss from continuing
  operations per common share |  |                      |            |                      |   |            |  
|Pro-forma                                                            |  | $                    | (0.56      | )                    | $ | (0.86      | )
|                                                                     |  |                      |            |                      |   |            |  
|                                                                     |  |                      |            |                      |   |            |  
|Weighted average common shares outstanding
  - basic and diluted     |  |                      | 48,669,477 |                      |   | 48,578,461 |  
|                                                                     |  |                      |            |                      |   |            |  

On
October 31, 2003, Globix acquired for cash the business, substantially all of
the assets and assumed certain liabilities of Aptegrity, Inc. (Aptegrity), a
provider of web application and operations management services for a total net
cash consideration of approximately $2,300,000. The acquisition was accounted
for as a purchase; accordingly, the purchase price has been allocated to the
assets acquired. The allocation of the purchase price among the identifiable
intangible assets was based upon the Companys estimates of fair value of those
assets. The Company has recorded $800,000 in respect of acquired trademarks and
trade names which are being amortized on a straight-line basis over 7 years and
$400,000 was recorded in respect of customer contracts which are being
amortized on a straight-line basis over 2 years. The operations of Aptegrity are
included in discontinued operations in the consolidated statements from
November 1, 2003.

5. PREPAID EXPENSES AND OTHER CURRENT ASSETS

|                       |  |                 |       |      |   |       | 
|---------------------- |  | --------------- | ----- | ---- | - | ----- | 
|                       |  | SEPTEMBER
  30, |      
|                       |  |                 |      
|(amounts in thousands) |  | 2006            |       | 2005 |  
|                       |  |                 |       |      |  
|Prepaid
  expenses     |  | $               | 1,102 |      | $ | 1,275 | 
|Prepaid
  insurance    |  |                 | 304   |      |   | 316   | 
|Prepaid
  taxes        |  |                 |      |      |   | 415   | 
|Prepaid
  fiber leases |  |                 | 57    |      |   | 937   | 
|Notes
  receivables    |  |                 | 71    |      |   | 101   | 
|Other                  |  |                 | 187   |      |   | 963   | 
|                       |  |                 |       |      |   |       | 
|                       |  | $               | 1,721 |      | $ | 4,007 | 
|                       |  |                 |       |      |   |       | 

F-15

---



GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. PROPERTY, PLANT AND EQUIPMENT

Property,
plant and equipment consist of the following:

|                                                       |  |                 |         |      |   |         |  
|------------------------------------------------------ |  | --------------- | ------- | ---- | - | ------- | -
|                                                       |  | SEPTEMBER
  30, |        
|                                                       |  |                 |        
|(amounts in thousands)                                 |  | 2006            |         | 2005 |  
|                                                       |  |                 |         |      |  
|Land                                                   |  | $               | 21      |      | $ | 1,192   |  
|Building and
  building improvements                   |  |                 |        |      |   | 49,428  |  
|Leasehold
  improvements                               |  |                 | 2,153   |      |   | 46,246  |  
|Computer
  hardware and software and network equipment |  |                 | 21,963  |      |   | 43,761  |  
|Fiber
  infrastructure                                 |  |                 | 114,660 |      |   | 98,276  |  
|Furniture
  and equipment                              |  |                 | 197     |      |   | 5,503   |  
|                                                       |  |                 |         |      |   |         |  
|                                                       |  |                 | 138,994 |      |   | 244,406 |  
|Less: Accumulated
  depreciation and amortization      |  |                 | (18,521 | )    |   | (44,960 | )
|Add:
  Construction in progress                        |  |                 | 4,982   |      |   | 6,784   |  
|                                                       |  |                 |         |      |   |         |  
|Property,
  plant and equipment, net                   |  | $               | 125,455 |      | $ | 206,230 |  
|                                                       |  |                 |         |      |   |         |  

In September
2006, the Company completed the sale of its building located at 139 Centre
Street, New York, New York which resulted in the reduction of the value of the
land, building and building improvements, and leasehold improvements, net of
accumulated depreciation of $45,306,000. The Company received approximately
$51.8 million in cash, after reducing the agreed $55 million fair market value
of the property by $3.2 million in partial satisfaction of amounts owed to the
former owner of the property on account of the sale. From this cash amount, the
Company paid in full an existing mortgage, a remaining payment owed to the
former owner of the property and other fees and expenses. The Company realized
a loss on this transaction of $3,803,000.

As a result of
the sale of the Companys UK hosting business in September 2006, property,
plant and equipment, net of accumulated depreciation decreased by $24,580,000.

During October
2003 the Company reached an agreement, which was subject to various closing
conditions, to sell the property located at 415 Greenwich Street, New York, NY
(the Property) for total cash consideration of approximately $60,000,000.
The sale of the Property was completed on January 22, 2004. In connection with
the sale the Company recorded during the year ended September 30, 2004, an
impairment charge of $17,972,000 to write-down the Property to its market value.

Depreciation
and amortization expense from continuing operations was $14,822,000,
$8,471,000, and $2,786,000 for the years ended September 30, 2006, 2005, and
2004, respectively.

7. INTANGIBLE ASSETS

|                                       |  |                         |       |                            |   |                         |  |                            |        |  |   |       | 
|-------------------------------------- |  | ----------------------- | ----- | -------------------------- | - | ----------------------- |  | -------------------------- | ------ |  | - | ----- | 
|                                       |  | SEPTEMBER 30, 2006      |       | SEPTEMBER 30, 2005         |  
|                                       |  |                         |      
|(amounts
  in thousands)               |  | GROSS CARRYING
  AMOUNT |       | ACCUMULATED
  AMORTIZATION |   | GROSS CARRYING
  AMOUNT |  | ACCUMULATED
  AMORTIZATION |       
|                                       |  |                         |       |                            |   |                         |  |                            |       
|Trademarks
  and trade names           |  | $                       | 1,076 |                            | $ | 342                     |  | $                          | 3,448  |  | $ | 702   | 
|Network
  build-out know-how           |  |                         |      |                            |   |                        |  |                            | 7,453  |  |   | 3,183 | 
|Customer
  contracts and relationships |  |                         | 2,250 |                            |   | 356                     |  |                            | 3,780  |  |   | 1,644 | 
|Backlog                                |  |                         | 1,174 |                            |   | 186                     |  |                            | 1,174  |  |   | 69    | 
|                                       |  |                         |       |                            |   |                         |  |                            |        |  |   |       | 
|                                       |  | $                       | 4,500 |                            | $ | 884                     |  | $                          | 15,855 |  | $ | 5,598 | 
|                                       |  |                         |       |                            |   |                         |  |                            |        |  |   |       | 

F-16

---



GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Identifiable
intangible assets amortization expense from continuing operations was $558,000
and $325,000 for the years ended September 30, 2006 and September 30, 2005, respectively.
There was no amortization expense from continuing operations for the year ended
September 30, 2004.

Estimated
future annual amortization expense as of September 30, 2006 is as follows:

|                          |  |   |       | 
|------------------------- |  | - | ----- | 
|YEAR ENDING SEPTEMBER 30, | 
|(amounts in thousands)    | 
|                         
|2007                      |  | $ | 558   | 
|2008                      |  |   | 558   | 
|2009                      |  |   | 558   | 
|2010                      |  |   | 432   | 
|2011                      |  |   | 343   | 
|Thereafter                |  |   | 1,167 | 
|                          |  |   |       | 
|Total                     |  | $ | 3,616 | 
|                          |  |   |       | 

8. ACCRUED LIABILITIES

Accrued
liabilities consist of the following:

|                                     |  |                 |        |      |   |        | 
|------------------------------------ |  | --------------- | ------ | ---- | - | ------ | 
|                                     |  | SEPTEMBER
  30, |       
|                                     |  |                 |       
|(amounts in thousands)               |  | 2006            |        | 2005 |  
|                                     |  |                 |        |      |  
|Franchise
  tax and sales tax        |  | $               | 1,338  |      | $ | 2,152  | 
|Property
  taxes                     |  |                 | 3,236  |      |   | 3,030  | 
|Salaries,
  benefits and commissions |  |                 | 1,545  |      |   | 2,430  | 
|Telecommunications                   |  |                 | 4,050  |      |   | 5,530  | 
|Negative
  leasehold obligation      |  |                 |       |      |   | 701    | 
|Accrued
  merger expenses            |  |                 |       |      |   | 774    | 
|Professional
  fees                  |  |                 | 1,064  |      |   | 667    | 
|Accrued
  utilities                  |  |                 |       |      |   | 507    | 
|Other                                |  |                 | 1,292  |      |   | 1,627  | 
|                                     |  |                 |        |      |   |        | 
|                                     |  | $               | 12,525 |      | $ | 17,418 | 
|                                     |  |                 |        |      |   |        | 

9. OTHER LONG TERM LIABILITIES

Other
long-term liabilities consist of the following:

|                                |  |                |       |      |   |       | 
|------------------------------- |  | -------------- | ----- | ---- | - | ----- | 
|                                |  | SEPTEMBER
  30 |      
|                                |  |                |      
|(amounts in thousands)          |  | 2006           |       | 2005 |  
|                                |  |                |       |      |  
|Negative
  leasehold obligation |  | $              |      |      | $ | 6,111 | 
|Asset
  retirement obligation   |  |                | 2,159 |      |   | 2,043 | 
|Deferred
  rent                 |  |                |      |      |   | 980   | 
|Other                           |  |                | 32    |      |   | 74    | 
|                                |  |                |       |      |   |       | 
|                                |  | $              | 2,191 |      | $ | 9,208 | 
|                                |  |                |       |      |   |       | 

F-17

---



GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In connection
with fresh start accounting at the April 2002 effective date, the Company
recorded a Negative Leasehold Liability associated with three of its Internet
data centers. The Negative Leasehold Liability amount was determined by
independent appraisal and based upon research of the local market condition in
each market and estimation of the net effective market rental rates in
comparison to the Companys contractual lease rates through expiration of
the lease. Such liability was to be amortized to reduce lease expense through
2013. At September 30, 2006 the remaining obligation has been reclassified to
liabilities held for sale.

Upon acquiring
NEON, the Company assumed an asset retirement obligation (ARO). This ARO
relates to underground fiber network assets and the associated obligation to
return the areas where the fiber lays to its natural state upon retiring the
assets. In accordance with FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations, the Company will accrete the asset retirement
obligation over the useful life of the related asset.

10. 11% SENIOR NOTES

The Company is
deemed to have issued the 11% Senior Notes on April 25, 2002, the date the
Companys plan of reorganization became effective (Effective Date), in one
series that is initially limited to $120,000,000 aggregate principal amount of
11% Senior Notes. However, none of the 11% Senior Notes had been distributed as
of September 30, 2002. In October 2002, the Company distributed $120,000,000 in
aggregate principal amount of the 11% Senior Notes, which included $1,968,000
in aggregate principal amount of Senior Notes placed in reserve in escrow
pursuant to a Stipulation and Order entered into with the lead plaintiffs in
the class action lawsuit.

The 11% Senior
Notes were expected to mature on May 1, 2008. The 11% Senior Notes bear
interest at 11% per annum, payable annually in May of each year, commencing on
May 1, 2003. Interest on the 11% Senior Notes for the first two year period
following the initial date of issuance is payable in kind by the issuance of
additional notes with terms identical to the 11% Senior Notes (other than the
date of issuance) in a principal amount equal to the interest payment then due.
For the two year period thereafter, interest is payable in cash or, at the
Companys option when authorized by its board of directors, in additional notes
with terms identical to the 11% Senior Notes (other than the date of issuance),
or in any combination of cash and additional notes. For the remaining two years
until maturity, interest is payable in cash.

During the
year ended September 30, 2006, the Company issued approximately an additional
$7,420,000 in 11% senior notes in payment of accrued interest on the 11% senior
notes. During the year ended September 30, 2005, the Company had issued
approximately an additional $6,685,000 in 11% senior notes in payment of
accrued interest on the 11% senior notes. Also, in connection with the NEON
merger, the Company exchanged 4,545,455 shares of its common stock for
$11,432,000 in principal and $1,068,000 in accrued interest on the 11% senior
notes.

On October 3,
2003, the Company repurchased in the open market for $5,583,000 a portion of
its outstanding 11% Senior Notes, which had a principal value of $7,000,000 and
associated accrued interest of $330,000. As a result of the repurchase, the
Company recorded a gain on discharge of debt in the amount of $1,747,000.

See Note 24.
SUBSEQUENT EVENTS for information pertaining to the Companys settlement of
its 11% senior notes.

11. 9% SENIOR NOTES

In order to
obtain additional financing to meet the Companys needs for working capital, on
December 13, 2005, the Company issued and sold $5 million in principal amount
of its 9% senior notes to a group of investors. The notes were expected to
mature on May 1, 2008. Interest on the notes is payable quarterly in arrears,
beginning January 1, 2006. One percent of the proceeds of the notes was used to
pay a one time origination fee to the note purchasers at closing. The notes are
secured by a first priority security interest in domestic accounts receivable
in the amount of 150% of the principal amount of the notes. Covenants and
events of default under the notes are generally no more onerous than those
contained in the indenture relating to the Companys outstanding

F-18

---



GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11% senior
notes, except that the new notes limit the incurrence of additional senior debt
that otherwise might be permitted under the 11% senior notes. The new notes can
be prepaid without penalty or premium at any time following 30 days notice.

Purchasers of
the notes include: LC Capital Master Fund Ltd., an investment fund managed by
an investment advisor with which one member of the Companys Board of
Directors, Steven Lampe, is affiliated; Karen Singer, the sister-in-law of
another Board member, Steven Singer; and Metronome LPC 1, Inc., an affiliate
of Loeb Partners Corp., which (together with its affiliates) was then the beneficial
owner of approximately 7.9% of our common stock. LC Capital Corp. Ltd. was then
the beneficial owner of approximately 10.9% of the Companys common stock
(including 462,462 shares that may be acquired upon conversion of our
convertible preferred stock). Karen Singer is the sole trustee of the Singer
Childrens Management Trust, which was then the beneficial owner of approximately
8.8% of the Companys common stock (including 699,099 shares that may be
acquired on conversion of the preferred stock). The principal amounts purchased
by these holders are $1 million for LC Capital Master Fund Ltd., $1 million for
Karen Singer and $1 million for Metronome. Steven Singer disclaims any beneficial
ownership interest in the 9% notes. The transaction was approved by all of the
disinterested members of the board of directors.

Prior to
commencing discussions with the purchasers of the notes, the Company approached
and made presentations to a number of unaffiliated financial institutions in
its efforts to locate working capital financing. The Company believes that the
terms of the 9% notes are significantly better than the terms of any written
proposal received by it, based on the financial terms of the loan and associated
transactional costs, as well as better prepayment and other operational terms.

See Note 24.
SUBSEQUENT EVENTS for information pertaining to the Companys settlement of
its 9% senior notes.

12. MORTGAGE PAYABLE

On January 25,
2000, the Company borrowed $21,000,000 from a financial institution pursuant to
a mortgage note secured by the Companys property at 139 Centre Street, New
York. Interest was payable at 9.16% (subject to adjustment on February 11,
2010) based on a 25 year amortization schedule. Principal and interest payments
of $178,500 were payable monthly and any balance of the principal and all
accrued and unpaid interest was due and payable in February 2025.

On September
29, 2006, the Company completed the sale of its 139 Centre Street, New York,
New York headquarters building. As part of this transaction, the Company
defeased its mortgage for a payment of approximately $22,278,000.

13. CUMULATIVE CONVERTIBLE PREFERRED STOCK

Globix has
designated 4,500,000 shares of 6% Series A Cumulative Convertible Preferred
Stock (preferred stock), of which 2,971,753 shares were issued in the
acquisition of NEON. Each share of preferred stock is convertible into one
share of common stock at the option of the holder, is entitled to one vote, has
a liquidation preference of $3.60 per share plus accrued dividends, and is
senior to the common stock of Globix. Dividends are payable semi-annually at a
rate of $0.11 per share when and if declared by the Board of Directors. At the
option of Globix, dividends are payable in cash or additional shares of
preferred stock. At the option of Globix, shares of preferred stock can be
redeemed in whole or in part at $3.82 per share, plus accrued dividends, in
2006, $3.71 per share, plus accrued dividends, in 2007 and $3.60 per share,
plus accrued dividends, thereafter. In the event of a change of control, as
defined, each holder of preferred stock can require Globix to purchase such
holders shares of preferred stock for a price equal to $3.64 plus accrued and
unpaid dividends to the purchase date. As of September 30, 2006, a dividend of
$1,036,000 in the aggregate, payable in either cash or additional shares of
preferred stock at $3.60 per share, had accrued on the outstanding shares of
preferred stock.

14. STOCKHOLDERS EQUITY

Stock Options

Globix
maintains multiple share-based payment arrangements under which employees and
Directors are awarded grants of stock options. Prior to October 1, 2005, Globix
accounted for these awards under the recognition and measurement provisions of
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25) as permitted under SFAS No. 123, Accounting for
Stock-Based Compensation (SFAS 123), and in accordance with FIN 28,
Accounting for Stock Appreciation Rights and Other Variable Stock Option or
Award Plans an interpretation of APB Opinions No. 15 and 25 for options which
are subject to meeting certain financial conditions. Compensation cost for
stock options was generally not recognized as long as the stock options granted
had an exercise price equal to or greater than the market price of Globixs
common stock on the date of grant. Effective October 1, 2005, Globix adopted
the fair value recognition provisions of SFAS No. 123 (revised 2004), Share-

F-19

---



GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Based
Payment, (SFAS 123 (R)) using the modified-prospective transition method.
Under this transition method, compensation cost recognized beginning October 1,
2005 includes compensation cost for all share-based payment arrangements
granted prior to, but not yet vested as of October 1, 2005, based on the grant
date fair value and expense attribution methodology determined in accordance
with the original provisions of SFAS 123, and compensation cost for all
share-based payment arrangements granted subsequent to September 30, 2005,
based on the grant-date fair value and expense attribution methodology
determined in accordance with the provisions of SFAS 123 (R).

As a result of
adopting SFAS 123 (R) on October 1, 2005, income before income taxes is $2.6
million lower than if it had continued to account for share-based payment
arrangements under APB 25. Basic and diluted earnings per share in 2006 would
have been $0.54 if Globix had not adopted SFAS 123 (R), compared to reported
basic and diluted earnings per share of $0.49.

If
compensation cost for all share-based payment arrangements had been recognized
based on the fair value method prescribed by SFAS 123 for the periods prior to
the adoption of SFAS 123 (R), Globixs net loss and net loss
per share in 2005 and 2004 would have been reduced to the pro forma
amounts indicated in the table below.

|                                                                                                                       |  |                      |         |                      |   |         |  
|---------------------------------------------------------------------------------------------------------------------- |  | -------------------- | ------- | -------------------- | - | ------- | -
|                                                                                                                       |  | YEAR ENDED           |         | YEAR ENDED           |  
|(amounts
  in thousands, except per share results)                                                                     |  | SEPTEMBER
  30, 2005 |         | SEPTEMBER
  30, 2004 |  
|Net loss attributable to Common
  stockholders, as reported                                                            |  | $                    | (30,903 | )                    | $ | (41,386 | )
|Deduct:                                                                                                                |  |                      |         |                      |   |         |  
|Stock-based employee compensation expense
  determined under fair value based method for all awards, net of tax effect |  |                      | 521     |                      |   | 515     |  
|                                                                                                                       |  |                      |         |                      |   |         |  
|Pro-forma net loss attributable to common
  stockholders                                                               |  | $                    | (31,424 | )                    | $ | (41,901 | )
|                                                                                                                       |  |                      |         |                      |   |         |  
|                                                                                                                      
|Loss per share attributable to common
  stockholders                                                                   |  |                      |         |                      |   |         |  
|Basic - as reported                                                                                                    |  | $                    | (0.89   | )                    | $ | (2.51   | )
|                                                                                                                       |  |                      |         |                      |   |         |  
|Basic - Pro-forma                                                                                                      |  | $                    | (0.90   | )                    | $ | (2.55   | )
|                                                                                                                       |  |                      |         |                      |   |         |  
|Diluted - as reported                                                                                                  |  | $                    | (0.89   | )                    | $ | (2.51   | )
|                                                                                                                       |  |                      |         |                      |   |         |  
|Diluted - Pro-forma                                                                                                    |  | $                    | (0.90   | )                    | $ | (2.55   | )
|                                                                                                                       |  |                      |         |                      |   |         |  

Stock Option
Plans

On March 14, 2003, the
Companys board of directors approved the 2003 Stock Option Plan (the 2003
Plan). The 2003 Plan provides for the grant of stock options to purchase
up to 1,828,889 shares of the Companys common stock to any employee, officer,
director, or consultant of the Company at an exercise price equal to at least
the fair market value at the date of grant. All options granted under the 2003
Plan will terminate no later than ten years from the date of grant. Generally
50% of options granted under the 2003 Plan vest ratably over a period of up to
3 years with certain acceleration clauses while the remainder of the 50% vest
upon meeting certain financial conditions. The 2003 Stock Incentive Plan was
amended at the annual meeting of the Companys shareholders on February
28, 2006 to increase the total number of options available for issuance to 3,500,000
and to allow for up to 1,000,000 options to be granted to a single individual
per year effective for grants made in September 2005 and thereafter.

F-20

---



GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In 2003 and 2004, NEON
granted options to purchase an aggregate of 43,658 shares of NEON common
stock at exercise prices of $0.27 and $0.30 per share to members of its board
of directors, pursuant to a Directors Stock Option Plan, and options to
purchase an aggregate of 2,193,000 shares of NEON common stock at exercise
prices between $5.30 and $6.06 per share to certain of its employees, pursuant
to a 2003 Stock Incentive Plan. Immediately prior to the merger with a
subsidiary of Globix, in March 2005, NEON amended the Directors Stock Option
Plan and the 2003 Stock Incentive Plan to modify the options to provide for the
issuance of shares of Globix common stock in lieu of NEON common stock in
accordance with the merger agreement, and to eliminate the ability to grant
further options under these plans. In the merger, the options were converted
into options to purchase an aggregate of 50,578 shares of Globix common stock
at $0.21 and $0.24 per share under the Directors Stock Option Plan and
2,552,319 shares of Globix common stock at prices ranging from $4.16 to $4.75
per share under the 2003 Stock Incentive Plan. All of the options under the
Directors Stock Option Plan were vested prior to or upon occurrence of the
merger. Options to purchase an aggregate of 2,374,337 shares of common stock
under the 2003 Stock Incentive Plan were vested prior to or upon occurrence of
the merger, and the remainder vest over a remaining period of 2 years. The 2003
Stock Option Plan is now the exclusive plan used to grant stock options.

Options granted under the
2003 Plans may be designated as either incentive stock options or non-qualified
stock options. The Compensation Committee determines the terms and conditions
of the option, including the time or times at which an option may be exercised,
the methods by which such exercise price may be paid, and the form of such
payment. Options are generally granted with an exercise price equal to or greater
than the market value of Globixs stock at the date of grant. On September 13,
2005, Globix began granting stock option awards that provide for
performance-based triggering events before a vested option can be exercised.
For awards with performance triggering events each vesting tranche is accounted
for as a separate award with its own grant date fair value and requisite
service period.

The estimated fair value of
options granted was calculated using the Black-Scholes option pricing valuation
model. This model takes into account several factors and assumptions. The
risk-free interest rate is based on the yield on U.S. Treasury zero-coupon
issues with a remaining term equal to the expected life assumption at the time
of grant. The expected life (estimated period of time outstanding) is estimated
using the contractual term of the option and the effects of employees expected
exercise and post-vesting employment termination behavior. Expected volatility
was calculated based on the historical daily market price of the Companys
stock since emerging from bankruptcy to the date of grant. The expected
dividend yield is based on expected dividends for the expected term of the
stock options.

The assumptions used in the
Black-Scholes option pricing valuation model for options granted in 2006, 2005
and 2004 are as follows:

|                        |  |      |     |      |  |      |   |  |     |  
|----------------------- |  | ---- | --- | ---- |  | ---- | - |  | --- | -
|                        |  | 2006 |     | 2005 |  | 2004 |  
|                        |  |      |     |      |  |      |  
|                       
|Expected life in years  |  |      | 3.0 |      |  | 3.0  |   |  | 5.0 |  
|Risk-free interest rate |  |      | 4.5 | %    |  | 2.8  | % |  | 3.2 | %
|Expected volatility     |  |      | 163 | %    |  | 162  | % |  | 120 | %
|Expected dividend yield |  |      | 0.0 | %    |  | 0.0  | % |  | 0.0 | %

F-21

---



GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of the status of
stock option awards as of September 30, 2006 and changes during the year then
ended is presented below:

|                                                         |  |        |           |                                       |  |                                                       |  |                                        |          |  |  |           | 
|-------------------------------------------------------- |  | ------ | --------- | ------------------------------------- |  | ----------------------------------------------------- |  | -------------------------------------- | -------- |  |  | --------- | 
|Options                                                  |  | Shares |           | Weighted
  Average
  Exercise
  Price |  | Weighted
  Average
  Remaining 
  Contractual 
  Term |  | Aggregate
  Intrinsic
  Value
  ($000) |         
|                                                         |  |        |           |                                       |  |                                                       |  |                                        |         
|                                                        
|Outstanding at September 30, 2005                        |  |        | 4,123,618 |                                       |  | 3.63                                                  |  |                                        |          |  |  |           | 
|Granted                                                  |  |        | 1,040,000 |                                       |  | 2.75                                                  |  |                                        |          |  |  |           | 
|Exercised                                                |  |        | (27,781   | )                                     |  | 2.86                                                  |  |                                        |          |  |  |           | 
|Canceled                                                 |  |        | (301,040  | )                                     |  | 2.75                                                  |  |                                        |          |  |  |           | 
|Forfeited or expired                                     |  |        | (419,448  | )                                     |  | 2.97                                                  |  |                                        |          |  |  |           | 
|                                                         |  |        |           |                                       |  |                                                       |  |                                        |          |  |  |           | 
|Outstanding at September 30, 2006                        |  |        | 4,415,349 |                                       |  | 3.55                                                  |  |                                        | 8.3years |  |  | 4,907,583 | 
|                                                         |  |        |           |                                       |  |                                                       |  |                                        |          |  |  |           | 
|Options vested or expected to vest at September 30, 2006 |  |        | 4,415,349 |                                       |  | 3.55                                                  |  |                                        | 8.3years |  |  | 4,907,583 | 
|                                                         |  |        |           |                                       |  |                                                       |  |                                        |          |  |  |           | 
|Options exercisable at September 30, 2006                |  |        | 3,988,304 |                                       |  | 3.63                                                  |  |                                        | 7.4years |  |  | 4,096,197 | 
|                                                         |  |        |           |                                       |  |                                                       |  |                                        |          |  |  |           | 

The weighted-average
grant-date fair value of option awards granted during the years ended September
30, 2006, 2005 and 2004 was $1.59, $2.71 and $3.41, respectively. The total
intrinsic value of options exercised during the same periods was $36,000 and
$43,000 for 2006 and 2005. There were no options exercised in 2004.

As of September 30, 2006,
there was $ 132,000 of unrecognized compensation cost related to Globixs
option awards. The weighted-average period over which that cost is expected to
be recognized is .27 years. Cash received from the exercise of stock options
for the years ended September 30, 2006 and 2005 was $72,039 and $4,256,
respectively. Globixs policy is to issue new shares upon the exercise of
options.

On March 14, 2003, the
Companys board of directors approved the sale to Communication Technology
Advisors, LLC (CTA) of a fully vested warrant exercisable for 500,000
shares of the Companys common stock at an exercise price of $3.00 per share.
CTA provided consulting services to the Company and was a related party until
June 24, 2003. During January 2004, CTA purchased the warrants for $25,000. The
warrant is immediately exercisable for a period of 10 years from the date of
issuance. Since CTA is a provider of services to the Company the value of the
warrant is expensed as determined by using the Black-Scholes valuation model.
The assumptions used in the Black-Scholes model include the risk free rate of
2.92%, volatility of 133%, no dividend yield, a contractual life of 10 years
and an expected life of five years with a fair market value of $2.50. The fair
value of the warrant of $ 1,050,000 was expensed as part of SG&A during the
year ended September 30, 2003. The CTA warrant is not included in the
aforementioned table.

During 2003, NEON issued two
warrants to CTA in exchange for services to purchase a total of 650,000 shares
of the Companys common stock at exercise prices ranging from $5.30 to
$6.06. The fair value of these warrants was approximately $712,000. Approximately
$360,000 of this value related to amounts owed at December 31, 2002, that were
included in reorganization items in the 2002 consolidated statement of
operations. The remaining $352,000 was included as a direct acquisition cost
in the purchase price for Transcom. Upon acquisition of NEON, the warrants granted
to CTA were exchanged for warrants to purchase 828,620 shares of Globix common
stock at exercise prices ranging from $4.16 to $4.75.

In May 2005, the Company
issued a warrant to Further Lane Asset Management, LLC to purchase 250,000
shares at a purchase price of $4.00 per share in a private transaction exempt
from registration under Section 4(2) of the Securities Act of 1933, in exchange
for financial advisory services to be provided to Globix by Further Lane. One
twelfth of the warrants become exercisable in each month so that all warrants
were  vested on May 1, 2006. The warrants expire on May 1, 2008. The Further
Lane warrant is not included in the preceding table.

15. 401(K) PLAN

The Company offers its
eligible U.S. employees the opportunity to participate in a defined
contribution retirement plan qualifying under the provisions of Section 401(k)
of the Internal Revenue Code (the 401(k) Plan). Each employee is eligible to
contribute, on a tax-deferred basis, a portion of annual earnings not to exceed
certain federal income tax limitations. The Company did not make any
discretionary matching contributions to the 401(k) Plan in the years ended
September 30, 2006, 2005, and 2004.

16. INCOME TAXES

The provision for income
taxes for the periods below differs from the amount computed by applying the federal
statutory rate due to the following:

F-22

---



GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                       |  |                                    |    |                                    |       |                                    |  |       |    | 
|------------------------------------------------------ |  | ---------------------------------- | -- | ---------------------------------- | ----- | ---------------------------------- |  | ----- | -- | 
|                                                       |  | YEAR ENDED 
  SEPTEMBER 30,
  2006 |    | YEAR ENDED 
  SEPTEMBER 30,
  2005 |       | YEAR ENDED 
  SEPTEMBER 30,
  2004 | 
|                                                       |  |                                    |    |                                    |       |                                    | 
|Statutory Federal income
  tax rate - US (UK rate 30%) |  | 35.0                               | %  |                                    | (35.0 | )%                                 |  | (35.0 | )% | 
|State and local taxes, net
  of Federal benefit        |  | 7.3                                | %  |                                    | (7.0  | )%                                 |  | (10.0 | )% | 
|Valuation Allowance
  Adjustment                       |  | (42.3                              | )% |                                    | 42.0  | %                                  |  | 45.0  | %  | 
|Effective income tax rate                              |  |                                   | %  |                                    |      | %                                  |  |      | %  | 

Significant components of
the deferred tax assets and liabilities are as follows:

|                                  |  |               |          |      |   |          |  
|--------------------------------- |  | ------------- | -------- | ---- | - | -------- | -
|                                  |  | SEPTEMBER 30, |         
|                                  |  |               |         
|(amounts
  in thousands)          |  | 2006          |          | 2005 |  
|                                  |  |               |          |      |  
|Deferred tax assets:              |  |               |          |      |   |          |  
|Net operating loss carryforwards: |  |               |          |      |   |          |  
|Globix                            |  | $             | 88,248   |      | $ | 99,255   |  
|NEON                              |  |               | 51,898   |      |   | 40,015   |  
|Allowance for doubtful accounts   |  |               | 823      |      |   | 1,286    |  
|Depreciation and amortization     |  |               |         |      |   | 57,939   |  
|Stock-based compensation          |  |               | 1,052    |      |   |         |  
|Deferred rent                     |  |               | 769      |      |   | 273      |  
|Capital loss carryover            |  |               | 15,886   |      |   |         |  
|Deferred revenue                  |  |               | 7,069    |      |   | 7,555    |  
|Asset retirement obligation       |  |               | 886      |      |   |         |  
|Other                             |  |               | 129      |      |   | 2,743    |  
|                                  |  |               |          |      |   |          |  
|Total deferred tax assets         |  |               | 166,760  |      |   | 209,066  |  
|Deferred tax liabilities:         |  |               |          |      |   |          |  
|Depreciation and amortization     |  |               | (7,587   | )    |   |         |  
|                                  |  |               |          |      |   |          |  
|Less: valuation allowance         |  |               | (159,173 | )    |   | (209,066 | )
|                                  |  |               |          |      |   |          |  
|Total net deferred tax assets     |  | $             |         |      | $ |         |  
|                                  |  |               |          |      |   |          |  

The Company is in an
accumulated loss position for both financial and income tax reporting purposes.
Globix has U.S. Federal income tax loss carryforwards of approximately
$192,615,000 and state income tax loss carryforwards of approximately
$244,054,000 at September 30, 2006. NEON has U.S. Federal income tax loss
carryforwards of approximately $136,713,000 and state income tax loss
carryforwards of approximately $82,238,000 at September 30, 2006. These Federal
net operating loss (NOL) carryforwards expire beginning in 2020 and will be
fully expired after 2025. The U.S. Federal income tax loss carryforwards were
reduced upon emergence from bankruptcy due to the Internal Revenue Codes rules
and regulations related to the cancellation of indebtedness income that is
excluded from taxable income. Changes in the ownership of NEON securities as a
result of NEONs plan of reorganization have caused there to be an annual
limitation on the use of net operating loss carryforwards that arose prior to
the effective date of NEONs plan of reorganization. Changes in the ownership
of the Companys securities as a result of its plan of reorganization have
caused there to be an annual limitation on the use of NOL carryforwards that
arose prior to the effective date of its plan of reorganization. As a result of
the merger with NEON and the open market divestiture of significant amounts of
shares of Globix stock by former NEON shareholders, both Globix and NEON
experienced ownership changes in March 2005 and April 2006, respectively. The
availability of NOL carryforwards to reduce the Companys future Federal income
tax liability is subject to

F-23

---



GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

limitations under Section
382 of the Internal Revenue Code. Due to these limitations, $139.2 million of
the $329.3 million in Federal NOL carryforwards will be available for possible
utilization for Federal income tax purposes. This amount is computed based upon
the estimated NOL generated after the April 2006 ownership change of NEON plus
the $6.5 million annual limitation resulting from that change of ownership.
Subsequent ownership changes, if any, could impose additional limitations on
the Companys NOL carryforwards. The application of the Code in this area is
subject to interpretation by the Internal Revenue Service (IRS). The NOL
carryforwards are subject to examination by the IRS and are thus subject to
adjustment of disallowance resulting from any such IRS examination Additional
limitations would be imposed as a result of any such ownership change which may
increase the Companys U.S. federal income tax liability.

For financial reporting
purposes, deferred tax assets at September 30, 2006 and 2005 are fully offset
by a valuation allowance due to the uncertainty of the Companys ability to
realize income tax benefits by generating taxable income in the future.
Management also estimates that the no taxes will be due related to the gains
recorded on the sale of the UK hosting business and the sale of the building at
139 Centre Street New York, New York. As such no tax expense has been recorded
on these transactions.

The Companys emergence from
bankruptcy in fiscal 2002 did not create a new tax reporting entity.
Accordingly, the adjustments required to adopt fresh start accounting are not
applicable for the Companys tax reporting and therefore, deferred tax items
were recognized concurrently with the recognition of the respective fresh start
accounting adjustments. In addition pursuant to SOP No. 90-7, reversals of the
valuation allowance recorded against deferred tax assets that existed as of the
emergence date will first reduce intangibles until exhausted and thereafter are
reported as additional paid in capital as opposed to income tax expense. The
balance of the valuation allowance for which this treatment is required was
approximately $80,400,000 at September 30, 2006 and 2005, respectively.

17. DEFERRED REVENUES

Deferred revenue represents
leases of lit fiber (fixed amounts of capacity on fiber optic transmission
lines that use optronics equipment installed by NEON) and longer term leases of
dark fiber (fiber optic transmission lines leased without optronics equipment
installed by NEON) at fixed cost pricing over multi year terms. Revenues from
fiber optic network services are recognized ratably over the term of the
applicable lease agreements with customers, which range from one to 20 years.
Amounts billed in advance of the service provided are recorded as deferred
revenue and recognized over the life of the contract. The Company also leases
space to customers at its co-location facilities. Revenues from nonrecurring
installation charges and design, engineering and construction services are
recognized ratably over the multi-year network services terms to which the
nonrecurring charges relate. As part of the purchase price allocation
associated with the NEON acquisition, the Company assessed the fair market
value of NEONs deferred revenue and determined that historical costs were the
best estimate for the fair value based on current prices for services and the
risk profile of the associated customers.

The components of deferred revenue
are as follows:

|                                                       |  |               |        |      |   |        | 
|------------------------------------------------------ |  | ------------- | ------ | ---- | - | ------ | 
|                                                       |  | SEPTEMBER 30, |       
|                                                       |  |               |       
|(amounts
  in thousands)                               |  | 2006          |        | 2005 |  
|                                                       |  |               |        |      |  
|Current portion of Globix
  segment deferred revenue   |  | $             |       |      | $ | 2,858  | 
|Current portion of NEON
  segment deferred revenue     |  |               | 2,544  |      |   | 2,585  | 
|                                                       |  |               |        |      |   |        | 
|Total current portion of
  deferred revenues           |  | $             | 2,544  |      | $ | 5,443  | 
|                                                       |  |               |        |      |   |        | 
|Long-term portion of
  Globix segment deferred revenue |  | $             |       |      | $ | 343    | 
|Long-term portion of NEON
  segment deferred revenue   |  |               | 13,791 |      |   | 15,560 | 
|                                                       |  |               |        |      |   |        | 
|Total long-term portion of
  deferred revenues         |  | $             | 13,791 |      | $ | 15,903 | 
|                                                       |  |               |        |      |   |        | 

F-24

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GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18. COMMITMENTS AND CONTINGENCIES

Leases

The Company has minimum
monthly usage/maintenance levels with certain of its telecommunications
carriers expiring in various years through 2009. The Company also leases
certain of its facilities and various equipment under non-cancelable operating
leases expiring in various years through 2017. Total lease expense under
operating leases for continuing operations for the year ended September 30,
2006 and the year ended September 30, 2005 was $7,733,000 and $4,538,000,
respectively. There was no lease expense for continuing operations for the year
ended September 30, 2004.

Future minimum payments due
under these operating leases and telecommunications carrier usage commitments
as of September 30, 2006 are as follows:

|                                                 |  |         |        |        |   |        |  |   |        | 
|------------------------------------------------ |  | ------- | ------ | ------ | - | ------ |  | - | ------ | 
|(amounts in thousands)
YEAR ENDING SEPTEMBER 30, |  | TELECOM |        | LEASES |   | TOTAL  | 
|                                                 |  |         |        |        |   |        | 
|2007                                             |  |         | 2,380  |        |   | 3,639  |  |   | 6,019  | 
|2008                                             |  |         | 2,446  |        |   | 3,205  |  |   | 5,651  | 
|2009                                             |  |         | 2,515  |        |   | 2,261  |  |   | 4,776  | 
|2010                                             |  |         | 2,585  |        |   | 1,464  |  |   | 4,049  | 
|2011                                             |  |         | 2,658  |        |   | 1,433  |  |   | 4,091  | 
|Thereafter                                       |  |         | 21,328 |        |   | 12,862 |  |   | 34,190 | 
|                                                 |  |         |        |        |   |        |  |   |        | 
|                                                
|Total                                            |  | $       | 33,912 |        | $ | 24,864 |  | $ | 58,776 | 
|                                                 |  |         |        |        |   |        |  |   |        | 

The Company leases fibers
for various segments of its network under operating leases that expire at
various dates through December 2034. Future minimum lease payments required
under these fiber optic leases at September 30, 2006 were approximately as
follows:

|                                                   |  |   |         | 
|-------------------------------------------------- |  | - | ------- | 
|(amounts in thousands)
  YEAR ENDING SEPTEMBER 30, |  |   |         | 
|                                                   |  |   |         | 
|2007                                               |  | $ | 9,897   | 
|2008                                               |  |   | 9,806   | 
|2009                                               |  |   | 9,920   | 
|2010                                               |  |   | 10,070  | 
|2011                                               |  |   | 9,942   | 
|Thereafter                                         |  |   | 108,485 | 
|                                                   |  |   |         | 
|Total                                              |  | $ | 158,120 | 
|                                                   |  |   |         | 

Fiber lease expense charged
to operations under the above agreements was approximately $9,322,000 and
$4,625,000 in the years ended September 30, 2006 and 2005, respectively.

Rentals Due From Third Parties

As of September 30, 2006, we
subleased to third parties office space in our New York building for periods of
less than one year. Lease income for the year ended September 30, 2006, 2005,
and 2004 was approximately $2,047,000, $2,010,000, and $1,640,000,
respectively.

As of September 30, 2006,
future minimum sublease income is $402,000.

F-25

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GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Letters of Credit

In addition, the Company has
commitments under standby letters of credit, issued primarily to secure certain
leases, which totaled approximately $7,090,000 at September 30, 2006.

Contingencies Related to Strategic Transactions

The Company has contractual contingencies in connection with
    the strategic transactions that resulted in the sale of its US and UK hosting
    businesses and New York City headquarters building. The contracts for the
    sale of the US and UK hosting businesses provided for escrows of $2.0 million and
  $3.1 million, respectively, which may be used to offset certain claims by the
  purchasers; although the contracts for the sales of these businesses provide
  that the escrows are the sole source of funds for these claims, there is no
  assurance that the purchasers might not seek additional compensation.  In
  addition, in connection with the sales of these businesses, the Company agreed
  to provide transition services and could face liability if these transition
  services are not properly provided.  The contract for the sale of the
  Companys headquarters building requires the Company to deliver a vacated building
  on May 31, 2007 and if the Company fails to do so, the sales contract provides
penalties that can be assessed against the Company.

Employment and Other Contractual
  Agreements

Peter K. Stevenson

Effective April 15, 2002,
the Company entered into an employment agreement with Peter K. Stevenson for
his services as the Companys President and Chief Executive Officer.
Mr. Stevensons employment agreement expired in July 2003, and was
extended until July 31, 2004 subject to extension for successive six month
periods with the mutual consent of Globix and Mr. Stevenson.
Mr. Stevensons base salary was $308,000 per year. Mr. Stevenson was
also eligible for an annual bonus equal to up to 50% of his base salary,
contingent upon the Company meeting certain performance targets and a bonus
contingent on the success the Company may have in the purchase or sale of
certain assets or disposition or acquisition of certain business in sums to be
determined by the Companys compensation committee. In addition, under the
terms of Mr. Stevensons employment agreement, Mr. Stevenson was
granted options to acquire 548,700 shares of the Companys common stock. As of
September 30, 2005, all of Mr. Stevensons options were fully vested.

On September 15, 2005, the
Company approved a new employment agreement with Mr. Stevenson providing
for a base salary of $350,000 per annum and an employment term extending through
December 31, 2006. Mr. Stevenson is also eligible to receive an annual bonus up to 50% of his
base salary, contingent upon the Company meeting certain performance targets.
In addition, Mr. Stevenson received options to purchase 320,888 shares of
the Companys common stock at an exercise price of $2.75 per share, which will
vest in December 2005 and 2006, subject to the achievement by the Company of
certain performance targets. In December 2005, 49,096 of the 2005 options vested
based on the Company meeting certain of the performance targets. The agreement
provides for the continuation of salary payments through the end of his
employment term in the event that he is terminated from his employment with the
company without cause or resigns from the company for good reason before the
end of his employment term. In addition, if Mr. Stevensons employment is
terminated without cause or he resigns for good reason, all theretofore
unvested stock options held by Mr. Stevenson will immediately vest.

Ted S. Lodge

In connection with the
election of Ted. S. Lodge as Chairman of the Companys Board of Directors and
Executive Chairman of the Company, the Company entered into an employment
agreement with Mr. Lodge. Pursuant to the provisions of this employment
agreement, the term of his employment will be one year from the date of the
execution of the agreement on October 31, 2005, during which he will be
required to devote at least two days per work week to the business and affairs
of the company. Mr. Lodge will receive a base salary of $275,000 per
annum, subject to increases at the discretion of the board of directors and
will be eligible to receive bonuses at the discretion of the board of
directors. In addition, Mr. Lodge will receive fully vested options to
purchase 1,000,000 shares of the Companys common stock at an exercise price of
$2.75 per share. The company will reimburse Mr. Lodge for reasonable
out-of-pocket expenses incurred in connection with his employment including
lodging within the New York metropolitan area during the work week, expenses
incurred in maintaining an office in Pennsylvania and roundtrip transportation
between New York and Pennsylvania. In the event that Mr. Lodge is required
to relocate his primary place of business to a location farther than 60 miles
from its current location in Pennsylvania or if he is actually or
constructively terminated without cause following a change in control (as
defined in the indenture governing the companys 11% senior secured notes), he
will receive severance in the amount equal to his base salary due through the
end of the period ending October 31, 2006 plus one year of his base salary. In
addition, for a period of 360 days after such termination, Mr. Lodge will
be able to exercise any stock options previously granted to him by the company,
which will all be considered fully vested upon such termination of employment
with the company.

On October 18, 2006, Mr.
Lodges employment was extended for one year, until October 31, 2007, on the same
terms as described above.

Gene M. Bauer

On September 16, 2005, the
Companys Compensation Committee unanimously approved the hiring of Gene M.
Bauer to serve as the Companys Vice President, General Counsel and Secretary.
Mr. Bauer will receive a base salary of $200,000 per annum, subject to
increases at the discretion of the Compensation Committee and will be eligible
to receive a cash bonus of up to 30% of his annual base salary pursuant to the
companys annual incentive compensation plan. The eligibility for and payout of
Mr. Bauers bonus will be subject to the policies for cash incentive
compensation for the performance period extending from July 1, 2005 through

F-26

---



GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2006 adopted by
the Compensation Committee on September 13, 2005. Mr. Bauer will receive
$200 per month in lieu of medical coverage, subject to compliance with any
legal restrictions of the companys benefit plans, will have access to use the
companys apartment free of charge and will be entitled to four weeks vacation
per year. In the event that Mr. Bauer is required to relocate his primary
place of business to a location farther than 60 miles outside of New York City
(other than the greater Boston area) or if he is actually or constructively
terminated without cause within one year following a change in control (as
defined by the companys 2003 Stock Option Plan), he will receive severance in
the amount equal to one year of his base salary.

Legal Proceedings

On January 28, 2002, a
derivative suit was filed in the United States District Court for the Southern
District of New York against the Company, as nominal defendant, and certain of
its current and former directors and officers. The action is entitled Susan
Boney, Individually and Derivatively on behalf of Nominal Defendant Globix
Corp, Plaintiff v. the named former Board of Directors (pre-Bankruptcy),
Defendants and Globix Corp, a Delaware Corporation, Nominal Defendant.
Plaintiffs brought the action against the former board and certain executives
seeking damages and expenses for breach of fiduciary duty for violations of
federal and state securities laws alleging misrepresentations of Globixs
financial performance from 2000 through 2001. The Company believes that the
allegations in this lawsuit are without merit and it intends to vigorously
defend against them. In addition, the plaintiff has not pursued her claims
since the filing of the lawsuit. There have been no actions related to this
litigation since September 2002. Although there can be no assurance as to the
outcome or effect of this lawsuit, the Company does not believe, based on
currently available information, that the ultimate liabilities, if any,
resulting from this lawsuit will have a material adverse impact on its
business, financial condition, results of operations or cash flows.

On June 25, 2002, Globix
entered into a Stipulation and Order with the lead plaintiffs in a class action
lawsuit that had been brought against the Company and certain of its directors
and officers. The Stipulation and Order provides that 229,452 shares of the
Companys common stock and $1,968,000 in aggregate principal amount of the 11%
senior notes will be held in escrow pending the outcome of the class action
lawsuit. If a judgment or settlement in the class action lawsuit had required
the Company to pay an amount in excess of its liability insurance, the Company
would have been required to issue to the class action litigants and their attorneys
all (in the event that this excess is $10 million or greater) or a portion of
(in the event that this excess is less than $10 million) the shares of its
common stock and the 11% senior notes being held in escrow. This lawsuit was
settled in 2005 for less than the Companys liability insurance. Accordingly,
Globix expects to distribute the shares of common stock and 11% senior notes
held in escrow to Globix security holders under the plan of reorganization.

In May 2006, the Company was
served with a summons and complaint in an action entitled Media Express USA, Ltd. VS. Globix
Corporationwhich is pending in the New York County Supreme Court.
The complaint seeks $250,000 on each of two causes of action based on a claim
that the Company failed to provide plaintiff with certain contracted-for
services. The Company has filed an answer denying the material allegations of
the complaint and asserting numerous defenses. The Company has significant
strong legal defenses to the claims and no longer has direct liability since
the claim was assigned as part of the sale of the Companys US hosting
business. The plaintiff has failed to appear for a properly noticed deposition.

From time to time Globix is
involved in legal proceedings in the ordinary course of our business
operations. Although there can be no assurance as to the outcome or effect of
any legal proceedings to which the Company is a party, the Company does not
believe, based on currently available information, that the ultimate
liabilities, if any, arising from any such legal proceedings would have a
material adverse impact on our business, financial condition, results of
operations or cash flows.

19. SEGMENT INFORMATION

For the fiscal year ended
September 30, 2006, the Company evaluated its results of operations based on
one reportable segment. Previously the Company reported under two reportable
segments.

Although the Company
operates in one reportable segment, there are 3 major service lines as listed.
The breakdown of revenues for each service line is as follows:

F-27

---



GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|                       |  |                             |        |                             |   |                             |  |   |   | 
|---------------------- |  | --------------------------- | ------ | --------------------------- | - | --------------------------- |  | - | - | 
|(amounts in thousands) |  | YEAR ENDEDSEPTEMBER 30,2006 |        | YEAR ENDEDSEPTEMBER 30,2005 |   | YEAR ENDEDSEPTEMBER 30,2004 | 
|                       |  |                             |        |                             |   |                             | 
|Lit fiber services     |  | $                           | 59,597 |                             | $ | 26,630                      |  | $ |  | 
|Dark fiber services    |  |                             | 4,809  |                             |   | 3,115                       |  |   |  | 
|Co-Location            |  |                             | 2,023  |                             |   | 901                         |  |   |  | 
|                       |  |                             |        |                             |   |                             |  |   |   | 
|Revenue, net           |  | $                           | 66,429 |                             | $ | 30,646                      |  | $ |  | 
|                       |  |                             |        |                             |   |                             |  |   |   | 

20. RELATED PARTY TRANSACTIONS

CONSULTING AGREEMENT WITH
COMMUNICATION TECHNOLOGY ADVISORS

Effective May 15, 2005,
Globix entered into an Agreement with Communications Technology Advisors
(CTA), pursuant to which CTA has agreed to provide certain advisory services
to Globix, including assistance with the integration of the NEON acquisition,
financing and acquisitions. As consideration for the services provided by CTA,
the Company paid CTA a monthly fee of $120,000, which was reduced to $60,000 on
February 15, 2006. The Company also agreed to reimburse CTA for its out-of-pocket
expenses incurred in connection with rendering services to the Company during
the term of the agreement. The out-of-pocket expenses paid to CTA for the year
ended September 30, 2006 totaled approximately $139,000. In addition to the
monthly fee and expense reimbursement, CTA and the Company have agreed to
negotiate in good faith to determine a success fee based on merger and
acquisition advice and opportunities provided by CTA to the Company. The
agreement expired on May 14, 2006 and was not renewed by the Company. Wayne
Barr, Jr., the President of CTA, joined the Board of Directors of Globix on
March 7, 2005 and was previously a member of the Board of Directors of NEON.
Mr. Barr did not stand for re-election and left the Companys Board on February
28, 2006. CTA previously provided advisory services to Globix and NEON in
exchange for a monthly fee of $65,000 and $35,000, respectively.

The consulting services
described above were approved by a majority of the Companys disinterested
directors.

For the years ended
September 30, 2006, 2005 and 2004, the Company recorded in respect of CTA,
consulting fees and reimbursement of expenses of $949,000, $1,272,000 and
$827,000, respectively.

AGREEMENT WITH MODE 1
COMMUNICATIONS, INC.

Neon Optica, Inc., a wholly
owned subsidiary of NEON, is a party to two agreements for the Provision of
Fiber Optic Facilities and Services (Phases I and II), pursuant to which
certain subsidiaries of Northeast Utilities have agreed to grant to NEON the
right to use transmission structures, other facilities and fiber filaments in
the their fiber optic cable network in exchange for annual payments and other
fees. Payment under these agreements and a fee reimbursement agreement are
expected to amount to approximately $2,500,000 per year. Due to timing of disbursements, payments under these agreements made in the year ended September 30, 2006 were 3,096,000, which reflects five quarterly payments. In calendar years 2003 and 2004, NEON made certain payments under
these agreements by issuing shares of its common stock to Mode 1 Communications,
Inc. (Mode 1), a wholly owned subsidiary of Northeast Utilities. Mode 1 held
approximately 13.2% of the common stock of NEON prior to the merger and as a
result of the merger became the holder of approximately 5.6% of the Globix
common stock. In connection with the merger, Globix agreed to guarantee the
obligations of Neon Optica, Inc. under these agreements. John H. Forsgren, who
was a director of NEON prior to the merger and became a director of Globix in
connection with the merger, was the Vice Chairman and Chief Financial Officer
of Northeast Utilities until his retirement as of December 31, 2004. In April
2006, Mode 1 disposed of substantially all of its Globix common stock.

BONUSES PAYMENT AS PART OF THE SALE
OF THE PROPERTY

As part of the sale of the
415 Greenwich Property in 2004, the Company paid bonuses of $450,000 to certain
of the Companys Executive Officers and employees, which included a $169,000
payment to the Chairman of the Board of Directors for his contributions in
connection with the sale and $169,000 payment to the Companys Chief Executive
Officer.

LIFE INSURANCE AND DISABILITY FOR
PETER K. STEVENSON

Peter K. Stevenson, the
Companys President and Chief Executive Officer, receives life insurance
and disability insurance benefits in excess of the benefits that are offered
to the Companys other employees. These benefits are payable directly to
Mr. Stevenson. The premiums for these benefits totaled
$6,300 for the five month period ended September 30, 2002. No further

F-28

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GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

amounts were paid during
fiscal years 2006, 2005, and 2004. These benefits were approved by a majority
of the Companys disinterested directors.

21. GUARANTEES

Subsidiary Guarantors

Under the terms of the
indenture governing the 11% Senior Notes, the following subsidiaries of the
Company have fully and unconditionally and jointly and severally guaranteed the
full and prompt performance of the Companys obligations under the 11% Senior
Notes and the Indenture, including the payment of principal of and premium, if
any, on and interest on the 11% Senior Notes: Bluestreak Digital, Inc., Gamenet
Corporation, Naft Computer Service Corporation, Naft International Ltd., PFM
Communications, Inc., GRE Consulting, Inc., 415 Greenwich GC, LLC, 415
Greenwich GC Tenant, LLC, 415 Greenwich GC MM, LLC, Comstar.Net, Inc. and
Comstar Telecom & Wireless, Inc. The Company merged each of these
subsidiary guarantors, other than 415 Greenwich GC, LLC, 415 Greenwich GC
Tenant, LLC and 415 Greenwich GC MM, LLC, with and into the Company. Under the
terms of the Indenture, the guarantees by 415 Greenwich GC, LLC, 415 Greenwich
GC Tenant, LLC and 415 Greenwich GC MM, LLC ceased to be effective upon the
sale of the Property.

In connection with the
acquisition of NEON, NEON and its subsidiaries became subsidiary guarantors
under the indenture governing the 11% Senior Notes.

Neon and its subsidiaries are also subsidiary guarantors under
    the terms of the indenture governing the 9% Senior Notes.

22. DISCLOSURE ABOUT FAIR VALUE OF
FINANCIAL INSTRUMENTS

The carrying value of cash,
cash equivalents, restricted cash, receivables, payables, and current portion
of capital lease obligation included in the consolidated balance sheets
approximate their fair value due to the their short-term maturity.

The fair value of marketable
securities and investments are based on quoted market prices.

The fair market value of the
11% Senior Notes as of September 30, 2006 is approximately $74,938,000 based on
the average market price paid in transactions by third parties between
September 20, 2006 and October 31, 2006.

The 9% Senior Notes are
closely held and not actively traded in the open market and were retired
subsequent to year end at face value.

23. SELECTED QUARTERLY FINANCIAL
DATA (UNAUDITED)

As a result of the decision
to exit the hosting business, the results of the hosting operations have been
reflected as discontinued operations for all periods presented.

|                                                                                                                                      |  |                  |        |               |   |              |   |                   |        |   |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------ | ------------- | - | ------------ | - | ----------------- | ------ | - | - | ------ | -
|                                                                                                                                      |  | QUARTER ENDED    |       
|                                                                                                                                      |  |                  |       
|(amounts in thousands)                                                                                                                |  | DECEMBER 31,2005 |        | MARCH 31,2006 |   | JUNE 30,2006 |   | SEPTEMBER 30,2006 |       
|                                                                                                                                      |  |                  |        |               |   |              |   |                   |       
|Net revenues                                                                                                                          |  | $                | 15,314 |               | $ | 16,166       |   | $                 | 17,122 |   | $ | 17,827 |  
|Operating costs and expenses:                                                                                                         |  |                  |        |               |   |              |   |                   |        |   |   |        |  
|Cost of revenues (excluding depreciation,
amortization, payroll and
  occupancy shown below)                                          |  |                  | 8,355  |               |   | 8,277        |   |                   | 9,788  |   |   | 9,279  |  
|Selling, general and administrative                                                                                                   |  |                  | 8,066  |               |   | 6,685        |   |                   | 5,317  |   |   | 6,948  |  
|Loss on sale of corporate headquarters                                                                                                |  |                  |       |               |   |             |   |                   |       |   |   | 3,803  |  
|Depreciation and amortization                                                                                                         |  |                  | 3,486  |               |   | 3,443        |   |                   | 4,114  |   |   | 4,337  |  
|                                                                                                                                      |  |                  |        |               |   |              |   |                   |        |   |   |        |  
|Total operating costs and expenses                                                                                                    |  |                  | 19,907 |               |   | 18,405       |   |                   | 19,219 |   |   | 24,367 |  
|Loss from operations                                                                                                                  |  |                  | (4,593 | )             |   | (2,239       | ) |                   | (2,097 | ) |   | (6,540 | )
|Interest and financing expense, net                                                                                                   |  |                  | (2,458 | )             |   | (2,179       | ) |                   | (2,841 | ) |   | (2,631 | )
|Other income (expense)                                                                                                                |  |                  | 169    |               |   | 327          |   |                   | 235    |   |   | 343    |  
|                                                                                                                                      |  |                  |        |               |   |              |   |                   |        |   |   |        |  
|Loss from continuing operations before income taxes                                                                                   |  |                  | (6,882 | )             |   | (4,091       | ) |                   | (4,703 | ) |   | (8,828 | )
|Tax provision                                                                                                                         |  |                  |       |               |   |             |   |                   |       |   |   |       |  
|                                                                                                                                      |  |                  |        |               |   |              |   |                   |        |   |   |        |  
|Loss from continuing operations                                                                                                       |  |                  | (6,882 | )             |   | (4,091       | ) |                   | (4,703 | ) |   | (8,828 | )
|Income from
    discontinued operations, net of income taxes of $0 (includes gain on disposition
    of 46,213 in the fourth quarter) |  |                  | 836    |               |   | 187          |   |                   | 931    |   |   | 46,983 |  
|                                                                                                                                      |  |                  |        |               |   |              |   |                   |        |   |   |        |  
|Net (loss) income                                                                                                                     |  |                  | (6,046 | )             |   | (3,904       | ) |                   | (3,772 | ) |   | 38,155 |  
|Dividends and accretion on cumulative convertible Preferred stock                                                                     |  | $                | 164    |               | $ | 166          |   | $                 | 169    |   | $ | 171    |  
|                                                                                                                                      |  |                  |        |               |   |              |   |                   |        |   |   |        |  
|Net (loss) income attributable to common stockholders                                                                                 |  | $                | (6,210 | )             | $ | (4,070       | ) | $                 | (3,941 | ) | $ | 37,984 |  
|                                                                                                                                      |  |                  |        |               |   |              |   |                   |        |   |   |        |  
|Basic and diluted loss per share attributed to common
stockholders                                                                    |  | $                | (0.13  | )             | $ | (0.08        | ) | $                 | (0.08  | ) | $ | 0.78   |  
|                                                                                                                                      |  |                  |        |               |   |              |   |                   |        |   |   |        |  

F-29

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GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                             |  |                  |        |               |   |              |   |                   |        |   |   |        |  
|-------------------------------------------------------------------------------------------- |  | ---------------- | ------ | ------------- | - | ------------ | - | ----------------- | ------ | - | - | ------ | -
|                                                                                             |  | QUARTER ENDED    |       
|                                                                                             |  |                  |       
|(amounts in thousands)                                                                       |  | DECEMBER 31,2004 |        | MARCH 31,2005 |   | JUNE 30,2005 |   | SEPTEMBER 30,2005 |       
|                                                                                             |  |                  |        |               |   |              |   |                   |       
|Net revenues                                                                                 |  | $                |       |               | $ | 3,223        |   | $                 | 13,242 |   | $ | 14,181 |  
|Operating costs and expenses:                                                                |  |                  |        |               |   |              |   |                   |        |   |   |        |  
|Cost of revenues (excluding depreciation,
amortization, payroll and
  occupancy shown below) |  |                  |       |               |   | 1,910        |   |                   | 7,634  |   |   | 8,216  |  
|Selling, general and administrative                                                          |  |                  | 2,256  |               |   | 3,770        |   |                   | 6,066  |   |   | 6,181  |  
|Depreciation and amortization                                                                |  |                  | 704    |               |   | 1,553        |   |                   | 3,135  |   |   | 3,404  |  
|                                                                                             |  |                  |        |               |   |              |   |                   |        |   |   |        |  
|Total operating costs and expenses                                                           |  |                  | 2,960  |               |   | 7,233        |   |                   | 16,835 |   |   | 17,801 |  
|                                                                                             |  |                  |        |               |   |              |   |                   |        |   |   |        |  
|Loss from operations:                                                                        |  |                  | (2,960 | )             |   | (4,010       | ) |                   | (3,593 | ) |   | (3,620 | )
|Interest and financing expense, net                                                          |  |                  | (2,440 | )             |   | (2,308       | ) |                   | (2,209 | ) |   | (2,484 | )
|Other income (expense)                                                                       |  |                  | 132    |               |   | (777         | ) |                   | 117    |   |   | (153   | )
|Gain on debt discharge                                                                       |  |                  |       |               |   | (3,182       | ) |                   |       |   |   |       |  
|                                                                                             |  |                  |        |               |   |              |   |                   |        |   |   |        |  
|Loss from continuing operations before income taxes                                          |  |                  | (5,268 | )             |   | (10,277      | ) |                   | (5,685 | ) |   | (6,257 | )
|Tax provision                                                                                |  |                  |       |               |   |             |   |                   |       |   |   |       |  
|                                                                                             |  |                  |        |               |   |              |   |                   |        |   |   |        |  
|Loss from continuing operations                                                              |  |                  | (5,268 | )             |   | (10,277      | ) |                   | (5,685 | ) |   | (6,257 | )
|loss from discontinued operations, net of income taxes of
$0                                 |  |                  | (997   | )             |   | (1,006       | ) |                   | (386   | ) |   | (661   | )
|                                                                                             |  |                  |        |               |   |              |   |                   |        |   |   |        |  
|Net loss                                                                                     |  |                  | (6,265 | )             |   | (11,283      | ) |                   | (6,071 | ) |   | (6,918 | )
|Dividends and accretion on cumulative convertible Preferred stock                            |  | $                |       |               | $ |             |   | $                 | 202    |   | $ | 164    |  
|                                                                                             |  |                  |        |               |   |              |   |                   |        |   |   |        |  
|Net loss attributable to common stockholders                                                 |  | $                | (6,265 | )             | $ | (11,283      | ) | $                 | (6,273 | ) | $ | (7,082 | )
|                                                                                             |  |                  |        |               |   |              |   |                   |        |   |   |        |  
|Basic and diluted loss per share attributed to common
stockholders                           |  | $                | (0.38  | )             | $ | (0.45        | ) | $                 | (0.13  | ) | $ | (0.15  | )
|                                                                                             |  |                  |        |               |   |              |   |                   |        |   |   |        |  

F-30

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GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

24. SUBSEQUENT EVENTS

On October 20, 2006, we paid
off the entire $5 million principal amount of our 9% Senior Notes due 2008 as
well as the accrued interest from October 1, 2006.

On November 1, 2006, we
closed the sale of our US hosting business. The total sales price was $20
million, subject to various working capital adjustments. Of the total sales
price, $2 million is being held in an escrow account until May 31, 2007 to
cover certain contingent liabilities. We also entered into a transition
services agreement with the purchaser of the US hosting business to receive and
provide certain services until mid-2007; the buyer of our US hosting business
agreed to provide the services called for under the transition services
agreement we had entered into in connection with the sale of our US hosting
business. Though the Company has not finalized the calculations associated with
this transaction, no loss is expected to be incurred from the completion of
this deal.

Also on November 1, 2006, we
discharged our remaining obligations under our 11% Senior Notes due 2008 and
associated interest payable under the terms of these Notes by depositing the
sum of $ 76,165,002 with the Indenture Trustee, thereby redeeming the 11%
Senior Notes in full. Globix continues to carry a liability of $3,158,437 which
may become due under certain additional notes issuable under a reserve
arrangement established in connection with our bankruptcy proceeding in 2002.
Globix is working with the Indenture Trustee to determine how to dispose of any
obligations under this escrow.

F-31

---



SCHEDULE II - VALUATION AND
QUALIFYING ACCOUNTS

|                                        |  |                              |   |                             |           |                         |  |            |        |                        |  |  |   |    |  |  |  |   |         |      |  |  |   |         |  | 
|--------------------------------------- |  | ---------------------------- | - | --------------------------- | --------- | ----------------------- |  | ---------- | ------ | ---------------------- |  |  | - | -- |  |  |  | - | ------- | ---- |  |  | - | ------- |  | 
|(amounts in thousands)COLUMN A          |  | COLUMN B                     |   | COLUMN C                    |           | COLUMN D                |  | COLUMN E   |       
|                                        |  |                              |   |                             |           |                         |  |            |       
|                                        |  |                              |   |                             | ADDITIONS |                         |  |            |        |                        |  | 
|                                        |  |                              |   |                             |           |                         |  |            |        |                        |  | 
|                                        |  | BALANCE ATBEGINNING OFPERIOD |   | CHARGES TOCOSTS ANDEXPENSES |           | CHARGESTO OTHERACCOUNTS |  | DEDUCTIONS |        | BALANCE ATEND OFPERIOD | 
|                                        |  |                              |   |                             |           |                         |  |            |        |                        | 
|Allowance for Doubtful
  Accounts       |  |                              |   |                             |           |                         |  |            |        |                        |  |  |   |    |  | 
|                                        |  |                              |   |                             |           |                         |  |            |        |                        |  |  |   |    |  | 
|October 1, 2003 to
  September 30, 2004 |  |                              | $ | 2,646                       |           |                         |  | $          | 780    |                        |  |  | $ | 24 |  |  |  | $ | (1,202  | )    |  |  | $ | 2,248   |  | 
|October 1, 2004 to
  September 30, 2005 |  |                              |   | 2,248                       |           |                         |  |            | 433    |                        |  |  |   |   |  |  |  |   | (731    | )    |  |  |   | 1,950   |  | 
|October 1, 2005 to
  September 30, 2006 |  |                              |   | 1,950                       |           |                         |  |            | 200    |                        |  |  |   |   |  |  |  |   | (1,285  | )(a) |  |  |   | 865     |  | 
|                                        |  |                              |   |                             |           |                         |  |            |        |                        |  |  |   |    |  |  |  |   |         |      |  |  |   |         |  | 
|Deferred Tax Valuation
  Allowance      |  |                              |   |                             |           |                         |  |            |        |                        |  |  |   |    |  |  |  |   |         |      |  |  |   |         |  | 
|                                        |  |                              |   |                             |           |                         |  |            |        |                        |  |  |   |    |  |  |  |   |         |      |  |  |   |         |  | 
|October 1, 2003 to
  September 30, 2004 |  |                              | $ | 97,075                      |           |                         |  | $          | 20,642 |                        |  |  | $ |   |  |  |  | $ |        |      |  |  | $ | 117,717 |  | 
|October 1, 2004 to
  September 30, 2005 |  |                              |   | 117,717                     |           |                         |  |            | 91,349 |                        |  |  |   |   |  |  |  |   |        |      |  |  |   | 209,066 |  | 
|October 1, 2005 to
  September 30, 2006 |  |                              |   | 209,066                     |           |                         |  |            |       |                        |  |  |   |   |  |  |  |   | (49,893 | )    |  |  |   | 159,173 |  | 

(a)Includes
the deduction related to the sale and reclassification of the UK hosting
business and the US hosting business, respectively.

F-32

---