<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                FORM 10 - KSB/A

[X] AMENDMENT NO. 1 TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 1998

                                       OR

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

For the transition period from _____________ to __________________

                           Commission File No. 1-14168

                               Globix Corporation
           (Name of small business issuer as specified in its charter)

         New York                                             13-3781263
(State or other jurisdiction of                            (I.R.S. Employer
incorporation or organization)                            Identification No.)

295 Lafayette Street, New York, New York    10012
(address of principal executive offices)  (Zip Code)
Issuer's Telephone number, including area code:    (212) 334-8500

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

<TABLE>
<CAPTION>
         Title of Each Class        Name of Each Exchange on Which Registered
<S>                                 <C>
Common Stock,  $.01 par value                Boston Stock Exchange
</TABLE>

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


Check whether issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the Issuer was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

                           Yes   X                   No
                                ---                      ---

Check if disclosure of delinquent filers pursuant to item 405 of Regulation S-B
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-KSB or any amendment to
this Form 10-KSB.   [ ]

State issuer's revenues for its most recent fiscal year  - $20,594,933

State the aggregate market value of the voting stock held by non-affiliates of
the Issuer: $20,221,181 (based upon the closing price of Issuer's Common Stock,
$.01 par value, as of December 14, 1998.

Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.

<TABLE>
Common Stock, $.01 Par Value                                  4,140,116
----------------------------                         --------------------------
<S>                                                  <C>
(Title of Class)                                     (No. of Shares Outstanding
                                                        at December 14, 1998)
</TABLE>
<PAGE>   2
                    DOCUMENTS INCORPORATED BY REFERENCE: NONE


                                     PART I
                  FORWARD LOOKING STATEMENTS AND RISK FACTORS

     The following contains forward-looking statements based on the Company's
current expectations, assumptions, estimates and projections about the Company
and its industry. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of various
factors, including all the risks and uncertainties discussed in "Risk Factors"
set forth in the Company's filings made from time to time with the Securities
and Exchange Commission. 

Item 1. Business


         (a)      General Development of Business. The Company was originally
                  incorporated in the state of New York in 1989 by Marc H. Bell
                  as NAFT International Ltd. ("NAFT"). In July 1993, Mr. Bell
                  formed Stellar Graphics Corp. (now called Bluestreak Digital,
                  Inc.,). In July 1994, the assets and liabilities of NAFT and
                  Stellar Graphics were acquired by PFM Technologies Corporation
                  ("PFMT") in a tax-free exchange of common stock. In September
                  1995, the Company was reincorporated by merger into Bell
                  Technology Group Ltd., a Delaware corporation. On June 1,
                  1998, the Company changed its name to Globix Corporation.

         (b)      In July 1994, in a private transaction, the Company received
                  financing from Harpoon Holdings Ltd. ("Harpoon") a British
                  Virgin Islands corporation wholly-owned by Tsuyoshi Shiraishi,
                  a director of the Company, pursuant to which Harpoon became a
                  principal stockholder of the Company.
         (c)      In January, 1996, the Company sold, in an initial public
                  offering, 1,150,000 shares of Common Stock at an initial
                  offering price of $7.00 per share, and 575,000 Redeemable
                  Purchase Warrants for $.10 per warrant (the "IPO Warrants").
                  Each IPO warrant entitled the holder to purchase one share of
                  the Company's common stock for $7.70 per share. The IPO
                  warrants were redeemable by the Company at $.10 per IPO
                  warrant at any time after January 24, 1997 if certain
                  conditions were met. The net proceeds that the Company
                  received from the public offering amounted to approximately
                  $6,600,000.

         (d)      In March 1996, the underwriter of the initial public offering
                  exercised its over-allotment option to purchase 129,642 common
                  shares from the Company for $7.00 per share. The net proceeds
                  amounted to approximately $800,000.

         (e)      In September 1997, the Company sold 382,609 shares of its
                  common stock in a private transaction for total consideration
                  of $2,200,000. A registration statement on Form SB-2 was filed
                  with the Securities and Exchange Commission with respect to
                  these shares on November 6, 1997 and became effective on
                  November 20, 1997. A fee with respect to the sale of these
                  shares of $100,000 in cash and 17,391 shares of common stock
                  was paid to the investors and were offset against the proceeds
                  of the issuance.

         (f)      In April 1998, the Company successfully completed a private
                  offering for $160,000,000 consisting of 160,000 units, each
                  unit consisting of $1,000 principal amount of 13% Senior Notes
                  due 2005 and one warrant to purchase 3.52 shares of common
                  stock (total of 563,200 shares of common stock) at a purchase
                  price of $14.03 per share. The Notes will mature on May 1,
                  2005. Interest on the notes are payable semi-annually in
                  arrears on May 1 and November 1 of each year, commencing
                  November 1, 1998. The Company has deposited with an escrow
                  agent $57,000,000, that together with the interest received
                  thereon, will be sufficient to pay, when due, the first six
                  interest payments. The Notes are collateralized by a first
                  priority security interest in the escrow account. The Notes
                  are senior unsecured obligations of the Company and rank pari
                  passu in right of payment with all existing and future
                  unsecured and unsubordinated indebtedness and rank senior in
                  right of payment to any future subordinated indebtedness.

         (g)      On June 8, 1998, the Company called for redemption the IPO
                  Warrants. Prior to the redemption date of July 8, 1998,
                  581,472 of the 592,055 then outstanding IPO Warrants were
                  exercised at an exercise price of $7.44 per common share. The
                  remaining 10,483 Warrants were redeemed by the Company at a
                  price of $.10 per IPO Warrant. The net proceeds recognized by
                  the Company from the IPO warrant redemption amounted to
                  approximately $4.3 million.
<PAGE>   3


(h) Narrative Description of Business

     (1) General

     Globix is a leading provider of Internet connectivity and sophisticated
Internet-based solutions to large and medium size businesses. Globix provides
its customers with a comprehensive range of high performance, flexible and
scalable products and services, designed to enable them to take full advantage
of the Internet in order to more effectively carry out their evolving business
strategies. Components of Globix's "end-to-end" solutions include:

     - dedicated Internet access
 
     - Internet Data Center facilities for web hosting and co-location
 
     - Internet-related hardware and software sales and systems and network
       integration
 
     - systems administration and web site management
 
     - value-added solutions such as e-commerce, streaming media, network
       security and web development
 
     - instructor-led corporate training

In December 1995, Globix began offering Internet access from its facility in New
York City, where most of its customers have substantial operations. Globix is
currently building new state-of-the-art facilities in New York City, London and
the San Francisco Bay area to expand into those major business centers and to
better serve the needs of its existing multiregional and multinational
customers. Globix markets and supports its products and services through
locally-based direct sales, system and network engineering, application design
and customer care professionals. Due to its strong local presence, Globix is
better able to evaluate the needs of its customers and quickly respond with
tailored solutions. Globix also provides its customers conveniently located
facilities and the systems management expertise to cost-effectively outsource
all or part of their Internet or IT functions. Globix believes that its ability
to offer a broad range of end-to-end Internet solutions, combined with its local
sales and support professionals and high performance Internet Data Center
facilities, differentiates the Company from its competitors.
 
     Globix offers Internet access from its initial SuperPOP facility in New
York City. Globix is in the process of building new state-of-the-art SuperPOP
facilities in New York City, London and the San Francisco Bay area. Each new
SuperPOP will feature:

 
     - a high performance Internet Data Center with multiple, redundant,
       high-capacity fiber feeds, uninterruptable power supplies with back-up
       generators, a dry fire suppression system, raised floor and fault
       tolerant environmental controls
 
     - a Network Operations Center, which provides 24 X 7 monitoring
 
     - on-site customer care, sales and marketing, systems administration and
       administrative operations

The new SuperPOP facilities will significantly increase Globix's ability to
provide web hosting and co-location services by increasing its total Internet
Data Center capacity from approximately 2,000 square feet to approximately
63,000 square feet. All three new SuperPOP facilities are expected to be
completed and operational by June 30, 1999.

     The Company is also currently establishing a fully redundant, dedicated,
high-speed, network backbone which will serve many of the major business centers
in the United States, as well as London, England. Globix's network backbone will
significantly increase data transmission capacity, improve reliability and
reduce unit data transmission costs. The Company has taken the following steps
to implement this project:

     - In October 1998, Globix entered into an IRU agreement with Qwest
       Communications giving it the exclusive right to use portions of Qwest's
       global fiber network for a 20 year period. Globix will initially have the
       right to use 6,500 route miles of OC-3 capacity fiber (upgradable to
       OC-48) coast-to-coast in the United States and a DS-3 fiber link from the
       United States to the United Kingdom. 
     - Globix is in the process of establishing both public and private peering,
       or interconnection, relationships with major backbone providers. Public
       peering takes place at a physical location, usually a Network Access
       Point (NAP) designed for the exchange of Internet traffic between private
       backbone providers. Private peering is an agreement between two Internet
       Service Providers (ISPs) to pass traffic between one another at private
       connection points along each other's network backbone, allowing traffic
       to pass from one network to another without having to traverse the
       public Internet and public peering points.
 
     - Globix is establishing Points of Presence, or POPs, in Washington, D.C.,
       Chicago and Los Angeles, as part of a planned program of establishing
       POPs in other major business centers in the United States and Europe
      In April 1998, Globix completed a $160.0 million debt financing to fund
the build-out of its new SuperPOP facilities and network backbone.
 
     As of November 30, 1998, Globix had over 800 business customer accounts for
Internet products and services. Globix's customers are in a variety of
data-intensive industries such as advertising, financial services, media,
publishing and retail. Internet customers include Acclaim Entertainment,
American Red Cross, Bloomingdale's, BPI Communications (Billboard and Adweek),
Dow Jones, General Media International (Penthouse), Microsoft, National Hockey
League, Nomura Securities, Ogilvy & Mather, RealNetworks, Standard & Poors and
Tishman Speyer Properties.
<PAGE>   4
PRODUCTS AND SERVICES
     Globix provides its customers with a broad range of end-to-end solutions
including: (i) dedicated Internet access; (ii) Internet Data Center facilities
for web hosting and co-location; (iii) Internet-related hardware and software
sales and systems and network integration; (iv) systems administration and web
site management; (v) value-added solutions such as e-commerce, streaming media,
network security and web development; and (vi) instructor-led corporate
training. Each of the Company's new SuperPOP facilities will offer substantially
the same range of products and services.
 
DEDICATED INTERNET ACCESS
 
     Globix provides a variety of connectivity solutions, including dedicated
Internet access, hardware and software implementation and system and security
consulting which provide businesses high-speed continuous access to the
Internet. The Company's dedicated Internet access services are provided to
customers at speeds ranging from 56Kbps to 45Mbps. However, the majority of the
Company's connectivity customers purchase 1.5Mbps or higher levels of service.
In addition, the Company provides turnkey configuration services, including
domain name registration, local loop provisioning, Internet address assignment,
router configuration, e-mail configuration, security planning and management
technical consulting services. All of the Company's customers receive 24 X 7
technical support. The Company is currently participating in trials of new
access technologies, such as xDSL, and expects to deploy additional
connectivity-related enhanced services, such as Internet conference calling, by
June 30, 1999.
 
WEB HOSTING

Shared Server Web Hosting.  Globix offers a variety of shared server web hosting
services that enable its customers to efficiently, reliably and cost-effectively
establish a sophisticated web presence and distribute information over the
Internet without purchasing, configuring, maintaining and administering the
necessary Internet hardware and software. The Company's basic web hosting option
includes 100 Mbps of data transfer per month and 20 Mbps of storage. This basic
service meets the bandwidth requirements of many businesses and allows them to
store sufficient standard graphics, HTML, sound and video files to meet their
ongoing needs. Storage and transfer limits can be increased and customized to
meet the requirements of the customer. Globix supplements this basic service
with a variety of web-based options such as e-mail, Microsoft Frontpage
extensions and Netshow streaming, RealNetworks offerings, and other web
development, security, e-commerce and database products. Globix shared hosting
plans also offer tools that enable customers to control and update their sites
remotely, monitor site performance, track the number of site visits, update
password protection, check account billing information and evaluate the overall
effectiveness of their web sites. In addition, all shared servers have regular
back-up procedures to protect customer files.

     Dedicated Server Web Hosting.  The Company also offers dedicated server web
hosting solutions for larger customers that require substantially more server
and network capacity than provided under the shared hosting plans. The dedicated
web hosting solutions provide the customer with an NT or UNIX-based dedicated
server that is owned and maintained by Globix within its Internet Data Center
facility. The Company provides all its web hosting customers with 24 X 7
monitoring, network and systems administration and maintenance, tape back-ups
and security monitoring. This solution enables customers to host complex web
sites and applications without the need to incur significant infrastructure and
overhead costs. Globix offers dedicated server service at various price levels,
depending on customers' hardware data transfer and service requirements. For
example, Globix offers Bronze, Silver and Gold level dedicated web hosting
services which include either a Sun Microsystems or Compaq server, 64 Mbps to
256 Mbps of memory and 1,000 Mbps to 3,000 Mbps of data transfer per month.

CO-LOCATION
 
     Globix offers co-location services for customers who prefer to own and have
physical access to their servers, but require the high performance, reliability
and security of an Internet Data Center. Co-location customers are typically
larger enterprises employing more sophisticated Internet hardware and software,
and have the expertise to maintain their web sites and related equipment. The
Company's co-location services include fault-tolerant physical facilities and
reliable, high bandwidth Internet connectivity tailored to meet the outsourcing
needs of its customers' mission-critical Internet operations. The Company
supports most leading Internet hardware and software platforms, including those
from Ascend, Cisco, Compaq, Check Point Software, Intergraph, Microsoft,
Netscape, Silicon Graphics, Storage Technologies and Sun Microsystems. This
multi-vendor flexibility enables Globix to offer the customer a broad range of
technology best suited for its needs. Customers have 24 X 7 physical and remote
access to the Internet Data Center to administer, upgrade and maintain their own
equipment, or they may engage Globix to provide systems administration and
maintenance.

     Globix believes its ability to sell additional hosting and co-location
services has been limited in the recent past because its present Internet Data
Center, with capacity totaling approximately 2,000 square feet, is fully
utilized. Globix is currently building new state-of-the-art SuperPOP facilities
in New York City, London and the San Francisco Bay area. The SuperPOPs under
construction include:

     - a 160,000 square foot facility located in New York City containing a
       25,000 square foot Internet Data Center designed for co-location and web
       hosting
 
     - a 61,000 square foot facility located in Santa Clara, California,
       containing a 24,000 square foot Internet Data Center 
<PAGE>   5
 
     - a 35,000 square foot facility, located in London's West End district,
       containing a 14,000 square foot Internet Data Center
 
     The Internet Data Centers will be connected by a fully redundant,
dedicated, high speed network backbone. All three facilities are expected to be
completed and operational by June 30, 1999.
     The Company's new Internet Data Center facilities will feature
uninterruptable power supplies with back-up generators, a dry fire suppression
system, raised floor and fault tolerant environmental controls, 24 X 7
monitoring and high levels of security. Customers will be able to select from
shared rack facilities, secure cabinets or enclosed cage facilities based upon
their business and technical requirements. Each facility will also feature
multiple redundant links to the building housing the Internet Data Center from
the network backbone via separate fiber feeds from separate suppliers, direct
links to public peering points, and two separate 20 amp circuits from different
suppliers to each customer's rack or cage.
 
INTERNET-RELATED HARDWARE AND SOFTWARE SALES

     Product resales are an integral part of providing end-to-end solutions.
Globix assists its customers in identifying appropriate hardware and software
components tailored for their Internet needs. Generally, Globix sells the
hardware and software to its customers under reseller agreements with major
vendors. Globix is authorized to sell a full range of equipment and hardware
required to connect to the Internet, including servers from manufacturers such
as Sun Microsystems, Compaq, Silicon Graphics and networking components,
including routers and switches, from leading manufacturers such as Cisco
Systems. Globix also provides application-specific software products including
browsers, electronic mail and other solutions from a variety of leading
manufacturers, including Microsoft, Netscape and Oracle which allow its
customers to navigate and utilize the Internet.
 
SYSTEMS AND NETWORK INTEGRATION

     Globix's provides integration services including local and wide area
network configuration, web and database server integration and
application-specific software solutions. When requested by the customer, the
Company will configure all equipment it sells by loading customer programs,
connecting equipment to the network, and servicing the customer's hardware and
software. The Company's staff of experienced network consultants work closely
with customers to design, assemble and configure a network architecture which
meets their goals. Globix utilizes its expertise across multiple platforms and
familiarity with leading networking hardware, high-end web and database servers
and computer software to more effectively address its customers' diverse systems
and network integration needs.

SYSTEMS ADMINISTRATION AND WEB SITE MANAGEMENT
 
     Globix's system administration and web site management solutions support
its customers' Internet operations by providing the customer with detailed
monitoring, reporting and management systems to control their Internet-related
hardware, software and network applications. The Company's solutions can vary in
functionality from delivering e-mail to an individual within a corporate local
area network to delivering a sophisticated, media-rich web site on the Internet.
Implementation of these solutions are often phased to allow customers to
outsource an increasing amount of their Internet operations. Globix's
 

<PAGE>   6
systems and web management systems enable Globix and its customers to jointly
manage Internet operations housed at the Company's Internet Data Center and at
its customers' in-house facilities. The Company's comprehensive system
administration and web management solutions enable it to identify and begin to
resolve hardware, software, network and application problems almost immediately.
As a result of its proactive service focus, Globix can usually identify and
resolve a potential problem before it ever impacts an Internet site's
availability or performance.
VALUE-ADDED INTERNET SERVICES
 
     Web Development.  Globix provides advanced web site development and
implementation services. Its customers' web sites range from basic informational
sites to complex interactive sites featuring sophisticated graphics, animation,
sound and other multimedia content. Globix has completed web site development
projects for customers including Bank of New York and Cigar Aficionado. Globix's
interactive development capabilities utilize tools such as Hypertext Markup
Language (HTML), Virtual Reality Markup Language (VRML), computer animation,
compositing and motion capture. Globix works with content providers such as
marketing firms, end users and production companies to provide technical, design
and production services. Globix focuses on the design, development and
establishment of web sites and is not typically involved in creating the content
of its customer's web sites. The Company maintains a dedicated team of expert
production, design and management personnel which are available for large-scale
web development projects.
     E-Commerce Solutions.  Globix offers commerce-enabling solutions for its
web-hosting and co-location customers. A "shopping cart" program is available
for those customers looking to sell products, where, as in a retail store, their
clients browse through several products and choose to put some in their
"shopping cart" for purchase. This database driven technology is very flexible,
allowing the Company's customers to change products and prices easily and
cost-effectively. The Company also offers credit card authorization and
processing solutions that enable its customers to accept payment directly over
the Internet. This is accomplished through a Cybercash server maintained by the
Company. This server can interface with any of the Company's web hosting or
co-location customers, allowing them to offer their clients a secured socket
layer environment to type a credit card number in a browser for the purpose of
conducting a business transaction. The Company also provides fully integrated
turnkey e-commerce solutions that simplify and facilitate online commerce
without the need for IT support.

     Security Solutions.  The nature of business Internet traffic demands
protection from unauthorized access. The Globix security team works closely with
customers to design and integrate a customized security solution which ensures
network integrity while enabling users to perform business tasks in a secure,
yet unhindered, environment. Globix's firewall solutions provide users with
secure access to the Internet as well as segregate a customer's public servers
from its internal network. Globix's firewalls can also restrict access between
departments as well as track communications to ensure that these communications
follow a customer's established security procedures. Globix works with a variety
of vendors, including Check Point Software and WatchGuard Technologies. In
addition to firewalls, Globix offers enhanced security services including virus
scanning, active X and Java screening, content filtering and Uniform Resource
Locator (URL) blocking. Globix also offers a Virtual Private Network (VPN)
solution which offers end-to-end security while greatly reducing the cost of
leased line connectivity to remote offices, remote users and business partners.
 

<PAGE>   7
 
     Streaming Media Products.  The development of streaming media products from
companies, such as RealNetworks and Microsoft, enables the simultaneous
transmission and playback of continuous streams of audio and video content over
the Internet. Globix has emerged as one of the leading providers of streaming
media services, offering complete integrated, in-house services, including
production encoding and hosting of live or pre-recorded events. Production
involves creating a video and/or audio recording of an event, such as a music
performance, sports competition or business meeting. Encoding is converting the
recording into a form that can be sent over the Internet. Hosting is placing the
encoded file on a server that can be accessed by Internet users. Globix has
produced and hosted streaming media events for customers from a number of
industries. Globix has produced and/or hosted over 70 events, including a live
Rod Stewart concert from London, New York State Governor George Pataki's
State-of-the State address, and the keynote address of John Chambers, the
President and Chief Executive Officer of Cisco Systems, at the Consumer
Electronics Show. The Company encodes data for applications from several
software providers, including RealNetworks, Microsoft, a2b, Apple, Liquid Audio
and Macromedia. Globix believes that it is one of the few providers which offers
expertise in all three components of streaming media technology, combined with
an established customer base for Internet products and services and access to
low cost, scalable, bandwidth.

CORPORATE TRAINING

     Globix provides corporate training services on a value-added basis to its
business customers, often in conjunction with a sale of Internet connectivity,
hardware and software products or value-added solutions. Globix offers
instructor-led training on multiple network platforms (Windows 98, Windows NT,
Mac and Unix), Internet applications (Java, HTML, Macromedia and VRML), office
applications (MS Office, Lotus Notes, Lotus Smart Suite) and 3-dimensional
computer animation programs (Alias, Discrete Logic, Soft Image). Training is
marketed to large advertising, financial services, media, publishing and retail
companies which send their personnel to Globix's facility to attend one to five
day programs. Most customers maintain an on-going relationship with Globix's
account managers and regularly schedule classes during the year.

     The Company maintains training rooms at its New York SuperPOP facility
which are equipped with state-of-the-art modern hardware, projectors, computer
desks and other appropriate classroom equipment, including multiple T-1 access
to demonstrate Internet applications. Course materials and training methodology
can be customized for the customer's specific needs. Globix's fees depend upon
the size of the class, the complexity of the content and the equipment required.
 
CUSTOMERS

     Globix has established a diversified base of Internet customers in a
variety of data-intensive industries, such as advertising, financing services,
media, publishing and retail. Since initiating Internet services in December
1995, Globix has grown its customer base to over 800 large and medium size
business customer accounts, including Acclaim Entertainment, American Red Cross,
Bloomingdale's, BPI Communications (Billboard and Adweek), Dow Jones, General
Media International (Penthouse), Microsoft, National Hockey League, Nomura
Securities, Ogilvy & Mather, RealNetworks, Standard & Poors and Tishman Speyer
Properties. The Company believes it has benefitted from its large base of
business customers located in New York involved in the advertising and media
industries. Because many of these customers design websites and develop Internet
content
 

<PAGE>   8
for their clients, they are often in a position to refer their clients to Globix
for Internet access, web hosting and co-location services.

GLOBIX NETWORK INFRASTRUCTURE
 
Current Infrastructure.  Globix's current infrastructure is designed to provide
highly available Internet connectivity to its dedicated access, web hosting and
co-location customers. The Company operates an Internet Data Center in its
current New York City facility providing high bandwidth, highly reliable
connectivity to the Internet and other companies located within the New York
metropolitan area. Within the Internet Data Center, the Company deploys a
fully-redundant, high-speed, switched local area network (LAN). The Company's
current Internet Data Center is connected to the Internet by multiple DS-3 fiber
connections provided by UUNET, Cable & Wireless and Sprint, each connected to a
unique router. Utilizing these diverse feeds, the Company's network dynamically
routes traffic over the backbone provider best able to deliver the data in the
most efficient manner. The Company believes that direct connections to these
major backbone providers enables the Company to provide highly reliable service
levels even when one of the carriers suffers congestion or an outage. Globix
provides leased line connectivity to customers via Bell Atlantic's OC-12
synchronous optical network (SONET) ring and connects customer traffic to the
Internet through high speed dedicated leased lines. The Company also maintains
diverse ISDN circuits available to customers as a back-up to their dedicated
lines. The Company's New York facility contains a Network Operation Center,
staffed 24 X 7 by system engineers, who are responsible for monitoring the
performance of both the Company's network equipment and customer equipment.
 
Network Backbone Expansion.  The Company is currently establishing its own
network backbone to replace its existing leased bandwidth. The Company's network
backbone expansion is designed to offer greater reliability, improved
performance and additional functionality at a lower per unit data transmission
cost. The Company's network backbone will also connect its SuperPOP facilities
in New York City, London and the San Francisco Bay area, as well as the
Company's planned POPs in Chicago, Los Angeles and Washington, D.C. The Company
anticipates that its network backbone will become fully operational by June 30,
1999.
     In October 1998, the Company entered into an IRU agreement with Qwest,
under which the Company has the exclusive right to use portions of Qwest's
planned 18,449 mile MacroCapacity fiber network for a 20 year period. Globix
will initially have the right to use 6,500 route miles of OC-3 fiber capacity
coast-to-coast in the United States and a DS-3 fiber link from the United States
to the United Kingdom. The IRU agreement also provides Globix with the right
to further upgrade to OC-48 fiber capacity.
     The Company's SuperPOPs and POPs will have multiple, redundant and diverse
connections to both the Globix network backbone and local Internet exchange
points. Each SuperPOP and POP will be connected to the Globix network backbone
through diverse, redundant OC-3c links provided by both the incumbent local
telephone companies (ILECs), such as Pacific Bell, Bell Atlantic, Ameritech,
British Telecom and competitive local exchange carriers (CLECs), such as MFS and
Teleport. In addition, connectivity to the Internet exchange points will be
provided by multiple DS-3 or OC-3c links, provided by ILECs and CLECs. All lines
are strategically placed on different routers to avoid any
 
<PAGE>   9
single point of failure. Should any SuperPOP lose connectivity to either the
Globix network backbone or a local peering point, traffic will be immediately
and seamlessly routed over an alternative link.
 
     The Company's SuperPOPs and POPs under construction are located near and
connected to most of the major Internet peering points, including MAE-East,
MAE-West, Ameritech NAP and Sprint NAP. The Company's presence at these public
exchange points, combined with private connections to other ISPs, connect its
customers to the Internet. A combination of public and private peering
interconnections will allow the Company to achieve fast, reliable delivery of
content with limited latency. The Company is instituting a general policy of
keeping significant unutilized network capacity for its LAN, wide area network
(WAN) and public and private peering links to allow for spikes in demand or line
outages. The Company is actively pursuing both public and private peering
agreements.
 
     The Company is currently constructing a global operations center located at
the new SuperPOP in New York City. The global operations center will serve as
the command, control and communications center for all of the Company's Network
Operations Centers and POPs. The global operations center will be staffed 24 X 7
by distinct teams of individuals dedicated to maintaining the highest quality of
service. From the global operations center, the network administrators will
monitor Globix's entire network architecture from the Company's network backbone
to the end-user interface. The global operations center network administrators
will be able to efficiently identify and correct any network problems either by
direct action or by the activation of the system engineers located at any of the
Company's Network Operations Centers. The customer support facilities within the
global operations center will utilize state-of-the-art equipment and
technologies, including Automatic Call Distribution, Automatic Number
Identification and a database of customer information and history. The global
operations center's advanced network management and monitoring capabilities will
enable Globix to quickly identify and respond to potential problems or service
disruptions, often before a customer notices the problem.
 
CUSTOMER SUPPORT
 
     High quality customer service and support is critical to the Company's
objective of retaining and developing its customers. The Company has made
significant investments in customer service personnel and systems that enhance
customer care and service throughout the complete customer life cycle from order
entry and billing to selling of value-added services. As of November 30, 1998,
the Company's technical and customer service group consisted of 72 individuals.
To ensure consistency in the quality and approach to customer care, customer
care associates attend an extensive formal technical training and certification
program. In connection with its customer care initiatives, the Company seeks to
continuously improve systems that increase productivity and enhance customer
satisfaction. Globix is currently upgrading its customer support system and will
utilize a leading customer support trouble ticketing and workflow management
system from Remedy Corporation to tract, route and report on customer service
issues. A customer service specialist is assigned to each customer issue, and
acts as a liaison, tracking the customer issue to resolution. Network operations
can remotely service customer connections to the Company's network. In addition,
field service personnel are dispatched in the event of an equipment failure that
cannot be serviced remotely. As part of the Company's expansion strategy, the
Company is developing fully redundant network operations centers
 
                                      
<PAGE>   10
at its new SuperPOP facilities. Globix believes that the quality of its
technical and customer service group has been a major factor in its high
customer retention rate.
 
SALES AND MARKETING
 
     Globix has built its sales and marketing approach in an effort to respond
effectively to the growing opportunities in the corporate Internet market. The
Company seeks to combine the technical skills and experience of its direct sales
force with the sales and marketing resources available to it through its
strategic alliances with selected hardware and software manufacturer. As a
result, the Company offers its products and services to a broad and diverse
range of customers in its targeted markets.
 
     Direct Sales.  Globix maintains a direct sales force of Internet sales
consultants. Because they are locally based, these Internet sales consultants
are able to meet face-to-face with prospective customers to discuss their
Internet needs and technical requirements and develop tailored solutions. Direct
marketing tactics used include direct contacts with potential corporate accounts
by the Internet sales consultants and systems engineers, direct mail, inbound
and outbound telemarketing, seminars and trade show participation. The Company
has developed compensation and training programs to attract and train high
quality, motivated Internet sales consultants. As of November 30, 1998, Globix
had a direct sales force consisting of approximately 53 Internet sales
consultants.
 
     Strategic Alliances.  Globix has established a number of strategic
alliances with selected computer hardware and software manufacturers, including
Microsoft, Sun Microsystems, Check Point Software and RealNetworks, which give
the Company access to potential Internet service customers in the manufacturers'
customer base, while enabling the manufactures to offer their customers an
integrated package of hardware, software and Internet services and products. The
Company believes that these strategic alliances provide Globix the opportunity
to cost-effectively add new customers. The Company co-markets with these vendors
through direct mail programs, joint seminar development and joint trade show
involvement.
 
     Marketing.  Globix's marketing program is intended to build national and
local strength and awareness of the Globix brand. The Company uses radio and
print advertising in targeted markets and publications to enhance awareness and
acquire leads for the Company's direct sales team. The Company's print
advertisements are placed in trade journals, local technology sections of
newspapers and special-interest publications. The Company attempts to create
brand awareness by participating in industry trade shows such as PC Expo,
Internet and Electronic Commerce, and Internet World. The Company also uses
direct mailings, telemarketing programs, web marketing, co-marketing agreements
and joint promotional efforts to reach new corporate customers. The Company
attempts to retain its customers through active and responsive customer support
as well as by continually offering new value-added services.

COMPETITION
 
     The market served by the Company is intensely competitive, and such
competition is increasing. There are few substantial barriers to entry, and the
Company expects that it will face additional competition from existing
competitors and new market entrants in the future.
 
     The Company believes that a reliable network, a broad range of quality
products and services, a knowledgeable sales force and the quality of customer
care currently are the primary competitive factors in the Company's targeted
market and that price is generally


                                 

<PAGE>   11
secondary to these factors. The Company's
current and potential competitors in the market include: (i) other ISPs, and
(ii) global, regional, and local telecommunications companies.
 
     Other ISPs.  The Company's current and potential competitors in the market
include ISP's with a significant national or global presence which focus on
business customers, such as Concentric Network, PSINet and UUNET. Globix also
competes with national and regional ISPs which have facilities in the New York
metropolitan area, including Exodus, Frontier GlobalCenter, GTE Genuity, DIGEX
and Verio. While the Company believes that its level of customer service and
support and target market distinguish it from these competitors, many of these
competitors have greater financial, technical, and marketing resources, larger
customer bases, greater name recognition, and more established relationships in
the industry than the Company.
 
     Telecommunications Carriers.  Many long distance companies including AT&T,
Cable & Wireless, Sprint and MCI WorldCom offer Internet access services and
compete with the Company. Recent reforms in the federal regulation of the
telecommunications industry have created greater opportunities for ILECs and
CLECs to enter the Internet connectivity market. The Company believes that there
is a move toward horizontal integration by ILECs and CLECs through acquisitions
of or joint ventures with ISPs to meet the Internet connectivity requirements of
the business customers of long distance and local carriers. Accordingly, the
Company expects that it will experience increased competition from the
traditional telecommunications carriers. In addition to their greater network
coverage, market presence, and financial, technical, and personnel resources,
many of these telecommunications carriers also have large existing commercial
customer bases.
 
     Other Competitors.  Because the Company offers a broad range of goods and
services, it encounters competition from numerous businesses which provide one
or more similar goods or services. For example, Globix encounters competition
from numerous resellers of computer equipment and providers of video streaming.
Globix does not believe that any of the competitors in its target market offer
as broad a range of Internet products and services.
 
     While the Company believes that its ability to attract business customers
and to market value-added services is a key to its future success, there can be
no assurance that its competitors will not introduce comparable services or
products at similar or more attractive prices in the future or that the Company
will not be required to reduce its prices to match competition. Furthermore,
there can be no assurance that more of the Company's competitors will not shift
their focus to attracting business customers, resulting in even more competition
for the Company. There can be no assurance that the Company will be able to
offset the effects of any such competition or resulting price reductions.
Increased competition could result in erosion of the Company's market share and
could have a material adverse effect on the Company's business, financial
condition and results of operation.




                                  
<PAGE>   12
     (3)      Government Regulation

     There is currently only a small body of laws and regulations directly 
applicable to access to or commerce on the Internet. However, due to the 
increasing popularity and use of the Internet, it is possible that a number of 
laws and regulations may be adopted at the international, federal, state and 
local levels with respect to the Internet, covering issues such as user 
privacy, freedom of expression, pricing, characteristics and quality of 
products and services, taxation, advertising, intellectual property rights, 
information security and the convergence of traditional telecommunications 
services with Internet communications. Moreover, a number of laws and 
regulations have proposed and are currently being considered by federal, state 
and foreign legislatures with respect to such issues. The nature of any new 
laws and regulations and the manner in which existing and new laws and 
regulations may be interpreted and enforced cannot be fully determined. For 
example, in 1998, Congress passed and the president signed into law: (i) The 
Digital Millennium Copyright Act, which provides stronger copyright protection 
for software, music and other works on the Internet. Under this law, ISPs and 
website operators must register with the U.S. Copyright Office to avoid 
liability for infringement by their subscribers (ii) Child Online Protection 
Act (COPA), which makes illegal the communication of material that is harmful 
to minors on the world wide web for commercial purposes in such a manner as to 
be available to minors. COPA also contains a section that requires websites to 
obtain paternal consent before collecting information from children 12 and 
younger, (iii) Child Protection and Sexual Predator Punishment Act, which 
imposes stronger criminal penalties for using the Internet to solicit minors 
for sexual purposes and criminalizes sending obscene material to persons under 
the age of 16; and (iv) The Internet Tax Freedom Act, which provides a 
three-year moratorium on "discriminatory" taxes in order to give state and 
federal lawmakers time to develop a more comprehensive approach to Internet 
taxation. The adoption of any future laws or regulations might decrease the 
growth of the Internet, decrease demand for the services of the Company, impose 
taxes or other costly technical requirements or otherwise increase the cost of 
doing business or in some other manner have a material adverse effect on the 
Company or its customers, each of which could have a material adverse effect on 
the Company's business, results of operations and financial condition. In 
addition, applicability to the Internet of existing laws governing issues such 
as property ownership, copyrights and other intellectual property issues, 
taxation, libel, obscenity and personal privacy is uncertain. The vast majority 
of such laws were adopted prior to the advent of the Internet and related 
technologies and, as a result, do not contemplate or address the unique issues 
of the Internet and related technologies. Changes to such laws intended to 
address these issues, including some recently proposed changes, could create 
uncertainty in the marketplace which could reduce demand for the services of 
the Company or increase the cost of doing business as a result of costs of 
litigation or increased service delivery costs, or could in some other manner 
have a material adverse effect on the Company's business, results of operations 
and financial condition. Any such new legislation or regulation, or the 
application of laws or regulations from jurisdictions whose laws may not 
currently apply to the Company's business, could have a material adverse effect 
on Globix's business, financial condition or results of operations.

     The United Kingdom and the European Union have adopted legislation which 
has a direct impact on business conducted over the Internet and on the use of 
the Internet. For example, the United Kingdom Defamation Act of 1996 protects 
an ISP under certain circumstances, from liability for defamatory materials 
stored on its servers. The European Directive on the Protection of Consumers is 
expected to have a direct effect on the use of the Internet for commercial 
transactions and will create an additional layer of consumer protection 
legislation with respect to e-commerce. In addition, numerous other regulatory 
schemes are being contemplated by governmental authorities in both the United 
Kingdom and the European Union. As in the United States, there is uncertainty 
as to the enactment and impact of foreign regulatory and legal developments. 
Such developments may have a material and adverse impact on our business, 
financial condition and results of operations.

     (4)      Employees

     As of November 30, 1998, Globix employed approximately 188 full-time
employees. Of these, approximately 38 are administration, 78 are in sales and
marketing and 72 are in technical and customer service. In addition to its
full-time employees, Globix also employs part-time personnel from time to time
in various departments. None of Globix's employees are covered by a collective
bargaining agreement. Globix believes that its employee relations are
satisfactory.


Item 2.           Properties

     The Company currently leases approximately 32,000 square feet at 295
Lafayette Street, New York, New York. The facility currently houses the
Company's New York Internet Data Center and executive offices. When the
Company's new facilities become operational, the current New York facility will
be used for sales and administrative personnel. In July 1998, Globix, through
BLP Acquisition LLC, a New York limited liability company over 99% owned by
wholly-owned subsidiaries of Globix, purchased the land and the nine-story
building located at 139 Centre Street, New York, New York.
 
     In July 1998, Globix signed a triple net lease commencing January 15, 1999
to rent space in Santa Clara, California. In October 1998, Globix signed a lease
for the rental of space at Prospect House, 80 New Oxford Street, London,
England. Each of these facilities is currently under construction and will
ultimately house a SuperPOP, which will include an Internet Data Center, and
facilities for technical, sales and administrative personnel. Globix expects to
begin operations in the new facilities on a coordinated basis in June of 1999.

 
     The following sets forth additional information concerning the facilities:

<TABLE>
<CAPTION>
                                                      APPROXIMATE
                                  EXPIRATION DATE        NUMBER
LOCATION                             IF LEASED       OF SQUARE FEET
<S>                               <C>                <C>
295 Lafayette Street                   2007              32,000
New York, New York
139 Centre Street                 Not Applicable        160,000
New York, New York
2807 Mission College Boulevard         2014              62,000
Santa Clara, California
Prospect House                         2014              35,000
80 New Oxford Street
London, England
</TABLE>
 
<PAGE>   13

         The Company considers that, in general, its physical properties are
well maintained, in good operating condition and adequate for its purposes.

Item 3.           Legal Proceedings

         In January 1997, an action was commenced by Triumph Communications and
Fiber Services, Inc. in the  Supreme Court of the State of New York, County of
New York against General Media International Inc., the Company and two
individuals. The Complaint alleges that the Company tortiously interfered with
the plaintiff's contractual and business relations with General Media
International Inc. and seeks unspecified damages. The litigation is in the
pre-trial discovery phase. The Company believes it has meritorious defenses and
intends to vigorously contest the claim.

Item 4.           Submission of Matters to a Vote of Security Holders

         During the fourth quarter of the Company's fiscal year ended September
30, 1998 there were no matters submitted to a vote of security holders.
<PAGE>   14
                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

                  (a) The Company's Common Stock is traded on the NASDAQ
SmallCap Market System. The following table indicates high and low sales
quotations for the periods indicated based upon information supplied by NASDAQ,
Inc. Such over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.


<TABLE>
<CAPTION>
                  1997                                        Low                       High
                  ----                                        ---                       ----
<S>                                                          <C>                       <C>
                  first quarter                              $8  1/2                    $10 1/4
                  second quarter                              9  5/8                     13 3/4
                  third quarter                               9  7/8                     13 7/8
                  fourth quarter                              5 9/16                     11 3/8
</TABLE>

<TABLE>
<CAPTION>
                  1998                                        Low                       High
                  ----                                        ---                       ----
<S>                                                          <C>                       <C>
                  first quarter                              $4                        $ 9 3/16
                  second quarter                              4  3/8                    12
                  third quarter                               9 1/16                    15 15/16
                  fourth quarter                              5 3/16                    14  5/16
</TABLE>



                  (b) Number of Holders of Common Stock. The number of holders
of record of the Company's Common Stock on December 18, 1998 was 41, which does
not include individual participants in security position listings.

                  (c) Dividends. There were no dividends or other distributions
made by the Company during the fiscal year ended September 30, 1998. Under the
terms of the Senior Notes discussed above, the Company's ability to pay
dividends is contractually limited. It is anticipated that cash dividends will
not be paid to the holders of the Company's Common Stock in the foreseeable
future.

Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations

      The following discussion and analysis should be read together with the
consolidated financial statements and notes to such statements and notes
appearing elsewhere herein.

      Globix was founded in 1989 as a value-added reseller, or VAR, primarily
focused on providing custom computer hardware and software solutions for desktop
publishing. By 1995, Globix recognized the growing demand by businesses for
electronic information delivery and began to re-shape its corporate strategy to
focus on offering Internet products and services. In early 1996, the Company
raised net proceeds of approximately $7.4 million through a public offering of
its common stock and subsequently, began to offer Internet access products and
services to business customers. By the end of 1996, the Company had grown its
Internet customer base to over 80 business accounts. In 1997, Globix expanded
its product and service offerings beyond Internet access and began to offer a
range of end-to-end Internet solutions designed to enable its customers to more
effectively capitalize on the Internet as a business tool. These solutions
include web hosting, co-location, systems administration and web site
management, and value-added Internet services such as e-commerce, streaming
media, network security and web development. As of November 30, 1998, Globix's
customer base for Internet products and services had grown to over 800 large and
medium size business customer accounts.
 
      In 1998, the Company undertook a major expansion plan in order to more
aggressively pursue web hosting and co-location customers and other related
opportunities. In April 1998, the Company completed a $160.0 million debt
financing to fund the expansion of its physical facilities and the acquisition
and build-out of its network backbone. The Company is currently constructing new
state-of-the-art SuperPOP facilities in New York City, London and the San
Francisco Bay area. The new SuperPOPs will increase the Company's total Internet
Data Center capacity to approximately 63,000 square feet. These facilities are
expected to be operational by June 30, 1999. In October 1998, the Company
entered into an IRU agreement with Qwest which gives the Company exclusive
rights to use portions of Qwest's global network for a 20 year period. The
Company will initially have the right to use 6,500 route miles of OC-3 fiber
capacity (upgradable to OC-48) coast-to-coast in the United States and a DS-3
fiber link from the United States to the United Kingdom. The completion of the
Company's network backbone, which includes the Qwest bandwidth, is expected to
significantly increase the Company's network capacity and enable the Company to
offer a wider variety of higher-speed Internet and Internet-related products and
services to a larger customer base. The Company is also establishing POPs in
Washington DC, Chicago and Los Angeles as part of a planned program of
establishing POPs in other major business centers in the United States and
Europe.
 
      Commencing with 1996, Globix began segment reporting of its results of
operations into two divisions: (i) the "Internet Division" and (ii) the "Server
Sales and Integration Division." The Internet Division provides dedicated
Internet access, web hosting, co-location, value-added solutions (such as
e-commerce, streaming media, network security and web development), and
instructor-led corporate training. The Server Sales and Integration Division
provides Internet-related hardware and software sales and systems and network
integration. Over the last three years, revenues from the Internet Division have
grown significantly as a percentage of total revenue from 6.2% to 31.3%. Globix
expects that the Internet Division revenues will continue to grow as a
percentage of total revenues.
 
      The Company continues to derive a majority of its total revenues from
sales of third-party hardware and software, including workstation web and
database servers, network equipment, and server and application software. Globix
intends to continue to offer higher-margin workstation, server and software
components as a complement to its Internet solutions. The Company maintains a
limited inventory of hardware and software and typically purchases such products
from third-party vendors only after receipt of a customer order. The second
largest component of Globix's total revenues is derived from providing dedicated
Internet access services to business customers. The Company's Internet access
customers typically sign one or two-year contracts that provide for fixed,
monthly-recurring service fees and a one time installation fee. The Company also
derives revenues from web hosting and co-location services based upon its
customers' bandwidth requirements, including charges for fixed amounts of
bandwidth availability and incremental fees for additional bandwidth use. In
addition to fees based on bandwidth, the Company charges its co-location
customers monthly fees for the use of its physical facilities. The Company's web
hosting and co-location contracts typically range from one to two years.
Value-added Internet solutions are charged on a fixed price or time and
materials basis. Corporate training services are charged based on the length and
size of the class and the complexity of the content and class materials
required.
 
      Cost of revenues for the Server Sales and Integration Division consist
primarily of acquisition costs of third-party hardware and software. Cost of
revenues for the Internet Division consist primarily of telecommunications costs
for Internet access, web hosting and co-location customers and direct labor
costs for web-site development, value-added solutions and corporate training.
Telecommunications costs include the cost of providing local telephone lines
into the Company's SuperPOP, costs related to the use of third-party networks,
and costs associated with leased lines. The Company anticipates that, in the
near term, its data transmission costs will substantially increase because of
higher network operating and maintenance and depreciation charges associated
with the expansion of the Company's network backbone and the acquisition of the
right to use the Qwest bandwidth. As utilization of the network backbone
increases in future years, the Company expects to realize a substantial
reduction in per unit data transmission costs due to the network's scaleability
and fixed cost structure. Cost of revenues for web development and value-added
solutions consist of labor and overhead costs for the personnel performing the
services, including the cost of project management, quality control and project
review. Cost of revenues for corporate training consist of labor and overhead
costs for the training courses, including in-house and contract instructors and
the cost to develop and produce course materials.
 
      Selling, general and administrative expenses consist primarily of sales
and marketing personnel and related occupancy costs; advertising costs; salaries
and occupancy costs for executives, financial and administrative personnel; and
personnel and related operating expenses associated with network operations,
customer care and field services. The Company has recently hired a number of
members of its senior management. The Company is in the process of hiring a
significant number of additional personnel to staff its three new SuperPOP
facilities and to expand its sales and marketing, network operations, customer
care and field services personnel. Accordingly, the Company expects selling,
general and administrative expenses to continue to significantly increase for
the foreseeable future.
 
      Depreciation and amortization expenses are expected to increase
significantly beginning in fiscal 1999. The Company depreciates its capital
assets on a straight line basis over the useful life of the assets, ranging from
5 to 40 years. In addition, the Company is amortizing debt issuance costs of
$6.6 million relating to its $160.0 million debt financing over seven years. The
Company has not recognized any depreciation expense for the year ended September
30, 1998 for its new SuperPOPs in New York, London and the San Francisco Bay
area. The facilities are currently under construction and the Company will begin
recognizing depreciation expense for them upon completion, which is expected by
June 30, 1999.
 
      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
the Company's ability to continue to grow its revenue base and achieve further
operating efficiencies. For the years ended September 30, 1996, 1997 and 1998,
the Company generated operating cash flows of approximately $(1.9) million,
$(2.5) million and $115,000, respectively, and incurred net losses of
approximately $1.9 million, $3.1 million and $11.2 million, respectively. The
Company expects to experience negative cash flow from operations and to incur
net losses as a result of its significant investment in the expansion of its
physical facilities, the establishment of its network backbone, the hiring of
additional personnel and the interest expense in connection with the $160.0
million debt financing. The Company believes that its new SuperPOPs and network
backbone infrastructure will enable it to achieve further economies of scale as
it continues to expand its customer base. However, there can be no assurance
that the Company will be able to realize sufficient future revenues to offset
its present investment in its physical facilities, network backbone and the
hiring of additional personnel, or that it will be able to achieve or sustain
revenue growth, positive cash flow or profitability in the future. As of
September 30, 1998, the Company had generated an accumulated deficit of
approximately $16.2 million.

SEGMENT INFORMATION
 
     The Company's activities fall within two reporting segments: the Internet
Division and the Server Sales and Integration Division. The following table sets
forth segment information for the years ended September 30, 1998 and 1997:


<TABLE>
<CAPTION>
                                                    Year Ended September 30,
                                                    ------------------------
                                                    1998                1997
                                                    ----                ----
                                                         (In thousands)
<S>                                             <C>             <C>
Revenues: Internet..............................  $  6,447,504      $ 2,413,538
 Server sales and integration...................    14,147,429       14,986,417
                                                  ------------      -----------
     Consolidated...............................  $ 20,594,933      $17,399,955
                                                  ============      ===========
Operating income (loss):
     Internet...................................  $  1,145,068      $   (84,632)
 Server sales and integration...................       721,125         (378,647)
                                                  ------------      ------------
     Consolidated(1)............................  $ (4,733,404)     $(3,010,234)
                                                  ============      ============
Identifiable assets:
     Internet...................................  $  7,808,987      $ 2,105,207
 Server sales and integration...................     3,731,505        5,781,580
                                                  ------------      -----------
     Consolidated(2)............................  $182,266,372      $11,024,988
                                                  ============      ============
 </TABLE>

(1)  Includes unallocated corporate overhead of $6,599,597 and $2,546,955,
     respectively, for the years ended September 30, 1998 and 1997. Such amounts
     include executive salaries of $823,662 and $616,034, respectively, for the
     years ended September 30, 1998 and 1997, as well as rent, payroll charges
     for administrative staff and professional fees.

(2)  Includes corporate assets not allocable to a particular segment of
     $170,725,880 and $3,138,201 for the years ended September 30, 1998 and
     1997, respectively.





YEAR ENDED SEPTEMBER 30, 1998 AS COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1997
 
     Revenues.  Total revenues for the year ended September 30, 1998 increased
18.4% to $20.6 million from $17.4 million for the year ended September 30, 1997.
Revenues from the Server Sales and Integration Division for the year ended
September 30, 1998 decreased 5.6% to $14.1 million from $15.0 million for the
year ended September 30, 1997. This decrease was primarily attributable to lower
unit sales partially offset by a planned shift in product mix toward higher
priced and higher margin products. Revenues from the Internet Division increased
167.1% to $6.4 million for the year ended September 30, 1998 from $2.4 million
for the year ended September 30, 1997. This increase was primarily attributable
to an increase in the number of customers to which the Company provided Internet
connectivity. The increase in percentage of Internet Division revenues as a
percentage of total revenues reflected the Company's shift in product mix toward
Internet related sales.
 
     Cost of Revenues.  Cost of revenues for the year ended September 30, 1998
was $13.3 million or 64.7% of total revenues as compared to $13.7 million or
78.7% of total revenues for the year ended September 30, 1997. The decrease in
cost of revenues in absolute dollars and as a percentage of total revenues was
primarily a result of an increase in higher margin Internet revenues as a
percentage of total revenues.
 
     Selling, General and Administrative.  Selling, general and administrative
expenses for the year ended September 30, 1998 were $10.7 million or 51.9% of
total revenues as compared to $6.0 million or 34.7% of total revenues for the
year ended September 30, 1997. This increase in absolute dollars and as a
percentage of total revenues was primarily attributable to an increase in sales
and marketing, engineering, training and administration personnel necessitated
by the growth in Internet-related operations. The number of employees increased
from 90 as of September 30, 1997 to approximately 170 as of September 30, 1998.
The Company increased expenditures in advertising from $325,000 for the year
ended September 30, 1997 to $1.3 million for the year ended September 30, 1998.
 
     Interest and Financing Expense and Interest Income.  The increase in
interest expense is a result of the $160.0 million debt financing completed in
April 1998. The increase in interest income reflects the increased cash position
derived from the net proceeds of the debt financing. The Company is amortizing
debt issuance costs of $6.6 million relating to the $160.0 million debt
financing over seven years.
 
     Depreciation and Amortization.  Depreciation and amortization increased to
$1.3 million for the year ended September 30, 1998 as compared to $675,000 for
the year ended September 30, 1997. The increase was primarily related to
equipment purchased for use in the Internet Division during the year ended
September 30, 1998.
 
     Net Loss and Loss per Share.  As a result of the above, the Company
reported a net loss of $11.2 million or $3.08 per share for fiscal 1998 as
compared to a net loss of $3.1 million or $1.01 per share for the year ended
September 30, 1997.
<PAGE>   15
LIQUIDITY AND CAPITAL RESOURCES

     Since inception, the Company has satisfied its cash requirements through a
combination of public and private sales of equity, borrowings from institutional
and private lenders, and cash flow from operations. In January 1996, the Company
completed an initial public offering of 1,279,642 shares of its common stock and
661,250 redeemable common stock purchase warrants (the IPO Warrants) to purchase
an additional 661,250 shares of common stock. The net proceeds of the public
offering were approximately $7.4 million. In September 1997, the Company
completed a private placement of 400,000 shares of common stock with net
proceeds to the Company of $2.0 million. On April 30, 1998, Globix issued
160,000 Units for aggregate gross proceeds of $160.0 million. Each Unit included
a note in the principal amount of $1,000 and one warrant entitling the holder
thereof to purchase 3.52 shares of common stock at an exercise price of $14.03
per share. The maturity date of the notes is May 1, 2005. Interest on the notes
accrues at the rate of 13.0% per annum and is payable semi-annually on May 1 and
November 1 of each year. Upon issuance of the notes, Globix deposited with an
escrow agent an amount of cash and U.S. government securities (approximately
$57.0 million), that, together with the proceeds from the investment thereof,
were estimated to be sufficient to pay when due the first six interest payments
on the notes, with any balance to be returned to Globix. The notes are
collateralized by a first priority security interest in such escrow account. In
July 1998, the Company called the outstanding IPO Warrants for redemption.
Substantially all of the IPO Warrants were exercised and the net proceeds to the
Company were approximately $4.3 million.
 
     Cash, cash equivalents and marketable securities increased from $2.4
million as of September 30, 1997 to $76.1 million as of September 30, 1998. This
increase of approximately $73.7 million was primarily the result of the proceeds
of the debt financing, offset by the $60.5 million of restricted cash and
investments (which consists of approximately $57.0 million held in escrow plus
interest), $15.3 million paid for the land and building which will house the new
New York SuperPOP facility and $8.0 million for the purchase of other equipment
necessary to expand Internet operations.
 
     At September 30, 1998, the Company had working capital of approximately
$75.9 million, as compared to working capital of approximately $2.0 million at
September 30, 1997. Working capital increased primarily because of the $160.0
million debt financing partially offset by the net loss of $11.2 million
(including $1.3 million of non-cash depreciation and amortization expense).
Working capital was reduced by $50.2 million held as the long-term portion of
restricted cash and investments to fund interest payments on the notes. In
addition working capital was reduced by $17.0 million relating to the
acquisition by the Company of the land and building which will house the New
York SuperPOP facility. At September 30, 1998, the Company also carried a
long-term liability of $2.6 million in connection with such acquisition.
 
     The Company maintains a $1.0 million credit line from Cisco Systems Capital
Corporation (CSC) to lease products and associated peripherals from CSC. The
terms of this line, which was entered into in December 1997, provided for 180
days of borrowing and a maximum borrowing limit of $1.0 million. However, CSC
has informally permitted the Company to continue to borrow under this line and
to exceed the stated $1.0 million limit. Amounts borrowed under the line are to
be repaid over a 36 month period with the Company having the option of
purchasing the equipment for $1.00 at the end of the lease term. As of September
30, 1998, approximately $945,000 was outstanding under this credit line.
 
     The Company refinanced certain of its furniture and computer equipment in
April 1997 in the amount of approximately $874,000 from Finova Capital
Corporation. Such loan is for a term of three years, bears interest at 12.2% per
annum and is self-liquidating over its term. As of September 30, 1998,
approximately $524,000 was outstanding under this loan.
 
     The Company has entered into leases for various items of its office
furniture and equipment as well as for its telephone system accounted for as
capital leases. The terms on these leases vary from 36 to 60 month terms.
 
     As of September 30, 1998, the Company had spent approximately $2.5 million
to construct and equip its three new SuperPOP facilities. The Company estimates
that it will spend an additional $47.5 million to complete the SuperPOPs and
$16.0 million to complete its network backbone. In addition, the Company has an
option from Qwest to maintain the capacity of its domestic network backbone at
OC-3 bandwidth levels for the balance of the 20 year term of its agreement for
an additional payment of $15.0 million. The Company can exercise this option at
any time prior to December 31, 1999. If the Company were to choose not to
exercise this option, its domestic network backbone would be reduced to DS-3
capacity. The Company expects its new SuperPOP facilities and network backbone
to become operational by June 30, 1999.
<PAGE>   16
         In the opinion of management, the Company will be able to finance its
     business as currently conducted and as currently planned from its current
     working capital at least through fiscal 1999.

     YEAR 2000 COMPLIANCE

         Many currently installed computer systems and software products are
     coded to accept or recognize only two digit entries in the date code field.
     These systems and software products will need to accept four digit entries
     to distinguish 21st century dates from 20th century dates. As a result,
     computer systems and/or software used by many companies and governmental
     agencies may need to be upgraded to comply with such Year 2000 requirements
     or risk system failure or miscalculations causing disruptions of normal
     business activities.

     State of Readiness. Globix has made a preliminary assessment of the Year
     2000 readiness of its information technology ("IT") systems, including the
     hardware and software that enable Globix to provide and deliver its
     solutions, and its non-IT systems. Globix's plan consists of (i)
<PAGE>   17
     quality assurance testing of its internally developed proprietary software
     and systems; (ii) contacting third-party vendors and licensors of material
     hardware, software and services that are both directly and indirectly
     related to the delivery of Globix's solutions to its customers; (iii)
     contacting vendors of material non-IT systems; (iv) assessment of repair or
     replacement requirements; (v) repair or replacement; (vi) implementation;
     and (vii) creation of contingency plans in the event of Year 2000 failures.
     Globix plans to perform a Year 2000 simulation on its software during the
     second quarter of fiscal 1999 to test system readiness. Based on the
     results of its Year 2000 simulation test, Globix intends to revise the code
     of its software and systems as necessary to improve the Year 2000
     compliance of its software. Globix has been informed by its vendors of
     material hardware and software components of its IT systems that the
     products used by Globix are currently Year 2000 compliant. The Company is
     currently assessing the materiality of its non-IT systems and will seek
     assurances of Year 2000 compliance from providers of material non-IT
     systems. Until such testing is complete and such vendors and providers are
     contacted, Globix will not be able to completely evaluate whether its IT
     systems or non-IT systems will need to be revised or replaced. The Company
     plans to complete this phase of its Year 2000 evaluation during the first
     half of 1999.

     Costs. To date, Globix has not incurred any material expenditures in
     connection with identifying or evaluating Year 2000 compliance issues. Most
     of its expenses have related to, and are expected to continue to relate to,
     the operating costs associated with time spent by employees in the
     evaluation process and Year 2000 compliance matters generally. At this
     time, the Company does not possess the information necessary to estimate
     the potential costs of revisions to its software and systems should such
     revisions be required or the replacement of third party software, hardware
     or services that are determined not to be Year 2000 compliant. Although the
     Company does not anticipate that such expenses will be material, such
     expenses, if higher than anticipated, could have a material adverse effect
     on Globix's business, results of operations and financial condition.

     Risks. Globix is not currently aware of any Year 2000 compliance problems
     relating to its IT or non-IT systems that would have a material adverse
     effect on Globix's business, results of operations and financial condition.
     There is no assurance that the Company will not discover Year 2000
     compliance problems in its software and systems that will require
     substantial revisions. In addition, there is no assurance that third party
     software, hardware or services incorporated into Globix's material IT and
     non-IT systems will not need to be revised or replaced, all of which could
     be time consuming and expensive. The failure of Globix to fix its
     proprietary software or to fix or replace third-party software, hardware or
     services on a timely basis could result in lost revenues, increased
     operating costs and the loss of customers and other business interruptions,
     any of which could have a material adverse effect on Globix's business,
     results of operations and financial condition. Moreover, the failure to
     adequately address Year 2000 compliance issues in its IT and non-IT systems
     could result in claims of mismanagement, misrepresentation or breach of
     contract and related litigation, which could be costly and time-consuming
     to defend.

         In addition, there can be no assurance that governmental agencies,
     utility companies, telecommunication companies, other Internet service
     providers, third party service providers, hardware and software
     manufacturers and others outside Globix's control will be Year 2000
     compliant. The failure by such entities to be Year 2000 compliant could
     result in a systemic failure beyond the control of the Company, such as a
     prolonged Internet, telecommunications or electrical failure, which could
     also prevent Globix from delivering its services to its customers, decrease
     the use of the Internet or prevent users from accessing the web sites of
     its customers. Any of these occurrences could have a material adverse
     effect on Globix's business, results of operations and financial condition.

     Contingency Plan. As discussed above, the Company is engaged in an ongoing
     Year 2000 assessment and has not yet developed any contingency plans. The
     results of Globix's Year 2000 simulation testing and the responses received
     from third-party vendors and service providers will be taken into account
     in determining the nature and extent of any contingency plans.
<PAGE>   18
     INTRODUCTION OF THE EURO

         On January 1, 1999, eleven of the fifteen member countries of the
     European Union are scheduled to establish fixed conversion rates between
     their existing sovereign currencies and a new currency called the "Euro."
     These countries have agreed to adopt the Euro as their common legal
     currency on that date. The Euro will then trade on currency exchanges and
     be available for non-cash transactions. Thereafter and until January 1,
     2002, the existing sovereign currencies will remain legal tender in these
     countries. On January 1, 2002, the Euro is scheduled to replace the
     sovereign legal currencies of these countries.

         Globix's initial international expansion will be in the United Kingdom,
     which has not adopted the Euro. The Company will evaluate the impact the
     implementation of the Euro will have on its business operations and no
     assurances can be given that the implementation of the Euro will not have
     material adverse affect on the Company's business, financial condition and
     results of operations. However, the Company does not expect the Euro to
     have a material effect on its competitive position. In addition, the
     Company cannot accurately predict the impact the Euro will have on currency
     exchange rates or the Company's currency exchange risk.

Item 7.  Financial Statements

         Financial Statements Data are attached hereto following page F-2.

Item 8.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure

         During fiscal years 1998 and 1997 there were no changes in or
disagreements with the Company's principal independent accountant on accounting
or financial disclosure.
<PAGE>   19
                                    PART III

Item 9.  Directors and Executive Officers of the Company

                  As of December 31, 1998, the Company's directors and executive
officers were as follows:

<TABLE>
<CAPTION>

                                            Position With the Company                   Held Office
Name and Age                                and Principal Occupation                    since
------------                                ------------------------                    -----
<S>                                         <C>                                         <C>
Marc H. Bell, 31                            Chairman (Chief Executive                   1989
                                            Officer) and Director

Robert B. Bell, 59                          Executive Vice President,                   1994
                                            Chief Financial Officer, Director

Tsuyoshi Shiraishi, 54                      Director                                    1995

Martin Fox, 62                              Director                                    1995

Dr. Richard Videbeck, 75                    Director                                    1995

Anthony St. John, 41                        Director                                    1997

Sid Paterson, 57                            Director                                    1998

Marc Jaffe, 31                              Senior Vice-President, Operations           1997

Alan Levy, 36                               Treasurer, Chief Accounting Officer         1997
</TABLE>

                               Business Experience

         Marc H. Bell has been the President and Chief Executive Officer since
he founded the Company in 1989. Since re-focusing the Company on
Internet-related sales, Mr. Bell has appeared on numerous television broadcasts
and has been frequently quoted in numerous national publications regarding
Internet-related topics. Mr. Bell has a B.S. degree in accounting from Babson
College and an M.S. degree in Real Estate Finance from New York University. Mr.
Bell is the son of Robert B. Bell. Mr. Bell is a member of the Board of
Directors of Cybernet Data Systems, Inc., the "publisher" of the web site
Edgar-on-Line.com.

         Robert B. Bell has served as Executive Vice President and Chief
Financial Officer of the Company since 1994. Mr. Bell is also the Managing
Director of the Company's UK subsidiary, Globix Limited. Prior to joining the
Company, Mr. Bell spent three years at Coopers & Lybrand. Thereafter, he was a
practicing attorney in New York City at the firm of Bell, Kalnick, Beckman, Klee
and Green, which Mr. Bell founded in the early 1970s, and specialized in the law
of international real estate joint ventures and investment. He is the author of
Joint Ventures in Real Estate published by John Wiley & Sons. Prior to 1994, 
Mr. Bell was for many years an Adjunct Professor at New York University. Mr. 
Bell is the father of Marc H. Bell. Mr. Bell has a B.S. degree from New York 
University and a J.D. degree from the University of California at Berkeley.


         Tsuyoshi Shiraishi has been a director of the Company since July 1994.
Mr. Shiraishi has been the Chairman of Century World PTE Ltd., an investment
consulting firm, and the Managing Director of Harpoon since 1992. From 1990 to
1994, Mr. Shiraishi was the Director of Marketing & Investment for Kajima
Overseas Asia PTE Ltd., a subsidiary of Kajima Corporation, an international
construction company, since 1990. In addition, since 1990, Mr.
<PAGE>   20
Shiraishi has been Vice Chairman of Century International Hotels, which operates
and manages 21 hotels in the Pacific Rim. He is the sole shareholder of Harpoon,
which is a major shareholder of the Company. Mr. Shiraishi is a Japanese citizen
and a resident of Singapore.

         Martin Fox has been a director of the Company since October 1995. Mr.
Fox has been, for more than five years, the President and a director of Initio,
Inc., a publicly owned e-commerce and catalogue specialty retailer of consumer 
products.

         Richard Videbeck has been a director of the Company since October 1995.
Since 1983, Dr. Videbeck has been an independent consultant in consumer risk
analysis, particularly for retailers and banks. From 1974 until 1986 Dr.
Videbeck was a professor of sociology at the University of Illinois at Chicago.
From 1974 until 1977, Dr. Videbeck was the Dean of the Doctor of Arts Program of
the Graduate College of the University of Illinois at Chicago.

         Anthony St. John, Lord St. John of Bletso has been a director of the
Company since October 1997. Since 1978, Lord St. John has served as a sitting
member of the House of Lords of the Parliament of the United Kingdom and an
Extra Lord-in-Waiting to Her Majesty the Queen. He is also a member of The House
of Lords' European Union Sub-Committee on Economic and Financial Affairs, Trade
and External Relations. Since 1993, he has served as a consultant to Merrill
Lynch and is a Registered Representative of the London Stock Exchange. He is
also a director of Globix Limited and its Director of Business Development. He
received his BA and BSC from Capetown University and LLB from the University of
South Africa and an LLM (Masters of Law) from the London School of Economics. He
qualified as an attorney/solicitor in Capetown, South Africa.

         Sid Paterson has been President and Chief Executive Officer of Sid
Paterson Advertising Inc., for more than five years.

         Marc Jaffe, Senior Vice President, Operations, joined the Company in
January 1995, Mr. Jaffe had extensive experience in the use of computers and
telecommunications in the advertising and marketing industry. Mr. Jaffe recently
developed an Internet-focused marketing strategy that won the prestigious
CreaTech Award, presented by Advertising Age magazine, and has spoken at
numerous Internet conferences. Prior to joining Globix, Mr. Jaffe was a
department manager at Sid Paterson Advertising Inc. in New York City which he
joined in 1989. Mr. Jaffe graduated from Colgate University in 1989, where he
received a Bachelor of Arts Degree.


         Alan Levy, Treasurer and Chief Accounting Officer joined the Company in
February 1997. From March 1994, to February 1997, Mr. Levy was the Assistant to
the Vice President of Finance of Del Laboratories, Inc., a manufacturer and
wholesaler of cosmetics and over-the-counter pharmaceuticals. From August 1990
to March 1994, Mr. Levy was a Technical Manager with the American Institute of
Certified Public Accountants. Prior to August 1990, Mr. Levy was a manager for
Ernst & Young. He is a Certified Public Accountant and received his Bachelor's
degree in Public Accounting from Long Island University, C.W. Post Campus.

The Securities and Exchange Commission has adopted rules relating to the filing
ownership reports under Section 16 (A) of the Securities Exchange Act of 1934.
One such rule requires disclosure of filings which under the Commission's rules,
are not deemed to be timely. During its review, the Company discovered that Mr.
Marc H. Bell and Mr. Robert Bell did not file timely each, regarding the
conversion of 50 IPO warrants into common stock and Mr. Jaffe regarding the
conversion of 100 IPO warrants into common stock.

<PAGE>   21
Item 10. Executive Compensation

         The following table sets forth compensation paid to executive officers
whose compensation was in excess of $100,000 for any of the three fiscal years
ended September 30, 1998. No other executive officers received total salary and
bonus compensation in excess of $100,000 during any of such fiscal years.

                           SUMMARY COMPENSATION TABLE

Annual Compensation and Grant of Stock Options

<TABLE>
<CAPTION>
Name and
Principal Position                              Year       Salary        Options
------------------                              ----       ------        -------
<S>                                             <C>       <C>            <C>
Marc H. Bell                                    1998      $250,000       211,500
President and Chief                             1997       200,000            --
Executive Officer                               1996       165,000            --


Robert B. Bell                                  1998      $151,042        30,000
Executive Vice President and                    1997       125,000        90,000
Chief Financial Officer                         1996       100,504        

Marc Jaffe                                      1998      $133,250        50,000
Vice President - Internet Services              1997        89,000        25,000
                                                1996        64,083         5,000

William T. Jahnke                               1998      $100,000        10,000
Vice President - Server and                     1997        82,800        12,000
Workstation Sales and Service                   1996        80,000         6,000

Scott Safran                                    1998      $107,203        20,000
Vice President - Training and                   1997        60,547         5,000
Interactive Development                         1996        17,385            --
</TABLE>

         Compensation of Directors

         Under the 1995 Stock Option Plan, each non-employee director of Globix 
who does not beneficially own more than 5% of Globix's outstanding common stock
was entitled to receive annually (on the first day of Globix's fiscal year or
the first day of the term of directorship), options to purchase a total of 3,000
shares of common stock. Such options are immediately exercisable, have a
ten-year term, subject to certain restrictions, and are exercisable at the
market price of the common stock at the date of the grant. Messrs. Fox and
Videbeck each received option grants for 3,000 shares of common stock at a price
of $7.00 per share and $8.625 per share on October 1, 1995 and October 1, 1996,
respectively. In September 1997, such options were re-priced at $6.125 per share
and remain outstanding.
 
         Under the 1998 Stock Option Plan, each non-employee Board member who 
is considered a "Non-Employee Director" under Rule 16b-3 of the Securities
Exchange Act of 1934 will be granted an option to purchase shares of common
stock on the earlier of (i) the first day of Globix's fiscal year or (ii) the
first day of his or her term as director. The option will become exercisable in
full 12 months after the date of grant. The exercise price per share of each
such option will be the market price per share of common stock on the option
grant date. Each option will have a maximum term of ten years, subject to
earlier termination following the optionee's cessation of Board service.
Pursuant to this program, Mr. Fox, Dr. Videbeck, Lord St. John and Mr. Paterson
each received option grants for 10,000 shares of common stock at a price of
$6.25 per share on October 1, 1998. In addition, in March 1998, Mr. Fox, Dr.
Videbeck and Mr. Paterson each received options to purchase a total of 10,000
shares of common stock at a price of $6.50 per share, the market price of the
underlying shares on the date of the grant, which became exercisable in
September 1998.
 
         In addition, at the discretion of the Board of Directors, directors 
may be reimbursed for reasonable travel expenses in attending Board and
committee meetings. In October 1997, Lord St. John received options to purchase
a total of 10,000 shares of common stock at a price of $7.25 per share (the fair
market value of the underlying shares on the date of grant) in lieu of receiving
any cash compensation. During the year ended September 30, 1998, Mr. Fox
received $10,195 in consulting fees from the Company.

Employment Contracts

         The Company and Marc H. Bell are parties to an employment agreement, 
dated as of April 10, 1998, which expires on June 30, 2005. The employment 
agreement provides for a base salary of $350,000 per year, increasing annually 
at the rate of 5% per year starting October 1, 1999. In addition, beginning on 
June 30, 1999, Mr. Bell is entitled to receive an annual bonus equal to 10,000 
times the increase, if any, of the per share market price of the Company's 
common stock on June 30 of the current year over the highest per share market 
price of the Company's common stock on each July 1 during the term of the 
agreement.

         Pursuant to the terms of the employment agreement, Mr. Bell is 
entitled to receive stock options from the Company. In March 1998, Mr. Bell 
received stock options to purchase (i) 69,500 shares of common stock at an 
exercise price of $7.15 per share and (ii) 142,000 shares of common stock at an 
exercise price of $6.50 per share upon the closing of certain financing for the 
Company. In addition, as of September 30 of each fiscal year, if there is an 
increase in the total shares of common stock outstanding of the Company due to 
an equity offering or acquisition, Mr. Bell is entitled to receive a stock 
option to purchase shares of common stock equal to 25% of such increase, at an 
exercise price at least equal to the fair market price of the Company's common 
stock.

         In September 1998, Mr. Bell borrowed $155,000 from the Company. The 
loan matures five years after the date made and bears interest at the rate of 
8.0% per annum. Interest which accrues during the first two years of the loan 
is not payable until the end of such two year period.

         Pursuant to the terms of Mr. Bell's previous employment agreement, he 
borrowed a total of $145,408 from the Company during 1997. The loan is due in 
2002 and bears interest at the rate of 8.75% per annum.
<PAGE>   22
Company granted Mr. Bell options to purchase 142,000 shares of Common Stock at a
purchase price of $6.50 per share and 69,500 shares of Common Stock at a
purchase price of $7.15 per share. 155,900 of such stock options are currently
exercisable. The Company has also purchased a key person life insurance policy
on Mr. Bell in the amount of $1,000,000. The Company is the sole beneficiary of
such policy.

         Effective June 1, 1998, the Company terminated Mr. Bell's former
employment agreement and entered into a new employment agreement, which will
terminate on June 30, 2005. The new employment agreement provides for a base
salary of $350,000 per year, increasing annually at the rate of 5% starting
October 1, 1999. In addition, Mr. Bell will receive an annual bonus equal to
10,000 times the increase, if any, of the fair market value per share of the
Company's Common Stock measured during the 12-month period ending on June 30 of
each year of the agreement, commencing with the year beginning July 1, 1998. Mr.
Bell will also be entitled to receive stock options to purchase that number of
shares as shall equal 25% of the increase, if any, in the number of issued and
outstanding shares of Common Stock during the 12-month period ending on
September 30 of each year of the agreement, provided that such increase was
attributable to equity offerings or acquisitions. The new employment agreement
also provides that Mr. Bell may require the Company to lend him a total of
$155,000. Any loan taken thereunder will mature five years after the date made
and bear interest at the rate of 8% per annum. However, the interest accruing
during the first two years is not payable until the end of such two year period.
Mr. Bell borrowed from the Company $155,000 in September, 1998.
<PAGE>   23
Item 11.          Security Ownership of Certain Beneficial Owners and Management

                  (a) The following table sets forth, as at November 30, 1998,
certain information concerning stock ownership of the Company by (i) each person
who is known by the Company to own beneficially more than 5% of the outstanding
common shares of the Company, (ii) each of the companies directors and (iii) all
directors and officers of the Company as a group. Except as otherwise indicated,
all such persons have both sole voting and investment power over the shares
beneficially owned by them.

<TABLE>
<CAPTION>

                                                                          Percent
                                                    Number of Shares        of
Name and Address (2)                               Beneficially Owned(1)   Class
--------------------                               ------------------      -----
<S>                                                <C>                    <C>
Marc H. Bell (3)                                       1,699,193           39.7%

Tsuyoshi Shiraishi(3)(4)
Harpoon Holdings, Ltd.
2 Handy Road, #11-09 Cathay Building,
Singapore 229233                                         612,500           14.8%

Robert Bell (5)                                          120,051            2.8%

Martin Fox (5)
10 Henry Street      
Teeterboro, NJ 07608                                      16,000              *

Dr. Richard Videbeck (5)
3249 East Angler's Stream
Avon Park, FL 33825                                       16,000              *

Anthony St. John (6)
7 Cadogan Gardens
London SW32RE                                             15,000              *

Sid Paterson (6)
99 Madison Avenue
New York, NY 10016                                        20,000              *

 All executive officers and directors as a
group (11 persons)(7)                                  1,931,846           42.9%
</TABLE>

*        Less than 1%
(1)      Under the rules of the Securities and Exchange Commission, a person is
         deemed to be the beneficial owner of a security if such person has or
         shares the power to vote or direct the voting of such security or the
         power to dispose or direct the disposition of such security. A person
         is also deemed to be a beneficial owner of any securities if that
         person has the right to acquire beneficial ownership within 60 days.
         Accordingly, more than one person may be deemed to be a beneficial
         owner of the same securities. Unless otherwise indicated by footnote,
         the named entities or individuals have sole voting and investment
         power with respect to the shares of common stock beneficially owned.

(2)      The address of each of the named individuals, other than Mr. Shiraishi,
         Mr. Fox, Dr. Videbeck, Lord St. John and Mr. Paterson is c/o Globix
         Corporation, 295 Lafayette Street, New York, NY 10012.

(3)      Includes the 612,500 Harpoon Shares which are subject to the October
         1995 Irrevocable Proxy entered into between Harpoon and Marc H. Bell,
         pursuant to which Harpoon has granted Mr. Bell the sole right to vote
         the Harpoon Shares with respect to the election of the Company's
         directors. The Irrevocable Proxy terminates in October 2005.

(4)      Mr. Shiraishi, a director of the Company, is the sole shareholder of
         Harpoon

(5)      The named individual has the right to acquire the number of shares
         shown pursuant to a currently exercisable stock option.

(6)      Includes the right to acquire 10,000 shares pursuant to currently 
         exercisable stock options

(7)      Includes currently exercisable stock options to purchase 359,499
         shares.
<PAGE>   24
         (b) In connection with the company's initial public offering, Marc Bell
and Harpoon have each deposited 210,000 shares of the Common Stock owned by them
(the "Deposit Shares") with the Company. The Company will hold such shares
pursuant to a Share Deposit Agreement. The Deposit Shares will be returned to
their respective owners no later than at the end of eight years from the date of
the Prospectus for the initial public offering. However, the Deposit Shares may
be returned prior to such time, if certain levels of profitability are met.

Item 12.          Certain Relationships and Related Transactions

         See "Employment Contracts" above for a description of certain loans the
Company has made to Marc H. Bell.

Item 13. Exhibits and Reports on Form 8-K

     (a)          Exhibits.  See index of exhibits annexed hereto.

     (b)          Reports on Form 8-K

                  (i)      Date Filed: 7/16/98*           Date of Event: 7/1/98
                           Subject:         Company, through a subsidiary,
                                            purchased the land and building
                                            located at 139 Centre Street, New
                                            York, New York from Bank Leumi USA
                                            at a total acquisition cost of
                                            $19,600,000, including the cost of
                                            purchasing the rights to acquire the
                                            property.
                  (ii)     Date Filed: 8/19/98            Date of Event: 7/23/98

                           Subject:         Company entered into a Securities
                                            Purchase Agreement with Cybernet
                                            Data Systems, Inc. and purchased for
                                            $1,000,000, a 10% Convertible
                                            Subordinated Debenture due 2001
                                            which is convertible into 670,000
                                            shares of Cybernet common stock and
                                            a Warrant to purchase 666,667 shares
                                            of Cybernet common stock at an
                                            exercise price of $1.50 per share
                                            until its expiration on July 23,
                                            1999.


                           * Amendment No. 1 to Form 8-K filed 9/16/98.
                           Confidential treatment granted for certain portions
                           of Exhibits pursuant to Rule 406 promulgated under
                           the Securities Act.
<PAGE>   25
                                   SIGNATURES
         Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant had duly caused this Amendment to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: January 13, 1999            Globix Corporation
                                        By: /s/ Marc H. Bell
                                            ------------------------------------
                                                Marc H. Bell, President and
                                                Chief Executive Officer
         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Amendment has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

Date: January 13, 1999                          /s/ Marc H. Bell
                                                --------------------------------
                                                    Marc H. Bell, President,
                                                    Chief Executive Officer
                                                    and Director


Date: January 13, 1999                          /s/ Robert B. Bell
                                                --------------------------------
                                                    Executive Vice President,
                                                    Chief Financial Officer and
                                                    Director


Date: January 13, 1999                              Martin Fox
                                                    ----------------------------
                                                    Martin Fox, Director


Date: January 13, 1999                              Tsuyoshi Shiraishi
                                                    ----------------------------
                                                    Tsuyoshi Shiraishi, Director

Date: January 13, 1999                          /s/ Richard Videbeck
                                                --------------------------------
                                                    Richard Videbeck, Director


Date: January 13, 1999                              Anthony St. John
                                                    ----------------------------
                                                    Anthony St. John, Director

Date: January 13, 1999                              Sid Paterson
                                                    ----------------------------
                                                    Sid Paterson, Director

Date: January 13, 1999                          /s/ Alan Levy
                                                --------------------------------
                                                    Alan Levy, Treasurer and
                                                    Chief Accounting Officer
<PAGE>   26
                       GLOBIX CORPORATION AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                       PAGE
                                                                                                       ----
<S>                                                                                                    <C>
  Report of Independent Public Accountants ........................................................           F-2

 Consolidated Balance Sheets - As of September 30, 1998 and September 30, 1997 ....................           F-3

 Consolidated Statements of Operations - For the years ended  September 30, 1998 and September
  30, 1997 ........................................................................................           F-4

 Consolidated Statements of Changes in Stockholders' Equity - For the years ended September 30,
  1998 and September 30, 1997 .....................................................................           F-5

 Consolidated Statements of Cash Flows - For the years ended September 30, 1998 and September
  30, 1997 ........................................................................................     F-6 - F-7

 Notes to Consolidated Financial Statements .......................................................    F-8 - F-19
</TABLE>



                                       F-1
<PAGE>   27
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To:       GLOBIX CORPORATION:


We have audited the accompanying consolidated balance sheets of Globix
Corporation (formerly Bell Technology Group, Ltd.) (a Delaware corporation) and
Subsidiaries as of September 30, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years then
ended. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Globix Corporation and
Subsidiaries as of September 30, 1998 and 1997, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.

                                        Arthur Andersen LLP



December 14, 1998
New York, New York



                                       F-2
<PAGE>   28
                       Globix Corporation and Subsidiaries
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                      September 30,     September 30,
                                                           1998              1997
                                                      -------------     -------------
<S>                                                   <C>               <C>
                                Assets
Current assets:
  Cash and cash equivalents                           $  61,473,285     $   2,401,446
  Marketable securities                                  14,638,173                --
  Accounts receivable, net of allowance for
   doubtful accounts of $410,000 and $194,684,
   respectively                                           4,861,219         3,259,548
  Inventories                                               391,848           487,542
  Prepaid expenses and other current assets               1,699,117           727,765
  Restricted cash                                        10,316,667                --
                                                      -------------     -------------
     Total current assets                                93,380,309         6,876,301
Investments, restricted                                  50,163,109           325,000
Property and equipment, net                              30,871,719         3,548,838
Debt issuance costs, net of accumulated
 amortization of $393,321                                 6,214,473                --
Other assets                                              1,636,762           274,849
                                                      -------------     -------------
     Total assets                                     $ 182,266,372     $  11,024,988
                                                      =============     =============

     Liabilities and Stockholders' Equity

Current liabilities:
  Short term borrowings                               $          --     $   2,001,157
  Current portion of notes payable                        2,397,777           335,021
  Accounts payable                                        6,185,460         2,010,507
  Accrued expenses                                          192,913           425,852
  Accrued interest expense                                8,666,667                --
  Deferred revenues                                          78,166           123,046
                                                      -------------     -------------
     Total current liabilities                           17,520,983         4,895,583
Long term note payable, net of current portion            1,199,429           923,217
Long-term debt, net of unamortized
  discount of $2,107,800                                157,892,200                --
Other long term liabilities                               2,934,675           191,928
                                                      -------------     -------------
     Total liabilities                                  179,547,287         6,010,728
                                                      -------------     -------------
Commitments and contingencies

Stockholders' equity:
  Preferred Stock, $.01 par value; 500,000
  shares authorized; no shares issued and
  outstanding                                                    --                --
  Common Stock, $.01 par value; 20,000,000
  shares authorized; 4,140,116 and 3,448,450
  shares issued and outstanding                              41,401            34,485
  Additional paid-in capital                             17,247,354        10,069,474
  Unrealized gain on securities available for sale        1,675,907                --
  Accumulated deficit                                   (16,245,577)       (5,089,699)
                                                      -------------     -------------
     Total stockholders' equity                           2,719,085         5,014,260
                                                      -------------     -------------
     Total liabilities and stockholders'
         equity                                       $ 182,266,372     $  11,024,988
                                                      =============     =============
</TABLE>


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


                                       F-3
<PAGE>   29
                       Globix Corporation and Subsidiaries
                      Consolidated Statements of Operations


<TABLE>
<CAPTION>
                                                   Year Ended          Year Ended
                                               September 30, 1998  September 30, 1997
                                               ------------------  ------------------
<S>                                            <C>                 <C>
Revenues                                          $ 20,594,933        $ 17,399,955
Costs and expenses:
  Cost of revenues                                  13,321,952          13,699,205
  Selling, general and administrative               10,696,359           6,036,032
  Depreciation and amortization                      1,310,026             674,952
                                                  ------------        ------------
     Total costs and expenses                       25,328,337          20,410,189
Loss from operations                                (4,733,404)         (3,010,234)

  Interest income                                    1,952,952              72,427
  Interest and financing expense                    (8,375,426)           (177,626)
                                                  ------------        ------------
Loss before taxes                                  (11,155,878)         (3,115,433)


Benefit from taxes                                          --                  --
                                                  ------------        ------------
Net loss                                          $(11,155,878)       $ (3,115,433)
                                                  ============        ============


Basic and diluted loss per share                        ($3.08)             ($1.01)


Weighted average common shares outstanding-
  basic and diluted                                  3,625,794           3,075,235
</TABLE>



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




                                       F-4
<PAGE>   30
                       Globix Corporation and Subsidiaries
           Consolidated Statements of Changes in Stockholders' Equity


<TABLE>
<CAPTION>
                                                                              Unrealized Gain
                                                                               on Securities
                                                                Additional       Available                                Total
                                            Common Stock         Paid-in            for            Accumulated         Stockholders'
                                         Shares      Amount      Capital            Sale             Deficit              Equity
                                         ------      ------      -------            ----             -------              ------
<S>                                    <C>          <C>        <C>            <C>                 <C>                  <C>
Balance, September 30, 1996            3,083,210    $30,832    $ 8,033,134       $       --       ($  1,974,266)       $  6,089,700
Proceeds from Private Placement, net     400,000      4,000      1,979,241               --                  --           1,983,241
Proceeds from exercise of stock
  options and warrants, net                8,098         81         56,671               --                  --              56,752
Correction of outstanding shares         (42,858)      (428)           428               --                  --                  --
Net Loss                                      --         --             --               --          (3,115,433)         (3,115,433)
                                       ---------    -------    -----------       ----------        ------------        ------------
Balance, September 30, 1997            3,448,450    $34,485    $10,069,474       $       --        $ (5,089,699)       $  5,014,260
Unrealized increase in value of
  investments                                                                     1,675,907                               1,675,907
Warrants issued in connection with
  senior note offering                                           2,252,800                                                2,252,800
Issuance of common stock upon
  exercise of options and warrants,
  net                                    691,666      6,916      4,925,080               --                  --           4,931,996
Net loss                                      --         --             --                          (11,155,878)        (11,155,878)
                                       ---------    -------    -----------       ----------        ------------        ------------
Balance, September 30, 1998            4,140,116    $41,401    $17,247,354       $1,675,907        $(16,245,577)       $  2,719,085
                                       =========    =======    ===========       ==========        ============        ============
</TABLE>


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




                                       F-5
<PAGE>   31
                       Globix Corporation and Subsidiaries
                      Consolidated Statements of Cash Flows


<TABLE>
<CAPTION>
                                                                 Year Ended           Year Ended
                                                             September 30, 1998   September 30, 1997
                                                             ------------------   ------------------
<S>                                                          <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                     $ (11,155,878)       $  (3,115,433)
Adjustments to reconcile net loss
  to net cash provided by (used in) operating activities
Depreciation and amortization                                      1,310,026              674,952
Amortization of discount and debt issuance costs                     538,321                   --
Changes in operating assets and liabilities:
Increase in accounts receivable                                   (1,601,671)          (1,411,630)
Decrease in inventories                                               95,694              270,811
(Increase) decrease in prepaid expenses
  and other current assets                                        (1,571,352)              31,348
(Increase) decrease in other assets                                 (206,913)              48,006
Increase in accounts payable                                       4,174,953              736,310
(Decrease) increase in accrued expenses                             (232,939)             277,664
Increase in accrued interest expense                               8,666,667                   --
Decrease in deferred revenues                                        (44,880)             (43,571)
Other long term liabilities                                          142,747                   --
                                                               -------------        -------------
Net cash provided by (used in) operations                            114,775           (2,531,543)
                                                               -------------        -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in restricted cash                                    (10,316,667)                  --
Investment in marketable securities                              (12,962,266)                  --
Investment in long-term restricted investments                   (49,838,109)                  --
Investment in Cybernet Data Systems                               (1,000,000)                  --
Purchases of property and equipment,
  net of landlord reimbursement in 1997                          (23,269,967)          (1,542,431)
                                                               -------------        -------------
Net cash used in investing activities                            (97,387,009)          (1,542,431)
                                                               -------------        -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior note offering net of
  offering expenses of $6,607,794                                153,392,206                   --
Net proceeds from (repayments of)
  short term borrowings                                           (2,001,157)           2,001,077
Shareholder loan                                                    (155,000)            (145,408)
Proceeds from notes payable for equipment refinancing                     --              873,610
Repayments of notes payable                                         (423,972)            (195,887)
Proceeds from private placement                                      600,000            1,544,031
Proceeds from exercise of stock options and warrants,
  net                                                              4,931,996               55,986
                                                               -------------        -------------
Net cash provided by financing activities                        156,344,073            4,133,409
                                                               -------------        -------------

Net increase in cash and
  cash equivalents                                                59,071,839               59,435
Cash and cash equivalents,
  Beginning of period                                              2,401,446            2,342,011
                                                               -------------        -------------
Cash and cash equivalents,
  Ending of period                                             $  61,473,285        $   2,401,446
                                                               =============        =============
</TABLE>




                                       F-6
<PAGE>   32
<TABLE>
<CAPTION>
                                                          Year Ended          Year Ended
                                                      September 30, 1998  September 30, 1997
                                                      ------------------  ------------------
<S>                                                   <C>                 <C>
   Supplemental disclosure of cash flow information:

Cash paid for interest                                    $  223,251          $165,540
Cash paid for income taxes                                    51,220            27,881
Non-cash investing and financing activities:
Equipment acquired under capital lease obligations         1,112,671           539,764
Capital expenditures included in accounts payable,
  notes payable and other long term liabilities            6,701,707                --
Proceeds receivable associated with private
  placement                                                       --           600,000
Issuance of common stock in connection with
  private placement                                               --           100,000
Warrants issued in connection with
  senior note offering                                     2,252,800                --
</TABLE>





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


                                       F-7
<PAGE>   33
                       GLOBIX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES:

ORGANIZATION

         Globix Corporation and Subsidiaries (the "Company") was originally
incorporated in New York in 1989 as NAFT International Ltd. In July 1994, PFM
Technologies Corporation, a newly formed affiliate of NAFT, acquired NAFT and
its affiliated corporations in a tax-free exchange of common stock. The Company
was reincorporated in Delaware in 1995 under the name Bell Technology Group Ltd.
The Company changed its name to Globix Corporation on June 1, 1998.

PRINCIPLES OF CONSOLIDATION

         The consolidated financial statements herein include the accounts of
the Company, NAFT International Ltd., PFM Communications Inc., NAFT Computer
Service Inc., GameNet Corp., Bluestreak Digital Inc., BLP Acquisitions LLC 
(since July 1998), ATC Merger Corp., BTG Technology Group Ltd and Globix
Limited. All material intercompany accounts and transactions have been
eliminated. In September 1995, the Company changed its fiscal year end from
December 31 to September 30.

OPERATIONS

Commencing with 1996, Globix began segment reporting of its results of 
operations into two divisions: (i) the "Internet Division" and (ii) the "Server 
Sales and Integration Division." The Internet Division provides dedicated 
Internet access, web hosting, co-location, value-added solutions (such as 
e-commerce, streaming media, network security and web development), and 
instructor-led corporate training. The Server Sales and Integration Division 
provides Internet-related hardware and software sales and systems and network 
integration.

         In the opinion of management, the Company will be able to finance its
business as currently conducted from its current working capital and from the
proceeds of the $160 million debt offering completed in April 1998 at least
through the fiscal year 1999.




                                       F-8
<PAGE>   34
SEGMENT INFORMATION

         The Company's activities fall within two reporting segments: the
Internet Division and the Server Sales and Integration Division. The following
table sets forth segment information for the years ended September 30, 1998 and
1997:

<TABLE>
<CAPTION>
                                            YEAR ENDED SEPTEMBER 30,
                                         -----------------------------
                                             1998             1997
<S>                                      <C>               <C>
Revenues:
  Internet.............................  $  6,447,504      $ 2,413,538
  Server sales and integration.........    14,147,429       14,986,417
                                         ------------      -----------
    Consolidated.......................  $ 20,594,933      $17,399,955
                                         ============      ===========
Operating income (loss):
  Internet.............................  $  1,145,068      $   (84,632)
  Server sales and integration.........       721,125         (378,647)
                                         ------------      -----------
    Consolidated(1)....................  $ (4,733,404)    $ (3,010,234)
                                         ============      ===========
Identifiable assets:
  Internet.............................  $  7,808,987      $ 2,105,207
  Server sales and integration.........     3,731,505        5,781,580
                                         ------------      -----------
    Consolidated(2)....................  $182,266,372      $11,024,988
                                         ============      ===========
</TABLE>

(1)  Includes unallocated corporate overhead of $6,599,597 and $2,546,955,
     respectively, for the years ended September 30, 1998 and 1997. Such amounts
     include executive salaries of $823,662 and $616,034, respectively, for the
     years ended September 30, 1998 and 1997, as well as rent, payroll charges
     for administrative staff and professional fees.

(2)  Includes corporate assets not allocable to a particular segment of 
     $170,725,880 and $3,138,201 for the years ended September 30, 1998 and 
     1997, respectively.


PER SHARE DATA

         During 1997, SFAS No. 128 "Earnings per Share" was issued and became
effective for the Company's September 30, 1998 financial statements. SFAS No.
128 establishes new standards for computing and presenting earnings per share
(EPS). The new standard requires the presentation of basic EPS and diluted EPS.
Basic EPS is calculated by dividing income available to common shareholders by
the weighted average number of shares of common stock outstanding during the
period. Diluted EPS is calculated by dividing income available to common
shareholders by the weighted average number of common shares outstanding
adjusted to reflect potentially dilutive securities. Diluted EPS has not been
presented since the inclusion of outstanding options would be antidilutive.
The Company's September 30, 1997 financial statements have been restated to 
reflect this pronouncement.

CASH AND CASH EQUIVALENTS

         The Company considers all highly liquid investments with an original
maturity of three months or less to be cash and cash equivalents. As of
September 30, 1998 and 1997, cash equivalents consist of $71,789,952
($61,473,285 included in cash and cash equivalents and $10,316,667 included in
restricted cash) and $2,401,446, respectively.

                                       F-9
<PAGE>   35
CONCENTRATIONS OF CREDIT RISK

         Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash, cash equivalents and
accounts receivable. The Company maintains cash and cash equivalents 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 of
entities comprising the Company's customer base.

SIGNIFICANT VENDOR

         One vendor comprises approximately $2,384,000 or 21% of the Company's
inventory purchases during the fiscal year ended September 30, 1998. If such
vendor ceases to supply the Company, management is confident it can procure
comparable services at similar costs elsewhere.

MAJOR CUSTOMER

         One customer comprises approximately $2,355,000 or 11% of the Company's
revenues during the fiscal year ended September 30, 1998.

INVENTORIES

         Inventory consists of computer hardware and software, parts and related
items. Inventories are carried at the lower of cost or market determined by the
first-in, first-out method.

INVESTMENTS

         Marketable equity securities are reported at fair value. Unrealized
gains and losses from those securities which are classified as
available-for-sale are reported as a separate component of shareholders' equity.

PROPERTY AND EQUIPMENT

         Property and equipment are stated at cost, less accumulated
depreciation or amortization computed on the straight-line method. Buildings are
depreciated over their estimated useful life of forty years. Furniture and
equipment are depreciated over their estimated useful lives, generally five
years. Leasehold improvements are amortized over the term of the lease or life
of the asset, whichever is shorter.

LONG-LIVED ASSETS

         The Company's policy is to record long-lived assets at cost. These
assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amounts of the assets may not be recoverable.
Furthermore, the assets are evaluated for continuing value and proper useful
lives by comparison to expected future cash projections.

REVENUE RECOGNITION

         Revenues consist primarily of dedicated Internet access fees, web
hosting and co-location fees, sales of third-party hardware and software, fees
from systems and network integration, sales of systems administration and web
site management services sales of value-added Internet solutions (such as
e-commerce, streaming media, network security and web development), and fees
from instructor-led corporate training. Payments received in advance of
providing services are deferred until the period such services are provided.
Equipment sales and installation charges are recognized when installation is
completed.



                                      F-10
<PAGE>   36
         Monthly subscription service revenue related to Internet access is
recognized over the period services are provided. Subscription service and
equipment installation revenues, which require the use of Company-provided
installation of equipment at a subscriber's location, are recognized at
completion of installation and upon commencement of service. Revenues derived
from value-added Internet solutions are recognized as the project progresses.
Projects are generally completed within a three month period.

COST OF REVENUES
         Cost of revenues in the Company's Internet Division consists primarily
of telecommunications costs and direct labor costs for systems administration,
web site management, value-added solutions and corporate training. For the
Server Sales and Integration Division, the cost of revenues primarily consists
of acquisition costs of third-party hardware and software.
STOCK-BASED COMPENSATION

         The Company accounts for employee stock options in accordance with
Accounting Principles Board No. 25 ("APB No. 25"), "Accounting for Stock Issued
to Employees." Under APB No. 25, the Company applies the intrinsic value method
of accounting and therefore does not recognize compensation expense for options
granted, because options are only granted at a price equal to market value on
the day of grant.

         During 1996, Statement of Financial Accounting Standards No. 123 ("SFAS
No. 123"), "Accounting for Stock Based Compensation," became effective for the
Company. SFAS No. 123 prescribes the recognition of compensation expense based
on the fair value of options determined on the grant date. However, SFAS No. 123
allows companies currently applying APB No. 25 to continue using that method.

         The Company has therefore elected to continue applying the intrinsic
value method under APB No. 25. 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. See Note 6 for additional
discussion.
RECLASSIFICATION

         Certain amounts in the fiscal 1997 financial statements have been 
reclassified to conform with fiscal 1998 presentation.

USE OF ESTIMATES

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Although these estimates are based on management's knowledge
of current events and actions it may undertake in the future, they may
ultimately differ from actual results.

RECENT ACCOUNTING PRONOUNCEMENTS
         In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of financial statements.
The Company's consolidated financial statements will be required to include
comprehensive income disclosures beginning with the first quarter of fiscal year
1999. Restatement of prior period information will be made for comparative
purposes. Comprehensive loss for the years ended September 30, 1998 and 1997
amounted to $9,479,971 and $3,115,433, respectively.
         In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information," which changes the way public
companies report information about operating segments. SFAS No. 131, which is
based on the management approach to segment reporting, establishes requirements
to report selected segment information quarterly and to report entity-wide
disclosures about products and services, major customers, and the material
countries in which the entity holds assets and reports revenue. The Company will
adopt SFAS No. 131 in fiscal year 1999. The Company does not believe the
adoption of SFAS No. 131 will have a material effect on results of operation or
financial condition.

                                      F-11
<PAGE>   37

2.       PROPERTY AND EQUIPMENT

         Property and equipment consist of the following:


<TABLE>
<CAPTION>
                                                September 30,      September 30,
                                                    1998               1997
                                                ------------       ------------
<S>                                             <C>                <C>
Land                                            $  1,997,413       $         --
Building                                          19,075,028                 --
Leasehold improvements                             3,553,705            686,662
Computer hardware and software
    and network equipment                          7,906,863          3,724,645
Furniture and delivery equipment                     749,219            238,014
Less: Accumulated depreciation and
    Amortization                                  (2,410,509)        (1,100,483)
                                                ------------       ------------

Property and equipment, net                     $ 30,871,719       $  3,548,838
                                                ============       ============
</TABLE>

         Included in total property and equipment at September 30, 1998 and
1997, is $2,526,044 and $1,413,373, respectively, of assets held under capital
lease obligations and  $416,667 and $416,667, respectively, representing
internally developed software costs. Also, included in building and land is
$1,098,315 of capitalized interest as of September 30, 1998 related to the
purchase of the facility at 139 Centre Street. In addition, included in computer
hardware and software and network equipment is $153,014 and $153,014,
respectively related to the implementation of a new MIS system in September 30,
1998 and 1997.

         Depreciation and amortization expense for the years ended September 30,
1998 and 1997, was $1,310,026 and $674,952, respectively.

         On July 1, 1998, the Company through BLP Acquisitions LLC, a New York
limited liability company ("BLP") and over 99% owned by the Company, purchased
the land and building located at 139 Centre Street, New York, New York from Bank
Leumi USA, a New York banking corporation. The nine story building contains
approximately 160,000 square feet of floor space. The Company intends to house
its New York SuperPOP facility and operations in the new premises. The Company
expects the New York SuperPOP facility to be completed and operational by June
30, 1999.

         A former owner of the right to purchase the Centre Street property is
entitled to additional consideration if BLP sells the Centre Street property.
Such amount will be equal to the greater of (a) $1.0 million (subject to
increase after June 1, 2018 by 10% and an additional 10% every fifth year
thereafter), or (b) 10% of the gross sales price of the property if such sales
price is greater than $17.5 million.

3.       OTHER ASSETS

         Other assets includes the investment in Cybernet Data Systems, loans
due from Marc H. Bell, security deposits and other assets.

         On July 23, 1998, the Company entered into a Securities Purchase
Agreement with Cybernet Data Systems, Inc., a Delaware Corporation ("Cybernet").
Cybernet is the publisher of the web site "Edgar-Online.com." Under the
Securities Purchase Agreement, the Company purchased for $1,000,000, a 10%
Convertible Subordinated Debenture due 2001 (the "Cybernet Debenture") and a
Warrant to Purchase Common Stock (the "Cybernet Warrant"). The Cybernet
Debenture is non-interest bearing until July 23, 1999. Beginning on July 23,
1999, the Cybernet Debenture will bear interest at a rate of 10% per annum
payable semiannually in advance on July 23 and January 23, in each year until
July 23, 2001, when the Cybernet Debenture is to be redeemed by Cybernet. The
Cybernet Debenture is convertible into 670,000 shares of Cybernet common stock.
The Cybernet Warrant entitles the Company to purchase an additional

                                      F-12
<PAGE>   38
666,667 shares of Cybernet common stock at an exercise price of $1.50 per share
until the Cybernet Warrant's expiration date of July 23, 1999. If the Company
converted the Cybernet Debenture into common stock and exercised its Cybernet
Warrant, the Company would own approximately 20% of the outstanding shares of
Cybernet. In addition, Cybernet has signed a five year exclusive contract with
the Company to provide web hosting services.

4.       FAIR VALUE OF FINANCIAL INSTRUMENTS

                  The following methods and assumptions were used to estimate
the fair value of each class of financial instruments for which it is
practicable to estimate that value.

LONG AND SHORT-TERM DEBT

         The carrying amount of the Company's short-term borrowings approximates
fair value. The fair value of the Company's long-term debt, including current
portions, is determined based on market prices for similar debt instruments or
on the current rates offered to the Company for debt with similar maturities.

         As of September 30, 1998, the fair value based upon quotes from
securities dealers and carrying value of the Company's notes were $128,000,000
and $157,892,200, respectively.

5.       SENIOR NOTE OFFERING

         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 $1 and one warrant to purchase 3.52 shares of common stock (total of
563,200 shares of common stock) at a purchase price of $14.03 per share. The
notes will mature on May 1, 2005. Interest on the notes accrues at a rate of
13.0% per annum and is payable semi-annually in arrears on May 1 and November 1
of each year, commencing November 1, 1998. The Company has deposited with an
escrow agent $57,000,000 that together with the interest received thereon, will
be sufficient to pay, when due, the first six interest payments. The notes are
collateralized by a first priority security interest in the escrow account. The
notes are senior unsecured obligations of the Company and rank pari passu in
right of payment with all existing and future unsecured and unsubordinated
indebtedness and rank senior in right of payment to any future subordinated
indebtedness. In connection with the warrants issued with the senior notes, the
Company has assigned an original issue discount of approximately $2.3 million.
In addition, the Company incurred costs associated with the offering of
approximately $6.6 million. These amounts are being amortized by the Company
over seven years.

6.       STOCKHOLDERS' EQUITY AND STOCK OPTIONS

INITIAL PUBLIC OFFERING

         In January 1996, the Company sold, in an initial public offering,
1,150,000 shares of Common Stock at an initial offering price of $7.00 per
share, and 575,000 Redeemable Purchase Warrants for $.10 per warrant. Each
warrant entitles the holder to purchase one share of the Company's common stock
for $7.70 per share. The warrants are redeemable by the Company at $.10 per
warrant at any time after January 24, 1997 if certain conditions are met. The
net proceeds which the Company received from the public offering amounted to
approximately $6,600,000.

         In March 1996, the underwriter of the initial public offering exercised
its over-allotment option to purchase 129,642 common shares from the Company for
$7.00 per share. The net proceeds amounted to approximately $800,000.



         In June 1998, the Company called for redemption the IPO Warrants. Prior
to the redemption date of July 8, 1998, 581,472 of the 592,055 then outstanding
IPO Warrants were exercised at an exercise price of $7.44 per common share. The
remaining 10,483 Warrants were redeemed by the Company at a price of $.10 per
IPO Warrant. The net proceeds recognized by the Company from the IPO warrant
redemption amounted to approximately $4.3 million.


                                      F-13
<PAGE>   39
PRIVATE PLACEMENT

                  In September 1997, the Company sold 382,609 shares of its
common stock in a private transaction for a total consideration of $2,200,000.
Form SB-2 was filed with the Securities and Exchange Commission with respect to
these shares on November 6, 1997 and became effective on November 20, 1997. A
fee with respect to the sale of these shares of $100,000 in cash and 17,391
shares of common stock was paid to the investors and were offset against the
proceeds of the issuance. Of the total consideration, $1,600,000 was received by
the Company in September 1997. The remaining $600,000 was classified as a
current asset as of September 30, 1997 and was received by the Company in
October 1997.

STOCK OPTIONS

         The Company, with the approval of its stockholders, adopted the 1995
Stock Option Plan ("Option Plan") which reserved 360,000 shares of common stock
for issuance under the Option Plan. Under the Option Plan, the term of the
options issued are determined by the stock option committee and range from 5 to
10 years from the date of the grant. Options issued to directors are immediately
exercisable and options issued to employees are exercisable ratably over a
three-year period. Options issued before the Company's initial public offering
were issued at the fair value of the stock at the date of grant, in the opinion
of management. The exercise price of the options issued subsequent to the
initial public offering (Note 3) is equal to or greater than 100% of the fair
market value of the stock on the date of grant.

         In April 1998, the Company's Board of Directors (the "Board") adopted,
and its stockholders approved, the 1998 Stock Option Plan (the " 1998 Plan"),
which provides for the grant of stock options to purchase up to 1,200,000 shares
of common stock to any employee, non-employee director, or consultant at the
Board's discretion. Under the 1998 Plan, these options may not be exercised
after ten years from the date of grant. Options issued to employees are
exercisable ratably over a five-year period. Under the 1998 Plan, options shall
be granted each year to non-employee directors on the first day of the Company's
fiscal year or on the first day of the term as director at a purchase price
equal to the fair market value on the date of grant. In addition, the
Non-Employee director stock options shall be exercisable in full twelve months
after the date of grant unless determined otherwise by the stock option
committee.

         On September 30, 1997, 250,064 options previously issued to employees
and directors with a weighted average exercise price of $8.32 were canceled and
reissued at $6.125, the fair market value of the Company's common stock on the
date reissuance. This revaluation did not alter or amend any other provision of
the optionee's original option agreement, including the vesting period and
option term.

         The Company accounts for awards granted to employees and directors
under APB No. 25, under which no compensation cost has been recognized for stock
options granted. Had compensation cost for these stock options been determined
consistent with SFAS No. 123, the Company's net loss and loss per share would
have been increased to the following pro forma amounts:

<TABLE>
<CAPTION>
                                                                  1998                  1997
                                                              ------------          -----------
<S>                                       <C>                 <C>                   <C>
      Net loss:                           As reported         $(11,155,878)         $(3,115,433)
                                          Pro forma            (13,394,255)          (3,307,639)

      Basic and diluted loss per share:   As reported                (3.08)               (1.01)
                                          Pro forma                  (3.69)               (1.08)
</TABLE>


                                      F-14
<PAGE>   40
         The effects of applying SFAS No. 123 in this pro forma disclosure are
not indicative of future amounts as additional awards in future years are
anticipated.

         Option activity for the two years ended September 30, 1998 is as
follows:

<TABLE>
<CAPTION>
                                                                                 Weighted Average
                                                                                     Exercise
                                                              Number of Shares        Price
                                                              ----------------        -----
<S>                                                           <C>                <C>
   Options outstanding, October 1, 1996                           202,730             $7.04

       Granted                                                    390,897             $7.41
       Canceled                                                  (284,065)            $8.39
       Exercised                                                   (7,998)            $7.00
                                                                 ---------            -----

   Options outstanding, September 30, 1997                        301,564             $6.13

       Granted                                                    682,375             $6.25
       Canceled                                                   (62,018)            $5.91
       Exercised                                                   (6,316)            $6.13
                                                                 ---------            -----

   Options outstanding, September 30, 1998                        915,605             $6.39
                                                                 ========             =====
</TABLE>


    There were 563,062 options available for future grant at September 30, 1998.

    The weighted average fair value of options granted is $5.27 and $3.76 for
the years ended September 30, 1998 and 1997, respectively. The fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptions used for
grants in 1998 and 1997, respectively: risk-free interest rate of 5.56% and
6.17%; expected life of 6.00 and 6.00 years; expected volatility of 110.61% and
42% and expected dividend yield of 0%.

    The following table summarized information with respect to stock options
outstanding at September 30, 1998:

<TABLE>
<CAPTION>
                                      Options Outstanding                             Options Exercisable
                       --------------------------------------------------       -------------------------------
                       Number of Options     Weighted                           Number of Options
                          Outstanding        Average             Weighted          Exercisable         Weighted
                              at            Remaining            Average               at              Average
        Range of         September 30,     Contractual           Exercise         September 30,        Exercise
     Exercise Prices         1998             Life                Price               1998              Price
     ---------------         ----             ----                -----               ----              -----
<S>                    <C>                    <C>               <C>             <C>                   <C>
     $5.00 - $7.50         844,230            8.33              $    5.97           412,153           $    6.36
     $7.50 - $10.75         50,375            9.25                  10.73             1,667               10.50
     $10.75 - $13.25        21,000            8.86                  12.86             4,333               12.63
</TABLE>

DEPOSIT SHARES

         In connection with the Company's initial public offering, Marc H. Bell
and Harpoon have each deposited 210,000 shares of the Common Stock owned by them
(the "Deposit Shares") with the Company. The Company will hold such shares
pursuant to a Share Deposit Agreement. The Deposit Shares will be returned to
their respective owners in January 2004.




                                      F-15
<PAGE>   41
7.       COMMITMENTS AND CONTINGENCIES

REVOLVING CREDIT AGREEMENT
 
     The Company has a Revolving Credit Agreement with NationsCredit (Nations)
which may be used to finance its inventory up to a maximum of $1.0 million. The
availability of credit is based upon the balance of collateral available which
is 80% of its current accounts receivable and 50% of its inventory. As of
September 30, 1998, the Company had available credit of $1.0 million of which
approximately $268,000 is outstanding. The outstanding balance as of September 
30, 1997 was approximately $2.0 million.

NOTES PAYABLE

         In connection with the purchase of the land and building at 139 Centre
Street, New York, New York in July 1998 (see note 2), the Company is indebted to
an individual for the rights to purchase this property in the amount of
$1,650,000. The $1,650,000 is due on demand and has been recorded in current
portion of notes payable as of September 30, 1998. The Company also entered into
an agreement with the minority partner of BLP Acquisitions LLC, giving the
Company the right to purchase the minority interest at any time for a purchase
price of $2,600,000. Interest at 7% per annum is payable monthly in arrears. The
$2,600,000 is payable no later than November 15, 2005 and has been recorded in
other long-term liabilities as of September 30, 1998.

CAPITAL AND OPERATING LEASES

         The Company leases office equipment and office space under various
noncancellable operating leases accounted for on a straight line basis. Rent
expense for the year ended September 30, 1998 and 1997 was $560,105 and
$548,897, respectively.

         In February 1996, the Company entered into a lease for its corporate
headquarters effective July 1996. The lease is for eleven years and six months
starting with an initial annual base rental of $309,250 escalating to $563,547
in the final year. Under the lease, the landlord reimbursed the Company $500,000
for leasehold improvements. The Company is required by the terms of the lease to
maintain a security deposit in the form of a letter of credit in the amount of
$325,000. In order to obtain a standby letter of credit, the Company maintains a
restricted certificate of deposit presently in the amount of $325,000. As of
March 1999, this amount is to be reduced to $250,000 if the Company is not in
default under the terms of the lease. Therefore $75,000 of this deposit is
classified as other current assets and $250,000 is included in "Long-term
Restricted Cash" of the Company's consolidated balance sheets as of September
30, 1998.

         The Company maintains a $1.0 million credit line from Cisco Systems
Capital Corporation ("CSC") to lease Cisco System products and associated
peripherals. The terms of this line, which was entered into in December 1997,
provided for 180 days of borrowing and a maximum borrowing limit of $1.0
million. However, CSC has informally permitted the Company to continue to borrow
under this line and to exceed the stated $1.0 million limit. Amounts borrowed
under the line are to be repaid over a 36-month period with the Company having
the option of purchasing the equipment for $1.00 at the end of the lease term.
As of September 30, 1998, approximately $945,000 was outstanding under this
credit line.

         The Company refinanced certain of its furniture and computer equipment
in April 1997 in the amount of approximately $874,000 from Finova Capital
Corporation. Such loan is for a term of three years, bears interest at 12.19%
per annum and is self-liquidating over its term. As of September 30, 1998,
approximately $524,000 was outstanding under this loan.

         The Company has entered into leases for various items of its office
furniture and equipment as well as for its telephone system accounted for as
capital leases. The terms on these leases vary from 36 to 60 month terms.

         In July 1998, the Company signed a 15 year triple net lease commencing
January 15, 1999 to rent approximately 62,000 square feet of office space in
Santa Clara, California at an annual base rental of approximately $1.3 million.
The building is currently under construction, and completion is scheduled for
December 1998. The Company intends to house its San Francisco Bay area SuperPOP
facility in its Santa Clara property. The Company expects the San Francisco Bay
area SuperPOP to be operational by June 30, 1999. As per the lease agreement,
the Company will be required to pay a security deposit of $400,000 upon
completion of certain construction terms.

         The Company has signed an additional long-term agreement with Qwest
Communications and a lease for its London facility as described in the
subsequent events footnote (see note 11).




                                      F-16
<PAGE>   42
         Future minimum lease and loan payments under these agreements including
payments under the London lease (see note 11) are as follows:

<TABLE>
<CAPTION>
Year Ending
September 30,                                                                       Operating                     Capital
-------------                                                                       ---------                     -------
<S>                                                                                <C>                          <C>
1999............................................................                   $ 1,381,603                     $914,869
2000............................................................                     3,561,077                      782,845
2001............................................................                     3,570,025                      439,525
2002............................................................                     3,579,151                       75,354
2003............................................................                     3,594,793                           --
Thereafter .....................................................                    35,586,453                           --
     Less: Amount representing interest.........................                            --                     (249,744)
                                                                                   -----------                  -----------
Present value of net minimum lease payments                                        $51,273,102                  $ 1,962,849
                                                                                   ===========                  ===========
</TABLE>

8.       INCOME TAXES

         Deferred tax assets and liabilities are determined based on differences
between the financial reporting and income tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.

         The Company is in an accumulated loss position for both financial
reporting and income tax purposes. The tax benefit recorded by the Company has
been fully reserved against due to the uncertainty of the Company's ability to
realize benefits by generating taxable income in the future. The Company has a
tax loss carryforward of approximately $17 million at September 30, 1998. This
carryforward expires between 2011 and 2013. Pursuant to Section 382 of the 
Internal Revenue Code, the usage of these net operating loss carryforwards may 
be partially limited due to changes in ownership that have occurred. The 
Company has not yet determined the impact that changes in ownership have had on 
net operating loss carryforwards, if any.


          The provision for income taxes on historical net income for the years
ended September 30, 1998 and 1997 differs from the amount computed by applying
the federal statutory rate due to the following:


<TABLE>
<CAPTION>
                                                          Year Ended    Year Ended
                                                           September     September
                                                           30, 1998      30, 1997
                                                           --------      --------
<S>                                                       <C>           <C>
     Statutory federal income tax rate ................      (34)%         (34)%

     State and local taxes, net of federal benefit ....      (11)%         (11)%
     Other ............................................       (0)%          (0)%
     Valuation allowance ..............................       45%           45%
                                                             ---           ---
     Effective income tax rate ........................       (0)%          (0)%
                                                             ===           ===
</TABLE>




                                      F-17
<PAGE>   43
         Significant components of the Company's deferred tax assets and
liabilities are as follows:

<TABLE>
<CAPTION>
                                                                  September 30, 1998   September 30, 1997
                                                                  ------------------   ------------------
<S>                                                               <C>                  <C>
         Deferred tax assets (liabilities):
         Tax depreciation and amortization in excess of book
           depreciation and amortization                             $  (417,659)         $  (264,820)
         Capitalized interest                                           (496,658)                  --
         Net operating loss carry forward                              7,507,964            1,908,226
         Allowance for doubtful accounts                                 241,927              255,350
         Deferred Rent                                                   152,069               80,795
         Valuation allowance                                          (6,987,643)          (1,979,551)
                                                                     -----------          -----------

         Total net deferred tax liabilities                                   --                   --
                                                                     ===========          ===========
</TABLE>

9.       EMPLOYMENT AGREEMENT

         In October 1995, the Company entered into an employment agreement with
Marc H. Bell which extends for a period of five years, terminating on September
30, 2000. Pursuant to the terms of the agreement, Mr. Bell receives a base
salary of $200,000 per year and a bonus equal to 5% of the annual pre-tax net
income of the Company in excess of $1 million (50% of the Bonus Pool) to the
extent, if any, that the Bonus Pool exceeds $100,000.

         During the third quarter of fiscal 1997, the Company made loans to Mr.
Bell bearing interest at 8.75% per annum in the total amount of $145,408. These
loans were pursuant to his existing employment agreement. The loans mature in
June 2002.

         Effective June 1, 1998, the Company terminated Mr. Bell's former
employment agreement and entered into a new employment agreement, which will
terminate on June 30, 2005. The new employment agreement provides for a base
salary of $350,000 per year, increasing annually at the rate of 5% starting
October 1, 1999. In addition, Mr. Bell will receive an annual bonus equal to
10,000 times the increase, if any, of the fair market value per share of the
Company's Common Stock measured during the 12-month period ending on June 30 of
each year of the agreement, commencing with the year beginning July 1, 1998. Mr.
Bell will also be entitled to receive stock options to purchase that number of
shares as shall equal 25% of the increase, if any, in the number of issued and
outstanding shares of Common Stock during the 12-month period ending on
September 30 of each year of the agreement, provided that such increase was
attributable to equity offerings or acquisitions. The new employment agreement
also provides that Mr. Bell may require the Company to lend him a total of
$155,000. Any loan taken thereunder will mature five years after the date made
and bear interest at the rate of 8% per annum. However, the interest accruing
during the first two years is not payable until the end of such two year period.
Mr. Bell borrowed from the Company $155,000 in September, 1998.




                                      F-18
<PAGE>   44
10.  RELATED PARTIES TRANSACTION
 
     The Company utilizes Sid Paterson Advertising, Inc., an entity controlled
by Mr. Sid Paterson, a director of the Company, as its agent to place Company
advertisements in various print publications. Amounts paid to Sid Paterson
Advertising, Inc. for the year ended September 30, 1998 were approximately
$507,000 which includes amounts due to the publishing companies to pay for the
Company's advertisements.

11.  SUBSEQUENT EVENTS

QWEST COMMUNICATIONS

     In October 1998, the Company entered into an IRU agreement with Qwest
Communications Corporation (Qwest), under which the Company has the exclusive
right to use portions of Qwest's planned 18,449 mile MacroCapacity fiber network
for a 20 year period. Globix will initially have the right to use 6,500 route
miles of OC-3 fiber capacity coast-to-coast in the United States and a DS-3
fiber link from the United States to the United Kingdom. The Company is
currently committed to Qwest for a fee of $9,192,176 of which it had paid
$919,218 at contract. The balance is payable by October 1999. In addition, the
Company has the right to increase its capacity on the Qwest Network at the cost
of $1.50 multiplied by the number of DS-0 (64 kbs per second) V&H Miles (length
in miles between the termination points of a Qwest Network Segment using airline
miles and determined based on the vertical and horizontal geographic coordinates
of the locations of the termination points). The Company is also liable for a
monthly operating and maintenance charge of $.0035 per each DS-0 V&H Mile. The
Company will amortize the total contract value over the term of the agreement of
20 years.

LONDON FACILITY

In October 1998, the Company signed a lease with Corston Holdings Limited (a
United Kingdom Corporation) for a 15 year term through September 2014 for the
rental of 33,500 square feet at Prospect House, 80 New Oxford Street,
London, United Kingdom, at an annual base rent of pound sterling 1,080,000
(approximately $1,836,000 in U.S. dollars) with rental payments commencing in 
October 1999. The Company intends to build a SuperPOP data center in the new
premises, which will also provide space for sales and administrative personnel.




                                      F-19
<PAGE>   45
                                EXHIBIT INDEX
                                -------------
<TABLE>
<CAPTION>
NUMBER                            DESCRIPTION
<S>       <C>
 3.1      Certificate of Incorporation of the Company, as amended.(10)

 3.2      By-laws of the Company, as amended.(11)

 4.1      Specimen Stock Certificate.(2)

 4.2      Form of Underwriter's Warrant issued to Rickel & Associates,
          Inc.(2)

 4.3      Indenture between the Company and Marine Midland Bank, as
          Trustee, dated April 30, 1998.(8)

 4.4      Form of $160,000,000 13% Senior Note, Series A, due 2005.(8)

 4.5      Form of $160,000,000 13% Senior Notes, Series B, due
          2005.(10)

 4.6      Form of Warrant to purchase Common Stock expiring May 1,
          2005.(8)

10.1      Purchase Agreement between the Company and ING Baring (U.S.)
          Securities, Inc. (the Initial Purchaser), dated April 24,
          1998.(8)

10.2      Warrant Agreement between the Company and Marine Midland
          Bank, as Warrant Agent, dated as of April 30, 1998.(8)

10.3      Registration Rights Agreement between the Company and the
          Initial Purchaser, dated as of April 30, 1998.(8)

10.4      Warrant Registration Rights Agreement between the Company
          and the Initial Purchaser, dated as of April 30, 1998.(8)

10.5      Escrow and Security Agreement between Marine Midland Bank,
          as Escrow Agent, Marine Midland Bank, as Trustee, and the
          Company, dated as of April 30, 1998.(8)

10.6      1995 Stock Option Plan, adopted September 29, 1995.(1)

10.7      1998 Stock Option Plan, adopted April 16, 1998.(9)

10.8      Irrevocable Proxy Agreement between Harpoon Holdings Ltd.
          and Marc H. Bell, dated as of October 1, 1995.(1)

10.9      Employment Agreement between Marc H. Bell and the Company,
          dated as of April 10, 1998.(13)

10.10     Share Deposit Agreement between Marc H. Bell, Harpoon
          Holdings Ltd., the Company, and Rickel & Associates Inc.(2)

10.11     Agreement of Lease between the Company and Puck Associates,
          dated as of July 23, 1996.(3)

10.12     Loan and Security Agreement between Finova Capital
          Corporation (Finova) and the Company, dated as of May 1,
          1997.(4)

10.13     Guaranty by NAFT in favor of Finova, dated as of May 1,
          1997.(4)

10.14     Guaranty by NAFT Computer Service Corp. in favor of Finova,
          dated as of May 1, 1997.(4)

10.15     Guaranty by Bluestreak Digital, Inc., in favor of Finova,
          dated as of May 1, 1997.(4)

10.16     Guaranty by PFM Communications, Inc., in favor of Finova,
          dated as of May 1, 1997.(4)

10.17     Promissory Notes to the Company, from Marc H. Bell, dated
          April 2, 1997 and June 30, 1997.(6)

10.18     Agreement by and between the Company and Value Management &
          Research GmbH for the sale of an aggregate of 382,609 shares
          of Common Stock, dated as of September 24, 1997.(5)

10.19     Agreement between Bell Technology Group Ltd., and Cisco
          Systems Capital Corporation granting credit approval for
          $1,000,000 for leasing transactions, dated as of December
          15, 1997.(7)

10.20+    Purchase Agreement between Hanover Equities, Inc. and the
          Company dated as of June 2, 1998.(12)

10.21+    Purchase Agreement between Young Woo and the Company dated
          as of June 2, 1998.(12)

10.22     Lease between Mission Plaza LLC and the Company dated as of
          July 24, 1998.(13)




10.23     First Amendment to Lease by and between Mission Plaza LLC
          and the Company dated October 8, 1998 and effective as of
          July 24, 1998.(13)

10.24     Lease by and between Corston Holdings Limited, Globix
          Limited and the Company dated October 15, 1998.(13)

10.25     Deed of Guaranty between Bank Leumi (UK) Plc, Corston
          Holdings Limited, and Globix Limited dated October 15,
          1998.(13)

10.26     IRU Agreement between Qwest Communications Corporation and
          the Company dated as of October 5, 1998.(13)

10.27++   Letter Agreement between Princeton Capital LLC, Hanover
          Equities, Inc. and the Company, dated January 8, 1999.**

10.28++   Operating Agreement of BLP Acquisition LLC dated as of July
          2, 1998.**

21        List of Subsidiaries.(13)

23        Consent of Arthur Andersen LLP.*
</TABLE>

-------------------------
   * Filed herewith.

  ** To be supplied by Amendment to the Company's Registration Statement on 
     Form S-1 (File No. 333-70375) filed January 11, 1999.

   + Confidential treatment granted for certain portions of this Exhibit
     pursuant to Rule 406 promulgated under the Securities Act.
  ++ Confidential treatment to be sought for certain portions of this Exhibit
     pursuant to Rule 406 promulgated under the Securities Act.
 
 (1) Incorporated by reference to Registration Statement on Form SB-2 (File No.
     33-98978) (the Registration Statement) filed November 3, 1995.
 
 (2) Incorporated by reference to Amendment No. 2 to the Registration Statement
     filed January 23, 1996, declared effective January 24, 1996.
 
 (3) Incorporated by reference to the Company's Annual Report on Form 10-KSB/A
     for the year ended September 30, 1996.

 
 (4) Incorporated by reference to the Company's Report on Form 8-K/A filed July
     18, 1997.
 
 (5) Incorporated by reference to the Company's Report on Form 8-K filed October
     8, 1997.
 
 (6) Incorporated by reference to Amendment No. 4 filed November 6, 1997 to
     Registration Statement (File No. 333 23259) filed March 13, 1997.
 
 (7) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
     the year ended September 30, 1997.
 
 (8) Incorporated by reference to the Company's Report on Form 8-K filed May 11,
     1998.
 
 (9) Incorporated by reference to the Company's Proxy Statement on Schedule 14A
     filed on March 16, 1998.
 
(10) Incorporated by reference to the Company's Registration Statement on Form
     S-4 (File No. 333-57993) filed June 29, 1998.
 
(11) Incorporated by reference to the Company's Registration Statement on Form
     S-4/A (File No. 333-57993) filed August 7, 1998.
 
(12) Incorporated by reference to the Company's Report on Form 8-K/A filed
     September 16, 1998.
 
(13) Incorporated by reference to the Company's Report on Form 10-KSB filed
     December 29, 1998.