|SECURITIES
AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2002
Commission file number 0-27042
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | AlphaNet
Solutions, Inc. | 
| | ------------------------ | 

| | (Exact Name of Registrant as Specified in Charter) | 
| | -------------------------------------------------- | 

|New Jersey |  | 22-2554535
|---------- |  | ----------

|(State or Other Jurisdiction of Incorporation) |  | (I.R.S. Employer Identification Number)
|---------------------------------------------- |  | ---------------------------------------

|7 Ridgedale Avenue, Cedar Knolls, New Jersey |  | 07927
|-------------------------------------------- |  | -----

|(Address of Principal Executive Offices) |  | (Zip Code)
|---------------------------------------- |  | ----------

|Registrants Telephone Number, Including Area Code | (973) 267-0088 | 
|-------------------------------------------------- | -------------- | 

|Indicate by check mark
whether the Registrant: (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Yes      X
          No ____ | 
|---------------------------- | 

|Indicate the number of shares outstanding
of each of the Registrants classes of common stock, as of July 31, 2002:
|-------------------------------------------------------------------------------------------------------------------

|Class |  | Number of Shares Outstanding
|----- |  | ----------------------------

|Common Stock, $.01 par value |  | 6,588,413
|---------------------------- |  | ---------

---

|ALPHANET
SOLUTIONS, INC.

TABLE OF CONTENTS
|-------------------------------------------

|PART I. | FINANCIAL INFORMATION
|------- | ---------------------

| | Item 1. | Financial Statements | 1
| | ------- | -------------------- | -

| |  | Consolidated Balance Sheets
          
as of June 30, 2002 (unaudited)
          
and December 31, 2001 | 1
| |  | ------------------------------------------------------------------------------------------------------- | -

| |  | Consolidated Statements of Operations
          
for the Three and Six Months Ended
          
June 30, 2002 (unaudited) and June 30, 2001 (unaudited) | 2
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------ | -

| |  | Consolidated Statements of Cash Flows 
          
for the Six Months Ended
          
June 30, 2002 (unaudited) and June 30, 2001 (unaudited) | 3
| |  | --------------------------------------------------------------------------------------------------------------------------------------------- | -

| |  | Notes to Consolidated Financial Statements (unaudited) | 4
| |  | ------------------------------------------------------ | -

| | Item 2. | Managements Discussion and Analysis of
        Financial Condition and Results of Operations | 9
| | ------- | --------------------------------------------------------------------------------------------- | -

| | Item 3. | Quantitative and
 Qualitative Disclosures About Market Risk | 18
| | ------- | ----------------------------------------------------------- | --

|PART II. | OTHER INFORMATION |  | 19
|-------- | ----------------- |  | --

| | Item 1. | Legal Proceedings | 19
| | ------- | ----------------- | --

| | Item 5. | Other Information | 19
| | ------- | ----------------- | --

| | Item 6. | Exhibits and Reports on Form 8-K | 21
| | ------- | -------------------------------- | --

|SIGNATURES |  |  | 22
|---------- |  |  | --

---

|PART I.
FINANCIAL INFORMATION


Item 1.  
Financial Statements


ALPHANET SOLUTIONS,
INC.CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
|------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                               | June 30,2002 | December 31,2001
|-------------------------------------------------------------- | ------------ | ----------------
|                                                               |              |                 
|ASSETS                                                         |              |                 
|Current assets:                                                |             
|Cash and cash  equivalents . . . . . . . . . . . . . .         |              | $ 20,550        
|Accounts receivable, less allowance for doubtful               |             
|accounts of $704 at June 30, 2002 and $622 at                  |             
|December 31, 2001 . . . . . . . . . . . . . . . . . .          |              | 7,700           
|Inventories . . . . . . . . . . . . . . . . . . . . .          |              | 193             
|Income tax receivable  . . . . . . . . . . . . . . .           |              | 1,834           
|Prepaid expenses and other current assets . . . . . .          |              | 374             
|                                                               |              |                 
|Total current assets . . . . . . . . . . . .                   |              | 30,651          
|Income taxes  . . . . . . . . . . . . . . . . . . . . . . . .  |              | 834             
|Property and equipment, net . . . . . . . . . . . . . . . . .  |              | 1,390           
|Goodwill  . . . . . . . . . . . . . . . . . . . . . . . . . .  |              | 511             
|Other assets . . . . . . . . . . . . . . . . . . . . . . . . . |              | 32              
|                                                               |              |                 
|Total assets  . . . . . . . . . . . . . . .                    |              | $ 33,418        
|                                                               |              |                 
|LIABILITIES AND SHAREHOLDERS EQUITY                           |             
|Current liabilities:                                           |             
|Current portion of capital lease obligations . . . .           |              | $        --     
|Accounts payable . . . . . . . . . . . . . . . . . .           |              | 641             
|Accrued expenses . . . . . . . . . . . . . . . . . .           |              | 3,183           
|Accrued MTA contract liability  . .  . . . . . . . .           |              | 3,038           
|                                                               |              |                 
|Total current liabilities . . . . . . . . .                    |              | 6,862           
|                                                               |              |                 
|Total liabilities . . . . . . . . . . . . . . . . .            |              | 6,862           
|                                                               |              |                 
|Shareholders equity:                                          |             
|Preferred stock -- $0.01 par value; authorized                 |             
|3,000,000 shares, none issued . . . . . . . . . . . .          |              | --              
|Common stock -- $0.01 par value; authorized                    |             
|15,000,000 shares, 6,588,413 shares issued and                 |             
|outstanding at June 30, 2002 and December 31, 2001 .           |              | 66              
|Additional paid-in capital  . . . . . . . . . . . . .          |              | 35,138          
|Accumulated Deficit  . . . . . . . . . . . . . . . .           |              | (7,928          
|Treasury stock - at cost; 150,600 shares at June 30,           |             
|2002 and December 31, 2001, respectively  . . . . . .          |              | (720            
|                                                               |              |                 
|Total shareholders equity . . . . . . . . .                   |              | 26,556          
|                                                               |              |                 
|Total liabilities and shareholders equity .                   |              | $ 33,418        
|                                                               |              |                 
|                                                               |             

|See accompanying notes
to consolidated financial statements



-1-
|------------------------------------------------------------------

---

|ALPHANET SOLUTIONS,
INC.CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share amounts)
(unaudited)
|--------------------------------------------------------------------------------------------------------------

|                                                | For the Three Months ended | For the Six Months ended
|----------------------------------------------- | -------------------------- | ------------------------
|
|                                                |                            |                         
|Net sales:                                      |                            |                         
|Product sales  . . . . . . . . . . . . .        |                            | $      890              
|Services and support . . . . . . . . . .        |                            | 5,330                   
|                                                |                            |                         
|                                                |                            | 6,220                   
|Cost of sales:                                  |                           
|Product sales . . . . . . . . . . . . . .       |                            | 842                     
|Services and support . . . . . . . . . .        |                            | 3,823                   
|                                                |                            |                         
|                                                |                            | 4,665                   
|Gross Profit:                                   |                           
|Product sales . . . . . . . . . . . . .         |                            | 48                      
|Service and support . . . . . . . . . .         |                            | 1,507                   
|                                                |                            |                         
|                                                |                            | 1,555                   
|Operating expenses:                             |                           
|Selling, general & administrative . . .         |                            | 3,072                   
|                                                |                            |                         
|Operating  loss . . . . . . . . . . . . . . . . |                            | (1,517                  
|Other income :                                  |                           
|Interest income . . . . . . . . . . . . .       |                            | 92                      
|Other Income . . . . . . . . . . . . . .        |                            | 2                       
|                                                |                            |                         
|                                                |                            | 94                      
|Loss before income taxes  . . . . . . . . . . . |                            | (1,423                  
|                                                |                            |                         
|Benefit for income taxes . . . . . . . . . . .  |                            | (468                    
|                                                |                            |                         
|Net income (loss) . . . . . . . . . . . . . . . |                            | $    (955               
|                                                |                            |                         
|Basic and Diluted net income (loss) per share   |                            | $  (0.15                
|                                                |                            |                         
|Weighted average number of common shares        |                           
|outstanding . . . . . . . . . . . . . . . . . . |                            | 6,438                   
|                                                |                            |                         
|Weighted average number of common and common    |                           
|equivalent shares outstanding  . . . . . .      |                            | 6,438                   
|                                                |                            |                         

|See accompanying notes
to consolidated financial statements



-2-
|------------------------------------------------------------------

---

|ALPHANET SOLUTIONS,
INC.CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|----------------------------------------------------------------------------------------

|                                                                                                  | Six Months endedJune 30,
|------------------------------------------------------------------------------------------------- | ------------------------
|                                                                                                  |                         
|
|                                                                                                  |                         
|Cash flows from operating activities:                                                             |                         
|Net income (loss) . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        |                         
|Adjustments to reconcile net loss to net cash                                                     |                         
|(used in) provided by operating activities:                                                       |                         
|Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . .             |                         
|Write-off of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             |                         
|Provision for accounts receivable  . . . . . . . . . . . . . . . . . . . . . . . . . .            |                         
|Non-cash non-employee stock option charge  . . . . . . . . . . . . . . . . . . . . . .            |                         
|Income taxes  . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            |                         
|Increase (decrease) from changes in:                                                              |                         
|Accounts receivable  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                  |                         
|Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                   |                         
|Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . .                   |                         
|Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                  |                         
|Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                  |                         
|Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                  |                         
|Accrued MTA contract liability  . . . . . . . . . . . . . . . . . . . . . . . .                   |                         
|                                                                                                  |                         
|Net cash  used in operating activities . . . . . . . . . . . . . . . . . . . . . . . .            |                         
|Cash flows from investing activities:                                                             |                         
|Loan to Eureka Broadband (See Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . .       |                         
|Property and equipment expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . .       |                         
|                                                                                                  |                         
|Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .       |                         
|Cash flows from financing activities                                                              |                         
|Employee stock purchases and exercises of stock                                                   |                         
|options  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              |                         
|Repayment of capital lease obligations  . . . . . . . . . . . . . . . . . . . . . . . . . .       |                         
|                                                                                                  |                         
|Net cash provided by (used in) financing activities  . . . . . . . . . . . . . . . . .            |                         
|                                                                                                  |                         
|Net decrease in cash and cash equivalents  . . . . . . . . . . . . . . . . . . . . . . . . . . .  |                         
|Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . .  |                         
|                                                                                                  |                         
|Cash and cash equivalents, end of period  . . . . . . . . . . . . . . . . . . . . . . . . . . . . |                         
|                                                                                                  |                         

|See accompanying notes
to consolidated financial statements



-3-
|------------------------------------------------------------------

---

|ALPHANET SOLUTIONS,
INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)




Note 1 Description of the
Business and Basis of Presentation:


AlphaNet
Solutions, Inc. (the Company) is an information technology (IT)
professional services firm providing IT outsourcing, the implementation of IT projects,
managed services and professional development services. During the second quarter of
2002, the Company has been refocusing its efforts on its core competencies which include
four critical areas within the IT services marketplace: (i) selective IT outsourcing,
including help desk, desk side support, and LAN support services; (ii) technology
projects, including network and systems infrastructure, operating system deployments, and
related advisory services; (iii) managed services, including network management,
intrusion detection, firewall and VPN, and storage management; and (iv) IT training and
professional development services.


The
accompanying unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim periods. The foregoing
financial information reflects all adjustments which are, in the opinion of management,
necessary for a fair presentation of the Companys financial position, results of
operations and cash flows as of the dates and for the periods presented. Certain
information and footnote disclosure normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or omitted.
These consolidated financial statements should be read in conjunction with the Companys
audited financial statements for the year ended December 31, 2001, which were included as
part of the Companys Annual Report on Form 10-K, as filed with the Securities and
Exchange Commission.


Certain
prior year amounts have been reclassified to conform with current year presentation. In
November 2001, the Financial Accounting Standards Board issued Topic No. D-103, Income
Statement Characterization of Reimbursements Received For Out-of-Pocket Expenses Incurred. In
connection with this statement, the Company has reclassified out-of-pocket expense
reimbursements billed to its clients as revenues versus a reduction in cost of sales.
Such reimbursements were $9,000 and $34,000 in the three months ended June 30, 2002 and
2001, and $30,000 and $73,000 in the six months ended June 30, 2002 and 2001.


In
connection with a reorganization of its professional service operations during the second
quarter of 2002, the Company reclassified certain professional services support managers
and staff associated with its professional service consulting operations as cost of sales
versus selling, general and administrative expenses. These direct support costs
aggregated $259,000 and $253,000 in the three months ended June 30, 2002 and 2001,
respectively, and $505,000 and $496,000 in the six months ended June 30, 2002 and 2001,
respectively. These reclassifications are reflected in the accompanying consolidated
statements of operations, and have no impact on the Companys reported results of
net losses or income.


Results
for interim periods are not necessarily indicative of results that may be expected for
the entire year.



-4-
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Note 2 Net Income Per Share:


COMPUTATION OF
EARNINGS PER SHARE
 (in thousands, except per share amounts)
 (unaudited)
|------------------------------------------------------------------------------------------------------------------------

|                                                          | Three Months ended
June 30, | Six Months ended
June 30,
|--------------------------------------------------------- | --------------------------- | -------------------------
|                                                          |                             |                          
|
|                                                          |                             |                          
|Net income (loss) . . . . . . . . . . . . . . . . . . . . |                             |                          
|                                                          |                             |                          
|Basic:                                                    |                             |                          
|Weighted average number of shares outstanding  . . . .    |                             |                          
|                                                          |                             |                          
|Net income (loss) per share   . . . . . . . . . . . . .   |                             |                          
|                                                          |                             |                          
|Diluted:                                                  |                             |                          
|Weighted average number of shares outstanding . . . .     |                             |                          
|Dilutive effects of stock options . . . . . . . . . .     |                             |                          
|                                                          |                             |                          
|Weighted average number of common and common              |                             |                          
|equivalent shares outstanding . . . . . . . . . . . . . . |                             |                          
|                                                          |                             |                          
|Net income (loss) per share . . . . . . . . . . . . .     |                             |                          
|                                                          |                             |                          

|In
February 1997, the Financial Accounting Standards Board issued Statement No. 128 Earnings
per Share which specifies the computation, presentation and disclosure requirements
for earnings per share (EPS) of entities with publicly-held common stock or
potential common stock. The statement defines two EPS calculations, basic and diluted.
The objective of basic EPS is to measure the performance of an entity over the reporting
period by dividing income available to common stockholders by the weighted average number
of shares outstanding. The objective of diluted EPS, consistent with that of basic EPS,
is to measure the performance of an entity over the reporting period, while giving effect
to all dilutive potential common shares that were outstanding during the period. The
calculation of diluted EPS is similar to basic EPS except both the numerator and
denominator are increased for the conversion of potential dilutive common shares.




-5-
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Note 3 Eureka Broadband:


In
February 2001, a wholly-owned subsidiary of Eureka Broadband Corporation (Eureka), merged
with and into nex-i.com, an unconsolidated affiliate of the Company. The Company had
previously invested $1.8 million in nex-i.com series A convertible participating
preferred stock (series A nex-i.com stock). In connection with this merger,
the Company loaned Eureka $382,000, in exchange for a promissory note and received
several classes of preferred stock in exchange for the series A nex-i.com stock, all of
which was converted to common stock in July 2001. In the fourth quarter of 2001, the
Company wrote off its remaining investment of $382,000.


Note 4  MTA Contract:


In
December 1997, the Company entered into a four-year, $20.4 million contract (the MTA
Contract) with New York City Transit, an agency of the Metropolitan Transportation
Authority of the State of New York (the MTA) to furnish and install local and
wide-area computer network components, including network and telecommunications hardware,
software and cabling throughout the MTAs over 200 locations. The aggregate amount
of this contract was subsequently increased to $20.6 million. The Company is the prime
contractor on this project and is responsible for project management, systems
procurement, and installation. The work is provided in contiguous locations and payment
is predicated upon achieving specific milestone events. In the event of default, in
addition to all other remedies at law, the MTA reserves the right to terminate the
services of the Company and complete the MTA Contract itself at the Companys cost.
In the event of unexcused delay by the Company, the Company may be obligated to pay, as
liquidated damages, the sum of $100 to $200 per day, per site. While the Company believes
it is currently performing in accordance with the contract terms, there can be no
assurance that any such events of default or unexcused delays will not be asserted. In
addition, the MTA Contract is a fixed unit price contract, and the quantities are
approximate, for which the MTA has expressly reserved the right, for each item, to direct
the amount of equipment and related installation be increased, decreased, or omitted
entirely on 30 days notice. The MTA has the right to suspend the work on 10 days notice
for up to 90 days and/or terminate the contract, at any time, on notice, paying only for
the work performed to the date of termination. The project is subject to the prevailing
wage rate and classification for telecommunications workers, as determined by the New
York City Comptrollers office, over which the Company has no control, and which is
generally adjusted in June of each year and may be so adjusted in the future.


The
Company has performed services and supplied products to the MTA since the inception of
the MTA Contract. The work performed to date at MTA sites has required greater than the
originally estimated labor and other costs to complete. In May 1999, the Company
submitted a formal request to the MTA for equitable adjustment in the amount of
approximately $1.5 million and for a time extension. This request was supplemented with a
further submission in October 1999. In January 2000, the Project Manager for the MTA
Contract denied the Companys request, thereby triggering the Companys right
under the contract to appeal the Project Managers denial to the MTAs Dispute
Resolution Office (the DRO). The Company filed a Notice of Appeal with the
DRO in February 2000, and pursuant to the DROs request, filed further written
submissions and participated in an arbitral session with the DRO subsequent thereto. In
November 2000, the DRO rendered a written decision denying in full the Companys
Request for Equitable Adjustment and Time Extension. Pursuant to the terms of the MTA
Contract, in March 2001, the Company appealed the DROs denial of the Companys
Request to the New York Supreme Court (the Court). On April 22, 2002, the
Court rendered its decision on the Companys appeal, denying all of the Companys
claims for review of the determination made by the DRO. On May 31, 2002, the Company
filed an appeal of this decision with the Court.


-6-
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|On
July 19, 2000, the MTA advised the Company of a determination by the Bureau of Labor Law
(the Bureau) of the New York City Comptrollers Office, communicated to
the MTA by letter from the Bureau dated June 22, 2000, that, as of July 1, 2000, the
labor classification for all low voltage cabling carrying voice, data, video, or any
combination thereof, is electrician. The Bureaus determination is based on a New
York State Supreme Court Appellate Division decision dated May 18, 2000. The workers
currently and historically used by the Company to perform cabling work have been
classified as telecommunications workers. The Company believes it is probable that the
Bureaus determination will apply to the Companys cabling activities under the
contract, thereby likely requiring the reclassification of its telecommunications workers
as electricians retroactive to July 1, 2000. Since the prevailing wage for electricians
is substantially higher than that for telecommunications workers, the Company expects to
incur materially increased labor costs as a result of the Bureaus determination. On
October 16, 2000, the MTA Project Manager denied the Companys request for a change
order to compensate the Company for the increased costs it expects to incur in connection
with the reclassification of certain of its telecommunications workers as electricians.
On January 19, 2001, the Company initiated a disputewithin the meaning of the
applicable federal regulations governing the MTA Contract by filing a complaint with the
United States Department of Labor (the Department of Labor). In its
complaint, the Company requests that the Department of Labor adjudicate this dispute and
either issue a determination affirming that the prevailing wage rate for
telecommunications workers, as originally specified by the MTA, is the applicable rate
for this project, or directing the MTA to compensate the Company for the change in wage
classification made during the performance of the contract in violation of federal
regulations. By letter dated March 12, 2001, the Department of Labor advised the Company
that, without knowing which, if any, federal wage decision was included in the MTA
Contract, it is unable to make a determination that any violation of federal labor law
has occurred. On February 12, 2002, the Company was informally advised by the Department
of Labor that the Department has concluded that no federal wage determinations were
included or required to be included in the MTA Contract because the project has
insufficient federal funding to trigger the federal wage regulations. The Department of
Labor asserts that the Companys claim is not one which is governed by federal
regulations or one over which the Department is willing to exercise jurisdiction. On
April 23, 2002, the Company received a letter from the Department of Labor dated April 9,
2002 stating that the Department does not have jurisdiction over the dispute because it
was advised by the New York City Comptrollers office that no federal funds were
provided for the MTA Contract. The Company has been advised that there are legitimate
grounds on which the Department of Labors position, as well as the above-referenced
wage reclassification may be challenged. The Company is currently evaluating an
appropriate course of action. There can be no assurance the Company will be successful,
either in whole or in part, in its efforts.


-7-
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Note 5 Income Taxes:


Set forth below is a summary of the
Companys tax provision (benefit) for the three and six months ended June 30, 2002 and June 30, 2001.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                               | Three months endedJune 30, 2002 | Three months endedJune 30, 2001 | Three months endedJune 30, 2002 | Three months endedJune 30, 2001
|---------------------------------------------- | ------------------------------- | ------------------------------- | ------------------------------- | -------------------------------
|                                               |                                 |                                 |                                 |                                
|Federal income tax benefit at statutory rate   |                                 |                                 |                                 |                                
|(34%)                                          |                                 |                                 |                                 | $        (468,000              
|State income tax benefit net of federal effect |                                 |                                 |                                 | (96,000                        
|                                               |                                 |                                 |                                 |                                
|Income tax benefit                             |                                 |                                 |                                 | (564,000                       
|Valuation allowance                            |                                 |                                 |                                 | 96,000                         
|                                               |                                 |                                 |                                 |                                
|                                               |                                 |                                 |                                 | $        (468,000              
|                                               |                                 |                                 |                                 |                                

|In the
three months ended June 30, 2002 and 2001, the Company recorded net income tax benefits
of $468,000 and $0, respectively. The net benefit for the three months ended June 30,
2002 consisted of federal income tax refunds the Company expects it can recover from the
carryback of 2002 losses to prior tax periods as a result of changes to the Internal
Revenue Code enacted during the first quarter of 2002. No benefit was recorded in the
three months ended June 30, 2001, as the Company did not have carryback availability
under the then existing Internal Revenue Code regulations; therefore, the Company
recorded a valuation allowance in the full amount of the benefit of $172,000.


For
the six months ended June 30, 2002 and 2001, the Company recorded net income tax benefits
of $2,668,000 and $0. The net benefit for the six months ended June 30, 2002 consisted of
a reduction in its valuation allowance in the amount of $1,834,000, reflecting expected
federal income tax refunds related to the carryback of 2001 tax losses to prior years as
a result of changes to the Internal Revenue Code enacted during the first quarter of
2002, and $834,000 of benefits relating to current year losses that the Company expects
it can recover from the carryback of 2002 losses to prior tax periods. No benefit was
recorded in the six months ended June 30, 2001, as the Company did not have carryback
availability under the then existing Internal Revenue Code regulations; therefore, the
Company recorded a valuation allowance in the full amount of the benefit of $231,000.


These
tax assets have been classified in the accompanying balance sheet based upon the Companys
estimate of the refund date.


Note 6  Recently Issued
Accounting Standards:


On May
1, 2002, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. This Statement rescinds SFAS No. 4, Reporting Gains and Losses
for Extinguishment of Debt, and an amendment of that Statement, SFAS No. 64, Extinguishments
of Debt Made to Satisfy Sinking-Fund Requirements. This Statement also rescinds SFAS
No. 44, Accounting for Intangible Assets of Motor Carriers. This Statement
amends SFAS No. 13, Accounting for Leases, to eliminate an inconsistency
between the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or describe their
applicability under changed conditions. The issuance of this Statement is not currently
expected to have a material impact on the Companys results of operations.


-8-
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|In
July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit
or Disposal Activities. This Statement addresses financial accounting and reporting
for costs associated with exit or disposal activities and nullifies Emerging Issues Task
Force (EITF) Issue 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring). The issuance of this Statement is not currently expected to have a
material impact on the Companys results of operations.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 2. |  | Managements Discussion and Analysis
of Financial Condition and   Results of Operations
|------- |  | ---------------------------------------------------------------------------------------

|General


Founded
in 1984, AlphaNet Solutions, Inc. is an information technology (IT)
professional services firm providing IT outsourcing, the implementation of IT projects,
managed services and professional development services. During the second quarter of
2002, we have been refocusing our efforts on our core competencies which include four
critical areas within the IT services marketplace: (i) selective IT outsourcing including
help desk, desk side support, and LAN support services; (ii) technology projects,
including network and systems infrastructure, operating system deployments, and advisory
services; (iii) managed services, including network management, intrusion detection,
firewall and VPN, and storage management; and (iv) IT training and professional
development services.


Our
discussion and analysis of our interim Financial Condition and Results of Operations
should be read in conjunction with Part II, Item 7 of our Annual Report on Form 10-K for
the year ended December 31, 2001 as filed with the Securities and Exchange Commission.


Results of Operations


Three Months Ended June 30, 2002
Compared To Three Months Ended June 30, 2001


Net
Sales.  Net sales decreased by $7.3 million, to $6.2 million for the second
quarter of 2002 from $13.5 million for the second quarter of 2001. The decline of $7.3
million was primarily due to a reduction in product sales of $2.7 million and a reduction
in service revenues of $4.6 million. The decline in product sales is attributable to our
decision to exit the product business due to the low margins associated with that
business. The downturn in technology spending has adversely impacted our professional
service revenues. Increased competition, including from such firms as Siemens, EDS and
IBM Global Services in such areas as desktop support and integration services, has
resulted in significant reductions in the services we provide to certain of our key
customers. We have been unable to secure sufficient new projects to offset this decline
and, accordingly, our professional service revenues have declined. See Risks and
Uncertainties-Business Operations at pp. 11-13.


-9-
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Gross
Profit. Second quarter of 2002, gross profit declined to $1.6 million from
$3.4 million during the second quarter of 2001. This decline was attributable to the
decline in both product sales and service and support revenue during the second quarter
of 2002. Including severance costs, our combined gross profit was 25.0% in the second
quarter of 2002, which decreased from 25.2% in the second quarter of 2001. Excluding
severance costs, our combined gross profit was 25.9% in the second quarter of 2002, which
increased from 25.7% in the second quarter of 2001. For billable staff, we recorded
$54,000 of severance compensation costs during the second quarter of 2002, as compared to
$68,000 in the second quarter of 2001. The gross profit percentage on technology product
sales was 5.4% in the second quarter of 2002 down from 15.1% in the second quarter of
2001. Service and support gross profits excluding severance costs, was 29.3% in the
second quarter of 2002, compared to 29.5 % in the second quarter of 2001.


Selling,
General and Administrative Expenses.Selling, general and administration expenses were
$3.1 million in the second quarter of 2002 as compared to $4.0 million in the second
quarter of 2001. Selling, general and administrative expenses in the second quarter of
2002, included $188,000 of severance costs, $46,000 of non-employee stock option charges,
and $65,000 of asset disposals relating to the consolidation of our distribution and
configuration facility, and $207,000 relating to business consulting and sales recruiting
costs. In the second quarter of 2001, we recorded $166,000 of severance costs for
selling, general and administrative staff.


Interest
income, net. Due to declining interest rates, interest income, net,
totaled $92,000 for the second quarter of 2002, down from $202,000 in the second quarter
of 2001.


Income
taxes.In the three months ended June 30, 2002 and 2001, we recorded net income tax
benefits of $468,000 and $0, respectively. The net benefit for the three months in 2002
consisted of expected federal income tax refunds we expect can be recovered from the
carryback of 2002 losses to prior tax periods. No benefit was recorded in the three
months ended June 30, 2001 as we recorded a valuation allowance in the full amount of the
benefit of $172,000.


Six Months Ended June 30, 2002
Compared To Six Months Ended June 30, 2001


Net
Sales. Net sales decreased by $19.1 million, to $13.2 million for the first
six months of 2002 from $32.3 million for the six months ended June 30, 2001. The decline
of $19.1 million was primarily due to a reduction in product sales of $8.9 million and a
reduction in service revenues of $10.2 million. The decline in product sales is
attributable to our decision to exit the product business due to the low margins
associated with that business. The downturn in technology spending has adversely impacted
our professional service revenues. Increased competition, including from such firms as
Siemens, EDS and IBM Global Services in such areas as desktop support and integration
services, has resulted in significant reductions in the services we provide to certain of
our key customers. We have been unable to secure sufficient new projects to offset this
decline and, accordingly, our professional service revenues have declined. See Risks and
Uncertainties-Business Operations at pp.11-13.


-10-
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Gross
Profit. In the six months ended June 30, 2002, gross profit declined to $3.1 million
from $7.5 million during the six months ended June 30, 2001. This decline was primarily
attributable to the decline in both product sales and service and support revenue during
the first six months of 2002. Including severance costs, our combined gross profit was
23.7% in the first six months of 2002, which increased from 23.2% for the six months
ended June 30, 2001. Excluding severance costs, our combined gross profit was 24.7% in
the first six months of 2002, which increased from 23.6% for the six months ended June
30, 2001. For billable staff, we recorded $124,000 of severance compensation costs during
the six months ended June 30, 2002, as compared to $114,000 for the six months ended June
30, 2001. The gross profit percentage on technology product sales was 8.6% in the first
six months of 2002 down from 12.7% for the six months ended June 30, 2001. Service and
support gross profits excluding severance costs, was 28.1% in the six months ended June
30, 2002, compared to 29.4% for the six months ended June 30, 2001.


Selling,
General and Administrative Expenses.Selling, general and administration expenses were
$5.8 million in the first six months of 2002 as compared to $8.5 million for the six
months ended June 30, 2001. Selling, general and administrative expenses in the period
include $222,000 of severance compensation costs, $46,000 of non-employee stock option
charges, and $65,000 relating to the consolidation of our distribution and configuration
facility, and $207,000 relating to business consulting and sales recruiting costs. For
the six months ended June 30, 2001, we recorded $294,000 in severance costs.


Interest
income, net. Due to declining interest rates, interest income, net, totaled $192,000
for first six months ended June 30, 2002, down from $427,000 for the six months ended
June 30, 2001.


Income
taxes.For the six months ended June 30, 2002 and 2001, we recorded net
income tax benefits of $2,668,000 and $0. The net benefit for the six months ended June
30, 2002 consisted of a reduction in valuation allowance in the amount of $1,834,000,
reflecting expected federal income tax refunds related to the carryback of 2001 tax
losses to prior years as a result of changes to the Internal Revenue Code enacted during
the first quarter of 2002, and $834,000 of current year losses that we expect can be
recovered from the carryback of 2002 losses to prior tax periods. No benefit was recorded
in the first six months of 2001 as we recorded a valuation allowance in the full amount
of the benefit of $231,000.


Risks and Uncertainties


Business Operations


In
1999, we embarked on an effort to reposition ourselves from a value-added reseller to a
professional services company. The competition for low-margin technology products
increased significantly and, more recently, the demand for technology products has
declined. As a result, we have transitioned to selling services, which have higher
margins than products, some of which are related to technology product orders. During
2002, we have been selective in accepting product orders. Since 1999, our product sales
declined from $83.3 million in 1999, to $44.0 million in 2000, and to $15.8 million in
2001. In the second quarter of 2002, our product sales were $0.9 million in the quarter
as compared to $3.6 million in the second quarter of 2001. For the six months ended June
30, 2002, our product sales were $2.3 million as compared to $11.3 million in the six
months ended June 30, 2001. Except for remaining sales of products under the contract
with the MTA, we expect that our product sales will not be significant. In the second
quarter of 2002 MTA product sales were $340,000 as compared to $432,000 in the second
quarter of 2001. For the six months ended June 30, 2002 MTA product sales were $686,000,
compared to $954,000 for the six months ended June 30, 2001.


-11-
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|In
January 2002, we entered into an agency agreement with MoreDirect, Inc., an
internet-based, business-to-business electronic marketplace which enables information
technology buyers to efficiently source, evaluate, purchase and track a wide variety of
computer hardware, software and related technology products. This agreement will permit
us to further exit the product business and concentrate on our core professional service
offerings.


Since
1999, our professional service revenues declined from $53.3 million in 1999, to $46.4
million in 2000, and declined to $35.9 million in 2001. In the second quarter of 2002,
our professional service revenues declined to $5.3 million in the quarter as compared to
$10.0 million in the second quarter of 2001. In the six months ended June 30, 2002, our
professional services revenue declined to $10.8 million as compared to $21.0 million in
the six months ended June 30, 2001.


Certain
of our professional service offerings are dependent on technology product purchases by
our existing and prospective clients, irrespective of how such clients procure their
products. Accordingly, the downturn in technology spending has adversely impacted our
professional service revenues. Increased competition including from such firms as
Siemens, EDS and IBM Global Services in such areas as desktop, support and integration
services, has resulted in significant reductions in the services we provide to certain of
our key customers. We have been unable to secure sufficient new projects to offset this
decline and, accordingly, our professional service revenues have declined. Much of our
business is derived from a concentrated number of key clients. The loss of one or more of
these key accounts could have a material adverse impact on our revenue and/or results of
operations. There can be no assurance these negative trends will not continue or
accelerate.


During
the second quarter of 2002, we reviewed our service offerings and determined we will
focus our efforts on our core competencies which include four critical areas within the
IT services marketplace: (i) selective IT outsourcing, including help desk, desk side
support, and LAN support services; (ii) technology projects, including network and
systems infrastructure, operating system deployments, and advisory services; (iii)
managed services, including network management, intrusion detection, firewall and VPN,
and storage management; and (iv) IT training and professional development services.


To
address the reduction in revenues and resulting operating losses, we are implementing a
plan to increase our professional service revenues and improve our operating results.
This plan includes, among other things, strengthening our sales team, productizing our
services offerings and creating a practices-based services business focused on revenue
generation. In connection with this plan, we currently anticipate the need to make
significant investments in the reconstruction and upgrading of our sales,
revenue-generating and technical capabilities in an effort to stem the continuing decline
in our professional service revenues, which decline may accelerate in the remaining portion
of 2002 and during 2003. We have
engaged a number of consultants and external marketing and recruiting firms to assist in
the evaluation of our business operations and to recruit qualified selling and technical
personnel. These investments and the decline in our revenue will likely cause us to
continue to incur operating losses for the foreseeable future, which will be funded
through the use of our cash resources. Notwithstanding these anticipated investments,
there can be no assurance that our professional services revenues will not continue to
decline.


-12-
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Our
professional service revenues may further decline in the remaining portion of 2002 and
during 2003 because there is no guarantee that our current clients will continue to use
our services; many of our customers have the right to terminate their contracts with us
for convenience; the nature of the arrangements with certain of our customers is
informal; the sales cycle for our core professional services offerings is six-to-nine
months; we rely upon a limited number of key sales personnel; and our clients budgets
for IT services, including IT training and professional development services, continue to
be constrained. A sustained decline in the demand for our professional development
services may cause the Company to evaluate for possible impairment the goodwill
associated with our acquisition in September 2001 of the assets of the ICM Education
Division of Computer Horizons Corp.


Stock
Price


The
trading price of our Common Stock is likely to be subject to significant fluctuations in
response to variations in quarterly operating results, the gain or loss of significant
contracts, changes in management, general trends in the industry, recommendations by
industry analysts, the limited trading activity in our stock, and other events or
factors. The equity markets in general have experienced extreme price and volume
fluctuations which have affected the market price of our Common Stock, as well as the
stock of other technology companies. Often, price fluctuations are unrelated to operating
performance of the specific companies whose stock is affected.


MTA


In
December 1997, we entered into a four-year, $20.4 million contract (the MTA Contract)
with New York City Transit, an agency of the Metropolitan Transportation Authority of the
State of New York (the MTA) to furnish and install local and wide-area
computer network components including network and telecommunications hardware, software
and cabling throughout the MTAs over 200 locations. The aggregate amount of this
contract was subsequently increased to $20.6 million. We are the prime contractor on this
project and are responsible for project management, systems procurement, and
installation. The work is grouped in contiguous locations and payment is predicated upon
achieving specific milestone events. In the event of default, in addition to all other
remedies at law, the MTA reserves the right to terminate our services and complete the
MTA Contract itself at our cost. In the event of unexcused delay by our company, we may
be obligated to pay, as liquidated damages, the sum of $100 to $200 per day, per site.
While we believe we are currently performing in accordance with the contract terms, there
can be no assurance that any such events of default or unexcused delays will not be
asserted. In addition, the MTA Contract is a fixed unit price contract, and the
quantities are approximate, for which the MTA has expressly reserved the right, for each
item, to direct the amount of equipment and related installation be increased, decreased,
or omitted entirely on 30 days notice. The MTA has the right to suspend the work on 10
days notice for up to 90 days and/or terminate the contract, at any time, on notice,
paying only for the work performed to the date of termination. The project is subject to
the prevailing wage rate and classification for telecommunications workers, as determined
by the New York City Comptrollers Office, over which we have no control, and which
is generally adjusted in June of each year and may be so adjusted in the future.


-13-
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|We
have performed services and supplied products to the MTA since the inception of the MTA
Contract. The work performed to date at MTA sites has required greater than the
originally estimated labor and other costs to complete. In May 1999, we submitted a
formal request to the MTA for equitable adjustment in the amount of approximately $1.5
million and for a time extension. This request was supplemented with a further submission
in October 1999. In January 2000, the Project Manager for the MTA Contract denied our
request, thereby triggering our right under the contract to appeal the Project Managers
denial to the MTAs Dispute Resolution Office (the DRO). We filed a
Notice of Appeal with the DRO in February 2000, and pursuant to the DROs request,
filed further written submissions and participated in an arbitral session with the DRO
subsequent thereto. In November 2000, the DRO rendered a written decision denying in full
our Request for Equitable Adjustment and Time Extension. Pursuant to the terms of the MTA
Contract, in March 2001, we appealed the DROs denial of our Request to the New York
Supreme Court (the Court). On April 22, 2002, the Court rendered its decision
on our appeal, denying all of our claims for review of the determination made by the DRO.
On May 31, 2002, we filed an appeal of this decision with the Court.



-14-
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|On
July 19, 2000, the MTA advised us of a determination by the Bureau of Labor Law (the
Bureau) of the New York City Comptrollers Office, communicated to the
MTA by letter from the Bureau dated June 22, 2000, that, as of July 1, 2000, the labor
classification for all low voltage cabling carrying voice, data, video or any combination
thereof is electrician. The Bureaus determination is based on a New York State
Supreme Court Appellate Division decision dated May 18, 2000. The workers currently and
historically used by us to perform cabling work have been classified as
telecommunications workers. We believe it is probable the Bureaus determination
will apply to our cabling activities under the contract, thereby likely requiring the
reclassification of our telecommunications workers as electricians retroactive to July 1,
2000. Since the prevailing wage for electricians is substantially higher than that for
telecommunications workers, we expect to incur materially increased labor costs as a
result of the Bureaus determination. On October 16, 2000, the MTA Project Manager
denied our request for a change order to compensate our company for the increased costs
it expects to be incurred in connection with the reclassification of certain of our
telecommunications workers as electricians. On January 19, 2001, we initiated a disputewithin
the meaning of the applicable federal regulations governing the MTA Contract by filing a
complaint with the United States Department of Labor (the Department of Labor).
In our complaint, we requested that the Department of Labor adjudicate this dispute, and
either issue a determination affirming that the prevailing wage rate for
telecommunications workers, as originally specified by the MTA, is the applicable rate
for this project, or directing the MTA to compensate us for the change in wage
classification made during the performance of the contract in violation of federal
regulations. By letter dated March 12, 2001, the Department of Labor advised us that,
without knowing which, if any, federal wage decision was included in the MTA Contract, it
is unable to make a determination that any violation of federal labor law has occurred.
On February 12, 2002, we were informally advised by the Department of Labor that the
Department has concluded that no federal wage determinations were included or required to
be included in the MTA Contract because the project has insufficient federal funding to
trigger the federal wage regulations. The Department of Labor asserts that our claim is
not one that is governed by federal regulations or one over which the Department is
willing to exercise jurisdiction. On April 23, 2002, we received a letter from the
Department of Labor dated April 9, 2002 stating that the Department does not have
jurisdiction over the dispute because it was advised by the New York City Comptrollers
office that no federal funds were provided for the MTA Contract. We are currently
evaluating this letter and will decide upon appropriate action after completing our
evaluation. We have been advised that there are legitimate grounds on which the
Department of Labors position as well as the above-referenced wage reclassification
may be challenged. We are currently evaluating an appropriate course of action. There can
be no assurance we will be successful, either in whole or in part, in our efforts.


Eureka Broadband


In
February 2001, a wholly-owned subsidiary of Eureka Broadband Corporation (Eureka), merged
with and into nex-i.com. We previously invested $1.8 million in nex-i.com series A
convertible participating preferred stock (series A nex-i.com stock). In
connection with this merger we loaned Eureka $382,000, in exchange for a promissory note,
and received several classes of preferred stock in exchange for the series A nex-i.com
stock, all of which was converted to common stock in July 2001. In the fourth quarter of
2001, we wrote off our remaining investment of $382,000.


Forward-Looking
Statements


Certain
statements are included in this Quarterly Report on Form 10-Q which are not historical
and are forward-looking,within the meaning of The Private Securities
Litigation Reform Act of 1995 and may be identified by such terms as continuing,
plan, goal, expect, believe, may, will, and
intend or similar terms. These forward-looking statements may include, without
limitation, statements regarding possible future growth in the IT markets, the status of
the trends favoring outsourcing of management information systems (MIS)
functions by large and mid-sized companies, the anticipated growth and higher margins in
the services and support component of our business, the timing of the development and
implementation of our new service offerings and the utilization of such services by our
customers, and trends in future operating performance. Such forward-looking statements
include risks and uncertainties, including, but not limited to:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The significant decline in demand for our services;
| | - |  | ---------------------------------------------------

| |  |  | Frequent changes in the executive management of our company;
| | - |  | ------------------------------------------------------------

| |  |  | The
repositioning of our company as an IT professional services firm and all expected and
unexpected costs and events related to such repositioning, including, among
other things:
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The substantial variability of our quarterly operating results caused by a variety of
factors, some of which are not within our control,
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Intense competition from other IT service providers,
| | - |  | ----------------------------------------------------

| |  |  | The short-term nature of our customers' commitments,
| | - |  | ----------------------------------------------------

| |  |  | Patterns of capital spending by our customers,
| | - |  | ----------------------------------------------

| |  |  | The timing, size and mix of product and service orders and deliveries,
| | - |  | ----------------------------------------------------------------------

|-15-
|----

---

| |  |  | The ability of our company to maintain its vendor certifications,
| | - |  | -----------------------------------------------------------------

| |  |  | The timing and size of new projects,
| | - |  | ------------------------------------

| |  |  | Competitive pricing factors,
| | - |  | ----------------------------

| |  |  | Market factors affecting the availability of qualified technical personnel,
| | - |  | ---------------------------------------------------------------------------

| |  |  | The timing and customer response of new product and service offerings,
| | - |  | ----------------------------------------------------------------------

| |  |  | Changes in trends affecting outsourcing of IT services,
| | - |  | -------------------------------------------------------

| |  |  | Disruption in sources of supply,
| | - |  | --------------------------------

| |  |  | Changes in product, personnel and other operating costs, and
| | - |  | ------------------------------------------------------------

| |  |  | Industry and general economic conditions;
| | - |  | -----------------------------------------

| |  |  | Changes
in technical personnel realized billing and utilization rates;
| | - |  | ----------------------------------------------------------------------

| |  |  | The
intense competition in the markets for our companys products and services, which
could result in a decline in margins associated with the sale of those
products and services;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The ability to develop, market, provide, and achieve market acceptance of service
offerings to new and existing customers;
| | - |  | --------------------------------------------------------------------------------------------------------------------------

| |  |  | Our
ability to attract, hire, train, and retain qualified technical personnel;
| | - |  | ------------------------------------------------------------------------------

| |  |  | Our substantial reliance on a concentrated number of key customers;
| | - |  | -------------------------------------------------------------------

| |  |  | The
right of many of our customers to terminate their contracts with us for convenience and
the informal nature of the arrangements with certain of our key customers.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Uncertainties
relating to potential acquisitions, if any, made by our company, such as our ability to
integrate acquired operations and retain key customers and personnel of the
acquired business;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Our reliance on the continued services of key executive officers and salespersons; and
| | - |  | --------------------------------------------------------------------------------------

| |  |  | Material
risks and uncertainties associated with the MTA Contract.
| | - |  | ------------------------------------------------------------------

|-16-
|----

---

|These
risks and uncertainties could cause actual results to differ materially from results
expressed or implied by forward-looking statements contained in the document. These
forward-looking statements speak only as of the date of this document.


Recently Issued
Accounting Standards


On
May 1, 2002, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. This Statement rescinds SFAS No. 4, Reporting Gains and Losses
for Extinguishment of Debt, and an amendment of that Statement, SFAS No. 64, Extinguishments
of Debt Made to Satisfy Sinking-Fund Requirements. This Statement also rescinds SFAS
No. 44, Accounting for Intangible Assets of Motor Carriers. This Statement
amends SFAS No. 13, Accounting for Leases, to eliminate an inconsistency
between the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or describe their
applicability under changed conditions. The issuance of this Statement is not currently
expected to have a material impact on the Companys results of operations.


In
July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit
or Disposal Activities. This Statement addresses financial accounting and reporting
for costs associated with exit or disposal activities and nullifies Emerging Issues Task
Force (EITF) Issue 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring). The issuance of this Statement is not currently expected to have a
material impact on our results of operations.


Liquidity and
Capital Resources



Cash
and cash equivalents at June 30, 2002 were $20.6 million, compared to $23.8 million at
December 31, 2001, a decrease of $3.2 million. Working capital at June 30, 2002 was $23.8
million as compared to $23.8 million at December 31, 2001.


Cash
used in operating activities of $3.2 million reflects cash operating losses and
reductions of accounts payable and accrued expenses as well as delays in collecting
monies owed by the MTA. Our days sales outstanding in accounts receivable increased from
73 days at December 31, 2001 to 107 days at June 30, 2002, resulting primarily from
delays in collecting amounts due from the MTA Contract. Excluding MTA receivables, days
sales outstanding in accounts receivable at June 30, 2002 was 50 days. In July 2002, we
received $1,000,000 of the total amount of $4,500,000 currently due from the MTA at June
30, 2002. We expect to experience continued delays in collecting amounts due under the
MTA Contract. Cash used in investing activities included our capital expenditures for the
first six months of 2002 of $43,000 primarily for the purchase of computer equipment and
software used by our company.


Cash
provided and utilized by financing activities included a reduction of $8,000 for
repayment of capital lease obligations.


-17-
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|During
the first six months of 2001, employees purchased shares of stock for approximately
$51,000 under the Employee Stock Purchase Plan, which was suspended in September 2001.


We
purchased certain inventory and equipment through a financing arrangement with IBM Credit
Corporation. At June 30, 2002, there was an outstanding balance of approximately $117,000
to IBM Credit Corporation under this arrangement. Obligations under this financing
arrangement are collateralized by the current inventory balance purchased from IBM
through June 30, 2002. The current credit limit with IBM Credit Corporation is $300,000.


To
address the reduction in revenues and resulting operating losses, we are implementing a
plan to increase our professional service revenues and improve our operating results. In
connection with this plan, we currently anticipate the need to make significant
investments in the reconstruction and upgrading of our sales, revenue-generating and
technical capabilities in an effort to stem the continuing decline in our professional
service revenues, which decline may accelerate in 2003. We have engaged a number of
consultants and external marketing and recruiting firms to assist in the evaluation of
our business operations and to recruit qualified selling and technical personnel. These
investments and the decline in our revenue will likely cause us to continue to incur
operating losses for the foreseeable future, which will be funded through the use of our
cash resources. Notwithstanding these anticipated investments, there can be no assurance
that our professional services revenues will not continue to decline.


We
believe that our available funds, together with existing and anticipated credit
facilities, will be adequate to satisfy our current and planned operations for at least
the next 12 months.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 3. |  | Quantitative and Qualitative
Disclosures About Market Risk.
|------- |  | -----------------------------------------------------------

|Not
applicable.



18
|---------------------

---

|PART II.   OTHER INFORMATION


Item 1.  Legal Proceedings


In
connection with our ongoing disputes with the MTA concerning a contract entered into with
the MTA in December 1997, we have filed certain legal proceedings as discussed in Part I,
Item 2 of this Report (Managements Discussion and Analysis of Financial Condition
and Results of Operations) at pp. 13-15.


On
March 18, 2002, we received a copy of a Complaint filed by a current and a former
employee in the Superior Court of New Jersey, Law Division (Bergen County) against us and
certain of our employees alleging employment-related claims. The plaintiffs are seeking
compensatory and punitive damages in an unspecified amount, attorneysfees and costs
of suit. On July 12, 2002, we forwarded an Answer to the Complaint for filing with the
Superior Court. We and the named individual defendants believe they have meritorious
defenses to the plaintiffsclaims and are prepared to defend against them
vigorously.


We
have no knowledge of any other material litigation to which we are a party or to which
any of our property is subject.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 5. |  | Other Information
|------- |  | -----------------

|At its
regular meeting held on July 31, 2002, the Board of Directors expanded the membership of
our Board from six to seven directors and elected Barry M. Goldsmith, 58, to fill the
vacancy thereby created. Mr. Goldsmith has since 1986 been a Managing Director of Updata
Capital, Inc., an investment banking firm focused on mergers and acquisitions in the
information technology industry. In the past, we have received investment advisory
services from Updata Capital, Inc. pursuant to an engagement letter executed in October
2000, terminated effective July 2001 and renewed from time to time thereafter. To date,
no amounts have been paid by our company to Updata Capital in connection with its
engagement. Ira Cohen, a member of our Board of Directors and chairman of the Boards
Audit Committee, is also a Managing Director of Updata Capital, Inc. Both Messrs.
Goldsmith and Cohen are limited partners in Fallen Angel Equity Fund, LP, a Delaware
limited liability partnership, which currently owns 687,100 shares of our common stock.
Mr. Goldsmith is also a director of Compuware Corporation, Dendrite International, Inc.,
Frontstep, Inc. and Astea International, Inc.


At its
regular meeting held on July 31, 2002, the Board of Directors established a Nominating
Committee, consisting of Ira Cohen, Thomas F. Dorazio, Doreen A. Wright and Barry M.
Goldsmith.


As
of July 31, 2002, we entered into an indemnification agreement with Richard G. Erickson,
our President and Chief Executive Officer, and New England Associates, LLC, a
professional services turnaround consultancy of which Mr. Erickson is president. The
indemnification agreement is on substantially the same form as those we previously
executed with our other executive officers. Pursuant to the agreement, we agree, subject
to certain exceptions, to indemnify Mr. Erickson and New England Associates, LLC, to the
fullest extent permitted by law if Mr. Erickson or New England Associates, LLC becomes
subject to an action arising out of the discharge of Mr. Ericksons duties as an
officer, employee, agent or fiduciary.


-19-
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|On
July 18, 2002, we entered into an Agreement and Mutual Releases with Stan Gang, our
Chairman of the Board, retroactive to December 1, 2001, the effective date of Mr. Gangs
retirement as Chief Executive Officer. Pursuant to the agreement, Mr. Gang will continue
to receive his base salary and certain other benefits for the 18-month period from March
1, 2002 through August 31, 2003. Upon execution of the agreement, Mr. Gang also received
reimbursement of legal fees incurred by him in connection with the preparation and
negotiation of the agreement in the amount of $10,000. In the fourth quarter of 2001, we
recorded a charge of $500,000 in connection with this arrangement.




-20-
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Item 6. |  | Exhibits and Reports on Form 8-K.
|------- |  | ---------------------------------

| |  | (a) |  | Exhibits.
| |  | --- |  | ---------

| |  |  |  | 10.46 |  | Indemnification
Agreement dated as of July 31, 2002 by and among the Company, Richard G. Erickson and New
England Associates, LLC.
| |  |  |  | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | 99.1 |  | Certification
of Richard G. Erickson, President and Chief Executive Officer.
| |  |  |  | ---- |  | ----------------------------------------------------------------------------

| |  |  |  | 99.2 |  | Certification
of William S. Medve, Executive Vice President, Chief Financial Officer and Treasurer.
| |  |  |  | ---- |  | ---------------------------------------------------------------------------------------------------

| |  | (b) |  | Reports
on Form 8-K.
| |  | --- |  | --------------------

|On May 2, 2002, the Company
filed with the Commission a current report on Form 8-K reporting an event under Item 5  Other Events.





-21-
|--------------------------------------------------------------------------------------------------------------------------------------------

---

|SIGNATURES



Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|DATE:  August 13, 2002 |  | ALPHANET SOLUTIONS, INC.By:  RICHARD G. ERICKSON 
Richard G. EricksonPresident and Chief Executive Officer(Principal Executive Officer)-
|---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

|DATE:  August 13, 2002 |  | By:  WILLIAM S. MEDVE
William S. MedveExecutive Vice President, Chief Financial Officerand Treasurer(Principal Financial and Accounting Officer)
|---------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

*Mr.
Erickson currently serves as President and Chief Executive Officer of AlphaNet Solutions,
Inc. in a consulting capacity through New England Associates, LLC, a professional
services turnaround consultancy of which he is president.