<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, 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, 2002
                           COMMISSION 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.)

  139 CENTRE STREET, NEW YORK, NEW YORK               10013
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)            (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 334-8500

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

                                      None.

          SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:

                    Common Stock, par value $0.01 per share.

      Indicate by check mark whether 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 | | No |X|

      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. | |

      Indicate by checkmark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes | | No |X|

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

      The shares of the registrant's voting stock outstanding on March 29, 2002,
the last business day of the registrant's most recently completed second fiscal
quarter, were cancelled on April 25, 2002 in connection with the registrant's
bankruptcy. Accordingly, the registrant does not believe that a calculation of
the aggregate market value of the shares of its voting stock held by
non-affiliates of the registrant as of March 29, 2002 would be relevant to
investors. As of March 10, 2003, the aggregate market value of the registrant's
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 OTC Bulletin
Board, was approximately $23.2 million.

      Number of shares of the registrant's common stock deemed to be outstanding
as of March 24, 2003 was 16,460,000.

                    DOCUMENTS INCORPORATED BY REFERENCE: NONE
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                               GLOBIX CORPORATION

                                TABLE OF CONTENTS

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<S>                                                                                                                  <C>
PART I
        Item 1.    Business ......................................................................................      2
        Item 2.    Properties ....................................................................................     16
        Item 3.    Legal Proceedings .............................................................................     17
        Item 4.    Submission of Matters To a Vote of Security Holders ...........................................     18
PART II
        Item 5.    Market For Registrant's Common Equity and Related Stockholder Matters .........................     18
        Item 6.    Selected Financial Data .......................................................................     19
        Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations .........     21
        Item 7A.   Quantitative and Qualitative Disclosures About Market Risk ....................................     35
        Item 8.    Financial Statements ..........................................................................     35
        Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .........     35
PART III
        Item 10.   Directors and Executive Officers of the Registrant ............................................     35
        Item 11.   Executive Compensation ........................................................................     39
        Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.     41
        Item 13.   Certain Relationships and Related Transactions ................................................     43
        Item 14.   Controls and Procedures .......................................................................     45
PART IV
        Item 15.   Exhibits, Financial Statement Schedules  and Reports on Form 8-K ..............................     46
                   Signatures ....................................................................................     47
                   Certifications ................................................................................    C-1
                   Financial Statements ..........................................................................    F-1
</TABLE>

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            CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

      This annual report contains both historical and forward-looking
statements. All statements other than statements of historical fact are, or may
be deemed to be, forward-looking statements. These forward-looking statements
are not based on historical facts, but rather reflect our current expectations
concerning future results and events. These forward-looking statements generally
can be identified by the use of statements that include phrases such as
"believe", "expect," "anticipate," "intend," "plan," "foresee," "likely," "will"
or other similar words or phrases. Similarly, statements that describe our
objectives, plans or goals are or may be forward-looking statements. These
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause our actual results, performance or achievements to
be different from any future results, performance and achievements expressed or
implied by these statements. You should carefully review all information,
including the financial statements and the notes to the financial statements
included in this annual report. In addition to the risk factors described in the
section of this annual report entitled "Risk Factors" beginning on page 8, the
following important factors could affect future results, causing these results
to differ materially from those expressed in our forward-looking statements:

      -     our ability to maintain and increase revenue by retaining existing
            customers and attracting new customers;

      -     our ability to match our operating cost structure with revenue to
            achieve positive cash flow, including possible cost reductions, if
            necessary;

      -     our ability to conduct business with critical vendors on acceptable
            terms;

      -     the sufficiency of existing cash and cash flow to complete our
            business plan and fund our working capital and capital expenditure
            requirements;

      -     the insolvency of vendors and other parties critical to our
            business;

      -     our existing debt obligations and history of operating losses;

      -     our ability to integrate, operate and upgrade/downgrade our network;

      -     our ability to recruit and retain sufficient and qualified personnel
            needed to staff our operations;

      -     our ability to raise additional capital, if necessary;

      -     potential marketplace or technology changes, rendering existing
            products and services obsolete;

      -     changes in or the lack of anticipated changes in the regulatory
            environment, including potential legislation increasing our exposure
            to content distribution and intellectual property liability; and

      -     commencement of war, armed hostilities, terrorist activities or
            other similar international calamity directly or indirectly
            involving or affecting the United States or the United Kingdom.

      These factors and the other risk factors described in this annual report
are not necessarily all of the important factors that could cause our actual
results to differ materially from those expressed in any of our forward-looking
statements. Other unknown or unpredictable factors also could harm our future
results. The forward-looking statements included in this annual report are made
only as of the date of this annual report and we cannot assure you that
projected results or events will be achieved.


                                       1
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                                     PART I

ITEM 1. BUSINESS

GENERAL

      We are a provider of Internet services to businesses. Our services
include:

            -     secure and fault-tolerant Internet data centers;

            -     a Domestic and International Internet Protocol (IP) fiber
                  based network;

            -     network services, providing network connectivity to the
                  Internet;

            -     Internet based managed services, security services, storage
                  services; and

            -     messaging services, dedicated hosting and streaming media.

      We believe that these elements combine to provide our customers with the
ability to create, operate and scale their Internet operations in a cost
efficient manner.

      Our target market for our services is small to large size businesses in a
variety of industries such as media, publishing, financial services, retail,
healthcare, governmental agencies, manufacturing and technology.

      Our customers use our services to operate and maintain computer equipment
in a secure, fault-tolerant environment with connectivity to a high-speed,
high-capacity, direct link to the Internet, through our own network, and to
support Internet applications. Our employees are located in New York City, New
York, Atlanta, Georgia, Santa Clara, California and London, England. We
currently offer our services from our Internet data center facilities in these
cities.

      Our principal executive offices are located at 139 Centre Street, New
York, New York 10013, and our telephone number at that location is (212)
334-8500. 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 filings will be available on our website.

OUR CHAPTER 11 BANKRUPTCY REORGANIZATION

      On March 1, 2002, our company and two of our wholly-owned subsidiaries,
Comstar.net, Inc. and ATC Merger Corp., filed voluntary petitions under Chapter
11 of the U.S. Bankruptcy Code, together with a prepackaged Plan of
Reorganization, which we refer to as the Plan, 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. Effective April
25, 2002, which we refer to as the Effective Date of the Plan, all conditions
necessary for the Plan to become effective were satisfied or waived and we
emerged from Chapter 11 bankruptcy protection.

      As of the Effective Date of the Plan, all of our existing securities were
cancelled and:

      -     each holder of our 12.5% Senior Notes due 2010, which we refer to as
            the 12.5% Senior Notes, became entitled to receive, in exchange for
            its claims in respect of the 12.5% Senior Notes, its pro rata share
            of:

            -     $120 million in aggregate principal amount of our 11% Senior
                  Secured Notes due 2008, which we refer to as the 11% Senior
                  Notes, and

            -     13,991,000 shares of our common stock, representing 85% of the
                  shares of our common stock issued and outstanding following
                  the Effective Date of the Plan;


                                       2
<PAGE>

      -     each holder of shares of our preferred stock outstanding immediately
            prior to the Effective Date of the Plan became entitled to receive,
            in exchange for its claims in respect of these shares of preferred
            stock, its pro rata share of 2,304,400 shares of our common stock,
            representing 14% of the shares of our common stock issued and
            outstanding following the Effective Date of the Plan; and

      -     each holder of shares of our common stock outstanding immediately
            prior to the Effective Date of the Plan became entitled to receive,
            in exchange for its claims in respect of these shares of common
            stock, its pro rata share of 164,600 shares of our common stock,
            representing 1% of the shares of our common stock issued and
            outstanding following the Effective Date of the Plan.

      All of the shares of our common stock issued pursuant to the Plan are
subject to dilution by the exercise of management incentive stock options,
representing up to 10% of the shares of our issued and outstanding common stock
on a fully-diluted basis following the Effective Date of the Plan.

      Under the terms of the indenture governing the 11% Senior Notes, the
following subsidiaries of our company have fully and unconditionally and jointly
and severally guaranteed the full and prompt performance of our obligations
under the 11% Senior Notes and the indenture governing the 11% Senior Notes,
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. We
are in the process of merging 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 our company.

      A total of 16,460,000 shares of our common stock and $120 million in
aggregate principal amount of the 11% Senior Notes were deemed to be issued and
outstanding on the Effective Date pursuant to the terms of the Plan. As of
September 30, 2002, However, no shares of our common stock or 11% Senior Notes
had been distributed. In October 2002, we distributed a total of 16,295,400
shares of common stock and $120 million in aggregate principal amount of 11%
Senior Notes. Pursuant to the terms of a Stipulation and Order that we entered
into with the lead plaintiffs in the class action lawsuit described in "Item 3 -
Legal Proceedings", 229,452 of these shares of common stock and $1,968,000 in
aggregate principal amount of the 11% Senior Notes were placed in reserve in
escrow pending the outcome of the class action lawsuit. In the event that any
judgment or settlement entered into in connection with the class action lawsuit
requires us to pay an amount in excess of our liability insurance, then we will
BE 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 common stock
and 11% Senior Notes held in escrow. Distribution of the remaining 164,600
shares of common stock deemed to have been issued on the Effective Date, which
are allocable under the terms of the Plan to the holders of our common stock
outstanding immediately prior to the Effective Date of the Plan, will occur
following the resolution of the shareholder derivative suit against our company
and certain of our former officers and directors described in "Item 3 - Legal
Proceedings."

      Although no assurances can be given, our management believes that our
reorganization reduces some uncertainty with respect to our future and better
positions us to attract new customers and maintain existing customers. Our
reorganization and actions taken pursuant to the Plan reduced operating costs
and reduced the principal amount of our outstanding indebtedness by
approximately $480 million by converting this indebtedness into shares of our
common stock. Further, under the terms of the 11% Senior Notes we are permitted
to satisfy interest payments in kind for at least two years and, at the
discretion of our board of directors, for up to four years, thereby
significantly reducing liquidity concerns arising from our debt service
obligations and ongoing operating costs. There can be no assurance, however,
that we will be successful in executing our business plan, achieving
profitability, or in attracting new customers, or in maintaining our existing
customer base. Moreover, despite our restructuring we have continued to
experience significant decreases in revenue and low levels of new customer
additions in the period following our restructuring.

OUR SOLUTION

      We provide our customers with a range of Internet solutions, including
network infrastructure and expertise to build, maintain, operate and support
mission critical operations.


                                       3
<PAGE>

INTERNET DATA CENTERS

      We currently operate five Internet data centers in the following
locations:

      -     approximately 340,000 gross square feet of facilities in two
            separate locations in New York City;

      -     an approximately 60,000 gross square feet facility located in Santa
            Clara, California;

      -     approximately 100,000 gross square feet of facilities in two
            separate locations in London, England; and;

      -     an approximately 5,000 gross square foot facility located in
            Atlanta, Georgia.

      Our Internet data centers include electrical infrastructure, precision
environmental control systems, fire suppression systems and comprehensive
security systems.

CO-LOCATION

      We offer co-location solutions for customers who choose to own and
maintain their own servers, but require the physically secure,
climate-controlled environment of our Internet data centers and connectivity to
our network.

NETWORK SERVICES

Network Infrastructure

Our network infrastructure is designed to meet the demands of businesses with
mission critical Internet-based operations. Our network infrastructure is
designed for high availability and low latency, and utilizes a single autonomous
system number. As a result, traffic is carried on a network controlled by our
company to the greatest extent possible and therefore does not suffer from the
congestion or high latency of public networks.

Backbone

      The domestic Globix backbone is a Packet over Synchronous Optical Network,
or SONET, which provides a mechanism for using the speed and efficient
management capabilities of SONET to optimize data transport. Essentially, it
provides a method for efficiently carrying data packets in SONET frames that
will operate at speeds up to OC-48 (2.4Gbs). The OC-48 Globix domestic backbone
connects to our New York City, New York and Santa Clara, California data centers
and to our backbone points of presence, or POPs, in Atlanta, Boston, Chicago,
Los Angeles, Seattle and Washington, D.C.

      Our European backbone is a Packet over SONET currently connecting London,
Amsterdam, Frankfurt and Paris. The domestic and European networks are connected
by two OC-3 (155Mbps) transatlantic crossings.

      Our U.S. and European network sections interconnect to numerous network
access points, commercial Internet exchanges and other Internet, application and
network service providers.

Peering

      We have established numerous peering relationships with other Internet,
application and network service providers. These peering relationships take the
form of either public or private peering connections. Public peering takes place
at a network access point or commercial Internet exchange, designed for the
exchange of traffic between service providers. Private peering involves an
agreement between service providers allowing traffic to pass between each
other's networks using connections that do not have to traverse either the
public Internet or public peering points.

Network Operations


                                       4
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      We have constructed a global network operations center, or GNOC, in our
139 Centre Street data center in New York City. Our GNOC serves as the command,
control and communications center for all of our network operations, customer
support centers, and POPs, systems services and facilities operations. Our
global operations center is staffed 24 hours a day, seven days a week. Network
administrators located in our global operations center monitor our entire
network infrastructure. Our network administrators are able to identify and
correct network problems either themselves or by dispatching system engineers
located at our customer support centers.

Customer Support Center

      Our customer support center's call center is operated 24 hours a day,
seven days a week, and is equipped with advanced telecommunications systems
capable of automatic call distribution, automatic number identification, quality
assurance recording and archiving, and intelligent call routing. A trouble
ticketing and knowledge database of customer information and history supports
our customer service operations.

INTERNET ACCESS

      We offer a variety of Internet access solutions which provide businesses
with high-speed continuous access to the Internet. In addition, we provide other
valuable services, such as domain name registration, local loop provisioning,
Internet address assignment, router configuration, e-mail configuration and
management and technical consulting services.

MANAGED SERVICES

      We provide full-life-cycle system and network administration. We install
and configure applications and equipment designed by our solutions architects,
as specified by the customer. Generally, Internet business strategies require
dedicated, highly-skilled technical resources available 24 hours a day, seven
days a week. Many of our customers do not have these resources available
internally. We offer administration, maintenance and problem resolution services
for a variety of popular operating systems, Internet network devices and
hardware and software security solutions.

Dedicated Hosting

      We offer hosting solutions on both the NT and UNIX platforms, in a
dedicated server environment. This service includes providing hardware,
software, bandwidth and services to meet customer-specific needs.

Streaming Media

      We are a provider of streaming media services to corporations who are
utilizing this service as a business communications tool. Streaming media is a
process by which audio, video or other multimedia is delivered in a streaming or
continuous fashion over the Internet or over a company's intranet. Our core
streaming media services are encoding, hosting and collaboration solutions,
which are the mainstays of streaming media technology.

SALES AND MARKETING

      Our sales and marketing objective is to achieve broad market penetration
within our target market of businesses that depend upon the Internet for
mission-critical operations. We sell our services to businesses primarily
through our direct sales force.

CUSTOMERS

      We have established a diversified base of customers in a variety of
industries, such as media and publishing, financial services, retail,
healthcare, government agencies, manufacturing, technology and non-profits. No
single customer of our company comprised more than 10% of our revenues in the
fiscal year ended September 30, 2002.


                                       5
<PAGE>

GOVERNMENT REGULATION

Information and Telecommunications Services

      In the United States, our Internet solutions are currently classified by
the Federal Communications Commission as information services, which are not
subject to significant regulation, rather than as telecommunications or common
carrier services, which are subject to a comprehensive regulatory framework.
Similarly, our Internet solutions are not significantly regulated in certain
foreign jurisdictions in which we conduct business.

      In certain other foreign jurisdictions in which we operate, however, our
provision of certain Internet solutions may be subject to the jurisdictions'
laws and regulations governing telecommunications services and/or common
carriers. In jurisdictions where these laws and regulations currently apply to
certain types of our Internet solutions, we endeavor to take all reasonable
steps necessary to ensure that we comply with these laws and regulations. This
may require us to, among other things, obtain regulatory authorizations and pay
fees each year to regulatory authorities.

      The laws and regulations applicable to Internet-related services are
evolving in the United States and many other jurisdictions. As these laws and
regulations evolve, it is possible that we could be regulated in additional
jurisdictions as a telecommunications services provider and/or as a common
carrier. As a result, we may become subject to, among other things, additional
licensing requirements, fee payment obligations, common carrier obligations,
network access changes and/or universal service obligations.

      In addition to the telecommunications and/or common carrier laws and
regulations that currently govern certain of our services in some jurisdictions
and that may, in the future, govern our Internet services in the United States
and other jurisdictions, new laws and regulations related to the provision of
Internet services may be adopted, implemented and/or challenged at the federal
state and/or local levels in the United States and at corresponding levels in
foreign jurisdictions. These laws and regulations may address, among other
things, issues of user privacy, obscenity, pricing, consumer protection,
taxation, advertising, intellectual property rights, information security,
liability for certain types of content and the convergence of traditional
telecommunications services with Internet communications. A number of laws and
regulations related to these issues are currently being considered by United
States and foreign regulators.

      It is impossible to predict the nature of any new laws or regulations that
will be applicable to our services, whether currently existing laws and
regulations will be newly-applied to our services or the manner in which
currently existing laws and regulations applicable to our company will be
interpreted and enforced. The adoption of new laws or regulations or the
application of existing laws or regulations in a manner that is adverse to our
company might decrease demand for our Internet solutions, impose taxes, fees or
other charges or other costly technical requirements on our company or otherwise
increase our cost of doing business. Any of these developments could harm our
business, financial position, results of operations and cash flows.

Distribution of Copyrighted Material

      The Digital Millennium Copyright Act, or 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 these procedures 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 services
for information carried on or disseminated through their networks remains
largely unsettled. Claims could be made against our company 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.


                                       6
<PAGE>

EMPLOYEES AND EMPLOYEE RELATIONS

      As of February 24, 2003, we had approximately 245 full-time employees:
approximately 186 in the United States and 59 outside the United States. 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. Cutbacks in
staffing as a result of our restructuring efforts may have weakened our employee
morale. Further efforts to control management costs, given our flat
organizational structure, could have an additional adverse impact on morale in
certain parts of our company.

COMPETITION

      Our competitors include other Internet service providers with a
significant national or global presence that focus on business customers, such
as IBM, Digex, EDS and Equinix. Our competitors also include telecommunications
companies, such as AT&T, British Telecom, Level 3, WorldCom and Sprint. We
believe that competition is based upon a number of factors, including price,
quality of service and financial stability.

      New competitors, including large computer hardware, software, media and
other technology and telecommunications companies, may enter our market and
rapidly acquire significant market share. As a result of increased competition
and vertical and horizontal integration in our industry, we have encountered
significant pricing pressures. These pricing pressures have resulted in
significantly lower average selling prices for our services.

TRADEMARKS AND PATENTS

      We currently have eight trademark applications and one patent application
pending in the United States Patent and Trademark Office.


                                       7
<PAGE>

                                  RISK FACTORS

      Our business, financial condition, results of operations and cash flows
may be affected by known and unknown risks and uncertainties, including those
set forth below. Any of these risks or uncertainties could cause our future
financial results to differ materially from recent financial results or from
currently anticipated future financial results. The risks and uncertainties set
forth below are not the only risks and uncertainties that we face. Additional
risks and uncertainties not presently known to us or that we currently deem
immaterial may also impair our business, financial condition and results of
operations.

                           RISKS RELATED TO OPERATIONS

OUR REORGANIZATION HAS NEGATIVELY IMPACTED, AND MAY CONTINUE TO NEGATIVELY
IMPACT, SOME OF OUR RELATIONSHIPS WITH CUSTOMERS AND/OR SUPPLIERS WHICH COULD
HARM OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

      The effect, if any, which our reorganization may have upon the continued
operations of our company cannot be accurately predicted or quantified. Our
recent emergence from bankruptcy may adversely affect our ability to negotiate
favorable terms with vendors and/or to retain existing customers and obtain new
customers. Our failure to obtain favorable terms from vendors and/or to retain
existing customers or to obtain new customers could harm our business, financial
condition and results of operations.

AS A RESULT OF OUR APPLICATION OF AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS STATEMENT OF POSITION NO. 90-7, "FINANCIAL REPORTING BY ENTITIES IN
REORGANIZATION UNDER THE BANKRUPTCY CODE", OR SOP NO. 90-7, OUR FINANCIAL
STATEMENTS AS OF AND FOR PERIODS SUBSEQUENT TO MAY 1, 2002 WILL NOT BE
COMPARABLE TO OUR FINANCIAL STATEMENTS AS OF AND FOR PERIODS PRIOR TO MAY 1,
2002.

      In connection with our emergence from bankruptcy on April 25, 2002, we
have applied the principles of SOP No. 90-7 as of May 1, 2002. Accordingly, our
financial statements for periods subsequent to May 1, 2002 will not be
comparable to our financial statements for periods prior to May 1, 2002. As a
result, it may be more difficult for third parties to accurately assess our
performance. In turn, this may adversely affect the price of our securities.

WE HAVE A HISTORY OF OPERATING LOSSES WHICH WE EXPECT TO CONTINUE FOR THE NEAR
FUTURE.

      We have experienced significant losses since we began operations and
expect to continue to incur significant losses for the foreseeable future. We
have incurred net losses attributable to common stockholders of approximately
$21.1 million, $220.1 million and $132.2 million for the five months ended
September 30, 2002, and the fiscal years ended September 30, 2001 and September
30, 2000, respectively, and net income attributable to common stockholders of
$156.8 million for the seven months ended April 30, 2002, which was primarily
attributable to the extinguishment of debt. We cannot assure you that our
revenues will increase. If revenue grows more slowly than we anticipate, or if
operating expenses exceed our expectations, we may never become profitable. Even
if we become profitable, we may be unable to sustain our profitability. In
either of these cases, our business, financial condition, results of operations
and cash flows will be negatively impacted.

THERE CAN BE NO ASSURANCE THAT WE WILL RETAIN CUSTOMERS OR MAINTAIN EXISTING
CUSTOMER SPENDING LEVELS, AND OUR FAILURE TO DO SO COULD HARM OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

      We have experienced and continue to experience a decline in revenue due to
customers leaving us and remaining customers spending less with us. One of our
biggest challenges is to limit these revenue declines. Continued declines in
revenue could harm our business, financial condition, and results of operations.

OUR SUCCESS WILL DEPEND ON OUR ABILITY TO INTEGRATE, OPERATE AND MAINTAIN AND
UPGRADE OUR NETWORK AND FACILITIES, AND OUR FAILURE TO DO SO COULD ADVERSELY
AFFECT OUR ENTIRE BUSINESS.

      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 expenditure of periodic amounts of capital. Any
interruption in our ability to deliver services over our network due to market
disruptions or third


                                       8
<PAGE>

party insolvencies may make us less attractive to future customers and may
hamper our ability to retain our current customers which, in turn, could
adversely affect our entire business.

WE CANNOT ASSURE YOU THAT OUR TELECOMMUNICATIONS PROVIDERS WILL CONTINUE TO
SERVICE US OR THAT WE COULD REPLACE THEM ON COMPARABLE TERMS OR AT ALL, AND ANY
LACK OF SERVICE AVAILABILITY OR PRICE INCREASES COULD ADVERSELY AFFECT THE COSTS
OF MAINTAINING OUR NETWORK AND OUR ABILITY TO MAINTAIN OR GROW OUR BUSINESS.

      Our existing network relies entirely on many third party data
communications and telecommunications providers, located in the United States
and abroad. These carriers are subject to price constraints, including tariff
controls, that in the future may be relaxed or lifted. In addition, certain of
these providers, including WorldCom and Global Crossing, have filed for
protection under Chapter 11 under the U.S. Bankruptcy Code, which may affect the
availability and quality of the services that these entities provide. Price
increases or the lack of service availability and quality could adversely affect
the costs of maintaining our network and our ability to maintain or grow our
business.

IF WE FAIL TO MAINTAIN ADEQUATE PEERING RELATIONSHIPS OUR OPERATING COSTS WILL
INCREASE AND, IN TURN, OUR BUSINESS AND RESULTS OF OPERATIONS MAY BE NEGATIVELY
IMPACTED.

      The Internet includes a number of Internet service providers that operate
their own networks and connect with each other at various points under
arrangements known as "peering" arrangements. It is more costly and less
efficient to operate a network without peering arrangements. Consequently, we
must maintain peering relationships to maintain high network performance levels
without having to pay excessive amounts for the transmission of data. These
arrangements are not subject to regulation and the terms, conditions and costs
can be changed or canceled by the provider over time. While we currently have
agreements to peer with a number of entities, we may not be able to maintain a
favorable cost structure for data transmission with our peering partners and,
consequently, our business and results of operations may be negatively impacted.

WE MAY NOT BE ABLE TO OBTAIN COMPUTER HARDWARE AND SOFTWARE ON THE SCALE AND AT
THE TIMES WE NEED AT AN AFFORDABLE COST, AND FAILURE TO DO SO OVER AN EXTENDED
PERIOD OF TIME COULD HARM OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.

      We rely on outside vendors to supply us with computer hardware, software
and networking equipment. We primarily use products from Cisco, Compaq, Juniper
Networks and Sun Microsystems, either leased or purchased from the manufacturer
or a third party vendor. Consequently, our expertise is concentrated in products
from these manufacturers. We also rely on Cisco for network design and
installation services. 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 will harm our business, financial condition and results of
operations.

WE MAY MAKE INVESTMENTS OR ACQUISITIONS THAT ARE NOT SUCCESSFUL.

      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; and

      -     we may not be able to retain key employees of the acquired business
            or to maintain good relations with its customers or suppliers.

BECAUSE WE ARE DEPENDENT ON COMPUTER AND COMMUNICATION SYSTEMS, A SYSTEMS
FAILURE WOULD CAUSE A SIGNIFICANT DISRUPTION TO OUR BUSINESS.

      Our business depends on the efficient and uninterrupted operation of our
computer and communications hardware systems and infrastructure. We currently
maintain most of our computer systems in our facilities in New York City, New
York, London, England and Santa Clara, California. While we have taken


                                       9
<PAGE>

precautions against systems failure, interruptions could result from natural
disasters as well as power loss, our inability to acquire fuel for our backup
generators, telecommunications failure, terrorist attacks and similar events. We
also lease telecommunications lines from local, regional and national carriers,
whose service may be interrupted. Our business, financial condition and results
of operations could be harmed by any damage or failure that interrupts or delays
our operations.

IF OUR SECURITY MEASURES ARE INADEQUATE, OUR ABILITY TO ATTRACT AND RETAIN
CUSTOMERS MAY BE ADVERSELY AFFECTED.

      We have taken measures to protect the integrity of our infrastructure and
the privacy of confidential information. Nonetheless, our infrastructure is
potentially vulnerable to physical or electronic break-ins, viruses or similar
problems. If a person circumvents our security measures, he or she could
jeopardize the security of confidential information stored on our systems,
misappropriate proprietary information or cause interruptions in our operations.
We may be required to make significant additional investments and efforts to
protect against or remedy security breaches. Security breaches that result in
access to confidential information could damage our reputation and expose us to
a risk of loss or liability. The security services that we offer in connection
with our customers' networks cannot assure complete protection from computer
viruses, break-ins and other disruptive problems. Although we attempt to
contractually limit our liability in such instances, the occurrence of these
problems may result in claims against us or liability on our part. These claims,
regardless of their ultimate outcome, could result in costly litigation and
could harm our business and reputation and impair our ability to attract and
retain customers for our services.

OUR BUSINESS DEPENDS ON THE CONTINUED GROWTH, USE AND IMPROVEMENT OF THE
INTERNET, AND OUR BUSINESS WOULD BE HARMED IF THE NUMBER OF USERS ON THE
INTERNET DOES NOT INCREASE AND COMMERCE OVER THE INTERNET DOES NOT BECOME MORE
WIDESPREAD.

      Our services are targeted toward businesses which use the Internet. The
Internet is subject to a high level of uncertainty and is characterized by
rapidly changing technology, evolving industry standards and frequent new
service introductions. Accordingly, we are subject to the risks and difficulties
frequently encountered in new and rapidly evolving markets.

      Critical issues concerning the commercial use of the Internet remain
unresolved and may affect the growth of Internet use, especially in the market
we target. Despite growing interest in the many commercial uses of the Internet,
many businesses have been deterred from purchasing Internet services for a
number of reasons, including:

      -     inadequate protection of the confidentiality of stored data and
            information moving across the Internet;

      -     inconsistent quality of service;

      -     inability to integrate business applications on the Internet;

      -     the need to deal with multiple vendors, whose products are
            frequently incompatible;

      -     lack of availability of cost-effective, high-speed services; and
            concern over the financial viability of Internet service providers.

      Capacity constraints caused by growth in Internet usage may, unless
resolved, impede further growth in Internet use. If the number of users on the
Internet does not increase and commerce over the Internet does not become more
accepted and widespread, demand for our services may decrease and, as a result,
our business would be harmed.

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


                                       10
<PAGE>

technological advances and conform to emerging industry standards in a
cost-effective and timely basis, our business, financial condition and results
of operations will be harmed.

COMPETITION FOR THE INTERNET SERVICES THAT WE PROVIDE IS INTENSE AND WE EXPECT
THAT COMPETITION WILL CONTINUE TO INTENSIFY, WHICH COULD RESULT IN US
ENCOUNTERING SIGNIFICANT PRICING PRESSURE.

      Because we offer a broad range of services, we encounter competition from
numerous other businesses which provide one or more similar services. Our
competitors include other Internet service providers with a significant national
or global presence that focus on business customers, such as IBM, Digex, EDS and
Equinix. Our competitors also include telecommunications companies, such as
AT&T, British Telecom, Level 3, WorldCom and Sprint. Many of our existing
competitors, as well as a number of potential new competitors, have:

      -     longer operating histories;

      -     greater name recognition;

      -     larger customer bases;

      -     larger networks;

      -     more and larger facilities; and

      -     significantly greater financial, technical and marketing resources.

      New competitors, including large computer hardware, software, media and
other technology and telecommunications companies, may enter our market and
rapidly acquire significant market share. As a result of increased competition
and vertical and horizontal integration in the industry, we should continue to
encounter significant pricing pressures. These pricing pressures could result in
significantly lower average selling prices for our services. For example,
telecommunications companies may be able to provide customers with reduced
communications costs in connection with their Internet access services,
significantly increasing pricing pressures on us. We may not be able to offset
the effects of any price reductions with an increase in the number of our
customers, higher revenue from value-added services, cost reductions or
otherwise. In addition, Internet access service businesses are likely to
encounter consolidation in the near future, which could result in increased
price and other competition.

WE ARE DEPENDENT UPON AND MAY BE UNABLE TO RETAIN OUR EXECUTIVE OFFICERS, AND IF
WE LOSE ANY ONE OF THEM, OUR BUSINESS MAY SUFFER.

      We depend upon the continued contributions of our executive officers. Our
senior management team is important because of its extensive experience in, and
knowledge of, our industry. The loss or unavailability to us of any member of
our senior management team could significantly harm us.

COMPETITION FOR QUALIFIED PERSONNEL IS INTENSE AND WE MAY NOT BE ABLE TO ATTRACT
OR RETAIN THE PERSONNEL WE NEED IN EACH OF THE CRITICAL AREAS OF OUR BUSINESS,
WHICH COULD ADVERSELY AFFECT THE ABILITY OF OUR BUSINESS TO PERFORM ITS
FUNCTIONS.

      Our future success depends on our ability to attract and retain key
personnel for management, technical, sales and marketing and customer support
positions. The failure to attract or retain qualified personnel in each of these
critical areas could adversely affect the ability of our business to perform its
functions. Cutbacks in staffing as a result of our restructuring efforts may
have weakened our employee morale. Further efforts to control management costs,
given our flat organizational structure, could have an additional adverse impact
on morale in certain parts of our company.


                                       11
<PAGE>

CHANGES IN GOVERNMENT REGULATIONS RELATED TO THE INTERNET COULD RESTRICT OUR
ACTIVITIES, EXPOSE US TO LIABILITY OR OTHERWISE ADVERSELY AFFECT OUR BUSINESS.

      There are an increasing number of laws and regulations pertaining to the
Internet. These laws or regulations relate to liability for content and
information received from or transmitted over the Internet, user privacy and
security, taxation, enforcing online contracts, consumer protection and other
issues concerning services. The government may also seek to regulate some
aspects of our activities as basic telecommunications services. Moreover, the
applicability to the Internet of existing laws governing copyright, trademark,
trade secret, obscenity, libel, consumer protection, personal privacy and other
issues is uncertain and developing. We cannot predict the impact, if any, that
future regulation or regulatory changes may have on our business.

WE MAY BE LIABLE FOR VIOLATING THE INTELLECTUAL PROPERTY RIGHTS OF THIRD
PARTIES.

      We do not believe that the intellectual property important to the
operation of our business, whether owned by us or licensed to us by a third
party, infringes or violates the intellectual property rights of any other
party. Nonetheless, a third party may bring a claim of infringement against us
or any of our material suppliers and we may 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 may be forced to defend ourselves against infringement claims
in litigation, which would be costly and could result in us having to pay
damages to third parties. We have taken steps to contractually limit our
liability for the use of intellectual property licensed to us by third parties.
However, there can be no guarantee that we have adequate protection.

WE MAY BE LIABLE FOR THE MATERIAL THAT OUR CUSTOMERS DISTRIBUTE OVER THE
INTERNET.

      The law relating to the liability of online service providers, private
network operators and Internet service providers for content and information
carried on or disseminated through their networks is currently unsettled. While
we have taken steps to contractually limit our liability in these areas, we may
become subject to legal claims relating to the content of the web sites we host.
For example, lawsuits may be brought against us claiming that material
inappropriate for viewing by young children can be accessed from the web sites
that we host. Claims could also involve matters such as defamation, invasion of
privacy, copyright and trademark infringement. Internet service providers have
been sued in the past, sometimes successfully, based on the material
disseminated over their networks. We may take additional measures to reduce our
exposure to these risks, which could be costly or result in some customers not
doing business with us. In addition, defending ourselves against claims, or
paying damage awards to third parties, could strain our management and financial
resources.

OUR RESULTS OF OPERATIONS FLUCTUATE ON A QUARTERLY AND ANNUAL BASIS AND WE
EXPECT TO CONTINUE EXPERIENCING FLUCTUATIONS IN OUR FUTURE QUARTERLY AND ANNUAL
RESULTS OF OPERATIONS, WHICH COULD NEGATIVELY AFFECT THE MARKET PRICE OF OUR
SECURITIES.

      Our results of operations fluctuate on a quarterly and annual basis. We
expect to continue experiencing fluctuations in our future quarterly and annual
results of operations due to a variety of factors, many of which are outside our
control, including:

      -     demand for and market acceptance of our services;

      -     introductions of new services by us and our competitors;

      -     customer retention;

      -     capacity utilization of our data centers and assets;

      -     timing of customer installations;

      -     our mix of services sold;


                                       12
<PAGE>

      -     the timing and magnitude of our capital expenditures;

      -     changes in our pricing policies and those of our competitors;

      -     fluctuations in bandwidth used by customers;

      -     our retention of key personnel;

      -     reliable continuity of service and network availability;

      -     costs related to the acquisition of network capacity;

      -     arrangements for interconnections with third-party networks;

      -     the provision of customer discounts and credits;

      -     the introduction by third parties of new Internet and networking
            technologies;

      -     licenses and permits required to construct facilities, deploy
            networking infrastructure or operate in the United States and
            foreign countries; and

      -     other general economic factors. For these and other reasons, in some
            future fiscal periods our results of operations may fall below the
            expectations of securities analysts or investors, which could
            negatively affect the market price of our securities.

Fluctuations in our quarterly or annual results as a result of one or more of
these factors could negatively affect the market price of our securities.

OUR FAILURE TO ADDRESS THE RISKS INVOLVED WITH OUR INTERNATIONAL OPERATIONS
COULD MATERIALLY AND ADVERSELY AFFECT THESE OPERATIONS.

Because we have limited experience operating in markets outside the United
States and the United Kingdom, we may have difficulty adapting our services to
different international market needs. We may also be unsuccessful in our efforts
to market and sell these services to customers abroad. In addition, we may find
it more difficult and expensive to hire and train employees and to manage
international operations together with our United States operations. If we fail
to successfully address these risks, our international operations may be
materially and adversely affected.

           RISKS RELATED TO THE 11% SENIOR NOTES AND OUR COMMON STOCK

OUR OUTSTANDING DEBT OBLIGATIONS MAY ADVERSELY AFFECT OUR FINANCIAL AND
OPERATING FLEXIBILITY.

      As of September 30, 2002, we had $144.5 million of outstanding
indebtedness. Our indebtedness could:

      -     limit our ability to obtain additional financing to operate or grow
            our business;

      -     limit our financial flexibility in planning for and reacting to
            industry changes;

      -     place us at a competitive disadvantage as compared to less leveraged
            companies;

      -     after the fourth anniversary of the issuance of the 11% Senior
            Notes, require us to dedicate a substantial portion of our cash
            flow to payments on our debt, reducing the availability of our
            cash flow for other purposes.


                                       13
<PAGE>
 OUR ABILITY TO MEET OUR DEBT SERVICE OBLIGATIONS DEPENDS ON OUR FUTURE
OPERATING PERFORMANCE, AND FAILURE TO SATISFY THESE OBLIGATIONS COULD RESULT IN
THESE OBLIGATIONS BECOMING DUE AND PAYABLE, RESULTING IN BANKRUPTCY OR
LIQUIDATION.

      Historically, we have not generated positive cash flows from operations.
Our ability to pay principal, premium, if any, and interest on the 11% Senior
Notes and on our other indebtedness depends on our future operating performance.
Future operating performance is subject to market conditions and business
factors that are often beyond our control. Consequently, we cannot assure you
that we will have sufficient cash flows to pay the principal, premium, if any,
and interest on our indebtedness. If our cash flows and capital resources are
insufficient to allow us to make scheduled payments on our indebtedness, we may
have to reduce or delay capital expenditures, sell assets, seek additional
capital or restructure or refinance our indebtedness. We cannot assure you that
the terms of our indebtedness will allow these alternative measures or that
these measures would satisfy our scheduled debt service obligations. If we
cannot make scheduled payments on our indebtedness, we will be in default and,
as a result:

      -     our debt holders could declare all outstanding principal and
            interest to be due and payable; and

      -     we could be forced into bankruptcy or liquidation.

COVENANTS IN THE INDENTURE GOVERNING THE 11% SENIOR NOTES RESTRICT OUR ABILITY
TO BORROW AND INVEST, WHICH COULD SEVERELY IMPAIR OUR ABILITY TO EXPAND OR
FINANCE OUR FUTURE OPERATIONS AND RESULT IN BANKRUPTCY OR LIQUIDATION.

      The indenture governing the 11% Senior Notes contains a number of
covenants that impose significant operating and financial restrictions on us and
our subsidiaries. These restrictions significantly limit, and in some cases
prohibit, among other things, the ability of our company and certain of our
subsidiaries to incur additional indebtedness, create liens on assets, enter
into business combinations or engage in certain activities with our
subsidiaries. A failure to comply with these restrictions, if not cured or
waived, would constitute a default under the indenture governing the 11% Senior
Notes and these notes could become due and payable, which would harm our
business and our results of operations, and we could be forced into bankruptcy
or liquidation.

FRAUDULENT CONVEYANCE LAWS MAY RESULT IN THE SUBORDINATION OR AVOIDANCE OF A
SUBSIDIARY GUARANTEE OF THE 11% SENIOR NOTES, IN WHICH CASE THE HOLDERS OF THE
11% SENIOR NOTES GUARANTEED BY THAT SUBSIDIARY MAY NO LONGER HAVE A CLAIM
AGAINST THAT SUBSIDIARY AND WOULD ONLY BE CREDITORS OF OUR COMPANY AND ANY OTHER
SUBSIDIARY GUARANTOR.

      Our obligations under the 11% Senior Notes are fully and unconditionally
and jointly and severally guaranteed to the extent described in this annual
report by substantially all of our direct and indirect wholly-owned
subsidiaries.

Various federal and state fraudulent conveyance laws have been enacted for the
protection of creditors and may be utilized by a court of competent jurisdiction
to subordinate or avoid all or part of the guarantees issued by our
subsidiaries. To the extent that a court of competent jurisdiction were to find
that any of the subsidiary guarantors incurred a guaranty with the intent to
hinder, delay or defraud any present or future creditor or did not receive fair
consideration or reasonably equivalent value for issuing its guaranty and:

      -     was insolvent or rendered insolvent because of the issuance of its
            guaranty;

      -     was engaged or about to engage in a business or transaction for
            which its remaining assets constituted unreasonably small capital to
            carry on its business; or

      -     intended to incur, or believed that it would incur, debts beyond its
            ability to pay such debts as they matured, then the court could
            subordinate or avoid all or part of its guaranty in favor of its
            other creditors.

      To the extent that a subsidiary guaranty is voided as a fraudulent
conveyance or held unenforceable for any other reason, the holders of the 11%
Senior Notes guaranteed by that subsidiary may no longer have a claim against
the subsidiary and would only be creditors of our company and any other
subsidiary guarantors. If any subsidiary guarantees were voided as fraudulent
conveyances and our company and the subsidiaries whose


                                       14
<PAGE>

guarantees were not voided had insufficient assets to repay the notes, holders
of these notes would not receive all payments of principal and interest on the
11% Senior Notes.

      We and our subsidiaries that have guaranteed the 11% Senior Notes believe
that the issuance of the guarantees will not be a fraudulent conveyance. We
cannot assure you, however, that a court passing on this question would reach
the same conclusion.

WE MAY BE REQUIRED TO PURCHASE 11% SENIOR NOTES IN CONNECTION WITH CERTAIN
EVENTS RELATING TO A CHANGE OF CONTROL OF OUR COMPANY, AND OUR FAILURE TO DO SO
WOULD CONSTITUTE AN EVENT OF DEFAULT UNDER THE INDENTURE GOVERNING THE 11%
SENIOR NOTES.

In the event that:

      -     subject to certain exceptions, any person, entity or group of
            persons or entities becomes the beneficial owner, directly or
            indirectly, of 50% or more of our outstanding voting securities;

      -     at any time during the two-year period following the distribution of
            the 11% Senior Notes, the individuals that comprise a majority of
            our board of directors on the date of distribution of the 11% Senior
            Notes, plus any new directors elected to our board during this
            two-year period, cease to comprise a majority of our board of
            directors;

      -     subject to certain exceptions, we consolidate with or merge with or
            into another entity, we sell or lease all or substantially all of
            our assets to another entity or any entity consolidates with or
            merges into or with our company, in each case pursuant to a
            transaction in which our outstanding voting securities are changed
            into or exchanged for cash, securities or other property, unless no
            person, entity or group of persons or entities owns, immediately
            after the transaction, more than 50% of our outstanding voting
            stock,

then each holder of the 11% Senior Notes will have the right to require us to
repurchase all or a portion of its 11% Senior Notes for a purchase price equal
to 101% of the principal amount of that holder's 11% Senior Notes plus accrued
and unpaid interest to the date of repurchase. There can be no assurance that we
will have sufficient funds available to make any required repurchases of 11%
Senior Notes or that the terms of our other indebtedness will permit us to make
any required repurchases of 11% Senior Notes. If we are unable to repurchase a
holder's 11% Senior Notes in connection with one of the events described above,
then this would constitute an event of default under the indenture governing the
11% Senior Notes.

WE CANNOT ASSURE YOU THAT AN ACTIVE MARKET WILL DEVELOP FOR OUR COMMON STOCK AND
THE 11% SENIOR NOTES, AND THE FAILURE OF SUCH A MARKET TO DEVELOP COULD
NEGATIVELY IMPACT THE LIQUIDITY OF OUR COMMON STOCK AND THE 11% SENIOR NOTES.

      Our common stock and the 11% Senior Notes were recently issued and we
cannot assure you that an active market for our common stock or the 11% Senior
Notes will develop or, if such a market develops, that this market will be
liquid. Although in the future we may apply to have our common stock quoted on
the Nasdaq National Market upon satisfaction of the Nasdaq National Market's
minimum listing requirements, we cannot assure you as to when, if ever, we will
satisfy these listing requirements or if our application will ultimately be
approved. The 11% Senior Notes are not currently listed on any national
securities exchange or inter-dealer quotation service, and we do not anticipate
doing so in the future. Accordingly, we cannot assure you that a holder of the
11% Senior Notes will be able to sell these notes in the future or as to the
price at which any sale of the notes may occur. The liquidity of the market for
the 11% Senior Notes and the prices at which the notes trade will depend upon
the amount of 11% Senior Notes outstanding, the number of holders of the 11%
Senior Notes, the interest of securities dealers in maintaining a market in the
notes and other factors beyond our control. The liquidity of, and the trading
market for, the 11% Senior Notes may also be adversely affected by general
declines in the market for high yield securities.


                                       15
<PAGE>
THE TERMS OF THE INDENTURE GOVERNING THE 11% SENIOR NOTES PERMITS US AND OUR
SUBSIDIARY GUARANTORS TO INCUR ADDITIONAL INDEBTEDNESS WHICH MAY BE SECURED BY
LIENS SENIOR TO THOSE SECURING THE 11% SENIOR NOTES AND THE SUBSIDIARY
GUARANTEES AND, AS A RESULT, IN THE EVENT OF A DEFAULT THE HOLDERS OF THE 11%
SENIOR NOTES MAY NOT BE ABLE TO RECOVER THE FULL VALUE OF THEIR INVESTMENT.

      Under the terms of the indenture governing the 11% Senior Notes, we are
permitted to incur up to an additional $20 million of indebtedness which may be
secured by liens senior to or in lieu of the liens securing the 11% Senior Notes
and the subsidiary guarantees, so long as the fair market value of the assets
subject to these liens does not exceed to any material extent 1.5 times the
amount of any indebtedness secured by these liens. In the event of a default the
holders of the liens on this additional indebtedness will be entitled to recover
on the proceeds of a sale of our collateral prior to the holders of the 11%
Senior Notes and, consequently, holders of the 11% Senior Notes may not be able
to recover the full value of their investment. In addition, we are permitted to
incur up to $15 million of indebtedness in any one year and an aggregate of $60
million of indebtedness outstanding at any one time which also may be secured by
liens with the same or senior priority to the liens securing the 11% Senior
Notes.

WE ARE PERMITTED TO PAY INTEREST ON THE 11% SENIOR NOTES IN ADDITIONAL NOTES IN
LIEU OF CASH FOR UP TO FOUR YEARS FOLLOWING THE DISTRIBUTION OF THESE NOTES,
WHICH EXPOSES HOLDERS OF THE NOTES TO ALL OF THE RISKS DESCRIBED ABOVE.

      Under the terms of the indenture governing the 11% Senior Notes, we will
pay interest on these notes in additional 11% Senior Notes for a period of two
years following the distribution of the 11% Senior Notes and, at the discretion
of our board of directors, for an additional two years thereafter. As a result,
holders of the additional 11% Senior Notes will be subject to all of the risks
described above.

ITEM 2. PROPERTIES

      In July 1998, we purchased the land and the approximately 155,000 gross
square foot building located at 139 Centre Street, New York, New York.
Construction at this facility was completed in July 1999 and the building houses
an Internet data center and offices for our executive, technical, sales and
administrative personnel. In January 2003 we retained the services of a real
estate broker to lease approximately one third of our 139 Centre Street
facility.

      In July 1998, we signed a lease commencing January 15, 1999 for
approximately 60,000 gross square feet of space in Santa Clara, California. The
facility contains an Internet data center and offices for technical, sales and
administrative personnel. In October 1998, we signed a lease for the rental of
approximately 38,000 gross square feet of space at Prospect House, 80 New Oxford
Street, London, England. Construction at both of these facilities was completed
in July 1999.

      Prospect House contains an Internet data center and some technical staff
while the balance of technical personnel as well as sales and administrative
personnel are located in our other London facility at 1 Oliver's Yard. In July
2000, we entered into a lease for the Oliver's Yard facility, which consists of
approximately 210,000 gross square feet of space. Construction and fit-out of
one floor of Internet data center space has been completed and the facility
became operational in June 2001. In April 2002 we renegotiated our lease for
this Internet data center, resulting in us retaining a total of 60,000 gross
square feet of space.

      In August 2000, in connection with our acquisition of Comstar.net,
Incorporated, we acquired our existing leases for Internet data centers in
Atlanta containing approximately 5,000 gross square feet of space.

      In September 2000 we purchased the land and the approximately 187,000
gross square foot building located at 415 Greenwich Street, New York, New York.
Construction at this facility was completed and the building houses our second
New York Internet data center and additional office space. In January 2003, we
retained the services of a real estate broker to explore the possibility of a
sale or lease of the 415 Greenwich Street facility.

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


                                       16
<PAGE>

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.
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. 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 March 1, 2002, our company and two of our wholly-owned subsidiaries,
Comstar.net, Inc. and ATC Merger Corp., filed voluntary petitions under Chapter
11 of the U.S. Bankruptcy Code, together with the Plan, with the United States
Bankruptcy Court for the District of Delaware. On April 8, 2002, the bankruptcy
court confirmed the Plan. Effective April 25, 2002, all conditions necessary for
the Plan to become effective were satisfied or waived and we emerged from
Chapter 11 bankruptcy protection.

      There is a putative class action lawsuit pending in the United States
District Court for the Southern District of New York entitled In re Globix Corp
Securities Litigation, No. 02-CV-00082. This lawsuit names as defendants our
company and our former officers Marc Bell, Peter Herzig (who remains a director
of our company) and Brian Reach, and asserts claims under sections 10(b) and
20(a) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder on
behalf of all persons or entities who purchased our securities between November
16, 2000 and December 27, 2001.

      On June 25, 2002, we entered into a Stipulation and Order with the lead
plaintiffs in the class action lawsuit. 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 reserve in escrow pending the outcome of
the class action lawsuit. In the event that any judgment or settlement entered
into in connection with the class action lawsuit requires us to pay an amount in
excess of our liability insurance, we will be 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.

      A consolidated amended complaint was filed in this lawsuit on June 28,
2002. We have filed a motion to dismiss the consolidated amended complaint.
Briefing of that motion is not yet complete. If the motion is denied, the case
will proceed to the discovery stage. We believe that the allegations in this
lawsuit are without merit and we intend to vigorously defend against them.
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 12, 2002, Robert B. Bell, a former officer and director of our
company, filed a complaint in the United States District Court for the Southern
District of New York, entitled Robert B. Bell v. Arnold M. Bressler, as Trustee,
and Globix Corporation, alleging breach of contract claims related to the
failure to make payments under a trust, which we refer to as the Rabbi Trust,
that we formed pursuant to an employment agreement with Mr. Bell. Mr. Bell is
seeking damages in excess of $2.0 million plus costs, disbursements and legal
fees. This action is currently being stayed pending resolution of the lawsuit by
our company against Mr. Bell and Arnold M. Bressler, the trustee of the Rabbi
Trust, described below.

      In addition, in connection with the same underlying issues, on July 24,
2002 we filed a complaint in the United States Bankruptcy Court for the District
of Delaware entitled Globix Corporation v. Arnold N. Bressler, as Trustee of the
Globix Corporation Rabbi Trust and Robert B. Bell. In this action, we have
requested that the assets of the Rabbi Trust be turned over to our company. We
have also requested that Mr. Bressler, as Trustee of the Rabbi Trust, be
enjoined from dissipating the assets of the Rabbi Trust pending resolution of
our claims by the court and filed a motion for a declaratory judgment to
establish the maximum amount of Mr. Bell's claims. Mr. Bressler has asserted
counter claims in this action, and both Mr. Bressler and Mr. Bell have submitted
objections in this action, which is currently in the discovery phase. We are
vigorously pursing our claims in this action and defending against Mr.
Bressler's counterclaims.

      Our company and Mr. Bell are currently in settlement discussions to
resolve both of these lawsuits.

      On February 6, 2003, a putative derivative suit was filed in New York
State Supreme Court (County of New York) against our company, as nominal
defendant, and Lehman Brothers Inc., Chase Securities, Inc.,


                                       17
<PAGE>

Credit Suisse First Boston Corporation, Merrill Lynch Pierce Fenner & Smith
Incorporation, Salomon Smith Barney Inc. and ABN Amro Securities LLC (as
successor to ING Barings, LLC), the initial purchasers in our February 2000
offering of the 12.5% Senior Notes. The suit alleges that the underwriting
discount granted to the initial purchasers of the 12.5% Notes violated Section
5-531 of the New York General Obligations Law, which limits the amount that can
be charged by a loan broker. On March 6, 2003, the plaintiff and the initial
purchasers entered into a tolling agreement that would result in the dismissal
of the action without prejudice pending action on a motion to dismiss an amended
complaint submitted in a similar case involving debt securities issued by
another corporation. On March 13, 2003, the court dismissed the action without
prejudice.

      We are from time to time 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 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

During the fourth quarter of our fiscal year ended September 30, 2002 there were
no matters submitted to a vote of security holders.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a) Market Information. Our common stock is traded on the OTC Bulletin Board
under the symbol GBXXE. 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. To our knowledge, our common stock
did not trade on the OTC Bulletin Board, and there were no bid quotations with
respect to our common stock, from the Effective Date of the Plan through
September 30, 2002. Accordingly, we have not provided historical price
information regarding our common stock for the period between the Effective Date
of the Plan and September 30, 2002. In addition, we have not provided historical
price information for our common stock for periods prior to the Effective Date
of the Plan, as we do not believe that this information will assist investors in
evaluating our company. Our common stock outstanding immediately prior to the
Effective Date of the Plan was cancelled as of the Effective Date of the Plan.
The first reported trade of our common stock following the Effective Date of the
Plan occurred on October 31, 2002.

      Because we failed to file this annual report within the time period
specified by the rules of the Securities and Exchange Commission, the OTC
Bulletin Board placed us on a list to be deleted from the OTC Bulletin Board,
effective February 15, 2003. We appealed this action and a hearing was held on
March 6, 2003 before a panel authorized by the Nasdaq Stock Market Board of
Directors, which regulates the OTC Bulletin Board. We have not yet received
notice of the results of this hearing. We think it is likely that our stock will
continue to be included on the OTC Bulletin Board, and that once we have filed
this annual report and our Quarterly Report on Form 10-Q for the quarter ended
December 31, 2002, the OTC Bulletin Board will remove the "E" from our trading
symbol that is used by the OTC Bulletin Board to indicate that a stock is
subject to deletion from the OTC Bulletin Board for failure to comply with the
OTC Bulletin Board's eligibility rules. If our stock were deleted from the OTC
Bulletin Board, we could reapply to be traded on the OTC Bulletin Board if we
received the support of at least two market makers. Any deletion of our stock
from the OTC Bulletin Board could have an adverse impact on our stock price and
the liquidity of our common stock.

      (b) Number of Holders of Common Stock. On February 24, 2003, there were 79
record holders of the Successor Company's (as defined below) common stock. In
addition, the Plan provides that the 268 record holders of the Predecessor
Company's (as defined below) common stock on the Effective Date of the Plan will
be entitled to receive, in exchange for claims in respect of their shares of the
Predecessor Company's common stock, their pro rata portion (which, under the
terms of the Plan, may be equal to zero) of 164,600 shares of the Successor
Company's common stock. While the distribution of these shares will not occur
until the resolution


                                       18
<PAGE>

of the shareholders' derivative suit described in "Item 3 - Legal Proceedings",
we estimate that the total number of holders of the Successor Company's common
stock following this distribution will be approximately 173.

      (c) Dividends. We did not pay any cash dividends on our common stock
during the 12 months ended September 30, 2002. Other than payment of dividends
on shares of our preferred stock that were cancelled pursuant to the Plan, 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 the expansion of 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. In addition, under the terms of the 11% Senior Notes, our
ability to pay cash dividends is contractually limited. It is not anticipated
that cash dividends will be paid to the holders of our common stock in the
foreseeable future.

ITEM 6. SELECTED FINANCIAL DATA

      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. The following selected historical consolidated
financial data as of and for the five months ended September 30, 2002 (Successor
Company), the seven months ended April 30, 2002 (Predecessor Company) and as of
and for the fiscal years ended September 30, 2001, 2000, 1999 and 1998
(Predecessor Company) have been derived from our audited consolidated financial
statements and related notes. This information should be read together with, and
is qualified in its entirety by reference to, our consolidated financial
statements that are included elsewhere in this annual report and the notes
thereto and the information set forth in "Management's Discussion and Analysis
of Financial Condition and Results of Operations."


                                       19
<PAGE>

               SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
         (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                                              Predecessor
                                                                                                                Company
                                                                                                    ------------------------------
                                                                              Successor Company                         Year-Ended
                                                                                 Five months        Seven months      September 30,
                                                                                    ended               ended         ------------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:                                    September 30, 2002    April 30, 2002         2001
                                                                              ------------------    --------------    ------------
<S>                                                                           <C>                   <C>               <C>
Revenue                                                                          $     30,723        $     51,273     $    104,210
Operating costs and expenses:
    Cost of revenue                                                                    10,458              22,123           40,609
    Selling, general and administrative                                                29,313              57,206          124,821
    Restructuring and other charges                                                        --              24,834           56,109
    Loss on impairment of assets                                                           --               2,578            3,500
    Depreciation and amortization                                                       6,060              28,115           36,657
                                                                                 ------------        ------------     ------------
        Total operating costs and expenses                                             45,831             134,856          261,696
Loss from operations                                                                  (15,108)            (83,583)        (157,486)
    Interest and financing expense                                                     (6,653)            (34,511)         (65,128)
    Interest income                                                                       787               2,024           13,282
    Other income                                                                          275                 352            2,147
    Other expense                                                                        (432)               (861)          (3,526)
    Gain (loss) on discharge of debt                                                       --             427,066               --
    Reorganization items                                                                   --              (7,762)              --
    Fresh start accounting adjustments                                                     --            (148,569)              --
    Minority interest                                                                      --               5,778               --
                                                                                 ------------        ------------     ------------
(Loss) Income before cumulative effect of a change in accounting principle            (21,131)            159,934         (210,711)
    Cumulative effect of a change in accounting principle                                  --                  --           (2,332)
                                                                                 ------------        ------------     ------------
Net (loss) Income                                                                     (21,131)            159,934         (213,043)
    Dividends and accretion on preferred stock                                             --              (3,178)          (7,104)
                                                                                 ------------        ------------     ------------
Net (loss) Income attributable to common stockholders                            $    (21,131)       $    156,756     $   (220,147)
                                                                                 ============        ============     ============

Earnings (loss) per common share:
  Basic:
    Before cumulative effect of a change in accounting principle                 $      (1.28)       $       3.96     $      (5.66)
    Cumulative effect of a change in accounting principle                                  --                  --            (0.06)
                                                                                 ------------        ------------     ------------
Basic (loss) earnings per share attributable to common stockholders              $      (1.28)       $       3.96     $      (5.72)
                                                                                 ============        ============     ============

Weighted average common shares outstanding - basic                                 16,460,000          39,618,856       38,476,909
                                                                                 ============        ============     ============
Diluted:
  Before cumulative effect of a change in accounting principle                   $      (1.28)       $       3.30     $      (5.66)
  Cumulative effect of a change in accounting principle                                    --                  --            (0.06)
                                                                                 ------------        ------------     ------------
Diluted (loss) earnings per share attributable to common stockholders            $      (1.28)       $       3.30     $      (5.72)
                                                                                 ============        ============     ============

Weighted average common shares outstanding - diluted                               16,460,000          48,507,456       38,476,909
                                                                                 ============        ============     ============

OTHER CONSOLIDATED FINANCIAL DATA DATA:

Net cash provided by (used in) operating activities                              $      3,679        $    (59,684)    $   (140,543)
Net cash (used in) provided by investing activities                              $     (6,461)       $      5,842     $   (113,271)
Net cash (used in) provided by financing activities                              $     (2,279)       $     (4,946)    $        387
Capital expenditures                                                             $      1,397        $     19,959     $    166,303

CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents, short term investments and
 marketable securities                                                           $     54,281                         $    113,112
Restricted cash and investments                                                  $      9,097                         $     33,870
Working capital                                                                  $     42,421                         $     78,340
Total assets                                                                     $    262,720                         $    552,988
Current portion of long term debt                                                $      1,520                         $      6,687
Long term debt, less current portion                                             $    151,274                         $    630,750
Mandatory Redeemable convertible preferred stock                                 $         --                         $     83,230
Stockholders' equity (deficit)                                                   $     72,547                         $   (237,325)
</TABLE>

<TABLE>
<CAPTION>
                                                                                             Predecessor Company
                                                                             ----------------------------------------------------
                                                                                           Year-Ended September 30,
                                                                             ----------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:                                      2000(1)              1999                1998
                                                                             ------------        ------------        ------------
<S>                                                                          <C>                 <C>                 <C>
Revenue                                                                      $     81,287        $     33,817        $     20,595
Operating costs and expenses:
    Cost of revenue                                                                42,513              22,184              13,322
    Selling, general and administrative                                            98,113              36,495              10,696
    Restructuring and other charges                                                    --                  --                  --
    Loss on impairment of assets                                                       --                  --                  --
    Depreciation and amortization                                                  18,228               6,329               1,310
                                                                             ------------        ------------        ------------
        Total operating costs and expenses                                        158,854              65,008              25,328
Loss from operations                                                              (77,567)            (31,191)             (4,733)
    Interest and financing expense                                                (57,831)            (18,386)             (8,376)
    Interest income                                                                24,749               6,192               1,953
    Other income                                                                    2,816                  --                  --
    Other expense                                                                  (1,037)                 --                  --
    Gain (loss) on discharge of debt                                              (17,577)(2)              --                  --
    Reorganization items                                                               --                  --                  --
    Fresh start accounting adjustments                                                 --                  --                  --
    Minority interest                                                                  --                  --                  --
                                                                             ------------        ------------        ------------
(Loss) Income before cumulative effect of a change in accounting principle       (126,447)            (43,385)            (11,156)
    Cumulative effect of a change in accounting principle                              --                  --                  --
                                                                             ------------        ------------        ------------
Net (loss) Income                                                                (126,447)            (43,385)            (11,156)
    Dividends and accretion on preferred stock                                     (5,768)                 --                  --
                                                                             ------------        ------------        ------------
Net (loss) Income attributable to common stockholders                        $   (132,215)       $    (43,385)       $    (11,156)
                                                                             ============        ============        ============

Earnings (loss) per common share:
  Basic:
    Before cumulative effect of a change in accounting principle             $      (3.73)       $      (1.73)       $      (0.77)
    Cumulative effect of a change in accounting principle                              --                  --                  --
                                                                             ------------        ------------        ------------
Basic (loss) earnings per share attributable to common stockholders          $      (3.73)       $      (1.73)       $      (0.77)
                                                                             ============        ============        ============

Weighted average common shares outstanding - basic                             35,484,040          25,116,800          14,503,176
                                                                             ============        ============        ============
Diluted:
  Before cumulative effect of a change in accounting principle               $      (3.73)       $      (1.73)       $      (0.77)
  Cumulative effect of a change in accounting principle                                --                  --                  --
                                                                             ------------        ------------        ------------
Diluted (loss) earnings per share attributable to common stockholders        $      (3.73)       $      (1.73)       $      (0.77)
                                                                             ============        ============        ============
Weighted average common shares outstanding - diluted                           35,484,040          25,116,800          14,503,176
                                                                             ============        ============        ============

OTHER CONSOLIDATED FINANCIAL DATA DATA:

Cash flows provided by (used in) operating activities                        $    (94,318)       $    (36,897)       $        115
Cash flows (used in) provided by investing activities                        $   (149,939)       $    (58,774)       $    (97,387)
Cash flows (used in) provided by financing activities                        $    509,395        $    135,589        $    156,344
Capital expenditures                                                         $    150,876        $     98,110        $     31,085

CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents, short term investments and
  marketable securities                                                      $    378,510        $    111,412        $     76,111
Restricted cash and investments                                              $     43,178        $     45,039        $     60,480
Working capital                                                              $    366,139        $    101,216        $     75,859
Total assets                                                                 $    729,591        $    302,518        $    182,226
Current portion of long term debt                                            $      2,173        $      2,088        $      2,398
Long term debt, less current portion                                         $    621,809        $    161,005        $    159,091
Mandatory Redeemable convertible preferred stock                             $     76,042        $         --        $         --
Stockholders' equity (deficit)                                               $    (18,030)       $    106,405        $      2,719
</TABLE>


                                       20
<PAGE>
(1)   On December 10, 1999 we announced a two-for-one stock split of our
      outstanding shares of common stock, which was completed on December 30,
      1999. On January 10, 2000, we announced an additional two-for-one stock
      split of our outstanding shares of common stock on January 31, 2000.
      Stockholders' equity has been restated to give retroactive recognition to
      both stock splits for all periods presented in the accompanying financial
      statements by reclassifying from additional paid-in-capital to common
      stock the par value of the additional shares arising from the splits. In
      addition, all references to number of shares, per share amounts and stock
      options data have been restated to reflect the stock splits.

(2)   In accordance with Statement of Financial Accounting Standards, or SFAS,
      No. 145, the $17,577 loss on the extinguishment of debt previously
      recorded in the fiscal year ended September 30, 2000 as an extraordinary
      item has been reclassified to loss on discharge of debt.


ITEM 7. MANAGEMENT'S DISCUSSION 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 "Selected Consolidated Financial and
Operating Data" appearing elsewhere in this annual report. The following
discussion contains forward-looking statements 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 "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.

      As is more fully discussed in Note 1 ("Basis of Presentation") to the
consolidated financial statements, we reported under fresh start accounting
pursuant to SOP 90-7 as of May 1, 2002 resulting in a change in the basis of
accounting in the underlying assets and liabilities of our company at the
Effective Date of the Plan. Accordingly, the financial statements of the
Successor Company and the Predecessor Company are not comparable. Where
appropriate, we have combined the actual results of operations for the Successor
Company for the five months ended September 30, 2002 and the Predecessor Company
for the seven months ended April 30, 2002 as pro forma combined 2002 operating
results in order to present a more meaningful comparative analysis to the
operating results of the prior fiscal year. Successor Company and Predecessor
Company financial data are derived from the consolidated financial statements
that appear elsewhere in this annual report. In addition to the basis in
accounting differences noted above, our operating results for fiscal 2002 were
significantly impacted by:

      -     items associated with the Predecessor Company's bankruptcy including
            debt discharge, restructuring activities and other charges related
            to certain bankruptcy activities and certain changes in accounting
            estimates recorded in the third quarter fiscal 2002; and

      -     the Successor Company recognizing the effects of reduced
            depreciation, additional amortization and reduced interest expense
            arising from the revaluation of our assets and liabilities and the
            reduced amount of the Successor Company's outstanding debt following
            the Effective Date of the Plan.

OVERVIEW

      Our company was founded in 1989 and undertook a major expansion plan in
1998 in order to more aggressively pursue opportunities resulting from the
growth of the Internet. In April 1998, we completed a $160.0 million offering of
13.0% Senior Notes due 2005, which we refer to as the 13% Senior Notes. In July
1999, we completed construction of our initial Internet data center facilities
in New York City, New York; London, England and Santa Clara, California and
began operations at each facility.

      In March 1999, we completed a public offering of 16,000,000 shares of
common stock, resulting in net proceeds to our company of approximately $136.5
million.

      In December 1999, we completed the private placement of 80,000 shares of
preferred stock to affiliates of Hicks, Muse, Tate & Furst Incorporated,
resulting in net proceeds to our company of $75.3 million.


                                       21
<PAGE>

      In February 2000, we issued $600 million in aggregate principal amount of
12.5% Senior Notes due 2010 to fund the continued expansion of our facilities
and network and to conduct a tender offer to purchase all of the outstanding
13.0% Senior Notes. The purchase price of the tender, completed on February 8,
2000, was 106.5% of the $160.0 million in aggregate principal amount of the
13.0% Senior Notes outstanding, plus all accrued and unpaid interest.

      On March 1, 2002, our company and two of our wholly-owned subsidiaries,
Comstar.net, Inc. and ATC Merger Corp., filed voluntary petitions under Chapter
11 of the U.S. Bankruptcy Code, together with the Plan, in 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. Effective April
25, 2002, all conditions necessary for the Plan to become effective were
satisfied or waived and we emerged from Chapter 11 bankruptcy protection.

      For fiscal periods ended on or before March 31, 2001, we reported our
results of operations in two operating segments: the Internet Division and the
Server Sales and Integration Division. The Internet Division provides
co-location, dedicated Internet access and application services, such as
streaming media, network security and server administration and network
monitoring. The Server Sales and Integration Division provides Internet-related
hardware and software, systems and network integration. Revenue from the
Internet Division has grown significantly as a percentage of total revenue,
increasing from 6.0% in 1996 to 94.0% in the three-month period ended March 31,
2001. As a result of a change in how we manage our company, effective April 1,
2001 we reported our results of operations in one operating segment under the
provisions of SFAS No. 131.

      The largest component of our total revenue is complex hosting services and
connectivity, including both minimum committed amounts and overages. In addition
to fees based on bandwidth usage, we charge certain customers monthly fees for
the use of our physical facilities, which we refer to as complex hosting. Our
complex hosting contracts typically range from one to three years. The second
largest component of our total revenue is dedicated Internet access services to
business customers. Our dedicated access customers typically sign one or
two-year contracts that provide for fixed, monthly-recurring service fees and a
one-time installation fee. Application services are charged on a monthly fixed
price or upon completion of a project.

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. 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:



                                       22
<PAGE>
Revenue Recognition

            Revenue consists primarily of managed hosting and dedicated Internet
access fees, sales of systems administration and application services such as
streaming media, network security and administration and network monitoring.

             We recognize revenue in accordance with the Securities and Exchange
Commission's Staff Accounting Bulletin, or SAB, No. 101 "Revenue Recognition in
Financial Statements," as amended. SAB No. 101 expresses the view of the
Securities and Exchange Commission's staff in applying U.S. generally accepted
accounting principles to certain revenue recognition issues. Under the
provisions of SAB No. 101, set up and installation revenue are deferred and
recognized over the estimated length of the customer relationship, which in the
case of our business is approximately 36 months. Prior to April 30, 2002, the
estimated length of the customer relationship was 12-18 months. Effective
October 1, 2000, we changed our revenue recognition method for set up and
service installation fees upon the adoption of SAB No. 101. Prior to our
adoption of SAB No. 101, we recognized revenue immediately upon completion of
set up or installation. The change in accounting principle resulted in a revenue
deferral and cumulative effect charge totaling $2.3 million, or $0.06 per share,
which was reflected in our consolidated statements of operations for the fiscal
year ended September 30, 2001. Our adoption of SAB No. 101 decreased our net
loss by $0.5 million for the fiscal year ended September 30, 2001. The effect of
our adoption of SAB No. 101 for the fiscal year ended September 30, 2000 was not
material.

       Monthly service revenue related to managed hosting and Internet access is
recognized over the period that services are provided. Revenue derived from
application services is recognized at the completion of a project. Projects are
generally completed within a month. Payments received in advance of providing
services are deferred until the period that these services are provided.

Cost of Revenue

      Cost of revenue consists primarily of telecommunications costs for
Internet access and managed hosting and includes the cost of hardware and
software purchased for resale to customers. Cost of revenue excludes payroll,
occupancy and depreciation. 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 leased lines connecting our facilities to our backbone
and aggregation points of presence.

Selling, General and Administrative Expenses

      Selling, general and administrative expenses consist primarily of salaries
and occupancy costs for executive, financial, operational and administrative
personnel and related operating expenses associated with network operations,
customer service and field services as well as marketing expenses, professional
fees and bad debt expense.

Concentrations of Credit Risk

      Financial instruments that potentially subject us to concentrations of
credit risk consist primarily of cash and cash equivalents, short-term
investments, restricted cash and investments, marketable securities and accounts
receivable. We maintain cash and cash equivalents, short-term investments and
restricted cash and investments with various major financial institutions, which
invest primarily in U.S. Government instruments, high quality corporate
obligations, certificates of deposit and commercial paper.

      We believe that concentrations of credit risk with respect to trade
accounts receivable are limited due to the large number and geographic
dispersion of our customers. We perform ongoing credit evaluations of our
customers and maintain reserves for potential losses. Our management makes
estimates of the uncollectibility of our trade accounts receivable on a monthly
basis. No single customer of our company individually comprised more than 10% of
our revenues in the seven month period ended April 30, 2002 and in the five
month period ended September 30, 2002.

Property, Plant and Equipment

      Property, plant and equipment are stated at depreciated historical cost
for the Predecessor Company adjusted for impairment and include fresh start
adjustments for the Successor Company . All identifiable assets recognized in
accordance with fresh start accounting were recorded at the Effective Date of
the Plan based upon


                                       23
<PAGE>

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:

   Buildings and building improvements                     10 to 44 years

   Computer hardware and software and network equipment    two to seven years

   Office furniture and equipment                          three to seven years

      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.

Intangible Assets

      We adopted SFAS No. 141, "Business Combinations" and SFAS No. 142,
"Goodwill and other Intangible Assets" at the Effective Date of the Plan. SFAS
141 requires all business combinations to be accounted for using the purchase
method of accounting and that certain intangible assets acquired in a business
combination must be recognized as assets separate from goodwill. SFAS No. 142
addresses the recognition and measurement of goodwill and other intangible
assets subsequent to their acquisition. SFAS No. 142 also addresses the initial
recognition and measurement of intangible assets acquired outside of a business
combination whether acquired individually or with a group of other assets. SFAS
No. 142 provides that intangible assets with indefinite lives and goodwill will
not be amortized but, will be tested at least annually for impairment. If an
impairment is indicated then the asset will be written down to its fair value
typically based upon its future expected discounted cash flows.

      Intangible assets of the Successor Company are as follows:

            -     trademarks and trade name;

            -     network build-out/know-how; and

            -     customer contracts.

      The trademark and trade name identifiable assets are considered
indefinite-lived intangible assets. Accordingly, trademarks and trade name are
not amortized but are periodically reviewed for impairment. The network
build-out/know-how and customer contracts identifiable assets are considered
finite-lived intangible assets. Finite-lived intangible assets are amortized
over their useful lives. The network build-out/know-how intangible asset is
being amortized over eight years and the customer contracts intangible assets
are being amortized over three years.

Long-Lived Assets

      We adopted SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", on the Effective Date of the Plan. SFAS No. 144 supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and of
Long-Lived Assets to be Disposed Of" and portions of Accounting Principles Board
Opinion, or APB, No. 30, "Reporting the Results of Operations -- Reporting the
Effects of Disposal of a Segment of Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions", and amends Accounting Research
Bulletin No. 51, "Consolidated Financial Statements".

      We review the carrying amount of long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is indicated if the sum of the expected net cash
flows is less than the carrying amount of the long-lived assets being evaluated.
Measurement of any impairment is calculated as the difference between the
carrying amount of the long-lived


                                       24
<PAGE>

assets being evaluated and the fair value. We determine the estimated fair
market value of the assets based on the anticipated future cash flows discounted
at rates commensurate with the risks involved.

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. We
provide 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 our 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.

FISCAL YEAR ENDED SEPTEMBER 30, 2002 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
2001

Revenue

      Revenue for the fiscal year ended September 30, 2002 decreased 21.0% to
$82.0 million from $104.2 million for the fiscal year ended September 30, 2001.
This decrease was primarily attributable to significant decreases in lower
margin hardware sales and increased customer churn. Hardware and software sales
decreased $5.1 million, or 65.0%, as a result of our shift away from lower
margin hardware and software revenue. This decrease accounted for 23.0% of our
total revenue decline. Customer churn accounted for $17.1 million, or
approximately 77.0% of our revenue decrease. We define churn as contractual
revenue losses as a percentage of total contractual revenue due to customer
cancellations and downgrades, net of upgrades, and additions of new services.
Cancellations refer to customers that have either stopped using our services
completely or remained a customer but terminated a particular service.
Downgrades are a result of customers taking less of a particular service or
renewing their contract for identical services at a lower price. During fiscal
2002 our monthly churn averaged approximately 2.5%. Of this average monthly
churn, 1.7% was related to downgrades, 3.9% was related to cancellations,
partially offset by decreases in churn of 1.7% and 1.4% related to new and
upgraded contracts, respectively. For the first three quarters of fiscal 2002,
cancellations constituted approximately 69.0% of our monthly revenue losses and
downgrades constituted approximately 31.0% of our monthly revenue losses. In the
fourth quarter of 2002, cancellations constituted approximately 52.0% of our
monthly revenue losses and downgrades constituted approximately 48.0% of our
monthly revenue losses.

Cost of Revenue and Gross Margin

      Cost of revenue for the fiscal year ended September 30, 2002 decreased to
$32.6 million from $40.6 million for the fiscal year ended September 30, 2001. A
decrease of $3.9 million, or 11.0%, realized within non-hardware related costs
reflects our continued focus on network reconfiguration. A decrease of $4.2
million, or 64.0%, in hardware costs reflects our shift away from lower margin
hardware sales. Gross margin decreased to 60.0% for the fiscal year ended
September 30, 2002 from 61.0% for the fiscal year ended September 30, 2001,
primarily due to the impact of pricing pressure within the colocation and
bandwidth product categories.

Selling, General and Administrative Expenses

      Selling, general and administrative expenses, excluding restructuring
charges and gains/losses on impairment of operating assets were $57.2 million,
or 112.0% of revenue, for the seven month period ended April 30, 2002, compared
to $124.8 million, or 120.0% of revenue, for the fiscal year ended September 30,
2001. For the five month period ended September 30, 2002, selling, general and
administrative expenses were $29.3 million, or 95.0% of revenue. For the fiscal
year ended September 30, 2002 selling, general and administrative expenses
totaled $86.5 million, or 106% of revenue.

      The sequential decrease in selling, general and administrative expenses as
a percentage of revenue from the fiscal year ended September 30, 2001 through
both the seven month period ended April 30, 2002 and the five month period ended
September 30, 2002, was primarily attributable to a decrease in salaries and
benefits in connection with our restructuring efforts, which focused on
significant reductions in facilities and personnel. In the seven month period
ended April 30, 2002, salaries and benefits were $33.7 million, or 66.0%


                                       25
<PAGE>

of revenue, as compared to $72.7 million, or 70.0% of revenue, in the fiscal
year ended September 30, 2001. For the five month period ended September 30,
2002, salaries and benefits were $12.4 million, or 40.0% of revenue. For the
fiscal year ended September 30, 2002, salaries and benefits totaled $46.1
million, or 56.0% of revenue. The number of our employees decreased from
approximately 650 as of September 30, 2001 to approximately 262 as of September
30, 2002.

      For the seven month period ended April 30, 2002, bad debt expense was $4.3
million, representing 8.0% of revenue, compared to $14.1 million, or 14.0% of
revenue, for the fiscal year ended September 30, 2001. For the five month period
ended September 30, 2002, bad debt expense was $1.9 million, or 6.0% of revenue.
For the fiscal year ended September 30,2002, bad debt expense decreased to $6.2
million, or 8.0% of revenue. The decrease in bad debt expense for the fiscal
year ended September 30, 2002 was partially attributable to improvements in
collections as well as a proactive reduction in the number of high risk customer
account receivable balances. This decrease was also attributable to a reduction
in our allowance for doubtful accounts from a balance of approximately $8.1
million at September 30, 2001 to $2.6 million at September 30, 2002.

      In the seven month period ended April 30, 2002, marketing expenses were
$1.1 million, or 2.0% of revenue, compared to $6.4 million, or 6.0% or revenue,
for the fiscal year ended September 30, 2001. For the five month period ended
September 30, 2002, marketing expense was $0.2 million, or 1.0% of revenue. For
the fiscal year ending September 30, 2002, marketing expense totaled $1.4
million, or 2.0% of revenues. The decrease in marketing expenses for the fiscal
year ended September 30, 2002 was attributable to a reduction in the amount of
our advertising pursuant to our restructuring plan.

      Decreases in selling, general and administrative expenses in the fiscal
year ended September 30, 2002 were offset by the write-off in the five months
ended September 30, 2002 of a $4.1 million note receivable related to a lease
deposit that we deemed to be uncollectible. The lease was associated with our
Boston data center, which we closed as part of our restructuring plan.

Loss on Impairment of Assets

      In the seven month period ended September 30, 2002, loss on impairment of
assets resulted in a $2.6 million non-cash expense, as compared to $3.5 million
in 2001. This non cash-expense was attributable to the write down, in accordance
with SFAS No. 121, of goodwill generated from our acquisition of Comstar.net,
Inc., totaling $3.2 million. The $(0.6) million credit balance was associated
with the partial reversal of an estimated write-off in the fiscal year ended
September 30, 2001 of certain assets associated with an indefeasible right of
use, or IRU, capacity on a wavelength purchased from a supplier whose financial
viability was originally thought to have impaired the recoverability of these
assets.

Restructuring and Other Expenses

      We recorded a restructuring charge of approximately $24.8 million in the
fiscal year ended September 30, 2002, compared to $56.1 million in the fiscal
year ended September 30, 2001. Of the $24.8 million restructuring charge in the
fiscal year ended September 30, 2002, $17.2 million was for the write-off of
previously escrowed lease deposit and landlord inducement and legal payments,
$2.9 million was associated with employee terminations and $4.7 million was for
the write-off of equipment and leasehold improvements.

Depreciation and Amortization.

      Depreciation and amortization in the seven month period ended April 30,
2002 was $28.1 million, or 55.0% of revenue, as compared to $36.7 million, or
35.0% of revenue, in the fiscal year ended September 30, 2001. The increase in
depreciation and amortization as a percentage of revenue for the seven month
period ended April 30, 2002 resulted from an increase in our capital
expenditures. Depreciation and amortization in the five month period ended
September 30, 2002 was $6.1 million, or 20.0% of revenue. In the five month
period ended September 30, 2002, this decrease was attributable to a decrease in
our capital spending in connection with our restructuring plan as well as the
impact of fresh start accounting, in particular the revaluation of our tangible
and intangible assets as of April 30, 2002. For the fiscal year ended September
30, 2002, depreciation and amortization was $34.2 million, or 41.7% of revenue.


                                       26
<PAGE>

Interest and Financing Expense and Interest Income.

      Interest and financing expense for the seven month period ended April 30,
2002 was $34.5 million, or 67.0% of revenue, compared to $65.1 million, or 63.0%
of revenue, in the fiscal year ended September 30, 2001. Interest and financing
expense in the five month period ended September 30, 2002 was $6.7 million, or
22.0% of revenue. For the fiscal year ended September 30, 2002, interest and
financing expense totaled $41.2 million, or 50.0% of revenue. The decrease in
interest and financing expense was primarily attributable to the reduction in
our outstanding indebtedness pursuant to the Plan. As of the Effective Date of
the Plan, our annual interest expense was reduced from $75.0 million to
approximately $13.2 million, before compounding.

      Interest income in the seven month period ended April 30, 2002 was $2.0
million, or 4.0% of revenue, compared to $13.3 million, or 13.0% of revenue, in
the fiscal year ended September 30, 2001. Interest income in the five month
period ending September 30, 2002 was $0.8 million, or 3.0% of revenue. This
decreasing trend was primarily attributable to the reduced amount of our cash
investments and the impact of declining interest rates as compared to the prior
fiscal year. For the fiscal year ended September 30, 2002, interest income was
$2.8 million, or 3.0% of revenue.

Gain on Discharge of Debt

      On the Effective Date of the Plan, we recognized a gain on the discharge
of debt of $427.1 million associated with the exchange of the 12.5% Senior
Notes for the 11% Senior Notes under the Plan and recognized this gain in the
fiscal year ended September 30, 2002. We did not recognize any gain on the
discharge of debt in the fiscal year ended September 30, 2001.

Minority Interest in Subsidiary

      The minority interest credit of $5.8 million in the fiscal year ended
September 30, 2002 was related to the consolidation of a subsidiary in which we
own 0.1% but which we consolidate with our results due to our effective control
of this subsidiary. We did not recognize any minority interest in the fiscal
year ended September 30, 2001.

Reorganization Items.

      Reorganization expenses of $7.8 million recorded in the fiscal year ended
September 30, 2002 were attributable to expenses incurred by the Predecessor
Company in connection with its Chapter 11 bankruptcy filing and reorganization.
There were no reorganization expenses in the fiscal year ended September 30,
2001.

Fresh Start Accounting Adjustments

      Pursuant to fresh start accounting principles, we have adjusted the value
of our assets and liabilities to their fair values as of April 30, 2002. The net
effect of all fresh start accounting adjustments in the fiscal year ended
September 30, 2002 resulted in a charge of $148.6 million. There were no fresh
start accounting adjustments in 2001.

Other Income

      Other income decreased to $0.6 million in the fiscal year ended September
30, 2002 from $2.1 million in the year ended September 30, 2001. This decrease
primarily resulted from decreased gains on sales of short-term investments and
marketable securities.

Other Expenses.

      The decrease in other expense to $1.3 million for the fiscal year ended
September 30, 2002 as compared to $3.5 million for the fiscal year ended
September 30, 2001 is a result of fewer impairments on strategic investments in
fiscal 2002 as compared to fiscal 2001.


                                       27
<PAGE>

Net Income (Loss) Attributable To Common Stockholders

      As a result of the factors described above, we reported net income of
$138.8 million and net income attributable to common stockholders of $135.6
million, or $2.67 basic earnings per share and $2.01 diluted earnings per share,
respectively, for the fiscal year ended September 30, 2002, as compared to a net
loss of $213.0 million and net loss attributable to common stockholders of
$220.1 million, or $5.72 basic and diluted loss per share (including the
cumulative effect of a change of accounting principle associated with the
adoption of SAB No. 101 of $2.3 million, or $0.06 per share), for the fiscal
year ended September 30, 2001.

FISCAL YEAR ENDED SEPTEMBER 30, 2001 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
2000

Revenue

      Revenue for the fiscal year ended September 30, 2001 increased 28.2% to
$104.2 million from $81.3 million for the fiscal year ended September 30, 2000.
This increase was primarily attributable to availability of data center space,
which provided our account managers with an opportunity to increase the number
of customers and to sell additional products and services to existing accounts.

Cost of Revenue

      Cost of revenue for the fiscal year ended September 30, 2001 was $40.6
million, or 39.0% of total revenue, as compared to $42.5 million, or 52.3% of
total revenue, for the fiscal year ended September 30, 2000. The decrease in
cost of revenue was primarily attributable to a shift in product mix toward
recurring revenue streams with higher margins.

Selling, General and Administrative Expenses

      Selling, general and administrative expenses for the fiscal year ended
September 30, 2001 were $128.3 million, or 123.1% of total revenue, as compared
to $98.1 million, or 120.6% of total revenue, for the fiscal year ended
September 30, 2000. Approximately $15.0 million, or 49.5% of this increase, was
attributable to an increase in salaries and benefits necessitated by the
anticipated growth of our business. However, the downturn in the
telecommunications and technology sectors during the last half of the fiscal
year ended September 30, 2001 required a reduction in facilities and personnel
and, consequently, we decreased the number of our employees from approximately
850 as of September 30, 2000 to approximately 650 as of September 30, 2001. The
majority of the headcount reductions occurred in the fourth quarter of the
fiscal year ended September 30, 2001. Approximately $3.1 million, or 10.1% of
the increase in selling, general and administrative expenses, was attributable
to an increase in rent expense associated with additional Internet data center
and sales office facilities. In addition, approximately $11.4 million, or 37.8%,
of this increase was attributable to an increase in bad debt expense
necessitated by the deterioration in the business environment and increased
customer churn throughout the second half of the fiscal year ended September 30,
2001. Selling, general and administrative expenses for the fiscal year ended
September 30, 2001 also included a one-time non-cash charge of $3.5 million
associated with the write-off of certain operating assets associated with an IRU
capacity on a wavelength ring purchased from a supplier whose financial
viability impaired the recoverability of these assets. The increase in selling,
general and administrative expenses was offset by a $5.1 million reduction in
marketing expenses and a $3.0 million reduction in professional fees for the
fiscal year ended September 30, 2001 as compared to the fiscal year ended
September 30, 2000.

Restructuring Charges

      Restructuring charges during the fiscal year ended September 30, 2001
totaling approximately $56.1 million were attributable to the expenses
associated with the execution of our revised business plan, pursuant to which we
planned to construct fewer Internet data centers and took estimated charges
associated with the termination of certain Internet data center and sales office
facilities, and the reduction of certain commitments for surplus power and
environmental equipment related to the Internet data center expansion and which
included estimated lease termination costs, employee termination costs,
write-off of equipment, capitalized interest, consulting and legal fees,
construction and pre-construction related costs previously capitalized,
leasehold improvements, intangible assets and other costs.


                                       28
<PAGE>

Depreciation and Amortization

      Depreciation and amortization increased to $36.7 million for the fiscal
year ended September 30, 2001 as compared to $18.2 million for the fiscal year
ended September 30, 2000. This increase was primarily related to the increase in
construction costs and equipment purchases related to the construction and
renovation of Internet data centers and network infrastructure enhancements.

Interest and Financing Expense and Interest Income

      Interest and financing expense increased to $65.1 million for the fiscal
year ended September 30, 2001 as compared to $57.8 million for the fiscal year
ended September 30, 2000. This increase was a result of interest costs
associated with the 12.5% Senior Notes and $21 million owed by our subsidiary
ATC Merger Corp. pursuant to a mortgage note secured by our property at 139
Centre Street being included in our financial results for all of fiscal 2001,
compared to the interest costs associated with this debt being included in our
financial results for only a portion of fiscal 2000, offset by increased
capitalized interest in connection with the build-out of our network
infrastructure and Internet data centers totaling $12.4 million for the fiscal
year ended September 30, 2001 as compared to $2.2 million for the fiscal year
ended September 30, 2000. The decrease in interest income to $13.3 million for
the fiscal year ended September 30, 2001 from $24.7 million for the fiscal year
ended September 30, 2000, reflected the reduced cash position derived from the
net proceeds of the February 2000 issuance of the 12.5% notes and the December
1999 issuance of preferred stock and the impact of declining interest rates
compared to the same period in the prior fiscal year.

Other Income

      The decrease in other income to $2.1 million for the fiscal year ended
September 30, 2001 as compared to $2.8 million for the fiscal year ended
September 30, 2000 resulted from decreased gains realized on the sale of
short-term investments and marketable securities.

Other Expense

      The increase in other expense to $3.5 million for the fiscal year ended
September 30, 2001 from $1.0 million in the fiscal year ended September 30, 2000
resulted from a loss recognized on the impairment of certain strategic
investments.

Net Loss and Net Loss Attributable To Common Stockholders

      As a result of the factors described above, we reported a net loss of
$213.0 million and net loss attributable to common stockholders of $220.1
million, or $5.72 per share, for the fiscal year ended September 30, 2001,
including the cumulative effect change of accounting principle associated with
the adoption of SAB No. 101 of $2.3 million, or $0.06 per share, as compared to
a net loss of $126.4 million and a net loss attributable to common stockholders
of $132.2 million, or $3.73 per share, for the fiscal year ended September 30,
2000

LIQUIDITY AND CAPITAL RESOURCES

      On March 1, 2002, our company and two of our wholly-owned domestic
subsidiaries, Comstar.net, Inc. and ATC Merger Corp., filed voluntary petitions
under Chapter 11 of the U.S. Bankruptcy Code, together with the Plan, 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. Effective April
25, 2002, all conditions necessary for the Plan to become effective were
satisfied or waived and we emerged from Chapter 11 bankruptcy protection.


                                       29
<PAGE>

      As of the Effective Date of the Plan, all of our existing securities were
cancelled and:

      -     each holder of the 12.5% Senior Notes became entitled to receive, in
            exchange for its claims in respect of the 12.5% Senior Notes, its
            pro rata share of:

            -     $120 million in aggregate principal amount of the 11% Senior
                  Notes, and

            -     13,991,000 shares of our common stock, representing 85% of the
                  shares of our common stock issued and outstanding following
                  the Effective Date of the Plan; and

      -     each holder of shares of our preferred stock outstanding immediately
            prior to the Effective Date of the Plan became entitled to receive,
            in exchange for its claims in respect of these shares of preferred
            stock, its pro rata share of 2,304,400 shares of our common stock,
            representing 14% of the shares of our common stock issued and
            outstanding following the Effective Date of the Plan; and

      -     each holder of shares of our common stock outstanding immediately
            prior to the Effective Date of the Plan became entitled to receive,
            in exchange for its claims in respect of its shares of common stock,
            its pro rata share of 164,600 shares of our common stock,
            representing 1% of the shares of our common stock issued and
            outstanding following the Effective Date of the Plan.

      All of the shares of our common stock issued pursuant to the Plan are
subject to dilution by the exercise of management incentive stock options,
representing up to 10% of the shares of our issued and outstanding common stock
on a fully-diluted basis following the Effective Date of the Plan.

      A total of 16,460,000 shares of our common stock and $120 million in
aggregate principal amount of the 11% Senior Notes were deemed to be issued and
outstanding on the Effective Date pursuant to the terms of the Plan. As of
September 30, 2002, However, no shares of our common stock or 11% Senior Notes
had been distributed. In October 2002, we distributed a total of 16,295,400
shares of common stock and $120 million in aggregate principal amount of 11%
Senior Notes. Pursuant to the terms of a Stipulation and Order that we entered
into with the lead plaintiffs in the class action lawsuit described in "Item 3 -
Legal Proceedings", 229,452 of these shares of common stock and $1,968,000 in
aggregate principal amount of these 11% Senior Notes were placed in reserve in
escrow pending the outcome of the class action lawsuit. In the event that any
judgment or settlement entered into in connection with the class action lawsuit
requires us to pay an amount in excess of our liability insurance, then we will
BE 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 common stock
and 11% Senior Notes held in escrow. Distribution of the remaining 164,600
shares of common stock deemed to have been issued on the Effective Date, which
are allocable under the terms of the Plan to the holders of our common stock
outstanding immediately prior to the Effective Date of the Plan, will occur
following the resolution of the shareholder derivative suit against our company
and certain of our former officers and directors described in "Item 3 - Legal
Proceedings."



                                       30
<PAGE>

      The indenture governing the 11% Senior Notes contains a number of
covenants that impose significant operating and financial restrictions on us and
our subsidiaries. These restrictions significantly limit, and in some cases
prohibit, among other things, the ability of our company and certain of our
subsidiaries to incur additional indebtedness, create liens on assets, enter
into business combinations or engage in certain activities with our
subsidiaries.

      As of September 30, 2002, we were in compliance with the material
operating and financial restrictions imposed upon our company contained in the
indenture governing the 11% Senior Notes. However, as of September 30, 2002, we
were not in compliance with the provisions of the indenture which require us to:

     o    file reports and documents with the Securities and Exchange Commission
          pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
          1934, as amended; specifically our Quarterly Report on Form 10-Q for
          the quarter ended June 30, 2002, this annual report and our Quarterly
          Report on Form 10-Q for the quarter ended December 31, 2002;

     o    file copies of these reports with the indenture trustee;

     o    cause these reports to be mailed to the holders of the 11% Senior
          Notes;

     o    deliver to the indenture trustee a certificate from our public
          accountants related to our compliance with certain provisions of the
          indenture; and

     o    deliver to the trustee an officer's certificate with respect to our
          failure to satisfy the obligations set forth above

         Our failure to comply with each of the obligations described above
constitutes a default, but not an event of default, under the indenture. On
March 19, 2003, holders of approximately 58% of the outstanding 11% Senior Notes
(excluding 11% Senior Notes owned by our company) waived these defaults.

      Net cash used in operating activities was $59.7 million in the seven
months ended April 30, 2002 and net cash provided by operating activities was
$3.7 million in the five-month period ended September 30, 2002. Net cash used in
operating activities in the fiscal year ended September 30, 2002 was $56.0
million, compared to $140.5 million in the fiscal year ended September 30, 2001.
The primary component of this decrease was the impact of year over year
decreases in our losses from operations. Additionally, net cash provided by or
used in operating activities can vary significantly from period to period
depending upon the timing of operating cash receipts and payments, particularly
accounts receivable, prepaid expenses and other assets and accounts payable and
accrued liabilities. Our net loss was offset by a gain on the discharge of the
12.5% Senior Notes recorded as of the Effective Date of the Plan, as well as by
non-cash interest charges on the 12.5% Senior Notes, depreciation and
amortization expenses, provisions for uncollectible accounts receivable and
non-cash components of restructuring charges.

      Net cash provided by investing activities was $5.8 million in the
seven-month period ended April 30, 2002 and net cash used in investing
activities were $6.5 million in the five-month period ended September 30, 2002.
Net cash used in investing activities in the fiscal year ended September 30,
2002 was $0.6 million, compared to $113.3 million in the fiscal year ended
September 30, 2001. The decrease in net cash used in investing activities was
primarily attributable to decreased capital spending. Capital expenditures
related to our network and facilities were $20.0 million in the seven month
period ended April 30, 2002 and $1.4 million in the five month period ended
September 30, 2002. Of these amounts, we paid $18.7 million in the seven month
period ended April 30, 2002 and $1.2 million in the five month period ended
September 30, 2002, in cash. The balance was financed under financing
arrangements or remained in accounts payable, accrued liabilities and other long
term liabilities at the period end.

      Net cash used in financing activities was $4.9 million in the seven month
period ended April 30, 2002 and $2.3 million in the five-month period ended
September 30, 2002. Net cash used in financing activities for the fiscal year
ended September 30, 2002 was $7.2 million, compared to net cash provided by
financing activities of $0.4 million in the fiscal year ended September 30,
2001. This decrease was primarily attributable to the decrease in capital
contributions in a subsidiary in which we own a minority interest. In the seven
month period ended April 30, 2002, we repaid certain mortgage and capital lease
obligations totaling $4.9 million and settled certain capital lease obligations
for $18.7 million in cash. In the five month period ended September 30, 2002,
we repaid certain mortgage and capital lease obligations totaling $2.3 million.


      Net cash used in operating activities were $140.5 million in 2001 and
$94.3 million in 2000. Net cash provided by or used in operating activities can
vary significantly from period to period depending upon the timing of operating
cash receipts and payments, especially accounts receivable, prepaid expenses and
other assets, and accounts payable and accrued liabilities. In all three years,
our net losses were the primary component of cash used in operating activities,
offset by non-cash depreciation and amortization expenses relating to our build
out of our network and facilities, non-cash amortization of debt issuance costs
and provisions for uncollectible accounts receivable. In 2001, our net losses
were also offset by non-cash restructuring charges, losses on impairment of
certain investments and operating assets and the cumulative effect of a change
in accounting principle.

      Net cash used in investing activities were $113.3 million for 2001 and
$149.9 million for 2000. Investments in capital expenditures related to our
network and facilities were $166.4 million for 2001 and $150.9 million for 2000.
Of this amount, $134.2 million for 2001 and $142.6 million for 2000 was expended
in cash and the balance was financed under financing arrangements or remained in
accounts payable and accrued liabilities at each year-end.

      Net cash provided by financing activities were $0.39 million for 2001 and
$509.4 million for 2000. In 2001, we received net proceeds of $2.5 million from
the exercise of stock options and a $5.4 million capital contribution in a
minority owned subsidiary, partially offset by principal payments on mortgage
and lease obligations and cash dividends on our preferred stock. In 2000, we
received net proceeds from the 12.5% Senior Notes of $580.0 million, $75.3
million proceeds from issuance of preferred stock, $20.1 million net proceeds
from mortgage financing and $10.1 million of proceeds from the exercise of stock
options and warrants, partially offset by the use of cash of $170.4 million
associated with the tender offer for the 13% Senior Notes, principle payments on
mortgage and lease obligations and cash dividends on the preferred stock.


      As of September 30, 2002, we had $47.6 million of cash and cash
equivalents, $5.4 million of short-term investments and $1.3 million of
marketable securities.

      We have also issued collateralized letters of credit aggregating
approximately $2.6 million. The related collateral funds are included in
restricted investments on our consolidated balance sheet at September 30, 2002.

      In addition, we have financed certain network equipment through vendors
and financial institutions under capital and operating lease arrangements.
Capital lease obligations totaled approximately $4.1 million at September 30,
2002. As of September 30, 2002, we had various agreements to lease facilities
and equipment and are obligated to make future minimum lease payments of
approximately $75.5 million on operating leases expiring in various years
through 2017. At September 30, 2002, there were no available or unused equipment
financing arrangements with vendors or financial institutions.


                                       31
<PAGE>

      In December 2002, we repurchased in the open market for $7.0 million a
portion of our outstanding 11% Senior Notes, which had a principal value of
approximately $9.1 million and associated accrued interest of $0.6 million. The
repurchase resulted in a gain on the discharge of debt of approximately $2.7
million.  This gain will be included in our Consolidated Statement of Operations
for the quarter ending December 31, 2002.

      In February 2003, we repurchased in the open market for $4.9 million a
portion of our outstanding 11% Senior Notes, which had a principal value of
approximately $6.4 million and associated accrued interest of $0.6 million. The
repurchase resulted in a gain on the discharge of debt of approximately $2.0
million.  This gain will be included in our Consolidated Statement of Operations
for the quarter ended March 31, 2003.

      We historically have experienced negative cash flows from operations and
have incurred net losses. Our ability to generate positive cash flows from
operations and achieve profitability is dependent upon our ability to continue
to grow our revenue and achieve further operating efficiencies. We are dependent
upon our cash on hand and cash generated from operations to support our capital
requirements. Although no assurances can be given, our management believes that
our reorganization reduces some uncertainty with respect to our future and
better positions us to attract new customers and maintain existing customers.
Our reorganization and actions taken pursuant to the Plan reduced operating
costs and reduced the principal amount of our outstanding indebtedness by
approximately $480 million by converting this indebtedness into shares of our
common stock. Further, under the terms of the 11% Senior Notes we are permitted
to satisfy interest payments in kind for at least two years and, at the
discretion of our board of directors, for up to four years, thereby
significantly reducing liquidity concerns arising from our debt service
obligations and ongoing operating costs. Our management believes that we are
positioned to maintain sufficient cash flows from operations to meet our
operating, capital and debt service requirements for at least the next 12
months. There can be no assurance, however, that we will be successful in
executing our business plan, achieving profitability, or in attracting new
customers or maintaining our existing customer base. Moreover, despite our
restructuring we have continued to experience significant decreases in revenue
and low levels of new customer additions in the period following our
restructuring. In the future, we may make acquisitions or repurchase
indebtedness of our company which, in turn, may adversely affect our liquidity.

SEGMENT INFORMATION

      Our activities fall within one operating segment. The following table sets
forth geographic segment information for five months ended September 30, 2002
(Successor Company), seven months ended April 30, 2002, years ended September
30, 2001 and 2000 (Predecessor Company):

<TABLE>
<CAPTION>
                              SUCCESSOR COMPANY                       PREDECESSOR COMPANY
                              -----------------    -----------------------------------------------------
                                 FIVE MONTH        SEVEN MONTH PERIOD    FISCAL YEAR ENDED SEPTEMBER 30,
                                PERIOD ENDED             ENDED           -------------------------------
                               SEPT. 30, 2002        APRIL 30, 2002           2001             2000
                               --------------      ------------------       ---------        ---------
                                                           (Amounts in Thousands)
<S>                           <C>                  <C>                   <C>                 <C>
Revenue:
     United States .......       $  20,410             $  37,747            $  82,020        $  73,697
     Europe ..............          10,313                13,526               22,190            7,590
                                 ---------             ---------            ---------        ---------
     Consolidated ........       $  30,723             $  51,273            $ 104,210        $  81,287
                                 =========             =========            =========        =========

Operating loss:
     United States .......       $ (15,069)            $ (54,433)           $(142,713)       $ (64,477)
     Europe ..............             (39)              (29,150)             (14,773)         (13,090)
                                 ---------             ---------            ---------        ---------
     Consolidated ........       $ (15,108)            $ (83,583)           $(157,486)       $ (77,567)
                                 =========             =========            =========        =========

Tangible assets:
     United States .......       $ 210,521                                  $ 439,667
     Europe ..............          42,587                                     89,953
                                 ---------                                  ---------
     Consolidated ........       $ 253,108                                  $ 529,620
                                 =========                                  =========
</TABLE>

INCOME TAXES

      We are in an accumulated loss position for both financial and income tax
reporting purposes. We have U.S. Federal income tax loss carryforwards of
approximately $42 million at September 30, 2002. These income


                                       32
<PAGE>

tax loss carryforwards expire through 2021. Our U.S. Federal income tax loss
carryforwards were reduced upon our emergence from bankruptcy due to the
Internal Revenue Code's rules and regulations related to cancellation of
indebtedness income that is excluded from taxable income. Since the Plan
provided for substantial changes in our ownership, the usage of net operating
loss carryforwards may be limited. We have not yet determined the impact, if
any, that changes in our ownership have had on our net operating loss
carryforwards. As of September 30, 2002 we also had net operating loss
carryforwards of approximately $46 million from our United Kingdom subsidiaries,
which do not expire under U.K. tax rules. For financial reporting purposes,
income tax benefits through September 30, 2002 related to both U.S. Federal and
U.K. income tax loss carryforwards 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.

      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-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 $80
million at September 30, 2002.

INDEBTEDNESS

      Our indebtedness at September 30, 2002 consisted of the 11% Senior Notes
(which were deemed to be outstanding pursuant to the Plan) and related accrued
interest, which will be paid annually in additional 11% Senior Notes for at
least two years and, at the discretion of our board of directors, for up to four
years, mortgage and notes payable, capital lease obligations and common stock.

      Total borrowings at September 30, 2002 were $152.8 million, which included
$1.5 million in current obligations and $151.3 million of the 11% Senior Notes,
accrued interest on the 11% Senior Notes, mortgage and other notes payable and
long-term capital lease obligations.

COMMITMENTS

      As of September 30, 2002, we had commitments to certain telecommunications
carriers totaling $55.0 million payable in various years through 2008.
Additionally, we have various agreements to lease facilities and equipment and
are obligated to make future minimum lease payments of approximately $75.5
million on operating leases expiring in various years through 2017.

      On July 21, 1999, we established the Rabbi Trust for a former executive of
our company. The agreement governing the Rabbi Trust covered the period of three
years beginning on April 30, 1999 and ending on March 1, 2002. The trust
agreement was amended on March 21, 2001, and provided for payments from the
Trust commencing in April 2001. Payments were made from the Trust until March 1
2002, when we filed for Chapter 11 bankruptcy protection. We are currently
involved in a lawsuit related to the Rabbi Trust, as described in more detail in
"Item 3 - Legal Proceedings."

      In connection with employment arrangements with certain other employees,
we are also committed to minimum compensation obligations for severance of
approximately $0.2 million.

      We are also committed as of September 30, 2002 for non employment-related
obligations totaling approximately $0.6 million. These obligations relate
primarily to marketing expenses.

      As of September 30, 2002, we had no material commitments for capital
expenditures.

      As of September 30, 2002 we had contractual obligations due in future
periods as follows:


                                       33
<PAGE>

<TABLE>
<CAPTION>
                                                                                Payments Due by Period
Contractual Obligations                         Total    Less than 1 year          1-3 years          4-5 years      After 5 years
<C>                                           <C>        <C>                    <C>                   <C>            <C>
11% Senior Notes                              $120,000           $     --           $     --           $     --           $120,000
11% Senior Notes - Accrued Interest              5,681                 --                 --                 --              5,681
Mortgage Payable                                20,441                255                581                704             18,901
Capital Lease Obligations                        4,069              1,262              1,464              1,108                235
Operating Leases                                75,549              5,810              9,252             12,139             48,348
Telecommunications Commitments                  55,041             13,606             25,114             12,118              4,203
Rabbi Trust Obligation                           2,777                 --              2,777                 --                 --
Note Payable                                     2,600                 --              2,600           $     --           $     --
                                              --------           --------           --------           --------           --------
Total Contractual Cash Obligations            $286,158           $ 20,933           $ 41,788           $ 26,069           $197,368
                                              ========           ========           ========           ========           ========
</TABLE>

RECENT TECHNICAL ACCOUNTING PRONOUNCEMENTS

      On April 30, 2002, the Financial Accounting Standards Board, or FASB,
issued SFAS No. 145, "Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS
13, and Technical Corrections as of April 2002." SFAS No. 145 is effective for
transactions occurring after May 15, 2002. In rescinding SFAS No. 4, Reporting
Gains and Losses from Extinguishment of Debt", and SFAS No. 64, "Extinguishments
of Debt Made to Satisfy Sinking-Fund Requirements", SFAS No. 145 eliminates the
requirement that gains and losses from the extinguishment of debt be aggregated
and, if material, classified as an extraordinary item, net of the related income
tax effect. Our adoption of SFAS No. 145 on the Effective Date resulted in the
classification of the $427.1 million gain on extinguishment of debt in the
Predecessor Company's statement of operations for the seven month period ended
April 30, 2002 as a component of other income and not as an extraordinary items
as had been previously required under SFAS No. 4. Additionally, in accordance
with SFAS 145, a $17.5 million loss on the extinguishment of debt previously
recorded in the fiscal year ended September 30, 2000 as an extraordinary item
has been reclassified to Loss on Discharge of Debt.

      In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing or other exit or disposal activity. SFAS
No. 146 is to be applied prospectively to exit or disposal activities initiated
after September 30, 2002. We do not expect SFAS No. 146 to have a material
effect on our consolidated financial position, results of operations or
liquidity.

      In November 2002, the FASB issued FASB Interpretation No. 45, or FIN 45,
"Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN 45 requires a liability to
be recognized at the time a company issues a guarantee for the fair value of the
obligations assumed under certain guarantee agreements. Additional disclosures
about guarantee agreements are also required in the interim and annual financial
statements. FIN 45 will be effective for our fiscal year ending September 30,
2003 and we are in the process of evaluating its effect.

      In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123", which provides optional transition guidance for companies
electing to voluntarily adopt the accounting provisions of SFAS No. 123. In
addition, SFAS No. 148 mandates certain new disclosures that are incremental to
those required by SFAS No. 123. We will continue to account for stock-based
compensation in accordance with APB No. 25. Consequently, we do not expect this
standard to have a material impact on our consolidated financial position or
results of operations.


                                       34
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      At September 30, 2002, short-term investments consisted of an investment
in a limited partnership that invests in fixed income securities.

      Marketable securities include our investments in two publicly-traded
entities, Edgar On-Line and Globecomm Systems Inc., which are recorded at fair
market value. We do not hedge our exposure to fluctuations in the value of our
investments in equity securities.

      Our other investments are generally fixed rate investment grade and
government securities denominated in U.S. dollars. At September 30, 2002, all of
our investments were due to mature within twelve months and the carrying value
of these investments approximated fair value. At September 30, 2002, $9.1
million of our cash and investments were restricted in accordance with the terms
of certain collateral obligations.

      We are also subject to market risk associated with foreign currency
exchange rates. To date, we have not utilized financial instruments to minimize
our exposure to foreign currency fluctuations. We will continue to analyze risk
management strategies to minimize foreign currency exchange risk in the future.

      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 a 100 basis point
increase or decrease in interest rates, due mainly to the short-term nature of
the majority of our investment portfolio and the current interest rates for
short to medium term investments. 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.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Information regarding a change in accountants in fiscal 2002 was previously
reported in a Current Report on Form 8-K dated July 31, 2002.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The directors and executive officers of Globix and their ages and
positions as of March 11, 2003, are as follows:

<TABLE>
<CAPTION>
NAME                                          AGE     POSITION
<S>                                           <C>     <C>
PETER K. STEVENSON.....................       42      PRESIDENT AND CHIEF EXECUTIVE OFFICER AND DIRECTOR
GREGORY P. LEAHY.......................       36      GENERAL COUNSEL AND CORPORATE SECRETARY
                                                      ACTING CHIEF FINANCIAL OFFICER AND SENIOR VICE PRESIDENT,
JOHN D. MCCARTHY.......................       38        CORPORATE DEVELOPMENT
REID MEINTZER..........................       43      SENIOR VICE PRESIDENT, GLOBAL SALES AND MARKETING
PHILIP J. CHEEK........................       37      MANAGING AND FINANCE DIRECTOR OF GLOBIX U.K. LTD.
HENRY J. HOLCOMBE......................       40      SENIOR VICE PRESIDENT, OPERATIONS
ROBERT M. DENNERLEIN...................       43      VICE PRESIDENT AND CORPORATE CONTROLLER
JARED E. ABBRUZZESE....................       47      DIRECTOR
PETER S. BRODSKY.......................       32      DIRECTOR
PETER L. HERZIG........................       40      VICE CHAIRMAN OF THE BOARD OF DIRECTORS
STEVEN LAMPE...........................       43      DIRECTOR
STEVEN G. SINGER.......................       41      CHAIRMAN OF THE BOARD OF DIRECTORS
BRANDON STRANZL........................       28      DIRECTOR
STEVEN A. VAN DYKE.....................       43      DIRECTOR
</TABLE>


                                       35
<PAGE>
 Peter K. Stevenson joined our company as President and Chief Executive Officer
in April 2002 and also serves as a member of our board of directors. Mr.
Stevenson has over 20 years of experience in the communications industry. Prior
to joining our company, Mr. Stevenson was a senior consultant to Communication
Technology Advisors LLC, or CTA, from January 2002 through April 2002, a
restructuring boutique focusing on distressed telecommunications companies
through the provision of strategic planning advice, restructuring assistance and
overall business advice that currently provides our company with a wide array of
business advisory services. Mr. Stevenson is a founder of Net One Group, Inc., a
Northern Virginia based telecom investment and management company focused on
developing and operating next generation broadband services networks. From
January 2001 to January 2002, Mr. Stevenson served as a strategic advisor to the
board of directors of Net Uno, one of the largest cable television, CLEC and ISP
carriers in Venezuela. From January 1998 to December 2000, Mr. Stevenson was a
corporate officer of Net Uno and President and Chief Operating Officer of Net
Uno's Data and Telephone Group. From February 1996 to June 1998, Mr. Stevenson
was partner in, and Vice President for, Wave International, an international
telecommunications investment and management firm focused on developing
companies in international markets. Mr. Stevenson graduated with a Bachelor of
Science degree from Saint Francis University in Loretto, Pennsylvania.

      Gregory P. Leahy joined our company in July 1999 as Associate General
Counsel and became General Counsel and Corporate Secretary of our company in
February 2002. Prior to joining our company, Mr. Leahy was an attorney in
private practice with Morrison, Mahoney & Miller from 1996 through 1999, where
he provided counsel to a variety of clients with respect to corporate matters.
His primary area of practice was advising technology/new media companies as well
as the banking community. Mr. Leahy began his career as a litigation attorney
representing corporations in general litigation and employment matters. Mr.
Leahy holds a Bachelor of Arts degree in American History from Columbia
University and received his Juris Doctorate degree from Boston University.

      John D. McCarthy has served as Senior Vice President, Corporate
Development since September 2002. Prior to that, he served as Acting Chief
Financial Officer from March 2002 through September 2002. Mr. McCarthy resumed
the duties of Acting Chief Financial Officer on November 18, 2002. Prior to
holding this position, Mr. McCarthy served as Vice President of Financial
Planning and Analysis from August 2001 through March 2002 and as Managing
Director for the Application Services Group from the time he joined our company
in March 2001 through August 2001. Prior to joining our company, Mr. McCarthy
served as Vice President, Finance for LC39 Venture Group LLC, a New York based
technology incubator and venture capital fund, from April 2000 to March 2001.
From November 1998 through April 2000 he held management positions with an
e-commerce startup and acted as a consultant to several entrepreneurial
ventures. From 1996 to 1998 Mr. McCarthy was Vice-President, Director of
Business Affairs with divisions of Young & Rubicam. Mr. McCarthy received a
Masters in Business Administration degree from The Wharton School of Business of
the University of Pennsylvania and a Masters degree in International Studies
from Wharton's Lauder Institute. Mr. McCarthy received his undergraduate degree
from Connecticut College.

      Reid Meintzer joined our company as Senior Vice President, Global Sales &
Marketing in July 2002. Prior to that, Mr. Meintzer served as Vice President for
Enterprise Markets at Cable & Wireless in New York from May 2001 to May 2002 and
as Vice President for National & International Accounts from January 1999 to
April 2001. Prior to that he held senior sales leadership positions at MCI
Worldcom in both its global and national accounts divisions from June 1996 to
December 1998. Prior to that he served in various sales positions at IPC
Information Systems Inc. and its affiliates from September 1982 to May 1996. He
holds a Bachelor of Arts from Franklin & Marshall College in Lancaster, PA.

      Philip J. Cheek joined our U.K. subsidiary, Globix Ltd., in July 2000 as
European Finance Director. Mr. Cheek was subsequently appointed to the
additional position of Managing Director of Globix Ltd. in July 2002. He
currently serves on the Globix U.K. board of directors. Prior to his joining
Globix, Mr. Cheek served in various financial positions with Fritz Companies, an
international freight company (now part of UPS) from April 1996 through July
2000. Mr. Cheek graduated as a qualified ACCA in 1992 with a professional
training practice Maxwells Chartered Accountants.


                                       36
<PAGE>
      Henry J. Holcombe joined our company in July 2002 as Senior Vice President
of Operations. Prior to joining our company, Mr. Holcombe served as Chief
Information Officer of Cambrian Communications from February 2000 through July
2002. From August 1997 to January 2000, Mr. Holcombe served as a senior
principal consultant at C-Change, Inc. in San Rafael CA, leading project teams
to deliver e-commerce initiatives for entertainment, telecommunications and
financial services clients. Mr. Holcombe received a Masters degree in Computer
Science from George Washington University in Washington DC and a Masters in
Business Administration degree from Chaminade University in Honolulu. Mr.
Holcombe received his undergraduate degree from the US Military Academy at West
Point.

      Robert M. Dennerlein joined our company in January 2003 as Vice President
and Corporate Controller. Prior to joining our company, from August 2001 until
January 2003 Mr. Dennerlein served as Vice President and Controller for OpNext ,
a global optical components joint venture created by a spinoff from Hitachi and
a venture capital investment by Clarity Partners. From July 1999 until August
2001, Mr. Dennerlein served as the Director of Accounting and External Reporting
for Agere Systems (formerly the Microelectronics division of Lucent
Technologies). From June 1992 until July 1999, Mr. Dennerlein held various
management positions at International Specialty Products, a global specialty
chemicals manufacturer. He served as Senior Director, ISP Financial Services
from July 1997 until July 1999 and prior to that Controller, ISP International
Operations from May 1995 until July 1997. Mr Dennerlein is a Certified Public
Accountant and received a Masters in International Business from Seton Hall
University. He also holds a Bachelor of Science in Accounting from Seton Hall
University.

      Jared E. Abbruzzese has been a director of our company since April 2002.
Mr. Abbruzzese is the founder and Chairman of CTA. Mr. Abbruzzese is also the
founder and chairman of TechOne Capital Group LLC, a private investment and
consulting company concentrating in the technology and telecommunications
sectors. Mr. Abbruzzese is currently the Chairman of the Board of Motient
Corporation, a publicly-traded corporation. Until August 1999, Mr. Abbruzzese
was chairman and chief executive officer of CAI Wireless Systems, Inc., a
wireless cable operator founded by Mr. Abbruzzese in 1991. Mr. Abbruzzese sits
on several other boards of directors, including DualStar Technologies
Corporation, a public corporation and provider of broadband access services and
construction company, WSNet Holdings, Inc., a digital satellite television
company and Evident Technologies, Inc., a nanotechnology company located in
Albany, N.Y. for which he serves as Co-Chairman of the board of directors.

      Peter S. Brodsky has been a director of our company since October 2001.
Mr. Brodsky is a partner of Hicks, Muse, Tate & Furst Incorporated and has been
with Hicks Muse since 1995. At Hicks Muse, Mr. Brodsky has focused on Hicks
Muse's media investments, specifically in radio, television, sports and
software, and serves as a director of several of Hicks Muse's portfolio
companies. In addition to our company, Mr. Brodsky is a director of RCN
Corporation, a publicly-traded company, and Cooperative Computing, Inc. Mr.
Brodsky received a Bachelor of Arts degree from Yale University.

      Peter L. Herzig has served as Vice Chairman of our board of directors
since May 2002. From August 2001 through May 2002, Mr. Herzig served as our
Chief Executive Officer. Mr. Herzig joined our company in October 2000, served
as Chief Operating Officer from March 2001 through August 2001 and served as
Senior Vice President and Chief Operating Officer-Application Services Group
from October 2000 through March 2001. Prior to joining our company, Mr. Herzig
served as Executive Vice President and Chief Financial Officer at iWon.com from
March 2000 to October 2000, where his responsibilities included managing iWon's
relationship with our company. Prior to joining iWon.com, Mr. Herzig was a
Senior Managing Director and Head of Global Capital Markets Services for Bear,
Stearns & Co. Inc. from February 1998 through March 2000, where he provided
strategic capital-structure advisory services to a broad spectrum of domestic
and international clients, including many new media technology companies
experiencing growth with the expansion of the Internet. Prior to Bear Stearns,
Mr. Herzig worked at Goldman Sachs & Co. from July 1989 through February 1998.
Mr. Herzig has a Bachelor of Arts degree from Dartmouth College and a Masters in
Business Administration degree from Columbia University.

      Steven Lampe has been a director of our company since April 2002. Mr.
Lampe is a Managing Member of Lampe, Conway & Co. LLC, an investment management
company which he co-founded in June 1999. Prior to his work at Lampe, Conway,
Mr. Lampe managed Lone Star Securities Fund, a distressed investment fund, from
June 1997 through June 1999. Prior to his employment with Lone Star, Mr. Lampe
worked at Smith Management, a private investment company, from February 1988
through June 1997. Mr. Lampe has a Bachelor of Arts degree from Middlebury
College and a Masters in Business Administration degree from Harvard University.

      Steven G. Singer has been a director of our company since April 2002.
Effective December 15, 2002 Mr. Singer became Chairman of our board of
directors. Mr. Singer is the Chairman and Chief Executive Officer of American
Banknote Corporation, a publicly-traded corporation and 200 year-old global
security printer of documents of inherent value, including currency, passports,
credit cards, stock and bond certificates, and related


                                       37
<PAGE>

products and services, and the Chairman and Chief Executive Officer of Pure 1
Systems, a manufacturer and distributor of water treatment products. Mr. Singer
is also a director of Motient Corporation, a publicly-traded corporation, and
the Chapter 7 Trustee of American Pad & Paper Company. From 1993 through
November 2000, Mr. Singer was the Executive Vice President and Chief Operating
Officer of Romulus Holdings, Inc., a family-owned investment vehicle.

      Brandon Stranzl has been a director of our company since April 2002. Mr.
Stranzl is a Senior Research Analyst for Third Avenue Funds, an investment
management company. Prior to joining Third Avenue in March 2002, Mr. Stranzl was
employed by Morgan Stanley Investment Management from March 1999 through March
2002. From September 1997 through March 1999, Mr. Stranzl worked for Fidelity
Investments. Mr. Stranzl received a Bachelor of Arts degree from Vassar College.
He is a Chartered Financial Analyst and a member of the New York Society of
Security Analysts.

      Steven A. Van Dyke has been a director of our company since October 2002.
Mr. Van Dyke is the founder and co-managing principal of Bay Harbour Management,
L.C. Mr. Van Dyke joined Bay Harbour's predecessor firm in Louisville in 1986.
Mr. Van Dyke purchased the predecessor firm in 1987 and transitioned it to one
with a dedicated focus on distressed securities management. Mr. Van Dyke sold a
minority interest in the predecessor firm in December 1996 and changed the name
of the predecessor firm to Bay Harbour Management. Mr. Van Dyke currently serves
on the board of directors of Barneys New York, Inc., American Banknote, a
publicly traded corporation, and Buckhead America Corp. Mr. Van Dyke graduated
from the University of Kentucky in 1981 with his Bachelor of Business
Administration degree in Finance. He is a Chartered Financial Analyst, and is a
member of The Financial Analysts Society of Central Florida and the Association
for Investment Management and Research.

      Section 16(a) Beneficial Ownership Reporting Compliance

The Securities and Exchange Commission has adopted rules relating to the
obligation of directors, executive officers and ten percent shareholders to file
beneficial ownership reports under Section 16 (a) of the Securities Exchange Act
of 1934, as amended. One of these rules requires us to disclose which of our
directors, executive officers and/or shareholders have not timely filed these
reports. Based on our review for the fiscal year ended September 30, 2002, we
are not aware of any individuals or entities that did not file all of these
reports on a timely basis.

      OUR BOARD OF DIRECTORS AND EXECUTIVE OFFICERS

The number of our board of directors is set at nine. We currently have eight
directors and one vacancy. Our directors are elected at each annual
stockholders' meeting, and serve until the next annual stockholders' meeting and
the election and qualification of their respective successors. Seven of the
current members of our board of directors were selected in accordance with the
terms of the Plan to serve as the directors of our company following the
Effective Date of the Plan. Mr. Van Dyke was elected to our board of directors
by our current board of directors in October 2002.

      Committees

Our bylaws provide that our board of directors may create, by the affirmative
vote of at least a majority of the directors then in office, an executive
committee and any other committees, which our board of directors deems necessary
or desirable to create. The current committees of our board of directors are the
audit committee and the compensation committee. Our audit committee is comprised
of Messrs. Brodsky, Lampe, Stranzl and Van Dyke. Our compensation committee is
comprised of Messrs. Lampe, Singer, Stranzl and Brodsky.

      Directors Compensation

Effective April 25, 2002, the Effective Date of the Plan, we implemented a cash
compensation program for our directors. Pursuant to this program, directors are
entitled to receive:

      -     $2,000 per month;

      -     an additional $250 per month for service on the compensation
            committee of our board of directors;


                                       38
<PAGE>

      -     an additional $500 per month for service on the audit committee of
            our board of directors; and

      -     an additional $1,000 for each board of directors or committee
            meeting in excess of four per year.

Compensation Committee Interlocks and Insider Participation

None.

INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION ON LIABILITY

      Our amended and restated certificate of incorporation and amended and
restated bylaws provide that we will indemnify our directors and executive
officers to the fullest extent permitted by Delaware law for damages resulting
from conduct as a director or executive officer. In addition, we carry an
insurance policy for the protection of our directors and executive officers
against any liability asserted against them in their official capacities. To the
extent that indemnification for liabilities under the Securities Act may be
permitted to directors or executive officers of our company, we have been
informed that in the opinion of the Securities and Exchange Commission, this
indemnification is against public policy as expressed in the Securities Act, and
is therefore unenforceable.

ITEM 11. EXECUTIVE COMPENSATION

      The following summary compensation table sets forth the total compensation
for the fiscal years ended September 30, 2002, 2001 and 2000 for our Chief
Executive Officer and our four most highly compensated executive officers during
the fiscal year ended September 30, 2002 (other than the Chief Executive
Officer). We refer to our Chief Executive Officer and these four other executive
officers as the named executive officers.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                        Long-Term
                                                   Annual Compensation             Compensation Awards        Payouts
                                             -----------------------------------   ------------------------   ---------------------
                                                                                                Securities
                                                                                  Restricted    Underlying      LTIP
                                             Salary    Bonus     Other Annual        Stock       Options/     Payouts   All Other
   Name and Principal Position         Year    ($)      ($)     Compensation ($)   Awards ($)    SARs (#)(1)     ($)   Compensation
-------------------------------------  ----  -------  -------   ----------------  -----------   ------------  -------  ------------
<S>                                    <C>   <C>      <C>          <C>            <C>            <C>          <C>      <C>
Peter K. Stevenson(2)                  2002  127,333   75,000       75,000(3)             --         --(4)     --        $1,459(5)
     President and Chief Executive
           Officer
Peter L. Herzig(6)                     2002  250,000   75,000           --                --     1,000,000     --           --
     Chief Executive Officer           2001  200,000  100,000           --                --       200,000     --           --
Shawn P. Brosnan(7)                    2002  185,000   30,000           --                --       100,000     --           --
      Senior Vice President and        2001  172,500       --           --                --        40,000     --           --
           Acting Chief Financial      2000  140,000   30,000           --                --        40,000     --           --
           Officer
Anthony L. Previte(8)                  2002  200,000       --           --                --       100,000     --           --
       Executive Vice President and    2001  200,000       --           --           528,750        90,000     --           --
           Chief Technology Officer    2000  200,000       --           --                --            --     --           --
John D. McCarthy(9)                    2002  190,000   27,000           --                --       100,000     --           --
      Senior Vice President,           2001  109,494    5,833           --                --        20,000     --           --
          Corporate Development        2000       --       --           --                --            --     --           --
Gregory Leahy                          2002  152,917   20,000           --                --        10,000     --           --
     General Counsel and               2001  136,820       --           --                --         4,000     --           --
           Corporate Secretary         2000   99,840       --           --                --         4,000     --           --
</TABLE>

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

(1)   All of the options to acquire shares of our common stock listed in this
      column were granted prior to the Effective Date of the Plan and were
      cancelled on the Effective Date of the Plan.

(2)   Mr. Stevenson became our President and Chief Executive Officer on May 14,
      2002.

(3)   Represents the amount that we reimbursed Mr. Stevenson for his housing and
      travel costs in the five months ended September 30, 2002, as his permanent
      residence is located outside of the New York area.

(4)   Pursuant to Mr. Stevenson's employment agreement dated as of April 15,
      2002, we agreed to grant to Mr.


                                       39
<PAGE>

      Stevenson options to acquire 548,667 shares of our common stock. These
      options were granted to Mr. Stevenson on March 14, 2003 pursuant to our
      2003 Stock Option Plan.

(5)   Represents the amount of premiums for life insurance benefits for Mr.
      Stevenson paid by the Company in the five month period ended September 30,
      2002.

(6)   On May 14, 2002 Mr. Herzig resigned as our Chief Executive Officer and
      became Vice Chairman of our board of directors. He joined our company on
      October 16, 2000.

(7)   Mr. Brosnan resigned as our Acting Chief Financial Officer on November 18,
      2002. He joined our company on November 1, 1999.

(8)   Mr. Previte was named Executive Vice President on February 17, 2003. He
      resigned from our company on March 10, 2003.

(9)   Mr. McCarthy was named Acting Chief Financial Officer on March 22, 2002.
      He served in that position until September 9, 2002, at which time he was
      named Senior Vice President of Corporate Development. On November 18,
      2002, he was once again named Acting Chief Financial Officer. Mr. McCarthy
      joined our company on March 5, 2001.

OPTION GRANTS IN LAST FISCAL YEAR

      In connection with the Plan, all options to acquire shares of our common
stock that were outstanding immediately before the Effective Date of the Plan
were cancelled. The Plan provides for the grant of up to 1,828,889 stock options
to be issued pursuant to our 2003 Stock Option Plan. On November 5, 2002, the
compensation committee of our board of directors approved our 2003 Stock
Option Plan and set the fair value strike price of options granted under our
2003 Stock Option Plan at $3.04. On March 14, 2003 our board of directors
approved our 2003 Stock Option Plan. We intend to submit the 2003 Stock Option
Plan to our stockholders for approval at the next annual meeting of
stockholders.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL AND FISCAL YEAR-END OPTION VALUES

      There were no options exercised by any of the named executive officers of
our company during the fiscal year ended September 30, 2002.

EMPLOYMENT AGREEMENTS

Peter K. Stevenson

      Effective April 15, 2002, we entered into an employment agreement with
Peter K. Stevenson for his services as our President and Chief Executive
Officer. Mr. Stevenson's employment agreement expires in July 2003, and may be
extended with the mutual consent of our company and Mr. Stevenson for successive
six-month periods thereafter. Mr. Stevenson's base salary is $280,000 per year.
Mr. Stevenson is also eligible for an annual bonus equal to up to 50% of his
base salary which is contingent upon our company meeting certain performance
targets and a bonus equal to between 1.75% and 2.0% of the proceeds from the
disposition of certain of our assets, including our 415 Greenwich Street and 139
Centre Street facilities located in New York City, New York. In addition, under
the terms of Mr. Stevenson's employment we agreed to grant to Mr. Stevenson
options to acquire 548,667 shares of our common stock, or 3% of the outstanding
shares of our common stock on a fully diluted basis (including shares of our
common stock underlying options eligible for grant under the 2003 Stock Option
Plan, but excluding shares of our common stock underlying any other outstanding
convertible securities). Fifty percent of these options vest based on the length
of time that the options are held by Mr. Stevenson and 50% of these options vest
if certain performance targets specified in Mr. Stevenson's employment agreement
are met. However, as of September 30, 2002, these options had not yet been
granted.

      Mr. Stevenson's employment agreement provides that in the event that we
terminate his employment with our company for any reason other than cause, if
Mr. Stevenson terminates his employment with our company for good reason or if
Mr. Stevenson's employment with our company terminates as a result of his death
or permanent disability, then Mr. Stevenson is entitled to six months' salary.

Reid Meintzer

      On July 15, 2002 we entered into an agreement with Reid Meintzer outlining
the terms of Mr. Meintzer's employment as our Senior Vice President, Sales and
Marketing. Mr. Meintzer's base salary is $185,000 per year, which will be
increased no less frequently than once per year in accordance with our company's
policies. Mr. Meintzer is also eligible to receive a bonus of 50% of his base
salary, which is contingent upon our company meeting certain performance targets
mutually agreed upon by our company and Mr. Meintzer. In addition, our agreement
with Mr. Meintzer also provides that he is eligible to receive stock options
under our 2003 Stock Option Plan in an amount comparable to stock options
granted to our other senior executives, as well as to participate in any other
equity incentive plan which we may adopt in the future. We are entitled to
terminate Mr. Meintzer's employment at any time. In the event that we terminate
Mr. Meintzer's employment without cause (as defined in the agreement), then he
is entitled to receive six months' salary, payable in six monthly installments.

H. Jameson Holcombe

      On July 15, 2002 we entered into an agreement with H. Jameson Holcombe
outlining the terms of Mr. Holcombe's employment as our Vice President,
Operations. Mr. Holcombe's base salary is $165,000 per year, which will be
increased no less frequently than once per year in accordance with our company's
policies. Mr. Holcombe is also eligible to receive a bonus of 30% of his base
salary, which is contingent upon our company meeting certain performance targets
mutually agreed upon by our company and Mr. Holcombe. Further, we are required
to reimburse Mr. Holcombe for his travel each week to New York and his
reasonable living expenses while in New York. Our agreement with Mr. Holcombe
also provides that he is eligible to receive stock options under our 2003 Stock
Option Plan. We are entitled to terminate Mr. Holcombe's employment at any time.


PERFORMANCE GRAPH

      To our knowledge, our common stock did not trade on the OTC Bulletin
Board, and there were no bid quotations with respect to our common stock, from
the Effective Date of the Plan through September 30, 2002. Accordingly, we have
not provided a performance graph with respect to our common stock for the period
between the Effective Date of the Plan and September 30, 2002. In addition, we
have not provided a performance graph with respect to our common stock for
periods prior to the Effective Date of the Plan, as we do not believe that this
information will assist investors in evaluating our company.


                                       40
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table and the accompanying notes set forth certain information, as
of February 15, 2003 (except as set forth below), concerning the beneficial
ownership of our common stock by: (1) each person who is known by us to
beneficially own more than five percent of our common stock, (2) each director
of our company, (3) each named executive officer and (4) all directors and named
executive officers as a group.

<TABLE>
<CAPTION>
                        Name and Address
                       of Beneficial Owner                           Number of Shares (1)(2)    Percent of Class
                       -------------------                           -----------------------    ----------------
<S>                                                                  <C>                        <C>
GOLDMAN, SACHS & CO.
85 BROAD STREET
NEW YORK, NY  10004............................................             1,605,513(3)                9.8%

MORGAN STANLEY
ONE TOWER BRIDGE
SUITE 1100
W. CONSHOHOCKEN, PENNSYLVANIA 19428............................             2,016,066(4)              12.25%

HM PARTIES(5)
C/O HICKS, MUSE, TATE & FURST INCORPORATED
200 CRESCENT COURT, SUITE 1600
DALLAS, TEXAS 75201............................................             2,304,400(6)               14.0%

MACKAY SHIELDS LLC
C/O MACKAY SHIELDS FINANCIAL CORP.
9 WEST 57TH STREET
NEW YORK, NY 10019.............................................             2,493,042(7)               15.1%

   JARED E. ABBRUZZESE(8)......................................               500,000                  2.95%
   PETER S. BRODSKY(9).........................................                     0                  *
   PETER L. HERZIG.............................................                     0                  *
   STEVEN LAMPE(10)............................................               770,646                  4.68
   STEVEN G. SINGER............................................                     0                  *
   PETER K. STEVENSON(11)......................................               411,501                  2.44%
   BRANDON STRANZL (12)........................................                     0                  *
   STEVEN VAN DYKE (13)........................................                     0                  *
   SHAWN P. BROSNAN............................................                     0                  *
   GREGORY LEAHY...............................................                     0                  *
   JOHN MCCARTHY...............................................                     2                  *
   ANTHONY L. PREVITE..........................................                   707                  *
   ALL DIRECTORS AND NAMED
     EXECUTIVE OFFICERS AS A GROUP (11 PEOPLE).................             1,682,856                  9.69%
</TABLE>

----------

*Less than 1% of the outstanding shares of our common stock.

(1)   The information regarding beneficial ownership of our common stock has
      been presented in accordance with the rules of the Securities and Exchange
      Commission and is not necessarily indicative of beneficial ownership for
      any other purpose. Under these rules, beneficial ownership of our common
      stock includes any shares of our common stock as to which a person,
      directly or indirectly, has or shares voting power or investment power and
      also any shares of our common stock as to which a person has the right to
      acquire such voting or investment power within 60 days through the
      exercise of any stock option or other right. The percentage of beneficial
      ownership as to any person as of a particular date is calculated by
      dividing (a) (i) the number of shares beneficially owned by such person
      plus (ii) the number of shares as to which such person has the right to
      acquire voting or investment power within 60 days by (b) the total number
      of shares outstanding as of such date. For purposes of calculating the
      beneficial ownership percentages set forth above, the total number of
      shares of our common stock deemed to be outstanding pursuant to the terms
      of


                                       41
<PAGE>

      the Plan as of February 15, 2003 was 16,460,000 (or 16,960,000 in the case
      of Mr. Abbruzzese and 16,871,501 in the case of Mr. Stevenson). As used in
      this annual report, "voting power" is the power to vote or direct the
      voting of shares and "investment power" is the power to dispose or direct
      the disposition of shares. Except as noted, each stockholder listed has
      sole voting and investment power with respect to the shares shown as being
      beneficially, owned by such stockholder.

(2)   On June 25, 2002, we entered into a Stipulation and Order with the lead
      plaintiffs in the class action lawsuit described in "Item 3 - Legal
      Proceedings." 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 reserve in escrow pending the outcome of the
      class action lawsuit. In the event that any judgment or settlement entered
      into in connection with the class action lawsuit requires us to pay an
      amount in excess of our liability insurance, we will be 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) of the shares of our common stock
      and the 11% Senior Notes being held in escrow. Assuming that our liability
      insurance is sufficient to cover any judgment or settlement in the class
      action lawsuit and that the shares of our common stock and the 11% Senior
      Notes being held in escrow will be distributed in accordance with the Plan
      rather than to the class action litigants and their attorneys, each of
      Morgan Stanley, Mackay Shields and Goldman Sachs & Co. (and each other
      holder of 12.5% Notes on the Effective Date of the Plan) will be entitled
      to receive a portion of these 229,452 shares of common stock based on its
      percentage ownership of the 12.5% Senior Notes on the Effective Date of
      the Plan.

(3)   This information is as of December 31, 2002, as set forth in a Schedule
      13G filed by Goldman Sachs & Co. with the Securities and Exchange
      Commission on February 11, 2003.

(4)    According to information provided to us by Morgan Stanley as of February
       28, 2003, the pecuniary interests in these shares are held by a number of
       institutional investors for whom Morgan Stanley Investment Management is
       the discretionary investment advisor. Morgan Stanley Investment
       Management is the investment management division of Morgan Stanley, which
       is comprised of a number of SEC registered investment advisors. Morgan
       Stanley, by nature of its control relationship over Morgan Stanley
       Investment Management, is considered to have voting control with respect
       to 1,653,000 of these shares (as of February 28, 2003) and investment
       control with respect to all of these shares (as of February 28, 2003)
       and, accordingly, is deemed to beneficially own these shares. Morgan
       Stanley Investment Advisors Inc. may be deemed to be the beneficial owner
       of 926,726 of these shares as of February 28, 2003, representing 5.63% of
       the outstanding shares of our common stock as of February 28, 2003. A
       number of individuals at Morgan Stanley Investment Management have voting
       and investment control over these shares.

(5)   "HM Parties" refers collectively to HM4 Globix Qualified Fund, LLC, HM4
      Globix Private Fund, LLC, HM PG-IV Globix, LLC, HM 4-EQ Globix
      Coinvestors, LLC and HM 4-SBS Globix Coinvestors, LLC. Of the 2,304,400
      shares held by the HM Parties: (i) 2,092,487 of these shares are owned of
      record by HM4 Globix Qualified Fund, LLC, (ii) 14,831 of these shares are
      owned of record by HM4 Globix Private Fund, LLC; (iii) 111,430 of these
      shares are owned of record by HM PG-IV Globix, LLC, (iv) 34,177 of such
      shares are owned of record by HM 4-EQ Globix Coinvestors, LLC and (v)
      51,475 of these shares are owned of record by HM 4-SBS Globix Coinvestors,
      LLC.

(6)   Thomas O. Hicks is the President and Chief Executive Officer of each of
      the HM Parties and is the sole member of the ultimate general partner of
      the controlling member of each of the HM Parties and has the ultimate
      legal authority over all investment decisions made with respect to the
      shares of our common stock owned of record by the HM Parties. Accordingly,
      Mr. Hicks may be deemed to beneficially own all or a portion of the shares
      of our common stock owned of record by the HM Parties. Peter S. Brodsky, a
      director of the Company, and Dan H. Blanks, Joe Colonnetta, Jack D. Furst,
      a director of our company from December 1999 through April 2002, Lyndon
      Lea, John R. Muse, Rick Neuman, and Andrew Rosen, are partners of Hicks,
      Muse, Tate & Furst Incorporated, which is an affiliate of Mr. Hicks and of
      the HM Parties, and serve as a officers of each of the HM Parties.
      Consequently, these individuals may be deemed to beneficially own all or a
      portion of the shares of our common stock owned of record by the HM
      Parties. Each of Messrs. Hicks, Brodsky, Blanks, Colonnetta, Furst, Lea,
      Muse, Neuman and Rosen disclaims the existence of a group and disclaims
      beneficial ownership of the shares of our common stock of which he is not
      the record owner.

(7)   According to information provided to us by MacKay Shields, the pecuniary
      interests in these shares are held by a number of institutional investors
      for whom MacKay Shields is the discretionary investment advisor. MacKay
      Shields has voting and investment control over these shares and,
      accordingly, is deemed to beneficially own these shares. A number of
      individuals at MacKay Shields LLC have voting and investment control over
      these shares.


                                       42
<PAGE>
(8)   On March 14, 2003 our board of directors approved the sale of a warrant
      to purchase 500,000 shares of our common stock to CTA, of which Mr.
      Abbruzzese is the Chairman, at an exercise price of $3.00 per share. CTA
      is controlled by Winchester II, LLC, a limited liability company
      controlled by Mr. Abbruzzese's wife, Sherrie G. Abbruzzese. The purchase
      price of the warrant is $25,000. Although CTA has not yet purchased this
      warrant, it currently has the right to do so. If CTA elects to purchase
      this warrant, this warrant will be immediately exercisable. Accordingly,
      Mr. Abbruzzese and his wife are deemed to be the beneficial owners of the
      500,000 shares of our common stock underlying this warrant.

(9)   Mr. Brodsky is a partner of Hicks, Muse, Tate & Furst Incorporated, which
      is an affiliate of Mr. Hicks and of each of the HM Parties, and serves as
      an officer of each of the HM Parties. Consequently, Mr. Brodsky may be
      deemed to beneficially own all or a portion of the shares of our common
      stock owned of record by each of the HM Parties. Mr. Brodsky disclaims the
      existence of a group and disclaims beneficial ownership of shares of our
      common stock of which he is not the record owner.

(10)  Mr. Lampe is affiliated with LC Capital, which owns these shares. Mr.
      Lampe has voting and investment control over these shares and,
      consequently, is deemed to beneficially own these shares.

(11)  Under the terms of Mr. Stevenson's employment agreement described in
      "Item 11--Executive Compensation--Employment Agreements--Peter K.
      Stevenson", on April 15, 2002 (the effective date of Mr. Stevenson's
      employment agreement) we agreed to grant to Mr. Stevenson options to
      acquire 548,667 shares of our common stock, or approximately 3% of the
      outstanding shares of our common stock on a fully diluted basis
      (including shares of our common stock underlying options eligible for
      grant under the 2003 Stock Option Plan, but excluding shares of our
      common stock underlying any other outstanding convertible securities).

      On March 14, 2003, we granted to Mr. Stevenson options to acquire 548,667
      shares of our common stock pursuant to our 2003 Stock Option Plan. Fifty
      percent of these options vest based on the length of time that these
      options are held by Mr. Stevenson and 50% of these options vest if certain
      performance targets are met. In January 2003, our board of directors
      concluded that Mr. Stevenson had met certain of the performance targets
      set forth in his employment agreement. However, for purposes of the
      provisions of Mr. Stevenson's employment agreement related to Mr.
      Stevenson's bonus and the vesting of options granted to Mr. Stevenson, our
      board of directors deemed all of these performance targets to have been
      met. Consequently, of the 548,667 options granted to Mr. Stevenson on
      March 14, 2003, 274,334 of these options vested immediately. On April 15,
      2003, an additional 137,167 of these options will vest (or 274,333 of
      these options if certain performance targets agreed upon between and our
      board of directors and Mr. Stevenson are met).

(12)  Mr. Stranzl was employed by Morgan Stanley Investment Management, from
      March 1999 through March 2002.

(13)  Mr. Van Dyke is the founder and co-managing principal of Bay Harbour
      Management L.C. Bay Harbour Management serves as investment advisor for
      Bay Harbour 90-1, Ltd., Bay Harbour Partners, Ltd., Zurich Institutional
      Benchmarks Master Fund Ltd. and HFR DS Strategic Master Trust, which
      collectively owned (as of February 25, 2003) 172,017 shares of our common
      stock, or approximately 1% of the outstanding shares of our common stock.
      Bay Harbour Management has voting and investment control over these shares
      and, accordingly, may be deemed to beneficially own these shares. Mr. Van
      Dyke is the natural person with voting and investment control over these
      shares.

      Unless otherwise indicated, the address for the individuals listed above
is c/o Globix Corporation, 139 Centre St., New York, NY 10013.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Described below are certain transactions that we have entered into with
parties that are related to our company.

REGISTRATION RIGHTS AGREEMENT

      On April 23, 2002, we entered into a registration rights agreement with
respect to our common stock and the 11% Senior Notes. Under the registration
rights agreement, we agreed to file a registration statement on or before the
90th day following the Effective Date of the Plan, relating to the offer and
sale of the 11% Senior Notes, including additional notes paid or payable as
interest on the 11% Senior Notes, and shares of our common stock. In connection
with the registration rights agreement, on July 25, 2002 we filed a Registration
Statement on Form S-1 (No. 333-97067) with the Securities and Exchange
Commission.

      Subject to certain adjustments, we are required to bear all expenses
incident to the registration of the notes and our common stock. We agreed to
indemnify the holders of the securities being sold pursuant to the Registration
Statement against all liabilities, whether under the securities laws or
otherwise, arising out of disclosure deficiencies in the registration statement.
Our indemnity obligation does not, however, extend to liability for information
pertaining to a holder and furnished to our company by or on behalf of such
holder for inclusion in the registration statement.

      Subject to certain adjustments, we are obligated to keep the registration
statement continuously effective, supplemented and amended for a period ending
on the earlier of:


                                       43
<PAGE>

      -     the date on which all of the 11% Senior Notes and the shares of our
            common stock have been sold pursuant to the registration statement
            or pursuant to Rule 144 under the Securities Act;

      -     the three year anniversary of the date on which the Securities and
            Exchange Commission declares the registration statement effective;
            and

      -     the date on which there are no longer any shares of our common stock
            or 11% Senior Notes outstanding.

CONSULTING AGREEMENT WITH CTA

      Our company and CTA are party to a consulting agreement dated as of April
19, 2002. Jared E. Abbruzzese, a member of our board of directors, is the
Founder and Chairman of CTA and is actively engaged in all aspects of CTA's
business.

      Under this agreement, we engaged CTA to act as the Office of the Chief
Restructuring Officer, providing our company with a wide range of business
advisory services. The initial term of the agreement ended on October 31, 2002.
On November 1, 2002, we extended the CTA consulting agreement through January
31, 2003 and on February 1, 2003 we further extended the CTA consulting
agreement through April 30, 2003. As consideration for the services provided by
CTA, we pay CTA a monthly fee of $65,000. We also reimburse CTA for its
out-of-pocket expenses incurred in connection with rendering services to us
during the term of the agreement. In addition to the monthly fee and expense
reimbursement, CTA is also entitled to a success fee in the amount of $1,500,000
upon the achievement of certain success milestones.

      CTA was originally introduced to our company as a financial advisor to the
unofficial committee of holders of the 12.5% Senior Notes prior to the
commencement of our Chapter 11 case. CTA received a total of $594,000 in fees in
connection with its service as financial advisor to the unofficial committee and
to our company and was reimbursed a total of $46,000 for out-of-pocket expenses
through September 30, 2002. As a result of this engagement, we were introduced
to Peter K. Stevenson, currently our president and chief executive officer, who
was among several CTA representatives providing advisory services to the
unofficial committee and to several other clients of CTA unrelated to the
company. Mr. Stevenson consulted with CTA from January 2002 until he became our
President and CEO. CTA paid Mr. Stevenson consulting fees for such period equal
to $67,500. Mr. Stevenson does not own an equity interest in CTA, nor is he
actively consulting for or employed by CTA.

      Neither CTA, nor any of its principals or affiliates is currently a
stockholder of the company, nor does it hold any debt of our company (other than
indebtedness as a result of consulting fees and expense reimbursement owed to
CTA in the ordinary course under its existing agreement with our company).
However, on March 14, 2003 our board of directors approved the sale to CTA of a
warrant exercisable for 500,000 shares of our common stock at an exercise price
of $3.00 per share. The purchase price of the warrant is $25,000. Although CTA
has not yet purchased this warrant, it currently has the right to do so. If CTA
elects to purchase this warrant, this warrant will be immediately exercisable
for a period of 10 years from the date of issuance.

      CTA has advised us that in connection with the conduct of its business in
the ordinary course it routinely advises clients in, and appears in
restructuring cases involving, telecommunications companies throughout the
country. CTA has also advised us that certain holders of our common stock and/or
debt securities and/or certain of their respective affiliates or principals are
current clients of CTA in matters unrelated to our company, former clients of
CTA in matters unrelated to our company and affiliates of clients who are (or
were) represented by CTA in matters unrelated to our company.

      The consulting services described above were approved by a majority of our
disinterested directors. Our board of directors believes that these consulting
services are at rates and on terms that are at least as favorable as those that
would have been available to us from unaffiliated third parties under the
circumstances.

LEASE AGREEMENT BETWEEN NET ONE GROUP, INC. AND CTA

      From September 2002 through December 2002, CTA subleased office space
from Net One Group, Inc., a company founded by Mr. Stevenson. CTA paid a total
of $4,800 in rent to Net One Group under the sublease.

LIFE INSURANCE AND DISABILITY FOR PETER K. STEVENSON

      Peter K. Stevenson, our President and Chief Executive Officer, receives
life insurance and disability insurance benefits in excess of the benefits that
are offered to our other employees. These benefits are payable to an entity
controlled by Mr. Stevenson. The premiums for these benefits totaled $6,300 for
the five month period ended September 30, 2002. These benefits were approved by
a majority of our disinterested directors.


                                       44
<PAGE>

ITEM 14. CONTROLS AND PROCEDURES

      Our disclosure controls and procedures (as defined in Rule 13a-14(c) under
the Exchange Act) ("Disclosure Controls") are procedures that are designed with
the objective of ensuring that information required to be disclosed in our
reports filed under the Exchange Act, such as this annual report, is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms. Disclosure Controls are also designed with the objective
of ensuring that this information is accumulated and communicated to our
management, including our Chief Executive Officer and Acting Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.
Internal controls and procedures for financial reporting ("Internal Controls")
are procedures that are designed with the objective of providing reasonable
assurance that:

      -     our transactions are properly authorized;

      -     assets are safeguarded against unauthorized or improper use; and

      -     transactions are properly recorded and reported,

      -     in each case all to permit the preparation of our financial
            statements in conformity with U.S. generally accepted accounting
            principles.

LIMITATIONS ON THE EFFECTIVENESS OF DISCLOSURE CONTROLS AND INTERNAL CONTROLS

      Our management, including our Chief Executive Officer and Acting Chief
Financial Officer, does not expect that our Disclosure Controls or Internal
Controls will prevent all error and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within our company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people or by management override of the control. The design of any
system of controls is also based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any control will
succeed in achieving its stated goals under all potential future conditions.
Over time, a control may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures related to the control
may deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.

ANNUAL EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

      Within the 90-day period prior to the filing of this annual report, an
evaluation was carried out under the supervision and with the participation of
our management, including our Chief Executive Officer and Acting Chief Financial
Officer, of the effectiveness of the design and operation of our Disclosure
Controls and Procedures. Based upon that evaluation, our Chief Executive Officer
and Acting Chief Financial Officer concluded, subject to the limitations noted
above, that:

      -     the design and operation of our Disclosure Controls were effective
            to ensure that material information related to our company which is
            required to be disclosed in reports filed under the Securities
            Exchange Act of 1934 is recorded processed, summarized and reported
            within the time periods specified in SEC rules and forms.

      -     our Internal Controls are effective to provide reasonable assurance
            that our financial statements are fairly presented in conformity
            with U.S. generally accepted accounting principles.

      No significant changes were made to our Internal Controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.


                                       45
<PAGE>

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Financial Statements

See the financial statements beginning on page F-1.

(b) Exhibits

<TABLE>
<CAPTION>
EXHIBIT                           EXHIBIT DESCRIPTION
-------                           -------------------

<S>    <C>
2.1    Amended Joint Prepackaged Plan of the Company and certain of the
       Company's subsidiaries, dated April 8, 2002 (6)

3.1    Amended and Restated Certificate of Incorporation of the Company (7)

3.2    Amended and Restated Bylaws of the Company (7)

4.1    Indenture, dated as of April 23, 2002, between the Company, as issuer,
       the subsidiary guarantors of the Company named therein and HSBC Bank USA,
       as trustee, relating to the Company's 11% Senior Notes due 2008 (7)

4.2    Form of Pledge and Security Agreement, dated as of April 23, 2002,
       between each Subsidiary Guarantor of the Company and HSBC Bank USA, as
       Collateral Agent/Trustee (7)

4.3    Mortgage, Security Agreement and Fixture Filing, dated as of April 23,
       2002, between 415 Greenwich GC, LLC, as mortgagor and HSBC Bank USA, as
       Collateral Agent/Trustee (7)

4.4    Form of Warrant issuable to Communication Technology Advisors*

10.1   Purchase Agreement between Young Woo and the Company, dated as of June 2,
       1998 **(1)

10.2   Employment Agreement between Robert B. Bell and the Company, dated as of
       July 21, 1999 (2)

10.3   Trust Agreement between the Company and Arnold N. Bressler, as Trustee,
       dated as of July 21, 1999 (3)

10.4   Employment Agreement between Peter L. Herzig and the Company, dated as of
       October 2, 2001 (4)

10.5   Employment Agreement between Marc Jaffe and the Company, dated as of
       October 2, 2001 (4)

10.6   Form of Noteholders' and Preferred Stockholders' Lock-Up Agreements,
       dated January 14, 2002 (5)

10.7   Form of letter agreement between the Company and Marc H. Bell (5)

10.8   Consulting Agreement, dated as of April 19, 2002, between the Company and
       Communication Technology Advisors LLC*

10.9   Agreement between the Company and Communication Technology Advisors,
       dated as of November 1, 2002 *

10.10  Agreement between the Company and Communication Technology Advisors,
       dated as of February 1, 2003 *

10.11  Registration Rights Agreement between the Company and the holders of the
       Company's securities party, dated as of April 23, 2002 *

10.12  Employment Agreement between the Company and Peter K. Stevenson, dated as
       of April 15, 2002*

10.13  Letter Agreement between the Company and Reid Meintzer, dated July 15,
       2002*

10.14  Letter Agreement between the Company and H. Jameson Holcombe, dated July
       15, 2002*

21     List of Subsidiaries*

99.1   Certification of Chief Executive Officer pursuant to Section 906 of the
       Sarbanes-Oxley Act of 2002*

99.2   Certification of Acting Chief Financial Officer pursuant to Section 906
       of the Sarbanes-Oxley Act of 2002*
</TABLE>

*     Filed herewith.

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

(1)   Incorporated by reference to the Company's Report on Form 8-K/A filed on
      September 18, 1998.

(2)   Incorporated by reference to the Company's Quarterly Report on Form 10-Q
      filed on August 16, 1999.

(3)   Incorporated by reference to the Company's Annual Report on Form 10-K
      filed on December 29, 2000.

(4)   Incorporated by reference to the Company's Annual Report on Form 10-K
      filed on December 31, 2001.

(5)   Incorporated by reference to the Company's Current Report on Form 8-K
      filed on January 14, 2002.

(6)   Incorporated by reference to the Company's Current Report on Form 8-K
      filed on April 23, 2002.

(7)   Incorporated by reference to the Company's Quarterly Report on Form 10-Q
      filed on May 15, 2002.

(c)   Financial Statement Schedules

See Schedule II - Valuation and Qualifying Accounts contained on page S-1.

(d)   Reports on Form 8-K

      On July 31, 2002, the Company filed a Current Report on Form 8-K related
to a change in the Company's accountants.


                                       46
<PAGE>

                                   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.

Date:  March 26, 2003            GLOBIX CORPORATION


                                 /s/     Peter K. Stevenson
                                 -----------------------------------------------
                                 Peter K. Stevenson
                                 President, Chief Executive Officer


      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.


Date:  March 26, 2003            /s/     PETER K. STEVENSON
                                 ----------------------------------------------
                                 Peter K. Stevenson
                                 President, Chief Executive Officer and
                                 Director (principal executive officer)


Date:  March 26, 2003            /s/     JOHN D. MCCARTHY
                                 ----------------------------------------------
                                 John D. McCarthy
                                 Acting Chief Financial Officer  (principal
                                 financial officer and principal accounting
                                 officer)


Date:  March 26, 2003            /s/     JARED E. ABBRUZZESE
                                 ----------------------------------------------
                                 Jared E. Abbruzzese
                                 Director


Date:  March 26, 2003            /s/     PETER S. BRODSKY
                                 ----------------------------------------------
                                 Peter S. Brodsky
                                 Director


Date:  March 26, 2003            /s/     PETER L. HERZIG
                                 ----------------------------------------------
                                 Peter L. Herzig
                                 Director


Date:  March 26, 2003            /s/     STEVEN LAMPE
                                 ----------------------------------------------
                                 Steven Lampe
                                 Director


Date:  March 26, 2003            /s/     STEVEN G. SINGER
                                 ----------------------------------------------
                                 Steven G. Singer
                                 Director


Date:  March 26, 2003            /s/     BRANDON STRANZL
                                 ----------------------------------------------
                                 Brandon Stranzl
                                 Director


Date:  March 26, 2003            /s/     STEVEN A. VAN DYKE
                                 ----------------------------------------------
                                 Steven A. Van Dyke
                                 Director


                                       47
<PAGE>

                                 CERTIFICATIONS

I, Peter K. Stevenson, certify that:

      1. I have reviewed this annual report on Form 10-K of Globix Corporation;

      2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

      3. Based on my knowledge, the financial statements and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

      4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      (a)   designed such disclosure controls and procedures to ensure that
            material information relating to the registrant, including its
            consolidated subsidiaries, is made known to us by others within
            those entities, particularly during the period in which this annual
            report is being prepared;

      (b)   evaluated the effectiveness of the registrant's disclosure controls
            and procedures as of a date within 90 days prior to the filing date
            of this annual report (the "Evaluation Date"); and

      (c)   presented in this annual report our conclusions about the
            effectiveness of the disclosure controls and procedures based on our
            evaluation as of the Evaluation Date;

      5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

      (a)   all significant deficiencies in the design or operation of internal
            controls which could adversely affect the registrant's ability to
            record, process, summarize and report financial data and have
            identified for the registrant's auditors any material weaknesses in
            internal controls; (b) any fraud, whether or not material, that
            involves management or other employees who have a significant role
            in the registrant's internal controls; and

      6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Date: March 26, 2003


                                               /s/Peter K. Stevenson
                                               ------------------------------
                                               Name: Peter K. Stevenson
                                               Title: Chief Executive Officer


                                      C-1
<PAGE>

I, John D. McCarthy, certify that:

      1. I have reviewed this annual report on Form 10-K of Globix Corporation;

      2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

      3. Based on my knowledge, the financial statements and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

      4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      (a)   designed such disclosure controls and procedures to ensure that
            material information relating to the registrant, including its
            consolidated subsidiaries, is made known to us by others within
            those entities, particularly during the period in which this annual
            report is being prepared;

      (b)   evaluated the effectiveness of the registrant's disclosure controls
            and procedures as of a date within 90 days prior to the filing date
            of this annual report (the "Evaluation Date"); and

      (c)   presented in this annual report our conclusions about the
            effectiveness of the disclosure controls and procedures based on our
            evaluation as of the Evaluation Date;

      5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

      (a)   all significant deficiencies in the design or operation of internal
            controls which could adversely affect the registrant's ability to
            record, process, summarize and report financial data and have
            identified for the registrant's auditors any material weaknesses in
            internal controls

      (b)   any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal controls; and

      6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 26, 2003


                                       /s/John D. McCarthy
                                       --------------------------------------
                                       Name: John D. McCarthy
                                       Title: Acting Chief Financial Officer


                                      C-2
<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                                     PAGE
                                                                                                                     ----

<S>                                                                                                                  <C>
Reports of Independent Public Accountants .......................................................................      F-2
Consolidated Balance Sheets--As of September 30, 2002 (Successor Company) and September 30, 2001
(Predecessor Company)............................................................................................      F-6
Consolidated Statements of Operations--for the Five Months Ended September 30, 2002 (Successor Company),
Seven Months Ended April 30, 2002 (Predecessor Company) and for the Fiscal Years Ended
September 30, 2001 and September 30, 2000 (Predecessor Company) .................................................      F-7
Consolidated Statements of Changes in Stockholders' (Deficit) Equity and Comprehensive Income (Loss)--for the Five
Months Ended September 30, 2002 (Successor Company), Seven Months Ended April 30, 2002 (Predecessor Company) and
for the Fiscal Years Ended September 30, 2001 and September 30, 2000 (Predecessor Company).......................      F-8
Consolidated Statements of Cash Flows--for the Five Months Ended September 30, 2002 (Successor Company),
Seven Months Ended April 30, 2002 (Predecessor Company) and for the Fiscal Years Ended September 30, 2001 and
September 30, 2000 (Predecessor Company).........................................................................      F-9
Notes to Consolidated Financial Statements ......................................................................      F-10
Schedule II - Valuation and Qualifying Accounts..................................................................      S-1
</TABLE>


                                      F-1
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

      To the Stockholders and Board of Directors of Globix Corporation:

In our opinion, the accompanying consolidated balance sheet as of September 30,
2002 and the related consolidated statements of operations, cash flows and
changes in stockholders' equity present fairly, in all material respects, the
consolidated financial position of Globix Corporation and its subsidiaries (the
Successor Company) at September 30, 2002 and the consolidated results of their
operations and their consolidated cash flows for the five months ended September
30, 2002 in conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the financial statement
schedule as of and for the five months ended September 30, 2002 presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audit.  We
conducted our audit of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

As discussed in Note 2, the United States Bankruptcy Court for the District of
Delaware confirmed the Company's Prepackaged Plan of Reorganization (the "plan")
on April 8, 2002.  Confirmation of the plan substantially alters rights and
interests of equity security holders as provided for in the plan. The plan was
substantially consummated on April 25, 2002 and the Company emerged from
bankruptcy.  In connection with its emergence from bankruptcy, the Company
adopted fresh start accounting as of May 1, 2002.

New York, New York

February 3, 2003 (except with respect to the matters discussed in Note 24, in
the fifth paragraph as of February 6, 2003, in the sixth paragraph as of
February 24, 2003, in the seventh and eighth paragraphs as of March 14, 2003,
and in the ninth paragraph as of March 19, 2003).

                                      F-2
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS

      To the Stockholders and Board of Directors of Globix Corporation:

In our opinion, the accompanying consolidated statements of operations, cash
flows and changes in stockholders' deficit for the seven months ended April 30,
2002 present fairly, in all material respects, the consolidated results of
operations and cash flows of Globix Corporation and its subsidiaries (the
Predecessor Company) for the seven months ended April 30, 2002 in conformity
with accounting principles generally accepted in the United States of America.
In addition, in our opinion, the financial statement schedule for the seven
months ended April 30, 2002 presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audit.  We conducted our audit of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation.  We believe that our
audit provides a reasonable basis for our opinion. The consolidated financial
statements of Globix Corporation and its subsidiaries (the Predecessor Company)
as of September 30, 2001, and for the years ended September 30, 2001 and 2000,
prior to the adjustments discussed in Notes 3 and 4, were audited by other
independent accountants who have ceased operations.  Those independent
accountants expressed an unqualified opinion on those financial statements in
their report (which included an explanatory paragraph indicating factors that
raise substantial doubt about the Company's ability to continue as a going
concern and an explanatory paragraph emphasizing a change in the Company's
method of accounting for revenue recognition) dated December 31, 2001.

As discussed in Note 2, the Company filed a petition on March 1, 2002 with the
United States Bankruptcy Court for the District of Delaware for reorganization
under the provisions of Chapter 11 of the Bankruptcy Code.  The Company's
Prepackaged Plan of Reorganization was substantially consummated on April 25,
2002 and the Company emerged from bankruptcy.  In connection with its emergence
from bankruptcy, the Company adopted fresh start accounting.

As discussed in Note 4, the Company changed the manner in which it accounts for
goodwill and other intangible assets upon adoption of Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets,"
on May 1, 2002.

                                      F-3
<PAGE>
As discussed above, the consolidated financial statements of Globix and its
subsidiaries (the Predecessor Company) as of September 30, 2001, and for the
years ended September 30, 2001 and 2000, were audited by other independent
accountants who have ceased operations.  As described in Note 3, these financial
statements have been revised to include the transitional disclosures required by
SFAS No. 142, "Goodwill and Other Intangible Assets", which was adopted by the
Successor Company as of May 1, 2002.  In addition, as described in Note 4, the
Company adopted SFAS No. 145, "Rescission of SFAS Nos. 4, 44, and 64, Amendment
of SFAS 13, and Technical Corrections as of April 2002," as of May 1, 2002.  As
a result, the consolidated financial statements for the year ended September 30,
2000 have been restated to classify the loss on extinguishment of debt in
accordance with SFAS No. 145.  We audited the transitional disclosures in Note
3. We also audited the adjustments described in Note 4 which were applied to
restate the consolidated financial statements for the year ended September 30,
2000.  In our opinion, the transitional disclosures are appropriate and the
adjustments referred to above are appropriate and have been properly applied.
However, we were not engaged to audit, review, or apply any procedures to the
September 30, 2001 or 2000 consolidated financial statements of the Predecessor
Company other than with respect to such transitional disclosures and adjustments
and accordingly, we do not express an opinion or any other form of assurance on
the September 30, 2001 or 2000 financial statements taken as a whole.

New York, New York

February 3, 2003 (except with respect to the matters discussed in Note 24, in
the fifth paragraph as of February 6, 2003, in the sixth paragraph as of
February 24, 2003, in the seventh and eighth paragraphs as of March 14, 2003,
and in the ninth paragraph as of March 19, 2003).

                                      F-4
<PAGE>
This report is a copy of a report previously issued by Arthur Andersen LLP,
which has not been reissued by Arthur Andersen LLP. The consolidated balance
sheet at September 30, 2000 and the consolidated statements of operations,
stockholders' (deficit) equity and cash flows for the year ended September 30,
1999 are not required to be presented in this Form 10-K. The note references in
the opinion below are to the financial statements included in the Form 10-K for
the year ended September 30, 2001. As discussed in Note 3 to the consolidated
financial statements, the Company has revised its consolidated financial
statements for the years ended September 30, 2001 and 2000 to include the
transitional disclosures required by Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets", and as
discussed in Note 4 to the consolidated financial statements, to reclassify
losses on the extinguishment of debt in compliance with SFAS No. 145,
"Rescission of SFAS Nos. 4, 44 and 64, Amendment of SFAS 13 and Technical
Corrections as of April 2002," which was adopted by the Company as of May 1,
2002. The Arthur Andersen LLP report does not extend to these changes. The
revisions related to these transitional disclosures and reclassifications were
reported on by PricewaterhouseCoopers LLP, as stated in their report appearing
herein.

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors of Globix Corporation:

We have audited the accompanying consolidated balance sheets of Globix
Corporation (a Delaware corporation) and Subsidiaries as of September 30, 2001
and 2000, and the related consolidated statements of operations, stockholders'
(deficit) equity and cash flows for each of the three years in the period ended
September 30, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Globix Corporation and
Subsidiaries as of September 30, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 2001 in conformity with accounting principles generally accepted
in the United States.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company has incurred recurring net
losses and net operating cash deficiencies and has a significant stockholders'
deficiency. These factors raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these matters
are described in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for revenue recognition effective October 1,
2000.

/S/ ARTHUR ANDERSEN LLP

New York, New York


                                      F-5
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

          CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2002 AND 2001
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>                                                                                 September       September
                                                                                           30, 2002        30, 2001
                                                                                         (SUCCESSOR      (PREDECESSOR
                                                                                           COMPANY)        COMPANY)
                                                                                         ----------       -----------
<S>                                                                                      <C>            <C>
ASSETS
Current assets:
Cash and cash equivalents .........................................................      $  47,562       $ 111,502
Short-term investments ............................................................          5,392              --
Marketable securities .............................................................          1,327           1,610
Accounts receivable, net of allowance for doubtful accounts of $2,565 and $8,052,
     respectively .................................................................          7,060          13,809
Prepaid expenses and other current assets .........................................          7,735           7,785
Restricted cash ...................................................................          1,760           6,984
                                                                                         ---------       ---------
          Total current assets ....................................................         70,836         141,690
Investments, restricted ...........................................................          7,337          26,886
Property, plant and equipment, net ................................................        174,710         356,149
Debt issuance costs, net of accumulated amortization of $1,896 ....................             --          19,006
Intangible assets, net of accumulated amortization of $543 and $2,485, respectively          9,612           4,362
Other assets ......................................................................            225           4,895
                                                                                         ---------       ---------
          Total assets ............................................................      $ 262,720       $ 552,988
                                                                                         =========       =========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portions of capital lease obligations and mortgage payable ................      $   1,520       $   6,687
Accounts payable ..................................................................          8,971          14,022
Accrued liabilities ...............................................................         16,096          20,950
Accrued restructuring .............................................................          1,828           9,191
Accrued interest - 12.5% Senior Notes .............................................             --          12,500
                                                                                         ---------       ---------
          Total current liabilities ...............................................         28,415          63,350
Capital lease obligations, net of current portion .................................          2,807          10,309
Mortgage Payable ..................................................................         20,186          20,441
12..5% Senior Notes ...............................................................             --         600,000
11% Senior Notes ..................................................................        120,000              --
Accrued Interest - 11% Senior Notes ...............................................          5,681              --
Other long term liabilities .......................................................         13,084           7,577
                                                                                         ---------       ---------
          Total liabilities .......................................................        190,173         701,677

Commitments and contingencies (Note 17):
Minority interest in subsidiary ...................................................             --           5,406
Mandatory Redeemable convertible preferred stock ..................................             --          83,230

STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.01 par value; 500,000,000 shares authorized; 16,460,000 and
     41,920,229 shares issued and outstanding, respectively .......................            165             419
Additional paid-in capital ........................................................         93,112         171,176
Deferred compensation .............................................................             --          (7,097)
Accumulated other comprehensive income (loss) .....................................            401          (2,703)
Accumulated deficit ...............................................................        (21,131)       (399,120)
                                                                                         ---------       ---------
          Total stockholders' equity (deficit) ....................................         72,547        (237,325)
                                                                                         ---------       ---------
          Total liabilities and stockholders' equity (deficit) ....................      $ 262,720       $ 552,988
                                                                                         =========       =========
</TABLE>

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



                                      F-6
<PAGE>
                       GLOBIX CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
                                                                                                  PREDECESSOR
                                                                              SUCCESSOR COMPANY     COMPANY
                                                                              -----------------  -------------
                                                                                 FIVE MONTHS      SEVEN MONTHS
                                                                                    ENDED            ENDED
                                                                                 SEPTEMBER 30,      APRIL 30,
                                                                                     2002            2002
                                                                                 ------------    ------------
<S>                                                                           <C>                <C>
Revenue ...................................................................      $     30,723    $     51,273
Operating costs and expenses:
          Cost of revenue (excluding depreciation, amortization, payroll
          and occupancy shown below).......................................            10,458          22,123
          Selling, general and administrative .............................            29,313          57,206
          Loss on impairment of assets ....................................                --           2,578
          Restructuring and other charges .................................                --          24,834
          Depreciation and amortization ...................................             6,060          28,115
                                                                                 ------------    ------------
                   Total operating costs and expenses .....................            45,831         134,856
Loss from operations ......................................................           (15,108)        (83,583)
          Interest and financing expense ..................................            (6,653)        (34,511)
          Interest income .................................................               787           2,024
          Other income ...................................................                275             352
          Other expense ..................................................               (432)           (861)
          Gain (loss) on discharge of debt ................................                --         427,066
          Minority interest in subsidiary .................................                --           5,778
          Reorganization items ............................................                --          (7,762)
          Fresh start accounting adjustments ..............................                --        (148,569)
                                                                                 ------------    ------------
(Loss) Income  before cumulative effect of a change in accounting
principle .................................................................           (21,131)        159,934
Cumulative effect of a change in accounting principle, net of tax                          --              --
                                                                                 ------------    ------------
Net (loss) income .........................................................           (21,131)        159,934
Dividends and accretion on preferred stock ................................                --          (3,178)
                                                                                 ------------    ------------
Net (loss) income attributable to common stockholder ......................      $    (21,131)   $    156,756
                                                                                 ============    ============
(Loss) earnings per common share:
Basic:  Before cumulative effect of a change in accounting
principle .................................................................      $      (1.28)   $       3.96

Cumulative effect of a change in accounting principle .....................                --              --
                                                                                 ------------    ------------
Basic (loss) income per share attributable to common stockholders .........      $      (1.28)   $       3.96
                                                                                 ============    ============
Weighted average common shares outstanding--basic .........................        16,460,000      39,618,856
Diluted: Before cumulative effect of a change in accounting principle .....      $      (1.28)   $       3.30

Cumulative effect of a change in accounting principle .....................                --              --
                                                                                 ------------    ------------
Diluted (loss) income per share attributable to common stockholder ........      $      (1.28)   $       3.30
                                                                                 ============    ============
Weighted average common shares outstanding--diluted .......................        16,460,000      48,507,456
</TABLE>
<TABLE>
<CAPTION>
                                                                                    PREDECESSOR COMPANY
                                                                               ----------------------------
                                                                                YEAR ENDED      YEAR ENDED
                                                                               SEPTEMBER 30,   SEPTEMBER 30,
                                                                                   2001            2000
                                                                               ------------    -------------
<S>                                                                            <C>             <C>
Revenue ...................................................................    $    104,210    $     81,287
Operating costs and expenses:
          Cost of revenue (excluding depreciation, amortization, payroll
          and occupancy shown below).......................................          40,609          42,513
          Selling, general and administrative .............................         124,821          98,113
          Loss on impairment of assets ....................................           3,500
          Restructuring and other charges .................................          56,109              --
          Depreciation and amortization ...................................          36,657          18,228
                                                                               ------------    ------------
                   Total operating costs and expenses .....................         261,696         158,854
Loss from operations ......................................................        (157,486)        (77,567)
          Interest and financing expense ..................................         (65,128)        (57,831)
          Interest income .................................................          13,282          24,749
          Other income ....................................................           2,147           2,816
          Other expense ...................................................          (3,526)         (1,037)
          Gain (loss) on discharge of debt ................................              --         (17,577)
          Minority interest in subsidiary .................................              --              --
          Reorganization items ............................................              --              --
          Fresh start accounting adjustments ..............................              --              --
                                                                               ------------    ------------
(Loss) Income  before cumulative effect of a change in accounting
principle .................................................................        (210,711)       (126,447)
Cumulative effect of a change in accounting principle, net of tax                    (2,332)             --
                                                                               ------------    ------------
Net (loss) income .........................................................        (213,043)       (126,447)
Dividends and accretion on preferred stock ................................          (7,104)         (5,768)
                                                                               ------------    ------------
Net (loss) income attributable to common stockholders .....................    $   (220,147)   $   (132,215)
                                                                               ============    ============
(Loss) earnings per common share:
Basic:  Before cumulative effect of a change in accounting
principle .................................................................    $      (5.66)   $      (3.73)

Cumulative effect of a change in accounting principle .....................           (0.06)             --
                                                                               ------------    ------------
Basic (loss) income per share attributable to common stockholder ..........    $      (5.72)   $      (3.73)
                                                                               ============    ============
Weighted average common shares outstanding--basic .........................      38,476,909      35,484,040
Diluted: Before cumulative effect of a change in accounting principle .....    $      (5.66)   $      (3.73)

Cumulative effect of a change in accounting principle .....................           (0.06)             --
                                                                               ------------    ------------
Diluted (loss) income per share attributable to common stockholder ........    $      (5.72)   $      (3.73)
                                                                               ============    ============
Weighted average common shares outstanding--diluted .......................      38,476,909      35,484,040
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      F-7
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
                         AND COMPREHENSIVE INCOME (LOSS)
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>


                                                                          ADDITIONAL
                                                   COMMON STOCK             PAID-IN        DEFERRED
                                              SHARES         AMOUNT         CAPITAL     COMPENSATION
                                            -----------    -----------    -----------   ------------
<S>                                         <C>            <C>            <C>           <C>
Balance, October 1, 1999 (Predecessor
Company) ................................    33,300,020    $       333    $   155,423             --
Issuance of common stock in conjunction
with acquisition ........................       241,236              2          6,180             --
Issuance of common stock upon exercise of
options and warrants, net ...............     3,766,059             38         10,055             --
Dividends and accretion on preferred
stock ...................................            --             --         (5,768)            --
Comprehensive Income (Loss):
    Net loss ............................            --             --             --             --
    Unrealized holding losses ...........            --             --             --             --
    Foreign Currency translation
adjustment ..............................            --             --             --             --

Total Comprehensive Loss ................            --             --             --             --
                                            -----------    -----------    -----------    -----------
Balance, September 30, 2000 (Predecessor
Company) ................................    37,307,315            373        165,890             --

Issuance of common stock in conjunction
with acquisition ........................        80,000              1          1,199             --
Issuance of common stock upon exercise of
options .................................     1,559,424             15          2,486             --
Issuance of restricted stock ............     3,063,490             31          8,968         (8,999)
Amortization of deferred
compensation ............................            --             --             --          1,638

Cancellation of restricted stock ........       (90,000)            (1)          (263)           264
Dividends and accretion on preferred
    stock ...............................            --             --         (7,104)            --
Comprehensive Income (Loss):
    Net loss ............................            --             --             --             --

Unrealized holding losses ...............            --             --             --             --
    Foreign Currency translation
        adjustment ......................            --             --             --             --

Total Comprehensive Loss ................            --             --             --             --
                                            -----------    -----------    -----------    -----------

Balance, September 30, 2001 (Predecessor
Company) ................................    41,920,229            419        171,176         (7,097)

Amortization of deferred compensation ...            --             --             --          7,027
Cancellation of restricted stock ........       (23,750)            --            (70)            70
Dividends and accretion on preferred
stock ...................................            --             --         (3,178)            --
Comprehensive Income (Loss):
    Net income ..........................            --             --             --             --
    Unrealized holding gains ............            --             --             --             --
Foreign Currency
translation adjustment ..................            --             --             --             --
Total Comprehensive Income ..............            --             --             --             --
Fresh start accounting adjustments ......   (25,436,479)          (254)       (74,816)            --
                                            -----------    -----------    -----------    -----------

Balance, May 1, 2002 (Successor
  Company) ..............................    16,460,000            165         93,112             --
Comprehensive Income Loss:
    Net loss ............................            --             --             --             --
    Unrealized holding losses ...........            --             --             --             --
Foreign Currency
translation adjustment ..................            --             --             --             --

Total Comprehensive Loss ................            --             --             --             --
                                            -----------    -----------    -----------    -----------

Balance, September 30, 2002 (Successor
Company) ................................    16,460,000    $       165    $    93,112    $        --
                                            ===========    ===========    ===========    ===========
</TABLE>

<TABLE>
<CAPTION>
                                           ACCUMULATED
                                               OTHER                         TOTAL
                                           COMPREHENSIVE                 STOCKHOLDERS'
                                              (LOSS)       ACCUMULATED     (DEFICIT)
                                              INCOME         DEFICIT        EQUITY
                                           ------------    -----------   -------------
<S>                                        <C>             <C>           <C>
Balance, October 1, 1999 (Predecessor
Company) ................................   $    10,279    $   (59,630)   $   106,405
Issuance of common stock in conjunction
with acquisition ........................            --             --          6,182
Issuance of common stock upon exercise of
options and warrants, net ...............            --             --         10,093
Dividends and accretion on preferred
stock ...................................            --             --         (5,768)
Comprehensive Income (Loss):
    Net loss ............................            --       (126,447)            --
    Unrealized holding losses ...........        (5,763)            --             --
    Foreign Currency translation
adjustment ..............................        (2,732)            --             --

Total Comprehensive Loss ................            --             --       (134,942)
                                            -----------    -----------    -----------
Balance, September 30, 2000 (Predecessor
Company) ................................         1,784       (186,077)       (18,030)

Issuance of common stock in conjunction
with acquisition ........................            --             --          1,200
Issuance of common stock upon exercise of
options .................................            --             --          2,501
Issuance of restricted stock ............            --             --             --
Amortization of deferred
compensation ............................            --             --          1,638

Cancellation of restricted stock ........            --             --             --
Dividends and accretion on preferred
    stock ...............................            --             --         (7,104)
Comprehensive Income (Loss):
    Net loss ............................            --       (213,043)            --

Unrealized holding losses ...............        (5,539)            --             --
    Foreign Currency translation
        adjustment ......................         1,052             --             --

Total Comprehensive Loss ................            --             --       (217,530)
                                            -----------    -----------    -----------

Balance, September 30, 2001 (Predecessor
Company) ................................        (2,703)      (399,120)      (237,325)

Amortization of deferred compensation ...            --             --          7,027
Cancellation of restricted stock ........            --             --             --
Dividends and accretion on preferred
stock ...................................            --             --         (3,178)

Comprehensive Income (Loss):
    Net income ..........................            --        159,934             --
    Unrealized holding gains ............         1,185             --             --
Foreign Currency
translation adjustment ..................        (1,807)            --             --
Total Comprehensive Income ..............            --             --        159,312
Fresh start accounting adjustments ......         3,325        239,186        167,441
                                            -----------    -----------    -----------

Balance, May 1, 2002 (Successor
  Company) ..............................            --             --         93,277
Comprehensive Income Loss:
    Net loss ............................            --        (21,131)            --
    Unrealized holding losses ...........        (1,430)            --             --
Foreign Currency
translation adjustment ..................         1,831             --             --

Total Comprehensive Loss ................            --             --        (20,730)
                                            -----------    -----------    -----------

Balance, September 30, 2002 (Successor
Company) ................................   $       401    $   (21,131)   $    72,547
                                            ===========    ===========    ===========
</TABLE>


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



                                      F-8
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              SUCCESSOR COMPANY                     PREDECESSOR COMPANY
                                                              -----------------     -----------------------------------------------
                                                                                    SEVEN MONTHS
                                                              FIVE MONTHS ENDED         ENDED          YEAR ENDED       YEAR ENDED
                                                                SEPTEMBER 30,         APRIL 30,        SEPTEMBER         SEPTEMBER
                                                                      2002              2002           30, 2001          30, 2000
                                                              -----------------     ------------       ---------        ----------
<S>                                                           <C>                   <C>                <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) Income .........................................        $ (21,131)        $ 159,934         $(213,043)        $(126,447)
Adjustments to reconcile net loss to net cash used in
operating activities:
    Depreciation and amortization .........................            6,060            28,115            36,657            18,228
    Provision for uncollectible receivables ...............            1,904             4,284            14,119             2,701
    Services contributed to minority-owned subsidiary ....                --               372                --
    Gain on debt discharge ................................               --          (427,066)               --            17,577
    Cumulative effect of a change in accounting principle .               --                --             2,332                --
    Restructuring and other charges (net of cash payments).               --             8,233            22,889                --
    Gain on sale of short-term investments ................               --                --            (1,459)           (1,238)
    Unrealized loss on short- term investment .............               57                --                --                --
    Loss on impairment of investment ......................               --               490             3,250                --
    Loss on impairment of operating assets ................               --             2,578             3,500                --

    Gain on sale of marketable securities .................               --               (27)             (663)             (601)
    Amortization of debt issuance costs ...................               --               650             1,177             1,022
    Amortization of deferred compensation .................               --             7,027             1,638                --
    Write-off of note receivable ..........................            4,078                --                --
    Minority interest in subsidiary .......................               --            (5,778)               --                --
    Fresh start accounting adjustment .....................               --           148,569                --                --
Changes in operating assets and liabilities:
Accounts receivable .......................................            3,565            (3,449)           (6,526)          (15,922)
Prepaid expenses and other current assets .................            4,210            (4,574)           (3,309)             (227)
Other assets ..............................................               16                54            (3,567)              366
Accounts payable ..........................................            1,362            (5,181)            2,303            (1,270)
Accrued liabilities .......................................             (468)            1,950               947             7,827
Accrued restructuring .....................................           (1,294)           (7,117)               --                --
Accrued interest ..........................................            5,500            31,431                (2)            3,539
Other .....................................................             (180)             (179)             (786)              127
                                                                   ---------         ---------         ---------         ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES .......            3,679           (59,684)         (140,543)          (94,318)
                                                                   ---------         ---------         ---------         ---------

CASH FLOWS FROM INVESTING ACTIVITIES
Investment in short-term investments                                  (5,449)               --                --                --
Proceeds from sale of short-term investments ..............               --                --            10,180                --
Use of (investment in) restricted cash and investments ....              166            24,235             9,308            (7,628)
Proceeds from sale of marketable securities ...............               --                64             1,426             1,125
Return of (investment in) strategic investments ...........               51               193                --            (1,033)
Purchases of property, plant and equipment ................           (1,229)          (18,650)         (134,185)         (142,589)
Purchase of Comstar.net, Inc., net of cash acquired .......               --                --                --               186
                                                                   ---------         ---------         ---------         ---------

NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES                   (6,461)            5,842          (113,271)         (149,939)
                                                                   ---------         ---------         ---------         ---------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options and warrants, net .               --                --             2,501            10,093
Capital contribution in minority-owned subsidiary .........               --                --             5,406                --
Proceeds from 12.5% Senior Notes offering, net of offering
expenses ..................................................               --                --                --           580,000
Repayments on 13% Senior Notes ............................               --                --                --          (170,400)
Proceeds from issuance of preferred stock, net ............               --                --                --            75,250
Payments of dividends on preferred stock ..................               --                --            (1,500)           (3,475)
Proceeds from mortgage payable, net .......................               --                --                --            20,064
Repayments of mortgage payable and capital lease
obligations ...............................................           (2,279)           (4,946)           (6,020)           (2,137)
                                                                   ---------         ---------         ---------         ---------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES .......           (2,279)           (4,946)              387           509,395
                                                                   ---------         ---------         ---------         ---------

EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS ...............................................              (99)                8             1,052            (2,732)
                                                                   ---------         ---------         ---------         ---------

NET (DECREASES) INCREASES IN CASH AND CASH EQUIVALENTS                (5,160)          (58,780)         (252,375)          262,406
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                        52,722           111,502           363,877           101,471
                                                                   ---------         ---------         ---------         ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD                           $  47,562         $  52,722         $ 111,502         $ 363,877
                                                                   =========         =========         =========         =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest ....................................        $     975         $   2,101         $  78,289         $  55,260
Cash paid for income taxes ................................               --                --         $      34         $      72
Non-cash investing and financing activities:
       Equipment acquired under capital lease obligations .        $      --         $   1,036         $  19,475                --
Capital expenditures included in accounts payable,
accrued liabilities and other long term liabilities .......        $     168         $     273         $  12,557         $   8,287
       Cumulative dividends and accretion on preferred
stock .....................................................        $      --         $   3,178         $   7,104         $   2,293
Mandatorily redeemable convertible preferred
stock .....................................................        $      --         $  83,230                --                --
Restructuring of debt .....................................        $      --         $ 427,066                --                --
</TABLE>



                                      F-9
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1. BASIS OF PRESENTATION

      Globix Corporation and its subsidiaries ("Globix", the "Company" or the
"Successor Company") is a provider of Internet solutions to businesses. The
solutions include secure and fault-tolerant Internet data centers with network
services providing network connectivity to the Internet and Internet-based
managed and application services, which include co-location, dedicated hosting,
streaming media, and messaging services. The Company currently offers services
from facilities in New York City, New York, Santa Clara, California, Atlanta,
Georgia and London, England.

      The financial statements presented have been prepared by the Company in
accordance with generally accepted accounting principles in the United States
and the rules and regulations of the Securities and Exchange Commission. As a
result of the application of fresh start accounting under the American Institute
of Certified Public Accountants Statement of Position No. 90-7 ("SOP 90-7")
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code,"
as of May 1, 2002 the Company's 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 these
financial statements, references to the "Predecessor Company" are references to
the Company for periods prior to April 30, 2002 (the last day of the calendar
month in which the Company emerged from bankruptcy) and references to the
"Successor Company" are references to the Company for periods subsequent to
April 30, 2002. The Successor Company's financial statements are not comparable
to the Predecessor Company's financial statements. Although April 25, 2002 was
the Effective Date of our emergence from bankruptcy, for financial reporting
convenience purposes, we accounted for the consummation of the Plan as of April
30, 2002, which is our normal financial closing period for the month of April.

      The Company historically has experienced negative cash flow from
operations and has incurred net losses. The Company's ability to generate
positive cash flow from operations and achieve profitability is dependent upon
its ability to continue to grow its revenue and achieve further operating
efficiencies. For the five month period ended September 30, 2002, the Company
had a net loss of approximately $21,100. The Company is dependent upon its cash
on hand and cash generated from operations to support its capital requirements.
Although no assurances can be given, the Company's management believes that
actions taken by the Company pursuant to the Plan, including company downsizing,
headcount reductions and other cost reductions, as well as cost control measures
and the restructuring of its outstanding debt in connection with the Plan, have
positioned the Company to maintain sufficient cash flows from operations to meet
its operating, capital and debt service requirements for the next 12 months.
There can be no assurance, however, that the Company will be successful in
executing its business plan, achieving profitability, or in attracting new
customers, or in maintaining its existing customer base.  Moreover, despite the
Company's restructuring, it has continued to experience significant decreases in
revenue and low levels of new customer additions in the period following its
restructuring. In the future, the Company may make acquisitions or repurchase
indebtedness of the Company which, in turn, may adversely affect the Company's
liquidity.


      The following table describes the periods presented in the financial
statements and related notes thereto:

     PERIOD                                              REFERRED TO AS
     ------                                              --------------

     From May 1, 2002 through September 30, 2002         "Successor Company"

     From October 1, 2001 through April 30, 2002         "Predecessor Company"
       and for the fiscal years ended
       September 30, 2001 and 2000


2. REORGANIZATION AND EMERGENCE FROM CHAPTER 11

      On March 1, 2002, the Company and two of its wholly-owned subsidiaries,
Comstar.net, Inc. and ATC Merger Corp., filed voluntary petitions under Chapter
11 of the U.S. Bankruptcy Code, together with a prepackaged Plan of
Reorganization (the "Plan") with the United States Bankruptcy Court for the
District of Delaware. The Company continued to operate in Chapter 11 in the
ordinary course of business and received permission from the bankruptcy court to
pay its 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. Effective April
25, 2002 (the "Effective Date"), all conditions necessary for the Plan to become
effective were satisfied or waived and the Company emerged from Chapter 11
bankruptcy protection.



                                      F-10
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

      As of the Effective Date of the Plan, all of the Company's existing
securities were cancelled and:

      -     each holder of the Company's 12.5% Senior Notes due 2010 (the "12.5%
            Senior Notes"), became entitled to receive, in exchange for
            its claims in respect of the 12.5% Senior Notes, its pro rata share
            of:

            -      $120,000 in aggregate principal amount of the Company's 11%
                   Senior Secured Notes due 2008 (the "11% Senior Notes"), and

            -     13,991,000 shares of the Company's common stock, representing
                  85% of the shares of the Company's common stock issued and
                  outstanding following the Effective Date of the Plan;

      -     each holder of shares of the Company's preferred stock outstanding
            immediately prior to the Effective Date of the Plan became entitled
            to receive, in exchange for its claims in respect of these shares of
            preferred stock, its pro rata share of 2,304,400 shares of the
            Company's common stock, representing 14% of the shares of the
            Company's common stock issued and outstanding following the
            Effective Date of the Plan; and

      -     each holder of shares of the Company's common stock outstanding
            immediately prior to the Effective Date of the Plan became entitled
            to receive, in exchange for its claims in respect of these shares of
            common stock, its pro rata share of 164,600 shares of the Company's
            common stock, representing 1% of the shares of the Company's common
            stock issued and outstanding following the Effective Date of the
            Plan.

            All of the shares of the Company's common stock issued pursuant to
the Plan are subject to dilution by the exercise of management incentive stock
options, representing up to 10% of the shares of the Company's issued and
outstanding common stock on a fully-diluted basis following the Effective Date
of the Plan.

      A total of 16,460,000 shares of the Company's common stock and $120,000 in
aggregate principal amount of the 11% Senior Notes were deemed to be issued and
outstanding on the Effective Date pursuant to the terms of the Plan, and are
deemed to be issued and outstanding for purposes of these financial statements.
As of September 30, 2002, however, no shares of the Company's common stock or
11% Senior Notes had been distributed. In October 2002, the Company distributed
a total of 16,295,400 shares of common stock and $120,000 in aggregate principal
amount of 11% Senior Notes. Pursuant to the terms of a Stipulation and Order
that the Company entered into with the lead plaintiffs in the class action
lawsuit described in Note 17, 229,452 of these shares of common stock and $1,968
in aggregate principal amount of these 11% Senior Notes were placed in reserve
in escrow pending the outcome of the class action lawsuit. In the event that any
judgment or settlement entered into in connection with the class action lawsuit
requires the Company to pay an amount in excess of its liability insurance, then
the Company will be required to issue to the class action litigants and their
attorneys all (in the event that this excess is $10,000 or greater) or a portion
of (in the event that this excess is less than $10,000) of the shares of common
stock and 11% Senior Notes held in escrow. Distribution of the remaining 164,600
shares of common stock deemed to have been issued on the Effective Date, which
are allocable under the terms of the Plan to the holders of the Company's common
stock outstanding immediately prior to the Effective Date of the Plan, will
occur following the resolution of the shareholder derivative suit against the
Company and certain of former officers and directors described in Note 17.





                                      F-11
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Management Estimates

      The preparation of the Company's financial statements in accordance with
accounting principles generally accepted in the United States 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,
intangible assets, deferred tax assets and restructuring reserves. The market
for the Company's services is characterized by intense competition and could
impact the future realizability of the Company's 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.

Principles of Consolidation

      The consolidated financial statements include the accounts of the Company
and its subsidiaries. Included in the Company's consolidated results is a 0.01%
owned subsidiary, 415 Greenwich GC Tenant, LLC. The Company controls all
financial aspects of this entity. All significant intercompany accounts and
transactions have been eliminated in consolidation.

Revenue Recognition

      Revenue consists primarily of managed hosting and dedicated Internet
access fees, sales of systems administration and application services such as
streaming media, network security and administration and network monitoring.

      The Company recognizes revenue in accordance with the Securities and
Exchange Commission's Staff Accounting Bulletin, or SAB, No. 101 "Revenue
Recognition in Financial Statements," as amended. SAB No. 101 expresses the view
of the Securities and Exchange Commission's staff in applying U.S. generally
accepted accounting principles to certain revenue recognition issues. Under the
provisions of SAB No. 101, set up and installation revenue are deferred and
recognized over the estimated length of the customer relationship, which in the
case of the Company's business is approximately 36 months. Prior to April 30,
2002, the estimated length of the customer relationship was 12-18 months.
Effective October 1, 2000, the Company changed its revenue recognition method
for set up and service installation fees upon the adoption of SAB No. 101. Prior
to the Company's adoption of SAB No. 101, the Company recognized revenue
immediately upon completion of set up or installation. The change in accounting
principle resulted in a revenue deferral and cumulative effect charge totaling
$2,332, or $0.06 per share, which was reflected in the Company's consolidated
statements of operations for the fiscal year ended September 30, 2001. The
Company's adoption of SAB No. 101 decreased the Company's net loss by $547 for
the fiscal year ended September 30, 2001. The effect of the Company's adoption
of SAB No. 101 for the fiscal year ended September 30, 2000 was not material.

      Monthly service revenue related to managed hosting and Internet access is
recognized over the period that services are provided. Revenue derived from
application services is recognized at the completion of a project. Projects are
generally completed within a month. Payments received in advance of providing
services are deferred until the period that these services are provided.

      The Company provided $802 and purchased $551 of data center services from
a telecommunications operator during the year ending September 30, 2002. $318 of
the transactions billed were settled monetarily, with the balance of $445
settled by offsetting or netting the remainder

Cost of Revenue

      Cost of revenue consists primarily of telecommunications costs for
Internet access and managed hosting



                                      F-12
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

and includes the cost of hardware and software purchased for resale to
customers. Cost of revenue excludes payroll, occupancy and 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 the Company's peering partners
and costs associated with leased lines connecting the Company's facilities to
its backbone and aggregation points of presence.

Selling, General and Administrative Expenses

      Selling, general and administrative expenses consist primarily of salaries
and occupancy costs for executive, financial, operational and administrative
personnel and related operating expenses associated with network operations,
customer service and field services as well as marketing expenses, professional
fees and bad debt expense.

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 and investments, marketable securities
and accounts receivable. The Company maintains cash and cash equivalents,
short-term investments and restricted cash and investments 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 believes that concentrations of credit risk with respect to
trade accounts receivable are limited due to the large number and geographic
dispersion of the Company's customers. The Company performs ongoing credit
evaluations of its customers and maintains reserves for potential losses. The
Company's management makes estimates of the uncollectibility of its trade
accounts receivable on a monthly basis. No single customer of the Company
individually comprised more than 10% of the Company's revenues in the seven
month period ended April 30, 2002 and in the five month period ended September
30, 2002.

      In December 2000, the Company received a note for $4,100 relating to the
settlement of a lease of a data center property. This note was to be paid on
either the sale of the property, the lease of at least 95% of the property, or
two years from the date of the note. The obliger has indicated that it has
insufficient funds to satisfy the debt and does not intend to make payment.
While the Company has made demand and intends to vigorously pursue legal remedy,
in light of the financial condition of the obliger, the Company has written off
the entire amount.

Cash, Cash Equivalents and Restricted Cash

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

      Included in restricted cash are funds held in escrow related to a mortgage
on the Company's property located at 139 Centre Street, collateral funds for the
Company's corporate credit card and required share capital held in escrow for
the Company's European subsidiaries. These funds are primarily invested in
highly liquid investments with an original maturity of three months or less. The
classification is determined based on the expected term of the collateral
requirement and not the maturity date of the underlying securities.

Marketable Securities

      Investments in marketable securities are reported at fair value.
Unrealized gains and losses from those securities, which are classified as
available-for-sale, are reported as "unrealized holding gains and losses" as a
separate component of stockholders' equity. At September 30, 2002, marketable
securities had a cost basis of approximately $2,800.

Investments

      Short-term investments consist of an investment in a limited partnership
which invests in fixed income securities and certain investments which do not
meet the requirements to be reported as cash and cash equivalents. The limited
partnership is accounted for on a "mark-to-market" basis. At September 30, 2002
the limited



                                      F-13
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

partnership had a cost basis of $5,000 and the unrealized loss from the "mark to
market" adjustment of $57 was recorded in the Company's consolidated statement
of operations.

      Also included in short-term investments are investments in mortgage and
asset backed securities which do not meet the requirements to be reported as
cash and cash equivalents. These investments are classified as available for
sale securities and reported at fair value, with unrealized gains and losses
excluded from earnings and reported in other comprehensive income or loss in
stockholders' equity. At September 30, 2002, these investments had a cost and
fair value of $449.

      Included in restricted investments as of September 30, 2002 are collateral
funds for the note payable of $2,600, collateralized funds for the Rabbi Trust
obligation of $2,756 described in Note 11 which is included in other long-term
liabilities and 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 $1,981. These funds are primarily invested in highly liquid investments with
an original maturity of three months or less. The classification is determined
based on the expected term of the collateral requirement and not the maturity
date of the underlying securities.

      Included in restricted investments as of September 30, 2001 are collateral
funds for the note payable of $2,600, collateralized funds for the Rabbi Trust
obligation of $2,292 described in Note 9 which is included in accrued
liabilities, 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 $1,872, amounts held in escrow related to the lease of the Company's facility
located at 1 Oliver's Yard, 55-71 City Road, London, United Kingdom of $18,406
and amounts held in escrow related to the lease of the Company's other
facilities of $1,716. These funds are primarily invested in highly liquid
investments with an original maturity of three months or less. The
classification is determined based on the expected term of the collateral
requirement and not the maturity date of the underlying securities.

Property, Plant and Equipment

      Property, plant and equipment are stated at depreciated historical cost
for the Predecessor Company adjusted for impairment and include fresh start
adjustments for the Successor Company . 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:


Buildings and building improvements                         10 to 44 years
Computer hardware and software and network equipment        two to seven years
Office furniture and equipment                              three to seven years


      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.

INTANGIBLE ASSETS

      The Company adopted Statement of Financial Accounting Standards No. 141,
"Business Combinations" ("SFAS 141") and Statement of Financial Accounting
Standard No. 142, "Goodwill and other Intangible Assets "("SFAS 142") at the
Effective Date of the Plan. SFAS 141 requires all business combinations to be
accounted for using the purchase method of accounting and that certain
intangible assets acquired in a business combination must be recognized as
assets separate from goodwill. SFAS 142 addresses the recognition and
measurement of goodwill and other intangible assets subsequent to their
acquisition. SFAS 142 also addresses the initial recognition and measurement of
intangible assets acquired outside of a business combination whether acquired
individually or with a group of other assets. This statement provides that
intangible assets with indefinite lives and goodwill will not be amortized but,
will be tested at least annually for impairment. If an impairment is indicated
then the asset will be written down to its fair value typically based upon its
future expected discounted cash flows.

      For the seven month period ended April 30, 2002 and the fiscal years ended
September 30, 2001 and 2000, goodwill amortization amounted to $1,141, $2,604
and $190, respectively. If the Company had adopted SFAS 142 as of October 1,
1999 and discontinued goodwill amortization, the Company's net income and loss
per common share on a pro forma basis would have been as follows:

<TABLE>
<CAPTION>
PRO FORMA RESULTS                                                                          PREDECESSOR COMPANY
                                                                        ----------------------------------------------------------
                                                                         SEVEN MONTHS            YEAR                YEAR
                                                                            ENDED                ENDED               ENDED
                                                                        APRIL 30, 2002      SEPTEMBER 30, 2001  SEPTEMBER 30, 2000
                                                                        --------------      ------------------  ------------------
<S>                                                                     <C>                 <C>                 <C>
Net income (loss)                                                          $ 159,934             $(213,043)          $(126,447)
   Addback of goodwill amortization                                            1,141                 2,604                 190
Adjusted net income (loss)                                                   161,075              (210,439)           (126,257)
   Dividends and accretion on preferred stock                                 (3,178)               (7,104)             (5,768)
                                                                           ---------             ---------           ---------
Adjusted net income (loss) attributable to common stockholders             $ 157,897             $(217,543)          $(132,025)
                                                                           =========             =========           =========
Adjusted earnings (loss) per common share:

Basic earnings (loss) per share attributable to common stockholders        $    3.99             $   (5.65)          $   (3.72)
                                                                           =========             =========           =========
Diluted earnings (loss) per share attributable to common stockholders      $    3.32             $   (5.65)          $   (3.72)
                                                                           =========             =========           =========
</TABLE>



                                      F-14
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

      Intangible assets of the Successor Company are as follows:

            -     trademark and trade name;

            -     network build-out/know-how; and

            -     customer contracts.

      The trademark and trade name and identifiable assets are considered
indefinite-lived intangible assets. Accordingly, trademarks and trade name are
not amortized but are periodically reviewed for impairment. The network
build-out/know-how and customer contracts identifiable assets are considered
finite-lived intangible assets. Finite-lived intangible assets are amortized
over their useful lives. The network build-out/know-how intangible asset is
being amortized over eight years and the customer contracts intangible assets
are being amortized over three years.

Long-Lived Assets

      The Company adopted SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", on the Effective Date of the Plan. SFAS No. 144
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
of Long-Lived Assets to be Disposed Of", and portions of Accounting Principles
Board Opinion No. 30, "Reporting the Results of Operations -- Reporting the
Effects of Disposal of a Segment of Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions", and amends Accounting Research
Bulletin No. 51, "Consolidated Financial Statements". SFAS No. 144 generally
conforms, among other things, impairment accounting for assets to be disposed
of, including those in discontinued operations.

      At September 30, 2001, in accordance with SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
the Company recorded an estimated loss on impairment of operating assets of
$3,500. In the seven month period ended April 30, 2002, the Company determined
that impaired assets previously held for disposal were to be used in operations
and, accordingly, $643 of this charge was not impaired. In addition, the Company
recorded a loss on the impairment of intangible assets in the amount of $3,221
for the seven month period ended April 30, 2002. The impairment was due to the
acquisition of Comstar.net, Inc., which ceased operations.

      The Company reviews the carrying amount of long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is indicated if the
sum of the expected net cash flows is less than the carrying amount of the
long-lived assets being evaluated. Measurement of any impairment is calculated
as the difference between the carrying amount of the long-lived assets being
evaluated and the fair value. The Company determines the estimated fair market
value of the assets based on the anticipated future cash flows discounted at
rates commensurate with the risks involved.

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 Income

      SFAS No. 130, "Reporting Comprehensive Income", requires the reporting of
comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting method that



                                      F-15
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

includes amounts that historically have not been recognized in the calculation
of net income. Comprehensive Income and Accumulated Other Comprehensive Income
(Loss) includes net income, foreign currency translation, and unrealized gain
(loss) on financial instruments and is included in the Consolidated Statements
of Stockholders' Equity (Deficit).

Foreign Currency Translation

      The financial statements of the Company's foreign subsidiaries have been
translated in accordance with SFAS No. 52, "Foreign Currency Translation". These
subsidiaries' 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 for the year. The resulting foreign currency translation
adjustment is included in stockholders' equity as a component of accumulated
other comprehensive income. Transaction gains and losses are recorded in the
consolidated statement of operations.

Stock-Based Compensation

As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation", which
establishes a fair value based method of accounting for stock-based compensation
plans, the Company has elected to follow Accounting Principles Board Opinion No.
25 "Accounting for Stock Issued to Employees" ("APB No. 25") for recognizing
stock-based compensation expense for financial statement purposes. Under APB No.
25, the Company applied the intrinsic value method of accounting and therefore
does not recognize compensation expense for options granted to employees,
because options are only granted at a price equal to or higher than fair value
on the day of grant. For companies that choose to continue applying the
intrinsic value method, SFAS No. 123 mandates certain pro forma disclosures as
if the fair value method had been utilized.

      The following table illustrates the effect on income from continuing
operations and earnings per share if the Company had applied the fair value
recognition provisions of SFAS No. 123 to stock-based employee compensation. The
estimated fair value of each Globix option is calculated using the Black-Scholes
option-pricing model.

<TABLE>
<CAPTION>
                                                                            PREDECESSOR COMPANY
                                                            -----------------------------------------------
                                                             SEVEN MONTH
                                                            PERIOD ENDED
                                                            --------------
                                                            APRIL 30, 2002        2001              2000
                                                            --------------    -----------       -----------
<S>                                                         <C>               <C>               <C>
            Pro forma net income (loss) attributable to
            common stockholders                              $   151,621      $  (228,599)      $  (139,340)
                                                             ===========      ===========       ===========
            Pro forma basic earnings (loss) per share
             attributable to common stockholders             $      3.83      $     (5.94)      $     (3.93)
                                                             ===========      ===========       ===========
            Pro forma diluted earnings (loss) per share
            attributable to common stockholders              $      3.19      $     (5.94)      $     (3.93)
                                                             ===========      ===========       ===========
</TABLE>

      The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts, as additional stock option awards are anticipated
in future years, and awards prior to the Effective Date have been cancelled.

Earnings (Loss) Per Share

      Basic earnings or loss per share is calculated by dividing net loss
attributable to common shareholders by the weighted average number of shares of
common stock outstanding during the period. Diluted earnings or loss per share
is calculated by dividing net loss attributable to common shareholders by the
weighted average number of common shares outstanding, adjusted for potentially
dilutive securities. The following table summarizes the equivalent number of
common shares assuming the related securities that were outstanding for each of
the periods presented had been converted, but not included in the calculation of
diluted loss per share because such shares are antidilutive:



                                      F-16
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                  PREDECESSOR COMPANY
                                                  -------------------
                                     SEVEN MONTHS             SEPTEMBER 30,
                                         ENDED         --------------------------
                                     APRIL 30, 2002       2001             2000
                                     --------------    ----------      ----------
<S>                                  <C>               <C>             <C>
      Convertible preferred stock                --     8,617,300       8,000,000
      Stock Options                      10,021,258    10,394,781      10,298,692
      Warrants                              194,797       194,797         194,797
                                         ----------    ----------      ----------
                                         10,216,055    19,206,878      18,493,489
                                         ==========    ==========      ==========
</TABLE>

      All options and warrants outstanding on the Effective Date of the Plan
were cancelled as of the Effective Date of the Plan. At September 30, 2002 there
were no dilutive securities outstanding. Although the Successor Company's common
stock was not distributed until after September 30, 2002, the Plan provides that
the 16,460,000 shares of the Company's common stock issuable under the Plan were
deemed to be issued and outstanding as of the Effective Date of the Plan.
Accordingly, for purposes of these financial statements 16,460,000 shares of the
Company's common stock are deemed to have been issued and outstanding as of
September 30, 2002.

      In April 1998, the Company completed a $160.0 million debt financing
consisting of 160,000 units, each unit consisting of a note in the principal
amount of one thousand dollars and one warrant to purchase 14.08 shares of
common stock (total of 2,252,800 shares of common stock) at a purchase price of
$3.51 per share. Of the 2,252,800 shares underlying the original 160,000
warrants, 194,797 shares remained, until the Effective Date.

      The following is a reconciliation of basic earnings per share to diluted
earnings per share:



                                      F-17
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


<TABLE>
<CAPTION>
                                                                 Predecessor Company
                                                    ---------------------------------------------
                                                           Seven months ended April 30, 2002
                                                    ---------------------------------------------
                                                        Numerator     Denominator      Per Share
                                                    Income or (loss)     Shares          Amount
                                                    ---------------   -----------      ----------
<S>                                                 <C>               <C>              <C>
Basic earnings per share
  Net income                                          $  159,934
   Dividends and accretion on preferred stock             (3,178)
                                                      ----------       ----------
  Net income attributable to common stockholders         156,756       39,618,856      $     3.96
                                                      ==========                       ==========

Addback of dividends on preferred stock                    3,178        8,888,600

Diluted earnings per share
                                                      ----------       ----------
  Net income attributable to common stockholders      $  159,934       48,507,456      $     3.30
                                                      ==========       ==========      ==========
</TABLE>

Recent Accounting Pronouncements

      In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN 45 requires a liability to
be recognized at the time a company issues a guarantee for the fair value of the
obligations assumed under certain guarantee agreements. Additional disclosures
about guarantee agreements are also required in the interim and annual financial
statements. Under current operations, adoption of FIN 45 is not expected to have
a material impact on the Company's results of operations or financial position.
FIN 45 will be effective for the Company's fiscal year ending September 30,
2003.

      In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123", which provides optional transition guidance for those
companies electing to voluntarily adopt the accounting provisions of SFAS No.
123. In addition, SFAS No. 148 mandates certain new disclosures that are
incremental to those required by SFAS No. 123. The Company will continue to
account for stock-based compensation in accordance with APB No. 25.
Consequently, the Company does not expect this standard to have a material
impact on its consolidated financial position or results of operations.

4. FRESH START ACCOUNTING

      Although April 25, 2002 was the effective date of the Company's emergence
from bankruptcy, for financial reporting purposes the Company accounted for the
consummation of the Plan as of April 30, 2002. The Company employed an
independent third party to determine the enterprise value of the Company as of
the emergence date. The third party determined the enterprise value to be
$240,000. This amount was based upon several generally accepted valuation
methodologies including discounted cash flows, comparable public company
analysis and comparable mergers and acquisitions analysis. The assigned equity
values are based upon the reorganized value of the ongoing business and include
significant estimates made by management based on information available as of
the Effective Date. Valuation methodologies require the input of highly
subjective assumptions. Actual future results and events could differ
substantially from current estimates and assumptions. Any changes in valuation
could affect the Company's balance sheet.

      In accordance with the principles of fresh start accounting, the Company
has adjusted the value of its assets and liabilities to their fair values as of
April 30, 2002. The equity value of the Successor Company at May 1, 2002 was
calculated as follows:

<TABLE>
<S>                                                                   <C>
Enterprise Value                                                      $ 240,000
11% Senior Notes                                                       (120,000)
Mortgage Payable                                                        (20,536)
Capitalized Leases                                                       (6,187)
                                                                      ---------
Equity value of Successor Company                                     $  93,277
                                                                      =========
</TABLE>


                                      F-18
<PAGE>


                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

      We engaged the services of an independent third party to perform a
valuation analysis of certain tangible and intangible assets. The valuation of
the subject assets was performed following standards promulgated by the
American Society of Appraisers and is in compliance with the Uniform Standards
of Professional Appraisal Practices. The tangible assets were valued using the
costs and market comparables methods. The intangible assets were valued using
the income approach and the cost approach methods.

      The net effect of all fresh start accounting adjustments resulted in a
charge of $148,569 which is reflected in the Predecessor Company's statement of
operations for the seven month period ended April 30, 2002. The interest of
$11,507 on the 12.5% Senior Notes for the period March 1, 2002 through the
Effective Date was not accrued in accordance with SOP 90-7.

      On the Effective Date of Plan, the Company recognized a gain of $427,066
associated with the exchange of the 12.5% Senior Notes for the 11% Senior Notes
and shares of the Company's common stock under the Plan. The Successor Company's
gain on discharge of debt at April 30, 2002 was calculated as follows:

<TABLE>
<S>                                                                         <C>
Carrying value of 12.5% Senior Notes                                        $ 600,000
Carrying value of related accrued interest                                     43,750
Carrying value of 11% Senior Notes                                           (120,000)
Carrying value of capitalized costs associated with 12.5% Senior Notes        (17,398)
85% of equity value of Successor Company                                      (79,286)
                                                                            ---------
   Gain on discharge of debt                                                $ 427,066
                                                                            =========
</TABLE>

The effects of the transactions contemplated by the Plan and the application of
fresh start accounting on the Company's consolidated balance sheet are as
follows:



                                      F-19
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                                                     Successor
                                                              Predecessor                                             Company
                                                                Company              Debt            Fresh Start      April 30,
                                                             April 30, 2002        Discharge         Adjustment(1)      2002
                                                             --------------       -----------        ----------      ----------
<S>                                                          <C>                  <C>                <C>             <C>
ASSETS
      Cash and cash equivalents                                 $  52,722          $      --          $      --       $  52,722
      Marketable securities                                         2,757                 --                 --           2,757
      Accounts receivable, net                                     11,959                 --                 --          11,959
      Prepaid expenses and other current assets                    17,264                 --             (2,024)         15,240
      Restricted cash                                               4,018                 --                 --           4,018
                                                                ---------          ---------          ---------       ---------

Total current assets                                               88,720                 --             (2,024)         86,696

      Investments, restricted                                       5,114                 --                 --           5,114
      Property, plant and equipment, net                          333,063                 --           (155,693)        177,370
      Debt issuance costs, net                                     18,250            (17,398)(a)           (852)             --
      Intangible assets, net                                           --                 --             10,155          10,155
      Other assets                                                    500                 --               (208)            292
                                                                ---------          ---------          ---------       ---------
TOTAL ASSETS                                                    $ 445,647          $ (17,398)         $(148,622)      $ 279,627
                                                                =========          =========          =========       =========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

      Current portions of capital lease obligations
      and mortgage payable                                      $   5,239          $      --          $  (1,690)      $   3,549
      Accounts payable                                              7,782                 --               (110)          7,672
      Accrued liabilities                                          26,067             (2,713)(b)         (2,264)         21,090
      Accrued restructuring                                         3,122                 --                 --           3,122
                                                                ---------          ---------          ---------       ---------

Total current liabilities                                          42,210             (2,713)            (4,064)         35,433

Liabilities not subject to compromise:
      Capital lease obligations, net of current portion             6,383                 --             (3,499)          2,884
      Mortgage payable                                             20,291                 --                 --          20,291
      11% Senior Notes                                                 --            120,000(c)              --         120,000
      Other long term liabilities                                     232                 --              7,510           7,742
                                                                ---------          ---------          ---------       ---------

      Total liabilities not subject to compromise                  69,116            117,287                (53)        186,350
Liabilities subject to compromise                                 643,750          (643,750)(c),(d)          --              --
                                                                ---------          ---------          ---------       ---------

      Total liabilities                                           712,866           (526,463)               (53)        186,350

Mandatorily Redeemable Convertible Preferred Stock                 83,695            (83,695)(e)             --              --

Total stockholders' (deficit) equity                             (350,914)           592,760           (148,569)         93,277
                                                                ---------          ---------          ---------       ---------

TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY            $ 445,647          $ (17,398)         $(148,622)      $ 279,627
                                                                =========          =========          =========       =========

(a)   To remove debt issuance cost associated with the 12.5% Senior Notes.
(b)   To remove accrued dividends payable on mandatorily redeemable convertible preferred stock.
(c)   To exchange 12.5% Senior Notes for 11.0% Senior Notes.
(d)   To remove accrued interest on 12.5% Senior Notes.
(e)   To remove mandatorily redeemable convertible preferred stock.

(1)   To adjust assets and liabilities to fair value.
</TABLE>



                                      F-20
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

      Pursuant to the requirements of SOP 90-7, which requires entities subject
to fresh start accounting to adopt, in the fresh start reporting period, new
accounting principles that will be required in the financial statements of the
emerging entity within 12 months of the fresh start reporting period. The
Company adopted the provisions of new accounting standards upon emergence from
bankruptcy.

      In July 2001,the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 141 "Business Combinations". SFAS No. 141 requires that the
purchase method of accounting be used for business combinations, establishes
specific criteria for the recognition of intangible assets separately from
goodwill, and requires that unallocated negative goodwill be written off
immediately as an extraordinary gain instead of being deferred and amortized.
The Company adopted SFAS No 141 on May 1, 2002, which had no impact on the
Company's results of operations or financial condition.

      In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." The Company adopted the requirements of SFAS No. 142 effective May 1,
2002. SFAS No. 142 requires companies to cease amortization of certain assets
and provides a methodology to test these assets for impairment on a periodic
basis. The company adopted SFAS No. 142 on May 1, 2002, which had no impact on
the company's results of operations or financial condition.

      On April 30, 2002, SFAS No. 145, "Rescission of SFAS Nos. 4, 44, and 64,
Amendment of SFAS 13, and Technical Corrections as of April 2002" was issued.
SFAS No. 145 is effective for transactions occurring after May 15, 2002. In
rescinding SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt",
and SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements", SFAS No. 145 eliminates the requirement that gains and losses
from the extinguishment of debt be aggregated and, if material, classified as an
extraordinary item, net of the related income tax effect. However, pursuant to
SFAS No. 145, an entity would not be prohibited from classifying such gains and
losses as extraordinary items so long as they meet the criteria in paragraph 20
of APB No. 30, "Reporting the Results of Operations -- Reporting the Effects of
Disposal of a Segment of Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions". Further, SFAS No. 145 amends paragraph 14(a)
of SFAS No. 13, "Accounting for Leases", to eliminate an inconsistency between
the accounting for sale-leaseback transactions and certain lease modifications
that have economic effects that are similar to sale-leaseback transactions. The
amendment requires that a lease modification (1) results in recognition of a
gain or loss in the financial statements, (2) is subject to SFAS No. 66,
"Accounting for Sales of Real Estate", if the leased asset is real estate
(including integral equipment), and (3) is subject (in its entirety) to the
sale-leaseback rules of SFAS No. 98, "Accounting for Leases: Sale-Leaseback
Transactions Involving Real Estate, Sales-Type Leases of Real Estate, Definition
of the Lease Term, and Initial Direct Costs of Direct Financing Leases". The
adoption of SFAS No. 145, on the Effective Date, resulted in the classification
of the $427,066 gain on extinguishment of debt in the Predecessor Company's
seven month period ended April 30, 2002 Statement of Operations as a component
of other income as gain on discharge of debt and not as an extraordinary items
as had been previously required under SFAS No. 4. Additionally, in accordance
with SFAS 145, the $17,577 loss on the extinguishment of debt previously
recorded in fiscal year 2000 as an extraordinary item has been reclassified to
loss on discharge of debt.

      In July 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146 requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. The Company
adopted SFAS 146 upon the Effective Date and it did not have an effect
on the Company's consolidated financial position, results of operations or
liquidity. Prior to adoption of SFAS No. 146 the Company accounted for these
activities under Emerging Issues Task Force No. 94-3 "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(Including Certain Costs Incurred in a Restructuring)" (EITF 94-3).

5. REORGANIZATION ITEMS

      Reorganization expenses are expenses incurred by the Predecessor Company
in connection with its reorganization under Chapter 11 of the Bankruptcy Code.
Reorganization items included in the Predecessor Company's statement of
operations include professional fees directly related to the Predecessor
Company's bankruptcy. Reorganization expenses included in the Statement of
Operations were approximately $7,762 for the



                                      F-21
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

seven month period ended April 30, 2002 and zero for the five month period ended
September 30, 2002. No amounts were incurred in years ended September 30, 2001
and 2000.

6. PROPERTY, PLANT AND EQUIPMENT

      Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
                                                                                   PREDECESSOR
                                                        SUCCESSOR COMPANY            COMPANY
                                                        ------------------
                                                        SEPTEMBER 30, 2002      SEPTEMBER 30, 2001
                                                        ------------------      ------------------
<S>                                                     <C>                     <C>
Land ...............................................         $   2,713               $   1,997
Building and building improvements .................            84,094                 108,216
Leasehold improvements .............................            71,322                 145,617
Computer hardware and software and network equipment            15,607                 134,767
Furniture and equipment ............................             3,660                   9,693
                                                             ---------               ---------
                                                               177,396                 400,290
Less: Accumulated depreciation and amortization ....            (5,549)                (54,499)
Add: Construction in progress ......................             2,863                  10,358
                                                             ---------               ---------
Property, plant and equipment, net .................         $ 174,710               $ 356,149
                                                             =========               =========
</TABLE>

      Certain computer and network equipment are recorded under capital leases
that aggregated approximately $4,466 and $23,545 as of September 30, 2002 and
2001, respectively. Accumulated amortization on the assets recorded under these
capital leases aggregated $465 and $6,566 as of September 30, 2002 and 2001,
respectively.

      ATC Merger Corp. ("ATC Corp."), a wholly owned subsidiary of the Company
owns the land and building located at 139 Centre Street, New York, New York. The
nine-story building, with approximately 160,000 square feet of floor space,
houses the Company's corporate headquarters and one of its Internet data center
facilities. A former owner of the right to purchase the 139 Centre Street
property is entitled to additional consideration if the Company sells the
property in an amount equal to the greater of (a) $1,000 (subject to increase
after June 1, 2018 by ten percent and an additional ten percent every fifth year
thereafter) and (b) 10% of the gross sales price of the property if the sales
price is greater than $17,500.

7. MINORITY INTEREST

      In September 2000, the Company purchased the land and the eight-story
building located at 415 Greenwich Street, New York, New York (the "Property").
The Property, which serves as the Company's second New York City Internet data
center, is a certified historic structure eligible for historic tax credits
("Tax Credits") based on qualified expenditures, as defined in the Internal
Revenue Code.

      In June 2001, the Company had entered into an agreement whereby the Tax
Credits generated from the renovation of the Property will be utilized by a
third party (the "Investor") via a subsidiary (the "LLC"), in consideration for
a capital contribution to the LLC of approximately $16,549, which represents a
99.9% interest in the LLC. As of September 30, 2002, the LLC had received $5,778
of such capital contribution. The LLC received an additional $4,458 in October
2002 and an additional $1,636 in January 2003. The remaining balance of the
capital contribution is due from the Investor in annual installments as follows:

<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30,                                              CONTRIBUTION
--------------------------                                             ------------
<C>                                                                    <C>
2004 ............................................................          1,557
2005 ............................................................          1,479
2006 ............................................................          1,400
2007 ............................................................            241
                                                                          ======
Total ...........................................................         $4,677
                                                                          ======
</TABLE>



                                      F-22
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

      Although the Company's ownership of the LLC is 0.1%, the Company has
consolidated the financial statements of the LLC since inception, due to
effective control of the LLC by the Company resulting in a minority interest in
subsidiary in the accompanying consolidated financial statements. The following
table reflects the summary statement of operations data for the LLC for the five
months ended September 30, 2002, the seven months ended April 30, 2002, and for
the period from inception to September 30, 2001:

<TABLE>
<CAPTION>
                                             SUCCESSOR COMPANY                 PREDECESSOR COMPANY
                                            --------------------    --------------------------------------------
                                                                                           PERIOD FROM INCEPTION
                                              FIVE MONTH PERIOD      SEVEN MONTH PERIOD      (JUNE 11, 2001) TO
                                            ENDED SEPT. 30, 2002    ENDED APRIL 30, 2002     SEPTEMBER 30, 2001
                                            --------------------    --------------------   ---------------------
<S>                                         <C>                     <C>                    <C>
Revenue ..............................             $3,208                  $4,492                 $2,331
Net Loss .............................               (195)                 (7,374)                  (701)
                                                   ======                  ======                 ======
Basic and diluted loss per share
attributable to common stockholders ..             $(0.01)                 $(0.19)                $(0.02)
                                                   ======                  ======                 ======
</TABLE>

      In connection with the above transaction, the Investor has a Put Option
with the Company. The Put Option provides that during the 6 months following the
61st month after the date of the certification of the qualifying rehabilitation
expenditures (the "Certification Date") which occurred on September 17, 2002,
the Investor may require the Company to purchase the Investor's interest in the
LLC for an amount equal to 25% of the Investor's capital contribution in the
LLC. If the Investor does not exercise its Put Option, the Company may exercise
a Call Option during a period of 24 months following the 73rd month after the
Certification Date. The Call Option allows the Company to acquire the Investor
interest in LLC for the greater of the fair market value of the Investor
interest in the LLC or an amount equal, on an after tax basis, to taxes payable
by the Investor upon the sale of its investment.

      The Put Option that the Company has written has been recorded at its fair
value and will be marked to fair value through earnings. At September 30,
2002, the fair value of this option is negligible.

      Upon certain events including the sale of the Property at any time after
2007 (to the extent the above mentioned put/call options have not been
exercised), the Company is obligated to pay the Investor 30% of any proceeds
received in excess of the cost of the Property. In the event that the Property
is sold anytime before 2007, the Company is obligated to pay to the Investor its
capital contribution (less any unrecaptured Tax Credits available to the
Investor), plus any loss attributable to the projected economic benefits to the
Investor and any other amounts owed to the Investor (as defined). The above
potential commitment is mitigated during the initial 60 months following the
Certification Date by the Company's right to terminate the transaction by paying
the difference between a 20% annual return on the Investor's capital
contributions up to the termination date and the Investor's actual return up to
the termination date.



                                      F-23
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

8. INTANGIBLE ASSETS

      Intangible assets consist of the following components at September 30,
2002:

<TABLE>
<CAPTION>
                                             Estimated        Successor Company
                                            Useful Lives      September 30, 2002
                                            ------------      ------------------
<S>                                         <C>               <C>
Finite-lived intangible assets:
Network Build-out/Know-how                     8 years            $  7,453
Customer Contracts                             3 years               1,118
                                                                  --------
                                                                  $  8,571

Indefinite-lived intangible assets:
Trademarks and trade name                           --               1,584
                                                                  --------

                                                                  $ 10,155
Less: Accumulated amortization                                        (543)
                                                                  --------
Intangible assets, net                                            $  9,612
                                                                  ========
</TABLE>

      Amortization expense, including Predecessor Company goodwill amortization,
was $1,141 for the seven months ended April 30, 2002 and $543 for the five
months ended September 30, 2002, respectively. Estimated future annual
amortization expense of intangibles is as follows:

<TABLE>
<S>                                 <C>
Year Ending September 30,
                         2003      $1,304
                         2004       1,304
                         2005       1,149
                         2006         932
                         2007         932
                   Thereafter       2,407
                                   ------
                        Total      $8,028
                                   ======
</TABLE>

9. ACCRUED LIABILITIES

      Accrued liabilities consist of the following:

<TABLE>
<CAPTION>
                                                                     SUCCESSOR       PREDECESSOR
                                                                      COMPANY          COMPANY
                                                                             SEPTEMBER 30,
                                                                             -------------
                                                                      2002               2001
                                                                     -------            -------
<S>                                                                  <C>             <C>
            Franchise tax, sales tax and property tax ...              2,177              1,048
            Salaries, benefits and commissions ..........              1,636              1,284
            Rabbi Trust Obligation ......................                 --              2,378
            Telecommunications accrual ..................              1,706                993
            Technology licenses and maintenance contracts              1,205                114
            Deferred revenue ............................              1,503              2,692
            Accrued construction costs ..................                147              6,175
            Other .......................................              7,722              6,266
                                                                     -------            -------
                                                                     $16,096            $20,950
                                                                     =======            =======
</TABLE>



                                      F-24
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

10. RESTRUCTURING AND OTHER

      The Company has announced a number of restructuring actions to reduce
expenses and streamline operations. These actions included a workforce reduction
and rationalization of data center and sales locations. The Company recorded
restructuring charges of $56,109 in fiscal 2001. The Company recorded net
restructuring of $24,834 in the seven month period ended April 30, 2002. This
amount is comprised of $28,395, offset by reversals of $3,561, related to
revised estimates and a $1,184 vendor settlement related to an asset impaired in
the prior year. The Company believes these actions will result in ongoing annual
operating expense savings of approximately $24,000.

      During the quarter ended December 31, 2000, the Company's board of
directors approved a restructuring plan to modify its Internet data center
expansion plan to delay, scale back and eliminate certain facilities. The
restructuring plan included the termination of certain lease obligations,
associated surplus power and environmental equipment related to the proposed
expansion of Globix Internet data centers in Boston, MA; Seattle, WA; and Los
Angeles, CA. When initiated, the restructuring plan was expected to take
approximately one year to complete. The Company recorded a $38,109 charge
associated with this restructuring plan in the fiscal quarter ending December
31, 2000. Approximately $18,460 of this charge was recorded as a write-off of
construction in progress, which included capitalized interest, consulting and
legal fees, construction and pre-construction related costs previously
capitalized. Approximately $17,019 was recorded for landlord contract
settlements and $2,630 for facilities closings.

      During the quarter ending September 30, 2001, the Company further modified
its business plan to eliminate certain additional Internet data center and sales
office facilities, resulting in the termination of certain employees, lease
obligations and write-off of certain equipment, leasehold improvements and
intangible assets and other costs. In connection with this modification,
additional restructuring charges of $18,000 were recorded, of which $9,947 was a
write-off of equipment, leasehold improvements and intangible assets, $4,150 for
landlord contract settlements, $2,703 for facility closings and $1,200
associated with employee terminations (106 employees).

      During the quarter ended March 31, 2002, the Company made an additional
modification to its business plan pursuant to the Plan, in order to reduce
certain Internet data center lease obligations and close certain network access
points and network aggregation points, resulting in the termination of certain
employees, lease obligations and write-off of certain equipment, leasehold
improvements and other costs. In connection with this modification, the Company
recorded a restructuring charge of $28,395, of which $16,407 was for the
write-off of previously escrowed lease deposit and landlord inducement and legal
payments, $6,922 was for the write-off of equipment and leasehold improvements,
$2,120 for facilities closings and $2,946 was associated with employee
terminations (148 employees).

      Reversals related to fiscal 2001 contract settlement charges and facility
closings were primarily for settling certain facility contracts and purchase
commitments for amounts lower than originally planned. Reversals related to
fiscal 2001 asset write downs were primarily related to adjustments to
estimated Plant, Property and Equipment impairment. Actual impairment amounts
were less than the original estimates.

      The following table displays the activity and balances of the
restructuring reserve account from inception to September 30, 2002:



                                      F-25
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>                                                     Restructuring                    Other
                                                  --------------------------------------       -----
                                                    Employee       Contract      Facility      Asset
                                                  Terminations   Settlements     Closings    Write-Down      Total
                                                  ------------   -----------     --------    ----------      -----
<S>                                               <C>            <C>             <C>         <C>             <C>
Restructure Charge                                    1,200        21,169         5,333        28,407        56,109
Deductions-Non-Cash                                      --            --            --       (22,889)      (22,889)
Deductions-Cash                                        (194)      (17,119)       (3,380)       (3,336)      (24,029)
                                                    -------       -------       -------       -------       -------
September 30, 2001 Balance (Predecessor Company)      1,006         4,050         1,953         2,182         9,191

Additional Restructure Charge                         2,946        16,407         2,120         6,922        28,395
Deductions-Non-Cash                                    (889)           --          (422)       (6,922)       (8,233)
Deductions-Cash                                      (2,520)      (18,480)       (1,669)           --       (22,669)
Reversal to Fiscal 2001 Plan                             --          (678)         (701)       (2,182)       (3,561)
                                                    -------       -------       -------       -------       -------
April 30, 2002 Balance (Predecessor Company)            543         1,299         1,281            --         3,123

Deductions-Cash                                        (400)           --          (895)           --        (1,295)
                                                    -------       -------       -------       -------       -------
September 30, 2002 Balance (Successor Company)          143         1,299           386            --         1,828
</TABLE>

The remaining liability is expected to be settled in cash.

11. OTHER LONG-TERM LIABILITIES

      Other long-term liabilities consist of the following:

<TABLE>
<CAPTION>
                                                                    SUCCESSOR        PREDECESSOR
                                                                     COMPANY           COMPANY
                                                                    ---------        -----------
                                                                           SEPTEMBER 30,
                                                                           -------------
                                                                     2002               2001
                                                                    -------            -------
<S>                                                                 <C>              <C>
            Note Payable                                            $ 2,600            $ 2,600
            Rabbi Trust Obligation                                    2,777                 --
            Negative Leasehold Liability                              7,607                 --
            Contractual Obligation                                       --              3,900
            Deferred Rent                                               100              1,077
                                                                    -------            -------
                                                                    $13,084            $ 7,577
                                                                    =======            =======
</TABLE>

      The Company has a $2,600 note payable, due January 15, 2004. The note
bears interest, payable monthly, at 4.75%. The note is collateralized by an
irrevocable standby letter of credit. The related funds are included in
restricted investments on the accompanying consolidated balance sheet.


      On July 21, 1999, the Company established a trust (the "Rabbi Trust") for
the benefit of a former executive. The trust agreement was for three years
beginning in April 1999 through March 1, 2002. The agreement was amended on
March 21, 2001, and provided for payments from the Rabbi Trust commencing April
2001. Payments were made from the Trust until March 1 2002, when Globix and two
of its wholly-owned subsidiaries filed for Chapter 11. The Company is currently
in litigation over the Trust, as described further in Note 17.

      In connection with fresh start accounting at the 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 conditions in
each market and estimation of the net effective market rental rates in
comparison to the Globix contractual lease rates through expiration of the
lease. Such liability will be amortized to reduce lease expense over the
remaining life of the lease as follows:

<TABLE>
<CAPTION>
         YEAR ENDING SEPTEMBER 30
<S>                                                                         <C>
2003 .................................................................      $653
2004 .................................................................       653
2005 .................................................................       653
2006 .................................................................       653
</TABLE>



                                      F-26
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<S>                                                           <C>
2007 ..................................................           653
Thereafter ............................................         4,994
                                                              -------
Total .................................................         8,259
Less:  Current Portion ................................          (652)
                                                              -------
Long-term Portion .....................................       $ 7,607
                                                              =======
</TABLE>
12. 12.5% SENIOR NOTES AND 11% SENIOR NOTES

      In February 2000, the Company issued $600,000 in aggregate principal
amount of its 12.5% Senior Notes in a private placement resulting in net
proceeds of approximately $580,000, after underwriting fees and offering
expenses. In March 2000 the Company completed a tender offer to purchase all of
its outstanding 13% Senior Notes due 2005, $160,000 in aggregate principal
amount. The purchase price in the tender offer for the 13% Senior Notes was
106.5% of the principal amount, plus accrued and unpaid interest.

      In connection with the offer of the 12.5% Senior Notes the Company
incurred costs of approximately $20,000 that were being amortized over ten years
using the effective interest method.

      As of the Effective Date, all of the existing 12.5% Senior Notes were
cancelled and each holder of the 12.5% Senior Notes became entitled to receive,
in exchange for its 12.5% Senior Notes, its pro rata share of $120,000 in
aggregate principal amount of the 11% Senior Notes and 13,991,000 shares of the
Company's common stock, representing 85% of the shares of the Company's common
stock issued and outstanding following the Effective Date, subject to dilution
by the exercise of management incentive options representing up to 10% of the
Company's issued and outstanding common stock on a fully-diluted basis following
the Effective Date. The interest of $11,507 on the 12.5% Senior Notes for the
period March 1, 2002 through the Effective Date was not accrued in accordance
with SOP 90-7.

      The Company is deemed to have issued the 11% Senior Notes on the Effective
Date in one series that is initially limited to $120,000 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 in aggregate principal amount of the 11% Senior Notes, which included
$1,968 in aggregate principal amount of Notes placed in reserve in escrow
pursuant to a Stipulation and Order entered into with the lead plaintiffs in the
class action lawsuit described in Note 17.

      The 11% Senior Notes will mature on December 31, 2008. The 11% Senior
Notes will 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.

      The 11% Senior Notes were issued under an indenture dated as of April 23,
2002 (the "Indenture"), among the Company, HSBC Bank USA, as trustee (the
"Trustee") and 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., as
the initial Subsidiary Guarantors. See Note 21 for additional disclosures
related to the Subsidiary Guarantors.

      In the event that:

      -       subject to certain exceptions, any person, entity or group of
              persons or entities becomes the beneficial owner, directly or
              indirectly, of 50% or more of the Company's outstanding voting
              securities;

      -       at any time during the two-year period following the distribution
              of the 11% Senior Notes, the individuals that comprise a majority
              of the Company's board of directors on the date of distribution of
              the 11% Senior Notes, plus any new directors elected to the
              Company's board of directors during this two-year period, cease to
              comprise a majority of the Company's board of directors;

      -       subject to certain exceptions, the Company consolidates with or
              merges with or into another entity, the Company sells or leases
              all or substantially all of its assets to another entity or any
              entity consolidates with or merges with or into the Company, in
              each case pursuant to a transaction in which the Company's
              outstanding voting securities are changed into or exchanged for
              cash, securities or other property, unless no person, entity or
              group of persons or entities owns, immediately after the
              transaction, more than 50% of the Company's outstanding voting
              stock,

then each holder of the 11% Senior Notes will have the right to require the
Company to repurchase all or a portion of its 11% Senior Notes for a purchase
price equal to 101% of the principal amount of that holder's 11% Senior Notes
plus accrued and unpaid interest to the date of repurchase.

      The indenture governing the 11% Senior Notes (the "Indenture") contains a
number of covenants that impose significant operating and financial restrictions
on the Company and its subsidiaries. These restrictions significantly limit, and
in some cases prohibit, among other things, the ability of the Company and
certain of its subsidiaries to incur additional indebtedness, create liens on
assets, enter into business combinations or engage in certain activities with
subsidiaries.

      As of September 30, 2002, the Company was in compliance with the material
operating and financial restrictions imposed upon the Company contained in the
Indenture.  However, as of the date of these financial statements, the Company
was not in compliance with the provisions of the Indenture which require the
Company to:

      -       file reports and documents with the Securities and Exchange
              Commission pursuant to Section 13(a) or 15(d) of the Securities
              Exchange Act of 1934, as amended; specifically the Company's
              Quarterly Report on Form 10-Q for the quarter ended June 30, 2002,
              Annual Report on Form 10-K for the fiscal year ended September 30,
              2002 and Quarterly Report on Form 10-Q for the quarter ended
              December 31, 2002;


     -        file copies of these reports with the Indenture trustee
              (the "Trustee");

     -        cause these reports to be mailed to the holders of the 11% Senior
              Notes;

     -        deliver to the Trustee a certificate from the Company's public
              accountants related to the Company's compliance with certain
              provisions of the Indenture; and

     -        deliver to the Trustee an officer's certificate with respect to
              the Company's failure to satisfy the obligations set forth above.

            The Company's failure to comply with each of the obligations
described above constitutes a default, but not an event of default, under the
Indenture.  See Note 24 for a description of events related to these defaults
which occurred subsequent to September 30, 2002.





                                      F-27
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


13. MORTGAGE PAYABLE

      On January 25, 2000, the Company borrowed $21,000 from a financial
institution pursuant to a mortgage note secured by the Company's property at 139
Centre Street, New York. Interest is payable at 9.16% (subject to adjustment on
February 11, 2010) based on a 25 year amortization schedule. Principal and
interest payments of $178.5 are payable monthly and any balance of the principal
and all accrued and unpaid interest is due and payable in February 2025.

14. REDEEMABLE CONVERTIBLE PREFERRED STOCK

      On December 3, 1999, the Company sold 80,000 shares of preferred stock
(the "Preferred Stock") to affiliates of Hicks, Muse, Tate & Furst Incorporated
("Hicks Muse") for a purchase price of $80,000. The Company used the proceeds
from the sale to expand the build-out of its Internet data centers and other
facilities. The Preferred Stock paid a dividend of 7.5%.

      The Preferred Stock was recorded in the Company's consolidated balance
sheet outside of the stockholders' equity section due to its mandatory
redemption feature. The Company incurred approximately $4,750 of issuance costs
in connection with the sale of the Preferred Stock. These costs were recorded as
a reduction of the carrying amount of the Preferred Stock and were being
accreted through a charge to additional paid in capital over the five-year
period to the earliest redemption date.

      As of the Effective Date of the Plan each holder of shares of the
Preferred Stock outstanding immediately prior to the Effective Date of the Plan
became entitled to receive, in exchange for its claims in respect of such
shares, its pro rata share of 2,304,400 shares of the Company's common stock,
representing 14% of the shares of the Company's common stock issued and
outstanding following the Effective Date of the Plan, subject to dilution by the
exercise of management incentive options representing up to 10% of the Company's
issued and outstanding common stock on a fully-diluted basis following the
Effective Date of the Plan.

15. STOCKHOLDERS' EQUITY

      As of the Effective Date of the Plan, all of the outstanding shares of the
Company's common stock were cancelled, and each holder of shares of the
Company's common stock outstanding immediately prior to the Effective Date of
the Plan became entitled to receive, in exchange for its claims in respect of
such shares, its pro rata share of 164,400 shares of the Company's common stock,
representing 1% of the shares of the Company's common stock issued and
outstanding following the Effective Date of the Plan, subject to dilution by the
exercise of management incentive options representing up to 10% of the Company's
issued and outstanding common stock on a fully-diluted basis following the
Effective Date.



                                      F-28
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

      Pursuant to the terms of the Successor Company's Amended and Restated
Certificate of Incorporation, the Company is authorized to issue 500,000,000
shares of common stock with a par value of $0.01 per share. A total of
16,460,000 shares of the Company's common stock were deemed to be issued and
outstanding on the Effective Date of the Plan. As of September 30, 2002,
however, no shares of the Company's common stock had been distributed pursuant
to the terms of the Plan. In October 2002, a total of 16,295,400 shares of
common stock were distributed in accordance with the terms of the Plan. 229,452
of these shares were placed in reserve in escrow pursuant to a Stipulation and
Order entered into with the lead plaintiffs in the class action lawsuit
described in Note 17. Distribution of the remaining 164,600 shares of common
stock deemed to have been issued on the Effective Date of the Plan, which are
allocable under the terms of the Plan to the holders the Predecessor Company's
common stock, will occur following the resolution of the shareholder derivative
suit described in Note 17 against the Company and certain of its present and
former officers and directors.

Restricted Stock Grant

      In December 2000, the Company granted 3,063,490 shares of restricted stock
to certain employees and directors. The restricted stock awards vested 25% per
year over a four-year period on the anniversary date of the grant. In connection
with this restricted stock grant, the Company recorded a deferred compensation
charge of $8,999 in stockholders' equity. This deferred compensation was to be
recorded as compensation expense over the four-year vesting period. In April
2002, the Company's board of directors approved the vesting of 100% of the
remaining unvested restricted shares. This resulted in a non-cash charge to
compensation expense of $5,100 in April 2002. Compensation expense recorded in
the seven month period ended April 30, 2002 was $7,027.

Stock Splits

      On December 10, 1999, the Company announced a two-for-one stock split of
its outstanding shares of common stock, which was completed on December 30,
1999. On January 10, 2000, the Company announced an additional two-for-one stock
split of its outstanding shares of common stock on January 31, 2000.
Stockholders' equity has been restated to give retroactive recognition to both
stock splits for all periods presented in the accompanying financial statements
by reclassifying from additional paid-in-capital to common stock the par value
of the additional shares arising from the splits. In addition, all references to
number of shares, per share amounts and stock options data have been restated to
reflect the stock splits.

16. EMPLOYEE BENEFITS PLAN

Stock Option Plans (Successor Company)

      As of September 30, 2002, no stock option plan has been approved by the
Successor Company's board of directors or stockholders. Accordingly, no stock
options were issued or outstanding as of September 30, 2002. As a result of the
Company's reorganization, effective April 25, 2002 all unexercised options and
warrants were canceled.

Stock Option Plans (Predecessor Company)

      In April 2001, the Company's stockholders approved, the 2001 Stock Option
Plan (the "2001 Option Plan"), which provided for the grant of stock options to
purchase up to 2,000,000 shares of common stock to any employee, non-employee
director, or consultant at the discretion of the Company's board of directors
(the "Board"). Under the 2001 Option Plan, these options could not be exercised
after ten years from the date of grant. Options issued to employees were
exercisable ratably over a five-year period.

      In April 2000, the Company's stockholders approved the 2000 Stock Option
Plan (the "2000 Option Plan"), which provided for the grant of stock options to
purchase up to 1,675,000 shares of the Company's common stock to any employee,
non-employee director or consultant at the Board's discretion. Under the 2000
Option Plan, these options could not be exercised after ten years from the date
of grant. Options issued to employees were exercisable ratably over a five-year
period.



                                      F-29
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

      In April 1999, the Company's stockholders approved the 1999 Stock Option
Plan (the "1999 Option Plan"), which provided for the grant of stock options to
purchase up to 6,000,000 shares of the Company's common stock to any employee,
non-employee director or consultant at the Board's discretion. Under the 1999
Option Plan, these options could not be exercised after ten years from the date
of grant. Options issued to employees were exercisable ratably over a five-year
period.

      In April 1998, the Company's stockholders approved the 1998 Stock Option
Plan (the "1998 Option Plan"), which provided for the grant of stock options to
purchase up to 4,800,000 shares of the Company's common stock to any employee,
non-employee director, or consultant at the Board's discretion. Under the 1998
Option Plan, these options could not be exercised after ten years from the date
of grant. Options issued to employees were exercisable ratably over a five-year
period.

      Under the 2001, 2000, 1999 and 1998 Option Plans, options were granted to
non-employee directors upon election at the annual meeting of stockholders at a
purchase price equal to the fair market value on the date of grant. In addition,
the non-employee director stock options were exercisable in full twelve months
after the date of grant unless determined otherwise by the compensation
committee of the Board.

      In 1995, the Company's stockholders approved the 1995 Stock Option Plan
(the "1995 Option Plan"), which reserved 1,440,000 shares of common stock for
issuance under the 1995 Option Plan. Under the 1995 Option Plan, the term of the
options issued were determined by the stock option committee and ranged from
five to ten years from the date of the grant. Options issued to directors were
immediately exercisable and options issued to employees were exercisable ratably
over a three-year period.

Fair Value of Stock Options

      For disclosure purposes under SFAS No. 123, the fair value of each option
grant was estimated on the date of grant using the Black-Scholes option
valuation model with the following weighted-average assumptions:

<TABLE>
<CAPTION>
                                                                    PREDECESSOR COMPANY
                                             SEVEN MONTH PERIOD   FISCAL YEAR ENDED      FISCAL YEAR ENDED
                                                   ENDED            SEPTEMBER 30,          SEPTEMBER 30,
                                               APRIL 30, 2002           2001                    2000
                                             ------------------   -----------------      -----------------
<S>                                          <C>                  <C>                    <C>
         Expected life (in years) ..........       6.0                   6.0                    6.0
         Risk-free interest rate ...........       4.7%                  5.0%                   6.3%
         Volatility ........................       133%                133.0%                 122.0%
         Dividend yield ....................       0.0%                  0.0%                   0.0%
</TABLE>

      Utilizing these assumptions, the weighted average fair value of options
granted is $2.83 and $20.80 for the years ended September 30, 2001 and 2000,
respectively, and $0.41 for the seven months ended April 30, 2002.

      The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

SUMMARY STOCK OPTION ACTIVITY

      The following table summarizes stock option information with respect to
all stock options for the two years ended September 30, 2001 and seven months
ended April 30, 2002:



                                      F-30
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                        Weighted
                                                                        Average
                                                       Number of       Exercise
                                                        Shares           Price
<S>                                                 <C>               <C>
Options outstanding, September 30, 1999              10,723,580       $      6.33
Granted                                               1,864,150             23.37
Canceled                                               (834,403)            12.55
Exercised                                            (1,454,635)             1.79
                                                    -----------

Options outstanding, September 30, 2000              10,298,692       $      9.54
Granted                                               2,784,160              3.11
Canceled                                             (1,128,647)            12.77
Exercised                                            (1,559,424)             1.61
                                                    -----------

Options outstanding, September 30, 2001              10,394,781       $      8.66
Granted                                               3,219,200              0.45
Canceled                                             (3,592,723)             5.83
Exercised                                                    --                --
                                                    -----------

Options outstanding, April 30, 2002                  10,021,258       $      7.03
Canceled                                            (10,021,258)      $      7.03
                                                    -----------
Options outstanding, May 1, 2002                             --                --
                                                    ===========
</TABLE>


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 made discretionary contributions for all eligible employees who
contribute to the 401(k) Plan in an amount not exceeding 50% of each
participant's first 4% of compensation contributed as elective deferrals for the
Plan year. The Company contributed approximately $110 and $390 to the 401(k)
Plan during the periods ended April 30, 2002 and September 30, 2001,
respectively. The Company contributed approximately $110 to the 401(k) Plan
during the three-months ended December 31, 2001. The Company ceased making
contributions to the 401(k) Plan effective January 1, 2002.



                                      F-31
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

17. COMMITMENTS AND CONTINGENCIES

Leases

      The Company has minimum monthly usage/maintenance levels with certain of
its telecommunications carriers expiring in various years through 2008. The
Company also leases certain of its facilities and various equipment under
non-cancelable operating leases expiring in various years through 2030. Total
lease expense for all operating leases for the fiscal year ended September 30,
2001 and 2000 was $7,128 and $4,075, respectively. Total lease expense for all
operating leases for the seven months-ended April 30, 2002 and five months-ended
September 30, 2002 was $6,101 and $2,993, respectively.

      Future minimum payments due under these operating leases and
telecommunications carrier usage commitments are as follows:

<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30,          TELECOM            LEASES              TOTAL
-------------------------          -------            ------              -----
<C>                               <C>                <C>                <C>
2003 ..................           $ 13,606           $  5,810           $ 19,416
2004 ..................             13,943              5,198             19,141
2005 ..................             11,171              4,054             15,225
2006 ..................              7,830              6,046             13,876
2007 ..................              4,288              6,093             10,381
Thereafter ............              4,203             48,348             52,551
                                  --------           --------           --------
Total .................           $ 55,041           $ 75,549           $130,590
                                  ========           ========           ========
</TABLE>

Capital Lease Obligations

      Future minimum lease payments due under capital leases are as follows:

<TABLE>
<S>                                                          <C>
            YEAR ENDING SEPTEMBER 30,
            2003 ......................................      $ 1,551
            2004 ......................................        1,667
            2005 ......................................        1,210
            2006 ......................................          268
            Less: Amount representing interest ........         (624)
                                                             -------
            Present value of net minimum lease payments      $ 4,072
            Less:  Current ............................       (1,551)
                                                             -------
            Total Long-term ...........................      $ 2,521
                                                             =======
</TABLE>

Letters of Credit

      As of September 30, 2002 the Company had collateralized letters of credit
aggregating $2,600. The related funds are included in restricted investments on
the accompanying consolidated balance sheet.

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 expires in
July 2003, and may be extended with the mutual consent of the Company and Mr.
Stevenson for successive six-month periods thereafter. Mr. Stevenson's base
salary is $280,000 per year. Mr. Stevenson is also eligible for an annual bonus
equal to up to 50% of his base salary which is contingent upon the Company
meeting certain performance targets and a bonus equal to between 1.75% and 2.0%
of the proceeds from the disposition of certain of the Company's assets,
including the 415 Greenwich Street and 139 Centre Street facilities located in
New York City, New York. In addition, under the terms of Mr. Stevenson's
employment agreement, we agreed to grant



                                      F-32
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

to Mr. Stevenson options to acquire approximately 548,667 shares of the
Company's common stock, or 3% of the outstanding shares of the Company's common
Stock on a fully diluted basis (including shares of the Company's common stock
underlying options eligible for grant under the 2003 Stock Option Plan, but
excluding shares of the Company's common stock underlying any other outstanding
convertible securities). Fifty percent of these options vest based on the length
of time that the options are held by Mr. Stevenson and 50% of these options
vest if certain performance targets specified in Mr. Stevenson's employment
agreement are met. However, as of September 30,2002 these options had not yet
been granted.

      Mr. Stevenson's employment agreement provides that in the event that the
Company terminates his employment for any reason other than cause, if Mr.
Stevenson terminates his employment for good reason or if Mr. Stevenson's
employment terminates as a result of his death or permanent disability, then Mr.
Stevenson is entitled to six months' salary.

      In connection with employment arrangements with certain other employees,
the Company is also committed to minimum compensation obligations for severance
of approximately $200.

      The Company is also committed as of September 30, 2002 for other non
employment-related obligations totaling approximately $600. These obligations
relate primarily to marketing expenses.

Contingencies

      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 the Company's current and former directors and
officers. The Company believes that the allegations in this lawsuit are without
merit and intends to vigorously defend against them. In addition, the plaintiff
in this lawsuit has not pursued her claims against the Company since the filing
of the lawsuit. Although there can be no assurance as to the outcome or effect
of this lawsuit, the Company's management 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 the Company's business,
financial condition, results of operations or cash flows.

      There is a putative class action lawsuit pending in the United States
District Court for the Southern District of New York titled In re Globix Corp
Securities Litigation, No.02-CV-00082. This lawsuit names as defendants the
Company and the Company's former officers Marc Bell, Peter Herzig (who remains a
director of the Company) and Brian Reach, and asserts claims under sections
10(b) and 20(a) of the Securities Exchange Act and Rule 10b-5 promulgated
thereunder on behalf of all persons or entities who purchased the Company's
securities between November 16, 2000 and December 27, 2001.

      On June 25, 2002, the Company entered into a Stipulation and Order with
the lead plaintiffs in the class action lawsuit. The Stipulation and Order
provides that 229,452 shares of the Company's common stock and $1,968 in
aggregate principal amount of the 11% Senior Notes will be held in reserve in
escrow pending the outcome of the class action lawsuit. In the event that any
judgment or settlement entered into in connection with the class action lawsuit
requires the Company to pay an amount in excess of its liability insurance, the
Company will be required to issue to the class action litigants and their
attorneys all (in the event that this excess is $10,000 or greater) or a portion
of (in the event that this excess is less than $10,000) of the shares of the
Company's common stock and the 11% Senior Notes being held in escrow.

         A consolidated amended complaint was filed in this lawsuit on June 28,
2002. The Company has filed a motion to dismiss the consolidated amended
complaint. Briefing of that motion is not yet complete. If the motion is denied,
the case will proceed to the discovery stage. The Company believes that the
allegations in this lawsuit are without merit and intends to vigorously defend
against them. Although there can be no assurance as to the outcome or effect of
this lawsuit, the company's management does not believe, based on currently
available information, that this the ultimate liabilities (if any) resulting
from this lawsuit will have a material adverse impact on the Company's business,
financial condition, results of operations or cash flows.

      On June 12, 2002, Robert B. Bell, a former officer and director of the
Company, filed a complaint in the United States District Court for the Southern
District of New York, entitled Robert B. Bell v. Arnold M. Bressler, as Trustee,
and Globix Corporation, alleging breach of contract claims related to the
failure to make payments under a trust, (the "Rabbi Trust") that the Company
formed pursuant to an employment agreement with Mr. Bell. The Rabbi Trust is
described in more detail in Note 11.  Mr. Bell is seeking damages in excess of
$2.0 million plus costs, disbursements and legal fees. This action is currently
being stayed pending resolution of the Company's lawsuit against Mr. Bell and
Arnold N. Bressler, the Trustee of the Rabbi Trust, described below.

        In addition, in connection with the same underlying issues, on July 24,
2002 the Company filed a complaint in the United States Bankruptcy Court for the
District of Delaware entitled Globix Corporation v. Arnold N. Bressler, as
Trustee of the Globix Corporation Rabbi Trust and Robert B. Bell.  In this
action, the Company has requested that the assets of the Rabbi Trust be turned
over to the Company. The Company has also requested that Mr. Bressler, as
Trustee of the Rabbi Trust, be enjoined from dissipating the assets of the Rabbi
Trust pending resolution of the Company's claims by the court and has filed a
motion for a declaratory judgment to establish the maximum amount of Mr. Bell's
claims. Mr. Bressler has asserted counter claims in this action, and both Mr.
Bressler and Mr. Bell have submitted objections in this action, which is
currently in the discovery phase. The Company is vigorously pursing its claims
in this action and defending against Mr. Bressler's counterclaims.



                                      F-33
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


        The Company and Mr. Bell are currently in settlement discussions to
resolve both of these lawsuits.

      From time to time, the Company is a party to legal proceedings arising in
the ordinary course of its 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's management does not believe,based on
currently available information, that the ultimate liabilities (if any)
resulting from any such legal proceedings would have a material adverse impact
on the Company's financial condition, results of operations or cash flows.

18. INCOME TAXES

      The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes". This statement applies an asset and liability approach that
requires the recognition of deferred tax assets and liabilities with respect to
the expected future tax consequences of events that have been recognized in the
consolidated financial statements and the Company's tax returns.

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

<TABLE>
<CAPTION>
                                                    Successor Company                      Predecessor Company
                                                    -----------------                      -------------------

                                                      For The Five       For The Seven        For The              For The
                                                      Months Ended       Months Ended    Fiscal Year Ended    Fiscal Year Ended
                                                   September 30, 2002   April 30, 2002   September 30, 2001   September 30, 2000
                                                   ------------------   --------------   ------------------   ------------------
                                                                                                 %                    %
<S>                                                <C>                  <C>              <C>                  <C>
Statutory federal income tax rate                       (35)%                 35%               (34)%               (34)%
State and local taxes, net of federal benefit           (10)%                 14%               (11)%               (11)%

Other                                                    --                    5%                 --                 --
Valuation Allowance                                      45%                 (54)%                45%                45%
Effective income tax rate                                --                   --                  --                 --
</TABLE>

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



                                      F-34
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                           For The Five                  For The
                                           Months Ended             Fiscal Year Ended
                                        September 30, 2002          September 30, 2001
                                        ------------------          ------------------
<S>                                     <C>                         <C>
Net deferred tax assets:
     Net operating loss carryforwards       $  32,717                    $ 158,666
     Restructuring reserve                        823                        3,670
     Allowance for doubtful accounts              477                        2,395
     Depreciation and amortization             53,893                        1,316
     Deferred rent                              1,403                          174
     Deferred compensation                        429                          916
     Deferred revenue                              52                          284
     Other                                        383                           --
                                          -----------                  -----------
                                               90,177                      167,421
Less:  Valuation allowance                    (90,177)                    (167,421)
                                          -----------                  -----------
Total Net deferred tax assets                      --                           --
                                          ===========                  ===========
</TABLE>

      The Company is in an accumulated loss position for both financial and
income tax reporting purposes. The Company has U.S. Federal income tax loss
carryforwards of approximately $42,000 at September 30, 2002. These income tax
loss carryforwards expire through 2021. 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 cancellation of indebtedness
income that is excluded from taxable income. Since the Plan provided for
substantial changes in the Company's ownership, the Company's use of its net
operating loss carryforwards may be limited. The Company has not yet determined
the impact, if any, that changes in the Company's ownership have on net
operating loss carryforwards. As of September 30, 2002 the Company also had net
operating loss carryforwards of approximately $46,000 from its United Kingdom
subsidiaries, which do not expire under U.K. tax rules. For financial reporting
purposes, income tax benefits through September 30, 2002 related to both U.S.
Federal and U.K. income tax loss carryforwards 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.

      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 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 at September 30, 2002.

19. SEGMENT REPORTING

      The Company reports segment information under SFAS No. 131, which
establishes standards for reporting information about operating segments in
annual financial statements, and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for disclosures about products and services and geographic
areas. Operating segments are components of an enterprise for which separate
financial information is available and which is evaluated regularly by the
Company's chief operating decision-maker, or decision-making group, in deciding
how to allocate resources and assess performance. The Company is a full service
provider of sophisticated Internet solutions. The Company operates several
Internet data centers throughout the United States and Europe. Each Internet
data center provides the same internet related services to similar type of
customers. Effective April 1, 2001 and for the fiscal year ended September 30,
2001, Globix reports its results of operations in one operating segment under
the provisions of SFAS No. 131. Previously the Company reported under two
operating segments.


                                      F-35
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                   SUCCESSOR
                                   COMPANY                          PREDECESSOR COMPANY
                              -------------------   ----------------------------------------------------
                                   FIVE MONTH         SEVEN MONTH
                                    PERIOD              PERIOD               YEAR ENDED SEPTEMBER 30,
                                     ENDED              ENDED
                              SEPTEMBER 30, 2002    APRIL 30, 2002            2001                2000
<S>                               <C>               <C>                       <C>                 <C>
Revenue:
     United States ......          $  20,410           $  37,747           $  82,020           $  73,697
     Europe .............             10,313              13,526              22,190               7,590
                                   ---------           ---------           ---------           ---------
     Consolidated .......          $  30,723           $  51,273           $ 104,210           $  81,287
                                   =========           =========           =========           =========
Operating loss:
     United States ......          $ (15,069)          $ (54,433)          $(142,713)          $ (64,477)
     Europe .............                (39)            (29,150)            (14,773)            (13,090)
                                   ---------           ---------           ---------           ---------
     Consolidated .......          $ (15,108)          $ (83,583)          $(157,486)          $ (77,567)
                                   =========           =========           =========           =========

Tangible assets:
     United States ......          $ 210,521                               $ 439,667
     Europe .............             42,587                                  89,953
                                   ---------                               ---------
     Consolidated .......          $ 253,108                               $ 529,620
                                   =========                               =========
</TABLE>

The tangible assets reflected in the table above exclude intangible assets.

20. RELATED PARTY TRANSACTIONS

Consulting Agreement with Communication Technology Advisors

      The Company and Communication Technology Advisors LLC ("CTA"), are party
to a consulting agreement dated as of April 19, 2002. Jared E. Abbruzzese, a
member of the Company's board of directors, is the Founder and Chairman of CTA
and is actively engaged in all aspects of CTA's business.

      Under this agreement, the Company engaged CTA to act as the Office of the
Chief Restructuring Officer, providing the Company with a wide range of business
advisory services. The initial term of the agreement ended on October 31, 2002.
On November 1, 2002, the Company extended the CTA consulting agreement through
January 31, 2003 and on February 1, 2003 the Company further extended the CTA
consulting agreement through April 30, 2003. As consideration for the services
provided by CTA, the Company pays CTA a monthly fee of $65. The Company also
reimburses CTA for its out-of-pocket expenses incurred in connection with
rendering services to the Company during the term of the agreement. In addition
to the monthly fee and expense reimbursement, CTA is also entitled to a success
fee in the amount of $1,500 upon the achievement of certain success milestones.

      CTA was originally introduced to the Company as a financial advisor to the
unofficial committee of holders of the 12.5% Senior Notes prior to the
commencement of the Company's Chapter 11 case. CTA received a total of $594 in
fees in connection with its service as financial advisor to the unofficial
committee and to the Company and was reimbursed a total of $46 for out-of-pocket
expenses through September 30, 2002. As a result of this engagement, the Company
was introduced to Peter K. Stevenson, currently the Company's president and
Chief Executive Officer, who was among several CTA representatives providing
advisory services to the unofficial committee and to several other clients of
CTA unrelated to the Company. Mr. Stevenson does not own an equity interest in
CTA, nor is he actively consulting for or employed by CTA.

      Neither CTA, nor any of its principals or affiliates as of September 30,
2002 was a stockholder of the company, nor does it hold any debt of the Company
(other than indebtedness as a result of consulting fees and expense
reimbursement owed to CTA in the ordinary course under its existing agreement
with the Company).

      From September 2002 through December 2002, CTA subleased office space from
Net One Group, Inc., a company founded by Mr. Stevenson. CTA paid a total of
$4.8 in rent to Net One Group under the sublease.

      CTA has advised the Company that in connection with the conduct of its
business in the ordinary course it routinely advises clients in, and appears in
restructuring cases involving, telecommunications companies



                                      F-36
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

throughout the country. CTA has also advised us that certain holders of the
Company's common stock and/or debt securities and/or certain of their respective
affiliates or principals are current clients of CTA in matters unrelated to the
Company, former clients of CTA in matters unrelated to the Company and
affiliates of clients who are (or were) represented by CTA in matters unrelated
to the Company.

      The consulting services described above were approved by a majority of the
Company's disinterested directors. The Company's board of directors believes
that these consulting services are at rates and on terms that are at least as
favorable as those that would have been available to the Company from
unaffiliated third parties under the circumstances.

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 to an entity controlled by Mr. Stevenson. The premiums for these
benefits totaled $6.3 for the five month period ended September 30, 2002. These
benefits were approved by a majority of the Company's disinterested directors.

21. 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 is in
the process of merging 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.

22. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

      The carrying value and estimated fair values of cash, cash equivalents,
restricted cash, investments, receivables, payables, debt maturing within one
year, and the mortgage payable contained in the consolidated balance sheets
approximates fair value.

      The fair market value of the 11% Senior Notes are approximately $92,400
based on the Company's repurchase of $9,100 in principle value notes for $7,000
in December 2002 (see Note 24).




                                      F-37
<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

23. SELECTED INTERIM FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                PREDECESSOR COMPANY
                                                                         -------------------------------------------------------
                                                                                                    (RESTATED)
                                                                            THREE MONTHS           THREE MONTHS      ONE MONTH
                                                                               ENDED                  ENDED            ENDED
                                                                         DECEMBER 31, 2001        MARCH 31, 2002   APRIL 30, 2002
                                                                         -----------------        --------------   --------------
<S>                                                                      <C>                      <C>              <C>
Revenue                                                                     $     23,379           $     21,389     $      6,505
Operating costs and expenses:
    Cost of revenue (excluding depreciation, amortization,
      payroll and occupancy shown below)                                           9,663                  9,737            2,723
    Selling, general and administrative                                           24,748                 21,401           11,057
    Loss (gain) on impairment of assets                                               --                  3,221             (643)
    Restructuring charges                                                             --                 24,834               --
    Depreciation and amortization                                                 12,012                 12,174            3,929
                                                                            ------------           ------------     ------------
Total operating costs and expenses                                                46,423                 71,367           17,066
                                                                            ------------           ------------     ------------
Loss from operations:                                                            (23,044)               (49,978)         (10,561)
    Interest and financing expense, net                                          (19,058)               (13,161)            (268)
    Other income (expense)                                                           110                   (506)            (113)
    Gain on debt discharge                                                            --                     --          427,066
    Minority interest in subsidiary                                                  389                    955            4,434
    Reorganization items                                                              --                 (5,598)          (2,164)
    Fresh start accounting adjustments                                                --                     --         (148,569)
                                                                            ------------           ------------     ------------
Net (loss) income                                                                (41,603)               (68,288)         269,825
    Dividends and accretion on preferred stock                                    (1,848)                (1,329)              --
                                                                            ------------           ------------     ------------
Net (loss) income attributable to common stockholders                       $    (43,451)          $    (69,617)    $    269,825
                                                                            ============           ============     ============

Earnings (loss) per common share:

Basic (loss) earnings per share attributable to common stockholders         $      (1.11)          $      (1.75)    $       6.52
                                                                            ============           ============     ============

Weighted average common shares outstanding - basic                            38,979,005             39,668,862       41,395,781
                                                                            ============           ============     ============

Diluted (loss) earnings per share attributable to common stockholders       $      (1.11)          $      (1.75)    $       5.37
                                                                            ============           ============     ============

Weighted average common shares outstanding - diluted                          38,979,005             39,688,862       50,284,381
                                                                            ============           ============     ============
</TABLE>


<TABLE>
<CAPTION>
                                                                                               Successor Company
                                                                              ----------------------------------------------------
                                                                                    Two months                     Three months
                                                                                      Ended                           Ended
                                                                                  June 30, 2002                 September 30, 2002
                                                                              ------------------------    ------------------------
<S>                                                                            <C>                         <C>
Revenue                                                                        $             12,702         $             18,201
Operating costs and expenses:
  Cost of revenue (excluding depreciation, amortization,
    payroll and occupancy shown below)                                                        4,505                        5,953
  Selling, general and administrative                                                        10,749                       18,564
  Loss (gain) on impairment of assets                                                          --                           --
  Restructuring charges                                                                        --                           --
  Depreciation and amortization                                                               2,454                        3,606
                                                                              ------------------------    ------------------------
Total operating costs and expenses                                                           17,708                       28,123
                                                                              ------------------------    ------------------------
Loss from operations                                                                         (5,006)                     (10,102)
  Interest and financing expense, net                                                        (2,363)                      (3,503)
  Other income/(expense)                                                                       (145)                         (12)
  Gain on debt discharge                                                                       --                           --
  Minority interest in subsidiary                                                              --                           --
  Reorganization items                                                                         --                           --
  Fresh start accounting adjustments                                                           --                           --
                                                                              ------------------------    -------------------------
Net (loss) income                                                                            (7,514)                     (13,617)
  Dividends and accretion on preferred stock                                                   --                           --
                                                                              ------------------------    -------------------------
Net (loss) income attributable to common stockholders                          $             (7,514)       $             (13,617)
                                                                              ========================    =========================
Earnings (loss) per common share:

Basic (loss) earnings per share attributable to common stockholders            $              (0.46)       $               (0.83)
                                                                              ========================    =========================
Weighted average common shares outstanding - basic                                       16,460,000                   16,460,000
                                                                              ========================    =========================

Diluted (loss) earnings per share attributable to common stockholders          $              (0.46)       $               (0.83)
                                                                              ========================    =========================
Weighted average common shares outstanding - diluted                                     16,460,000                   16,460,000
                                                                              ========================    =========================
</TABLE>


      The following is a reconciliation of the net loss attributable to common
stockholders from the three months ended March 31, 2002 previously filed to the
restated three months ended March 31, 2002.

<TABLE>
<CAPTION>
                                                                   THREE MONTHS
                                                                      ENDED
                                                                  MARCH 31, 2002
                                                                  --------------
<S>                                                               <C>
Net loss attributable to common stockholders (previously filed)     $(87,598)

Change in restructuring and other charges                             23,612(1)

Adjustments to reorganization items                                   (5,631)(2)
                                                                    --------
Net loss attributable to common stockholders (restated)             $(69,617)
                                                                    ========

(1) The change in restructuring and other charge was comprised of the following:

o   The reversal of $22,428 of asset impairments that were not recorded in
    compliance with the requirements of SFAS No. 121.

o   A reversal of $1,184 related to assets previously written-off by the
    Company for which the Company received a subsequent settlement payment from
    the vendor. The Company had previously increased the restructuring accrual
    in connection with the settlement payment.

(2) The adjustment to reorganization items included the following:

o   $6,181 write-off of deferred reorganization costs the Company subsequently
    determined should have been expensed as incurred in conformity with SOP
    90-7.

o   A gain of $550 related to a settlement of an obligation under a software
    purchase agreement that had not been previously recorded.



</TABLE>
<TABLE>
<CAPTION>

                                                                                       PREDECESSOR COMPANY
                                                              ------------------------------------------------------------------
                                                               THREE MONTHS      THREE MONTHS    THREE MONTHS      THREE MONTHS
                                                                  ENDED              ENDED           ENDED            ENDED
                                                              DECEMBER 31, 2000  MARCH 31, 2001   JUNE 30, 2001  SEPTEMBER 30, 2001
                                                              -----------------  --------------  --------------  ------------------
<S>                                                           <C>              <C>              <C>            <C>
Revenue                                                          $     26,237   $     26,782     $     26,239    $        24,952
Operating costs and expenses:
    Cost of revenue (excluding depreciation, amortization,
      payroll and occupancy shown below)                               10,468         10,480            9,774              9,887
    Selling, general and administrative                                31,014         28,308           31,994             33,755
    Loss on impairment of assets                                           --             --               --              3,500
    Restructuring charges                                              38,109             --               --             18,000
    Depreciation and amortization                                       7,597          7,951            8,526             12,583
                                                                 ------------   ------------     ------------      -------------
Total operating costs and expenses                                     87,188         46,739           50,294             77,725
                                                                 ------------   ------------     ------------      -------------
Loss from operations:                                                 (60,951)       (19,957)         (24,055)           (52,773)
    Interest and financing expense, net                               (10,004)       (11,679)         (11,465)           (18,698)
    Other income/(expense)                                                 --           (330)            (480)              (319)
                                                                 ------------   ------------     ------------      -------------
Loss before cumulative effect of a change in
    accounting principle                                              (70,955)       (31,966)        (36,000)            (71,790)
    Cumulative effect of a change in accounting principle              (2,332)            --               --                 --
                                                                 ------------   ------------     ------------      -------------
Net loss                                                              (73,287)       (31,966)        (36,000)            (71,790)
   Dividends and accretion on preferred stock                          (1,735)        (1,761)         (1,789)             (1,819)
                                                                 ------------   ------------     ------------      -------------
Loss attributable to common stockholders                         $    (75,022)  $    (33,727)    $   (37,789)      $     (73,609)
                                                                 ============   =============    ============      ==============
Basic and diluted loss per share attributable to
  common stockholders before cumulative effect of a
  change in accounting principle                                 $      (1.95)  $     (0.87)     $     (0.97)      $      (1.89)
  Cumulative effect of a change in accounting principle                 (0.06)           --               --                 --
                                                                 ------------   ------------     ------------      -------------
Basic and diluted loss per share attributable to
  common stockholders                                            $      (2.01)  $     (0.87)     $     (0.97)       $      (1.89)
                                                                 ============   ============     ===========        ============
Weighted average common shares outstanding --
  basic and diluted                                                37,328,496     38,709,658      38,933,135          38,946,043
                                                                 ============   ============     ===========        ============
</TABLE>

24. SUBSEQUENT EVENTS

      On November 5, 2002, the compensation committee of the Company's board of
directors approved the Company's 2003 Stock Option Plan and set the fair value
strike price of options granted under the 2003 Stock Option Plan at $3.04.

      In December 2002, the Company repurchased in the open market for $7,030 a
portion of its outstanding 11% Senior Notes, which had a principal value of
approximately $9,130 and associated accrued interest of $627. The repurchase
resulted in a gain on the discharge of debt of approximately $2,727.  This gain
will be included in the Company's Consolidated Statement of Operations for the
quarter ending December 31, 2002.



                                      F-38

<PAGE>

                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

       In January 2003, the Company retained the services of a real estate
broker to explore the Company's options with respect to the land and eight story
building located at 415 Greenwich Street, New York, New York, including the sale
or lease of the facility. (See also Note 7, Minority Interest for further
discussion regarding certain obligations upon the sale of the property.) In
January 2003, the Company also retained the services of a real estate broker to
lease approximately one third of its facility located at 139 Centre Street.


      In January 2003, the Company's board of directors concluded that Mr.
Stevenson had met certain of the performance targets set forth in his employment
agreement. However, for purposes of the provisions of Mr. Stevenson's employment
agreement related to Mr. Stevenson's bonus and the vesting of options granted to
Mr. Stevenson, the Company's board of directors deemed all of these performance
targets to have been met.

      On February 6, 2003, a putative derivative suit was filed in New York
State Supreme Court (County of New York) against the Company, as nominal
defendant, and Lehman Brothers Inc., Chase Securities, Inc., Credit Suisse First
Boston Corporation, Merrill Lynch Pierce Fenner & Smith Incorporation, Salomon
Smith Barney Inc. and ABN Amro Securities LLC (as successor to ING Barings,
LLC), the initial purchasers in the Company's February 2000 offering of the
12.5% Senior Notes. The suit alleges that the underwriting discount granted to
the initial purchasers of the 12.5% Notes violated Section 5-531 of the New York
General Obligations Law, which limits the amount that can be charged by a loan
broker. On March 6, 2003, the plaintiff and the initial purchasers entered into
a tolling agreement that would result in the dismissal of the action without
prejudice pending action on a motion to dismiss an amended complaint submitted
in a similar case involving debt securities issued by another corporation. On
March 13, 2003, the court dismissed this action without prejudice.

      On February 24, 2003, the Company repurchased in the open market for
$4,913 a portion of its outstanding 11% Senior Notes, which had a principal
value of approximately $6,380 and associated accrued interest of $577. The
repurchase resulted in a gain on the discharge of debt of approximately $2,044.
This gain will be included in the Company's Consolidated Statement of Operations
for the quarter ended March 31, 2003.

      On March 14, 2003, the Company's board of directors approved the sale to
CTA of a warrant exercisable for 500,000 shares of the Company's common stock at
an exercise price of $3.00 per share. The purchase price of the warrant is $25.
Although CTA has not yet purchased this warrant, it currently has the right to
do so. If CTA elects to purchase this warrant, this warrant will be immediately
exercisable for a period of 10 years from the date of issuance. CTA is a
provider of services to the Company and as such, using the Black Scholes
valuation model, the fair value of the warrant will be expressed in the quarter
ended March 31, 2003.

      The Plan provides for the grant of up to 1,828,889 stock options to be
issued pursuant to the Company's 2003 Stock Option Plan. On March 14, 2003, the
Company's board of directors approved the 2003 Stock Option Plan as submitted by
the Compensation Committee, authorized 1,828,889 shares for distribution, and
granted 1,128,976 shares.

      On March 19, 2003, holders of approximately 58% of the outstanding 11%
Senior Notes (excluding 11% Senior Notes repurchased by the Company) waived the
defaults under the Indenture described in Note 12.


                                      F-39
<PAGE>

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                  COLUMN A                                   COLUMN B               COLUMN C           COLUMN D       COLUMN E
-------------------------------------------------------      --------      ------------------------    --------       --------
                                                                                   ADDITIONS
                                                                           ------------------------
                                                             BALANCE AT    CHARGES TO    CHARGES TO                   BALANCE AT
                                                            BEGINNING OF   COSTS AND       OTHER                        END OF
                                                              PERIOD       EXPENSES       ACCOUNTS     DEDUCTIONS       PERIOD
<S>                                                         <C>            <C>           <C>           <C>            <C>
Allowance for Doubtful Accounts:
-------------------------------

Predecessor Company (October 1, 2001 to April 30, 2002)         8,052         4,284            94        (9,618)         2,812

Successor Company (May 1, 2002 to September 30, 2002)           2,812         1,904            80        (2,231)         2,565

Deferred Tax Valuation Allowance:
--------------------------------

Predecessor Company (October 1, 2001 to April 30, 2002)       167,421        40,400        66,021      (193,402)        80,440

Successor Company (May 1, 2002 to September 30, 2002)          80,440         9,737            --            --         90,177
</TABLE>


                                       S-1