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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ---------------------
                                   FORM 10-K
(MARK ONE)

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                       OR

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

             FOR THE TRANSITION PERIOD FROM           TO

                         COMMISSION FILE NUMBER 1-15425

                    ALLIED RISER COMMUNICATIONS CORPORATION
             (Exact name of Registrant as Specified in Its Charter)

<TABLE>
<S>                                            <C>
                   DELAWARE                                      75-2789492
       (State or Other Jurisdiction of                        (I.R.S. Employer
        Incorporation or Organization)                      Identification No.)
</TABLE>

                               1700 PACIFIC AVE.
                                   SUITE 400
                            DALLAS, TEXAS 75201-4679
          (Address of Principal Executive Offices, Including Zip Code)

                                 (214) 210-3000
              (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: COMMON STOCK,
                               $0.0001 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 it 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.  [ ]

     As of February 29, 2000, the aggregate market value of voting stock based
on the closing price of the registrant's common stock on the Nasdaq National
Market on that date of $26.00 held by non-affiliates of the registrant was
$1,478,155,000.

     As of February 29, 2000, the number of shares of common stock outstanding
was 56,852,117.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Proxy Statement for the Annual Meeting of Stockholders of
the registrant to be held on or about June 15, 2000 are incorporated by
reference into Part III of this report.

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                               TABLE OF CONTENTS
                                       TO
                   ALLIED RISER COMMUNICATIONS CORPORATION'S
                           ANNUAL REPORT ON FORM 10-K
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

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<CAPTION>
                                                                          PAGE
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<S>         <C>                                                           <C>
                                    PART I

Item 1.     Business....................................................    2
Item 2.     Properties..................................................   17
Item 3.     Legal Proceedings...........................................   17
Item 4.     Submission of Matters to a Vote of Security Holders.........   17

                                   PART II

Item 5.     Market for Allied Riser Communications Corporation's Common
              Stock and Related Stockholder Matters.....................   17
Item 6.     Selected Consolidated Financial Data........................   19
Item 7.     Management's Discussion and Analysis of Financial Condition
              and Results of Operations.................................   20
Item 7A.    Quantitative and Qualitative Disclosures About Market
              Risk......................................................   25
Item 8.     Consolidated Financial Statements and Supplementary Data....   26
Item 9.     Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure..................................   26

                                   PART III

Item 10.    Directors and Executive Officers of Allied Riser
              Communications Corporation................................   26
Item 11.    Executive Compensation......................................   26
Item 12.    Security Ownership of Certain Beneficial Owners and
              Management................................................   26
Item 13.    Certain Relationships and Related Transactions..............   26

                                   PART IV

Item 14.    Exhibits, Financial Statement Schedules and Reports on Form
              8-K.......................................................   27
            Signatures..................................................   30
</TABLE>
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                                     PART I

ITEM 1. BUSINESS:

GENERAL

     We are a facilities-based provider of broadband data, video and voice
communications services to small-and medium-sized businesses in 22 major
metropolitan areas in the United States. We typically deliver our services over
fiber-optic networks that we design, construct, own and operate inside large-
and medium-sized office buildings. Today, over this infrastructure, we offer
ultra high-speed Internet access, business-oriented television for display on
computer desktops, enhanced conference calling services and other broadband data
services. Broadband data services are services that are enabled by high-speed
dedicated data transmission capacity. As of December 31, 1999, we had
constructed our in-building fiber-optic networks inside 120 office buildings
with more than 80 million rentable square feet. Today, we have agreements with
building owners to install and operate fiber-optic networks in more than 1,250
office buildings with more than 420 million rentable square feet.

     Our Internet access services provide a direct connection to the Internet at
speeds up to 175 times faster than standard dial-up service and are always-on.
We believe that our service offers a combination of price and performance to our
target customers that is superior to competing offerings. We intend to take
advantage of our growing market presence and brand by also offering similar
broadband services to our customers' branch offices and other businesses located
in buildings in which we have not installed our fiber-optic networks.

     We use our in-building fiber-optic networks to transmit data to and from
each of our customers at speeds of ten million bits of data per second. Using
commercially available equipment, we can increase this transmission speed to one
billion bits of data per second. We connect each of our in-building networks to
a central facility in each metropolitan area, usually over fiber-optic lines we
lease from other carriers. At this metropolitan hub, we aggregate and
disseminate network traffic for Internet connectivity and our other broadband
services.

     Since our inception in December 1996, our principal activities have
included developing our business plan, raising capital, hiring management and
other key personnel, designing and developing our fiber-optic networks inside
buildings, acquiring equipment and facilities, entering into agreements with
building owners and real estate managers and beginning the deployment of our
fiber-optic networks. In June 1997, we began installing our networks, and we
began operating our first in-building network in January 1998.

OUR MARKET OPPORTUNITY

     Demand for connectivity to the Internet is growing as businesses are
realizing that the Internet can significantly enhance communications among
offices and employees as well as with customers and suppliers. In addition, more
and more businesses use the Internet to conduct business and more effectively
manage their human resources, allocate capital, reduce operating costs, access
valuable information and reach new markets.

     While most large enterprises build or lease expensive, dedicated high-speed
networks, most small- and medium-sized businesses are using comparatively slow
dial-up connections. Forrester Research estimates that in 1998 approximately 93%
of enterprises accessed the Internet through dial-up connections. We believe
that faster, always-on connections enhance the productivity of employees of
small- and medium-sized businesses.

     In addition to Internet connectivity, small- and medium-sized businesses
already demand enhanced services such as web hosting, network security,
e-commerce, video conferencing, data storage and retrieval, conference calling,
branch office connectivity and business television. However, most small- and
medium-sized businesses do not have full access to these services because the
existing in-building infrastructure is unable to provide broadband services to
small tenants. Businesses of moderate size also do not usually have the
resources to fully analyze the choice between evolving service options on their
own.

OUR SOLUTION

     We provide small- and medium-sized businesses ultra high-speed Internet
access, business-oriented television for display on computer desktops, enhanced
conference calling services as well as other broadband services. We market these
services directly to our target customers with a consultative approach to
facilitate

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our customers' selection of appropriate services. Our solution offers small- and
medium-sized businesses a number of important advantages, including:

     - Ultra high-speed Internet access. Our Internet access products are able
       to operate at speeds that are otherwise typically unavailable or
       unaffordable to small- and medium-sized businesses. Our standard service
       operates at ten megabits of data per second, which is substantially
       greater than those usually available with digital subscriber lines, cable
       modems, dial-up modems, integrated services digital network lines and T-1
       circuits, the latter of which transmits at 1.54 million bits of data per
       second.

     - Always-on connectivity. While dial-up connections require a user to dial
       a phone number and wait while the modem connects to the Internet, our
       service is always-on, providing an instantaneous connection and the
       capability to send and receive data continuously.

     - Easy bandwidth upgrades. As our customers' needs evolve, our network
       architecture enables us to provide our customers with higher bandwidth
       and new broadband services. Using commercially available equipment, we
       can increase the transmission speed of our infrastructure by 100 times,
       to one billion bits of data per second.

     - Broad range of value-added services. In addition to providing ultra
       high-speed Internet service, we offer business-oriented television and
       other broadband data services to our customers. We intend to expand the
       services we provide in the future to include other enhanced services such
       as web hosting, network security, e-commerce, video conferencing and data
       storage and retrieval, thereby increasing the value of a connection to
       our network.

     - Affordable desktop-based monthly rate. We typically price our services on
       a per desktop basis at a cost that makes our solutions affordable and
       scaleable for our customers. This approach permits our customers to
       initiate a relationship with us for a low monthly cost and increase the
       number of employees with access to our network once our products
       demonstrate their ability to enhance productivity.

     - Rapid, easy installation. Unlike other providers of bandwidth-enabled
       services who rely on local telephone companies to complete each customer
       installation, we are able to independently provision a customer within a
       few days. We connect each customer's local area network directly to our
       fiber-based network so that our customers usually do not need to purchase
       or install any new equipment.

     - Reliability. We provide support for our services through a national
       customer care center and a national operations control center, both
       located in Dallas. The national centers continuously monitor the network
       for disruptions in service, remotely resolve problems, configure
       networks, and compile data on customer service levels. In addition, field
       operations personnel augment our customer care center by providing local
       support in each metropolitan market that we serve.

STRATEGY

     Our objective is to be the primary provider of broadband communications
services to our expanding target market. To achieve this objective we will
employ the following strategies:

     - Partner with real estate owners. We seek to gain a competitive advantage
       by partnering with large-scale building owners and securing the right to
       install our fiber-optic networks inside office buildings that meet our
       strategic criteria. We believe that having our services available in a
       building assists the building owner in its tenant leasing and retention
       efforts. We generally target buildings with more than 100,000 rentable
       square feet and 10 or more tenants. Today we have already secured access
       to more than 1,250 office buildings with aggregate rentable space of more
       than 420 million square feet. We provide real estate owners a modest
       portion of the revenue we generate from tenants in their buildings.

     - Sell broadband connections and bandwidth-enabled applications. We provide
       extremely fast data transport to our customers and augment their ability
       to use those connections productively by providing sophisticated
       communications applications. For example, we are designing
       industry-specific Web pages, such as Web pages for law firms, that will
       enable our customers to use the power of a broadband connection to the
       Internet to enhance their productivity. These advanced applications help
       us generate demand for connections to our network and improve the
       usefulness of those broadband connections.

     - Own the key elements of the local broadband network. We strive to be the
       first broadband communications provider that owns the critical first mile
       fiber-optic connection in the buildings we

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       target. While local and long distance broadband capacity has recently
       become readily available from a wide variety of providers, in-building
       fiber-based broadband capacity is typically not available. We believe
       that our in-building broadband networks are highly valuable because they
       allow us to provide scalable, ultra-high speed communications services to
       the businesses we target.

     - Capitalize on our first mover advantage. We have already established a
       national presence by installing hubs and in-building networks in 22
       metropolitan areas. Once we have established a local presence in a
       metropolitan area, we are able to expand our network into additional
       buildings quickly and economically.

     - Expand our service offerings. We seek to widen our array of advanced
       broadband communications service offerings. For example, we are pursuing
       partnerships with various application service providers, which will allow
       us to further leverage our broadband fiber-optic networks. Because we own
       in-building fiber-optic networks, we are able to provide these broadband
       services reliably and directly to our customers.

     - Offer services to customers in selected other buildings. Although we
       focus our sales and marketing efforts on buildings in which we have
       installed our broadband fiber-based networks, by also offering our
       services outside these buildings we are better able to serve the
       communications needs of our customers. For example, we can offer our
       customers wide-area network services to reach their branch offices
       located in buildings in which we have not installed a fiber-optic
       network. We believe that by selectively offering our services outside
       buildings in which we own fiber-based facilities, we can generate
       additional revenue with only modest incremental sales and marketing
       costs.

     - Provide excellent customer care. We are dedicated to providing our
       customers with the highest levels of customer service and satisfaction in
       the industry. We believe we enjoy a competitive advantage because our
       network and electronic equipment are located inside buildings occupied by
       our customers. We have technical staff present in each of our markets,
       who focus their efforts on buildings in which we provide service. We also
       operate a national customer care center in Dallas that is staffed 24
       hours a day, 365 days per year.

     - Build our brand. We seek to build our brand to assist us in becoming a
       leading provider of broadband communications services. We believe that
       our brand will, over time, enhance our ability to gain access to
       additional buildings. Because our services provide significant value to
       small- and medium-sized businesses, we believe that by branding buildings
       as ARC connected, we will assist owners in marketing office space. In
       addition, developing a strong, lasting brand should help us in our
       efforts to add new customers, reduce customer churn and attract
       employees.

PRODUCTS AND SERVICES

     Our products and services are designed for small- and medium-sized
businesses and today include ultra high-speed Internet access, business-oriented
television, enhanced conference calling services and other broadband data
services. These products and services and the additional products and services
that we intend to offer in the future fall into three categories and are
summarized as follows:

<TABLE>
<CAPTION>
CONNECTIVITY PRODUCTS           BANDWIDTH-ENABLED APPLICATIONS     MANAGED DATA SERVICES
---------------------           ------------------------------     ---------------------
<S>                             <C>                                <C>
-Internet Access                -Business Television               -Enhanced Conference Calling
-Virtual Private Networks       -Messaging                         -Design
-Remote Access                  -Web Hosting                       -Implementation
-Voice                          -Content Services                  -Monitoring/Management
                                -Collaboration Applications        -Support
                                -Video Conferencing                -Backup
                                -eBusiness Toolkit
                                -Industry-Focused Web Pages
</TABLE>

     Connectivity products. We use our in-building fiber-optic infrastructure
and networks to provide ultra high speed, always-on Internet access. Our
Internet access service is up to 175 times faster than standard dial-up modems
and operates at speeds substantially faster than a T-1 circuit, which transmits
data at 1.54 million bits of data per second. In addition, because our
infrastructure provides a dedicated fiber-optic connection for each customer,
our customer's Internet traffic is secure from other customers in the building.
We believe our connectivity services offer a combination of price and
performance that is substantially better than alternative

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service offerings that are currently available to our target customers. We also
offer branch office connections to enable our customers to exchange data with
their remote offices.

     Our connectivity pricing varies by market, building and customer size. For
Internet access, we charge an initial installation service fee and a minimum
monthly fee for the first desktop connected. The installation service fee is
generally a fixed amount independent of the types of services provided to our
customers and the number of desktops connected to our network. We typically
charge an incremental monthly fee for each additional desktop, which typically
ranges from $40 to $3. However, some customers purchase service on an enterprise
basis. These services are provided under month-to-month contracts. This enables
the typical small-to medium-sized business customer to connect its desktops to
our services for as little as several hundred dollars per month. Our pricing is
competitive with other broadband Internet access services while generally
providing substantially more bandwidth. We believe our customers benefit from
our desktop-by-desktop pricing policy because they only incur expense for the
actual number of desktops connected to our networks and they therefore are able
to add users at a pace that matches their resources and requirements.

     Bandwidth-enabled applications and content. We currently offer our
customers a business-oriented television service that provides a high-quality
video feed from CNN and Bloomberg Television directly to computer desktops over
our in-building networks. Many office buildings do not have cable or satellite
television service, so tenants are unable to receive these business-oriented
information services through traditional means. We charge our customers on a
per-desktop basis for this service. We are developing additional
bandwidth-enabled products with a focus on providing value-added information
services to our customers. We expect to offer a number of new services,
including industry-focused Web pages known as portals. In addition to developing
new services, we may seek to acquire businesses that have developed services
which would enhance the value of our networks. We might pay for these
acquisitions with common stock.

     Managed data services. Many of our current and targeted customers require
assistance in managing their data and data networks. We provide systems design
services and offer support and assistance with the implementation of our
customers' data networks. In addition, we offer enhanced conference calling
services that use the Internet to enable efficient scheduling and operation of
conference calls.

NETWORK ARCHITECTURE

     We design, install, own, and operate Internet-protocol-based data networks
that provide broadband capacity to our customers. Our networks are a combination
of:

     - fiber-optic infrastructure that we design, install, own and manage inside
       an office building;

     - electronic equipment at a building point of presence, usually located in
       the basement of the building;

     - electronic equipment at a metropolitan hub, which is where we aggregate
       and disseminate traffic, which we call a metropolitan point of presence;
       and

     - leased facilities connecting our networked building to our metropolitan
       point of presence and our metropolitan point-of-presence to a national
       service provider, such as GTE Internetworking, Qwest or Level 3.

     Fiber-optic facilities inside buildings. Inside of our networked buildings,
we design, install, own and manage a fiber-optic infrastructure that typically
runs from the basement of the building to the top floor inside the building's
vertical utility shaft. This fiber-optic infrastructure is designed to be
capable of carrying data and voice traffic for all the building's tenants for
the foreseeable future. We initiate service for our customers by connecting a
fiber-optic cable from a customer's local area network to the fiber in the
vertical utility shaft. Our customer then has dedicated and secure access to our
network using a link known as an Ethernet connection. Ethernet connections
generally permit the transmission of ten million bits of data per second, and
can transmit as much as one billion bits of data per second.

     Our building points-of-presence. Inside the building, usually in the
basement, we also establish a building point-of-presence. In each building
point-of-presence, we connect the fiber-optic cable to Cisco routers and other
electronic equipment that enables the transmission of data and video traffic and
aggregates and disseminates traffic to and from those cables. We typically
obtain the right to use a small amount of space in the basement of our buildings
to establish the building point of presence.

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     Leased fiber-optic facilities outside our buildings. Within each
metropolitan area that we serve, we have a metropolitan point of presence, at
which we aggregate and disseminate traffic to and from all of our network
buildings in a city. We typically connect each of our buildings to the
metropolitan point-of-presence using fiber-optic cables. These fiber-optic lines
are leased from carriers that have previously installed fiber in the local
market. In our experience to date, there are generally several providers in the
local market who are able to provide us with local connectivity for traffic
between our buildings and the metropolitan point-of-presence.

     Our metropolitan points of presence. At our metropolitan point of presence,
we install the electronic equipment necessary to provide our services in the
metropolitan area. This equipment includes network computer servers, traffic
routers and other items. We generally connect each metropolitan point of
presence to multiple major Internet service providers that provide Internet
connectivity to our network. Each metropolitan point-of-presence is connected to
at least one other metropolitan point-of-presence in a different city over a
dedicated circuit to increase redundancy in our network. We also connect each
metropolitan point-of-presence to our national operating center in Dallas, Texas
where we manage and monitor our network traffic.

     The architecture of our network provides us with significant competitive
advantages, including the ability to:

     - rapidly connect customers without requiring complex provisioning of local
       phone lines and circuits from phone companies;

     - capitalize on advanced Internet-protocol-based technology to construct a
       more efficient and lower cost network;

     - provide low cost, high performance services;

     - offer always-on, secure connections to our network and the Internet; and

     - provide a flexible platform for bandwidth upgrades and new service
       offerings as data communications technology and applications continue to
       develop.

CONSTRUCTION

     We have assembled an in-house centralized construction group with
experience in office building construction and electrical engineering. We
believe that our construction capabilities are a key competitive advantage, as
they allow us to rapidly and efficiently deploy our network within the markets
we penetrate.

     Standard construction practices. Our construction group has developed
standardized installation drawings and details that can be applied to most of
our construction projects and result in high quality construction processes. Our
construction practices are focused on ensuring compliance with applicable
building and industry codes and standards. Our expertise in designing and
constructing in-building advanced data networks allows us to reduce the space
and resources needed to support our fiber-optic infrastructure and associated
electronic systems in buildings.

     Design and implementation of our in-building network. Prior to commencement
of construction of a fiber-optic network inside an office building, our
construction management staff conducts a formal, detailed, building site survey.
Our construction team then develops a site-specific fiber and cable system
design using our standardized practices, and prepares a formal installation
contract. We utilize computer assisted design and drawing systems to design,
draw and document our system installations. We generally engage the specialty
electrical contractor who is most familiar with the building to perform the
installation under the supervision of our own construction management personnel.
We typically purchase construction services on a fixed price basis.

     Construction time and cost associated with our in-building networks. The
total construction time for the completion of our in-building fiber-optic
infrastructure and related equipment room facility is typically between 60 and
90 days for a major metropolitan office-building complex. We typically spend
several hundred thousand dollars per building for the construction of the
vertical fiber-based infrastructure and electronic equipment. This cost has
fallen considerably as we have gained experience and standardized our
construction processes. These construction costs vary considerably with building
size, location, complexity of the construction project and other factors. We
believe that our current cost structure, together with our technical expertise
and our rapid construction process, provide us with a competitive advantage.

     Constructing connections to our customers. Once we have completed the
construction and installation of our in-building fiber-optic network and have
received an order for service from a customer, we connect the
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customer's local area network to our in-building network. Typically, this
connection can be completed within a few days by one of our employees or an
independent contractor hired for this purpose. The connection requires the
installation of a piece of electronic equipment to enable the connection of a
strand of fiber-optic cable from the vertical riser to the customer's local area
network. Once this connection is made, our installation representative will help
the customer test the network connection to verify that the intended desktops
are receiving our service. This approach to provisioning service to our
customers is intended to establish a relationship with the customer that will
encourage future use of our technical support and data management services.

OUR COMPETITIVE ADVANTAGE

     Small- and medium-sized businesses currently face a limited choice of
alternatives for high-speed Internet access. Over the last few years, digital
subscriber line technologies, cable modems, T-1-based solutions and
fixed-wireless connections have emerged as alternative technologies for
high-speed, always-on service.

     We believe that our fiber-optic-based solution is generally superior for
most of our target customers because our network provides:

     - consistent speed and quality of signal that does not vary with distance
       of the building from our metropolitan hub or environmental factors such
       as rain;

     - rapid, relatively uncomplicated provisioning of new customers that is not
       dependent on the provider of local connectivity;

     - symmetrical broadband capacity that will allow us to offer enhanced
       business communication services such as full motion video conferencing;

     - scaleable, competitive pricing schemes which are based on the number of
       desktops connected to the network; and

     - substantially higher speeds and an easy path to increased bandwidth.

MARKETING AND SALES

     Marketing strategy. To build our brand and customer awareness, we directly
market our services to the tenants in buildings in which we have a fiber-optic
infrastructure. To reach tenants, we use a combination of advertising, direct
marketing, public relations, event marketing, and personal selling. Prior to
marketing in a building, we conduct a detailed customer analysis with the help
of the building owner. We generally launch service in each of our buildings with
a promotional event, typically in the lobby, at which we demonstrate our
services and generate leads. Based on tenant data provided by the building owner
and other sources, we often use approaches that are tailored to specific
businesses, such as law firms, accounting firms, consulting firms and other
business segments. We also use targeted advertising, promotional materials, and
employ public relations firms to raise awareness of our services before an
official sales launch within a building or market, and later follow up with
event marketing and personal selling to launch and increase tenant sales in each
building. We also attempt to work closely with the building owners, management,
and leasing representatives in both our initial and ongoing marketing efforts.

     Sales force organizational structure. We have a sales organization, which
is managed by regional sales directors. These regional sales directors have
multiple area managers reporting to them. The area managers generally are
responsible for a few cities and have numerous account executives reporting to
them. The account executives are supported by a sales engineer who provides our
customers with very specific technical consulting on local area and wide area
networking and other application implementation and integration issues. In
addition, every six account executives are supported by a program administrator.
This is generally important to small- and medium-sized businesses that typically
have limited information technology staffs and expertise. Our sales team
typically jointly markets our services with the local building management or
leasing organization.

     Sales strategy. Our experienced sales team tailors the right broadband data
solutions for our customers using a consultative sales approach. We also market
to tenants of buildings that are not yet connected to our network through
similarly targeted tactics, including the use of local market and targeted
advertising. We believe that this approach is part of our competitive advantage
because this level of service was previously

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available only to very large enterprises either through in-house expertise or
through expensive consulting contracts.

     Sales centers. We build and operate sales centers in each of our markets
where sales people and real estate leasing agents can bring customers or
prospects to obtain hands-on experience with our products and customer service.
These centers are also used to stage marketing events and seminars.

     Sales systems support. To support our sales and customer service processes,
we employ a sales and customer service automation application. The system is
based around a database that enables all sales and service personnel to have
instantaneous access to current and historical customer information. We are also
currently implementing an Internet-based customer interface known as an extranet
that will allow registered customers to purchase additional services, modify or
otherwise customize their service profiles.

REAL ESTATE SELECTION AND MARKETING

     To build our fiber-optic infrastructure inside of office buildings and
offer our services to the tenants of those buildings, we must first secure the
right to install fiber-optic cable in the vertical utility shaft of the
building. We carefully target the buildings in our markets that we wish to
secure rights in and then work with the owners of those buildings to negotiate a
partnership that will benefit both the property owner and us.

     Property selection. We consider a number of criteria in selecting buildings
we target for installation of our fiber-based networks. These criteria include
building location, building size, number of tenants, tenant mix, proximity to
local fiber-optic systems, relationship to other network buildings and
suitability for installation of our network infrastructure. In addition, we
consider the presence of any existing broadband communications network systems
in the building. We have a team of real estate professionals who conduct the
assessment necessary to identify candidate buildings prior to the signing of
lease or license agreements with the owners of the buildings selected.

     Arrangements with real estate owners. Once we have selected an office
building or collection of office buildings in which we would like to offer our
services, we contact the property owner to secure the right to access the
building and install our network. When we contact building owners, we emphasize
the following benefits of partnering with us:

     - we install and manage the in-building fiber-optic communications
       infrastructure at no cost to the building owner or manager;

     - our fiber-optic infrastructure and service offerings provide building
       owners with a significant competitive advantage in attracting and
       retaining tenants;

     - we pay building owners either a fixed rental fee or a modest percentage
       of the revenue we generate in the building; and

     - our real estate services and construction groups are staffed with
       experienced property management and construction management personnel who
       reduce the disruption to the property owner and the customer.

     Our typical lease or license agreement with a building owner is for a total
term of ten or more years. The agreement provides for the development of the
network installation design and the approval of the construction plans and
arrangements by the building owner. The agreement provides for ongoing reporting
to the building owner of our network expansion as we add customers and provides
for revenue sharing or fixed monthly rent.

     Major Real Estate Relationships. We have agreements with more than a dozen
large commercial property owners and managers to obtain access to and the right
to install and operate networks in more than

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1,250 buildings in major metropolitan areas in the United States and selected
international markets. Our relationships include the following:

<TABLE>
<CAPTION>
                                       APPROXIMATE
PROPERTY OWNER                          NUMBER OF
OR MANAGER                              BUILDINGS                     PRINCIPAL CITIES
--------------                         -----------                    ----------------
<S>                                    <C>           <C>
Whitehall............................      195       Boston, Dallas, Denver, Houston, Los Angeles,
                                                     Northern NJ and Washington, DC
Equity Office Properties.............      170       Boston, Philadelphia, Chicago, San Francisco and
                                                       Washington, DC
Transwestern.........................      115       Houston, Los Angeles, Phoenix and Salt Lake City
Trizec Hahn..........................      110       Atlanta, Chicago, Dallas, Houston, Los Angeles,
                                                       New York City and Washington, DC
Cornerstone..........................      105       Los Angeles, Oakland, Phoenix and San Francisco
Hines................................       95       Chicago, Houston, Los Angeles, New York City, San
                                                       Francisco and Washington, DC
Clarion Partners.....................       90       Atlanta, Boston, Houston, Kansas City,
                                                     Minneapolis, New York, Southern CT and Washington
                                                       DC
Vornado..............................       70       New York City and Washington, DC
Boston Properties....................       70       Boston, Central NJ, New York City, San Francisco
                                                     and Washington, DC
Berwind Property Group...............       45       Indianapolis, New Jersey and Phoenix
Angelo, Gordon & Co..................       35       Chicago, Dallas, Houston, New York and Phoenix
Tishman..............................       35       Boston, Chicago, Los Angeles, New York City, San
                                                       Francisco and Washington, DC
Shorenstein..........................       30       Boston, Chicago, Miami, New York City and San
                                                       Francisco
Hamilton.............................       30       Chicago
Cigna................................       25       Boston, Los Angeles, New York City, San Francisco
                                                     and Washington, DC
Met Life.............................       20       Chicago, Dallas, Houston and New York City
</TABLE>

     Penetration. The table below summarizes our success at selecting property
and negotiating license arrangements in the ten largest United States real
estate markets covered by Torto Wheaton data. Target buildings are generally
those designated by Torto Wheaton as Class A, Class B or Class C commercial
office buildings with more than 100,000 rentable square feet. The data below
concerning the total number and approximate square feet of target buildings is
from Torto Wheaton. Data for buildings and square feet that we have in operation
or under contract includes only those buildings with more than 100,000 square
feet.

<TABLE>
<CAPTION>
                                               TARGET BUILDINGS              TARGET BUILDINGS SQUARE FEET
                                       ---------------------------------   ---------------------------------
                                       IN OPERATION OR                     IN OPERATION OR
MARKET                                 UNDER CONTRACT    TOTAL IN MARKET   UNDER CONTRACT    TOTAL IN MARKET
------                                 ---------------   ---------------   ---------------   ---------------
<S>                                    <C>               <C>               <C>               <C>
New York City........................         76               749           60,223,000        352,000,000
Washington, D.C......................        177               821           38,980,000        168,000,000
Chicago..............................         96               501           45,351,000        156,000,000
Los Angeles..........................         76               477           18,228,000        122,000,000
Dallas...............................         45               397           17,690,000        108,000,000
Houston..............................         71               359           29,842,000        100,000,000
Boston...............................        106               400           28,107,000         92,000,000
Atlanta..............................         66               322           20,188,000         80,000,000
Northern New Jersey..................         36               361            8,128,000         76,000,000
San Francisco........................         74               204           23,381,000         53,000,000
</TABLE>

                                        9
<PAGE>   11

NETWORK OPERATIONS

     Our operations and customer care facilities are located in Dallas, Texas.
The operations center is staffed with skilled technicians and engineers and is
equipped with computerized network management tools.

     Provisioning a customer. We believe that rapid activation of services is
one of our key competitive advantages. We generally provide our customers with a
conservative estimate for provisioning time that ranges between one to several
days from receipt of contract.

     Providing customer service. We believe that a high level of customer
service is required for us to build our brand and develop a strong reputation
among the tenants in our buildings. All of our customer service is managed
in-house and is available 24 hours a day, 365 days a year. Our customer service
representatives are equipped to handle requests for all of our services. We
strive to answer all calls quickly, provide rapid resolution and follow up with
customers to ensure satisfactory resolution. We use a computerized relationship
management system to capture, track and save customer call details. Information
is stored in a database that provides a valuable source of feedback about our
customer satisfaction and service quality.

     Managing the network. The network operations center is staffed 24 hours a
day, 365 days a year. All of our network assets are continuously monitored for
events that may interrupt or degrade service. Traffic and service-level
statistics are gathered to report performance, plan additional capacity and
communicate with our customers. Our technical staff is trained in provisioning,
activation, maintenance and troubleshooting. Service-affecting events are
automatically detected and communicated to our technical managers. Our system
assigns network events to network operations engineers for resolution.

     Performing field support. Field operations engineers are deployed in each
of the metropolitan markets we serve. Our field operations engineers are on call
24 hours a day. They perform on-site customer support, service activation, field
troubleshooting and equipment repair. We support our field personnel with a
computerized spare parts management system that provides delivery of spare parts
within each city served.

     Competition. We face competition from many entities with significantly
greater financial resources, well-established brand names and larger customer
bases. We expect significant competition from a variety of telecommunications
companies including local, long distance, cable modem, Internet, digital
subscriber line, microwave, mobile and satellite data service providers. See
"Risk Factors -- The sector in which we operate is highly competitive, and we
may not be able to compete effectively."

REGULATION

     We are subject to numerous local regulations such as building and
electrical codes, licensing requirements and construction requirements. These
regulations vary on a city-by-city and county-by-county basis. There is no
current legal requirement in a large majority of states that owners or managers
of commercial office buildings give access to competitive providers of
telecommunications services, but such laws and regulations have been proposed in
the past and may be adopted in the future. On June 10, 1999, the FCC initiated a
regulatory proceeding on a number of issues related to utility shaft access in
multiple tenant environments, including the following:

     - the FCC's tentative conclusion that utilities must allow
       telecommunications and cable service providers access to rooftop and
       other rights-of-way and utility shaft conduit in multiple tenant
       environments on just, reasonable and nondiscriminatory rates, terms and
       conditions;

     - whether incumbent local telephone companies should make available
       unbundled access to riser cable and wiring within multiple tenant
       environments; and

     - whether building owners offering access to any telecommunications
       provider should be required to make comparable access available to all
       such providers on a nondiscriminatory basis, and whether the FCC has the
       authority to impose such a requirement.

In addition, legislation has been introduced in the U.S. Congress that addresses
issues relating to telecommunications access to buildings owned or used by the
federal government. We cannot predict the outcome of the FCC's proceeding or of
any legislation, nor what effect, if any, it may have on our business.

     The FCC regulates common carriers' interstate services. State public
utilities commissions exercise jurisdiction over intrastate basic
telecommunications services, but we believe do not regulate most enhanced
services, which involve more than the pure transmission of customer-provided
information. The FCC has

                                       10
<PAGE>   12

preempted certain inconsistent state regulation of, and does not itself
regulate, enhanced services. We believe that all of the communications services
that we currently provide are enhanced services and therefore not subject to
direct regulation. The offerings of many of our competitors and vendors,
especially incumbent local telephone companies, are subject to direct federal
and state regulations. These regulations change from time to time in ways that
are difficult for us to predict.

     Through subsidiaries, we are in the process of applying for, and have
received in some states, authority from various state regulatory commissions and
the FCC to provide basic telecommunications services, such as voice telephony
service. These subsidiaries will be subject to direct state and federal
regulation upon approval of their applications. We do not expect to encounter
substantial legal barriers to entry into regulated telecommunications services.
We also do not expect to face regulatory restrictions on the pricing or terms of
any regulated telecommunications service offerings we might choose to offer that
would have a material adverse effect on our business. Changes in the regulatory
environment, however, could have a material adverse effect on our business.

     The Telecommunications Act of 1996 substantially altered the federal and
state regulatory environment for telecommunications services. Among its more
significant provisions, this act:

     - removed most of the significant legal barriers to entry into
       telecommunications service, including local exchange service markets;

     - required incumbent local telephone companies to interconnect with
       competitors through unbundled network elements and with provision of
       operations support systems, reciprocal compensation, local number
       portability, dialing parity and collocation;

     - required incumbent local telephone companies to offer their retail
       services at wholesale discounts for resale by competitors;

     - required incumbent local telephone companies and utilities to grant
       access to their rights-of-way, conduit and ducts;

     - established criteria and procedures for entry of Bell Operating Companies
       into long distance service in their local service areas; and

     - directed the FCC to establish an explicit subsidy mechanism for the
       preservation of universal service.

     We anticipate that, eventually, the Bell companies' applications to provide
in-region long distance service will be granted, at which time the Bell
companies will be able to compete more effectively in various markets, including
against us. Bell Atlantic received approval in December 1999 to provide long
distance service in New York State. Legislation has been introduced to allow the
Bell companies to provide long distance Internet and high speed data services.
We do not know what the outcome or effects of these proceedings and legislation
will be.

     In September 1999, the FCC declined to require incumbent telephone
companies to make their facilities used to provide high-speed data offerings,
such as digital subscriber line equipment, available to competitors as an
unbundled network element. The FCC has a pending regulatory proceeding regarding
steps to spur the deployment of broadband transmission capabilities and advanced
services, by both incumbent telephone companies and their competitors. The rules
adopted by the FCC in this area could have a material effect on our competitive
position with regard to incumbent telephone companies and other
telecommunications companies.

     The FCC and state commissions may act in the near future to change the
charges for Internet traffic handled in part by incumbent local telephone
companies and Internet service providers' obligation to contribute to universal
service funds.

     There have been various statutes, regulations and court cases relating to
liability of Internet service providers and other on-line service providers for
information carried on or through their services or equipment, including in the
areas of copyright, indecency/obscenity, defamation and fraud. The laws in this
area are unsettled and there may be new legislation and court decisions that may
affect our services and expose us to liability.

                                       11
<PAGE>   13

EMPLOYEES

     As of December 31, 1999, we had 425 employees. None of our employees are
represented by a labor union, and we consider our relations with our employees
to be good.

RISK FACTORS

     We have experienced increasing negative EBITDA, operating losses and net
losses, which will continue. We may not achieve or sustain positive EBITDA,
operating income or net income in the future. Since our formation we have
generated increasing negative EBITDA, and larger operating losses and net losses
each quarter. We have not achieved profitability and expect to continue to incur
increasing negative EBITDA, operating losses and net losses in 2000 and for the
foreseeable future. For 1999, we had negative EBITDA of $41,095,000, an
operating loss of $60,777,000 and a net loss of $57,488,000 on revenues of
$1,870,000.

     In addition, we expect to continue to incur significant development costs
and, as a result, we will need to generate significant revenue to achieve
profitability, which may not occur.

     We have an unproven business model which could fail. We are not aware of
any company that has achieved positive EBITDA, operating income or net income by
executing a business plan like ours. We will make substantial capital
expenditures in deploying our networks before we know whether our business plan
can be successfully executed. As a result, there is a risk that our business
will fail.

     We are a start-up company and if we do not grow very rapidly we will not
succeed. We began operating our first fiber-optic network in January 1998 and we
must grow very rapidly to succeed. Because the communications industry is
capital intensive, rapidly evolving and prone to significant economies of scale,
as a relatively small organization we are at a competitive disadvantage. The
growth we must achieve to reduce that disadvantage will put a significant strain
on all our resources. In particular, we will require substantial additional
capital to finance our operations in the future according to our current
business plan. If we fail to grow rapidly or obtain additional capital our
ability to compete with larger more well established companies will be
substantially reduced.

     Our business will be harmed if our billing, customer service and
information support systems are not replaced or further developed. Sophisticated
information processing systems are vital to our growth and our ability to
achieve operating efficiencies. A failure of these systems could substantially
impair our ability to provide services, send invoices and monitor our
operations. Systems we are replacing or further developing to meet the increased
demands of our anticipated growth include billing and collections, work-flow and
customer priority management, financial and accounting, human resources, sales
and customer support and fixed asset management.

     Our plans for the development and implementation of these systems rely, for
the most part, on acquiring products and services offered by third-party vendors
and integrating those products and services. We may be unable to implement these
systems on a timely basis or at all, and these systems may not perform as
expected. We may also be unable to maintain and upgrade our operational support
systems as necessary.

     We are also dependent on the systems of our network capacity providers,
and, in some cases, on the interface between our systems and those of our
providers. Therefore, any systems failures experienced by our suppliers could
also have similar adverse effects on our systems.

     The sector in which we operate is highly competitive, and we may not be
able to compete effectively. We face competition from many entities with
significantly greater financial resources, well-established brand names and
larger customer bases. The numerous companies that may seek to enter our niche
may expose us to severe price competition for our services or for building
access rights. We expect competition to intensify in the future. We expect
significant competition from traditional and new telecommunications companies,
including local, long distance, cable modem, Internet, digital subscriber line,
microwave, mobile and satellite data service providers. If these potential
competitors successfully focus on our niche, there may be intense price
competition which could impede our ability to become profitable.

     In-building competitors. Some competitors, such as Cypress Communications,
OnSite Access, Broadband Office, Intermedia Communications, SiteLine, RCN
Telecom Services, NextLink, Winstar, Teligent and Advanced Radio Telecom are
attempting to gain access to office buildings in our target markets. Some of
these competitors have sought to develop exclusive relationships with building
owners. To the extent these competitors are successful, we may face difficulties
in building our networks and marketing our services within some of our target
buildings. Our agreements to use vertical utility shaft within buildings are not
exclusive. An
                                       12
<PAGE>   14

owner of any of the buildings we have rights to install a network in could also
give similar rights to one of our competitors. Certain competitors already have
rights to install networks in some of the buildings that we have rights in. It
will take a substantial amount of time for us to build networks in all the
buildings where we obtain rights to do so. Each building in which we have not
built a network is particularly vulnerable to competitors. It is not clear
whether it will be profitable for two or more different companies to operate
broadband networks within the same building. Therefore, it is critical that we
build our networks in additional buildings quickly. Once we have done so, if a
competitor installs a network in the same building, it is likely that there will
be substantial price competition.

     Local telephone companies. Incumbent local telephone companies, including
GTE and the Bell Operating Companies, have several competitive strengths which
may place us at a competitive disadvantage. These competitive strengths include:

     - an established brand name and reputation;

     - significant capital to deploy fiber-optic equipment rapidly;

     - ability to offer higher-speed data services through digital subscriber
       line technology;

     - their own inter-building connections; and

     - ability to bundle digital data services with their voice services to
       achieve economies of scale in servicing customers.

     Competitive local telephone companies often have broadband inter-building
connections, market their services to tenants of large- and medium-sized
buildings and selectively build in-building facilities.

     Long distance companies. We will face strong competition from long distance
companies. Many of the leading long distance carriers, including AT&T, MCI
WorldCom, and Sprint, are expanding their capabilities to support high-speed,
end-to-end data networking services, and could begin to build their own
in-building networks. The newer national long distance carriers, such as Qwest,
Level 3, Williams Communications and IXC Communications, which has agreed to be
acquired by Cincinnati Bell, are building and managing high-speed fiber-based
national data networks, partnering with Internet service providers, and may
extend their networks by installing in-building fiber-optic cables.

     Fixed wireless service providers. We may lose potential customers to fixed
wireless service providers. Fixed wireless service providers can provide high
speed inter-building communications services using microwave or other facilities
or satellite earth stations on building rooftops. Some of these providers have
targeted small- and medium-sized-business customers and have a business strategy
that is similar to ours. These providers include Winstar, Teligent, Advanced
Radio Telecom, Sprint and MCI WorldCom.

     Internet, digital subscriber line, and cable modem service providers. The
services provided by Internet service providers and cable modem service
providers can be used by our potential customers instead of our services.
Internet service providers, such as GTE Internetworking, UUNET, a subsidiary of
MCI WorldCom, Sprint, Concentric Networks, Prodigy, EarthLink, Verio and PSINet,
provide Internet access to residential and business customers, generally using
the existing communications infrastructure. Digital subscriber line companies
and/or their Internet service provider customers, such as Covad, Rhythms
NetConnections, NorthPoint, Network Access Solutions typically provide broadband
Internet access. Cable modem service providers, such as Excite@Home and its
@Work subsidiary, Road Runner, RCN Telecom Services and High Speed Access also
provide broadband Internet access. On-line service providers, such as America
Online, Compuserve, Microsoft Network, and WebTV, provide Internet connectivity,
ease-of-use and a stable environment for modem connections.

     We must obtain additional agreements with building owners or our growth
will be constrained. Our business depends upon our ability to install
in-building networks. The failure of building owners to grant or renew access
rights on acceptable terms could substantially reduce our potential customer
base. Current federal and state regulations do not require building owners to
make space available to us, or to do so on terms that are reasonable or
nondiscriminatory. Building owners may decide not to permit us to install our
networks in their buildings. In addition, building owners may elect not to renew
our access agreements which typically have terms of ten years. Non-renewal of
these agreements would cause losses resulting from the removal or sale of our
infrastructure in these buildings and would reduce our revenues.

                                       13
<PAGE>   15

     We must install networks in additional buildings before our competitors do
or we may face a competitive disadvantage. Our success will depend upon our
ability to quickly install our in-building networks in many more buildings. This
is crucial in order to establish a first-mover advantage. We may not be able to
accomplish this. Each building in which we have not built a network is
particularly vulnerable to competitors. Future expansions and adaptations of our
network infrastructure may be necessary to respond to growth in the number of
customers served, increased capacity demands and changes to our services. The
expansion and adaptation of our in-building networks will require substantial
financial, operational and managerial resources. Our failure to rapidly deploy,
expand and adapt our networks to changing conditions could make it difficult to
increase and retain our customer base, which would reduce our revenues and
impede our growth.

     There might not be sufficient demand for our services. Demand for broadband
services has grown rapidly, and this market is characterized by rapidly changing
technology, evolving industry standards and frequent new service introductions.

     If the commercial market for Internet access and other broadband services
develops more slowly than expected or if the Internet services that we offer are
not broadly accepted, our revenues will not grow as quickly as necessary to
achieve or sustain profitability. Demand and market acceptance for recently
introduced services in this industry are subject to a high level of uncertainty.

     In addition, critical issues concerning the commercial use of services
requiring broadband capabilities remain unresolved and may impact the growth of
these services. Historically, some businesses have been reluctant to purchase
broadband services, such as high-speed Internet access, for a number of reasons,
including:

     - resistance to the use of the Internet in business applications;

     - inconsistent quality of service;

     - lack of available cost-effective, high-speed options;

     - the need to deal with multiple and frequently incompatible vendors;

     - inadequate security for stored or transmitted data;

     - lack of networking tools to simplify Internet access and use; and

     - lack of high-speed application requirements.

     Capacity constraints caused by heavy use of the Internet may impede further
development to the extent that users experience delays, transmission errors and
other difficulties. Further, enterprises that have already invested substantial
resources in other methods may be particularly reluctant or slow to adopt a new
strategy.

     Alternative technologies pose competitive threats. In addition to
fiber-optic technology, there are other technologies that provide more capacity
and speed than traditional copper wire transmission technology and can be used
instead of our services. Furthermore, these technologies may be improved and
other new technologies may develop that provide more capacity and speed than the
fiber-optic technology we employ. Existing alternative technologies include:

     - Digital Subscriber Line Technology. Digital subscriber line technology
       was developed to produce higher data transfer rates over the existing
       copper-based telephone network. The data transfer rates for digital
       subscriber lines are reported to range between 144 thousand bits of data
       per second and six million bits of data per second. Digital subscriber
       line technology has been substantially improved in recent years.

     - Cable Modems. Cable modems can allow users to send and receive data using
       cable television distribution systems. According to industry sources,
       cable modem users typically experience download speeds of 1.5 million
       bits of data per second.

     - Wireless Technologies. Wireless technologies, such as satellite and
       microwave communications systems, can provide high-speed data
       communications. Satellite systems, such as DirecPC, can offer high
       download speeds that are advertised at 400 thousand bits of data per
       second.

     - Integrated Services Digital Networks. Integrated services digital
       networks have been offered by the incumbent local telephone companies
       over the existing copper-based telephone network for some time. These
       services offer data transfer speeds of 128 thousand bits of data per
       second.

                                       14
<PAGE>   16

     The development of new technologies or the significant penetration of
alternative technologies into our target market may reduce the demand for our
services and consequently could have a material adverse effect on our revenues
and net income (loss).

     We must purchase capacity from third parties who may be unable or unwilling
to meet our requirements. We construct in-building networks and generally rely
on other communications carriers to provide transmission capacity outside the
buildings. Our failure to obtain adequate connections from other carriers on a
timely basis could delay or impede our ability to provide services and generate
revenue.

     We have experienced, and expect to continue to experience, delays in
obtaining transmission capacity. In addition, in some of our target markets
there is only one established carrier available to provide the necessary
connection. This increases our cost and makes it extremely difficult, if not
impossible, to obtain redundant connections. Sufficient capacity or redundant
capacity may not be readily available from third parties at commercially
reasonable rates, if at all. Our failure to obtain sufficient redundant
connectivity could result in an inability to provide service in certain
buildings and service interruptions, which could in time lead to loss of
customers and damage to our reputation.

     We must make significant capital expenditures before generating revenue,
which may prove insufficient to justify those expenditures. When we install an
in-building network, we incur significant initial expenditures. If we fail to
attract enough customers within each office building, our capital expenditures
in that building will be wasted. These expenditures vary depending on the size
of the building and whether we encounter any construction-related difficulties.
In addition, we typically install an in-building network before we have any
customers in that building. Since we generally do not solicit customers within a
building until our network is in place, and since our costs can vary, we may not
be able to recoup our expenditures within any building.

     Our networks may be vulnerable to unauthorized access which could interfere
with the provision of our services. Our networks may be vulnerable to
unauthorized access, computer viruses and other disruptive problems. Remediating
the effects of computer viruses and alleviating other security problems may
require interruptions, incurrence of costs and delays or cessation of service to
our customers. Other companies have experienced interruptions in service as a
result of the accidental or intentional actions of Internet users, current and
former employees or others. Unauthorized access could jeopardize the security of
confidential information stored in our computer systems or those of our
customers. Although we intend to continue to implement industry-standard and
other security measures, such measures at other companies have been circumvented
in the past and may be circumvented on our systems in the future. These risks
could have a material adverse effect on our ability to provide services.

     We must attract and retain key personnel in a tight labor market or we will
be unable to manage our growth. There currently is intense competition for
personnel with the qualifications we require. The loss of the services of key
personnel or the failure to attract additional personnel as required could have
a material adverse effect on our ability to grow and on the price of our common
stock. We are highly dependent upon the efforts of our existing senior
management team. Although we have entered into employment agreements with
members of our senior management team, these agreements do not obligate the
employees to remain with us for any length of time. We believe that our future
success will depend in large part on our ability to attract and retain qualified
technical and sales personnel.

     Legislation and government regulation could adversely affect us. Changes in
the regulatory environment could affect our operating results by increasing
competition, decreasing revenue, increasing costs or impairing our ability to
offer services. The provision of basic telecommunications services is subject to
significant regulation at the federal and state level. The Federal
Communications Commission regulates telecommunications carriers providing
interstate and international common carrier services. State public utilities
commissions exercise jurisdiction over intrastate basic telecommunications
services but do not regulate most enhanced services, which involve more than the
pure transmission of customer provided information. Many of our competitors and
vendors, especially incumbent local telephone companies, are subject to federal
and state regulations. These regulations change from time to time in ways that
are difficult for us to predict. Although we believe the services we provide
today are not subject to substantial regulation by the FCC or the state public
utilities commissions, changes in regulation or new legislation may increase the
regulation of our current services. In addition, a regulatory body may seek to
apply telecommunications regulations to our enhanced services.

     If we decide to provide voice and other basic telecommunications services
we may be unable to successfully respond to regulatory changes. We will become
subject to regulation by the FCC and state

                                       15
<PAGE>   17

agencies in the event we decide to offer non-enhanced voice and other basic
telecommunications services. Complying with these regulatory requirements may be
costly. Through subsidiaries, we are in the process of applying for, and in some
states have received, authority from state regulatory commissions and the FCC to
provide basic telecommunications services, such as voice telephony service.
These subsidiaries will be subject to direct federal and state regulation upon
approval of their respective applications. The regulations that apply to basic
telecommunications services change from time to time and such changes may have
adverse effects on our business.

     Regulation of access to office buildings could negatively affect our
business. There have been proposals to require that commercial office buildings
give access to competitive providers of telecommunications services. If these
proposals are adopted and regulatory or legal requirements change access rights
to our target buildings or our networks, these requirements will facilitate our
competitors' entry into buildings where we have access rights, which in turn
will diminish the value of our access rights and adversely affect our
competitive position. Recently, the FCC initiated a regulatory proceeding
relating to utility shaft access in multiple tenant buildings, and a bill was
introduced in Congress regarding the same topic. Some of the issues being
considered in these developments include requiring building owners to provide
utility shaft access to telecommunications carriers, and requiring some
telecommunications providers to provide access to other telecommunications
providers. We do not know whether or in what form these proposals will be
adopted.

     As an Internet access provider, we may incur liability for information
disseminated through our network. The law relating to the liability of Internet
access providers and on-line services companies for information carried on or
disseminated through their networks is unsettled. Although we have not been sued
for information carried on our network, it is possible that we could be. Federal
and state statutes have been directed at imposing liability on Internet service
providers for aspects of content carried on their networks. There may be new
legislation and court decisions that may affect our services and expose us to
potential liability.

     As the law in this area develops, the potential imposition of liability
upon us for information carried on and disseminated through our network could
require us to implement measures to reduce our exposure to such liability, which
may require the expenditure of substantial resources or the discontinuation of
certain products or service offerings. Any costs that are incurred as a result
of such measures or the imposition of liability could have a material adverse
effect on our operating expenses and our liquidity.

     Retained control of Allied Riser by our principal stockholders may create
conflicts of interest. The concentration of ownership of our stock may have the
effect of delaying, deferring or preventing a change in control, merger,
consolidation, or a tender offer which could involve a premium over the price of
our common stock. Our officers, directors and greater-than-five-percent
stockholders and their affiliates, in the aggregate, beneficially own
approximately 23% of the outstanding common stock.

     Members of our board serve on the boards of our potential competitors,
which may create conflicts of interest. Members of our board of directors also
serve as officers or directors of other telecommunications or Internet services
companies. To the extent that any of these companies presently offer, or at some
future point begin to offer, services having characteristics similar to those
offered by us, there may be conflicts of interest between the fiduciary duties
owed by these individuals to us and the duties owed to these other companies. We
have not adopted specific policy guidelines to address these potential conflicts
of interest and if these conflicts of interest arise, they may be resolved on
terms that are not in the best interests of all of our stockholders.

     Anti-takeover provisions could prevent or delay a change of
control. Provisions of our amended and restated certificate of incorporation and
amended and restated by-laws and Delaware law could make it more difficult for a
third party to acquire us, even if doing so would be beneficial to our
stockholders. These provisions include:

     - the ability of our board of directors to issue preferred stock without
       any further approval being required from our stockholders;

     - the "staggered" nature of our board of directors which results in
       directors being elected for terms of three years; and

     - the requirement that stockholders provide us with advance notice of
       proposed actions.

                                       16
<PAGE>   18

     These provisions may have the effect of delaying, deferring or preventing a
change in our control, impeding a merger, consolidation, takeover or other
business combination, which in turn could preclude our stockholders from
recognizing a premium over the prevailing market price of the common stock.

     Impairment of our intellectual property rights could harm our
business. While we are seeking federal registration of ARC and certain other
trademarks, we have not been awarded any trademark registrations, and are
relying upon our common law rights. It is possible that other entities may
challenge our registration and use of these trademarks based on a claim of
superior rights, dilution or otherwise. Such challenges, if successful, could
preclude us from registering and even using our trademarks, in which case the
expense of developing new trademarks and resulting loss of product
identification and goodwill could have a material adverse effect on our net
income (loss) and our brand awareness.

ITEM 2. PROPERTIES:

     We are headquartered in facilities consisting of approximately 81,600
square feet in Dallas, Texas, which we occupy under a lease that expires in
December 2003. In addition, our engineering department occupies approximately
19,000 square feet in Richardson, Texas under a lease, which expires in December
2003. We also lease space under varying terms from 1 to 5 years in each of our
metropolitan areas served for sales demonstration centers. We consider this
space adequate for our current operations.

ITEM 3. LEGAL PROCEEDINGS:

     We are not currently engaged in any material legal proceedings.

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

     The following matters were submitted to a vote of security holders during
the fourth quarter of 1999:

          On October 25, 1999, pursuant to a written Waiver and Consent, 117
     shares representing 100% of the holders of our outstanding preferred stock,
     and 26,620,138 shares representing 80% of our common stock approved: (i)
     the issuance of registered securities in an initial public offering of our
     common stock, (ii) an increase to 5,000,000 shares in the number of shares
     of common stock issuable pursuant to our Amended and Restated 1999 Stock
     Option and Equity Incentive Plan, (iii) an amendment and restatement of our
     Certificate of Incorporation effecting certain changes as a result of a 1
     to 15 reverse stock split of our common stock approved by the board of
     directors on September 18, 1999, and (iv) certain waivers and consents
     required of the Preferred Stockholders prior to our initial public offering
     as contemplated in certain agreements between us and our financial
     sponsors.

          On November 3, 1999, the rights, powers, and designations of our
     preferred stock were removed from the Certificate of Incorporation.
     Pursuant to a written Consent of Stockholders, an amendment to our
     Certificate of Incorporation was approved whereby 27,769,178 shares
     representing 50.08% of our common stock voted in favor of the resolution.
     As provided in the Certificate of Incorporation, upon receipt of approval
     of a majority of the holders in such written consent, notice of such
     amendment with respect to the preferred stock was delivered to stockholders
     whose consent had not been previously sought.

                                    PART II

ITEM 5. MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS:

MARKET INFORMATION

     Our common stock is listed on the Nasdaq National Market. Our ticker symbol
is "ARCC." We completed the initial public offering of our common stock in
October 1999. Prior to October 29, 1999, no established public trading market
for the common stock existed.

     The following table sets forth on a per share basis, the high and low sale
prices per share for our common stock as reported on the Nasdaq National Market
for the periods indicated:

<TABLE>
<CAPTION>
                                                               HIGH     LOW
                                                              ------   ------
<S>                                                           <C>      <C>
Year ended December 31, 1999:
  Fourth quarter (from October 29, 1999)....................  $26.13   $15.12
</TABLE>

     A recent reported last sale price of our common stock on the Nasdaq
National Market is set forth on the front cover of this report.

                                       17
<PAGE>   19

STOCKHOLDERS

     There were approximately 291 owners of record of our common stock as of
February 29, 2000. This number excludes stockholders whose stock is held in
nominee or street name by brokers and we believe that we have a significantly
larger number of beneficial holders of common stock.

DIVIDENDS

     We have not paid any cash dividends on our common stock since inception and
do not anticipate paying any cash dividends in the foreseeable future. Any
future determination to pay dividends will be at the discretion of our board of
directors and will be dependent upon then existing conditions, including our
financial condition, results of operations, contractual restrictions, capital
requirements, business prospects, and other factors our board of directors deems
relevant. In addition, our current financing arrangements effectively prohibit
us from paying cash dividends for the foreseeable future.

USE OF PROCEEDS FROM REGISTERED SECURITIES

     On October 29, 1999, we completed our initial public offering of common
stock. The effective date of our Registration Statement on Form S-1 (Commission
File No. 333-85597) was October 28, 1999, pursuant to which we registered the
offer and sale of 15,750,000 shares of common stock par value $.0001 per share,
for an aggregate offering price of $283,500,000. We completed the offering,
selling 16,970,550 shares of common stock for the aggregate offering price of
$305,470,000, including the exercise by the underwriters of their over-
allotment option to purchase an additional 1,220,550 shares of common stock at
the offering price. The managing underwriters were Goldman, Sachs & Co., Merrill
Lynch & Co., Donaldson Lufkin & Jenrette and Thomas Weisel Partners LLC.

     We incurred expenses of approximately $20,578,000, of which approximately
$18,328,000 represented underwriting discounts and commissions and approximately
$2,250,000 represented other expenses related to the offering. In addition, the
shares issued to GS Capital Partners III, L.P. were deemed to be underwriting
compensation by the National Association of Securities Dealers, Inc. None of the
expenses incurred was paid directly or indirectly to any director or officer of
our company or their associates, persons owning 10% or more of any class of
equity securities of our company, or an affiliate of our company. The net
offering proceeds to our company after total expenses was approximately
$284,892,000.

     We have not used any of the net proceeds from the initial public offering.
The net proceeds have been invested in cash, cash equivalents and short-term
investments. We plan to use the proceeds for construction of in-building
networks, for working capital and general corporate purposes. We may also use a
portion of the net proceeds to acquire or invest in complementary businesses,
technologies, services or products. The use of the proceeds from the offering
does not represent a material change in the use of proceeds described in the
prospectus contained in our Registration Statement on Form S-1.

STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING

     Our first annual stockholders' meeting is scheduled for June 15, 2000.
Proposals of stockholders intended for inclusion in the proxy statement to be
furnished to all stockholders entitled to vote at the annual meeting must be
received at our principal executive office no later than April 10, 2000. The
deadline for providing timely notice of matters that stockholders otherwise
desire to introduce at the annual meeting is April 10, 2000.

                                       18
<PAGE>   20

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA:

     The following selected consolidated statements of operations data for the
period from inception (December 19, 1996) to December 31, 1997, and for the
years ended December 31, 1998 and 1999, have been derived from our audited
financial statements and the related notes. This data should be read in
conjunction with the consolidated financial statements and the related notes
thereto (see Part II, Item 8) and with "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" set forth in Part II Item 7 of
this report.

<TABLE>
<CAPTION>
                                                             1997        1998         1999
                                                           --------   ----------   -----------
                                                                     (IN THOUSANDS,
                                                           EXCEPT SHARE AND PER SHARE AMOUNTS)
<S>                                                        <C>        <C>          <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Network services revenue.................................  $     --   $      212   $     1,870
Operating expenses:
  Network operations.....................................        80        2,358         7,682
  Selling expense........................................        --        1,623         9,296
  General and administrative expenses....................     1,348        9,736        25,981
  Depreciation and amortization..........................        10          499         2,971
  Amortization of deferred compensation..................        --           --        14,681
  Amortization of real estate access rights..............        --           --         2,036
                                                           --------   ----------   -----------
          Total operating expenses.......................     1,438       14,216        62,647
                                                           --------   ----------   -----------
Operating income (loss)..................................    (1,438)     (14,004)      (60,777)
Other income (expense)...................................       (59)        (606)        3,289
Benefit (provision) for income taxes.....................        --           --            --
                                                           --------   ----------   -----------
Net income (loss)........................................    (1,497)     (14,610)      (57,488)
Accrued dividends on preferred stock.....................        --         (452)       (6,452)
                                                           --------   ----------   -----------
Net income (loss) applicable to common stock.............  $ (1,497)  $  (15,062)  $   (63,940)
                                                           ========   ==========   ===========
Net income (loss) per common share.......................  $  (7.45)  $    (8.09)  $     (2.15)
                                                           ========   ==========   ===========
Weighted average number of shares outstanding............   201,000    1,862,000    29,736,000
                                                           ========   ==========   ===========
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................  $    188   $   41,371   $   152,564
Short-term investments...................................        --           --       162,013
Property and equipment, net..............................     1,250       13,005        46,577
Total assets.............................................     1,487       55,572       475,054
Total liabilities........................................     3,228        5,257        22,640
Convertible redeemable preferred stock...................        --       66,452            --
Additional paid-in capital...............................       163          375       434,930
Warrants.................................................        --           --       109,135
Stockholders' equity (deficit)...........................    (1,741)     (16,137)      452,414
</TABLE>

     As used in the table below, EBITDA consists of net loss excluding net
interest, income taxes, depreciation and amortization. EBITDA does not reflect
our non-cash expenses, which we expect will increase considerably as we deploy
our infrastructure. We believe that because EBITDA is a measure of financial
performance that it is useful to investors as an indicator of a company's
ability to fund its operations and to service or incur debt. EBITDA is not a
measure calculated under generally accepted accounting principles. Other
companies may calculate EBITDA differently from us. It is not an alternative to
operating income as an indicator of our operating performance or an alternative
to cash flows from operating activities as a measure of liquidity and investors
should consider these measures as well. We do not expect to generate positive
EBITDA in the near term. We anticipate that our discretionary use of EBITDA, if
any, generated from our operations in the foreseeable future will be restricted
by our need to build our infrastructure and expand our business. To the extent
that EBITDA is available for these purposes, our requirements for outside
financing will be reduced.

                                       19
<PAGE>   21

     The last three line items of other operating data below reflect data as of
the last day of each period and do not include our work-in-progress or under
contract as of those dates.

<TABLE>
<CAPTION>
                                                             1997        1998         1999
                                                            -------   ----------   -----------
                                                                  (DOLLARS IN THOUSANDS)
<S>                                                         <C>       <C>          <C>
OTHER OPERATING DATA:
Net cash provided by (used in) operating activities.......  $(1,229)  $  (14,420)  $   (39,152)
Net cash provided by (used in) investing activities.......  $(1,088)  $   (8,115)  $  (181,908)
Net cash provided by financing activities.................  $ 2,504   $   63,718   $   332,253
EBITDA....................................................  $(1,401)  $  (13,504)  $   (41,095)
Capital expenditures......................................  $ 1,220   $   12,032   $    36,543
Metropolitan markets served...............................       --            2   $        22
Buildings constructed.....................................       --            4   $       120
Rentable square feet in buildings constructed.............       --    2,900,000    80,000,000
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:

OVERVIEW

     Since our inception in December 1996, our principal activities have
included developing our business plan, raising capital, hiring management and
other key personnel, designing and developing our fiber-optic networks inside
buildings, acquiring equipment and facilities, entering into agreements with
building owners and real estate managers and beginning the deployment of our
fiber-optic networks. In June 1997, we began installing our networks, and we
began operating our first in-building network in January 1998. On October 29,
1999, we completed an initial public offering of 16,970,550 shares of our common
stock for which we received net proceeds of approximately $285,000,000. We
provide services in 22 metropolitan areas. As of December 31, 1999, we have
constructed fiber-optic networks inside 120 office buildings with more than 80
million rentable square feet. Today, we have entered into agreements to install
and operate our fiber-optic networks in more than 1,250 office buildings with
more than 420 million rentable square feet.

     To rapidly establish a strong position in the markets we target, we are
heavily investing in our fiber-optic networks. We incur costs in the design and
installation of our in-building infrastructure, which is typically installed
within a secure conduit located in the building's riser, which is the building's
vertical utility shaft. We also invest in electronic equipment that is needed to
connect our networks to the Internet. We expect to incur significant additional
costs building and refining our operational support systems; this includes the
purchase and implementation of software to facilitate customer acquisition,
billing, collections, and network management.

     As a result of our development activities and the deployment of our
networks, from inception to date we have incurred significant operating losses,
net losses, and negative EBITDA. We expect that the continued expansion of our
operations will result in increasing operating losses, net losses, and negative
EBITDA. As a result of our limited operating history, prospective investors have
limited operating and financial data upon which to base an evaluation of our
performance and an investment in our common stock.

FACTORS AFFECTING FUTURE OPERATIONS

     Network services revenue. We generate revenue from selling broadband data,
video and voice services primarily to tenants in buildings in which we own and
operate our fiber-optic networks. We generally enter into long-term,
non-exclusive contracts with the owners and managers of portfolios of office
buildings to permit us to construct and operate these networks within their
buildings. In return for the right to deploy and maintain our networks, building
owners receive a modest portion of the gross revenue we generate from tenants
inside their buildings. Upon completion of an in-building network, our direct
sales personnel market our services to the tenants of the building. Once a
customer orders our services, we generally initiate service within one to ten
business days. Our customers are not generally required to purchase or maintain
any equipment beyond their existing local area network.

     We currently offer:

     - ultra high-speed Internet access;

     - business-oriented television for display on the computer desktop;

     - network design and management;

                                       20
<PAGE>   22

     - enhanced conference calling services; and

     - other broadband data services.

     We generate the majority of our recurring revenue from subscription fees,
which vary depending upon a number of factors, including the services provided,
the number of desktops connected to our network and bandwidth usage volume. We
generally offer services on a month-to-month contractual basis. We do not
require our customers to purchase any equipment from us. We price our
combination of services competitively compared to existing providers of Internet
connectivity and broadband data services, such as local telephone companies and
Internet service providers. Although competitive pricing is an important part of
our strategy, we believe that the speed and performance of our fiber-optic
networks, combined with a high level of customer care, are the keys to
successfully attracting and retaining small and medium-sized business customers.

     We expect that in the short term the majority of our revenue will be
derived from our Internet connectivity services. We intend to take advantage of
our presence in buildings in which we operate a network and our customer
relationships to market additional services to our customers. We expect these
services to include bandwidth-enabled services, such as enhanced Internet voice
services; full-motion, interactive, desktop-delivered video conferencing; direct
access to both on-line content and business applications through industry
specific portals; e-commerce and network design and management services. We also
intend to take advantage of our growing market presence and brand by offering
similar broadband services to our customers' branch offices and other businesses
located in buildings in which we have not installed our fiber-optic networks. We
believe that these additional services may generate significant incremental
revenue.

     Network operations. Our network operations expenses include payments to
providers of transmission capacity, costs associated with customer connections
to our in-building fiber-optic networks, customer care, equipment maintenance,
payments to building owners, and content licensing costs. In order to provide
our services, we must connect each in-building network to a metropolitan hub via
a local network and each metropolitan hub to a national network. These local and
national networks are owned by unaffiliated parties. We have contracts with
terms ranging from one month to five years for connections to these networks.
Under these agreements, we incur fixed monthly charges for local connectivity.
For national connectivity, we incur fixed monthly charges plus incremental
charges based upon customer usage. In addition, if we fail to meet our minimum
volume commitments for national connectivity, we may be obligated to pay
penalties. In the future, we may contract for volume discounts based on the
volume purchased from national connectivity providers. In the event we
underestimate our need for transmission capacity, we may be required to obtain
capacity through more expensive means. We expect that our connectivity costs
will increase as we enter new markets and provide services for new customers. In
addition, we pay usage-based calling fees in connection with our enhanced
conference calling services.

     We incur expenses related to ongoing operations for customer support. We
provide customer care through our Dallas-based customer care center, which is
augmented by field support personnel and contracts with outside support
providers for on-site customer service. Because our strategy emphasizes the
importance of customer care, we expect that initially customer service will
become a larger part of our ongoing expenses. Equipment maintenance costs
include expenses for equipment repair and periodic servicing. Maintenance
services are provided by our field operations personnel, third-party contractors
and equipment vendors. In exchange for access rights from building owners, we
pay building owners a modest portion of the revenue that we generate from
tenants inside their buildings. The fee we pay building owners varies
proportionally with revenues generated in the respective buildings. We incur
both fixed and variable costs in connection with licenses related to the
provisioning of enhanced communications services, such as business-oriented
desktop television.

     Selling expense. Selling expense includes costs of employee salaries and
commissions, marketing, advertising and promotional expenses and costs
associated with leasing and operating sales demonstration centers. To attract
and retain a qualified sales force, we offer our sales personnel a compensation
package emphasizing commissions and stock options. We expect to incur
significant selling and marketing costs as we continue to expand our sales force
and penetrate our targeted markets.

     General and administrative expenses. General and administrative expenses
include costs associated with corporate administration and infrastructure,
billing and personnel. We are currently in the process of building and refining
our new operational support systems. These systems are necessary to enter,
schedule, provision and track a customer order from the point of sale to
installation, testing, and service initiation. In addition, these systems will
interface with our billing, collection and customer care service systems. We
believe that
                                       21
<PAGE>   23

because most of our services are currently billed on a flat-rate basis, the cost
and complexity of generating and reconciling our billings is less than that with
usage-based pricing models. However, as we add customers and provide more
services that require usage-based billing, such as our enhanced conference
calling services, we expect that billing costs will increase. Accordingly,
customer billing is expected to be a significant part of our ongoing
administrative expenses. We have selected a group of vendors to provide
automated billing systems and other operational support systems that will either
replace or be integrated with our existing systems. See "Risk Factors -- Our
business will be harmed if our billing, customer service and information support
systems are not successfully replaced or further developed."

     We expect that costs will increase significantly as we expand our
operations and that general and administrative expenses will be a larger portion
of these costs during the early stages of our business. However, we expect that
our general and administrative expenses will represent a smaller percentage of
our revenue as we build our customer base.

     Depreciation and amortization. Depreciation and amortization expenses
include depreciation of system infrastructure, system equipment, furniture and
fixtures and the amortization of leasehold improvements. We expect depreciation
and amortization expenses to increase significantly as we install our
fiber-optic networks in more buildings. While construction is in progress and we
have outstanding debt, we capitalize related interest and we amortize the
related capitalized interest over the useful life of the constructed assets.

     Amortization of deferred compensation. Amortization of deferred
compensation is a result of granting stock options and issuing restricted shares
to our employees with exercise prices per share treated for accounting purposes
as below the fair value of our common stock at the dates of grant. We are
amortizing the deferred compensation over the vesting period of the applicable
option and the lapsing of the restrictions on the applicable shares.

     Amortization of real estate access rights. Amortization of real estate
access rights is a result of the warrants we issued to our real estate partners.
We expect that we will make similar issuances in the future. The warrant
acquisition agreements impose certain performance requirements on the real
estate partners for exercisability and retention of the shares underlying the
warrants. The measurement date for valuing the warrants is the date(s) on which
the real estate partners effectively complete their performance requirements. At
the measurement date the company measures the fair value of the warrants based
on the fair value of the underlying common stock. The fair value of the warrants
is capitalized and amortized over the term of our agreements with our real
estate partners.

     Other income (expense). Other income (expense) consists primarily of net
interest income and expense. We expect interest income to increase over the
short term as a result of receiving the proceeds of our initial public offering
in October 1999.

     Provision for income taxes. Provision for income taxes consists of federal,
state and local taxes, when applicable. We have not generated any taxable income
to date and therefore have not paid or provided for any federal income taxes
since inception. A full valuation allowance has been recorded on the deferred
tax asset, consisting primarily of start-up costs and net operating loss carry
forwards, because of the uncertainty of future operating results. We expect to
generate significant net losses for the foreseeable future which should generate
net operating loss carryforwards.

RESULTS OF OPERATIONS

  YEAR ENDED DECEMBER 31, 1999, COMPARED TO YEAR ENDED DECEMBER 31, 1998

     Network services revenue. Network services revenue for the year ended
December 31, 1999, increased to $1,870,000 as compared to $212,000 for the year
ended December 31, 1998. The increase in revenues is attributable to growth in
the number of customers resulting from increased sales and marketing efforts
concentrated in our networked properties and the increased penetration of our
fiber-optic network into new buildings. As of December 31, 1999, our fiber-optic
network was installed inside 120 buildings with more than 80 million rentable
square feet as compared to December 31, 1998, when our networks were installed
inside 4 buildings, with 2.9 million rentable square feet.

     Network operations. Network operations expenses were $7,682,000 for the
year ended December 31, 1999, and $2,358,000 for the year ended December 31,
1998. This increase is consistent with the expansion of our fiber-optic network
and resulting increase in related costs.

                                       22
<PAGE>   24

     Selling expense. Selling expense increased from $1,623,000 for the year
ended December 31, 1998, to $9,296,000 for the year ended December 31, 1999.
This increase was attributable to the continued expansion of sales and marketing
efforts, including commissions, development of corporate identification,
establishment of sales demonstration centers, promotional and advertising
materials and hiring sales personnel.

     General and administrative expenses. General and administrative expenses
were $25,981,000 for the year ended December 31, 1999, and $9,736,000 for the
year ended to December 31, 1998. This increase is consistent with our
development activities and is attributable to growth in number of employees we
incurred in connection with building our operating infrastructure. Our number of
general and administrative employees increased to 283 as of December 31, 1999,
as compared to 85 at December 31, 1998.

     Depreciation and amortization. Depreciation and amortization for the year
ended December 31, 1999 was $2,971,000 as compared to $499,000 for the year
ended December 31, 1998. This increase was primarily due to the increase in
system infrastructure and system equipment placed in service.

     Amortization of deferred compensation. Amortization of deferred
compensation was $14,681,000 for the year ended December 31, 1999.

     Amortization of real estate access rights. Amortization of real estate
access rights was $2,036,000 for the year ended December 31, 1999.

     Other income (expense). Other income (expense) was $3,289,000 for the year
ended December 31, 1999, and $(606,000) for the year ended December 31, 1998.
This change in other income (expense) is primarily due to an increase in
interest income generated by the proceeds of our equity transactions.

     Provision for income taxes. For the years ended December 31, 1999 and 1998,
no provision for taxes was recognized as we operated at a loss throughout both
years.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO PERIOD FROM INCEPTION (DECEMBER 19,
1996) TO DECEMBER 31, 1997

     Network services revenue. Network services revenue for the year ended
December 31, 1998 was $212,000. Our first fiber-optic network began operation in
January 1998. Accordingly, no revenue was recognized for the period from
inception to December 31, 1997. As of December 31, 1998, our fiber-optic network
was installed in 4 buildings, with more than 2.9 million rentable square feet.

     Network operations. Network operations expenses were $2,358,000 for the
year ended December 31, 1998 and $80,000 for the period from inception to
December 31, 1997. This increase is consistent with the expansion of our
fiber-optic network and resulting increase in related costs.

     Selling expense. Our selling expense for the year ended December 31, 1998
was $1,623,000. This expense was attributable to the initial deployment of our
fiber-optic network and the related sales and marketing efforts, including
development of our brand and logo, establishment of sales demonstration centers,
promotional and advertising materials and hiring sales personnel. Consistent
with the initial deployment of our network in January 1998, we had no selling
expense in the period from inception to December 31, 1997.

     General and administrative expenses. General and administrative expenses
were $9,736,000 for the year ended December 31, 1998 and $1,348,000 for the
period from inception to December 31, 1997. This increase is consistent with our
development activities and is attributable to growth in number of employees we
incurred in connection with building our operating infrastructure. Our number of
general and administrative employees increased to 85 as of December 31, 1998 as
compared to 13 at December 31, 1997.

     Depreciation and amortization. Depreciation and amortization for the year
ended December 31, 1998 was $499,000 as compared to $10,000 for the
corresponding period of the prior year. This increase was attributable to the
deployment of our system infrastructure and system equipment which commenced in
January 1998.

     Other income (expense). Other income (expense) was $(606,000) for the year
ended December 31, 1998 and $(59,000) for the period from inception to December
31, 1997. The change in other income (expense) is primarily due to an increase
in interest expense as a result of increased borrowings throughout 1998.

     Provision for income taxes. For the year ended December 31, 1998 and the
period from inception to December 31, 1997 no provision for taxes was recognized
as we operated at a loss throughout both periods.

                                       23
<PAGE>   25

QUARTERLY FINANCIAL INFORMATION

     The following table sets forth certain quarterly statement of operations
data for each full fiscal quarter within the two most recent fiscal years. This
information has been derived from our unaudited financial statements. In the
opinion of management, this unaudited information has been prepared on the same
basis as the annual financial statements and includes all adjustments consisting
only of normal recurring adjustments necessary for a fair presentation of the
information for the quarters presented. This information should be read in
conjunction with the financial statements and related notes included elsewhere
this document. The operating results for any quarter are not necessarily
indicative of results for any future period.

<TABLE>
<CAPTION>
                                MAR. 31,   JUNE 30,   SEPT. 30,   DEC. 31,   MAR. 31,   JUNE 30    SEPT. 30,   DEC. 31,
                                  1998       1998       1998        1998       1999       1999       1999        1999
                                --------   --------   ---------   --------   --------   --------   ---------   --------
                                                         (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                             <C>        <C>        <C>         <C>        <C>        <C>        <C>         <C>
Network services revenues.....  $     5    $    22     $    77    $   108    $   146    $    401   $    442    $    881
Operating income (loss).......   (1,498)    (2,680)     (4,219)    (5,607)    (5,742)    (14,589)   (16,162)    (24,284)
Net income (loss).............   (1,559)    (2,823)     (4,472)    (5,756)    (5,327)    (14,635)   (16,030)    (21,496)
Net income (loss) applicable
  to common stock.............  $(1,559)   $(2,823)    $(4,472)   $(6,208)   $(6,977)   $(16,285)  $(18,270)   $(22,408)
                                =======    =======     =======    =======    =======    ========   ========    ========
Net income (loss) per common
  share.......................  $ (6.46)   $(11.69)    $(18.56)   $  (.93)   $  (.31)   $   (.71)  $   (.68)   $   (.48)
                                =======    =======     =======    =======    =======    ========   ========    ========
Weighted average number of
  shares outstanding..........      241        241         241      6,671     22,396      22,886     26,809      46,534
                                =======    =======     =======    =======    =======    ========   ========    ========
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

     We have required significant capital to fund the construction and
installation of our fiber-optic networks within buildings and to purchase
electronic equipment for installation in building and metropolitan points of
presence. As of December 31, 1999, we had made capital expenditures of
$49,795,000 since inception. We expect that our capital expenditures will
increase substantially in future periods as we construct our networks and
purchase more equipment. We will continue to seek access to additional
buildings. If we are successful in gaining access to additional buildings, we
will have substantial needs for additional capital for an indefinite period. We
also expect to have substantial and increasing operating losses and net losses.

     In March 1999, we entered into a credit facility with Chase Manhattan Bank
under which we can borrow up to $45,000,000, subject to certain conditions
including having less than $12,500,000 cash available at the time of initial
borrowing. We have not borrowed against the facility as of December 31, 1999 and
currently do not intend to. The facility will accrue interest at one of the
following or a combination of the following, at our option: (i) the bank's prime
rate plus 3.5%, (ii) a base certificate of deposit rate plus 4.5%, (iii) Federal
funds rate plus 4%, or (iv) an Eurodollar rate plus 4.5%. the credit facility is
secured by all of our assets, except for the assets pledged in connection with
our capital lease obligations. We will pay a commitment fee of 1.5% on the
unused portion of the credit facility if we borrow against the facility. The
facility, which extends through October 2000, contains various restrictive
covenants, including the maintenance of certain financial ratios, the
achievement of certain operational targets and restrictions on certain
activities.

     In August 1999, we issued shares of common and preferred stock to a group
of financial sponsors for approximately $17,000,000. Additionally, in August
1999, we issued shares of common and preferred stock to our real estate partners
for approximately $34,000,000.

     On October 29, 1999, we completed an initial public offering of 16,970,550
shares of our common stock for which we received net proceeds of approximately
$285,000,000. We intend to use more than $175,000,00 of the net proceeds from
this offering for construction of in-building fiber-optic networks and the
remainder for working capital and general corporate purposes, including to fund
operating losses. We may also use a portion of the net proceeds to acquire or
invest in complementary business, technologies, services or products. However,
we currently have no material commitments or agreements with respect to any of
these types of transactions.

     Simultaneous with our initial public offering our preferred stockholders
converted all of their preferred stock for 6,500,000 shares of common stock. Had
the conversion of preferred stock occurred at the beginning of each period, net
income (loss) per common share would have been $(1.75) and $(2.23) for the years
ended December 31, 1998 and 1999, respectively.

                                       24
<PAGE>   26

     As of December 31, 1999, the Company has entered into warrant acquisition
agreements for the issuance of 7,004,000 shares of common stock. Performance
obligations underlying 6,336,000 shares of common stock had been completed as of
December 31, 1999. The value of these shares was $109,135,000. In connection
with securing access to additional buildings subsequent to December 31, 1999,
the Company entered into warrant agreements to acquire 1,130,000 shares of
common stock.

     Since December 1999, we have received $65,000,000 in vendor commitments for
lease financing, subject to certain conditions. As of December 31, 1999 we have
financed approximately $9,169,000 of equipment additions through these lease
facilities and have outstanding capital lease obligations of approximately
$7,728,000.

     As of December 31, 1999, we had committed to pay approximately $4,054,000
to carriers under our existing connectivity contracts.

     As of December 31, 1999, we had cash and cash equivalents of $152,564,000
and short-term investments of $162,013,000.

     We estimate that the net proceeds received from the initial public offering
in addition to our cash on hand will be sufficient to fund our operations and
the projected deployment of our network through approximately the middle of
2001. We do, however, expect to continue our growth, expansion and the further
development of our network and services beyond that point. Accordingly, we
expect that we will eventually need to arrange for additional sources of capital
through the issuance of debt or equity or additional bank borrowings. We have no
commitments other than those described above for any such additional financing,
and we cannot be sure that we will be able to obtain any such additional
financing at the times required and on terms and conditions acceptable to us. In
such event, our growth could slow and operations could be adversely affected.

     The actual amount and timing of our future capital requirements may differ
materially from our estimates as a result of many factors. These factors
include:

     - our ability to meet our construction schedules;

     - obtaining favorable prices for purchases of equipment;

     - our ability to develop, acquire and integrate the necessary operational
       support systems;

     - the cost of network development in each of our markets;

     - demand for our services;

     - the nature and penetration of new services that may be offered by us;

     - regulatory changes; and

     - changes in technology and competitive developments beyond our control.

     We also expect that we will require additional financing or require
financing sooner than anticipated if our current business plans change, the
assumptions underlying those plans are inaccurate, or if we engage in any
material acquisitions. Should we require additional capital, we may raise such
capital with proceeds from public or private sales of equity and debt
securities, credit facilities and other borrowings. There can be no assurance
that such financing will be available on a timely basis on terms acceptable to
us or at all.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK:

     Our exposure to financial market risk, including changes in interest rates
and marketable equity security prices, relates primarily to our investment
portfolio and to a lesser extent to our outstanding debt obligations. We
typically do not attempt to reduce or hedge our market exposure on our
investment securities because a substantial majority of our investments are in
fixed-rate, short-term securities. We do not have any derivative instruments.
The fair value of our investment portfolio or related income would not be
significantly impacted by either a 100 basis increase or decrease in interest
rates due mainly to the fixed-rate, short-term nature of the substantial
majority of our investment portfolio. In addition, substantially all of our
outstanding indebtedness at December 31, 1999, is fixed-rate debt.

                                       25
<PAGE>   27

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:

     The Consolidated Financial Statements of Allied Riser Communications
Corporation are filed under this Item, beginning on page F-1 of this Annual
Report on Form 10-K.

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

     None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF ALLIED RISER COMMUNICATIONS
CORPORATION:

     The information required by this Item 10 is set forth in the Proxy
Statement to be delivered to stockholders in connection with our Annual Meeting
of Stockholders to be held on June 15, 2000 under the headings "Proposal for
Election of Directors" and "Executive Officers," which information is
incorporated by reference herein.

ITEM 11. EXECUTIVE COMPENSATION:

     The information required by this Item 11 is set forth in the Proxy
Statement under the heading "Executive Compensation," which information is
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:

     The information required by this Item 12 is set forth in the Proxy
Statement under the heading "Principal Stockholders and Management Ownership,"
which information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:

     The information required by this Item 13 is set forth in the Proxy
Statement under the heading "Certain Transactions" which information is
incorporated herein by reference.

                                       26
<PAGE>   28

                                    PART IV

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

     (a) The following documents are filed as part of this report:

          1. Consolidated Financial Statements:

             Report of Independent Public Accountants

             Consolidated Balance Sheets as of December 31, 1998 and 1999

             Consolidated Statements of Operations for the Period from Inception
        (December 19, 1996) to December 31, 1997 and for the Years Ended
        December 31, 1998 and 1999

             Consolidated Statements of Stockholders' Equity (Deficit) for the
        Period from Inception (December 19, 1996) to December 31, 1997 and for
        the Years Ended December 31, 1998 and 1999

             Consolidated Statements of Cash Flows for the Period from Inception
        (December 19, 1996) to December 31, 1997 and for the Years Ended
        December 31, 1998 and 1999

             Notes to Consolidated Financial Statements

          2. Index to Exhibits

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
          2.1            -- Plan of Complete Liquidation and Reorganization, dated
                            November 18, 1998 (previously filed as Exhibit 2.1 to our
                            Registration Statement on Form S-1, as amended by a Form
                            S-1/A (Amendment No. 3), Commission File No. 333-85597,
                            and incorporated herein by reference)
          3.1            -- Amended and Restated Certificate of Incorporation
                            (previously filed as Exhibit 3.1 to our Quarterly Report
                            on Form 10-Q for the quarter ended September 30, 1999,
                            filed on December 13, 1999, and incorporated herein by
                            reference)
          3.2            -- Bylaws, as amended and restated (previously filed as
                            Exhibit 3.2 to our Registration Statement on Form S-1, as
                            amended by a Form S-1/A (Amendment No. 3), Commission
                            File No. 333-85597, and incorporated herein by reference)
          4.1            -- Specimen Certificate for our common stock (previously
                            filed as Exhibit 4.1 to our Registration Statement on
                            Form S-1, as amended by a Form S-1/A (Amendment No. 3),
                            Commission File No. 333-85597, and incorporated herein by
                            reference)
          4.2            -- Specimen Certificate for our warrants (previously filed
                            as Exhibit 4.1 to our Registration Statement on Form S-1,
                            as amended by a Form S-1/A (Amendment No. 3), Commission
                            File No. 333-85597, and incorporated herein by reference)
          4.3            -- Registration Rights Agreement, dated as of November 23,
                            1998, among Allied Riser and the stockholders named
                            therein (previously filed as Exhibit 4.3 to our
                            Registration Statement on Form S-1, as amended by a Form
                            S-1/A (Amendment No. 1), Commission File No. 333-85597,
                            and incorporated herein by reference)
          4.3.1          -- First Amendment to Registration Rights Agreement, dated
                            as of December 30, 1998 (previously filed as Exhibit
                            4.3.1 to our Registration Statement on Form S-1, as
                            amended by a Form S-1/A (Amendment No. 1), Commission
                            File No. 333-85597, and incorporated herein by reference)
          4.3.2          -- Second Amendment to Registration Rights Agreement, dated
                            as of August 18, 1999 (previously filed as Exhibit 4.3.2
                            to our Registration Statement on Form S-1, as amended by
                            a Form S-1/A (Amendment No. 1), Commission File No.
                            333-85597, and incorporated herein by reference)
          4.3.3          -- Third Amendment to Registration Rights Agreement, dated
                            as of August 18, 1999 (previously filed as Exhibit 4.3.3
                            to our Registration Statement on Form S-1, as amended by
                            a Form S-1/A (Amendment No. 1), Commission File No.
                            333-85597, and incorporated herein by reference)
</TABLE>

                                       27
<PAGE>   29

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.1            -- Lease Facility, dated October 23, 1997, by and between
                            Allied Riser and Cisco Systems Capital Corporation, as
                            amended (previously filed as Exhibit 10.3 to our
                            Registration Statement on Form S-1, as amended by a Form
                            S-1/A (Amendment No. 1), Commission File No. 333-85597,
                            and incorporated herein by reference)
         10.2*           -- 1999 Amended Stock Option and Equity Incentive Plan
                            (previously filed as Exhibit 10.10 to our Registration
                            Statement on Form S-1, as amended by a Form S-1/A
                            (Amendment No. 3), Commission File No. 333-85597, and
                            incorporated herein by reference)
         10.3            -- Credit Facility, dated March 25, 1999, by and among
                            Allied Riser and The Chase Manhattan Bank, as
                            Administrative Agent, and Chase Securities Inc., as Lead
                            Arranger and Book Manager (previously filed as Exhibit
                            10.11 to our Registration Statement on Form S-1, as
                            amended by a Form S-1/A (Amendment No. 1), Commission
                            File No. 333-85597, and incorporated herein by reference)
         10.5*           -- Form of Employment Agreement (previously filed as Exhibit
                            10.1 to our Registration Statement on Form S-1, as
                            amended by a Form S-1/A (Amendment No. 3), Commission
                            File No. 333-85597, and incorporated herein by reference)
         10.6            -- Form of Lock-up Agreement (previously filed as Exhibit
                            10.2 to our Registration Statement on Form S-1, as
                            amended by a Form S-1/A (Amendment No. 3), Commission
                            File No. 333-85597, and incorporated herein by reference)
         10.7            -- Stockholders' Agreement, dated as of November 5, 1998,
                            among the stockholders listed on the signature pages
                            thereof (previously filed as Exhibit 10.4 to our
                            Registration Statement on Form S-1, as amended by a Form
                            S-1/A (Amendment No. 1), Commission File No. 333-85597,
                            and incorporated herein by reference)
         10.7.1          -- Amendment No. 1 and Joinder to Stockholders' Agreement,
                            dated November, 1998 (previously filed as Exhibit 10.4.1
                            to our Registration Statement on Form S-1, as amended by
                            a Form S-1/A (Amendment No. 1), Commission File No.
                            333-85597, and incorporated herein by reference)
         10.7.2          -- Amendment No. 2 and Joinder to Stockholders' Agreement,
                            dated December 30, 1998 (previously filed as Exhibit
                            10.4.2 to our Registration Statement on Form S-1, as
                            amended by a Form S-1/A (Amendment No. 3), Commission
                            File No. 333-85597, and incorporated herein by reference)
         10.7.3          -- Amendment No. 3 and Joinder to Stockholders' Agreement,
                            dated August 18, 1999 (previously filed as Exhibit 10.4.3
                            to our Registration Statement on Form S-1, as amended by
                            a Form S-1/A (Amendment No. 3), Commission File No.
                            333-85597, and incorporated herein by reference)
         10.7.4          -- Amendment No. 4 and Joinder to Stockholders' Agreement,
                            dated August 18, 1999 (previously filed as Exhibit 10.4.4
                            to our Registration Statement on Form S-1, as amended by
                            a Form S-1/A (Amendment No. 3), Commission File No.
                            333-85597, and incorporated herein by reference)
         10.8            -- Subscription Agreement, dated as of November 13, 1998, by
                            and among Allied Riser and the investors listed on the
                            signature pages thereof (previously filed as Exhibit 10.5
                            to our Registration Statement on Form S-1, as amended by
                            a Form S-1/A (Amendment No. 1), Commission File No.
                            333-85597, and incorporated herein by reference)
         10.8.1          -- Amendment No. 1 to Subscription Agreement, dated as of
                            November, 1998 (previously filed as Exhibit 10.5.1 to our
                            Registration Statement on Form S-1, as amended by a Form
                            S-1/A (Amendment No. 1), Commission File No. 333-85597,
                            and incorporated herein by reference)
         10.10           -- Indemnification Agreement, dated as of November 23, 1998,
                            by and among Allied Riser and the investors listed on the
                            signature pages thereof (previously filed as Exhibit 10.6
                            to our Registration Statement on Form S-1, as amended by
                            a Form S-1/A (Amendment No. 3), Commission File No.
                            333-85597, and incorporated herein by reference)
</TABLE>

                                       28
<PAGE>   30

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.10.1         -- Joinder to Indemnification Agreement, dated December 30,
                            1998 (previously filed as Exhibit 10.6.1 to our
                            Registration Statement on Form S-1, as amended by a Form
                            S-1/A (Amendment No. 3), Commission File No. 333-85597,
                            and incorporated herein by reference)
         10.11           -- Stockholders' Pledge Agreement, dated as of November 23,
                            1998, by and among Allied Riser and the investors listed
                            on the signature pages thereto (previously filed as
                            Exhibit 10.7 to our Registration Statement on Form S-1,
                            as amended by a Form S-1/A (Amendment No. 3), Commission
                            File No. 333-85597, and incorporated herein by reference)
         10.12           -- Series A-1 Preferred Stock and Common Stock Investment
                            Agreement, dated December 30, 1998, by and between Allied
                            Riser and Norwest Venture Partners VII, L.P. (includes
                            schedule of other 1998 Investment Agreements) (previously
                            filed as Exhibit 10.8 to our Registration Statement on
                            Form S-1, as amended by a Form S-1/A (Amendment No. 3),
                            Commission File No. 333-85597, and incorporated herein by
                            reference)
         21.1            -- List of our Principal Operating Subsidiaries
         23.1            -- Consent of Arthur Andersen LLP
         27.1            -- Financial Data Schedules
</TABLE>

      *  Management contract or compensatory plan or arrangement required to be
         filed as an exhibit to this form.

     (b) Reports on Form 8-K:

          No reports on Form 8-K were filed during the quarter ended December
     31, 1999.

                                       29
<PAGE>   31

                                   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.

                                            ALLIED RISER COMMUNICATIONS
                                            CORPORATION

                                            By:    /s/ DAVID H. CRAWFORD
                                              ----------------------------------
                                                      David H. Crawford
                                                 Chief Executive Officer and
                                                            Director

March 23, 2000

     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
                      ---------                                    -----                     ----
<C>                                                    <S>                              <C>
                /s/ DAVID H. CRAWFORD                  Chief Executive Officer and      March 23, 2000
-----------------------------------------------------    Director (Principal
                  David H. Crawford                      Executive Officer)

                 /s/ TODD C. DOSHIER                   Chief Financial Officer          March 23, 2000
-----------------------------------------------------    (Principal Financial and
                   Todd C. Doshier                       Accounting Officer)

                  /s/ JOHN M. TODD                     Chief Operating Officer,         March 23, 2000
-----------------------------------------------------    President and Director
                    John M. Todd

                  /s/ JOHN H. DAVIS                    Chief Technology Officer,        March 23, 2000
-----------------------------------------------------    Director
                    John H. Davis

               /s/ STEPHEN W. SCHOVEE                  Director and Chairman of the     March 23, 2000
-----------------------------------------------------    Board
                 Stephen W. Schovee

                 /s/ ROD F. DAMMEYER                   Director                         March 23, 2000
-----------------------------------------------------
                   Rod F. Dammeyer

                /s/ WILLIAM J. ELSNER                  Director                         March 23, 2000
-----------------------------------------------------
                  William J. Elsner

                 /s/ R. DAVID SPRENG                   Director                         March 23, 2000
-----------------------------------------------------
                   R. David Spreng

                 /s/ JEFFREY WEITZEN                   Director                         March 23, 2000
-----------------------------------------------------
                   Jeffrey Weitzen
</TABLE>

                                       30
<PAGE>   32

<TABLE>
<CAPTION>
                      SIGNATURE                                    TITLE                     DATE
                      ---------                                    -----                     ----
<C>                                                    <S>                              <C>
                /s/ BLAIR P. WHITAKER                  Director                         March 23, 2000
-----------------------------------------------------
                  Blair P. Whitaker

               /s/ MARY A. WILDEROTTER                 Director                         March 23, 2000
-----------------------------------------------------
                 Mary A. Wilderotter

                /s/ WILLIAM T. WHITE                   Director                         March 23, 2000
-----------------------------------------------------
                  William T. White
</TABLE>

                                       31
<PAGE>   33

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                               PAGE
                                                               ----
<S>                                                            <C>
Report of Independent Public Accountants....................   F-2
Consolidated Balance Sheets as of December 31, 1998 and
  1999......................................................   F-3
Consolidated Statements of Operations for the Period from
  Inception (December 19, 1996) to December 31, 1997 and for
  the Years Ended December 31, 1998 and 1999................   F-4
Consolidated Statements of Stockholders' Equity (Deficit)
  for the Period from Inception (December 19, 1996) to
  December 31, 1997 and for the Years Ended December 31,
  1998 and 1999.............................................   F-5
Consolidated Statements of Cash Flows for the Period from
  Inception (December 19, 1996) to December 31, 1997 and for
  the Years Ended December 31, 1998 and 1999................   F-6
Notes to Consolidated Financial Statements..................   F-7
</TABLE>

                                       F-1
<PAGE>   34

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
Allied Riser Communications Corporation:

     We have audited the accompanying consolidated balance sheets of Allied
Riser Communications Corporation (a Delaware corporation) and subsidiaries as of
December 31, 1998 and 1999, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the period from
inception (December 19, 1996) to December 31, 1997 and for the years ended
December 31, 1998 and 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Allied Riser
Communications Corporation and subsidiaries as of December 31, 1998 and 1999,
and the results of their operations and their cash flows for the period from
inception (December 19, 1996) to December 31, 1997 and for the years ended
December 31, 1998 and 1999, in conformity with generally accepted accounting
principles.

                                            ARTHUR ANDERSEN LLP

Dallas, Texas,
January 11, 2000

                                       F-2
<PAGE>   35

            ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1998 AND 1999
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                1998       1999
                                                              --------   --------
<S>                                                           <C>        <C>
CURRENT ASSETS:
  Cash and cash equivalents.................................  $ 41,371   $152,564
  Short-term investments....................................        --    162,013
  Accounts receivable, net of reserve of $2 and $19 in 1998
     and 1999, respectively.................................        20        259
  Prepaid expenses and other current assets.................       138      5,454
                                                              --------   --------
          Total current assets..............................    41,529    320,290
PROPERTY AND EQUIPMENT, net.................................    13,005     46,577
REAL ESTATE ACCESS RIGHTS, net of accumulated amortization
  of $2,036.................................................        --    107,099
OTHER ASSETS................................................     1,037      1,088
                                                              --------   --------
          Total assets......................................  $ 55,571   $475,054
                                                              ========   ========

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
  Accounts payable..........................................  $    272   $  2,817
  Accrued liabilities.......................................     2,842     12,095
  Current maturities of capital lease obligations...........       722      3,049
                                                              --------   --------
          Total current liabilities.........................     3,836     17,961
CAPITAL LEASE OBLIGATIONS, net of current maturities........     1,420      4,679
                                                              --------   --------
          Total liabilities.................................     5,256     22,640
COMMITMENTS AND CONTINGENCIES
CONVERTIBLE REDEEMABLE PREFERRED STOCK, $.0001 par value,
  100,000 shares authorized, Series A, 66 shares issued and
  outstanding in 1998, (aggregate redemption of $66,452)....    66,452         --
STOCKHOLDERS' EQUITY (DEFICIT):
  Common stock, $.0001 par value, 1,000,000,000 shares
     authorized, 25,716,000 and 56,569,000 (net of 96,000
     treasury shares) shares issued and outstanding in 1998
     and 1999, respectively.................................         3          6
  Additional paid-in capital................................       375    434,930
  Warrants, authorizing the issuance of 6,336,000 shares....        --    109,135
  Deferred compensation.....................................        --    (17,654)
  Accumulated deficit.......................................   (16,515)   (74,003)
                                                              --------   --------
          Total stockholders' equity (deficit)..............   (16,137)   452,414
                                                              --------   --------
          Total liabilities and stockholders' equity
           (deficit)........................................  $ 55,571   $475,054
                                                              ========   ========
</TABLE>

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

                                       F-3
<PAGE>   36

            ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE PERIOD FROM INCEPTION (DECEMBER 19, 1996) TO
      DECEMBER 31, 1997 AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                               1997       1998         1999
                                                              -------   ---------   ----------
<S>                                                           <C>       <C>         <C>
NETWORK SERVICES REVENUE....................................  $    --   $     212   $    1,870
OPERATING EXPENSES:
  Network operations........................................       80       2,358        7,682
  Selling expense...........................................       --       1,623        9,296
  General and administrative expenses.......................    1,348       9,736       25,981
  Depreciation and amortization.............................       10         499        2,971
  Amortization of real estate access rights.................       --          --        2,036
  Amortization of deferred compensation.....................       --          --       14,681
                                                              -------   ---------   ----------
          Total operating expenses..........................    1,438      14,216       62,647
                                                              -------   ---------   ----------
OPERATING INCOME (LOSS).....................................   (1,438)    (14,004)     (60,777)
                                                              -------   ---------   ----------
OTHER INCOME (EXPENSE):
  Interest expense..........................................     (123)       (724)      (1,275)
  Interest income...........................................       37         117        4,570
  Other income, net.........................................       27           1           (6)
                                                              -------   ---------   ----------
          Total other income (expense)......................      (59)       (606)       3,289
                                                              -------   ---------   ----------
INCOME (LOSS) BEFORE INCOME TAXES...........................   (1,497)    (14,610)     (57,488)
PROVISION FOR INCOME TAXES..................................       --          --           --
                                                              -------   ---------   ----------
NET INCOME (LOSS)...........................................   (1,497)    (14,610)     (57,488)
ACCRUED DIVIDENDS ON PREFERRED STOCK........................       --        (452)      (6,452)
                                                              -------   ---------   ----------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK................  $(1,497)  $ (15,062)  $  (63,940)
                                                              =======   =========   ==========
NET INCOME (LOSS) PER COMMON SHARE..........................  $ (7.45)  $   (8.09)  $    (2.15)
                                                              =======   =========   ==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING...............  201,000   1,862,000   29,736,000
                                                              =======   =========   ==========
</TABLE>

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

                                       F-4
<PAGE>   37

            ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
     FOR THE PERIOD FROM INCEPTION (DECEMBER 19, 1996) TO DECEMBER 31, 1997
               AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
               (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                    COMMON STOCK                          WARRANTS
                                 -------------------   ADDITIONAL   --------------------
                                   NUMBER               PAID-IN      NUMBER                  DEFERRED     ACCUMULATED
                                 OF SHARES    AMOUNT    CAPITAL     OF SHARES    AMOUNT    COMPENSATION     DEFICIT      TOTAL
                                 ----------   ------   ----------   ---------   --------   ------------   -----------   --------
<S>                              <C>          <C>      <C>          <C>         <C>        <C>            <C>           <C>
BALANCE, December 19, 1996
  (date of inception)..........          --    $ --     $     --           --   $     --     $     --      $     --     $     --
Issuance of common stock in
  conjunction with merger......     200,000      --          157           --         --           --          (408)        (251)
  Issuance of common stock.....      41,000      --            6           --         --           --            --            6
  Net income (loss)............          --      --           --           --         --           --        (1,497)      (1,497)
                                 ----------    ----     --------    ---------   --------     --------      --------     --------
BALANCE, December 31, 1997.....     241,000      --          163           --         --           --        (1,905)      (1,742)
  Issuance of common stock, net
    of issuance costs..........  25,475,000       3         (316)          --         --           --            --         (313)
  Capital contribution.........          --      --          980           --         --                                     980
  Accrued cumulative dividends
    on preferred stock.........          --      --         (452)          --         --           --            --         (452)
  Net income (loss)............          --      --           --           --         --           --       (14,610)     (14,610)
                                 ----------    ----     --------    ---------   --------     --------      --------     --------
BALANCE, December 31, 1998.....  25,716,000       3          375           --         --           --       (16,515)     (16,137)
  Issuance of common stock, net
    of stock repurchases and
    issuance costs.............  24,353,000       2      284,768           --         --           --            --      284,770
  Conversion of Preferred
    Stock......................   6,500,000       1      123,904           --         --           --            --      123,905
  Issuance of warrants.........          --      --           --    6,336,000    109,135           --            --      109,135
  Accrued cumulative dividends
    on preferred stock.........          --      --       (6,452)          --         --           --            --       (6,452)
  Deferred compensation........          --      --       32,335           --         --      (32,335)           --           --
  Amortization of deferred
    compensation...............          --      --           --           --         --       14,681            --       14,681
  Net income (loss)............          --      --           --           --         --           --       (57,488)     (57,488)
                                 ----------    ----     --------    ---------   --------     --------      --------     --------
BALANCE, December 31, 1999.....  56,569,000    $  6     $434,930    6,336,000   $109,135     $(17,654)     $(74,003)    $452,414
                                 ==========    ====     ========    =========   ========     ========      ========     ========
</TABLE>

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

                                       F-5
<PAGE>   38

            ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
     FOR THE PERIOD FROM INCEPTION (DECEMBER 19, 1996) TO DECEMBER 31, 1997
               AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               1997       1998       1999
                                                              -------   --------   --------
<S>                                                           <C>       <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss).........................................  $(1,497)  $(14,610)  $(57,488)
  Adjustments to reconcile net income (loss) to net cash
     used in operating activities...........................
     Depreciation and amortization..........................       10        499     19,688
     Changes in assets and liabilities --
       Increase in accounts receivable, net.................       --        (20)      (239)
       Increase in prepaid expenses and other current
          assets............................................       (3)      (128)    (5,316)
       (Increase) decrease in other assets..................      (44)      (992)     1,299
       Increase in accounts payable and accrued
          liabilities.......................................      306        831      2,904
                                                              -------   --------   --------
          Net cash used in operating activities.............   (1,228)   (14,420)   (39,152)
                                                              -------   --------   --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of short-term investments, net..................       --         --   (162,013)
  Purchases of property and equipment.......................   (1,261)    (8,115)   (19,895)
  Cash received in merger and liquidation of assets.........      173         --         --
                                                              -------   --------   --------
          Net cash used in investing activities.............   (1,088)    (8,115)  (181,908)
                                                              -------   --------   --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from debt........................................    2,666     15,100         --
  Payments of debt..........................................     (168)   (17,668)        --
  Payments on capital lease obligations.....................       --       (373)    (2,167)
  Credit facility origination fee...........................       --         --     (1,350)
  Capital contribution......................................       --        980         --
  Proceeds from issuance of common stock, net of issuance
     costs..................................................        6       (321)   284,770
  Proceeds from issuance of preferred stock.................       --     66,000     51,000
                                                              -------   --------   --------
          Net cash provided by financing activities.........    2,504     63,718    332,253
                                                              -------   --------   --------
INCREASE IN CASH AND CASH EQUIVALENTS.......................      188     41,183    111,193
CASH AND CASH EQUIVALENTS, beginning of period..............       --        188     41,371
                                                              -------   --------   --------
CASH AND CASH EQUIVALENTS, end of period....................  $   188   $ 41,371   $152,564
                                                              =======   ========   ========
</TABLE>

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

                                       F-6
<PAGE>   39

            ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION:

     Allied Riser Communications Corporation ("ARC Corporation") (collectively
including all predecessors, the "Company") is a facilities-based provider of
broadband data, video, and voice communications services to
small-and-medium-sized businesses in major metropolitan areas in the United
States. The Company's services, which include ultra high-speed Internet access,
business-oriented television for display on the computer desktop, and
Internet-enhanced voice conferencing calling services, among others, are
typically delivered to the Company's customers over its own fiber-optic network
built inside multi-tenant commercial office buildings. In addition to selling
services to the commercial tenants of buildings in which the Company owns and
operates these advanced communications networks, the Company leverages its
market presence and brand by offering end-to-end connectivity on a resold basis
to businesses located outside these buildings.

     Since its inception on December 19, 1996, the Company's principal
activities have included developing its business plans, procuring governmental
authorizations, raising capital, hiring management and other key personnel,
working on the design and development of its high capacity fiber-optic networks,
acquiring equipment and facilities, and negotiating interconnection agreements.
Accordingly, the Company has incurred operating losses and operating cash flow
deficits.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

CONSOLIDATION

     The accompanying financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.

CASH AND CASH EQUIVALENTS

     Cash and cash equivalents consist of cash and marketable securities with
original maturities of three months or less.

SHORT-TERM INVESTMENTS

     Short-term investments consist primarily of U.S. government and corporate
fixed income securities with original maturities at date of purchase beyond
three months and less than twelve months. Such short-term investments are
carried at their accreted value as the Company intends to hold these securities
to maturity. Also included in short-term investments are corporate fixed income
securities with original maturities beyond twelve months for which management
will exercise its redemption provision within the next twelve months, these
securities comprise of less than 2% of total short-term investments. Unrealized
gains and loses on these securities are not significant. As of December 31,
1999, investments are carried at their original cost, which approximates fair
value.

LONG-LIVED ASSETS

  Property and Equipment

     Property and equipment are stated at cost and depreciated once placed in
service using the straight-line method. Interest is capitalized during the
construction period of system infrastructure based on the rates applicable to
borrowings outstanding during the period. Equipment held under capital lease
obligations is amortized over the estimated useful life of the asset. Equipment
held under capital lease obligations amounted to approximately $2,453,000 and
$9,169,000 net of accumulated amortization of approximately $62,000 and
$1,100,000, for the years ended December 31, 1998 and 1999, respectively. Repair
and maintenance costs are expensed as incurred.

                                       F-7
<PAGE>   40
            ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Real Estate Access Rights

     The Company has issued warrants to its real estate partners in conjunction
with gaining real estate access rights. The warrants and the rights associated
with the warrants may be adjusted if certain telecommunication license
agreements are not executed in accordance with the parameters outlined in the
warrant acquisition agreements. Accordingly, the measurement date for the
warrants is the date(s) on which the telecommunications license agreements are
signed and the real estate partners effectively complete their performance
element of the agreement. At the measurement date, the Company measures the fair
value of the warrants based on the fair value of the underlying common stock. As
the terms of the warrant allow the holder to acquire shares of common stock
without any additional consideration, the fair value of the warrants are
equivalent to the fair value of the common stock. This asset is amortized over
the term of the related telecommunications license agreement.

  Realization of Long-Lived Assets

     The Company periodically evaluates its long-lived assets, including
property and equipment and real estate access rights, to determine whether
events or changes in circumstances have occurred that indicate the remaining
asset balances may not be recoverable and an impairment loss should be recorded.
Recoverability of assets is measured by comparing the carrying amount of an
asset to the undiscounted future cash flows estimated to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets.

TREASURY STOCK

     Pursuant to a stockholders' agreement, the Company periodically repurchases
shares of the Company's common stock. Shares repurchased are accounted for under
the cost method.

REVENUE RECOGNITION

     Network services revenue includes broadband data, video, voice
communication, and installation services. Broadband data and video are
subscription-based services generally provided to customers under month-to-month
contracts. Voice communications and installation services are usage-based
services. Installation service fees are nonrecurring fees for access to our
network. To date, such installation revenues have not exceeded the direct costs
of installation. Revenues are recognized in the month in which the services are
provided. All expenses related to services provided are recognized as incurred.

NETWORK OPERATIONS

     Network operations include payments to providers of transmission capacity,
costs associated with customer care, customer installations, equipment
maintenance, payments to building owners, and content licensing costs. Costs are
expensed as incurred.

SELLING EXPENSE

     Selling expense includes employee salaries and commissions, marketing,
advertising, and promotional expenses and costs associated with leasing and
operating sales demonstration centers.

INCOME TAXES

     Deferred income tax assets and liabilities are recorded for the differences
between the tax and financial reporting basis of the assets and liabilities and
are based on the enacted income tax rates which are expected to

                                       F-8
<PAGE>   41
            ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

be in effect in the period in which the difference is expected to be settled or
realized. A change in tax laws would result in adjustments to the deferred tax
assets and liabilities.

NET INCOME (LOSS) PER SHARE

     Net income (loss) per share is presented in accordance with the provisions
of Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
(SFAS 128). SFAS 128 requires a presentation of basic EPS and diluted EPS. Basic
EPS excludes dilution for common stock equivalents and is computed by dividing
income or loss available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock and resulted in the issuance of
common stock.

     Shares issued to employees subject to repurchase by the Company are not
included in the weighted average number of common shares outstanding for the
period. Options and warrants to purchase 1,406,000 and 6,336,000 shares of
common stock, respectively, were outstanding at December 31, 1999.

     Diluted EPS are not presented as all potentially dilutive securities would
be antidilutive, due to the net loss incurred for the period from inception,
December 19, 1996, through December 31, 1997 and for the years ended December
31, 1998 and 1999.

SEGMENTS

     The Company's chief operating decision maker evaluates performance based
upon underlying information of the Company as a whole. There are no additional
reporting segments.

USE OF ESTIMATES IN FINANCIAL STATEMENTS

     The preparation of financial statements in accordance 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 expenses during the reporting period.
Actual results may differ from those estimates.

RECLASSIFICATIONS

     Certain 1997 and 1998 balances have been reclassified to conform to the
current year presentation.

3. SUPPLEMENTAL CASH FLOW DISCLOSURES:

<TABLE>
<CAPTION>
                                                                      DECEMBER 31,
                                                           -----------------------------------
                                                            1997        1998          1999
                                                           -------   ----------   ------------
<S>                                                        <C>       <C>          <C>
Cash paid for interest...................................  $12,000   $  113,000   $    569,000
Noncash investing and financing activities --
  Equipment acquired under capital leases................       --   $2,515,000   $  7,754,000
  Accrued dividends on preferred stock...................       --   $  452,000   $  6,452,000
  Accrued property and equipment additions...............       --   $1,623,000   $  8,895,000
  Warrants issued........................................       --           --   $109,135,000
  Conversion of preferred stock..........................       --           --   $123,904,000
</TABLE>

                                       F-9
<PAGE>   42
            ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. PROPERTY AND EQUIPMENT:

     Property and equipment as of December 31, consist of the following:

<TABLE>
<CAPTION>
                                                    AVERAGE
                                                   ESTIMATED
                                                    USEFUL
                                                     LIVES
                                                    (YEARS)       1998          1999
                                                   ---------   -----------   -----------
<S>                                                <C>         <C>           <C>
Office equipment and information systems.........      4       $ 1,945,000   $13,789,000
Furniture and fixtures...........................      7            72,000     2,207,000
Leasehold improvements...........................      5           451,000     1,768,000
System infrastructure............................     10         2,421,000     9,028,000
System equipment.................................      5         2,240,000     7,180,000
Construction-in-progress.........................                6,386,000    16,062,000
                                                               -----------   -----------
                                                                13,515,000    50,034,000
Less --
  Accumulated depreciation and amortization......                 (510,000)   (3,457,000)
                                                               -----------   -----------
Property and equipment, net......................              $13,005,000   $46,577,000
                                                               ===========   ===========
</TABLE>

Capitalized interest for the year ended December 31, 1998 was approximately
$221,000.

5. ACCRUED LIABILITIES:

     Accrued liabilities as of December 31 consist of the following:

<TABLE>
<CAPTION>
                                                                 1998         1999
                                                              ----------   -----------
<S>                                                           <C>          <C>
Property and equipment additions............................  $1,752,000   $10,518,000
General operating expenses..................................     285,000       661,000
Rent........................................................     264,000       203,000
Taxes.......................................................     246,000       301,000
Other.......................................................     296,000       412,000
                                                              ----------   -----------
                                                              $2,843,000   $12,095,000
                                                              ==========   ===========
</TABLE>

6. DEBT:

     On May 16, 1997, the Company entered into a credit agreement with an
investor to finance the initial network installation and other general corporate
purposes for $2,500,000, which was increased during 1998 to a total aggregate
amount of $14,000,000. In May 1998, a building owner advanced the Company
$3,600,000 for the construction of certain infrastructure in buildings. The
Company repaid both outstanding balances on November 23, 1998.

     Accrued interest totaling $980,000 was contributed by both the investor and
building owner. As both are related parties of the Company, the contribution was
accounted for as a capital transaction and included in the accompanying
consolidated statements of stockholders' equity (deficit).

     On May 29, 1997, the Company issued a $76,000 promissory note to a bank.
The note was paid off in November 1998 in conjunction with the Company's equity
funding. (See Note 8.)

     In March 1999, the Company entered into a credit facility under which the
Company can borrow up to $45,000,000 subject to certain conditions including
having less than $12,500,000 cash available at the time of initial borrowing.
The credit facility will accrue interest and is secured by all of the Company's
assets, except

                                      F-10
<PAGE>   43
            ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

for the assets pledged in connection with the Company's capital lease
obligations. The Company paid an origination fee of $1,350,000, which is being
amortized to interest expense over the term of the agreement. The Company pays a
commitment fee of 1.5% on the unused portion of the credit facility once the
facility is initially borrowed against. The credit facility, which extends
through October 2000, contains various restrictive covenants, including the
maintenance of certain financial ratios, the achievement of certain operation
targets and restrictions on certain activities. The Company has not borrowed
under this facility as of December 31, 1999.

7. COMMITMENTS AND CONTINGENCIES:

OPERATING LEASES

     The Company has entered into various operating lease agreements, with
expirations through 2006, for leased space and equipment. Future minimum lease
obligations as of December 31, 1999, related to the Company's operating leases
are as follows:

<TABLE>
<S>                                                       <C>
2000...................................................   $ 5,162,000
2001...................................................     5,494,000
2002...................................................     5,517,000
2003...................................................     5,349,000
2004...................................................     3,257,000
Thereafter.............................................     1,248,000
                                                          -----------
          Total minimum lease obligations..............   $26,027,000
                                                          ===========
</TABLE>

     Total rent expense for the period from inception (December 19, 1996) to
December 31, 1997 and for the years ended December 31, 1998 and 1999, was
approximately $94,000, $586,000 and $1,946,000, respectively.

CAPITAL LEASES

     The Company has entered into various capital leases for equipment. Since
December 1999, the Company has received $65,000,000 in vendor commitments for
lease financing, subject to certain conditions. Future minimum lease obligations
as of December 31, 1999, related to the Company's capital leases are as follows:

<TABLE>
<S>                                                       <C>
2000...................................................   $ 3,635,000
2001...................................................     3,550,000
2002...................................................     1,476,000
Thereafter.............................................            --
                                                          -----------
          Total minimum lease obligations..............     8,661,000
Less -- Amounts representing interest..................      (933,000)
                                                          -----------
Present value of minimum lease obligations.............     7,728,000
Current maturities.....................................    (3,049,000)
                                                          -----------
Capital lease obligations, net of current maturities...   $ 4,679,000
                                                          ===========
</TABLE>

CONNECTIVITY CONTRACTS

     In order to provide its services, the Company must connect each
intra-building network to a local network and each metropolitan point of
presence to a national fiber-optic connection. The Company has secured contracts
that range from monthly to five years for local transport and up to three years
for national inter-city transport. The Company incurs fixed monthly charges for
local connectivity. For national connectivity, the Company incurs fixed monthly
charges plus incremental charges for customer usage above a certain volume.

                                      F-11
<PAGE>   44
            ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In addition, in the event the Company fails to meet its minimum volume
commitments for national connectivity, it may be obligated to pay
underutilization charges.

     Future minimum obligations as of December 31, 1999, related to the
Company's connectivity contracts are as follows:

<TABLE>
<S>                                                        <C>
2000....................................................   $3,188,000
2001....................................................      394,000
2002....................................................      260,000
2003....................................................      204,000
2004....................................................        8,000
                                                           ----------
          Total minimum lease obligations...............   $4,054,000
                                                           ==========
</TABLE>

LITIGATION

     The Company is involved in certain litigation arising in the ordinary
course of business. Management believes that such litigation will be resolved
without material effect on the Company's financial position or results of
operations.

8. EQUITY:

     ARC Corporation was incorporated on November 2, 1998, as a Delaware
corporation. Immediately following its incorporation, a reorganization of its
predecessor, RCH Holdings, Inc. ("RCH"), occurred. The wholly owned subsidiaries
of RCH, Allied Riser Communications, Inc. ("ARC"), a Texas corporation, and
Carrier Direct, Inc.("Carrier Direct"), a Texas corporation, distributed their
assets and liabilities to RCH in a complete liquidation and dissolution.
Thereafter, RCH transferred all of its assets and liabilities to ARC Corporation
in exchange for shares of common stock. ARC Corporation then contributed the
assets and liabilities acquired to its wholly owned subsidiary, Allied Riser
Operations Corporation, a Delaware corporation.

COMMON STOCK

     On December 19, 1996, RCH was incorporated and purchased 100% of the
outstanding common stock of two newly formed corporations, ARC (formerly
RiserCorp, Inc.) and Carrier Direct. On February 14, 1997, DPI Technology
Resources, Inc. (DPI Tech) and Digital Packet Interface Solutions, Inc. (DPI),
merged into RCH and exchanged all outstanding stock for 200,000 shares of RCH.
Cash received in the merger and as a result of the liquidation of assets
amounted to $173,000.

     In early 1997, after the formation of RCH and the merger described above,
RCH sold approximately 41,000 shares to executives and various other related
parties.

     In conjunction with the reorganization described above, RCH transferred all
of its assets and liabilities to the Company in exchange for approximately
3,496,000 shares of ARC Corporation common stock. Certain of these shares are
subject to vesting as described in Note 9.

     Pursuant to an investment agreement dated November 23, 1998 and in
connection with a preferred investment (see below), the Company issued to a
group of investors approximately 13,270,000 shares of common stock for $.0015
per share and approximately 7,291,000 shares of common stock for $.0015 per
share to a second group of investors in December 1998.

     In April 1999, the Company issued 125,000 shares of common stock as
settlement for consulting services previously received.

                                      F-12
<PAGE>   45
            ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In August 1999, the Company issued 6,059,000 shares of common stock to a
group of financial sponsors and to real estate partners in connections with a
preferred investment. (See below.)

     On October 29, 1999, the Company raised gross proceeds of approximately
$305,470,000 in its initial public offering. The Company sold 16,970,550 shares
of common stock at a price of $18 per share.

PREFERRED STOCK

     In November and December 1998, the Company issued to groups of investors,
41 and 25 shares of Series A convertible redeemable preferred stock, for
$41,000,000 and $25,000,000 in cash, respectively.

     In August 1999, the Company issued 17 shares of Series B preferred stock to
a group of financial sponsors and 34 shares of Series B preferred stock to real
estate partners and their affiliates for approximately $51,000,000 in cash.

     The shareholders of the preferred stock were entitled to certain rights
including: redemption, conversion, dividends, and liquidation preference, as
defined in the investment agreement. As a result of the redemption provision,
the preferred stock was classified outside of stockholder's equity (deficit).

     Simultaneous with the Company's initial public offering and pursuant to
contractual agreements with the preferred stockholders, all of the outstanding
shares of preferred stock were converted into 6,500,000 shares of common stock.
Upon the conversion, accrued dividends of $6,904,000 on the preferred stock were
waived and recorded as a contribution to capital.

WARRANTS

     The Company has issued and plans to continue to issue warrants to acquire
shares of common stock to real estate partners and their affiliates in exchange
for the right to install its fiber optic networks in these real estate entities'
buildings. The warrants are exercisable upon the occurrence of certain events,
as defined in the warrant acquisition agreements.

     The warrants and the rights associated with the warrants may be adjusted if
certain telecommunication license agreements are not executed in accordance with
the parameters outlined in the warrant acquisition agreements. Accordingly, the
measurement date for the warrants is the date on which the telecommunications
license agreements are signed, as defined, and the real estate partners
effectively complete their performance element of the agreement. At the
measurement date, the Company will measure the fair value of the warrants based
on the fair value of the underlying common stock.

     As of December 31, 1999, the Company has entered into warrant acquisition
agreements for the issuance of 7,004,000 shares of common stock. Performance
obligations underlying 6,336,000 shares of common stock had been completed as of
December 31, 1999. The value of these shares was $109,135,000.

9. EMPLOYEE STOCK COMPENSATION:

RESTRICTED STOCK AWARDS

     During 1998 and early 1999, the Company issued approximately 5,755,000
shares of common stock to management, current and former employees and
non-employee shareholders for $.0015 per share. With respect to the stockholders
who are employees of the Company, subscription agreements provide that the
shares shall be restricted, non-transferable, and subject to repurchase by the
Company until vested. Upon issuance of the shares to the employees in 1998,
certain shares were vested based on employees' prior service with the Company.
Unvested shares vest over four years in equal monthly installments commencing
upon their issuance. Pursuant to contractual arrangements, vesting of shares may
accelerate upon the occurrence of a qualifying business combination or a
combination of a qualifying business combination and termination of

                                      F-13
<PAGE>   46
            ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

employment without cause. The accelerated vesting provisions differ based upon
the employee's position with the Company. There are no accelerated vesting
provisions related to performance criteria. Upon the resignation or termination
of an employee subscriber for any reason, all unvested shares will be subject to
repurchase by the Company at the price paid by the employee.

     The vesting schedule for the shares that have been issued or subscribed
through December 31, 1999, for the years ending is:

<TABLE>
<S>                                                         <C>
1999......................................................  1,569,000
2000......................................................    977,000
2001......................................................    869,000
2002......................................................    810,000
2003......................................................    144,000
</TABLE>

1999 PLAN

     Effective June 1, 1999, the Company adopted the 1999 Amended and Restated
Stock Option and Equity Incentive Plan (the "1999 Plan") under which 5,000,000
shares of common stock, subject to adjustment, are available for award to
employees, officers, directors, or consultants. Pursuant to the 1999 Plan, the
Company's board of directors may grant stock options, stock appreciation rights,
restricted shares, deferred shares and certain tax offset payments. The terms of
any particular grant, including any performance-based requirements, vesting
terms and other restrictions are determined by the Board or by the Compensation
Committee of the Board. The exercise price of nonstatutory options may be above,
at or below fair market value of the common stock on the grant date. The
exercise price of incentive stock options must not be less than the fair market
value. The exercise period of options may be set by the Board or the Committee
but may not exceed ten years for incentive stock options.

     During June 1999, the Company granted 347,000 stock options to employees.
Each of the options granted included a provision for exercise through July 26,
1999. All options were exercised prior to that date. Shares issued upon the
exercise of the stock options were restricted and shall vest on a monthly basis
over a four year period.

     The Company accounts for stock options and other employee awards under the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Had compensation cost for the 1999 Plan been determined
based on the fair value of the options as of the grant dates, consistent with
the method prescribed in SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net income (loss) applicable to common stock and
net income (loss) per common share would have resulted in the pro forma amounts
indicated below. The Company utilized the following assumptions in calculating
the estimated fair value of each option on the date of grant, using the
Black-Scholes Option-Pricing model: dividend yield of 0%, expected volatility of
106.7%, expected lives of six years, and a risk-free interest rate ranging from
4.9% to 5.7%. The weighted average fair value of options granted is $13.25 for
the year ended December 31, 1999.

<TABLE>
<CAPTION>
                                                             1999
                                                         ------------
<S>                                                      <C>
Net income (loss):
  As reported..........................................  $(63,940,000)
  Pro forma............................................   (66,167,000)
Net income (loss) per common share:
  As reported..........................................  $      (2.15)
  Pro forma............................................         (2.23)
</TABLE>

                                      F-14
<PAGE>   47
            ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table summarizes stock option activity for the year ended
December 31, 1999:

<TABLE>
<CAPTION>
                                                                WEIGHTED AVERAGE
                                                     SHARES      EXERCISE PRICE
                                                    ---------   ----------------
<S>                                                 <C>         <C>
Outstanding, beginning of year....................         --        $   --
  Granted.........................................  1,775,071          9.37
  Exercised.......................................   (347,442)        .0015
  Forfeited.......................................    (22,034)         9.12
                                                    ---------
Outstanding, end of year..........................  1,405,595         11.69
                                                    =========
Exercisable, end of year..........................         --            --
</TABLE>

COMPENSATION CHARGE

     As discussed in Note 8, the Company completed an initial public offering of
its securities on October 29, 1999. As the estimated fair market value of the
Company's common stock (as implied by the IPO price) exceeded management's
determination of fair value on the date of each stock issuance on the stock
option and restricted stock grant date, the Company has recognized a
compensation charge of $32,335,000 at December 31, 1999, of which $17,654,000 is
being deferred and amortized over the remaining employee service period.

10. INCOME TAXES:

     The provision for income taxes for the period from inception (December 19,
1996) to December 31, 1997 and the years ended December 31, 1998 and 1999
consist of the following:

<TABLE>
<CAPTION>
                                                              1997   1998   1999
                                                              ----   ----   ----
<S>                                                           <C>    <C>    <C>
Current.....................................................  $--    $--    $--
Deferred....................................................   --     --     --
                                                              ---    ---    ---
          Total.............................................  $--    $--    $--
                                                              ===    ===    ===
</TABLE>

     The differences between the statutory federal income tax rates and the
Company's effective income tax rate for the years ended December 31, are as
follows:

<TABLE>
<CAPTION>
                                                              1997     1998     1999
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
Computed statutory tax expense..............................  (34.0)%  (34.0)%  (34.0)%
Deferred compensation.......................................     --       --      8.7%
Other nondeductible expenses................................    0.3%     0.1%     0.1%
Non-book income.............................................     --      2.3%      --
Valuation allowance.........................................   33.7%    31.6%    25.2%
                                                              -----    -----    -----
                                                                 --       --       --
                                                              =====    =====    =====
</TABLE>

     Deferred taxes reflect the impact of temporary differences between the
amount of assets and liabilities for financial reporting purposes and such
amounts as incurred by tax laws and regulations.

                                      F-15
<PAGE>   48
            ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table discloses the components of the deferred tax amounts at
December 31:

<TABLE>
<CAPTION>
                                                               1998           1999
                                                            -----------   ------------
<S>                                                         <C>           <C>
Deferred tax assets --
  Temporary difference for basis in and depreciation of
     property and equipment...............................  $   158,000   $    674,000
  Start-up costs..........................................    3,896,000      3,104,000
  Real estate access rights...............................           --        692,000
  Net operating loss......................................      812,000     14,846,000
  Other...................................................       76,000         98,000
                                                            -----------   ------------
          Total deferred tax assets.......................    4,942,000     19,414,000
Deferred tax liability....................................           --             --
                                                            -----------   ------------
Net deferred tax asset....................................    4,942,000     19,414,000
Less -- Valuation allowance...............................   (4,942,000)   (19,414,000)
                                                            -----------   ------------
          Net deferred tax amount.........................  $        --   $         --
                                                            ===========   ============
</TABLE>

     The Company had approximately $44,233,000 of net operating loss
carryforward for federal income tax purposes at December 31, 1999. The net
operating loss carryforward will expire in the years 2018 and 2019 if not
previously utilized. Under existing income tax law, all operating expenses
incurred prior to a company commencing its principal operations are capitalized
and amortized over a five-year period for tax purposes. On November 23, 1998,
the Company commenced its principal operations for tax purposes and no longer
capitalizes operating expenses as start-up costs.

     A valuation allowance must be provided when it is more likely than not that
some portion of the deferred tax asset will not be realized. Management has
decided to record this allowance due to the uncertainty of future operating
results. In subsequent periods, the Company may reduce the valuation allowance,
provided that utilization of the deferred tax asset is more likely than not, as
defined by SFAS No. 109, "Accounting for Income Taxes."

11. RELATED PARTIES:

     The Company has entered into telecommunications license agreements with
numerous property owners and managers to obtain access to and the right to
install and operate its networks in their buildings. Most of these property
owners and managers received warrants in connection with this access and nine of
these entities purchased the Company's equity (see Note 8). In accordance with
the telecommunications license agreements, the Company pays fees which varies
proportionally (above a fixed minimum) with revenues generated in the respective
buildings to these owners. The Company paid $0, $350 and $132,000 for the years
ended December 31, 1997, 1998 and 1999, respectively, pursuant to this
obligation.

     One of the Company's initial investors also has various interest in
entities from which the Company periodically purchases fiber optic cable and
other materials and has historically purchased insurance and legal services.
During 1999, the Company spent $2,451,000 on fiber optic cable and materials and
$192,000 on insurance and legal services with these entities.

     One of the underwriters for the initial public offering described in Note 8
provides financial advisory and consulting services to the Company. Affiliates
of this entity own common stock and warrants of the Company.

12. SUBSEQUENT EVENTS

     In connection with securing access to additional buildings subsequent to
December 31, 1999, the Company entered into warrant acquisition agreements for
the issuance of 1,130,000 shares of common stock. These warrants will be
accounted for in the same manner as the warrants described in Note 8.

                                      F-16
<PAGE>   49

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
          2.1            -- Plan of Complete Liquidation and Reorganization, dated
                            November 18, 1998 (previously filed as Exhibit 2.1 to our
                            Registration Statement on Form S-1, as amended by a Form
                            S-1/A (Amendment No. 3), Commission File No. 333-85597,
                            and incorporated herein by reference)
          3.1            -- Amended and Restated Certificate of Incorporation
                            (previously filed as Exhibit 3.1 to our Quarterly Report
                            on Form 10-Q for the quarter ended September 30, 1999,
                            filed on December 13, 1999, and incorporated herein by
                            reference)
          3.2            -- Bylaws, as amended and restated (previously filed as
                            Exhibit 3.2 to our Registration Statement on Form S-1, as
                            amended by a Form S-1/A (Amendment No. 3), Commission
                            File No. 333-85597, and incorporated herein by reference)
          4.1            -- Specimen Certificate for our common stock (previously
                            filed as Exhibit 4.1 to our Registration Statement on
                            Form S-1, as amended by a Form S-1/A (Amendment No. 3),
                            Commission File No. 333-85597, and incorporated herein by
                            reference)
          4.2            -- Specimen Certificate for our warrants (previously filed
                            as Exhibit 4.1 to our Registration Statement on Form S-1,
                            as amended by a Form S-1/A (Amendment No. 3), Commission
                            File No. 333-85597, and incorporated herein by reference)
          4.3            -- Registration Rights Agreement, dated as of November 23,
                            1998, among Allied Riser and the stockholders named
                            therein (previously filed as Exhibit 4.3 to our
                            Registration Statement on Form S-1, as amended by a Form
                            S-1/A (Amendment No. 1), Commission File No. 333-85597,
                            and incorporated herein by reference)
          4.3.1          -- First Amendment to Registration Rights Agreement, dated
                            as of December 30, 1998 (previously filed as Exhibit
                            4.3.1 to our Registration Statement on Form S-1, as
                            amended by a Form S-1/A (Amendment No. 1), Commission
                            File No. 333-85597, and incorporated herein by reference)
          4.3.2          -- Second Amendment to Registration Rights Agreement, dated
                            as of August 18, 1999 (previously filed as Exhibit 4.3.2
                            to our Registration Statement on Form S-1, as amended by
                            a Form S-1/A (Amendment No. 1), Commission File No.
                            333-85597, and incorporated herein by reference)
          4.3.3          -- Third Amendment to Registration Rights Agreement, dated
                            as of August 18, 1999 (previously filed as Exhibit 4.3.3
                            to our Registration Statement on Form S-1, as amended by
                            a Form S-1/A (Amendment No. 1), Commission File No.
                            333-85597, and incorporated herein by reference)
         10.1            -- Lease Facility, dated October 23, 1997, by and between
                            Allied Riser and Cisco Systems Capital Corporation, as
                            amended (previously filed as Exhibit 10.3 to our
                            Registration Statement on Form S-1, as amended by a Form
                            S-1/A (Amendment No. 1), Commission File No. 333-85597,
                            and incorporated herein by reference)
         10.2*           -- 1999 Amended Stock Option and Equity Incentive Plan
                            (previously filed as Exhibit 10.10 to our Registration
                            Statement on Form S-1, as amended by a Form S-1/A
                            (Amendment No. 3), Commission File No. 333-85597, and
                            incorporated herein by reference)
         10.3            -- Credit Facility, dated March 25, 1999, by and among
                            Allied Riser and The Chase Manhattan Bank, as
                            Administrative Agent, and Chase Securities Inc., as Lead
                            Arranger and Book Manager (previously filed as Exhibit
                            10.11 to our Registration Statement on Form S-1, as
                            amended by a Form S-1/A (Amendment No. 1), Commission
                            File No. 333-85597, and incorporated herein by reference)
</TABLE>
<PAGE>   50

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.5*           -- Form of Employment Agreement (previously filed as Exhibit
                            10.1 to our Registration Statement on Form S-1, as
                            amended by a Form S-1/A (Amendment No. 3), Commission
                            File No. 333-85597, and incorporated herein by reference)
         10.6            -- Form of Lock-up Agreement (previously filed as Exhibit
                            10.2 to our Registration Statement on Form S-1, as
                            amended by a Form S-1/A (Amendment No. 3), Commission
                            File No. 333-85597, and incorporated herein by reference)
         10.7            -- Stockholders' Agreement, dated as of November 5, 1998,
                            among the stockholders listed on the signature pages
                            thereof (previously filed as Exhibit 10.4 to our
                            Registration Statement on Form S-1, as amended by a Form
                            S-1/A (Amendment No. 1), Commission File No. 333-85597,
                            and incorporated herein by reference)
         10.7.1          -- Amendment No. 1 and Joinder to Stockholders' Agreement,
                            dated November, 1998 (previously filed as Exhibit 10.4.1
                            to our Registration Statement on Form S-1, as amended by
                            a Form S-1/A (Amendment No. 1), Commission File No.
                            333-85597, and incorporated herein by reference)
         10.7.2          -- Amendment No. 2 and Joinder to Stockholders' Agreement,
                            dated December 30, 1998 (previously filed as Exhibit
                            10.4.2 to our Registration Statement on Form S-1, as
                            amended by a Form S-1/A (Amendment No. 3), Commission
                            File No. 333-85597, and incorporated herein by reference)
         10.7.3          -- Amendment No. 3 and Joinder to Stockholders' Agreement,
                            dated August 18, 1999 (previously filed as Exhibit 10.4.3
                            to our Registration Statement on Form S-1, as amended by
                            a Form S-1/A (Amendment No. 3), Commission File No.
                            333-85597, and incorporated herein by reference)
         10.7.4          -- Amendment No. 4 and Joinder to Stockholders' Agreement,
                            dated August 18, 1999 (previously filed as Exhibit 10.4.4
                            to our Registration Statement on Form S-1, as amended by
                            a Form S-1/A (Amendment No. 3), Commission File No.
                            333-85597, and incorporated herein by reference)
         10.8            -- Subscription Agreement, dated as of November 13, 1998, by
                            and among Allied Riser and the investors listed on the
                            signature pages thereof (previously filed as Exhibit 10.5
                            to our Registration Statement on Form S-1, as amended by
                            a Form S-1/A (Amendment No. 1), Commission File No.
                            333-85597, and incorporated herein by reference)
         10.8.1          -- Amendment No. 1 to Subscription Agreement, dated as of
                            November, 1998 (previously filed as Exhibit 10.5.1 to our
                            Registration Statement on Form S-1, as amended by a Form
                            S-1/A (Amendment No. 1), Commission File No. 333-85597,
                            and incorporated herein by reference)
         10.10           -- Indemnification Agreement, dated as of November 23, 1998,
                            by and among Allied Riser and the investors listed on the
                            signature pages thereof (previously filed as Exhibit 10.6
                            to our Registration Statement on Form S-1, as amended by
                            a Form S-1/A (Amendment No. 3), Commission File No.
                            333-85597, and incorporated herein by reference)
         10.10.1         -- Joinder to Indemnification Agreement, dated December 30,
                            1998 (previously filed as Exhibit 10.6.1 to our
                            Registration Statement on Form S-1, as amended by a Form
                            S-1/A (Amendment No. 3), Commission File No. 333-85597,
                            and incorporated herein by reference)
</TABLE>
<PAGE>   51

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.11           -- Stockholders' Pledge Agreement, dated as of November 23,
                            1998, by and among Allied Riser and the investors listed
                            on the signature pages thereto (previously filed as
                            Exhibit 10.7 to our Registration Statement on Form S-1,
                            as amended by a Form S-1/A (Amendment No. 3), Commission
                            File No. 333-85597, and incorporated herein by reference)
         10.12           -- Series A-1 Preferred Stock and Common Stock Investment
                            Agreement, dated December 30, 1998, by and between Allied
                            Riser and Norwest Venture Partners VII, L.P. (includes
                            schedule of other 1998 Investment Agreements) (previously
                            filed as Exhibit 10.8 to our Registration Statement on
                            Form S-1, as amended by a Form S-1/A (Amendment No. 3),
                            Commission File No. 333-85597, and incorporated herein by
                            reference)
         21.1            -- List of our Principal Operating Subsidiaries
         23.1            -- Consent of Arthur Andersen LLP
         27.1            -- Financial Data Schedules
</TABLE>

* Management contract or compensatory plan or arrangement required to be filed
  as an exhibit to this form.