SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-K


Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934

For the fiscal year ended September 30, 1998 Commission file number 0-25492

                          IPC INFORMATION SYSTEMS, INC.
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             (Exact Name of Registrant as Specified in Its Charter)



                DELAWARE                                 58-1636502
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    (State or Other Jurisdiction of                     (IRS Employer
     Incorporation or Organization)                  Identification No.)

           Wall Street Plaza
             88 Pine Street
           New York, New York                               10005
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(Address of Principal Executive Offices)                  Zip Code


                                 (212) 825-9060
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              (Registrant's Telephone Number, Including Area Code)

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

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

                  Title of Class: Common Stock, $.01 Par Value

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X|  No |_|
                                              
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|

The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of November 30, 1998 was approximately $8.2 million based upon the
last sale price reported for such date on the American Stock Exchange.

The number of shares of the Registrant's Common Stock outstanding as of November
30, 1998 was 8,076,188.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders of IPC Information Systems, Inc. (the "Proxy Statement"), scheduled
to be held on February 9, 1999, are incorporated by reference in Part III of
this Report on Form 10-K.

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                                     PART I

ITEM 1. BUSINESS

Company Description

           IPC Information Systems, Inc. (together with its subsidiaries, the
"Company" or "IPC") is a leader in providing integrated telecommunications
equipment and services that facilitate the execution of transactions by the
financial trading community. Such transactions involve the trading of equity and
debt securities, commodities, currencies and other financial instruments. The
Company designs, manufactures, installs and services turret systems and installs
and services the cabling infrastructure and networks which provide financial
traders with desktop access to time-sensitive communications and data. The
Company's primary customers include securities and investment banking firms,
merchant and commercial banks, interdealer brokers, foreign exchange and
commodity brokers and dealers, securities and commodity exchanges, mutual and
hedge fund companies, asset managers and insurance companies. The Company uses
an integrated approach to marketing its products and services, leveraging its
established customer base throughout the financial trading community. In
addition, through its subsidiary, International Exchange Networks, Ltd.
("IXnet"), the Company operates an international voice and data network (the
"IXnet Network"), providing a variety of dedicated private line, managed data
and switched voice services, which has been specifically designed to meet the
specialized telecommunications requirements of the financial trading community.
In 1998, the Company's total revenues were $295.9 million and total earnings
before interest, taxes, depreciation and amortization ("EBITDA"), excluding a
non-recurring $10.6 million charge for change in control expense, was
approximately $44.6 million.

           The Company's three major operating units are:

           Trading Systems. The Company's sophisticated turret systems,
consisting of a desktop appliance connected with associated switching equipment,
provide highly reliable, "non-blocking" voice communications for trading
operations. In addition, these systems incorporate a proprietary design,
including many features designed to increase the trader's productivity, such as
expanded access to telephone lines, rapid call completion, high voice quality,
built-in redundancy, trader mobility, personalized call button layouts and the
ability to implement system upgrades via software changes as opposed to hardware
changes. The Company estimates that it has the largest installed base of turrets
in the world, including a majority of the installed base of turrets in New York
City and a significant presence in other major financial centers. The Company
offers a full-line of digital turret systems, including systems for trading
floors with over 1,000 trading positions as well as systems for smaller
operations with as few as five trading positions. The Company also provides its
customers with post-installation maintenance and service, often pursuant to
long-term contracts.

           Information Transport Systems ("I.T.S."). The Company's I.T.S.
division provides cabling infrastructure, design, installation and maintenance
services for high speed voice and data networks, including LANs, WANs and data
connectivity applications. The Company's I.T.S. engineers design and implement
intelligent network infrastructures to provide connectivity to a wide array of
customer-owned devices. The I.T.S. division's expertise includes network design,
utilizing components from suppliers such as Cisco, 3Com, Bay Networks and Xylan,
and the installation of all available physical transport media, including
copper, fiber optic and coaxial cable. I.T.S. services also include project
management 

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<PAGE>

for network infrastructure upgrades and on-site, as well as on-call, technical
support. The Company stations I.T.S. personnel on-site for many major customers.

           IXnet. IXnet has deployed the IXnet Network specifically designed to
address the needs of the global financial community. The IXnet Network uses
uniform equipment platforms and includes network operation centers ("NOCs") and
switches located in New York and London, points of presence ("POPs") and
customer access nodes ("CANs") in 17 financial centers including Frankfurt,
Paris, Zurich, Tokyo and Hong Kong and additional CANs in 34 other cities at
September 30, 1998. The IXnet Network employs leased dedicated long-haul
circuits to connect IXnet Network cities and leased dedicated local circuits to
connect customers to the IXnet Network. Because the IXnet Network is, for the
most part, leased, IXnet generally can rapidly expand capacity in response to
increased customer traffic while reducing the level of capital expenditures
required in advance of related revenues. However, IXnet participates in the
ownership of transmission facilities from time to time where it believes there
will eventually be sufficient traffic to improve gross margins. The IXnet
Network combines the benefits of high quality, security and end-to-end
connectivity from a single network provider, features which have historically
only been available through private networks, with the significant advantages of
lower cost, outsourced network management, and the ability for network
subscribers to communicate over dedicated circuits not only with other offices
of the same firm but also with other IXnet subscriber firms, without needing to
access multiple disparate public networks.

           Through IXnet, the Company provides a variety of telecommunications
services, including dedicated private line, managed data and switched voice
communications to its network subscribers. These services include specific
applications for the financial trading community such as turret-to-turret
communications, multi-location voice broadcast and on- and off-net long-distance
voice and data transport services. IXnet provides dedicated private network
connectivity to the financial trading community in the U.S., the countries of
the European Union, Japan, Hong Kong, Singapore and several other countries.
IXnet is authorized to provide interstate long distance voice service throughout
the United States, to provide international resale of long-distance services
between the United States and the United Kingdom, Canada, Sweden, New Zealand
and Australia, and to resell private line service to numerous international
points. See "Regulatory Environment." The installation of a CAN in a customer
location often leads to subsequent sales of additional telecommunications
services. As of September 30, 1998, the Company provided telecommunications
services to 236 customers and had 472 installed CANs.

           Merger

           On April 30, 1998, Arizona Acquisition Corp. ("AAC") was merged into
the Company (the "Merger"). Under the terms of the Merger, each share of common
stock of the Company ("IPC Common Stock") was converted at the election of the
holder thereof into either (i) the right to receive $21.00 in cash or (ii) the
right to retain one share of common stock of the surviving corporation
("Surviving Corporation Common Stock"), subject to proration in certain
circumstances. Upon the Merger, the Company issued $247.4 million aggregate
principal amount at maturity ($180.0 million initial proceeds upon issuance) of
its ten year, 10 7/8% Senior Discount Notes due 2008 (the "Notes"). A portion of
the proceeds of the Notes ($145.6 million), together with $54.7 million of
capital provided by AAC (the "Equity Investment") were used to repurchase
9,536,665 shares of IPC common stock, at a price of $21.00 per share, from IPC
shareholders who did not elect to retain Surviving Corporation Common Stock upon
the Merger. Prior to the Merger, AAC was owned by (i) Cable Systems Holdings LLC
("CSH LLC"), whose membership interests were owned by Citicorp Venture Capital,
Ltd. and David 

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Kirby and John O'Mara, private investors, (ii) CSH LLC's indirect subsidiary
Cable Systems International, Inc. and (iii) the investment fund of Lawrence
Smith & Horey III, L.P. The Merger was accounted for as a leveraged
recapitalization; accordingly, the historical cost basis of the Company's assets
and liabilities has not been impacted by the Merger.

           In connection with the Merger, the Company incurred various
non-recurring costs totaling approximately $27.8 million. These costs consist
primarily of professional fees, printing costs, change of control costs and
other expenses. Of this amount, $10.6 million was recorded in fiscal year 1998
as a non-recurring charge for change in control expenses, comprised of certain
change in control bonuses and severance payments ($4.2 million), payments to
option holders upon cancellation of their stock options ($5.9 million) and
miscellaneous other expenses ($0.4 million).

           Simultaneous with the Merger, the Company acquired the remaining 20%
interest in IXnet (the "IXnet Exchange") through the issuance of 457,142 shares
of Surviving Corporation Common Stock.

           Initial Public Offering

           The Company was established in 1973 as Interconnect Planning
Corporation to provide telephone equipment specifically designed to perform in
the demanding environment of the financial trading community. In 1986, the
Company, then owned by Contel Corporation and known as Contel IPC, opened its
current manufacturing facility in the U.S. and commenced operations in the U.K.
In October 1991, the Company was acquired from Contel Corporation and renamed
IPC Information Systems, Inc. On October 3, 1994, the Company completed its
initial public offering of 6,500,000 shares of common stock at $7.50 per share,
adjusted for a two-for-one stock split effected in the form of a 100% stock
dividend in fiscal 1998.

The Industry

           Turret Systems. The turret systems industry is characterized by a
small number of manufacturers of highly specialized telecommunications systems
sold primarily to companies in the financial trading community. A trader
requires highly-reliable, non-blocking simultaneous access to multiple lines. In
order to meet these specific needs, a small number of manufacturers have
developed highly-specialized voice communications systems called turret systems.
Turret systems must be exceptionally reliable because of the time-sensitive
nature of trading activity and the high potential opportunity cost of a service
outage. The largest trading floors may contain in excess of 1,000 turrets, with
each turret providing access to hundreds of telephone lines.

           Telecommunications Services. The telecommunications marketplace has
experienced a transformation over the last decade. Improved technology and
increased competition, due in part to widespread regulatory reform, have
contributed to the rapid expansion of telecommunications traffic. The financial
trading community has grown significantly, while at the same time individual
firms have expanded operations to new international locations to compete in the
global marketplace. Many of these firms require extensive communication network
capabilities to remain competitive in this environment. The Company believes
that most readily available alternatives either do not adequately address the
specific needs for seamless, high performance international communications
between the various trading partners, or provide the required services in a
suboptimal manner which is neither ideal for the client nor cost effective for
the provider.

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           To date, financial trading firms have had two alternatives for
addressing their exacting telecommunications demands: (i) building a private
network, thereby incurring substantial development and ongoing costs while
primarily providing connectivity among various locations of a single firm; or
(ii) utilizing the broad based common carriers' public networks, which consist
of numerous non-homogeneous systems and services offered by a multiplicity of
local and long distance providers in different national markets. Presently, a
substantial portion of international communications, including services marketed
by some of the largest telecommunications carriers and the global
telecommunications alliances as "virtual private network" services, are
typically conducted through disparate public networks and service organizations
that do not offer the quality, services, reliability or timeliness of delivery
that would be available through a dedicated private network.

           LAN/WAN Infrastructure, Design, Installation and Maintenance.
Integrated high speed internal data communications networks have become critical
to financial services companies. Companies are installing increasingly complex
computing environments centered around LANs and WANs that connect networked
desktop personal computers and workstations, printers, telecommunications
equipment, file servers and facsimile machines. As network requirements have
grown and network designs have become more complex, many companies have chosen
to outsource their LAN/WAN design, installation and maintenance needs to
independent specialists.

Business Strategy

           The Company's strategy is to leverage its leading market position in
voice trading systems and established customer relationships to become the
preferred network services provider to the financial trading community. The
principal elements of the Company's business strategy include the following:

           Increase Market Share of Turret Systems on Large Trading Floors. The
Company estimates that its turrets represent a majority of the total installed
base of turrets in New York, approximately 32.5% of the total installed base of
turrets in London and lower percentages in other financial centers such as Hong
Kong, Tokyo and Frankfurt. Between 1994 and 1998, the Company estimates that it
increased its market share in London from 24% to 32.5%. The Company believes
that there is substantial opportunity to achieve significant increases in other
financial centers by dedicating additional sales and marketing resources and by
focusing on the large installation opportunities the Company expects will
continue to be created by the financial services industry expansion and
consolidation trend. The Company expects to further grow market share as its
customers expand to new locations and standardize their technology platforms.
The Company also believes it will generate substantial new sales from existing
customers who upgrade their older analog turret systems with digital systems;
currently, analog systems represent less than half of the Company's installed
base of turrets.

           Penetrate New Markets. The Company's turret systems have
traditionally been designed as "high-end" products offering optimal performance
for large trading organizations at premium prices. The Company has enjoyed
strong market share among large trading organizations such as global investment
banks and is now focusing on penetrating other markets. These markets include
smaller broker/dealers, hedge funds and asset management companies, commodity
trading operations in non-financial firms (such as energy-related companies) and
regional trading organizations based in emerging markets which typically require
either smaller installations or less functional capability. The Company has
recently completed development of two new products to meet the needs of these
customers: the VS-MX, a turret system designed to be cost effective for the
smallest trading organizations; and TraderConnect, a Centrex-like managed turret
and telecommunications service. The

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VS-MX system, which the Company began to ship in the spring of 1998, shares most
of the features of the Company's flagship Tradenet MX(R) product while providing
comparable price performance per trading position for locations with between
five and 16 trading positions. The Company believes that this product will
enable it to penetrate new geographic markets in Latin America and Asia, as well
as smaller trading operations in established markets. The Company also offers
the MX Compact, a turret system designed for trading floors with 16 to 40
trading positions. TraderConnect is a managed service in which the Company owns
and operates a centrally-located, shared trading turret system and provides
IXnet Network services to the customer. TraderConnect meets the needs of trading
organizations that either cannot afford the upfront investment of a full turret
system or prefer to outsource. The Company offers TraderConnect in New York.

           Leverage Existing Customer Relationships to Provide Enhanced
Telecommunications Services. The Company believes it is in a strong position to
provide private network services via IXnet to the financial trading community by
virtue of IPC's large installed base of turret systems and established
relationships with many of the largest firms involved in global trading
activity. The Company believes its reputation for high quality service will
enable it to capture portions of the telecommunications services revenue
generated by these clients. A substantial portion of the total
telecommunications spending by financial services firms is generated by trading
operations using turret systems. In addition, the Company believes that its
ability to provide fully managed turret-to-turret connectivity between users of
IPC turret systems, with a single point of contact for all customer service
issues, will be a competitive advantage.

           Leverage I.T.S. Expertise. The Company intends to leverage I.T.S.'s
expertise in the design, integration and installation of data networking
equipment (such as routers and hubs) to provide turnkey managed data services
and ongoing support of data networking equipment located at the Company's client
sites. In addition, the Company intends to narrow its focus on the higher margin
components of design, installation and support of LANs, WANs and data
connectivity and reduce its involvement in the more competitive and lower margin
cabling infrastructure projects.

           Broaden IXnet Customer Base to Include Buyside Participants. While
many of the largest investment banks and broker/dealer firms have either created
their own private networks or contracted for managed private network services,
most if not all of these firms still rely on public switched networks for
communications with trading counterparties and customers on the "buyside"
(mutual fund companies, asset managers and hedge funds). By targeting buyside
participants, the Company intends to increase the number of subscribers to the
IXnet Network. As the number of buyside participants connected to the IXnet
Network increases, the incentive for "sellside" participants and market data and
application providers to use the IXnet Network to communicate with these buyside
participants is expected to increase.

           Exploit First-Mover Advantage. The Company believes that it is one of
the first to offer an international, inter-firm private network (extranet)
service dedicated primarily to the financial trading community, and that the
high concentration of telecommunications traffic among financial trading
community participants will enable the Company to leverage its first-mover
advantage into a position as the preferred service provider to the financial
trading community. As the number of customer locations connected to the IXnet
Network grows, the appeal of the network to prospective customers increases. The
limited number of financial trading community participants amplifies this effect
and enables the Company to achieve significant penetration of the target
customer base. Commercially launched in the 

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spring of 1996, IXnet had 131 customers as of September 30, 1997 and 236
customers as of September 30, 1998.

           Reduce Risk by Scaling IXnet Network Expansion to Customer Additions.
IXnet's business plan is based on a success-driven network investment program,
which generally calls for the addition of network equipment and transport
capacity as required by the addition of new customers to the network or the sale
of additional services to existing customers, as opposed to in advance of such
events as is typical of facilities-based telecommunication services firms. Given
the availability of local fiber facilities at competitive rates in many of the
world's financial centers, as well as the competitive market for transport
capacity on major international routes, the Company believes IXnet will be able
to rapidly provision high-quality services without building its own fiber
facilities, although IXnet participates in ownership of transmission facilities
from time to time where it believes there is sufficient traffic to improve gross
margins. The capital investment required to expand the IXnet Network is
comprised largely of additional CANs and incremental additions to IXnet's
existing London and New York NOCs and various POPs.

           Accelerate Growth of IXnet by Acquisitions. The Company's growth
strategy for IXnet includes the acquisition of similar or compatible
telecommunications services firms with strong financial trading community focus.
The Company intends to use such acquisitions to accelerate IXnet's growth by
extending its geographic reach and also to improve its margins by increasing
utilization of the IXnet Network backbone over a broader customer base.

MXnet Acquisition

           During February 1998, the Company acquired MXnet, a provider of 
market data distribution services to market data providers. MXnet, based in
Jersey City, New Jersey, operates a "virtual warehouse" into which various
vendors feed market data. MXnet then redistributes the data to end users on
behalf of the market data providers. MXnet aggregates data from over 20 sources
and delivers the content down a single aggregate access line to the end user.
MXnet was initially focused on offering a lower-cost approach for market data
delivery to small and medium sized firms. The MXnet approach reduces these
firm's need for expensive standalone market data terminals while giving them the
full benefits of all the market data sources available through the warehouse.
IXnet is expanding the targeted end user group to include larger firms and other
firms already connected to the IXnet Network.

           IXnet has completed merging the MXnet and IXnet Network operations.
In addition, IXnet leverages MXnet's expertise in market data, trading
applications, and internet protocol ("IP") networking to offer market data and
content delivery in additional markets around the world. The Company believes
that the attractiveness of the IXnet Network to existing and potential customers
is heavily influenced by the quantity of other firms on the network as well as
the quality of content that can be accessed via the network. IXnet management
believes that the customers, technical expertise and content acquired with MXnet
have provided a significant advance to its data and content delivery
capabilities.

Saturn Global Network Service Holdings Ltd.

           On December 18, 1998, IXnet acquired Saturn Global Network Service
Holdings Ltd. ("Saturn") from Marshalls Finance Ltd. for a cash payment of $36.1
million and notes guaranteed by the Company in the amount of $12.5 million (See
"Subsequent Events" in "Liquidity and Capital Resources" section). 

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The agreement to purchase Saturn had been signed in August 1998 and closing
occurred after obtaining regulatory approval and following renegotiations of
certain terms.

           Saturn, a UK Holding Company, owns telecommunication network
operating subsidiaries in the United Kingdom, USA, Hong Kong, Australia, Japan
and Singapore. It has established a business selling managed premium grade voice
and data communication services to the financial community, similar to IXnet,
but focused on Europe, Australia and the Pacific Rim; therefore, it's customer
base and network facilities are geographically complimentary to IXnet.

Products and Services

           The Company is involved in (i) the design, manufacture, installation
and maintenance of voice telecommunications systems (known as turret systems)
primarily for the financial trading community (including turret systems and
other associated products); (ii) the design, installation and maintenance of
data networks and associated cabling infrastructures (I.T.S.); and (iii) the
provision of voice and data telecommunications services to the financial trading
community (IXnet). These products and services represented 65.7%, 27.7% and
6.6%, respectively, for the fiscal year ended September 30, 1997 and 66.5%,
21.4% and 12.1%, respectively, for the fiscal year ended September 30, 1998, of
the Company's consolidated revenue.

Turret Systems

           A turret system is a sophisticated telephone system consisting of
desktop consoles and backroom switching equipment, used by trading personnel
requiring rapid access to multiple telephone lines. Turrets provide nearly
instantaneous connection to the call recipient and a high degree of reliability.
A turret system is installed in addition to, and communicates with, a company's
PBX, but has enhanced features compared to a PBX.

           Key features of the Company's turret systems include:

           Reliability. On a trading floor, a lost connection can result in a
lost transaction, and a outage of the entire telecommunications system can be
extremely damaging to a trading firm. IPC's turret systems are designed with a
distributed architecture utilizing redundant equipment and circuitry with
parallel internal transmission paths. This architecture ensures that no single
component failure within the system can cause the failure of the entire system.

           Call Capacity. IPC's turret systems are "non-blocking," designed to
allow every user to be on one or more telephone lines at the same time without
call blocking or degradation of call setup speed. The Company's flagship
Tradenet MX system is designed to support up to 23,000 telephone lines in
simultaneous use by up to 4,000 user positions. In sharp contrast, a typical PBX
configuration accommodates only approximately 20% of users speaking at the same
time.

           User Programmability and Mobility; Speed. IPC's digital turret
systems allow each trader to customize their desktop configuration with personal
speed dials, direct connections and associated displays, and to store the
settings in the system's back room switching equipment. Traders are able to
access their customized settings from any turret connected to the system, or
through systems that are networked together or through an internet/intranet
connection.

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           The Company has historically focused on large trading organizations.
The Tradenet MX is designed for trading floors from 40 to over 1,000 positions.
The MX Compact, introduced in 1994, is designed for trading floors between 16
and 40 positions. The VS-MX, which the Company began to ship in the spring of
1998, is designed for trading floors with between five and 16 positions. The
entire MX product line utilizes similar hardware and software, has common
interfacing (all of which facilitates upgrading) and can be interconnected and
integrated in order to meet the requirements of customers with multiple trading
floors of various sizes.

           The Company's turret systems products and services include the
following:

           Large Trading Systems. The Company's flagship turret product is the
Tradenet MX system. Tradenet MX is a fully digital proprietary system based on a
fault tolerant switch which is not vulnerable to isolated component failure. Its
distributed architecture design provides reliability by harnessing the computing
power of multiple Sun Microsystems SPARC microprocessors throughout the system
and provides rapid and easily programmable switching of voice calls. Tradenet MX
is designed to allow software upgradability of features and applications without
major hardware upgrades. Because they are mainly software-based, such upgrades
can be made quickly to enable the Company to respond rapidly to developments in
the market or to a customer's specific request. The customer can maintain a
continually up-to-date system by periodic upgrading of software. The current
list price range for the Tradenet MX is between $8,500 and $15,000 per user
position depending on the configuration and features required.

           Medium-sized Trading Systems. The Company provides MX Compact, a less
costly version of Tradenet MX, for medium-sized locations. MX Compact is
designed for trading operations between 16 and 40 trading positions at a single
site, such as branch offices or those located in smaller markets. The MX Compact
is packaged in a single cabinet and is competitively priced, while retaining all
of the same advanced features as the Tradenet MX.

           Small Trading Systems. In the spring of 1998 the Company released a
new product called the VS-MX. The VS/MX supports trading operations requiring
between 2 and 16 positions and is targeted towards asset managers, hedge funds,
emerging markets and smaller energy and commodity trading firms. It supports all
of the advanced features of the Tradenet MX system and can be connected to
larger Tradenet MX systems via line networking to allow sharing of lines.

           Turret Service. A significant portion of the Company's revenue from
turret systems is related to post-installation service and is generated (i)
under annual and long-term service contracts and (ii) from incremental sales of
turrets and related equipment for "moves, adds and changes" to existing IPC
trading floor installations. For fiscal year 1998, turret service revenue
accounted for $63.6 million of the Company's $196.8 million in revenue from
trading systems. Turret service revenue has historically been very stable and
less subject to cyclical changes in the strength and growth of the financial
trading community. Following a standard one-year warranty period after
installation of a turret system, a customer generally enters into an annual or
multi-year service contract with the Company. These contracts typically cover
full time on-site technical support by IPC technicians and on-call technical
support by IPC personnel for smaller trading operations. As of September 30,
1998, the Company had over 90 technicians servicing ongoing contracts, primarily
in New York and London. "Moves, adds and changes" ("MACs") revenue is generated
whenever a customer adds additional trading positions to an existing IPC trading
floor or makes changes to the turret system configuration. MACs produce a steady
and relatively predictable revenue stream for the Company.

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           Centralized Trading Systems. In June 1997, the company introduced a
centralized trading system called TraderConnect. TraderConnect is a turn key
service offering whereby the Company provides turrets at the customer premises
while operating and maintaining the backroom switching equipment at a remote
location. The service is akin to the Centrex method of providing centralized PBX
services. Clients are billed monthly based on their number of positions and
network usage. TraderConnect provides customers with many of the features
available to owners of larger MX systems without the large capital outlay
associated with an equipment purchase.

           TradePhone MX. The Company also manufactures a multi-button telephone
called the TradePhone MX that is designed to operate with the Tradenet MX family
of turret systems. This product was introduced in May of 1997 and is targeted at
trading support, sales and research personnel that have a need to communicate
directly with traders. It provides connectivity to the MX system with the
feature functionality of a trading turret in a scaled-down unit that is suitable
for off trading floor use.

           The World Turret. The World Turret is a JAVA(TM) software application
that provides traders remote access to their trading system via the internet or
a corporate intranet. Using a standard PC or laptop traders are able to access
all of their lines and services from any remote location. The World Turret
provides traders full feature functionality and real time performance via
standard voice and data connections.

           Exchangefone. Exchangefone is an extremely rugged telephone
specifically designed for use on exchange floors. Exchangefone uses distributed
microprocessor technology to provide ease of feature customization and reduce
the amount of cable required between the trading floor and backroom switching
equipment.

           Open Line Speaker Systems. The Company manufactures open-line,
digital speaker systems for the financial trading community. These speaker
systems, which are sold either as an integral part of a turret system or on a
stand-alone basis, provide full-duplex continuous communications, enabling
brokers to communicate rapidly on a "hands-free" basis without having to dial a
telephone number. From a single microphone, brokers can broadcast simultaneously
to numerous trading counterparts. Additionally, these speaker systems contain
digital signal processor software which enables them to function effectively in
a noisy trading floor environment.

           Other Products and Services. In order to offer a broader product
line, IPC remarkets various other products, including PBX systems, video
conferencing equipment and voice logging and recorder devices.

The IXnet Network

           IXnet was founded by several individuals with experience in
developing and providing telecommunications solutions to the financial trading
community and began commercial operations in the spring of 1996. IXnet
capitalizes on several characteristics of the target customer base: rapid
changes in technology requiring constant reevaluation of previous technology
decisions and new investments to remain competitive; internal telecommunications
departments focused on intra-firm communications via private networks rather
than on communications with trading counterparties; demand for high performance
communications between firms; difficulties in dealing with multiple vendors,
particularly in international markets; significant disparity between the pricing
and underlying 

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<PAGE>

costs of international communications traffic; and no uniform global technology
platform for international communications.

           IXnet has implemented a network specifically designed to address the
needs of the financial trading community. The network consists of Company-owned
switches, POPs, CANs and NOCs, and uses primarily leased transport capacity.
Significant features of the IXnet Network include the following:

           Uniform Equipment Platforms. The IXnet Network is based on a
Newbridge Network Corporation ("Newbridge") managed transport network overlaid
with Northern Telecom Ltd. ("Nortel") switches for enhanced voice services and
routers made by Cisco Systems, Inc. for enhanced data services. Newbridge
network access nodes and network management software are located at the
Company's POPs, while CANs are directly installed at the customers' premises.
The Newbridge platform provides high performance, advanced features and global
network management which allows for rapid provisioning and end-to-end network
diagnostics from the Company's facilities to each customer's premises. The
Company owns a Nortel DMS-500 digital switch located in New York City and a
Nortel DMS-100E digital switch located in London. These switches are equipped
with the latest advanced intelligent networking ("AIN") and common channel
signaling system 7 ("SS7") capabilities, allowing for universal availability of
services, rapid provisioning of service, short call setup times and a single
network management and control system to enhance network performance.

           Transport Facilities. IXnet utilizes multiple carriers to provide
access facilities from customer premises to IXnet POPs. Such carriers include
incumbent local exchange carriers ("ILECs"), competitive access providers
("CAPs") and competitive local exchange carriers ("CLECs"). Access from the
customer sites is typically via a digital facility, using one or more dedicated
T-1 or E-1 fiber optic links. In addition, the Company leases and acquires
bandwidth from regional and international common carriers to link its network
locations. In most of its market areas there are multiple competitive providers
of fiber optic capacity.

           Network Operation Centers. The Company currently has fully
operational NOCs in New York City and London, which house the specialized
equipment necessary for managing the network. The NOCs contain systems allowing
for the display of alarms for all equipment conditions, testing of adverse
conditions, re-routing of traffic to other equipment or networks, management
notification of critical conditions and provisioning of customer bandwidth.
While the New York City NOC acts as the overall operations control center for
the entire IXnet Network, either NOC can independently support the IXnet
Network. The New York NOC is fully manned, on a 7 day, 24 hour basis.

IXnet Services

           IXnet services fall into three categories: dedicated private line
services, managed data services and switched voice services. Dedicated private
line services include the following:

           IXLink. IXLink is a managed dedicated private line service which
provides voice and/or data transmission on circuits ranging in capacity from 8
Kbps to 2 Mbps. The service features include high quality digital connectivity
worldwide and end-to-end circuits which eliminate the need for multiple vendors.
These services are provided for both intra-firm and inter-firm communications.

                                       10
<PAGE>

           DigiHoot. DigiHoot is a single sourced digital "hoot & holler"
service with network management and speaker equipment provided as part of an
integrated offering. Hoot & holler networks are specialized open line voice
conference systems that trading firms operate to allow continuous
mission-critical contact between various trading locations. This service
combines the IXnet high performance international network with IPC's MX turret
systems and IPC's speaker systems for a total desktop to desktop managed
solution. Digital connections and bridging provide clear communications and
IXnet supports the service with 24-hour network management and customer support.
DigiHoot service can be rapidly provisioned and reconfigured to meet customer's
demand for a flexible trading environment.

           MetroLink. MetroLink is a private line service that connects IPC's MX
customers within the same metropolitan area. IXnet serves as a single source
provider of hardware and connectivity from turret to turret. Compared to the
analog connections typically provided by the ILEC, MetroLink provides faster
circuit provisioning, end-to-end managed digital connectivity and reduced
installation cost and space requirements at a competitive price. MetroLink is
currently offered in New York City, and the Company intends to offer this
service in other cities as the regulatory environment and customer demand
warrants.

           Liquidity. Liquidity is a managed inter-firm and intra-firm data
network service which is also frame relay based. Liquidity provides secure
delivery of time-sensitive financial applications and information such as
electronic trading, market data and FIX (Financial Information Exchange)
messages. Its standard features include: a Cisco router supplied, owned and
managed by IXnet, network performance guarantees and real time network
performance reporting.

           MXnet. MXnet is a recently acquired subsidiary that owns and operates
a network facility in New Jersey, distributing Reuters, Bridge and other market
data and applications to smaller trading floors.

           Switched voice services provided by IPC include the following:

           IXGlobal. IXGlobal is IXnet's on-net switched voice service. It
provides a seamless international virtual private voice network service to the
financial trading community over a uniform switching platform. Because IXnet
provides end-to-end connectivity among all IXnet subscribers, it is able to
provide the same high performance characteristics presently available only on
dedicated private networks. Features of IXGlobal include: preferential pricing
for on-net calls to IXnet subscribers, fast call completion and AIN features
including caller ID, conference calling, call forwarding, etc., customized
billing formats for the financial trading community and network control and
account management.

           All switched calls between IXGlobal subscribers are carried entirely
on-net (i.e., not terminated through LECs that impose access charges). As a
result, IXnet can provide customers with substantial discounts for IXGlobal
calls, while still enjoying favorable margins. Accordingly, as more members of
the financial trading community come onto the IXnet Network, the Company expects
the attractiveness of this service to improve.

           IXPrime. IXPrime is IXnet's off-network switched voice service.
Unlike IXGlobal, IXPrime calls terminate to off-net locations. Features of
IXPrime include switched or dedicated originating access and simplified pricing
for calls.

                                       11
<PAGE>

           IXnet has a flexible and highly capable operational support system
which provides efficient management of "back office" functions such as order
entry, trouble ticket monitoring, provisioning and reporting. The system is
centered around an Oracle database for centralized customer and system
information. Billing is provided by a flexible system which allows the
customization of customer invoices. For all of its services, IXnet provides
flexible billing format and media, including clear and concise calendar month
invoicing which allows the user to see actual costs for each different service.
IXnet also offers optional local currency billing.

Information Transport Systems

           The Company's I.T.S. division provides cabling infrastructure,
design, implementation and maintenance services for high speed data networks,
including LANs and WANs, with a primary focus on the financial trading
community. This business line includes four major product and service areas:
value-added services, networking products, cabling infrastructure and network
maintenance and support. Customers purchase these products and services, which
are cross-marketed with IPC's turret systems, on a stand-alone basis or in
bundled combinations. Over 80.7% of the Company's fiscal 1998 I.T.S. revenue was
from jobs performed in the New York City metropolitan area. In addition, I.T.S.
has a core group of highly skilled project managers and design engineers who are
dispatched to manage installation projects elsewhere.

           Value-Added Services. The Company provides a wide range of
value-added services, including network and trading room design, consulting,
engineering implementation, project management, staging and operational testing
of workstations and technology and operational outsourcing.

           Networking Products. The Company markets and services a full line of
third-party manufactured networking products including LAN hubs, adapters,
bridges, routers, network management software and protocol converters. The
Company is a certified reseller of third party networking products, including
products from Cisco, 3Com, Xylan and Bay Networks. The Company sells these
products on a stand-alone basis or fully installed, configured and integrated
with customer systems.

           Cabling Infrastructure. Cabling infrastructure provides physical
connectivity among communications devices, including turrets, telephone
switching equipment (turret or PBX), facsimile machines, computer networks and
video conference facilities. Providing a customer with cabling infrastructure
includes several distinct phases: network design, documentation, installation,
certification and ongoing service and maintenance. The Company offers its
cabling infrastructure customers design input on various system elements,
including diversity of cable routing, uninterruptable power systems, security
safeguards and cable management systems. The Company intends to narrow its focus
on the higher margin components of design, installation and support of LANs,
WANs and data connectivity and reduce its involvement in the more competitive
and lower margin cabling infrastructure projects. The Company places special
emphasis on the testing and certification phases of the project since today's
high speed networks demand that products be installed in accordance with strict
manufacturer specifications.

           Network Maintenance and Support. The Company offers a broad line of
post-installation maintenance and support services to customers for "moves, adds
and changes" or as part of a long-term technical services contract. These
contracts provide customers with access to a wide range of IPC technical and
operational resources, including network engineering analysis, on-site technical
support, help desk support, user training and network reconfiguration. These
services provide the Company with 

                                       12
<PAGE>

a recurring revenue stream which, in fiscal 1998, accounted for $23.2 million of
total I.T.S. revenue of $63.3 million.

Impact of the Year 2000

        The Year 2000 issue is the result of computer-controlled systems using
two digits rather than four to define the applicable year. For example, computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, deliver products and
services to customers, send invoices, or engage in similar normal business
activities.

        The Company has assessed its Year 2000 compliance for the products that
it manufactures and the services it provides, along with those products
manufactured by others which the Company represents and sells. The Company is
taking steps to obtain Year 2000 compliance status updates from vendors that
supply products for resale and services which the Company either uses internally
or resells as part of the Ixnet Network and expects to conclude on remedial
alternatives, if any, by June 30, 1999. Until such compliance updates are
complete, the Company will not be able to completely evaluate whether its
systems, products or services will need to be revised to be Year 2000 compliant.
However, at this point in time, the Company believes that its products and the
products it represents are Year 2000 compliant or can be made Year 2000
compliant with upgrades to both the hardware and software made available by the
Company and its vendors.

        In addition, the Company has made available to its customers its trading
system laboratory located in Westbrook, CT to independently verify and test such
compliance.

        The Company is in the process of converting to an enterprise-wide
management information system which, through software updates to both the
application and operating systems scheduled to be completed by June 30, 1999, is
expected to be Year 2000 compliant.

        To date the Company has not incurred and does not expect to incur any
material expenditures in connection with identifying, evaluating or addressing
Year 2000 compliance issues, with the exception of the conversion to the
enterprise-wide management information system, which was undertaken for
operational reasons. Most of the Company's expenses in connection with Year 2000
compliance 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.

        The Company is not aware of any Year 2000 compliance problems related to
its systems that would have a material adverse effect on the Company's business,
results of operations and financial condition. There can be no assurance that
the Company will not discover Year 2000 compliance problems in its systems,
products or services that will require substantial revision. In addition, there
can be no assurance that third-party software, hardware or services incorporated
into the Company's material systems, products or services will not need to be
revised or replaced, all of which could be time-consuming and expensive. The
failure of the Company to fix or replace its internally developed software,
third-party software, hardware or services on a timely basis could result in
lost revenues, increased operating costs, the loss of customers and other
business interruptions any of which could have a material adverse effect on the
Company's business, results of operations and financial condition. Moreover, the
failure to adequately address Year 2000 compliance issues related to its
products and services 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 third party providers of
products and services, including telecommunications and utility companies, and
the Company's customer base, primarily in the financial services industry, will
be Year 2000 compliant. The failure of such entities to be Year 2000 compliant
could result in a systematic failure, beyond the control of the Company, such as
prolonged telecommunications or electrical failure, or the inability of
customers to make payments for services, which could have a material adverse
effect on the Company's business, results of operations and financial condition.

        As discussed above, the Company is engaged in an ongoing Year 2000
compliance assessment and has not yet developed any contingency plans. The
results of the Company's enterprise-wide system conversion and responses
received from vendors and service providers will be taken into account in
determining the nature and extent of any contingency plans.

Sales and Marketing

           IPC uses a team approach to sales and account management across its
lines of business. Customers are assigned a multi-disciplinary sales/service
team (except where turret systems are marketed through distributors) in order to
leverage IPC's existing extensive customer relationships, to present a unified
Company approach and to coordinate service offerings. IPC's sales efforts are
organized on an international basis in order to promote relationships with and
provide enhanced service to customers who have significant international
operations. This is a departure from the historical location-by-location and
project-by-project approach taken by turret vendors and service providers and
reflects the consolidation trend in the financial trading community and
customers' preference to utilize common technology and services throughout their
organizations. Account executives are compensated for identifying and developing
revenue opportunities outside their lines of business. The Company presently
markets its turret and I.T.S. products and services domestically and in key
international financial centers. This is accomplished through a combination of
distribution channels including both direct and distributor sales.

                                       13
<PAGE>

            The Company employed 39 direct sales representatives for its turret
systems and I.T.S. products and services as of September 30, 1998 , in sales
offices and service locations in:

            Domestic:                                    International:
               Atlanta             Houston                  Hong Kong
               Boston              Los Angeles              London
               Chicago             New Jersey               Paris
               Cincinnati          New York City            Toronto
               Connecticut         Philadelphia             Zurich
               Dallas              San Francisco


           The Company also has distributors for its turret systems in the
following countries:

               Argentina           Indonesia                Singapore
               Australia           Japan                    Taiwan
               Brazil              Malaysia                 Thailand
               France              Mexico                   Venezuela
               Germany             New Zealand
               Italy               Philippines

           These distributors receive extensive training from the Company, are
qualified in turret sales and maintenance, and provide qualified systems
engineers to support customers.

           IXnet services are marketed and sold by experienced network sales
professionals dedicated to the IXnet service offering. As of September 30, 1998,
IXnet had a total of 27 network sales professionals, including 18 in the United
States, and the remainder in the United Kingdom, Canada and France. The Company
intends to add sales professionals in these locations and in other key locations
as its expansion continues. The Company also sells IXnet services through agents
in selected international markets including Tokyo and Frankfurt.

           Non-U.S. markets are important to the Company. The following table
shows the approximate distribution of the Company's consolidated revenue for the
fiscal years indicated:

<TABLE>
<CAPTION>
Region                                              For the Years Ended
                                              ---------------------------------
                                                 1996       1997       1998
                                              ---------------------------------
<S>                                               <C>        <C>        <C>
New York.....................................     56%        59%        52%
                                                                        
Rest of the United States and North America..     19         17         19
                                                                        
United Kingdom...............................     19         19         24
                                                                         
Rest of World................................      6          5          5
                                              ---------------------------------
                                                                          
           Total.............................    100%       100%       100%
</TABLE>

                                       14
<PAGE>

           IPC maintains a high profile in the financial services market by
publicizing contracts won, advertising in industry publications and
participating in relevant industry trade shows. The Company also actively
participates in industry seminars to communicate IPC's capabilities to
prospective customers and maintains a staff of experienced marketing
professionals who generate promotional brochures and training materials.

Customers

           The Company's customers are concentrated primarily in the financial
trading community which includes securities and investment banking firms,
merchant and commercial banks, interdealer brokers, and foreign exchange and
commodity brokers and dealers, securities and commodity exchanges, mutual and
hedge fund companies, asset managers and insurance companies. The Company also
provides equipment and services to commodity trading operations in non-financial
firms (such as energy-related companies). Historically, almost all of the
Company's consolidated revenue has been derived from sales to customers in the
financial trading community. In fiscal 1998 and 1997, no single customer
accounted for more than 10% of the Company's consolidated revenues.

Backlog

           As of September 30, 1998, the Company had a backlog of purchase
contracts representing approximately $61.1 million of future revenue, as
compared with approximately $53.4 million as of September 30, 1997. Due to the
size and lead time of orders, which can vary substantially, and because the
Company recognizes revenue upon the completion of an installation, the amount of
backlog at any date may not be indicative of actual sales for any subsequent
period. The Company's backlog includes only orders for new installations and
does not reflect annual or multi-year service contracts or orders for the
reconfiguration, alteration or expansion of existing systems, as such orders are
normally completed within one month.

Research and Development

           IPC's Tradenet MX product family is recognized within the financial
trading community as providing a high standard of reliability, performance and
functionality. IPC works closely with its customers to understand their future
requirements and invests in research and development to ensure its products
address customer needs. For the fiscal years ended September 30, 1996, 1997 and
1998, the Company recorded expenses of $11.5 million, $10.0 million and $10.0
million, respectively, on research and development. Such amounts are
predominantly related to the continued development of the Tradenet MX family as
well as in developing its next generation of voice-based trading system
products. Additions to the Tradenet MX product line include TraderConnect, the
VS MX System and the WorldTurret MX. At September 30, 1998, the Company employed
84 persons in the area of research, development and product engineering.

           In addition to developing new MX system features and functionality,
IPC intends to strongly emphasize product integration of the MX product line
with the IXnet Network. This integration is intended to remove the traditional
boundaries between internal turret systems and external telecommunications
networks.

                                       15
<PAGE>

           Interoperability and integration of traders' desktop systems will
remain a strategic focus. IPC intends to utilize its core competencies in call
processing, Computer Telephony Integration ("CTI") and fault tolerant switching
to provide solutions which meet the evolving needs of its customers.

Manufacturing

           The Company manufactures its turret system products at an 85,000
square-foot Company-owned manufacturing facility in Westbrook, Connecticut. The
facility houses production lines, a repair department, inventory, a training
center and various support functions, including production scheduling,
purchasing and quality assurance personnel. The Company's management believes
that the manufacturing facility and its resources are capable of handling
expected demand for the foreseeable future. The Company believes that there are
adequate supplies of labor in the immediate area of the Westbrook facility.

           Most turret components have a relatively short lead time of
approximately 30 days. However, there are a few long lead time items,
specifically displays and buttons, that need up to 24 weeks order time. The
Company purchases certain key product components that are made to order from
single source suppliers. Materials are ordered in accordance with a production
forecast that is derived by constantly monitoring sales activity. Furthermore,
IPC has developed a "point-of-use" program whereby certain suppliers
pre-position their inventory in IPC's warehouse and IPC does not take ownership
until the components are needed. The Company believes that its relationships
with its suppliers are good, and it has not experienced supply difficulties.

Competition

      Turret Systems and LAN/WAN Infrastructure, Design, Installation 
and Maintenance

           The markets for turret systems and LAN/WAN infrastructure, design,
installation and maintenance are highly competitive. Although some of the
Company's competitors are substantially larger and have greater resources, the
Company believes that its strong market position is the result of its consistent
ability to produce high quality products, its established reputation for high
quality service, and its strong relationships with customers and experienced
management, sales and technical staffs.

           In the worldwide market for trading turrets, IPC's main competitor is
British Telecom ("BT"). The Company also competes with Hitachi Ltd., Telaid
Industries Inc., Etrali S.A. (a subsidiary of France Telecom), Telenorma GmbH (a
division of Robert Bosch GmbH), LM Ericsson Ltd. and Siemens A.G., which have
historically achieved strong market shares in their respective domestic markets.
The Company believes it is able to compete effectively against these companies
due to the high quality of its products, its reputation for providing
outstanding service and its ability to provide a standardized technology
platform on a global scale.

           Direct competitors to IPC in the I.T.S. business are numerous due to
the highly fragmented nature of the data networking market. Although a number of
companies compete for parts of what the Company includes in its customer
solutions (for example, cable installation), management believes that its
expertise and capability to support the full range of data network design and
installation requirements of large national and international customers enable
it to compete effectively in this market.

                                       16
<PAGE>

      Telecommunications Services Competition

           The nature of the telecommunications services market is changing
dramatically. These changes are creating opportunities for new market entrants.
Three major interrelated trends are apparent:

           The first is a trend toward market liberalization and the
introduction of facilities-based competition for both domestic and international
telecommunications services. This trend is accelerating a shift from single
national carriers, whether government or privately owned, to multiple carriers
and more competitive markets.

           The second is a trend toward the emergence of competition in many
foreign markets, allowing international carriers to transmit traffic without
paying artificially high prices to monopoly carriers. This competition has
reduced both the prices IXnet can charge as well as its transmission costs for
international traffic. The Company believes IXnet's focus on the specific needs
of the financial trading community will help it mitigate the effect of declining
prices, while the increasing competition among international carriers will
continue to drive down the wholesale prices of long haul transport capacity.

           The third trend is the increasing participation among major
international carriers in global alliances. The major telecommunications
alliances are Concert (BT & AT&T) and Global One (France Telecom, Deutsche
Telekom AG and Sprint Corporation). Such alliances, which may be based on either
equity or non-equity relations, are still new and not fully developed, either in
terms of corporate form or market strategy. To date, revenues to the alliances
from target markets, which include the global provision of enhanced services to
multinational corporations, are small relative to traditional international
voice traffic revenue. Nonetheless, such alliances are significant because they
represent individual national carriers attempts to meet the perceived desire of
multinational corporate customers to obtain worldwide telecommunications
services from a single provider.

           In addition to competing with the alliances, the Company also
competes with many additional carriers which provide service in single or
multiple markets, including Cable & Wireless plc, MCI Worldcom, Inc., Kokusai
Denshin Denwa Co. Ltd. (KDD), Swiss Telecom PTT and Hong Kong Telecom Ltd.

           The Company believes that it has certain competitive advantages over
existing carriers and the developing alliances, including its network design and
its strategic focus on the financial trading community. The participants in the
alliances, as common carriers, have designed broad-based networks to provide
service to the public at large. These networks utilize a variety of hardware and
software, making it difficult to implement a uniform global system platform that
provides the common set of features and performance characteristics demanded by
the financial trading community. While the alliances are a response to customer
demand for a single point of contact, by their nature the alliances have
difficulty implementing projects and servicing customers across corporate and
national borders. The IXnet Network is designed to meet the specific performance
requirements of the financial trading community. This single market focus and
the Company's ability to integrate its products and services allow the Company
to provide comprehensive single source solutions for its customers which
translates into a competitive advantage over global alliances and large common
carriers.

                                       17
<PAGE>

Regulatory Environment

      Government Regulation

           Telecommunications services provided by IXnet are subject to
regulation by international entities as well as by United States federal, state
and local government agencies. The primary regulatory policy of the United
States is to promote effective competition in the United States
telecommunications service market, particularly the market for international
services. It is the view of the United States government that competitive
international markets will provide incentives for further market entry both in
the United States and foreign markets. Competitive markets will also stimulate
technological innovation by United States suppliers of information technology.

           The existing regulatory environment for international
telecommunications service differs from country-to-country. For domestic
services in the United States, the Federal Communications Commission ("FCC") and
State Public Utility Commissions ("PUCs") have direct jurisdiction, granted by
statute, over all aspects of IXnet service. With international traffic, however,
the United States regulatory structure is limited to the origination or
termination of service in the United States. As a result, the United States and
each foreign country share jurisdiction over policies and regulations
controlling international telecommunications services between the two. Thus, the
United States cannot unilaterally implement a regulatory policy for
international telecommunications, thereby limiting the impact a domestic
statute, such as the Telecommunications Act can have in developing a new
structure for international telecommunications.

           In the United States, the provision of IXnet's services is subject to
the provisions of the Communications Act of 1934, as amended by the
Telecommunications Reform Act of 1996 and the FCC regulations thereunder, as
well as the applicable laws and regulations of the various states as
administered by the relevant PUCs. The recent trend in the United States, for
both federal and state regulation of telecommunications service providers, has
been in the direction of reduced regulation. Despite recent trends toward
deregulation, the FCC and relevant PUCs continue to exercise extensive authority
to regulate ownership of transmission facilities, provision of services and the
terms and conditions under which IXnet's services are provided. In addition,
IXnet is required by federal and state law and regulations to file tariffs
listing the rates, terms and conditions of the services it provides. Any failure
to maintain proper federal and state tariffs or certification or any finding by
the federal or state agencies that IXnet is not operating under permissible
terms and conditions may result in an enforcement action or investigation,
either of which could have a material adverse effect on IXnet.

           IXnet and its wholly-owned subsidiary Saturn Global Network Service
Holdings Ltd. ("Saturn") (See "Subsequent Events" in "Liquidity and Capital 
Resources" section) currently hold several FCC authorizations for
telecommunications services. These authorizations permit IXnet to (i) acquire
interests in submarine cable and international satellite facilities previously
authorized by the FCC; (ii) resell private lines that are not interconnected to
the public switched telephone network for communication services between the
United States and all other countries other than those listed on the FCC's
exclusion list published from time to time and (iii) offer switched service by
the use of private lines interconnected to the public switched telephone network
for service between the United States and a small number of approved countries.
To date, the FCC has approved this form of interconnected resale between the
United States and the United Kingdom, Canada, Sweden, New Zealand, Australia,
the Netherlands, Luxembourg, Norway, Denmark, France, Germany, Belgium, Austria,
Switzerland, Japan, Italy and Hong Kong (data and fax service only). IXnet has
received a reciprocal authorization from the United Kingdom to offer switched
services by use of private lines interconnected to the public switched

                                       18
<PAGE>

network between the United Kingdom and certain countries including the United
States. IXnet has also received licenses to offer certain services from the
appropriate regulatory authorities in Japan, Hong Kong, Singapore, Brazil,
Belgium, Italy and Ireland and operates pursuant to a class license in
Australia. Additionally, Saturn holds certain licenses in Hong Kong, Singapore
and Japan.

           State regulatory commissions exercise jurisdiction over intrastate
services. Intrastate services are communications that originate and terminate in
the same state. IXnet holds a certificate of public convenience and necessity to
resell forms of telephone service within New York state and in a number of other
states. IXnet is able to provide service in Michigan and Washington, D.C.
without authorization from those jurisdictions. IXnet has an application pending
in Georgia for authorization to provide service in that state. As the regulatory
regimes change in the United States and elsewhere, the authorizations held by
the Company also may need to be adjusted.

           Regulatory requirements pertinent to IXnet's operations have recently
changed and will continue to change as a result of the World Trade Organization
("WTO") Basic Telecommunications Agreement ("WTO Agreement"), federal
legislation, court decisions, and new and revised policies of the FCC and PUCs.
In particular, the FCC continues to refine its international service rules to
promote competition, reflect and encourage liberalization in foreign countries,
and reduce international accounting rates toward cost. Among other things, such
changes may increase competition and alter the ability of IXnet to compete with
other service providers and continue to provide the same services, or introduce
new services. The impact on IXnet's operations of any changes in applicable
regulatory requirements cannot be predicted.

      International Regulatory Considerations

           Significant liberalization of telecommunications regulation in a
number of countries has provided IXnet with greater flexibility to obtain
authorizations to provide service. The specific licensing approach or regulation
of IXnet services has differed from country to country depending on the status
of deregulation and the development of competition in each country.

           Canada. IXnet is registered as reseller and currently provides
private line service between Canada and the U.S. and Canada and the U.K. Canada
recently opened its market to increased competition in international
telecommunication services. IXnet intends in the near future to file the
appropriate application in order to expand its international telecommunications
service offerings to and from Canada.

           United Kingdom. The United Kingdom generally permits competition in
all sectors of the telecommunications market, subject to licensing requirements
and license conditions. Individual licenses (with standard conditions) are
required for the provision of facilities-based services and for the resale of
leased lines. An IXnet subsidiary holds both an International Facilities Based
Telecommunications License ("IFBTL") and an International Simple Voice Resale
("ISVR") license in the United Kingdom. The IFBTL entitles IXnet to acquire
indefeasible rights of use on international satellites and submarine cable
systems, to resell international private lines, as well as interconnect with,
and lease capacity at, wholesale rates from BT and Mercury Communications, Ltd.
The ISVR license allows IXnet to resell international private lines, as well as
interconnect with, and obtain capacity at wholesale rates from BT and Mercury
Communications, Ltd.

                                       19
<PAGE>

           Other European Union Countries. Prior to January 1, 1998, a majority
of the European Union ("EU") countries maintained the position that all or most
telecommunications services are under the exclusive jurisdiction of
state-sanctioned monopolies. Under that regulatory regime, provision of many
competitive telecommunications services was strictly limited to particular
services or banned to preserve the privileged position of the state-sanctioned
monopoly. Effective January 1, 1998, the EU required that member states
liberalize their telecommunications regulations to permit the introduction of
competition in all sectors of the telecommunications market. These regulatory
reforms are currently being implemented. Nonetheless, IXnet has already
initiated service prior to these reforms. In some cases, IXnet was able to take
advantage of a special status granted to Closed User Groups ("CUGs"). CUGs are
communities of interest that are common among a company and its subsidiaries or
group of companies. The EU definition of CUGs looks to see if the link between
the members of the group is a "common business activity." IXnet and its
subsidiaries fit this definition of CUGs in several countries. In addition, in
several EU countries, IXnet structured its service offerings to not require
interconnection to the local public switched telephone network. Based on CUG
status and/or lack of interconnections to the public switched network in these
countries, IXnet subsidiaries are able to operate in France, Germany and The
Netherlands without the need for licenses in these countries. In these cases,
the IXnet companies provide private line and virtual private network voice
services and a full range of data services. IXnet has been granted licenses in
Belgium, Ireland and Italy to provide voice and data services to CUGs.

           Switzerland. Although Switzerland is not part of the EU, it has
followed the EU's market liberalization approach. Even prior to the January 1,
1998 opening of the Swiss telecommunications market, IXnet, through its
subsidiaries, has been able to provide private line and virtual private network
voice services and a full range of data services in Switzerland due to its
status as a CUG and its lack of interconnection to the Swiss public switched
telephone network.

           Japan. On January 27, 1997, the Japanese Ministry of Post & Telephone
granted IXnet's Japanese subsidiary a Special Type II telecommunications carrier
license. This license allows IXnet to provide virtual private network and
private line voice services, data transmission services, image transmission
services, packet switched data transmission and managed digital network
services.

           Hong Kong. On June 10, 1997, an IXnet subsidiary received from the
Hong Kong Government Office of the Telecommunications Authority a Public
Non-Exclusive Telecommunications Service ("PNETS") license for the provision of
virtual private network services. This license allows IXnet to provide virtual
private network services for customers for the purpose of carrying out
telecommunications between companies involved in the financial services
industry.

           Singapore. On October 21, 1997, the Telecommunications Authority of
Singapore granted IXnet's Singapore subsidiary a license to operate a network in
Singapore for a closed user group of entities actively involved in the financial
services industry for the provision of data services including bandwidth on
demand, frame relay, ATM and multi-protocol transport services.

           Brazil. On April 28, 1998, the Brazilian Agencia Nacional de
Telecomunicacoes ("Anatel") granted IXnet's Brazilian subsidiary a Limited
License to offer specialized limited telecommunications services to and from
Brazil. This license allows IXnet to provide virtual private network and private
line voice and data services to CUGs.

           Saturn Global Networks. Saturn offers telecommunications services in
the United Kingdom and Australia pursuant to class licenses. Saturn also holds a
Special Type II license in Japan, a public non-


                                       20
<PAGE>

exclusive telecommunications service license for the provision of international
value added data services in Hong Kong and a license to provide intracompany
voice and data services in Singapore.

           IXnet intends to expand its operations into other jurisdictions as
such markets deregulate and IXnet is able to offer a full range of services to
its customers. In addition, in countries that enact legislation intended to
deregulate the telecommunications sector or that have made commitments to open
their markets to competition in the WTO Agreement, there may be significant
delays in the adoption of implementing regulations and uncertainties as to the
implementation of the deregulatory programs which could delay or make more
expensive IXnet's entry into such additional markets. The ability of IXnet to
enter a particular market and provide telecommunications services, particularly
in developing countries, is dependent upon the extent to which the regulations
in a particular market permit new entrants. In some countries, regulators may
make subjective judgments in awarding licenses and permits, without any legal
recourse for unsuccessful applicants. In the event IXnet is able to gain entry
to such a market, no assurances can be given that IXnet will be able to provide
a full range of services in such market, that it will not have to significantly
modify its operations to comply with changes in the regulatory environment in
such market, or that any such changes will not have a material adverse effect on
IXnet's business, results of operations or financial condition.

           In those countries where IXnet is strictly prohibited from offering
service, IXnet may enter into a relationship with the state-sanctioned
telecommunications monopoly so that its services can be offered in that
jurisdiction. In these situations, the local telecommunications service provider
would provide the facilities and offer local services to IXnet customers. It is
likely that services would be of higher cost in these situations. There are,
however, certain countries which do not require licensing for the provision of
telecommunications network services.

Intellectual Property

           The Company relies on a combination of patents, trade secrets,
trademarks, copyrights and other intellectual property law, nondisclosure
agreements and other protective measures to protect its proprietary rights. The
Company currently has 16 United States patents, including design patents, and 3
more pending United States patent applications for its technologies. The Company
also relies on unpatented know-how and trade secrets and employs various
methods, including confidentiality agreements with employees and consultants, to
protect its trade secrets and know-how. The Company also may desire to develop,
produce and market commercially viable new products, such as personal
communications systems, that may require new or renewed licenses from others.

Employees

           As of September 30, 1998, the Company had 754 full-time, non-union
employees worldwide, including 575 in the United States, 158 in the United
Kingdom, 6 in Canada, 2 in France, 10 in Hong Kong, 1 in Japan and 2 in
Switzerland. Of these, 125 were engaged in marketing and sales, 84 in research,
development and product engineering, 127 in branch operations, finance and
corporate administration, 130 in manufacturing and 288 in operations.

           An additional 446 United States workers are represented by collective
bargaining units at September 30, 1998 , including 405 within the New York
metropolitan area provided under labor pooling agreements between the Company
and two of its former affiliates. Contracts with unions are negotiated every
three years. The next contract negotiation is in June 2001. The Company has
never experienced a 

                                       21
<PAGE>

work stoppage. Management believes that current relations with labor are good
and that existing union contracts will be renewed.

Environmental Matters

           The Company is subject to various federal, state and local
environmental laws and regulations, including those governing the use, discharge
and disposal of hazardous substances in the ordinary course of its manufacturing
process. Although management believes that its current manufacturing operations
comply in all material respects with applicable environmental laws and
regulations, there is no assurance that environmental legislation may not in the
future be enacted or interpreted to create environmental liability with respect
to the Company's facilities or operations.

ITEM 2.    PROPERTIES

           During 1997, the Company purchased its sole manufacturing facility in
Westbrook, Connecticut and related land for approximately $2.5 million.
Additionally, the Company leases its executive offices and network switching
facilities in New York City and London, its research and development facility in
Fairfield, Connecticut and its branch offices and sales offices in the United
States, Canada, Hong Kong, France, Switzerland and the United Kingdom. The
Company believes that its current facilities are adequate for its near-term
requirements and does not anticipate the need for significant expansion in the
foreseeable future.

ITEM 3.    LEGAL PROCEEDINGS

           Except for an arbitration proceeding with a former distributor in
Italy, which the Company is aggressively pursuing, the Company is not a party to
any pending legal proceedings except for claims and lawsuits arising in the
normal course of business. The Company does not believe that these claims or
lawsuits will have a material adverse effect on the Company's financial
condition or results of operations.

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

           None

                                       22
<PAGE>

                                     PART II

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

            Effective June 7, 1998 the Company's common stock became listed on
the American Stock Exchange, trading under a new symbol IPI. The Company, after
the Merger but prior to June 7, 1998, was listed on the NASDAQ Small Cap Market,
trading under the symbol IPCX. Prior to the Merger, the Company was listed on
the NASDAQ National Market, trading under the symbol IPCI. The common stock
began trading on September 27, 1994.

           On May 29, 1998 the Company declared a two-for-one stock split
effected in the form of a 100% stock dividend (the "Stock Dividend"). The Stock
Dividend was distributed on June 24, 1998 to holders of record on June 10, 1998.
As a result, the number of shares increased from 4,038,094 shares (the number of
shares issued and outstanding subsequent to the Merger) to 8,076,188 shares.
All stock data below is stated to reflect the Stock Dividend.

<TABLE>
<CAPTION>
                                 For the year ended September 30,
                  -------------------------------------------------------------
                                1998                          1997
                  ------------------------------   ----------------------------
                      High              Low           High             Low
                  --------------    ------------   -----------     ------------
<S>                    <C>              <C>           <C>              <C>
First Quarter          12 3/16          8             11               7
Second Quarter         10 7/16          9 7/8          8 3/8           4 7/16
Third Quarter          13 1/2           9 9/16         9 9/16          4 1/2
Fourth Quarter         11 3/4           6 7/8          10 7/8          7 7/8
</TABLE>

             As of November 30, 1998 there were 18 holders of record of the
Company's stock. Additional shares of the Company's stock are held in street
name by more than 200 additional beneficial owners.

             To date, the Company has not paid any cash dividends to its
stockholders. Any future payment of cash dividends will depend upon the
Company's earnings and financial condition, capital requirements and other
relevant factors. The Company does not intend to pay cash dividends in the
foreseeable future but intends to retain its earnings for use in its business.

                                       23
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (unaudited)

(Dollar and share amounts in thousands, except per share amounts and ratio data)

<TABLE>
<CAPTION>
                                                                         Year Ended September 30,
                                                      -----------------------------------------------------------------
                                                         1994           1995        1996       1997        1998 (1)
                                                      -----------------------------------------------------------------
<S>                                                     <C>          <C>          <C>          <C>          <C>     
Statement of Operations Data:

Revenues ...........................................    $163,671     $206,254     $249,508     $270,323     $295,897

Gross profit .......................................      48,043       63,173       76,818       80,214      116,754

Selling, general and administrative expense ........      23,727       31,038       45,143       60,697       77,312

Research and development expense ...................       7,654       10,108       11,467        9,976        9,994

Change in control expense ..........................          --           --           --           --       10,640

Income from operations .............................      16,662       22,027       20,208        9,541       18,808

Interest income (expense) net ......................      (1,568)         233         (678)      (1,844)     (10,337)

Net income .........................................     $16,549(2)   $13,267      $12,129       $3,834       $2,278

Basic earnings per share (7) .......................          --        $0.63        $0.57        $0.18        $0.14

Basic weighted average shares outstanding (7) ......          --       21,012       21,180       21,328       15,774

Diluted earnings per share (7) .....................          --        $0.63        $0.57        $0.18        $0.14

Diluted weighted average shares outstanding (7) ....          --       21,012       21,230       21,408       15,941

Pro forma earnings per share (3)(7) ................       $0.56           --           --           --           --

Pro forma weighted average shares outstanding (3)(7)      17,070           --           --           --           --

Supplemental pro forma earnings per share (4)(7) ...       $0.44           --           --           --           --

Statement of Cash Flows Data:

Net cash provided by (used in) operating activities       $7,253       $7,343     ($14,737)     $24,146      $46,446

Net cash used in investing activities ..............      (1,173)      (8,506)     (12,737)     (14,474)     (25,478)

Net cash provided by (used in) financing activities       (4,795)      14,337       13,785      (10,043)       6,310

Other Data:

Depreciation and amortization ......................      $4,288       $3,840       $6,021       $8,416      $15,158

EBITDA (5)(6) ......................................      20,950       25,867       26,229       17,957       44,606

EBITDA to interest expense (5) .....................       13.1x        61.6x        24.1x         8.9x         4.0x
<CAPTION>
                                                                                 September 30,
                                                       -------------------------------------------------------------------
Balance Sheet Data:                                       1994         1995          1996         1997         1998
                                                       -------------------------------------------------------------------
<S>                                                       <C>          <C>          <C>          <C>         <C>    
Cash and cash equivalents ..........................      $2,616      $15,786       $2,306       $1,465      $28,084

Working capital ....................................      27,661       46,851       50,807       46,933       52,176

Total assets .......................................     110,702      128,036      141,877      158,362      241,292

Long-term debt, net of current portion .............      10,663           --           --        2,133      188,223

Capital lease obligations ..........................          --           --        4,369       13,323       16,952

Stockholders' equity (deficit) .....................      21,122       58,504       71,715       76,910      (66,541)

Book value (deficit) per share .....................       $1.46        $2.78        $3.38        $3.60       ($8.24)

Shares issued and outstanding (7) ..................      14,512       21,044       21,236       21,380        8,076
</TABLE>

(1)  On April 30, 1998 the Company merged with AAC (see `Management Discussion
     and Analysis of Financial Condition and Results of Operations"). This 
     Merger was accounted for as a leveraged recapitalization; accordingly, the
     historical cost basis of the Company's assets and liabilities has not been
     impacted by the merger.
(2)  Net income includes the cumulative effect of the Company's termination of
     its S corporation status which resulted in a tax benefit of $3.3 million.

                                       24
<PAGE>

(3)  Pro forma earnings per share was computed by dividing pro forma net income
     (income before provision for income taxes less pro forma provision for
     taxes) by pro forma weighted average number of shares outstanding. The pro
     forma provision for income taxes assumes that IPC was subject to corporate
     federal income taxes for the year and excludes the tax benefit associated
     with the termination of the Company's S corporation status (see (2) above).
     Pro forma weighted average number of shares outstanding is the historical
     weighted average number of shares outstanding during the past year adjusted
     to give effect to the number of shares whose proceeds were necessary to pay
     the remaining S corporation distribution to the stockholders of IPC prior
     to IPC's initial public offering of stock.
(4)  Effective October 1, 1994, and in connection with the Company's initial
     public offering, IPC converted from an S corporation to a C corporation.
     Supplemental pro forma earnings per share for 1994 has been calculated
     using the Company's reported income before taxes and giving effect for both
     the Company's fiscal 1995 effective tax rate and weighted average shares
     outstanding.
(5)  EBITDA consists of income from operations before depreciation and
     amortization and, for fiscal year 1998, the Company excluded from the
     calculation $10.6 million of non recurring change in control expense from
     the Merger. EBITDA is provided because it is a measure commonly used in the
     telecommunications industry. It is presented to enhance an understanding of
     the Company's operating results and is not intended to represent cash flow
     or results of operations in accordance with generally accepted accounting
     principles ("GAAP") for the periods indicated. EBITDA is not calculated
     under US GAAP and is not necessarily comparable to similarly titled
     measures of other companies. The Company's EBITDA will not necessarily all
     be available to pay its interest expense due to a limitation in fiscal year
     1998 on the Company's ability to utilize foreign tax credits and for
     certain state income tax purposes (including New York State, where a
     substantial portion of the Company's revenues and net income have been
     generated) its inability to deduct the losses of IXnet which have been
     material to the income of its other operations.
(6)  The Company's EBITDA has been reduced by $4.4 million, $8.8 million and
     $12.4 million for the fiscal years ended September 30, 1996, 1997 and 1998,
     respectively, related to operation of IXnet.
(7)  In fiscal year 1998, the company declared a two-for-one stock split
     effected in the form of a 100% stock divided. All prior period share
     information has been restated for the stock split.

                                       25
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS (unaudited)

The following tables set forth certain statements of operations data and its
percentage to total revenues for the periods indicated:

<TABLE>
<CAPTION>
                                                                      For the year ended September 30,
                                                                 -----------------------------------------

(Dollar amounts in thousands)                                      1998            1997            1996
---------------------------------------------------------------  --------   -------------   --------------
<S>                                                               <C>            <C>            <C>     
Revenue:
  Turret sales and installation ...............................   $133,233       $122,493       $111,471
  Turret service ..............................................     63,592         55,146         55,484
  Information Transport Systems sales, installation and service     63,309         74,746         78,842
  Network services ............................................     35,763         17,938          3,711
                                                                  --------       --------       --------
   Total revenue ..............................................    295,897        270,323        249,508
  Cost of revenue .............................................    179,143        190,109        172,690
                                                                  --------       --------       --------
      Gross profit ............................................    116,754         80,214         76,818
  Research and development expenses ...........................      9,994          9,976         11,467
  Selling, general and administrative expenses ................     77,312         60,697         45,143
  Change in control expense ...................................     10,640             --             --
                                                                  --------       --------       --------
      Income from operations ..................................     18,808          9,541         20,208
  Interest expense, net .......................................    (10,337)        (1,844)          (678)
  Other income/(expense), net .................................         (2)           417            591
                                                                  --------       --------       --------
   Income before provision for income taxes ...................      8,469          8,114         20,121
  Provision for income taxes ..................................      6,191          4,280          7,992
                                                                  --------       --------       --------
     Net income ...............................................     $2,278         $3,834        $12,129
                                                                  ========       ========       ========

Revenue:
  Turret sales and installation ...............................       45.0%          45.3%          44.7%
  Turret service ..............................................       21.5           20.4           22.2
  Information Transport Systems sales, installation and service       21.4           27.7           31.6
  Network services ............................................       12.1            6.6            1.5
                                                                  --------       --------       --------
   Total revenue ..............................................      100.0          100.0          100.0
  Cost of revenue .............................................       60.5           70.3           69.2
                                                                  --------       --------       --------
      Gross profit ............................................       39.5           29.7           30.8
  Research and development expenses ...........................        3.4            3.7            4.6
  Selling, general and administrative expenses ................       26.1           22.5           18.1
  Change in control expense ...................................        3.6             --             --
                                                                  --------       --------       --------
      Income from operations ..................................        6.4            3.5            8.1
  Interest expense, net .......................................       (3.5)          (0.7)          (0.2)
  Other income/(expense), net .................................       (0.0)           0.2            0.2
                                                                  --------       --------       --------
   Income before provision for income taxes ...................        2.9            3.0            8.1
  Provision for income taxes ..................................        2.1            1.6            3.2
                                                                  --------       --------       --------
     Net income ...............................................        0.8%           1.4%           4.9%
                                                                  ========       ========       ========
</TABLE>

                                       26
<PAGE>

           Overview

           The Company is a leader in providing integrated telecommunications
equipment and services that facilitate the execution of transactions by the
financial trading community. Such transactions involve the trading of equity and
debt securities, commodities, currencies and other financial instruments. The
Company designs, manufactures, installs and services turret systems and installs
and services the cabling infrastructure and networks which provide financial
traders with desktop access to time-sensitive communications and data. The
Company's primary customers include securities and investment banking firms,
merchant and commercial banks, interdealer brokers, foreign exchange and
commodity brokers and dealers, securities and commodity exchanges, mutual and
hedge fund companies, asset managers and insurance companies. The Company uses
an integrated approach to marketing its products and services, leveraging its
established customer base throughout the financial trading community. In
addition, through its subsidiary IXnet, the Company operates the IXnet Network,
providing a variety of dedicated private line, managed data and switched network
services, which has been specifically designed to meet the specialized
telecommunications requirements of the financial trading community.

           The Company's operations include trading systems, Information
Transport Systems ("I.T.S.") and network services ("IXnet"). Trading systems
reports sales of turret systems to distributors and direct sales and
installations of turret systems as "Product sales and installation". It reports
revenue from turret system maintenance, including annual and multi-year service
contracts, and from moves, additions and changes to existing turret system
installations as "Service". I.T.S. reports revenue from design, integration and
implementation of cabling infrastructure projects including Local and Wide Area
Networks, and from sales of intelligent network products, such as hubs, bridges
and routers, as "Product sales and installation". It reports revenue from
on-site maintenance of customer cable infrastructure, including annual and
multi-year contracts and from the provision of outsourcing services for the
support, expansion and upgrading of existing customer networks as "Service".
Additionally, IXnet reports revenue derived from the the use of its
international network as "Service".

           Revenue from trading systems and I.T.S. sales and installation is
recognized upon completion of the installation, except for revenue from sales of
turret products to distributors, which is recognized upon shipment by IPC.
Invoices representing progress payments on direct product sales are submitted
during various stages of the installation. The revenue attributable to such
advance payments is deferred until system installation is completed. In
addition, contracts for annual recurring turret and I.T.S. services are
generally billed in advance, and are recorded as revenue ratably (on a monthly
basis) over the contractual periods. Revenue from moves, additions and changes
to turret systems is recognized upon completion, which usually occurs in the
same month or the month following the order for services. Revenue from IXnet
Network services are recognized in the month the service is provided.

           Cost of revenue for turret systems and I.T.S. includes material and
labor associated with the installation of a project or the service performed.
Cost of revenue for IXnet Network services includes charges from carriers for
bandwidth associated with such service revenue.

           Due to the substantial sales price of the Company's large turret and
I.T.S. installations and the Company's recognition of revenue only upon
completion of installations, revenue and operating results could fluctuate
significantly from period to period. However, the Company's service business
generates a more consistent revenue stream than sales and installation and,
consequently, these 

                                       27
<PAGE>

fluctuations (as a percentage of total revenue) could be somewhat diminished in
the future as the Company's service business expands.

           On April 30, 1998, Arizona Acquisition Corp. ("AAC") was merged into
the Company (the "Merger"). Under the terms of the Merger, subject to
dissenters' rights, each share of common stock of the Company ("IPC Common
Stock") was converted at the election of the holder thereof into either (i) the
right to receive $21.00 in cash or (ii) the right to retain one share of common
stock of the surviving corporation ("Surviving Corporation Common Stock"),
subject to proration in certain circumstances. In connection with the Merger,
the Company issued $247.4 million aggregate principal amount at maturity ($180.0
million initial proceeds upon issuance) of 10 7/8% Senior Discount Notes due
2008 (the "Notes"). A portion of the proceeds from the Notes ($145.6 million),
together with $54.7 million of capital provided by AAC (the "Equity Investment")
were used to repurchase 9,536,665 shares of IPC common stock, at a price of
$21.00 per share, from IPC shareholders who did not elect to retain stock of the
surviving corporation upon the Merger. Prior to the Merger, AAC was owned by (i)
Cable Systems Holdings LLC ("CSH LLC"), whose membership interests were owned by
Citicorp Venture Capital, Ltd. and David Kirby and John O'Mara, private
investors, (ii) CSH LLC's indirect subsidiary Cable Systems International, Inc.
and (iii) the investment fund of Lawrence Smith & Horey III, L.P. The Merger was
accounted for as a leveraged recapitalization; accordingly, the historical basis
of the Company's assets and liabilities has not been impacted by the Merger.

           In connection with the Merger, the Company incurred various
non-recurring costs totaling approximately $27.8 million. These costs consist
primarily of professional fees, printing costs, change of control costs and
other expenses. Of this amount, $10.6 million was recorded in fiscal 1998 as a
non-recurring charge for change in control expenses, comprised of certain change
in control bonuses and severance payments ($4.2 million), payments to option
holders upon cancellation of their stock options ($5.9 million) and
miscellaneous other expenses ($0.5 million).

Results of Operations

Comparison of the Year Ended September 30, 1998 ("FY 1998") to the Year Ended
September 30, 1997 ("FY 1997")

           Revenue. Total revenue increased by $25.6 million or 9.5% to $295.9
million in the FY 1998 from $270.3 million in the FY 1997.

           Turret installation and related service revenue increased by $19.2
million or 10.8% to $196.8 million in the FY 1998 from $177.6 million in the FY
1997.

           New turret installation projects increased by $10.7 million to $133.2
million in the FY1998 from $122.5 million in FY 1997. The increase is related to
higher volume of completed projects, principally involving the Company's digital
Tradenet MX(R) product, completed and recognized as revenue in the current year
as compared to the similar period of the prior year.

           Turret service revenue increased by $8.5 million in FY 1998 to $63.6
million from $55.1 million in FY 1997. Higher service revenue for the current
fiscal year is principally due to the Company's expanding customer base.

           Revenue from I.T.S. sales and related service decreased by $11.5
million or 15.4% to $63.3 million in FY 1998 from $74.8 in FY 1997.

                                       28
<PAGE>

           New I.T.S. installation projects decreased by $17.4 million in FY
1998 as compared to FY 1997. Partially offsetting this decrease, was an increase
in FY 1998 in service related revenue of $5.9 million as compared to FY 1997.
The decrease in sales of new installation projects is related to the Company
narrowing its focus on projects with higher profit margins which typically are a
lower revenue value per project.

           Revenue from network services increased by $17.9 million, or 100.0%
to $35.8 million in FY 1998 from $17.9 million in FY 1997. The increase is
related to the growing customer base and increased customer utilization of
IXnet's international telecommunication network. The IXnet revenue run rate
(annualized recurring revenue for the month ended September 30, 1998) was $43.2
million, an increase of 74.2% as compared with the corresponding amount for
September 1997.

           Cost of Revenue. Cost of revenue (as a percentage of revenue) of
60.5% in FY 1998 decreased as compared to 70.3% in FY 1997.

           Product sales and installation cost of revenue (as a percentage of
product sales and installation revenue) for FY 1998 was 58.1% which decreased as
compared to 70.7% in FY 1997. The lower cost of product revenue is primarily
related to an increased percentage of turret installation revenue from products
manufactured by the Company (Tradenet MX), manufacturing efficiencies and
improved margins from third party turret product sales in FY 1998 as compared
with revenue for FY 1997. Turret sales and installation from manufactured
products have a lower cost of revenue as compared to third party products and
I.T.S. product sales and installation.

           Service cost of revenue (as a percentage of service revenue) for FY
1998 was 64.0% as compared to 69.6% in FY 1997. The decrease in FY 1998 is
primarily related to higher network service revenue from increased utilization
of the IXnet network, a greater percentage of turret maintenance revenue in
revenue in the current year (turret maintenance revenue typically has a lower
cost of revenue as compared to turret moves, additions and changes) and improved
efficiencies for I.T.S. service projects as compared to the prior fiscal year.

           Research and Development Expenses. Research and development expenses
were $10.0 million in each of FY 1998 and FY 1997. Research and development
efforts are focused on continued integration of the Tradenet MX turret with the
IXnet Network as well as enhancement of existing features of the Tradenet MX
family to sustain the Company's leadership position in voice-based trading
system products.

           Selling, General and Administrative Expenses. Selling, general and
administrative expenses (S,G&A) increased by $16.6 million, or 27.4%, to $77.3
million in FY 1998 from $60.7 million in FY 1997. Approximately, $15.8 million
of the increase relates to the expansion of the IXnet Network. Depreciation and
amortization represented $5.3 million of IXnet's increase in S,G&A for FY 1998
as compared to FY 1997. The Company intends to continue to invest in the IXnet
Network. As the Company deploys this network, the Company anticipates that
selling, general and administrative expenses will continue to increase. These
expenses may be incurred prior to the realization of anticipated related
revenue.

           Change in control expense. In connection with the Merger, The Company
recorded in the current fiscal year a $10.6 million non-recurring charge for
change in control expenses, comprised of certain change in control bonuses and
severance payments ($4.3 million), payments to option holders upon cancellation
of their stock options ($5.9 million) and miscellaneous other expenses ($0.4
million).

                                       29
<PAGE>

           Interest Expense, net. Interest expense, net increased by $8.5
million to $10.4 million for FY 1998 from $1.9 million for FY 1997. The
accretion of interest expense associated with the issuance of the Notes and
related amortization of debt issuance costs both of which are non cash items
aggregating $8.7 million. Total interest expense included in net interest is
$11.1 million in FY 1998 as compared to $2.0 million in FY 1997.

           Provision for Income Taxes. The Company's effective tax rate was
73.1% for the year ended September 30, 1998 compared to 52.8% for the year ended
September 30, 1997. The increase is related a limitation on the Company's
ability to utilize foreign tax credits to offset taxes paid outside of the
United States and an increase in IXnet's losses during 1998 for which the
Company is not able to receive certain state statutory tax benefits.

Comparison of the Year Ended September 30, 1997 to the Year Ended September 30,
1996

           Revenue. Total revenue increased by $20.8 million or 8.3% to $270.3
million in the year ended September 30, 1997 from $249.5 million in the year
ended September 30, 1996.

           Turret installation and related service revenue increased by $10.7
million, or 6.4%, to $177.6 million in the year ended September 30, 1997 from
$167.0 million in the year ended September 30, 1996. Turret revenue growth for
the year ended September 30, 1997 is from higher third party products sold in
conjunction with the Tradenet MX product.

           Revenue from I.T.S. sales and related service decreased by $4.1
million or 5.2% to $74.8 million in the year ended September 30, 1997 from $78.8
in the year ended September 30, 1996. Although the number of new installations
in 1997 were comparable to 1996, the decrease in revenue from new installations
related to lower revenue from the two largest installations during 1997 as
compared with 1996. This decrease was partially offset by higher service related
revenue in 1997 as compared to 1996.

           Revenue from network services increased by $14.2 million, or 383.4%
to $17.9 million in the year ended September 30, 1997 from $3.7 million in the
year ended September 30, 1996. The increase is from the continued buildup of
IXnet's international telecommunication network during 1997. Annualized revenue
for the month of September 1997 was $24.8 million, an increase in excess of 148%
as compared with September 1996.

           Cost of Revenue. Cost of revenue (as a percentage of revenue) of
70.3% in the year ended September 30, 1997 increased slightly as compared to
69.2% in the year ended September 30, 1996. The increase is attributable to
higher third party product revenue associated with turret installations in 1997,
which typically has a higher cost of revenue than the Company's manufactured
products and higher project costs for I.T.S. revenue. Network service cost (as a
percentage of revenue) decreased in fiscal 1997 as compared with fiscal 1996 due
to higher utilization of the IXnet Network in fiscal 1997.

           Research and Development Expenses. Research and development expenses
decreased by $1.5 million, or 13.0%, to $10.0 million in the year ended
September 30, 1997 from $11.5 million in the year ended September 30, 1996. The
decrease is from the consolidation of research and development organizations and
the termination of development work on an Asynchronous Transfer Mode ("ATM")
project. Also, spending during the year ended September 30, 1997 had a higher
mix of software development as opposed to hardware applications. The Company
intends to focus on the integration of the Tradenet MX turret with IXnet's
network capabilities as well as the enhancement of existing 

                                       30
<PAGE>

features of the Tradenet MX family to sustain the Company's leadership position
in voice-based products.

           Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $15.6 million, or 34.5%, to $60.7 million
in the year ended September 30, 1997 from $45.1 million in the year ended
September 30, 1996. Approximately, $11.3 million of the increase (of which $2.3
million is depreciation) is due to infrastructure costs associated with the
expansion of IXnet's international telecommunications network, people resources
and other expenses required to build, manage and grow this global business. The
Company intends to continue to fund the buildup of IXnet's network. As the
Company deploys its network, management anticipates that selling, general and
administrative expenses will increase. These expenses may be incurred prior to
the realization of anticipated related revenue. Additionally, included in
selling, general and administrative expenses for the year ended September 30,
1997 is $0.65 million or $0.04 per share representing the settlement of a
employment agreement with the former Chief Operating Officer.

           Interest Expense, net. Interest expense, net increased by $1.2
million to $1.9 million for the year ended September 30, 1997 from $0.7 million
for the year ended September 30, 1996. The increase is due to higher utilization
of the Company's credit facilities and capital lease obligations used primarily
to finance capital expenditures for IXnet during 1997.

           Provision for Income Taxes. The Company's effective tax rate was
52.8% for the year ended September 30, 1997 compared to 39.7% for the year ended
September 30, 1996. The increase is primarily due to IXnet's losses during 1997
for which the Company is not able to receive certain state statutory tax
benefits.

Liquidity and Capital Resources

           From the Company's initial public offering in fiscal 1995 until the
Merger in April 1998, the Company has satisfied its cash requirements through
cash provided by operations, capital lease financing and certain unsecured bank
lines of credit. The Company's principal uses of cash were to fund working
capital requirements, operating losses and capital expenditures of its IXnet
subsidiary and acquisitions principally related to the expansion of IXnet's
international telecommunications network.

           On April 30, 1998, Arizona Acquisition Corp. ("AAC") was merged into
the Company (the "Merger"). Under the terms of the Merger, subject to
dissenters' rights, each share of common stock of the Company ("IPC Common
Stock") was converted at the election of the holder thereof into either (i) the
right to receive $21.00 in cash or (ii) the right to retain one share of common
stock of the surviving corporation ("Surviving Corporation Common Stock"),
subject to proration in certain circumstances. In connection with the Merger,
the Company issued $247.4 million aggregate principal amount at maturity ($180.0
million initial proceeds upon issuance) of 10 7/8% Senior Discount Notes due
2008 (the "Notes"). A portion of the proceeds from the Notes ($145.6 million),
together with $54.7 million of capital provided by AAC (the "Equity Investment")
were used to repurchase 9,536,665 shares of IPC common stock, at a price of
$21.00 per share, from IPC shareholders who did not elect to retain stock of the
surviving corporation upon the Merger. Prior to the Merger, AAC was owned by (i)
Cable Systems Holdings LLC ("CSH LLC"), whose membership interests were owned by
Citicorp Venture Capital, Ltd. and David Kirby and John O'Mara, private
investors, (ii) CSH LLC's indirect subsidiary Cable Systems International, Inc.
and (iii) the investment fund of Lawrence Smith & Horey III, L.P. The Merger was
accounted for as a leveraged recapitalization; accordingly, the historical basis
of the Company's assets and liabilities has not been impacted by the Merger.

                                       31
<PAGE>

           The Notes were issued under an Indenture between the Company, as
issuer, and United States Trust Company of New York as trustee. The indenture
contains certain restrictive covenants which impose limitations on IPC and its
subsidiaries, including, (i) indebtedness, (ii) restricted payments, (iii)
dividends, (iv) issuance and sale of capital stock of subsidiaries, (v)
issuance of guarantees by subsidiaries, (vi) certain transactions with
shareholders and affiliates, (vii) liens, (viii) sale-leaseback transactions,
(ix) asset sales, and (x) maintaining various financial ratios.

           Although interest on the Notes will not accrue until May 1, 2001 (the
"Interest Accrual Date"), the Notes will accrete in value to the principal
amount by the Interest Accrual Date. The Notes will bear interest at 10 7/8%
from the Interest Accrual Date through redemption and is payable semiannually on
May 1 and November 1. There are no sinking fund payments related to the Notes.

           The Notes are unsubordinated, unsecured indebtedness of the Company,
ranking pari passu in right of payment with all existing and future
unsubordinated, unsecured indebtedness of the Company and senior in right of
payment to all existing and future subordinated indebtedness of the Company.

           In connection with the Merger, the Company incurred various
non-recurring costs totaling approximately $27.8 million. These costs consist
primarily of professional fees, printing costs, change of control costs and
other expenses. Of this amount, $10.6 million was recorded in fiscal 1998 as a
non-recurring charge for change in control expenses, comprised of certain change
in control bonuses and severance payments ($4.2 million), payments to option
holders upon cancellation of their stock options ($5.9 million) and
miscellaneous other expenses ($0.5 million).

           In conjunction with the April 1998 Merger, the Company acquired the
remaining 20% interest in IXnet (the "IXnet Exchange") through the issuance of
457,142 (adjusted for the stock split) shares of Surviving Corporation Common
Stock, valued at $4.8 million.

           As a result of the Merger, the Company's short-term credit facilities
with various banks of up to $35.0 million were terminated on April 30, 1998. At
September 30, 1997, there was $3.2 million outstanding under this facility with
a weighted average interest rate on this borrowing of 6.46%.

           In April 1998, the Company entered into a five year $55.0 million 
senior secured revolving credit agreement (the "Revolving Credit Facility"),
with Morgan Stanley Senior Funding, Inc., syndication agent, and other lender
parties, to be used for working capital and other general corporate purposes.
The Revolving Credit Facility is subject to borrowing limitations, which at
September 30, 1998 approximated $33.6 million. The Revolving Credit facility
also provides a sublimit for the issuance of letters of credit, of which $4.0
million was outstanding as of September 30, 1998. There were no amounts
outstanding, other than the letters of credit, under the Revolving Credit
Facility as of September 30, 1998.

           Borrowings under the Revolving Credit Facility bear interest at a
rate equal to, at the Company's option, the base rate plus 150 basis points or
the LIBOR rate plus a margin of 150 to 250 basis points depending upon the
Company's leverage ratio. The base rate is a fluctuating interest rate equal to
the higher of (i) the rate of interest announced publicly by Citibank, N.A. as
its base rate and (ii) a rate equal to 1/2 of 1% per annum above the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System as published by the Federal Reserve Bank of New York.

                                       32
<PAGE>

           The Revolving Credit Facility contains various covenants and
conditions, including restrictions on (i) asset dispositions, (ii) mergers and
acquisitions, (iii) capital expenditures, (iv) restricted payments, (v) the
incurrence of indebtedness, (vi) loans and investments, (vii) liens, (viii)
certain transactions with affiliates and (ix) maintaining various financial
ratios.

           Substantially all of the Company's and its subsidiaries' real and
personal property, including inventory and accounts receivable is pledged as
collateral under the Revolving Credit Facility.

           Net cash provided by operating activities was $46.4 million in the
year ended September 30, 1998 as compared to net cash provided by operating
activities of $24.1 million in the prior year. The increase is primarily related
to higher non-cash adjustments to net income and lower net working capital
requirements for the year ended September 30, 1998 as compared with fiscal year
1997. The increase in non-cash adjustments to net income is primarily related to
an increase in depreciation and amortization expense from capital expenditures,
principally related to the IXnet Network, goodwill amortization related to the
acquisition of MXnet in the second quarter of FY 1998 and the IXnet Exchange.
Additionally, contributing to the increase, was interest expense related to the
Notes for which cash payments do not commence until November 1, 2001.

           Net cash provided by operations was $24.1 million for the year ended
September 30, 1997 as compared to a use of cash of $14.7 million for the year
ended September 30, 1996. This increase resulted primarily from a reduction in
working capital and an increase in depreciation and amortization expense. The
depreciation and amortization expense increase is largely the result of
increased capital expenditures of which $10.8 million was financed with capital
lease obligations related principally to IXnet.

           Cash used in investing activities was $25.5 million, $14.5 million
and $12.7 million for the years ended September 30, 1998, 1997 and 1996,
respectively. Cash used in investing activities resulted from acquisition
payments for IPC Bridge, expenditures for property, plant and equipment,
composed of IXnet Network costs, machinery and equipment and leasehold
improvements, and the purchase of MXnet in February 1998. The Company intends to
continue to invest in the IXnet Network. The use of cash in 1996 was offset in
part by proceeds from the sale of a short-term investment.

           Cash provided by financing activities was $6.3 million in the year
ended September 30, 1998 as compared to a use of cash of $10.0 million in the
year ended September 30, 1997 and cash provided by financing activities of $13.8
million in the year ended September 30, 1996. Cash provided by financing
activities in fiscal 1998 are primarily related to the April 1998 Merger
mentioned above. The use of cash in fiscal 1997 is related to the net repayments
of note payable. Cash provided by financing activities in fiscal 1996 resulted 
from borrowings of a note payable.

           On February 13, 1998, the Company purchased, by the issuance of a
promissory note in the amount of $6.7 million, all of the issued and outstanding
common stock of MXnet, a wholly owned subsidiary of National Discount Brokers
Group Inc. The promissory note was paid on April 8, 1998 plus accrued interest.
In addition, MXnet entered into employment agreements with four MXnet executives
which included signing and retention bonuses in the aggregate amount of $1.1
million payable over two years. This acquisition was accounted for under the
purchase method of accounting and resulted in approximately $5.5 million of
goodwill.

                                       33
<PAGE>

           In April 1997, the Company purchased its sole manufacturing facility
and related land in Westbrook, Connecticut for approximately $2.5 million using
the Company's short-term credit facility.

           In connection with the implementation of the IXnet Network, IXnet has
entered into capital lease agreements for certain network switching equipment
totaling approximately $6.4 million and $9.7 million during the years ended
September 30, 1998 and 1997, respectively. Additionally, in September 1998 IXnet
committed $4.0 million to participate in a indefeasible right of use (IRU), a
telecommunication cable link between North America and Europe. The commitment
requires equal monthly payments of $0.3 million through September 1999.

           The Company believes that cash flows from operations and existing
credit facilities would be sufficient to meet its working capital and capital
expenditure needs for the near future. The Company does not rule out seeking
additional debt or equity for other corporate purposes. See "Subsequent Event."

Impact of the Year 2000

        The Year 2000 issue is the result of computer-controlled systems using
two digits rather than four to define the applicable year. For example, computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, deliver products and
services to customers, send invoices, or engage in similar normal business
activities.

        The Company has assessed its Year 2000 compliance for the products that
it manufactures and the services it provides, along with those products
manufactured by others which the Company represents and sells. The Company is
taking steps to obtain Year 2000 compliance status updates from vendors that
supply products for resale and services which the Company either uses internally
or resells as part of the Ixnet Network and expects to conclude on remedial
alternatives, if any, by June 30, 1999. Until such compliance updates are
complete, the Company will not be able to completely evaluate whether its
systems, products or services will need to be revised to be Year 2000 compliant.
However, at this point in time, the Company believes that its products and the
products it represents are Year 2000 compliant or can be made Year 2000
compliant with upgrades to both the hardware and software made available by the
Company and its vendors.

        In addition, the Company has made available to its customers its trading
system laboratory located in Westbrook, CT to independently verify and test such
compliance.

        The Company is in the process of converting to an enterprise-wide
management information system which, through software updates to both the
application and operating systems scheduled to be completed by June 30, 1999, is
expected to be Year 2000 compliant.

        To date the Company has not incurred and does not expect to incur any
material expenditures in connection with identifying, evaluating or addressing
Year 2000 compliance issues, with the exception of the conversion to the
enterprise-wide management information system, which was undertaken for
operational reasons. Most of the Company's expenses in connection with Year 2000
compliance 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.

        The Company is not aware of any Year 2000 compliance problems related to
its systems that would have a material adverse effect on the Company's business,
results of operations and financial condition. There can be no assurance that
the Company will not discover Year 2000 compliance problems in its systems,
products or services that will require substantial revision. In addition, there
can be no assurance that third-party software, hardware or services incorporated
into the Company's material systems, products or services will not need to be
revised or replaced, all of which could be time-consuming and expensive. The
failure of the Company to fix or replace its internally developed software,
third-party software, hardware or services on a timely basis could result in
lost revenues, increased operating costs, the loss of customers and other
business interruptions any of which could have a material adverse effect on the
Company's business, results of operations and financial condition. Moreover, the
failure to adequately address Year 2000 compliance issues related to its
products and services 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 third party providers of
products and services, including telecommunications and utility companies, and
the Company's customer base, primarily in the financial services industry, will
be Year 2000 compliant. The failure of such entities to be Year 2000 compliant
could result in a systematic failure, beyond the control of the Company, such as
prolonged telecommunications or electrical failure, or the inability of
customers to make payments for services, which could have a material adverse
effect on the Company's business, results of operations and financial condition.

        As discussed above, the Company is engaged in an ongoing Year 2000
compliance assessment and has not yet developed any contingency plans. The
results of the Company's enterprise-wide system conversion and responses
received from vendors and service providers will be taken into account in
determining the nature and extent of any contingency plans.

Subsequent Events

 Acquisition of Saturn Global Network Service Holdings Ltd.:

           On December 18, 1998, IXnet acquired Saturn Global Network Service
Holdings Ltd. ("Saturn") from Marshalls Finance Ltd. for a cash payment (funded
by cash from operations and the Revolving Credit Facility) of $36.1 million and
notes guaranteed by the Company in the amount of $12.5 million. These notes are
in the amounts of $7.5 million and $5.0 million, respectively, and accrue
interest at 9.25%. The agreement to purchase Saturn had been signed in August
1998 and closing occurred after obtaining regulatory approval and following
renegotiations of certain terms.

                                       34
<PAGE>

           Saturn, a UK Holding Company, owns telecommunication network
operating subsidiaries in the United Kingdom, USA, Hong Kong, Australia, Japan
and Singapore. It has established a business selling managed premium grade voice
and data communication services to the financial community, similar to IXnet,
but focused on Europe, Australia and the Pacific Rim; therefore, it's customer
base and network facilities are geographically complimentary to IXnet.

Chief Executive Officer Resignation:

           On December 3, 1998, Terry Clontz, the Company's President and Chief
Executive Officer resigned pursuant to a Separation Agreement and release.
Gerald Starr was appointed by the Company's Board of Directors to fill the
vacant position.

           In accordance with the Separation Agreement, Mr. Clontz was paid $0.2
million in remaining payments due to him in connection with the Merger (which
amount had been fully accrued in the Company's June 30, 1998 quarter), net of
the balance owed by Mr. Clontz under a residential loan in accordance with his
employment agreement. Additionally, the Company will accrue during its quarter
ending December 31, 1998 the amount of $0.8 million which is payable to Mr.
Clontz upon the occurrence of certain events (the sale of a specified amount of
assets, equity or debt, a merger, a change in control or debt restructuring) but
in no event later than December 31, 2001. The Separation Agreement also includes
certain releases, and covenants regarding competition, confidential information
and non-solicitation.

           Reuters Voice Systems:

           In October 1998, the Company announced it had signed an agreement to
purchase the assets of Reuters Voice Systems ("RVS"), a business unit of Reuters
Group PLC. The transaction will be financed through a combination of cash from
operations and other borrowings and is expected to close by the end of the
calendar year. RVS supplies dealerboards (turrets) to financial clients. It has
clients with approximately 10,000 positions deployed globally, the majority in
the United Kingdom and continental Europe.

Effects of Recently Issued Accounting Standards

           In June 1997, The Financial Accounting Standards Board ("FASB")
released Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income", governing the reporting and display of comprehensive
income and its components. This statement is effective for financial statements
issued for periods beginning after December 15, 1997. The Company plans to adopt
this standard as required in fiscal 1999. The Company does not expect the
adoption of SFAS No. 130 to have an impact on its results of operations,
financial position or cash flows.

           In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivatives and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments and hedging activities. This standard is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
The Company does not expect the adoption of SFAS No. 133 to have an impact on
its results of operations, financial position or cash flows.

           In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use". SOP 98-1 is effective for
financial statements for years beginning after December 15,

                                       35
<PAGE>

1998. The Company does not anticipate the adoption of this standard to have a
material effect on the Company's capitalization policy.

Quarterly Fluctuations and the Effects of Inflation

           The size and lead time of new orders can vary substantially and,
since the Company generally recognizes revenue from the sale and installation of
turret systems and Information Transport Systems on the completion of an
installation, the Company's quarterly results of operations may fluctuate
significantly. Management does not believe that inflation has a significant
effect on the Company's results.

Foreign Exchange

           The Company's shipments to foreign distributors are generally
invoiced in US Dollars. As a result, the Company believes its foreign exchange
transaction exposure caused by these shipments is insignificant. Sales to the
Company's customers in the United Kingdom are denominated in British Pounds
Sterling. The Company does not hedge its net asset exposure to fluctuations in
the US Dollar/British Pound Sterling exchange rate. Accordingly, the Company is
subject to risks associated with such fluctuation. However, adjustments to the
Company's financial position as a result of currency fluctuations have not been
significant.

           On January 1, 1999, several members of the European Union will
establish fixed conversion rates between their existing sovereign currencies,
and adopt the Euro as their new common legal currency. The Company does not 
expect that the Euro conversion will have a material adverse effect on its
business or financial condition.

-------------------------------------------------------------------------------
           This Report on Form 10-K contains certain forward-looking statements
concerning, among other things, the Company's plans and objectives for future
operations, planned products and services, potential expansion into new markets,
and anticipated customer demand for our existing and future products and
services. The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements to encourage the inclusion of prospective
information so long as those statements are accompanied by meaningful cautionary
statements identifying factors that could cause actual results to differ
materially. Among the factors that could cause actual results, performance or
achievement to differ materially from those described or implied in the
forward-looking statements are general economic conditions, competition,
potential technology changes, changes in or the lack of anticipated changes in
the regulatory environment in various countries, changes in customer purchasing
policies and practices, the ability to raise additional capital to finance
expansion, and the risks inherent in new product and service introductions and
the entry into new geographic markets.
--------------------------------------------------------------------------------

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

           See Financial Statements and Financial Statement Schedule.

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

           Not applicable.

                                       36
<PAGE>

                                    PART III

ITEM 10.   DIRECTORS, EXECUTIVE OFFICERS AND OTHER OFFICERS OF THE REGISTRANT

           a. Identification of Directors:

           The information required by this Item is incorporated herein by
reference to the information contained under the caption, "Election of
Directors" in the Proxy Statement which will be filed with the SEC within 120
days after the end of the fiscal year covered by this Form 10-K (the "Proxy
Statement"). Such information is incorporated by reference pursuant to General
Instruction G(3).


           b. Identification of Executive Officers:

           The information required by this Item is incorporated herein by
reference to the information contained under the captions "Election of
Directors" and "Management" in the Proxy Statement. Such information is
incorporated by reference, pursuant to General Instruction G(3).

ITEM 11.   EXECUTIVE COMPENSATION

           The information required by this Item is incorporated herein by
reference to the information contained under the caption "Executive
Compensation" in the Proxy Statement. Such information is incorporated by
reference, pursuant to General Instruction G(3).

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

           The information required by this Item is incorporated herein by
reference to the information contained under the caption "Security Ownership of
Certain Beneficial Owners and Management" in the Proxy Statement. Such
information is incorporated by reference, pursuant to General Instruction G(3).

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

           The information required by this Item is incorporated herein by
reference to the information contained under the caption "Certain Transactions
and Relationships" in the Proxy Statement. Such information is incorporated by
reference, pursuant to General Instruction G(3).

                                       37
<PAGE>

                                     PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

           (a)(1)    Financial Statements

<TABLE>
<CAPTION>
                                                                                        Page(s)
                                                                                        -------

<S>                                                                                       <C>
                     Report of Independent Accountants                                    42
                                                                                          
                     Consolidated Balance Sheets as of September 30,                      43
                     1998 and 1997                                                        
                                                                                          
                     Consolidated Statements of Operations for the                        44  
                     Years Ended September 30, 1998, 1997 and 1996                        
                                                                                          
                     Consolidated Statements of Cash Flows                                45 
                     for the Years Ended September 30, 1998, 1997 and 1996                
                                                                                        
                     Consolidated Statements of Stockholders' (Deficit) Equity for the    46 
                     Years Ended September 30, 1998, 1997 and 1996

                     Notes to Consolidated Financial Statements                           47-64

           (a)(2)    Financial Statement Schedule

                     Schedule II - Valuation and Qualifying Accounts                      65
</TABLE>

           Schedules not listed have been omitted because they are not
           applicable or are not required or the information required to be set
           forth therein is included in the Consolidated Financial Statements or
           notes thereto.


           (a)(3) Exhibits

<TABLE>
<CAPTION>
Exhibit No.          Exhibit Title
-----------          -------------
<S>                  <C>
      2.1***         Agreement and Plan of Merger, dated as of December 18,
                     1997, by and between the Registrant and Arizona Acquisition
                     Corp.
      2.2***         Stockholders Agreement, dated as of December 18, 1997, by
                     and among Arizona Acquisition Corp., Richard P.
                     Kleinknecht, Peter J. Kleinknecht, Russell G. Kleinknecht
                     and other signatories thereto.
      3.1*           Restated Certificate of Incorporation.
      3.2*           Amended and Restated Bylaws of Registrant.
      4.1*           Specimen Common Stock of the Registrant.
      4.2****        Indenture dated as of April 30, 1998 between the Registrant
                     and United States Trust Company of New York, as indenture
                     trustee.
     10.2*           Employment Agreement, dated May 9, 1994, between the
                     Registrant and Richard P. Kleinknecht.
     10.2.1**        Letter Agreement, dated October 17, 1995, amending the
                     Employment Agreement between the Registrant and Richard P.
                     Kleinknecht.
     10.2.2***       Amended and Restated Employment Agreement, dated as of
                     December 18, 1997, between the Registrant and Richard P.
                     Kleinknecht.

                                       38
<PAGE>

     10.3*           Employment Agreement, dated May 9, 1994, between the
                     Registrant and Peter J. Kleinknecht.
     10.3.1**        Letter Agreement, dated October 17, 1995, amending the
                     Employment Agreement between the Registrant and Peter J.
                     Kleinknecht.
     10.3.2***       Amended and Restated Employment Agreement, dated as of
                     December 18, 1997, between the Registrant and Peter J.
                     Kleinknecht.
     10.4*           Employment Agreement, dated August 29, 1994, between the
                     Registrant and Jeffrey M. Gill.
     10.4.1**        Letter Agreement, dated October 17, 1995, amending the
                     Employment Agreement between the Registrant and Jeffrey M.
                     Gill.
     10.8*           Labor Pool Agreement between the Registrant and KEC-NY.
     10.8.1***       Amended and Restated Labor Pool Agreement, dated as of
                     December 18, 1997, by and between the Registrant and
                     KEC-NY.
     10.9*           Labor Pool Agreement between the Registrant and KEC-NJ.
     10.9.1***       Amended and Restated Labor Pool Agreement, dated as of
                     December 18, 1997, by and between the Registrant and
                     KEC-NJ.
     10.10*          Corporate Opportunity Agreement among the Registrant,
                     KEC-NY and KEC-NJ.
     10.10.1***      Amended and Restated Corporate Opportunity Agreement, dated
                     as of December 18, 1997, by and among the Registrant,
                     KEC-NY and KEC-NJ.
     10.13*          Registration Rights Agreement between the Registrant and
                     Richard P. Kleinknecht and Peter J. Kleinknecht.
     10.14**         Employment Agreement, dated as of October 17, 1995, between
                     the Registrant and Steven Terrell Clontz.
     10.14.1         First Amendment to Employment Agreement, dated as of August
                     1, 1997, between the Registrant and Steven Terrell Clontz.
     10.15****       Amended and Restated Investors Agreement, dated as of April
                     9, 1998, by and among the Registrant, Cable Systems Holding
                     LLC, Cable Systems International, Inc., Richard P.
                     Kleinknecht, David Walsh, Anthony Servidio, and Lawrence
                     Smith & Horey III, L.P..
     10.16***        Share Exchange and Termination Agreement, dated as of
                     December 18, 1997, by and among the Registrant,
                     International Exchange Networks, Ltd., David Walsh and
                     Anthony Servidio.
     10.17***        Amended and Restated Employment Agreement, dated as of
                     December 18,1997, by and between International Exchange
                     Networks, Ltd. and David Walsh.

                                       39
<PAGE>

     10.18***        Amended and Restated Employment Agreement, dated as of
                     December 18,1997, by and between International Exchange
                     Networks, Ltd. and Anthony Servidio.
     10.19           Employment Agreement, dated as of April 20, 1995, by and
                     between IPC Bridge, Inc., a wholly-owned subsidiary of the
                     Registrant and Gerald E. Starr.
     10.19.1         First Amendment to Employment Agreement between IPC Bridge,
                     Inc. and Gerald E. Starr, dated as of May 21, 1996.
     10.19.2         Second Amendment to Employment Agreement between IPC
                     Bridge, Inc. and Gerald E. Starr, dated as of August 1,
                     1997.
     10.20           Employment Agreement, dated as of October 1, 1997, by and
                     between the Registrant and Russell G. Kleinknecht.
     10.20.1         Letter Loan Agreement, dated as of October 1, 1997, by and
                     between the Registrant and Russell G. Kleinknecht.
     10.22****       Credit Agreement dated as of April 30, 1998 among the
                     Registrant, IPC Funding Corp., Morgan Stanley Senior
                     Funding, Inc., ("MSSF"), as syndication agent and arranger,
                     Goldman Sachs Credit Partners L.P., as documentation agent,
                     General Electric Capital Corporation, as collateral agent,
                     and MSSF, as administrative agent.
     21.3            Subsidiaries of the Registrant.
     27              Financial Data Schedule (for SEC use).
     99***           Press Release issued on December 19, 1997.
</TABLE>

----------
   * Previously filed as an exhibit to the Registrant's Registration Statement
     on Form S-1 (No. 33-78754) or Amendment No. 1, Amendment No. 2, or
     Amendment No. 3 to the Registration Statement, and incorporated herein by
     reference.
  ** Previously filed as an exhibit to the Registrant's Report on Form 8-K,
     filed November 30, 1995, and incorporated herein by reference.
 *** Previously filed as an exhibit to the Registrant's Report on form 8-K,
     filed December 24, 1997, and incorporated herein by reference.
**** Previously filed as an exhibit to the Registrant's Report on form 8-K,
     filed May 15, 1998, and incorporated herein by reference.


                                       40
<PAGE>

                                   SIGNATURES

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

                                                   IPC INFORMATION SYSTEMS, INC.



Date: December 29, 1998                            By:/s/ Gerald E. Starr
                                                      -------------------
                                                      Gerald E. Starr
                                                      President and Chief
                                                      Executive Officer

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

<TABLE>
<CAPTION>
           Signature                          Title                       Date
           ---------                          -----                       ----
                                     
<S>                                   <C>                                  <C> 
       /s/ DAVID Y. HOWE              Director                                 December 29, 1998
-----------------------------------                                         -----------------------
          David Y. Howe               
                                     
       /s/ DAVID WALSH                Executive VP, Director                   December 29, 1998
-----------------------------------                                         -----------------------
           David Walsh          
                                     
      /s/ GERALD E. STARR             Chief Executive Officer,                 December 29, 1998
-----------------------------------   President and Director                -----------------------
          Gerald E. Starr             (Principal Executive Officer) 
                                      
       /s/ BRIAN L. REACH             Chief Financial Officer and Director     December 29, 1998
-----------------------------------   (Principal Financial Officer)         -----------------------
         Brian L. Reach               (Principal Accounting Officer)     
                                      
    /s/ RICHARD CASHIN, JR.           Director                                 December 29, 1998
-----------------------------------                                         -----------------------
        Richard Cashin, Jr.              
                                   
</TABLE>

                                       41
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Stockholders
of IPC Information Systems, Inc.:


           In our opinion, the consolidated financial statements listed in the
accompanying index under Item 14(a) of this Annual Report on Form 10-K present
fairly, in all material respects, the consolidated financial position of IPC
Information Systems, Inc. and its subsidiaries at September 30, 1998 and 1997,
and the results of their operations and cash flows for each of the three years
in the period ended September 30, 1998, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule listed in the accompanying index under Item 14(a) of this Annual Report
on Form 10-K, presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related consolidated financial
statements. These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.


                                                      PricewaterhouseCoopers LLP


New York, New York
December 3, 1998, except for Note 16, 
for which the date is December 23, 
1998


                                       42
<PAGE>

                          IPC INFORMATION SYSTEMS, INC.
                           CONSOLIDATED BALANCE SHEETS
             (Dollar amounts in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                                          September 30,
                                                                                                   ---------------------------
                                                                                                       1998          1997
                                                                                                   ------------- -------------
<S>                                                                                                  <C>           <C>     
                                                    ASSETS
Current assets:
   Cash and cash equivalents ....................................................                    $ 28,084      $  1,465
   Trade receivables, less allowance of $2,442 and $1,515, respectively .........                      71,521        61,791
   Inventories ..................................................................                      40,046        33,557
   Prepaid expenses and other current assets ....................................                      15,904        13,426
                                                                                                     --------      --------
              Total current assets ..............................................                     155,555       110,239

Property, plant and equipment, net ..............................................                      56,763        38,314
Debt issuance costs, net ........................................................                      10,707            --
Intangible assets, net ..........................................................                      15,639         8,481
Other assets, net ...............................................................                       2,628         1,328
                                                                                                     --------      --------
              Total assets ......................................................                    $241,292      $158,362
                                                                                                     ========      ========

                                LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
  Notes payable .................................................................                    $     --      $  3,200
  Accounts payable ..............................................................                      21,965        18,042
  Accrued liabilities ...........................................................                      38,833        21,395
  Customer advances and deferred revenue ........................................                      38,119        17,682
  Current portion of capital leases .............................................                       4,462         2,987
                                                                                                     --------      --------
              Total current liabilities .........................................                     103,379        63,306
 Senior unsecured notes .........................................................                     188,223            --
 Long-term debt .................................................................                          --         2,133
 Lease obligations, net of current portion ......................................                      12,490        10,336
 Other liabilities ..............................................................                       3,741         5,677
                                                                                                     --------      --------
              Total liabilities .................................................                     307,833        81,452
                                                                                                     --------      --------

Commitments and contingencies

Stockholders' (deficit) equity:
  Preferred stock - $0.01 par value, authorized 10,000,000 shares,
     none issued and outstanding
  Common stock - $0.01 par value, authorized 25,000,000 shares; 
     8,076,188 shares issued and outstanding at September 30, 1998; 21,865,350
     shares issued; 21,380,980 shares outstanding at September 30, 1997 .........                          81           109
  Paid-in capital ...............................................................                       4,797        47,922
  Retained (deficit) earnings ...................................................                     (71,419)       29,597
  Less treasury stock, at cost, none and 484,370 shares at September 30, 1998 and
     September 30, 1997, respectively ...........................................                          --          (718)
                                                                                                     --------      --------
              Total stockholders' (deficit) equity ..............................                     (66,541)       76,910
                                                                                                     --------      --------
              Total liabilities and stockholders' (deficit) equity ..............                    $241,292      $158,362
                                                                                                     ========      ========
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                       43
<PAGE>

                          IPC INFORMATION SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
             (Dollar amounts in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                  For the year ended September 30,
                                                             -------------------------------------------
                                                                 1998          1997           1996
                                                             ------------- -------------- --------------
<S>                                                            <C>            <C>             <C>     
Revenue:
   Product sales and installation ....................         $173,350       $179,978        $178,513
   Service ...........................................          122,547         90,345          70,995
                                                               --------       --------        --------
                                                                295,897        270,323         249,508
                                                               --------       --------        --------
Cost of revenue:
   Product sales and installation ....................          100,727        127,212         122,897
   Service ...........................................           78,416         62,897          49,793
                                                               --------       --------        --------
                                                                179,143        190,109         172,690
                                                               --------       --------        --------
              Gross profit ...........................          116,754         80,214          76,818

Research and development expenses ....................            9,994          9,976          11,467
Selling, general and administrative expenses .........           77,312         60,697          45,143
Change in control expense ............................           10,640             --              --
                                                               --------       --------        --------
              Income from operations .................           18,808          9,541          20,208

Interest expense, net ................................          (10,337)        (1,844)           (678)
Other income/(expense), net ..........................               (2)           417             591
                                                               --------       --------        --------
              Income before provision for income taxes            8,469          8,114          20,121
Provision for income taxes ...........................            6,191          4,280           7,992
                                                               --------       --------        --------
              Net income .............................         $  2,278       $  3,834        $ 12,129
                                                               ========       ========        ========

Basic earnings per share .............................         $   0.14       $   0.18        $   0.57
                                                               ========       ========        ========

Basic weighted average shares outstanding ............           15,774         21,328          21,180
                                                               ========       ========        ========

Diluted earnings per share ...........................         $   0.14       $   0.18        $   0.57
                                                               ========       ========        ========

Diluted weighted average shares outstanding ..........           15,941         21,408          21,230
                                                               ========       ========        ========
</TABLE>

                            See Notes to Consolidated Financial Statements.


                                       44
<PAGE>
                          IPC INFORMATION SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                          (Dollar amounts in thousands)

<TABLE>
<CAPTION>
                                                                               For the year ended September 30,
                                                                          -----------------------------------------
                                                                             1998         1997           1996
                                                                          ------------ ------------ ---------------
<S>                                                                        <C>            <C>           <C>     
Net income .........................................................       $  2,278       $  3,834      $ 12,129
Adjustments to reconcile net income to net cash provided by                                            
   (used in) operating activities:                                                                     
   Depreciation and amortization ...................................         11,957          7,653         4,351
   Amortization of intangible assets ...............................          3,201            763           480
   Non-cash interest on senior discount notes ......................          8,212             --            --
   Other interest amortization .....................................            842            327           365
   Other amortization ..............................................             --             --         1,192
   Provision for doubtful accounts .................................          2,786            338           240
   Deferred income taxes ...........................................         (4,769)            83           674
Changes in operating assets and liabilities:                                                           
   Trade receivables ...............................................        (11,126)         4,909       (16,385)
   Inventories .....................................................         (5,978)         3,240        (1,678)
   Prepaid expenses and other current assets .......................          2,528         (2,926)       (1,208)
   Other assets ....................................................         (1,353)           (45)          130
   Accounts payable ................................................           (819)         1,330           (30)
   Accrued liabilities and other liabilities .......................         18,698          6,628        (4,691)
   Customer advances and deferred revenue ..........................         19,989         (1,988)      (10,306)
                                                                           --------       --------      --------
              Net cash provided by (used in) operating activities ..         46,446         24,146       (14,737)
                                                                           --------       --------      --------
 Cash flows from investing activities:
   Capital expenditures ............................................        (17,943)       (12,974)      (11,747)
   Purchase of Mxnet ...............................................         (6,660)            --            --
   Proceeds from sale of short-term investment .....................             --             --         2,007
   Contingent acquisition payments to Bridge Electronics, Inc ......           (875)        (1,500)       (2,997)
                                                                           --------       --------      --------
              Net cash (used in) investing activities ..............        (25,478)       (14,474)      (12,737)
                                                                           --------       --------      --------
 Cash flows from financing activities:
   Net repayment of note payable ...................................         (3,200)       (10,700)           --
   Net proceeds from note payable ..................................             --             --        13,900
   Principal payments on capital leases ............................         (3,463)        (1,822)         (221)
   Proceeds from long-term debt ....................................             --          2,182            --
   Repayment of long-term debt .....................................         (2,178)            (4)           --
   Proceeds from issuance of senior discount notes .................        180,011             --            --
   Proceeds from equity investment .................................         54,721             --            --
   Purchase of IPC common stock at Merger ..........................       (200,271)            --            --
   Debt issuance costs .............................................        (11,237)            --            --
   Other obligations due at Merger .................................         (2,625)            --            --
   Equity charges at Merger ........................................         (5,916)            --     
   Proceeds from the exercise of stock options .....................            468            301           106
                                                                           --------       --------      --------
              Net cash provided by (used in) financing activities ..          6,310        (10,043)       13,785
                                                                           --------       --------      --------
Effect of exchange rate changes on cash ............................           (659)          (470)          209
                                                                           --------       --------      --------
Net increase (decrease) in cash ....................................         26,619           (841)      (13,480)
Cash and cash equivalents, beginning of period......................          1,465          2,306        15,786
                                                                           --------       --------      --------
Cash and cash equivalents, end of period............................       $ 28,084       $  1,465      $  2,306
                                                                           ========       ========      ========
                                                                                                       
Supplemental disclosures of cash flow information:
Cash paid during the year for-                                                                         
   Income taxes ....................................................       $  4,822       $  4,100      $  6,863
   Interest ........................................................       $  2,138       $  1,040      $    756
Non-cash investing and financing activities-                                                           
   Issuance of stock to acquire remaining 20% interest in subsidiary       $  4,799       $     --      $     --
   Installment purchase for property, plant and equipment ..........       $  3,600       $     --      $     --
   Retirement of treasury stock ....................................       $    718       $     --      $     --
   Capital lease obligations entered into during the year ..........       $  7,092       $ 10,776      $  4,369
   Additional amount payable in connection with the aquisition of          
      Bridge Electronics, Inc. .....................................       $     --       $  3,500      $     --
   Issuance of stock for the acquisition of Bridge Electronics, Inc.       $     --       $     --      $    700
</TABLE>
                                                                            
                            See Notes to Consolidated Financial Statements.


                                       45
<PAGE>

                          IPC INFORMATION SYSTEMS, INC.
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
                     (Dollar and share amounts in thousands)

<TABLE>
<CAPTION>
                                                                                     Paid-       Retained                Total
                                                                    Common Stock       in        (deficit) Treasury  stockholders'
                                                                 Shares     Amount   capital     earnings    stock  (deficit) equity
                                                                --------  --------  ----------   ---------  -------- ---------------
<S>                                                               <C>       <C>     <C>          <C>        <C>      <C>      
Consolidated balance, September 30, 1995 .....................    10,522    $ 107   $  45,853    $ 13,262   $(718)   $  58,504
   Net income ................................................        --       --          --      12,129      --       12,129
   Translation adjustment ....................................        --       --          --         102      --          102
   Issuance of common stock in acquisition ...................        77        1         699          --      --          700
   Issuance of common stock under stock purchase plan ........        10        1         171          --      --          172
   Issuance of common stock under stock option plan ..........         9       --         108          --      --          108
                                                                 -------    -----   ---------    --------   -----    ---------
Consolidated balance, September 30, 1996 .....................    10,618    $ 109   $  46,831    $ 25,493   $(718)   $  71,715
   Net income ................................................        --       --          --       3,834      --        3,834
   Translation adjustment ....................................        --       --          --         270      --          270
   Issuance of common stock under employment contracts .......        32       --         478          --      --          478
   Issuance of common stock under stock purchase plan ........        21       --         312          --      --          312
   Issuance of common stock under stock option plan ..........        20       --         301          --      --          301
                                                                 -------    -----   ---------    --------   -----    ---------
Consolidated balance, September 30, 1997 .....................    10,691    $ 109   $  47,922    $ 29,597   $(718)   $  76,910
   Net income ................................................        --       --          --       2,278      --        2,278
   Translation adjustment ....................................        --       --          --         208      --          208
   Issuance of common stock under stock purchase plan ........        18       --         262          --      --          262
   Issuance of common stock under stock option plan ..........        32        1         467          --      --          468
   Repurchase and retirement of IPC common stock from ........        --       --          --          --      --           --
      Merger dated April 30, 1998 ............................    (9,537)     (95)   (103,346)    (96,830)     --     (200,271)
   Retirement of treasury stock ..............................        --       (2)         --        (716)    718           --
   Issuance of Common Stock from Merger ......................     2,606       26      54,695          --      --       54,721
   Equity charges related to the Merger ......................        --       --          --      (5,916)     --       (5,916)
   Issuance of common stock to acquire remaining 20% interest
      in subsidiary ..........................................       228        2       4,797          --      --        4,799
  Two-for-one stock split effected in the form of a 100% stock
     dividend, issued on June 10, 1998 .......................     4,038       40          --         (40)     --           --
                                                                 -------    -----   ---------    --------   -----    ---------
Consolidated balance, September 30, 1998 .....................     8,076    $  81   $   4,797    $(71,419)  $  --    $ (66,541)
                                                                 =======    =====   =========    ========   =====    =========
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                       46
<PAGE>

                          IPC INFORMATION SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           (Amounts in thousands, except share and per share amounts)

1.      The Company:

        IPC Information Systems, Inc. ("IPC" or the "Company") provides globally
        integrated telecommunications products and services to the financial
        services industry. The Company is in the business of designing,
        manufacturing, installing and servicing trading room voice communication
        workstations and installing and servicing comprehensive cabling
        infrastructure including Local and Wide Area Networks. In addition,
        International Exchange Networks Ltd. ("IXnet"), a subsidiary of the
        Company, operates an international communications network providing a
        variety of voice and data services designed for the specialized
        international telecommunications requirements of the financial services
        industry. In April 1998, the Company merged with Arizona Acquisition
        Corp. (See Note 4).

2.      Summary of Significant Accounting Policies:

        Principles of Consolidation
        The consolidated financial statements include the accounts of the
        Company and its subsidiaries. Intercompany balances and transactions
        have been eliminated.

        Revenue Recognition
        Revenue from product sales and installation is recognized upon
        completion of the installation except for revenue from sales to
        distributors, which is recognized upon shipment. Under contract
        provisions, customers are progress-billed prior to the completion of the
        installations. The revenue related to these advance payments is deferred
        until the system installations are completed. Contracts for maintenance
        are billed in advance, and are recorded as deferred revenue and
        recognized ratably over the contractual periods. Revenue from network
        services are recognized in the month the related service is provided.

        Cash and Cash Equivalents 
        The Company places cash with several high credit quality financial
        institutions. Temporary cash investments with original maturities of
        three months or less are considered cash equivalents. Temporary cash
        investments are stated at cost, which approximates fair value. These
        investments are not subject to significant market risk.

        Trade Receivables
        Trade accounts receivable potentially expose the Company to
        concentrations of credit risk, as a large volume of business is
        conducted with several major financial institutions, primarily companies
        in the brokerage, banking and financial services industries. To help
        reduce this risk, customers are progress-billed prior to the completion
        of the contract.

        Inventories
        Inventories are stated at the lower of FIFO (first in, first out) cost
        or market. Inventory costs include all direct manufacturing costs and
        applied overhead.

        Property, Plant and Equipment
        Property, plant and equipment are stated at cost and depreciated on a
        straight-line basis over their estimated useful lives beginning in the
        year the asset was placed into service. Network switching equipment
        includes direct costs of installation. Amortization of network switching
        equipment 

                                       47
<PAGE>

                          IPC INFORMATION SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      (Amounts in thousands, except share and per share amounts), Continued

        under capital leases and indefeasible rights of use ("IRU") is
        calculated using the straight-line method over the terms of the lease or
        IRU's and is included in depreciation and amortization expense.

        Debt Issuance Costs
        Debt issuance costs represent costs associated with the issuance of the
        Senior Discount Notes (See Notes 4 and 9) and in connection with the
        Revolving Credit Facility (See Notes 4 and 8). These costs are amortized
        to interest expense on the effective interest method over the life of
        the Senior Discount Notes and on a straight-line basis over the term of
        the Revolving Credit Facility.

        Intangible Assets
        Intangible assets, which are carried at cost less accumulated
        amortization, consist primarily of acquired technology and goodwill.
        Goodwill represents the excess of the cost over the fair value of the
        identifiable tangible and intangible assets acquired in various
        acquisitions. Costs allocated to technology and goodwill are amortized
        on a straight-line basis over the periods benefited, principally 2.75 to
        10 years. The Company assesses the recoverability of acquired technology
        and goodwill based on anticipated gross operating income.

        Research and Development
        Research and development expenditures are charged to expense as
        incurred.

        Income Taxes
        In accordance with Statement of Financial Accounting Standards No. 109,
        "Accounting for Income Taxes" ("SFAS No. 109"), the Company recognizes
        deferred income taxes for the tax consequences in future years of
        differences between the tax bases of assets and liabilities and their
        financial reporting amounts at each year end, based on enacted tax laws
        and statutory tax rates applicable to the periods in which the
        differences are expected to affect taxable income. Valuation allowances
        are established when necessary to reduce deferred tax assets to the
        amount that is "more likely than not" to be realized. The provision for
        income taxes is the tax payable for the period and the change during the
        period in deferred tax assets and liabilities.

        Use of Estimates
        The preparation of financial statements in conformity with generally
        accepted accounting principles requires management to make estimates and
        assumptions that affect the reported amounts of assets, and liabilities,
        and disclosure of contingent assets and liabilities at the date of the
        financial statements and the reported amounts of revenues and expenses
        during the reporting period. Actual results could differ from those
        estimates.

        Interest Rate Swap
        The Company was a party to an interest rate swap agreement with
        off-balance sheet risk which was entered into in the normal course of
        business to reduce exposure to fluctuations in interest rates. The
        counterparty to this instrument was a major financial institution. The
        fair value of the interest rate swap agreement is determined by the cost
        to terminate the swap agreement.

        Foreign Currency Translation Adjustment
        The balance sheets and statements of operations of the Company's foreign
        operations are measured using the local currency as the functional
        currency. Assets and liabilities of these foreign operations are
        translated at the year-end exchange rate and revenue and expense amounts
        are translated at the average rate of exchange prevailing during the
        year. Translation adjustments 

                                       48
<PAGE>

                          IPC INFORMATION SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      (Amounts in thousands, except share and per share amounts), Continued

        arising from the use of differing exchange rates from period to period
        are included in the retained (deficit) earnings account in stockholders'
        (deficit) equity.

        Earnings Per Share
        In accordance with SFAS No. 128, "Earnings Per Share", basic earnings
        per share is computed based upon the weighted average number of common
        shares outstanding during the periods. Diluted earnings per share is
        computed based upon the weighted average number of common shares
        outstanding plus the assumed issuance of common stock equivalents
        computed in accordance with the treasury stock method.

        Reclassifications
        Certain reclassifications have been made to the 1997 and 1996 financial
        statements in order to conform to the current year's presentation.

        Effects of Recently Issued Accounting Standards
        In June 1997, The Financial Accounting Standards Board ("FASB") released
        Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting
        Comprehensive Income", governing the reporting and display of
        comprehensive income and its components. This statement is effective for
        financial statements issued for periods beginning after December 15,
        1997. The Company plans to adopt this standard as required in fiscal
        1999. The Company does not expect the adoption of SFAS No. 130 to have
        an impact on its results of operations, financial position or cash
        flows.

        In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives
        and Hedging Activities", which establishes accounting and reporting
        standards for derivative instruments and hedging activities. This
        standard is effective for all fiscal quarters of fiscal years beginning
        after June 15, 1999. The Company does not expect the adoption of SFAS
        No. 133 to have an impact on its results of operations, financial
        position or cash flows.

        In March 1998, the American Institute of Certified Public Accountants
        issued Statement of Position ("SOP") 98-1, "Accounting for the Cost of
        Computer Software Developed or Obtained for Internal Use." SOP 98-1 is
        effective for financial statements for years beginning after December
        15, 1998. The Company does not anticipate the adoption of this standard
        to have a material effect on the Company's capitalization policy.

3.      Acquisitions:

        International Exchange Networks, Ltd. (IXnet)
        During June 1995, the Company acquired an 80% interest in IXnet for
        $5,500 in cash. The acquisition was accounted for using the purchase
        method of accounting. Included in intangible assets is $679 and $860 at
        September 30, 1998 and 1997, respectively, representing acquired
        technology.

        In conjunction with the April 1998 Merger (See Note 4), the Company
        acquired the remaining 20% interest in IXnet (the "IXnet Exchange")
        through the issuance of 457,142 shares of Surviving Corporation Common
        Stock (See Note 4), valued at $4,799. Included in intangible assets is
        $4,363 at September 30, 1998, representing acquired technology.

                                       49
<PAGE>

                          IPC INFORMATION SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      (Amounts in thousands, except share and per share amounts), Continued

        MXnet Inc. (MXnet)
        In February 1998, the Company acquired, by the issuance of a promissory
        note in the amount of $6,660, all of the issued and outstanding common
        stock of MXnet, a wholly owned subsidiary of National Discount Brokers
        Group, Inc. The promissory note plus accrued interest was paid on April
        8, 1998. In addition, MXnet entered into employment agreements with four
        MXnet executives which included signing and retention bonuses in the
        aggregate amount of approximately $1,100 payable over two years. This
        acquisition was accounted for using the purchase method of accounting
        and resulted in $5,494 of goodwill of which $3,891 remains in intangible
        assets at September 30, 1998.

        Bridge Electronics, Inc.
        During April 1995, the Company acquired the assets of Bridge
        Electronics, Inc. ("IPC Bridge"). The terms of the acquisition included
        a payment in January 1996 of $2,025 in cash and 76,923 shares of the
        Company's common stock, valued at $700 and amounts contingent on meeting
        certain performance levels up to a maximum aggregate consideration of
        $6,000. During fiscal 1997, the maximum contingent performance levels
        for IPC Bridge were achieved. Amounts paid pursuant to the contingent
        performance levels under this agreement were $3,500 and $1,500 during
        fiscal 1998 and 1997, respectively. The acquisition was accounted for
        using the purchase method of accounting. Included in intangible assets
        is $6,616 and $7,621 at September 30, 1998 and 1997, respectively,
        representing the excess of the cost over the fair value of the
        identifiable assets acquired.

4.      Merger and Recapitalization:

        On April 30, 1998, Arizona Acquisition Corp. ("AAC") was merged into the
        Company (the "Merger"). Under the terms of the Merger, each share of
        common stock of the Company ("IPC Common Stock") was converted at the
        election of the holder thereof into either (i) the right to receive
        $21.00 in cash or (ii) the right to retain one share of common stock of
        the surviving corporation ("Surviving Corporation Common Stock"),
        subject to proration in certain circumstances. In connection with the
        Merger, the Company issued $247,400 aggregate principal amount at
        maturity ($180,011 initial proceeds upon issuance) of 10 7/8% Senior
        Discount Notes due 2008 (the "Notes"). A portion of the proceeds from
        the Notes ($145,550), together with $54,721 of capital provided by AAC
        (the "Equity Investment") were used to repurchase 9,536,665 shares of
        IPC Common Stock, at a price of $21.00 per share, from IPC shareholders
        who did not elect to retain stock of the surviving corporation upon the
        Merger. Prior to the Merger, AAC was owned by (i) Cable Systems Holdings
        LLC ("CSH LLC"), whose membership interests were owned by Citicorp
        Venture Capital, Ltd. and David Kirby and John O'Mara, private
        investors, (ii) CSH LLC's indirect subsidiary Cable Systems
        International, Inc. and (iii) the investment fund of Lawrence Smith &
        Horey III, L.P. The Merger was accounted for as a leveraged
        recapitalization; accordingly, the historical basis of the Company's
        assets and liabilities has not been impacted by the Merger.

        In connection with the Merger, the Company incurred various
        non-recurring costs totaling approximately $27,800. These costs consist
        primarily of professional fees, printing costs, change of control costs
        and other expenses. Of this amount, $10,640 was recorded in fiscal 1998
        as a non-recurring charge for change in control expenses, comprised of
        certain change in control bonuses and severance payments ($4,265),
        payments to option holders upon cancellation of their stock options
        ($5,900) and miscellaneous other expenses ($475).

                                       50
<PAGE>

                          IPC INFORMATION SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      (Amounts in thousands, except share and per share amounts), Continued

        Unaudited pro forma statement of operations information for the years
        ended September 30, 1998 and 1997, as if the Merger occurred on October
        1, 1996 is as follows:

<TABLE>
<CAPTION>
                                                           For the year ended
                                                            September 30,
                                                        -------------------------
                                                          1998             1997
                                                        --------         --------
<S>                                                     <C>              <C>     
        Revenue                                         $295,897         $270,323
        Operating Income (loss)                         $ 18,129         $ (2,263)
        Net (loss)                                      $ (6,447)        $(14,943)
        Basic (loss) per share                          $  (0.80)        $  (1.85)
        Basic weighted average number of common  
             Shares outstanding (in thousands)             8,076            8,076
</TABLE>

        Pro forma adjustments include: (i) elimination of non-recurring charge 
        for change in control expense; (ii) full year of interest expense on the
        Notes and related amortization of debt issuance costs and discount; and
        (iii) amortization of the acquired technology related to the IXnet
        Exchange. All pro forma adjustments were tax effected at the Company's
        44% incremental tax rate. The pro forma financial information presented
        above is not necessarily indicative of the operating results which would
        have been achieved had the Merger occurred at October 1, 1996 or of the
        results to be achieved in the future.

5.      Stock Split:

        On May 29, 1998 the Company declared a two-for-one stock split effected
        in the form of a 100% stock dividend (the "Stock Dividend"). The Stock
        Dividend was distributed on June 24, 1998 to holders of record on June
        10, 1998. As a result, the number of shares increased from 4,038,094
        shares (the number of shares issued and outstanding subsequent to the
        Merger and IXnet Exchange) to 8,076,188 shares. Unless otherwise
        indicated, all share and per share data, including stock option
        information, is stated to reflect the Stock Dividend.

6.      Inventories:

<TABLE>
<CAPTION>
                                                                          September 30,
                                                                     ----------------------------
                                                                        1998            1997
                                                                     -----------    -------------
<S>                                                                   <C>             <C>    
        Components and manufacturing work in process                  $13,639         $10,917
        Inventory on customer sites awaiting installation              21,516          14,230
        Parts and maintenance supplies                                  4,891           8,410
                                                                      -------         -------
                                                                      $40,046         $33,557
                                                                      =======         =======
</TABLE>
       
                                       51
<PAGE>

                          IPC INFORMATION SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      (Amounts in thousands, except share and per share amounts), Continued

7.      Property, Plant and Equipment:

<TABLE>
<CAPTION>
                                                                 September 30,
                                                             --------------------
                                                               1998         1997
                                                             --------     -------
<S>                                                          <C>          <C>    
         Building ........................................   $  2,462     $ 2,442
         Machinery and Equipment .........................     36,230      24,080
         Furniture and Fixtures ..........................      2,758       2,437
         Leasehold Improvements ..........................      8,503       8,470
         Network Switching Equipment .....................     13,288       2,843
         Network Switching Equipment under capital leases      20,717      14,303
         Indefeasible Right of Use .......................      4,000         434
                                                             --------    --------
           Total depreciable property, plant and equipment     87,958      55,009
           Less accumulated depreciation and amortization     (32,502)    (20,941)
                                                             --------    --------
                                                               55,456      34,068
         Land ............................................        558         558
         Construction in Progress ........................        749       3,688
                                                             ========    ========
                                                             $ 56,763    $ 38,314
                                                             ========    ========
</TABLE>

8.      Short-Term Credit Facilities:

        As a result of the Merger, the Company's short-term credit facilities
        with various banks of up to $35,000 were terminated on April 30, 1998.
        At September 30, 1997, there was $3,200 outstanding under this facility
        with a weighted average interest rate on this borrowing of 6.46%.

        In April 1998, the Company entered into a five year $55,000 senior
        secured revolving credit agreement (the "Revolving Credit Facility"),
        with Morgan Stanley Senior Funding, Inc., as syndication agent, and
        other lender parties, to be used for working capital and other general
        corporate purposes. The Revolving Credit Facility is subject to
        borrowing base limitations, which at September 30, 1998 approximated
        $33,565. The Revolving Credit Facility also provides a sublimit for the
        issuance of letters of credit, of which $4,000 was outstanding as of
        September 30, 1998. There were no amounts outstanding, other than the
        letters of credit, under the Revolving Credit Facility as of September
        30, 1998.

        Substantially all of the Company's and its subsidiaries' real and
        personal property, including inventory and accounts receivable is
        pledged as collateral under the Revolving Credit Facility.

        Borrowings under the Revolving Credit Facility bear interest at a rate
        equal to, at the Company's option, the base rate plus 150 basis points
        or the LIBOR rate plus a margin of 150 to 250 basis points depending
        upon the Company's leverage ratio. The base rate is a fluctuating
        interest rate equal to the higher of (i) the rate of interest announced
        publicly by Citibank, N.A. as its base rate and (ii) a rate equal to 1/2
        of 1% per annum above the weighted average of the rates on overnight
        Federal funds transactions with members of the Federal Reserve System as
        published by the Federal Reserve Bank of New York.

        The Revolving Credit Facility contains various covenants and conditions,
        including restrictions on (i) asset dispositions, (ii) mergers and
        acquisitions, (iii) capital expenditures, (iv) restricted payments, (v)
        the incurrence of indebtedness, (vi) loans and investments, (vii) liens,
        (viii) certain transactions with affiliates and (ix) maintaining various
        financial ratios.

                                       52
<PAGE>

                          IPC INFORMATION SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      (Amounts in thousands, except share and per share amounts), Continued

        The Revolving Credit Facility requires the Company to pay a commitment
        fee equal to 0.5% per annum on the unused commitment amount. During the
        year ended September 30, 1998, the Company incurred $285 in commitment
        fees and $128 of interest amortization associated with the Revolving
        Credit Facility.

9.      Long-Term Debt and Interest Rate Swap Agreement:

        Mortgage and Interest Rate Swap Agreement
        In April 1997, the Company, purchased its sole manufacturing facility
        and related land in Westbrook, Connecticut for $2,540 using the
        Company's short-term credit facility. In July 1997, $2,182 was
        refinanced through a mortgage agreement with a bank. On April 30, 1998,
        the Company paid the outstanding balance of the mortgage in the amount
        of $2,178.

        In connection with the mortgage agreement, the Company entered into an
        interest rate swap agreement with its bank in order to fix the interest
        rate over the term of the mortgage at an effective interest rate of
        7.85%. This swap contract, which was due to expire on July 31, 2005, was
        terminated on June 29, 1998 resulting in a charge of $106. There were no
        additional interest rate swap agreements entered into during the year
        ended September 30, 1998.

        Senior Discount Notes
        On April 30, 1998, the Company issued $247,400 aggregate principal
        amount at maturity ($180,011 proceeds at issuance) of 10 7/8% Senior
        Discount Notes due 2008. The Notes were issued under an indenture
        between the Company, as issuer, and United States Trust Company of New
        York, as trustee. The indenture contains certain restrictive covenants
        which impose limitations on the Company and its subsidiaries, including,
        (i) indebtedness, (ii) restricted payments, (iii) dividends, (iv)
        issuance and sale of capital stock of subsidiaries, (v) issuance of
        guarantees by subsidiaries, (vi) certain transactions with shareholders
        and affiliates, (vii) liens, (viii) sale-leaseback transactions, (ix)
        asset sales, and (x) maintaining various financial ratios.

        The Notes were issued at a discount to their aggregate principal amount
        resulting in gross proceeds to the Company of $180,011. Although
        interest on the Notes will not accrue until May 1, 2001 (the "Interest
        Accrual Date"), the Notes will accrete in value to the principal amount
        by the Interest Accrual Date. The Notes will bear interest at 10 7/8%
        from the Interest Accrual Date through redemption and is payable
        semiannually on May 1 and November 1. There are no sinking fund payments
        related to the Notes.

        Up to 35% of the Notes may be redeemed by the Company at 110.875% of the
        accreted value plus accrued and unpaid interest with the proceeds of one
        or more equity offerings, as defined, prior to May 1, 2001. In addition,
        the Company may redeem the Notes in whole or in part, at any time after
        May 1, 2003 and prior to maturity at a premium of 105.428% decreasing to
        the principal amount on May 1, 2006. The indenture also provides for a
        mandatory offer by the Company to repurchase the Notes in the event of a
        change of control at 101% of the accreted value plus accrued interest.

        The Notes are unsubordinated, unsecured indebtedness of the Company,
        ranking pari passu in right of payment with all existing and future
        unsubordinated, unsecured indebtedness of the Company and senior in
        right of payment to all existing and future subordinated indebtedness of
        the Company.

                                       53
<PAGE>

                          IPC INFORMATION SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      (Amounts in thousands, except share and per share amounts), Continued

        Interest expense, net for the year ended September 30, 1998 includes
        $8,212 and $402 of interest expense related to the amortization of the
        discount of the Notes and related issuance costs.

        The estimated fair value of the Notes at September 30, 1998, calculated
        using the quoted closing price of the bonds at September 30, 1998, was
        $178,078.

10.     Deferred Compensation and Other Benefit Plans:

        Deferred Compensation
        The Company has deferred compensation agreements with certain past key
        officers and employees. Amounts to be paid range from $20-$75 per
        individual per annum and are non-interest-bearing, with the payments
        commencing on specified dates. Payments began in 1992 and continue
        through 2019. The gross and discounted present value (using an interest
        rate of 7.5%), net of cash payments, of the amounts to be paid under
        these agreements, aggregated $6,889 and $3,892 at September 30, 1998 and
        $7,144 and $3,828 at September 30, 1997, respectively.

        Approximate payments for subsequent annual periods related to the
        deferred compensation agreements, at September 30, 1998, are as follows:

<TABLE>
<S>                                                      <C>   
        1999                                             $  280
        2000                                                320
        2001                                                390
        2002                                                471
        2003                                                490
        Thereafter                                        4,938
                                                         ------
                                                         $6,889
                                                         ======
</TABLE>

        Pension Plans
        IPC maintains a 401(k) savings plan for all eligible US employees.
        According to plan provisions, IPC contributions are discretionary and
        are subject to approval by the Board of Directors. Eligible employees
        may contribute up to 15% of their annual compensation. IPC contributed
        $560, $404 and $556 to the plan for the years ended September 30, 1998,
        1997 and 1996, respectively.

        IPC-UK has a defined contribution plan covering all UK employees.
        Employee contributions are limited by statute, generally not to exceed
        17.5% of base salary. IPC-UK contributions, net of forfeitures, for the
        years ended September 30, 1998, 1997 and 1996 were $166, $172, and $229,
        respectively.

        The Company paid to Kleinknecht Electric Company ("KEC") and Kleinknecht
        Electric Company - New Jersey ("KEC-NJ"), both affiliated companies, in
        accordance with labor pooling agreements, approximately $7,644, $7,550,
        and $7,750 for the years ended September 30, 1998, 1997 and 1996,
        respectively, representing pass-through contributions to various union
        sponsored pension plans.

                                       54
<PAGE>

                          IPC INFORMATION SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      (Amounts in thousands, except share and per share amounts), Continued

        Stock Option and Incentive Plan
        A summary of the Company's stock option plan as of September 30, 1998,
        1997 and 1996 and changes during the years then ended is presented
        below.

<TABLE>
<CAPTION>
                                                  1998                       1997                        1996 
                                          -----------------------     ----------------------     ----------------------
                                                        Weighted                    Weighted                   Weighted
                                                         Average                    Average                     Average
                                            Option      Exercise      Option        Exercise     Option        Exercise
                                            Shares       Price        Shares         Price       Shares         Price
                                                                              
<S>                                        <C>             <C>       <C>             <C>          <C>            <C>  
        Options outstanding -
        Opening balance                    2,047,200       $7.81     1,652,402       $8.05        495,000        $7.45

            Granted                          200,000      $12.50       791,000       $7.42      1,146,000        $7.12
            Granted                        1,071,284      $10.50            --          --         50,000       $12.50
            Granted                               --          --            --          --         50,000       $20.00
            Exercised                        (63,722)      $7.47       (39,730)      $7.00        (17,928)       $7.39
        Exercised and retired at                                                               
            Merger                        (1,814,266)      $7.37            --          --             --           --
         Forfeited                          (369,212)     $12.58      (356,472)      $8.18        (70,670)       $7.60
                                           ---------                 ---------                  ---------
        Options outstanding -                                                                  
                  September 30             1,071,284      $10.50     2,047,200       $7.81      1,652,402        $8.05
                                           =========                 =========                  =========
                                                                                               
        Options exercisable at                                                                 
                  September 30                    --          --       544,990       $7.44        133,070        $7.43
                                                                     =========                    =======
                                                                                               
        Weighted average fair                                                                  
        value of options granted                                                               
        during the year                                   $ 5.23                     $3.38                       $3.29
</TABLE>

        The weighted average contractual life of stock options outstanding at
        September 30, 1998 was 9.7 years.

        In connection with the April 30, 1998 Merger, the Company terminated its
        existing plan and replaced it with a new stock option plan. Under the
        new plan, employees generally vest in stock options over a five year
        period. As of September 30, 1998, the Company had reserved 36,941 shares
        of common stock for the future grant of options.

        Employee Stock Purchase Plan
        In 1994, the Company adopted an employee stock purchase plan and
        reserved 526,813 (on a pre-split basis) shares of common stock for
        issuance thereunder. Under the stock purchase plan, the Company's
        employees could purchase shares of common stock at a price per share
        that was the lesser of the common stock fair market value on the first
        business day of the purchase period or 90% of the common stock fair
        market value on the last day of the purchase period, but in no event
        less than 85% of the common stock fair market value on either the option
        grant date or option exercise date. Shares issued pursuant to the plan
        (on a post-split basis) were 36,188 shares in 1998, 41,906 shares in
        1997 and 20,746 in 1996. In connection with the Merger, the employee
        stock purchase plan was terminated April 30, 1998.

                                       55
<PAGE>

                          IPC INFORMATION SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      (Amounts in thousands, except share and per share amounts), Continued

        Stock-Based Compensation
        The Company applies Accounting Principles Board Opinion No. 25,
        "Accounting for Stock Issued to Employees" and related interpretations
        in accounting for its stock based compensation plans. Accordingly, no
        compensation cost has been recognized for the stock option and employee
        stock purchase plans. The Company has adopted the disclosure-only
        provisions of SFAS No. 123, "Accounting for Stock-Based Compensation".
        In connection with the April 30, 1998 Merger, included in the $10,640
        non-recurring change in control expense, the Company recognized
        compensation expense in the amount of $5,900, representing payments to
        option holders upon cancellation of their stock options. As a result,
        under the provisions of SFAS No. 123, the Company's net income and
        earnings per share on a pro forma basis is the same as actual. Had
        compensation cost for the Company's stock option plan and employee stock
        purchase plan been determined based on the fair value at the grant date
        for awards in fiscal 1997 and 1996, consistent with the provisions of
        SFAS No. 123, the Company's net income and earnings per share would have
        been reduced to the pro forma amounts indicated below.

<TABLE>
<CAPTION>
                                                                  For the year ended
                                                                      September 30,
                                                         --------------------------------------
                                                          1998            1997           1996
                                                         ------          ------         -------
<S>                                                      <C>             <C>            <C>    
        Net income - as reported                         $2,278          $3,834         $12,129
        Net income - pro forma                           $2,278          $2,934         $11,632
        Basic earnings per share - as reported           $ 0.14          $ 0.18         $  0.57
        Basic earnings per share - pro forma             $ 0.14          $ 0.14         $  0.55
        Diluted earnings per share - as reported         $ 0.14          $ 0.18         $  0.57
        Diluted earnings per share - pro forma           $ 0.14          $ 0.14         $  0.55
</TABLE>

        The fair value of each option grant is estimated on the date of the
        grant using the "Black-Scholes option-pricing model" with the following
        weighted average assumptions used for grants for the years ended
        September 30, 1998, 1997 and 1996; zero dividend yield; expected
        volatility of 50%; weighted average risk-free interest rate of 6.19% in
        fiscal 1998, 6.03% in fiscal 1997 and 5.95% in fiscal 1996; and expected
        lives of 4.78 years in fiscal 1998 and 4 years for fiscal years 1997 and
        1996.

11.     Earnings Per Share:

        The following is a reconciliation of the numerators and denominators for
        the computations of basic and diluted earnings per share (shares in
        thousands).

<TABLE>
<CAPTION>
                                                                Year Ended September 30,
                                                        ----------------------------------------
                                                           1998          1997          1996
                                                        ----------    ----------    ---------
<S>                                                         <C>           <C>          <C>    
        Basic earnings per share computation           
        Numerator - Net Income                              $2,278        $3,834       $12,129
                                                        ----------    ----------    ----------
        Denominator:                                   
           Weighted average common shares outstanding       15,774        21,328        21,180
                                                        ----------    ----------    ----------
        Total shares                                        15,774        21,328        21,180
                                                        ==========    ==========    ==========
        Basic earnings per share                             $0.14         $0.18         $0.57
                                                        ==========    ==========    ==========
</TABLE>

                                       56
<PAGE>

                          IPC INFORMATION SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      (Amounts in thousands, except share and per share amounts), Continued
                                                       
<TABLE>
<CAPTION>
                                                              Year Ended September 30,
                                                        --------------------------------------
                                                           1998          1997          1996
                                                        ----------    ----------    ----------
<S>                                                     <C>           <C>           <C>    
        Diluted earnings per share computation         
        Numerator - Net income                              $2,278        $3,834       $12,129
                                                        ----------    ----------    ----------
        Denominator:                                   
           Weighted average common shares outstanding       15,774        21,328        21,180
           Common stock equivalent of stock options            167            80            50
                                                        ----------    ----------    ----------
        Total shares                                        15,941        21,408        21,230
                                                        ==========    ==========    ==========
        Diluted earnings per share                           $0.14         $0.18         $0.57
                                                        ==========    ==========    ==========
</TABLE>
                                                     
        Approximately 1,071,284, 318,000 and 457,000 stock options were
        outstanding for the years ended September 30, 1998, 1997 and 1996,
        respectively, which were not included in the computation of diluted
        earnings per share because the exercise prices exceeded the average
        market price of the Company's common stock for each period.

12.     Commitments and Contingencies:

        Operating Leases
        The Company has entered into various operating leases for real estate,
        equipment, automobiles and telecommunication lines and circuits.

        Rental expenses under operating leases were $17,386, $13,726 and $6,745
        for the years ended September 30, 1998, 1997 and 1996, respectively.

        Future minimum annual rental payments required under noncancellable
        operating leases at September 30, 1998 are as follows:

<TABLE>
<S>                                                                <C>    
        1999                                                       $11,670
        2000                                                         9,167
        2001                                                         7,266
        2002                                                         4,451
        2003                                                         2,975
        Thereafter                                                   4,490
                                                                     -----
                                                                   $40,019
                                                                   =======
</TABLE>

        Capital Leases
        The Company has entered into capital lease agreements for certain
        network switching equipment and for certain computer equipment and
        software. Total assets acquired under capital leases was approximately
        $22,400 at September 30, 1998 and $15,400 at September 30, 1997. The
        accumulated depreciation and amortization at September 30, 1998 and 1997
        was approximately $6,100 and $2,400, respectively.

                                       57
<PAGE>

                          IPC INFORMATION SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      (Amounts in thousands, except share and per share amounts), Continued

        Future minimum lease payments required under noncancellable capital
        leases at September 30, 1998 are as follows:

<TABLE>
<S>                                                                 <C>    
        1999                                                        $ 5,824
        2000                                                          5,581
        2001                                                          4,927
        2002                                                          2,670
        2003                                                          1,126
                                                                      -----
                                                                     20,128
          Less, amount representing interest                          3,176
                                                                      -----
        Net present value of minimum lease payments 
          under capital leases                                      $16,952
                                                                    =======
</TABLE>

        Employment Agreements
        The Company has executed employment contracts for future services, that
        vary in length up to 5 years, with certain senior executives for which
        the Company has a minimum commitment aggregating approximately $6,700 at
        September 30, 1998.

        Legal Proceedings
        Except for an arbitration proceeding with a former distributor in Italy,
        which the Company is aggressively pursuing, the Company is not a party
        to any pending legal proceedings except for claims and lawsuits arising
        in the normal course of business. The Company does not believe that
        these claims or lawsuits will have a material adverse effect on the
        Company's financial condition or results of operations.

13.     Related Party Transactions:

        Services Provided
        Affiliated companies performed various services and provided certain
        equipment to the Company. Services and/or equipment provided by
        affiliates are billed to the Company and settled through a periodic cash
        transfer to the respective affiliate.

        The Company has a written arrangement with KEC and KEC-NJ with respect
        to a pool of field technicians utilized by the Company. KEC and KEC-NJ
        are responsible for administering the payroll and related benefits for
        these technical and clerical workers and the Company reimburses all
        compensation and benefits paid by KEC and KEC-NJ attributable to
        services performed for the Company plus a fee equal to 2.5% of such
        costs. Effective for the fiscal year 1997, the parties amended these
        agreements to provide a fixed fee payment of $50 per month in lieu of
        the fee payment of 2.5%. Approximately $51,661, $52,653 and $52,592 of
        technical labor, and $2,044, $2,221 and $2,327 of administrative labor
        was provided through agreements with KEC and KEC-NJ during the years
        ended September 30, 1998, 1997 and 1996, respectively.

        For the years ended September 30, 1998, 1997 and 1996, KEC and KEC-NJ
        billed the Company payroll administrative services of $600, $600 and
        $1,374, respectively. Included in accrued expenses is a net related
        party payable of $263 at September 30, 1998. Included in prepaid
        expenses and other current assets is a net related party receivable of
        $2,092 at September 30, 1997.

        A portion of the Company's New York branch operation was co-located with
        KEC through 1997 in a building owned by Knight Ventures, Inc., a company
        owned by Richard P. Kleinknecht and

                                       58
<PAGE>

                          IPC INFORMATION SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      (Amounts in thousands, except share and per share amounts), Continued

        Peter J. Kleinknecht (the "Former Principal Stockholders"). For the
        years ended September 30, 1997 and 1996, the Company was charged rent of
        approximately $189 and $430, respectively.

        Equipment Rentals
        Equipment rentals from an affiliated company were $975 for the year
        ended September 30, 1996.

        Subcontracts and Other
        The Company and other companies controlled by the Former Principal
        Stockholders periodically subcontract certain work to one another.
        Amounts charged to companies controlled by the Former Principal
        Stockholders under subcontracts with IPC for the years ended September
        30, 1998, 1997 and 1996 were approximately $2,859, $66 and $993,
        respectively, while amounts charged to IPC under subcontracts with
        companies controlled by the Former Principal Stockholders were
        approximately $248, $265 and $703, respectively.

        In addition to the foregoing, the Company, KEC and KEC-NJ entered into a
        twenty-year agreement dated May 9, 1994, with respect to business
        opportunities regarding cabling of communication infrastructures. KEC
        and KEC-NJ have agreed not to bid for or accept cabling jobs in
        competition with the Company, if the Company intends to bid or accept
        such work. In addition, because the Company is not a licensed electrical
        contractor, it has agreed to refrain from bidding for or accepting
        without the consent of KEC or KEC-NJ, as the case may be, all
        opportunities that combine both electrical and cabling work. The Company
        has also agreed to continue to refer to KEC and KEC-NJ certain
        electrical contracting bid opportunities identified from time to time.
        Pursuant to such agreement, all estimates for cabling work shall be
        generated by the Company on behalf of KEC, and KEC will pay the Company
        a nominal amount for preparing such estimates.

        The Company and companies controlled by the Former Principal
        Stockholders also charge each other certain miscellaneous expenses,
        including, but not limited to, office equipment rentals and certain
        other administrative expenses. Such amounts are not significant.

14.     Income Taxes:

        Pretax earnings consisted of the following:

<TABLE>
<CAPTION>
                                                    For the year ended September 30,
                                       ----------------------------------------------------
                                           1998             1997                1996
                                       -------------     --------------     --------------
<S>                                     <C>                 <C>                  <C>    
           United States                $(18,275)           $1,689               $10,020
           Foreign                        26,744             6,425                10,101
                                       -------------     ------------       --------------
           Total pretax earnings        $  8,469            $8,114               $20,121
                                       =============     ==============     ==============
</TABLE>

                                       59
<PAGE>

                          IPC INFORMATION SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      (Amounts in thousands, except share and per share amounts), Continued

        The provision for income taxes consisted of the following:

<TABLE>
<CAPTION>
                                                                    For the year ended September 30,
                                                          -----------------------------------------------------
                                                               1998               1997               1996
                                                          ---------------     --------------     --------------
<S>                                                           <C>                 <C>                  <C>    
           Current:
             Federal                                          $    295            $   (182)            $ 1,844
             State and local                                     1,545               2,037               1,967
             Foreign                                             9,120               2,342               3,507
                                                          ---------------     --------------     --------------
                                                                10,960               4,197               7,318
                                                          ---------------     --------------     --------------
           Deferred:
             Federal                                            (3,737)                323                 513
             State and local                                      (885)                  9                 207
             Foreign                                              (147)               (249)                (46)
                                                          ---------------     --------------     --------------
                                                                (4,769)                 83                 674
                                                          ---------------     --------------     --------------
           Income tax provision                                $ 6,191              $4,280             $ 7,992
                                                          ===============     ==============     ==============
</TABLE>

         The components of net deferred tax assets are as follows:

<TABLE>
<CAPTION>
                                                                                         September 30,
                                              ------------------------------------------------------------------------------------
                                                               1998                                        1997
                                              ------------------------------------------------------------------------------------
                                                   US         Foreign        Total           US          Foreign         Total
                                              ------------  ------------  -------------  ------------  -------------  ------------
<S>                                             <C>           <C>             <C>            <C>          <C>            <C>   
         Deferred tax assets:

         Excess of book over tax depreciation   $  745        $   91          $  836         $  819       $  213         $1,032
                                                                                                                        
         Amortization of intangibles ........      621            --             621            247           --            247
                                                                                                                        
         Inventory and receivables ..........    2,685           569           3,254          2,035          432          2,467  
                                                                                                                        
         Accrued expenses ...................    4,510            20           4,530          1,459          152          1,611  
                                                                                                                        
         AMT tax credit carryforward ........      128            --             128             --           --             --
                                                                                                                        
         Foreign tax credit carryforward ....    3,999            --           3,999             --           --             --
                                                ------        ------          ------         ------       ------         ------
             Total ..........................   12,688           680          13,368           4,560          797          5,357 
                                                                                                                        
             Less valuation allowance .......   (3,999)           --          (3,999)            --           --             --
                                                ------        ------          ------         ------       ------         ------
                                                                                                                        
         Total deferred tax assets ..........   $8,689        $  680          $9,369         $4,560       $  797         $5,357
                                                                                                                        
         Deferred tax liabilities:                                                                                      
         Excess of book over tax depreciation      (15)           --             (15)          (508)        (264)          (772) 
                                                ------        ------          ------         ------       ------         ------
                                                                                                                        
         Net deferred tax assets ............   $8,674        $  680          $9,354         $4,052       $  533         $4,585
                                                ======        ======          ======         ======       ======         ======
</TABLE>                                                                 
                         
        These net deferred tax assets arise from temporary differences between
        financial versus tax reporting purposes related to depreciation, the
        amortization of intangible assets, the allowance for doubtful accounts,
        inventory valuation, tax credit carry forwards and the Company's various
        accruals. A valuation allowance is provided at September 30, 1998 for
        foreign tax credit carry forwards of $3,999 which expire in 2003.

                                       60
<PAGE>

                          IPC INFORMATION SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      (Amounts in thousands, except share and per share amounts), Continued

        A reconciliation between the statutory US federal income tax rate and
        the Company's effective tax rate, excluding minority interest, is as
        follows:

<TABLE>
<CAPTION>
                                                                      For the year ended September 30,
                                                             ---------------------------------------------------
                                                                 1998               1997               1996
                                                             -------------    ----------------     -------------
<S>                                                               <C>                <C>                <C>  
        Statutory US federal tax rate                             35.0%              35.0%              35.0%
        State and local income taxes,
            net of federal benefit                                 7.8               16.4                6.8
        Incremental foreign tax effect                            22.3                 --                 --
        Other, net                                                 8.0                1.4               (2.1)
                                                             -------------    ----------------     -------------
                                                                  73.1%              52.8%              39.7%
                                                             =============    ================     =============
</TABLE>

15.     Business Segment and Geographic Information:

        Business Segments
        The Company elected to adopt SFAS No. 131, "Disclosures about Segments
        of an Enterprise and Related Information", which established standards
        for reporting information about operating segments in annual financial
        statements. It also establishes standards for related disclosures about
        products and services, geographic areas and major customers.

        The Company's operations include trading systems, Information Transport
        Systems ("I.T.S.") and network services (IXnet). Trading systems reports
        sales of turret systems to distributors and direct sales and
        installations of turret systems as "Product sales and installation". It
        reports revenue from turret system maintenance, including annual and
        multi-year service contracts, and from moves, additions and changes to
        existing turret system installations as "Service". I.T.S. reports
        revenue from the design, integration and implementation of cabling
        infrastructure projects including Local and Wide Area Networks, and from
        the sales of intelligent network products, such as hubs, bridges and
        routers as "Product sales and installation". It reports revenue from
        on-site maintenance of customer cable infrastructure, including annual
        and multi-year contracts, and from the provision of outsourcing services
        for the support, expansion and upgrading of existing customer networks
        as "Service." Additionally, IXnet reports revenue derived from the IXnet
        network as "Service".

<TABLE>
<CAPTION>
                                            Trading
                                            Systems           I.T.S.           IXnet          Corporate         Consolidated
                                          ------------    ------------    -------------    -------------     ----------------
<S>                                            <C>            <C>             <C>             <C>                     <C>   
Fiscal Year 1998:
Revenue:
   Product sales and installation            $133,233         $40,117             --               --               $173,350
   Service                                     63,592          23,192        $35,763               --                122,547
                                          ------------    ------------    -------------    -------------     ----------------
Total Revenue                                 196,825          63,309         35,763               --                295,897
                                                                                                
Gross profit                                   97,854           7,948         10,952               --                116,754

Research & development                          9,994              --             --               --                  9,994
                                                                                                
Selling, general & administrative              25,456           5,567         31,742          $14,547                 77,312
</TABLE>

                                       61
<PAGE>

                          IPC INFORMATION SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      (Amounts in thousands, except share and per share amounts), Continued

<TABLE>
<CAPTION>
                                            Trading
                                            Systems          I.T.S.        IXnet          Corporate           Consolidated
                                          ------------    ------------    -------------    -------------     ----------------
<S>                                          <C>             <C>             <C>             <C>                <C>     
         Change in control expense                 --             --               --          10,640             10,640
                                             --------        -------         --------        --------           --------
         Income from operations              $ 62,404        $ 2,381         ($20,790)       ($25,187)          $ 18,808
                                             ========        =======         ========        ========           ========
         Depreciation & amortization         $  4,568        $   421         $  8,347        $  1,822           $ 15,158
                                             ========        =======         ========        ========           ========
         EBITDA (a)                          $ 66,972        $ 2,802         ($12,443)       ($12,725)          $ 44,606
                                             ========        =======         ========        ========           ========
         Total assets (b)                    $202,859        $24,280         $ 14,153              --           $241,292
                                             ========        =======         ========        ========           ========
                                                                                                               
         Fiscal Year 1997:                                                                                     

         Revenue:                                                                                              
            Product sales and installation   $122,493        $57,485               --              --           $179,978
                                                                                                               
            Service                            55,146         17,261         $ 17,938              --             90,345
                                             --------        -------         --------        --------           --------
         Total Revenue                        177,639         74,746           17,938              --            270,323
                                                                                                               
         Gross profit                          70,819          5,344            4,051              --             80,214
                                                                                                               
         Research & development                 9,976             --               --              --              9,976
                                                                                                               
         Selling, general & administrative     27,275          5,298           15,885        $ 12,239             60,697
                                             --------        -------         --------        --------           --------
         Income from operations              $ 33,568        $    46         ($11,834)       ($12,239)          $  9,541
                                             ========        =======         ========        ========           ========
         Depreciation & amortization         $  3,871        $   394         $  3,065        $  1,086           $  8,416
                                             ========        =======         ========        ========           ========
         EBITDA                              $ 37,439        $   440         ($ 8,769)       ($11,153)          $ 17,957
                                             ========        =======         ========        ========           ========
         Total assets (b)                    $135,779        $13,035         $  9,548              --           $158,362
                                             ========        =======         ========        ========           ========
                                                                                                               
         Fiscal Year 1996:                                                                                     
         Revenue:                                                                                              
            Product sales and installation   $111,471        $67,042               --              --           $178,513
                                                                                                               
            Service                            55,484         11,800         $  3,711              --             70,995
                                             --------        -------         --------        --------           --------
         Total Revenue                        166,955         78,842            3,711              --            249,509
                                                                                                               
         Gross profit                          67,023         10,337             (542)             --             76,818
                                                                                                               
         Research & development                11,467             --               --              --             11,467
                                                                                                               
         Selling, general & administrative     20,329          4,275            4,622          15,917             45,143
                                             --------        -------         --------        --------           --------
         Income from operations              $ 35,227        $ 6,062         ($ 5,164)       ($15,917)          $ 20,208
                                             ========        =======         ========        ========           ========
         Depreciation & amortization         $  4,065        $   375          $   789         $   792           $  6,021
                                             ========        =======         ========        ========           ========
         EBITDA                              $ 39,292        $ 6,437         ($ 4,375)       ($15,125)          $ 26,229
                                             ========        =======         ========        ========           ========
         Total assets (b) (c)                $137,314             --          $ 4,563              --           $141,877
                                             ========        =======         ========        ========           ========
</TABLE>
                                                               
(a) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
    represents operating income plus depreciation and amortization. EBITDA for
    the year ended September 30, 1998 excludes a $10,640 non-recurring change in
    control expense.

(b) The Company's management reviews corporate assets combined with trading
    system's assets.

(c) During 1996, I.T.S. was not separated from the trading systems, as a result,
    all assets are reported as part of the trading system's assets.

                                       62
<PAGE>

                          IPC INFORMATION SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      (Amounts in thousands, except share and per share amounts), Continued

        Information about the Company's operations by geographic area is as
follows:

<TABLE>
<CAPTION>
                                                   For the year ended September 30,
                                             ----------------------------------------------
                                                 1998             1997             1996
                                             -------------    -------------    -------------
<S>                                              <C>              <C>              <C>     
        Revenues:
        United States and Canada                 $211,317         $206,010         $186,800
        United Kingdom                             70,708           50,682           46,582
        Rest of World                              13,872           13,631           16,126
                                             -------------    -------------    -------------
                                                 $295,897         $270,323         $249,508
                                             =============    =============    =============

        Long Lived Assets:
        United States                             $72,104          $36,232          $22,695
        United Kingdom                             12,636           11,042            4,988
        Rest of World                                 101               --               --
                                             -------------    -------------    -------------
                                                  $84,841          $47,274          $27,683
                                             =============    =============    =============
</TABLE>

        Included in the Rest of World revenue are US export sales to
        unaffiliated customers of $9,591, $13,264 and $16,126 for the years
        ended September 30, 1998, 1997 and 1996, respectively. IXnet's revenue
        is recorded as a component of United States revenue since that is where
        the business is managed and customer contracts are originated. Transfers
        from the United States to the United Kingdom, eliminated in
        consolidation, were $11,861, 15,156 and $12,681 for the years ended
        September 30, 1998, 1997 and 1996, respectively.

        For the years ended September 30, 1998 and 1997, no single customer
        accounted for 10% or more of total revenues. For the year ended
        September 30, 1996, approximately 13% of total revenue was from one
        customer.

16.     Subsequent Event:

        Acquisition of Saturn Global Network Service Holdings Ltd.
        On December 18, 1998, IXnet acquired Saturn Global Network Service
        Holdings Ltd. ("Saturn") from Marshalls Finance Ltd. for a cash payment
        (funded by cash from operations and the Revolving Credit Facility) of
        $36,056 and notes guaranteed by the Company in the amount of $12,515.
        These notes are in the amount of $7,547 and $4,968, each with repayment
        terms of three and two years, respectively, and accrue interest at
        9.25%. The agreement to purchase Saturn had been signed in August 1998
        and closing occurred after obtaining regulatory approval and following
        renegotiations of certain terms.

                                       63
<PAGE>

                          IPC INFORMATION SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      (Amounts in thousands, except share and per share amounts), Continued

17.     Quarterly Financial Information (unaudited):

        The following tables set forth unaudited quarterly financial information
        for the years ended September 30, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                         Quarter Ended
                                                       -------------------------------------------------------
                                                       December 31,    March 31,    June 30,     September 30,
                                                       ------------    ---------    --------     -------------
<S>                                                      <C>           <C>          <C>             <C>    
        Year ended
        September 30, 1998:
        -------------------

        Revenue                                          $67,052       $61,145      $77,954         $89,746
        Gross profit                                      26,627        23,713       31,536          34,878
        Net income (loss)                                  3,594         2,154       (3,839)            369
        Basic earnings (loss) per share                    $0.17         $0.10       ($0.31)          $0.05
        Diluted earnings per share                         $0.17         $0.10           --           $0.05
                                                                                          

        Year ended                                                                 
        September 30, 1997:                                                        
        -------------------                                                        
                                                                                   
        Revenue                                          $59,411       $66,182      $68,882         $75,848
        Gross profit                                      17,574        20,814       20,725          21,101
        Net income                                           566         1,241        1,187             840
        Basic earnings per share                           $0.03         $0.06        $0.06           $0.04
        Diluted earnings per share                         $0.03         $0.06        $0.06           $0.04
</TABLE>

                                                                     
        The quarterly earnings per share information is computed separately for
        each period. Therefore, the sum of such quarterly per share amounts may
        differ from the total for the year.

        In connection with the Merger, the Company incurred a pre-tax
        non-recurring charge for change in control expenses of $10,640 in the
        quarter ended June 30, 1998. As a result of this charge, the Company
        incurred a net loss in the quarter and diluted earnings per share was
        not calculated as the common stock equivalents would have had an
        anti-dilutive effect.

                                       64
<PAGE>

                          IPC INFORMATION SYSTEMS, INC.             Schedule II

                        VALUATION AND QUALIFYING ACCOUNTS
                          (Dollar amounts in thousands)


<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                     COL. A                         COL. B         COL. C                           COL. D            COL. E
----------------------------------------------------------------------------------------------------------------------------------
                                                    Balance       Additions
                                                      at      -----------------------------------
                                                   Beginning  Charged to Costs     Charged to                      Balance at End
Description                                        of Period    and Expenses      Other Accounts    Deductions       of Period
                                                   ---------- --------------------------------------------------------------------
<S>                                                   <C>          <C>                <C>           <C>                <C>   
         For the Year Ended September 30, 1996:

            Provision for Doubtful Accounts ...       $1,572       $  240                --         $  291 (1)         $1,521
                                                      ======       ======             ========      ======             ======
                                                                                                                     
            Provision for Inventory                                                                                  
               Obsolescence ...................       $7,489       $1,143                --         $2,267 (2)         $6,365
                                                      ======       ======             ========      ======             ======
                                                                                                                     
         For the Year Ended September 30, 1997:                                                                      
                                                                                                                     
            Provision for Doubtful Accounts ...       $1,521       $  338                --         $  344 (1)         $1,515
                                                      ======       ======             ========      ======             ======
                                                                                                                     
            Provision for Inventory                                                                                  
               Obsolescence ...................       $6,365       $2,106                --         $1,965 (2)         $6,506
                                                      ======       ======             ========      ======             ======
                                                                                                                     
         For the Year Ended September 30, 1998:                                                                      
                                                                                                                     
            Provision for Doubtful Accounts ...       $1,515       $2,786                --         $1,859 (1)         $2,442
                                                      ======       ======             ========      ======             ======
                                                                                                                     
            Provision for Inventory                                                                                  
               Obsolescence ...................       $6,506       $3,454                --         $2,906 (2)         $7,054
                                                      ======       ======             ========      ======             ======
                                                                                                                     
            Deferred Tax Valuation Allowance ..       $   --       $3,999                --         $ --               $3,999
                                                      ======       ======             ========      ======             ======
</TABLE>

(1) Doubtful Accounts Written Off, Net of Cash Recovered
(2) Inventory Written Off


                                       65