<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-K

(Mark One)                  ________________________


     [4]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
          OF 1934

          For the fiscal year ended  December 31, 2001
                                    --------------------------------------------

                                       Or

     [_]  For the transition period from_________________ to _________________.

                         Commission file number 1-11784
                                                -------

                            THE NETPLEX GROUP, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


           New York                                              11-2824578
--------------------------------------------------------------------------------
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

1800 Robert Fulton Drive, Ste. 250, Reston, VA                    20191-4346
--------------------------------------------------------------------------------
(Address of principal executive offices)                          (Zip code)
Registrant's telephone number, including area code: (703) 716-4777
                                                   -----------------------------

Securities registered under Section 12(b) of the Exchange Act:

<TABLE>
<S>                                        <C>
     =================================== ===============================================
             Title of Each Class            Name of Each Exchange on Which Registered
             -------------------            -----------------------------------------
     ----------------------------------- -----------------------------------------------
        Common Stock, $.001 par value         NASD Over the Counter Bulletin Board
     =================================== ===============================================
</TABLE>

Securities registered under Section 12(g) of the Exchange Act:

                                                            None

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

     The aggregate market value of the registrant's voting and non-voting common
stock held by non-affiliates of the registrant as of March 29, 2002, was
approximately $830,000.

     Indicate the number of shares outstanding of each of the registrant's
classes of Common Stock as of March 29, 2002: 23,050,360 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

     No documents are incorporated herein by reference into Part III.

<PAGE>

                               INDEX TO FORM 10-K

<TABLE>
<S>                                                                                                    <C>
PART I ..............................................................................................   3

  Item 1.  Business..................................................................................   3

  Item 2.  Properties................................................................................  17

  Item 3.  Legal Proceedings. .......................................................................  18

  Item 4.  Submission of Matters to a Vote of Security Holders.......................................  19

PART II .............................................................................................  20

  Item 5.  Market for Common Equity and Related Stockholder Matters..................................  20

  Item 6.  Selected Financial Data...................................................................  22

  Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations.....  24

  Item 7A. Quantitative and Qualitative Disclosures About Market Risk................................  27

  Item 8.  Financial Statements and Supplementary Data...............................................  28

  Item 9.  Changes In and Disagreements with Accountants on Accounting and Financial Disclosure......  28

PART III ............................................................................................  29

  Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section
           16(a) of the Exchange Act.................................................................  29

  Item 11. Executive Compensation....................................................................  29

  Item 12. Security Ownership of Certain Beneficial Owners and Management............................  33

  Item 13. Certain Relationships and Related Transactions............................................  34

PART IV .............................................................................................  35

  Item 14. Exhibits and Reports on Form 8-K..........................................................  35

  Signatures.........................................................................................  39
</TABLE>

                                        2

<PAGE>

                                     PART I

1. Business.

Company Overview

Based in Reston, Virginia, The Netplex Group, Inc. (the Company) consists of two
distinct operating units:

..    Netplex Systems, Inc. ("Systems"), a professional services provider that
     combines industry-specific knowledge, emerging technologies, and proven
     strategies to deliver superior business systems solutions; and

..    Contractors Resources, Inc., ("CR") which delivers time- and money-saving
     services for independent professionals and the organizations that use them.

Over the past two years, management has undertaken restructuring efforts aimed
at, among other things, improving the productivity and billable utilization of
its staff and reducing operating expenses. These restructuring efforts have
included headcount reductions, consolidation of facilities and management of
discretionary expenses. However, these actions were taken in a period where
economic conditions in the United States and abroad created downward pressure on
spending for information technology initiatives, including demand for the
Company's consulting services.

In late 2001, the Company began exploring alternatives to raising additional
capital and restructuring its obligations and capital structure. Among the
alternatives considered included a rights offering aimed at raising capital
through the issuance of additional shares of its Netplex Systems subsidiary. At
this time, management has chosen to not pursue the rights offering further,
choosing instead to entertain offers for the operations comprising Netplex
Systems (either as a whole or in parts). In March 2002, the Company entered into
non-binding letter of intent to sell the assets of its retail consulting
business for approximately $6.0 million in cash, subject to several conditions
to closing, including due diligence and entering into purchase and sale
agreements and employment agreements with key individuals in this business.
While management is optimistic that this transaction will close by the end of
May, no assurances can be given at this time that the Company will be able to
close on this sale or one with other potential buyers. In addition, the Company
continues to entertain offers for the remaining businesses within its Netplex
Systems business.

If the above sale is successfully completed, management intends to focus on
improving the operations of its Contractors Resources business by growing both
its business to consumer service ("MyBizOffice") and its business to business
service ("Consultant Service Center") offerings.

The following sections describe each of these operating units through an
overview, a market opportunity description, a description of services, a
breakdown of competition and differentiators, a partial client list, our
strategy for growth, seasonal considerations, backlog, strategic acquisition
status, and contact information.

Systems

Overview

Systems provides technology consulting and information systems integration
services that seek to help clients make the most efficient, cost-effective, and
reliable use of their information technology systems. Examples of information
systems upon which we commonly base solutions are financial systems, human
resources applications, warehouse management packages, Point-of-Sale systems,
order processing applications, data networks, infrastructure systems, data
storage management platforms, and multi-site communications systems.

We offer three "disciplines" of services--strategy, technology, and security--
through which we seek to support clients through all phases of their information
systems' development and implementation. We are also organized into "industry
specializations," which are practices that seek to conceptualize and develop
solutions by leveraging concentrated expertise within a particular industry.
Through our industry specializations, we seek to promote the development of
solutions that are most appropriate to our clients' specific business problems.
By coordinating the skills, knowledge, and efforts of our service disciplines
and industry specializations, we seek to balance the most appropriate
traditional processes and emerging technologies to help clients achieve improved
business efficiencies.

Our core consulting and integration services focus on building ongoing business
value for a customer base that typically includes corporations with a national
or multi-national presence. We seek to become our clients' single-

                                        3

<PAGE>

source information systems partner and commonly develop multi-year relationships
with clients that entail multiple projects.

Industry Specializations

We consider our industry specializations, introduced above, to be critical to
our business model. Although we serve organizations beyond industries in which
we specialize, we consider it imperative to thoroughly understand the business
dynamics and technology trends of our targeted industries. In doing so, we seek
to provide the most appropriate solutions for industry-specific business
problems. We believe that establishing this understanding helps us deliver
business systems solutions that serve our clients' unique strategic,
technological, and information security needs which better enables them to
enhance their operations, strengthen client loyalty, and achieve a sustainable
competitive advantage.

Our primary industry specialization is in the Retail and Supply Chain ("Retail")
industry, which comprises companies that primarily provide goods and services to
consumers as well as the processes by which they receive goods from their
manufacturers and suppliers. Our Retail industry clients--which commonly include
apparel retailers, grocery stores, specialty retailers, music and video outlets,
department stores, sporting goods chains, and restaurants--generally comprise
national or multi-national chains of 100 or more stores. We seek to provide our
Retail clients with end-to-end systems solutions designed to improve their
operational efficiencies, enhance processes that improve customer service,
and/or pursue new revenue opportunities. We have served Retail businesses with
professional systems services since 1985. We believe that we have achieved a
noteworthy and respected reputation in the Retail industry and approximately 80%
of our Retail clients return to us for multiple projects. We further believe
that our expertise within the Retail industry gives us a competitive advantage
over many larger national consulting companies.

Market Opportunity

Our market opportunity originates from the need for business strategies and
solutions that help organizations most efficiently improve their internal
operations and/or competitive advantage.

We believe that there exists a growing trend toward professional services
designed to build or augment business systems through emerging technologies.
Many of our clients have become participants in this trend by implementing
business strategies that combine traditional technologies and practices with
those made possible by the Internet. We believe that the vast majority of our
business systems services in 2001 and beyond will include a combination of
traditional and Web-based systems.

We further believe that businesses wishing to implement complete information
systems strategies and solutions often require skill sets and capacity that
extend beyond their internal executive, marketing, and Information Systems (IS)
staffs. As a result, several of our clients have selected us to provide
consulting integration, and technology infrastructure development services
intended to help them develop business strategies and/or enable the systems that
most efficiently position them for ongoing competitive advantage.

Description of Services

We seek to maximize the capabilities of our industry specializations with our
three service disciplines, which we believe to be applicable to multiple
industry specializations. While our Retail industry specialization remains our
most prominent, we believe that, as we choose to expand, we have planned our
service disciplines so that they will effectively serve other industries as
well. Our service disciplines are:

..    Strategy, through which we seek to leverage our industry knowledge to guide
     clients toward the most effective use of business practices and systems;

..    Technology, through which we seek to develop, integrate, and implement
     appropriate information systems and infrastructure; and

..    Security, through which we seek to maximize the integrity and minimize the
     potential threats to clients' information architecture.

We believe that our service disciplines provide the appropriate breadth and
quality of services that will accommodate, on a single-source basis, the vast
majority technology-related projects.

                                        4

<PAGE>

Service Discipline: Strategy. The services of our Strategy discipline seek to
help clients determine the best ways to use technology to maximize their
long-term business viability and establish ongoing competitive advantage.
Working collaboratively with our clients' executive management, we leverage our
industry and technology experience to evaluate new or modified opportunities for
building revenues or improving operational efficiencies. The services of our
Strategy discipline also seek to help clients define or revise business models
designed to take advantage of these opportunities. This discipline also offers
the ability to develop the execution plan for bringing the new business models
to reality.

Service Discipline: Technology. The services of our Technology discipline seek
to design, develop and implement appropriate business systems based either on
the plans defined by our Strategy discipline or requirements established
elsewhere. This group also helps clients build an effective technology
infrastructure and also commonly integrates newly developed systems with
clients' existing ("legacy") system. These services are intended to promote the
delivery of reliable business systems at a reasonable cost. Further, our
Technology discipline seeks to create and/or integrate e-commerce capabilities
to clients' Web applications. The services of our Technology discipline also
include a formal Client Support Network, through which we closely monitor
clients' systems and attempt to resolve system problems as quickly as possible.

Service Discipline: Security. The services of our Security discipline seek to
ensure the integrity of clients' information systems and minimize the threat of
losing information due to "hacking," theft, or natural disasters. Our Security
services include information security strategy solutions, from which we commonly
perform vulnerability analyses, test client systems' penetrability, and develop
security architectures. We have provided these services both as stand-alone
services and as part of projects originating from other Company disciplines.

Competition

Despite the significant difficulties many technology services companies
experienced during 2000, we remain in a very competitive market. We believe that
the most successful participants in this market no longer rely on serving
"dot-com" companies to attain revenue growth. Instead, we believe that most have
realigned their marketing direction toward larger, more established players
within specific vertical markets. We established a primarily industry-centric
marketing strategy in 1999 and our revenue from dot-com companies represented
less than 10% of our 2000 revenue.

Our competition falls into four general categories, described below. In all
cases, many of our competitors have greater resources, greater expertise, or
have better access to capital than us. Competitive categories include:

..    Industry-Specific Solutions Integrators. These companies have expertise in
     and build solutions exclusively for specific vertical markets. We believe
     that these companies, like us, attempt to distinguish themselves by
     developing expertise in a single or relatively few markets, thereby better
     enabling themselves to compete with larger and more well-funded consulting
     companies. Industry-specific solutions integrators include Answerthink,
     LakeWest Group and several smaller companies.

..    "Big 5" Consulting Firms. Many of the "Big 5" consulting firms (such as
     Deloitte & Touche, KPMG, and Accenture) feature industry-concentrated
     practices and offer strategic and technological solutions similar to ours.
     As a result, we frequently compete against these firms when bidding on
     projects related to industry specializations. Systems believes that the
     success of professional consulting services depends on individuals who
     deliver these services, coupled with the knowledge base and management
     processes of the companies with which they work. We believe that we have
     been successful competing against "Big 5" firms in the past because our
     clients recognize the depth of our industry knowledge and prefer a
     relationship with a smaller, more flexible firm that can respond quickly to
     shifting requirements. Several Systems associates have previously worked
     for "Big 5" firms.

..    Large Systems Integrators. Several prominent companies represent a
     competitive threat to our business in the areas of systems integration and
     solution implementation. In some cases, these competitors' integration
     services complement their hardware and software development efforts, which
     we believe gives them the appearance of significant expertise in the
     perception of some potential clients. However, we believe that our
     experience integrating these vendors' systems positions us to compete
     favorably and that many clients prefer the attentiveness and value
     associated with a smaller company. Examples of large systems integrators
     include Dimension Data, EDS, Hewlett-Packard, and IBM.

                                        5

<PAGE>

..    Small to Mid-Sized Regional Systems Integrators. Our technology integration
     services face competition from many small and mid-sized integrators around
     the U.S. In most cases, these integrators are regional and therefore
     generally compete with us only within our primary operating locations
     (Reston, Va.; Oklahoma City, OK,; and Charlotte, N.C.).

Differentiators

We believe that our business has two primary competitive differentiators from
its competitors:

Industry Focus: As previously mentioned, we attempt to understand the business
dynamics and technology trends of specific industries. As part of our
fundamental business strategy, we have established formal practice areas
dedicated to serving the unique needs of these markets. As of today, our largest
industry specialization is in the Retail industry. We employ approximately 50
full-time billable professionals dedicated to creating Retail - specific
solutions and our employees have amassed a cumulative 1,000 person-years of
Retail experience.

Single-Source Systems Solutions: We attempt to compete with other companies in
our market by providing single-source solutions and developing relationships
with clients who seek a provider that can balance multiple strategic and
technical disciplines in developing or enhancing business systems. Our
single-source end solutions seek to cover clients' business requirements `two
dimensionally': from `beginning to end' and from `front to back.' We seek to
provide beginning to end services that guide clients from the strategic
conception of their business initiatives through application development,
deployment, and security assurance. Simultaneously, we seek to serve clients'
systems initiatives from front to back; that is, our services are intended to
integrate front-end application design with back-end databases and legacy
systems, creating a reliable, secure, and high-performing infrastructure.

Clients

Systems' client base includes large and middle-market firms from various
industries. We derived, and believe that we will continue to derive, a
significant portion of our revenue from a large number of clients. The majority
of our clients, over 50%, are in the Retail industry; however, we also serve
many customers from various other industries. The companies listed below
represent our largest clients, each representing revenue in excess of $1.0
million since 1998.

Our major Retail/Consumer Products clients include: o

..    American Eagle Outfitters          .    Sonic Industries
..    ALDI                               .    SVI Retail
..    Dick's Sporting Goods              .    Trans World Entertainment
..    Dollar General                     .    Value City Dept. Stores
..    Garden Ridge, Inc.

Major clients from within other industries include: o

..    Colonial Pipeline                  .    Omni Services
..    Ericsson                           .    TeleCorp
..    King Pharmaceuticals

                                        6

<PAGE>

Systems recognized revenue from unaffiliated customers constituting 21.4%, 25.0%
and 27.8% of Systems' revenues in 2001, 2000 and 1999, respectively from two
customers in each year.

Growth Strategy

Each of the following growth initiatives requires ample working capital. No
assurance can be given that our strategy will be successful.

..    Sustain Growth in Systems Solutions Business. In 2001, we have undertaken
     several initiatives that are designed to bring exposure to our company and
     help us promote revenue growth. We have made investments in publicizing our
     services, strengths, and position in the market through coordinated
     marketing and public relations initiatives, and we intend to continue to do
     so during 2001 and beyond. We are also planning to grow our sales staff and
     our team of billable professionals to accommodate revenue growth.

..    Re-Engage with Existing Client Base. Many of our clients return to us for
     additional services after our initial engagement with them. In our Retail
     specialization, this percentage is over 80%. It is critical to our growth
     that we continue to conduct our client engagements with the same quality
     and professionalism that we believe drive our current repeat client rate.

..    Develop New Industry Specializations. We also intend to roll out new
     industry specializations. We believe that the growth of our Retail and
     Supply Chain specializations stems from our knowledge and experience in
     these markets. We believe that our industry understanding will enable us to
     create client solutions that are aligned to the demands of this industry.
     Consequently, we believe that we must build a core industry competency,
     either organically or through acquisition, before we formalize any new
     industry-focused practice.

Seasonal Considerations

The company is generally not affected by seasonal changes except that only a
limited amount of services are furnished to Retail clients during the period
from the end of November to the end of January.

Backlog

The backlog of Systems' project-based business was approximately $3.0 million as
of March 1, 2002.

Strategic Relationships

Systems continues to develop strategic relationships with companies or
organizations whose services we believe complement ours. We believe that such
partnerships play an important role in our strategy of being a premium-level
end-to-end business systems provider. As technologies evolve, our ability to
deliver advanced business systems solutions may depend on our ability to secure
and maintain alliances with leading technology manufacturers.

Contact Information

The Systems' principal executive offices and headquarters are located at 1800
Robert Fulton Drive, Second Floor, Reston, Va., 20191. This location serves as
the headquarters for the Systems and Contractors Resources businesses.

Please direct all inquiries related to Systems to:
Tel: (703) 716-4777
Fax: (703) 716-1110
Email: info@netplexgroup.com
Web: www.netplexgroup.com

Contractors Resources

Overview

The second of The Netplex Group's operating units is our Contractors Resources
subsidiary. CR itself comprises two distinct business functions:

..    A business-to-consumer service, MyBizOffice(TM) ("MBO"). Designed to help
     independent professionals (IPs) more easily manage their careers,
     MyBizOffice serves as a corporate infrastructure for independent
     professionals who would otherwise have to perform their own business
     management and administrative tasks. MyBizOffice's services include
     contract review, invoicing, collections, tax administration, employee
     benefits, pre-tax retirement programs, marketing services, financial
     services, and expense management.

                                       7

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..    A business-to-business service, the Consultant Service Center ("CSC"). By
     offering low-cost employment, payrolling, and benefits provisioning for
     clients' contingent work force, CSC is designed to enable businesses to
     reduce consultant management costs and better position themselves to
     efficiently engage and work with their contingent work force. Clients may
     also extend the scope of CSC's services to include our Consultant
     Recruitment Network (CRN) capability, which locates and assesses candidates
     for clients' open contract positions. In addition, CSC, which CR launched
     in early 2001, also serves as a marketing channel for MBO.

MyBizOffice and the Consultant Service Center are discussed in more detail in
"Description of Contractors Resources Services" later in this document.

Market Opportunity

Through its MyBizOffice brand, CR serves the population of individuals who have
chosen to pursue careers as independent professionals (IPs). These professionals
are commonly referred to as contractors, consultants, independents, free agents,
freelancers, and several other terms.

We originally designed MyBizOffice to serve only IPs within the Information
Technology industry. Recognizing an opportunity to expand our potential member
base, we expanded MyBizOffice during 2000 to serve IPs representing other
industries. MyBizOffice's audience now consists of IPs from a wide variety of
industries, including management consultants, marketers, artists and designers,
writers, business process specialists, and others.

Estimates compiled by the U.S. Bureau of Labor Statistics (BLS) indicate that
the IP market represents a significant population. In its February 1999 Current
Population Survey titled "Contingent and Alternative Employment Arrangements,"
the BLS estimates an independent consultant work force of about 9 million. The
BLS will publish an updated report on this population later in 2001.

Within the independent consultant community, the Information Technology
industry--which still makes up the most significant portion of MyBizOffice's
members and prospects--has seen significant growth. "The Information Elite," a
1997 report by Dominique Black, projected that there would be about 2 million IT
consultants in the U.S. by 2000, representing an annual growth rate of
approximately 17%.

There is also evidence that the population of IPs will continue to grow despite
a down-turning economy and the recent significant number of layoffs within
companies across the country. In a recent article in The Washington Post,
journalist Carrie Johnson writes, "As layoffs continue to shake up the dot-com
sector, some jittery employees wonder where they can find shelter from the
aftershocks. For more and more, the answer is renouncing the traditional
employment relationship by doing contract work."

Description of Services

CR provides cost- and time-saving business management and administrative
services for independent consultants and the organizations that use them. It's
two service categories include MyBizOffice, a business-to-consumer service that
targets individual IPs, and the Consultant Service Center, a
business-to-business service that targets organizations that use at least 100
IPs per year.

Service Overview: MyBizOffice

The MyBizOffice service is designed to support the business management,
administrative, and advisory needs of independent professionals (IPs) working
within the United States. IPs are professional or skilled non-permanent members
of the corporate work force. This includes free-lance, project-based, hourly,
and per diem individuals, whether incorporated, sole proprietors (classified as
1099 recipients), or W-2 employees engaged in the staffing or contractor
business.

When IPs join MyBizOffice (becoming "members"), they generally become W-2
employees of Contractors Resources/1/. As their employer of record, we provide
MyBizOffice members the services and infrastructure normally associated with a
traditional corporate environment. However, we do not put restrictions on their
independent work style; MyBizOffice members find their own projects, negotiate
their own hourly billing rates, and are free to work wherever and whenever they
choose.

____________________________

/1/ In addition to its standard W-2 membership, Contractors Resources also
provides services for several single-person corporations.

                                       8

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The services we provide our members are as follows:

     .  Billing rate advice                .  Expense reimbursement
     .  Time sheet collection              .  Access to projects within larger
     .  Client invoicing and payment          corporations
        collections                        .  Marketing and career development
     .  State/federal/local payroll           advice
        tax filings                        .  Financial services
     .  Payrolling (providing a consistent .  Contract administration
        tax-adjusted paycheck)
     .  Accounts receivable management
     .  Online banking and loan services

In addition, we provide a competitive benefits package that is usually more
comprehensive and less expensive than that which IPs would be able to assemble
on their own. Benefits include:

     .  401(k) program                     .  Disability insurance
     .  Profit sharing                     .  Professional liability insurance
     .  Health insurance                   .  Deferred compensation plan
     .  Dental insurance

This benefits program is customizable to the personal needs of the member. We
offer our health, dental, disability, and professional liability insurances at
traditional corporate (group) rates, enabling our members to inexpensively
provide their families with these necessary coverages. In addition, CR's profit
sharing and 401(k) retirement plans allow members to put aside a significant
portion of their pre-tax income.

Members can also take advantage of several advisory services through the
MyBizOffice Web site, including up-to-date billing rate surveys and consulting
industry news. The site also helps to keep contractors current on technology
changes and provides directories of training resources that can help keep
members' skills in line with the needs of the technology industry.

MyBizOffice is also an advocate for the independent worker. There is no
potential conflict among the consulting market and the organizations that may
engage them, because MyBizOffice does not bundle "hidden" fees for finding or
brokering the engagements. (Thousands of "e-talent marketplaces" already provide
this service.) Keeping the contract worker as the primary focal-point of the
business is pivotal to our strategy.

Service Overview: The Consultant Service Center

CR's business-to-business service, the Consultant Service Center, targets major
businesses and government agencies. It offers high-value employment, payrolling,
and benefits provisioning for our clients' contingent work force. CR designed
CSC to enable businesses to reduce consultant management costs and better
position themselves to efficiently engage and work with their contingent
workers. We officially launched the CSC service in early 2001.

The Consultant Service Center relies on the Internet's expanded talent-finding
capabilities to introduce a low-cost alternative to the traditional
relationships between corporations and staffing companies. Traditionally,
businesses have used staffing companies for two purposes: locating qualified
consultants and providing these consultants' employment services (payrolling,
tax administration, benefits, etc.). With the growth of online talent location
and acquisition services, many businesses are now finding consultants without
the assistance of staffing companies. However, they often have little choice but
to turn to staffing companies to employ the consultant and provide the necessary
employment services. In this scenario, many staffing companies will often still
charge their full mark-up (generally between 25% and 50% of a consultant's
hourly rate), even though they did not locate the individual.

CSC gives businesses the opportunity to "unbundle" the traditional staffing
company model. As such, business that find their own consultants can now turn to
the CSC for their employment services. Our fee for this service is under 5% of
the consultant's rate, which is significantly lower than fees or mark-ups
charged by most staffing companies. As a result, we believe that CSC provides
significant value for organizations that use consultants--not by reducing costs
through using inferior consultants, but by streamlining clients' consultant
supply chains.

CR designed CSC to offer its clients additional advantages such as easier
consultant engagement, simplified invoice consolidation, and improved compliance
with federal regulations. In addition, CSC better enables organizations to
become "consultant-friendly"--i.e., more easily able to attract, work with, and
maintain consulting talent.

                                       9

<PAGE>

In addition, the Consultant Service Center provides CR with a marketing channel
that supplements our MyBizOffice service in two ways. First, CR markets the more
encompassing MyBizOffice service to its Consultant Service Center members with
the intention of converting them to MyBizOffice upon completion of their
CSC-related contract. Second, we believe CR's corporate affiliations may
influence MyBizOffice prospects to join MyBizOffice because such relationships
enable members to more easily work within affiliated organizations.

Competition

Contractors Resources represents one alternative for independent professionals
(IPs) who choose to work outside of the "traditional" company-centric employment
model. Contractors Resources is one of several options these professionals have
for pursuing and building independent careers. These include:

..    Working with a staffing company. Many IPs associate themselves with a
     staffing or professional services company/2/. These companies provide
     employment services (i.e., benefits, insurances, payrolling, tax
     administration, etc.) and actively attempt to match independent individuals
     with appropriate project positions. These companies typically charge a 25%
     to 50% mark-up on their consultants' hourly rate. There are presently
     thousands of staffing companies in the U.S. and around the world and their
     IP bases range from under 10 to several thousand.

..    Working as a "1099" independent. IPs who prefer to find their own project
     positions often work as a sole proprietor or "1099" (so named because of
     the IRS form 1099 they are required to complete). These IPs are generally
     more experienced and are able to command higher billing rates than those
     who work with staffing companies, as their clients are not required to pay
     any mark-ups on their rate. However, 1099s are responsible for handling
     their own insurance, retirement programs, liability, and self-employment
     taxes. In addition, some businesses will not work with 1099s due to the
     administration associated with engaging individual contractors as well as
     the possibility of infringement on federal regulations concerning the
     classification of their work force.

..    Self-incorporating. Like 1099s, individuals who choose to incorporate
     themselves have the flexibility to find their own projects and can
     generally charge higher rates than those working with staffing companies.
     Self-incorporating also gives IPs a more professional appearance and
     enables them to work with some clients who would be unwilling to work with
     them as 1099s. Single-person corporations, though, must take on additional
     administrative tasks associated with running their business and are
     required to pay unemployment insurance and Workmen's Compensation
     insurance.

..    Using a "Virtual Corporate Office" or "back-office." A relatively new
     alternative, "back office" services provide a company-like infrastructure
     for IPs who prefer to find projects on their own. With the advent of the
     Internet, back-office services have been called Virtual Corporate Offices,
     as their services and financial tracking mechanisms are
     Internet-accessible. Like a staffing company, a Virtual Corporate Office
     serves as its IPs' employer of record and therefore provides services such
     as benefits, insurances, payrolling, tax administration, etc. Virtual
     Corporate Offices, however, do not charge to find projects for its IPs and
     are generally able to charge lower fees or mark-ups than staffing
     companies. Virtual Corporate Offices generally do not impede their IPs'
     freedom to choose their own clients, rates, and schedule. CR's MyBizOffice
     service falls into this category of services.

The first three of the above alternatives represent competitive forces to the
Contractors Resources employment model, as most IPs choose to participate in one
and only one of these models at a time. Currently, we estimate that fewer IPs
opt for the Virtual Corporate Office alternative than any of the others. We
believe this is primarily due to the fact that this is a relatively new concept
and that many IPs are either unaware of this alternative or comfortable with
their existing employment arrangements.

Competition within the Virtual Corporate Office market grew in 2000 and 2001 as
new companies began providing these types of services and others refined
offerings to better align with this category. Most of the companies in this
space are currently private.

CR believes that the Virtual Corporate Office employment model alternative will
grow in popularity as more IPs recognize it as a viable option. As a result, CR
expects that additional companies will emerge in this market and that

____________________________

/2/ Staffing companies are organizations that provide skilled human resources on
a non-permanent basis, meeting requirements specified by a client organization.

                                       10

<PAGE>

competition will therefore intensify. CR may experience lower margins and/or a
reduction in the number of members as a result of competitive forces. If we
cannot compete effectively within this market, we may be unable to sustain or
grow our business.

Differentiators

Contractors Resources has several differentiators that we believe will help us
attain a leadership position in the Virtual Corporate Office market. They
include:

..    Experience. Contractors Resources has been providing contractor-focused
     back-office services since 1986. We believe that this represents more
     experience than many similar businesses, some of which have emerged in the
     last three years. We believe that this experience is integral to several
     critical business processes that are flexible, scalable, and more advanced
     than our current competition.

..    Services for individuals and organizations. Contractors Resources believes
     it improved its competitive positioning in early 2001 by adding the
     Consultant Service Center, a suite of services that are marketed
     exclusively to businesses and government agencies that use IPs. This
     offering works in concert with, but is distinct from, our MyBizOffice
     service that targets individual IPs. We designed the Consultant Service
     Center offering to expand our overall revenue base and serve as a marketing
     channel to potential MyBizOffice members.

..    Fully integrated online service offering. During 2000, CR completed the
     integrated Web-enablement of all our key business processes and financial
     systems. We believe that completing this conversion enables us to serve our
     members more efficiently and, as a result, the same number of CR support
     staff can administer a greater number of members. In addition, research we
     conducted in 1999 indicated that an online system is more appealing to our
     members and target market. We believe that our ability to serve greater
     numbers of members gives CR a critical competitive advantage.

Clients

The client base for Contractors Resources' MyBizOffice service comprises
individuals. The corporate clients with which we have Master Services Agreements
include many Fortune 1000 companies throughout the U.S.

Growth Strategy

As mentioned earlier, CR introduced the business-to-business, the Consultant
Service Center offering in early 2001. We believe that the most effective way to
market our services to the independent workforce is to pursue the organizations
that use contract talent. As a result, CR intends to devote the majority of its
sales and marketing expenditures to the pursuit of organizations that use a
significant number of contracted workers.

Contractors Resources believes that the addition of and attention to our
Consultant Service Center sales and marketing efforts will not preclude
marketing efforts directed specifically toward growing the MyBizOffice
membership. We are continuing to advertise MyBizOffice in several publications
and on various Web sites. In addition, we are continuing to pursue partnerships
that we believe will bring more exposure or add more services to the MyBizOffice
offering.

Seasonal Considerations

There is no material seasonal effect on our Contractors Resources business.

Backlog

Due to the nature of its business, Contractors Resources does not have backlog.

Strategic Relationships

We are continually pursuing partnerships that will either augment CR's suite
service offerings or better enable us to market these services to a greater
number of potential members or clients.

The most prominent partnership CR established in the early part of 2001 was:

..    TheBancorp.com. In October, 2000, CR established a partnership with
     TheBancorp.com, a provider of online banking services that are marketed
     through online establishments that serve as affiliates. Through this
     relationship, we have extended MyBizOffice's service offering to include
     TheBancorp.com's full suite of

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     services, including checking and savings accounts, loans and mortgages,
     auto leases, an online brokerage services.

Contact Information

The Netplex Group's principal executive offices and headquarters are located at
1800 Robert Fulton Drive, Second Floor, Reston, Va., 20191. This location serves
as the headquarters for the Netplex and Contractors Resources businesses.

Please direct all inquiries related to Contractors Resources to:
Tel: (703) 262-6858
Fax: (703) 506-2039
Email: info@contractorsresources.com
Web: www.contractorsresources.com and www.mybizoffice.com

Corporate Information

The following sections apply to The Netplex Group, Inc., not specifically to
either of our two operating units.

Financial Information About Segments

For financial information regarding our business divisions (Systems and CR) see
Note 16 to the financial statements.

Company Background and Development

The Company was incorporated in 1986 in New York under the name CompLink, Ltd.
In 1992, CompLink completed an initial public offering to finance an effort to
develop a messaging software system (which the Company no longer supports). In
1996, CompLink acquired, through a merger that was accounted for as a reverse
merger, The Netplex Group, Inc. and Contractors Resources, and changed its name
to The Netplex Group, Inc.

This merger provided Netplex with additional capital and enabled us to expand
through acquisitions. Since 1997, Netplex acquired several companies with the
intention of building our experience, technical staff, customer base, market
exposure, revenue, and industry-focused expertise.

In 2000, we sold a division of a previously acquired entity, Onion Peel
Solutions, and announced our intention to sell or discontinue certain
operational disciplines. We believe these changes streamline our operations and
better enable clients, potential clients, analysts, investors, and the general
public to understand the scope of our offerings.

Geographic Positioning

The geographic scope of Netplex currently consists of four office locations. Of
these, two are on the East Coast of the U.S. two are in Midwest. The Company
does not have any locations outside the U.S. Revenue from sources outside the
U.S. is less than 1 percent of total revenue.

Netplex is continually assessing the most suitable areas for geographic
expansion and will seek to penetrate new markets when appropriate, either
organically or through acquisitions.

Operations and Support

During 2000 Netplex moved its headquarters from McLean, Va., to Reston, Va.,
which includes its executive offices, and its marketing, legal, financial
services and human resources departments.

Intellectual Property

Netplex does not hold any patents or registered trademarks. However, we consider
the Netplex, Contractors Resources, and MyBizOffice names and our database of
independent professionals to be highly proprietary.

Employees

As of March 1, 2002 we had approximately 280 full-time employees (including
permanent and contract employees). We believe that our relations with our
employees are good.

Additional Factors That May Affect Future Results

The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. Specifically, the Company
wishes to alert readers that the factors set forth in the sections entitled

                                       12

<PAGE>

"Competition" above, the factors set forth below, as well as other factors,
could in the future affect, and in the past have affected, the Company's actual
results and could cause the Company's results for future years or quarters to
differ materially from those expressed in any forward looking statements made by
or on behalf of the Company, including without limitation those contained in
this 10-K report. Forward looking statements can be identified by forward
looking words, such as "may," "will," "expect," "anticipate," "believe,"
"estimate" and "continue" or similar words.

The risks and uncertainties described below are not the only ones potentially
affecting us. Additional risks and uncertainties that we are unaware of or that
we currently deem immaterial also may become important factors that affect us.
If any of the following risks occur, our business, results of operations, or
financial condition could be harmed. As a result, the trading price of our
common stock could decline, and you may lose all or part of your investment.

IF WE ARE SUCCESSFUL IN SELLING ALL OR A PORTION OF OUR SYSTEMS BUSINESS, WE
WILL BE A MUCH SMALLER COMPANY. As previously disclosed, we are actively
entertaining offers to purchase all or parts of our Systems business and have
already entered into a non-binding letter of intent in March 2002 to sell the
assets associated with the retail consulting component of Systems. Systems
accounted for approximately 86% of our total revenue and gross profit in 2001
and such, of the sale of these assets is completed, the Company will be a much
smaller enterprise going forward, absent growth of its continuing business. No
assurances can be given that the Company will be successful in selling these
assets or that the proceeds from such a sale will be sufficient to sustain
operations going forward.

WE HAVE INCURRED OPERATING LOSSES AND MAY NEVER BECOME PROFITABLE. We incurred
net losses of $8.5, $15.3 and $7.4 million in the years ended December 31, 2001,
2000 and 1999, respectively. There can be no assurance that we will be
profitable on a quarterly or annual basis in the future. Our quarterly operating
results in the past have fluctuated and may fluctuate significantly in the
future depending on factors such as the timing and delivery of significant
orders and contracts, new product introductions, and changes in our pricing
policies.

WE MAY BE UNABLE TO OBTAIN THE NECESSARY FUNDING TO OPERATE, EXPAND AND IMPROVE
OUR BUSINESS. As of December 31, 2001 and 2000, we had negative working capital
of $8.7 million and $2.9 million, respectively. We may need to raise substantial
additional capital to fund our operations. We are uncertain whether additional
financing will be available on acceptable terms or at all. If we raise
additional funds by issuing equity securities, our shareholders will be diluted.
If adequate funds are unavailable, we may delay, curtail, reduce the scope of,
or eliminate the expansion of our operations and/or our marketing and sales
efforts, and any of these actions could have a material adverse effect on our
financial condition and business operations.

THE TIMING OF OUR REVENUES AND THE INTRODUCTION AND MARKET ACCEPTANCE OF OUR
PRODUCTS MAY VARY RESULTING IN SIGNIFICANT VARIATIONS IN OUR OPERATING RESULTS.
Our revenues may vary due to the number and dollar value of client engagements
commenced and completed during a quarter; the number of working days in a
quarter; and employee hiring and utilization rates. The timing of revenues is
difficult to forecast because our sales cycle for new clients is relatively long
and may depend on the size and scope of assignments and general economic
conditions. Because a high percentage of our expenses are relatively fixed, a
change in the timing of the beginning or end of client assignments, particularly
at or near the end of any quarter, could cause operating results to
significantly vary from quarter to quarter and result in reported losses for
that quarter. In addition, clients can terminate our engagement at will, and we
would then have a higher than expected number of unassigned persons or higher
severance expenses. While we adjust professional staffs to reflect active
projects, we must maintain a sufficient number of senior professionals to
oversee existing client projects and help our sales force secure new client
assignments. Because we perform some work on a fixed-price basis, we also bear
the risk of cost overruns and inflation.

THE FUTURE SUCCESS OF OUR BUSINESS DEPENDS ON THE CONTINUED SERVICES OF GENE
ZAINO, OUR CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, AND OUR ABILITY TO
ATTRACT AND RETAIN TECHNICAL, MARKETING, SALES, AND MANAGEMENT PERSONNEL. Our
future success depends in large part on the continued services of Gene Zaino,
our Chairman, President and Chief Executive Officer. We have an employment
agreement with Mr. Zaino that expires in June 2002. Our success also depends in
large part upon our ability to attract and retain qualified technical project
managers and technical personnel. The inability to attract new personnel could
have a material adverse effect on our results of operations. Although we have
attracted and retained qualified employees, qualified project managers are in
particularly great

                                       13

<PAGE>

demand and will remain a limited resource for the foreseeable future. Our
employees can terminate their employment at any time. Accordingly, we may be
unable to continue to retain and attract qualified technical staff.

BOTH OF OUR BUSINESS LINES ARE VERY COMPETITIVE AND SUBJECT TO RAPID CHANGES.
The market for our business systems solutions is highly competitive. Many
competitive companies have greater resources, greater expertise, or better
access to capital than we do. Because we target middle-market and larger
organizations with an approach that focuses on solving business problems within
vertical industries, our solutions competitors fall into three categories:

..    companies that focus on systems integration and solution implementation,
     including small to mid size regional systems integrators and large systems
     integrators such as , Dimension Data, EDS, Hewlett-Packard, and IBM;

..    companies that develop and integrate solutions for specific industries,
     including AnswerThink, LakeWest Group and several smaller companies; and

..    "Big 5" consulting companies with industry-concentrated practices,
     including Deloitte & Touche, KPMG, and Accenture

We believe that the principal competitive factors in the information technology
services industry include responsiveness to client needs, speed of project
implementation, quality of service, price, project management capability and
technical expertise. The market for Contractors Resources is also competitive
and changing quickly. Independent professionals, who make up the target market
for CR's MyBizOffice service, have several alternatives for managing their
careers that represent competitive forces. There are also a growing number of
companies that provide services similar to CR's and we expect additional ones
will emerge and that competition will therefore intensify. Our competitors in
this regard vary in size and in scope of services.

WE MUST RESPOND QUICKLY TO TECHNOLOGICAL DEVELOPMENTS, INTRODUCTIONS OF NEW
COMPETITIVE PRODUCTS AND SERVICES, AND EVOLVING INDUSTRY STANDARDS TO REMAIN
COMPETITIVE. The information technology services industry is characterized by
rapid technological developments, frequent introductions of new products and
services, and evolving industry standards. In order to remain competitive in
this rapidly evolving industry, we must continually improve the performance,
features, and reliability of our services. We cannot assure you that we will be
able to respond quickly, cost effectively, or sufficiently to any of these
developments. Our inability to respond quickly to any such developments could
cause us to lose substantial market share and could have a material adverse
effect on our business, operating results, and financial condition.

WE MAY NOT BE ABLE TO MANAGE OUR GROWTH EFFECTIVELY. Although we have
streamlined our operations, our long-term success will depend in part on our
ability to manage growth. If we are unable to hire a sufficient number of
employees with the appropriate levels of experience to effectively manage our
growth, our business, financial condition, and results of operations could be
materially and adversely affected.

OUR STOCK PRICE MAY BE SUBJECT TO SIGNIFICANT VOLATILITY. Our stock price may be
subject to significant volatility, particularly on a quarterly basis. Any
shortfall in revenue or earnings from levels expected by securities analysts or
others could have an immediate and significant adverse effect on the trading
price of our common stock in any given period. Additionally, we may not learn
of, or be able to confirm, revenue or earnings shortfalls until late in the
fiscal quarter or following the end of the quarter; learning of these shortfalls
late could result in an even more immediate and adverse effect on the trading of
our common stock.

WE MAY BE LIABLE FOR LEGAL VIOLATIONS COMMITTED BY CONSULTANTS WE EMPLOY.
Technical services firms face legal uncertainties, including the extent of
liability for violations of employment and discrimination laws. Our liability
can include violations of employment and discrimination laws committed by
consultants we provide to our customers. We believe we comply in all material
respects with all applicable rules, regulations, and licensing requirements.

WE MAY BE UNABLE TO SATISFY GUARANTEES THAT WE MAKE TO OUR CUSTOMERS DUE TO
RAPID CHANGES IN OUR BUSINESS. Occasionally, we must guarantee to our customers
that the integrated system that we are consulting on will operate properly when
completed. Due to rapid changes in technology or other unforeseen developments,
we may be unable to comply with our guarantees.

WE HAVE A SIGNIFICANT NUMBER OF OUTSTANDING SHARES OF CONVERTIBLE PREFERRED
STOCK AND WARRANTS WITH CONVERSION OR EXERCISE PRICES THAT FLUCTUATE BASED ON

                                       14

<PAGE>

THE MARKET PRICE OF OUR COMMON STOCK. THE CONVERSION OF THESE PREFERRED SHARES
AND WARRANTS COULD RESULT IN THE DILUTION OF YOUR OWNERSHIP INTEREST AND
ADVERSELY IMPACT THE PRICE OF OUR COMMON STOCK. In connection with a private
placement, we issued to Zanett Lombardier, Ltd. and/or its affiliates or
designees prepaid common stock purchase warrants to purchase an aggregate number
of shares of common stock equal to $1,500,000 divided by the lower of $10 or the
amount obtained by multiplying the average of the 5 lowest closing bid prices
for the common stock during the 20 consecutive trading day period ending on the
trading day immediately preceding the date of determination or exercise by 0.65.
If the market value of our common stock decreases, the number of shares of
common stock to be issued upon exercise of these prepaid warrants could increase
significantly and result in significant dilution in your ownership interest. For
example, the exercise of these prepaid warrants on March 1, 2002 would have
resulted in the issuance of 91,752,862 shares of common stock, based on the
average of the 5 lowest closing bid prices for the common stock during the 20
consecutive trading day period immediately preceding that date, or $0.028 per
share.

THE EXERCISE OF CERTAIN RIGHTS BY THE HOLDERS OF OUR PREFERRED STOCK COULD
RESULT IN SUBSTANTIAL DILUTION OF YOUR OWNERSHIP INTEREST AND ADVERSELY IMPACT
THE PRICE OF OUR COMMON STOCK. The conversion of Series D Preferred Stock and
Series E Preferred Stock and subsequent sales of common stock by the selling
shareholders may depress the price of our common stock and substantially dilute
your ownership interest. To the extent the Series D Preferred Stock is converted
into shares of common stock and to the extent the Series E Preferred Stock is
converted into shares of common stock rather than redeemed by us or dividends on
the Series E Preferred Stock are paid in shares of common stock rather than
cash, a significant number of additional shares of common stock may be sold into
the market and could decrease the price of our common stock due to the
additional supply of shares relative to demand in the market. In anticipation of
the sale of a large amount of shares of our common stock upon conversion of the
Series D Preferred Stock or the Series E Preferred Stock, or the payment of
dividends in lieu of cash on the Series E Preferred Stock, market participants
may engage in short sales of our common stock. Short sales could place further
downward pressure on the price of our common stock. Additionally, the perceived
risk of dilution from the occurrence of any of these events may cause
shareholders to sell their shares to avoid this dilution and could therefore
place further downward pressure on the price of our common stock. Under the
terms of the restructuring contemplated by the Exchange, Redemption and
Conversion Agreement, the remaining Series D Preferred Stock, will be
convertible as of March 1, 2002 into approximately 2,017,524 shares of common
stock, subject to the 4.99% limitation and 9.99% limitation described below,
representing approximately 8.0% of the common stock that would be outstanding
following the conversion, based upon the common shares outstanding on March 1,
2002. The conversion of, and the payment of dividends in shares of common stock
in lieu of cash on, the Series D Preferred Stock may result in substantial
dilution to the interests of other holders of our common stock or, when added to
the number of shares acquired or held during the prior 60 days, would exceed
9.99% of our outstanding common stock. Even though no selling shareholder may
convert its Series D Preferred Stock if the conversion would make the selling
shareholder the beneficial owner of more than 4.99% of our then outstanding
common stock, this restriction does not prevent a selling shareholder from
selling a substantial number of shares in the market. By periodically selling
shares into the market, the individual selling shareholders intend to sell all
of their shares of common stock while never holding more than 4.99% at any
specific time or exceeding 9.99% during any 60 day period. A conversion of all
the Series E Preferred Stock at the fixed conversion price of $0.47 would result
in the issuance of 6,382,979 shares of common stock, excluding accrued
dividends. Also, dividends on the Series E Preferred Stock may be paid in shares
of common stock rather than cash, which would increase this number of shares
over time. We may be required to delist our shares from the Nasdaq Small Cap
Market as described below, in which event trading volume of our shares and the
price of our common stock might decrease substantially. The National Association
of Securities Dealers, Inc. imposes certain requirements on the issuance of
securities of a company listed on the Nasdaq Stock Market. For instance, any
company, including our company, is required to obtain shareholder approval (or
receive a waiver from the NASD) for an issuance of securities if the number of
securities to be issued could equal or exceed 20% of the issuer's outstanding
listed securities (immediately or by conversion). Also, the voting rights of
holders of securities that are convertible into common stock based on the future
stock price of the issuer cannot be disproportionate to their investment in the
issuer. We believe that the issuances of our Series D Preferred Stock and the
Series E Preferred Stock comply with the NASD rules. For instance, our Preferred
Stock does not have voting rights, except as required by law. Both the Series D
Preferred Stock and the Series E Preferred Stock limit our obligation to issue
our common stock upon the conversion of the Series D Preferred Stock and the
Series E Preferred Stock that exceeds 19.99% of the outstanding common stock on
the respective date of issuances of the Preferred Stock unless shareholder
approval or a waiver from the NASD is obtained. In order to avoid any penalty we
obtained shareholder approval for the

                                       15

<PAGE>

issuance of shares of our common stock upon conversion of, or the payment of
dividends on (if any), the Series D Preferred Stock in excess of 19.99% of the
number of outstanding shares of common stock on March 29, 2000, the date of
issuance of the Series D Preferred Stock. Similarly, we were obligated to call a
meeting for stockholder approval (or obtain a waiver of the approval requirement
from the NASD) with respect to the issuance of the shares of common stock
issuable upon conversion of the Series E Preferred Stock. We did not however
obtain this approval or waiver.

WE HAVE A SIGNIFICANT NUMBER OF OUTSTANDING WARRANTS, OPTIONS AND SHARES OF
PREFERRED STOCK THAT COULD ADVERSELY IMPACT THE PRICE OF OUR COMMON STOCK AND
OUR ABILITY TO OBTAIN ADDITIONAL FUNDING As of March 1, 2002, we had
outstanding: shares of Class A Preferred Stock that were immediately convertible
into 80,597 shares of common stock; 1,324 shares of our Series D Preferred Stock
outstanding that were convertible on March 1, 2002, together with unpaid
dividends, into a total of 2,124,148 shares of common stock, at a conversion and
exercise price of $0.65625 per share; 3,000 shares of our Series E Preferred
Stock that are convertible into a total of 6,382,989 shares of our common stock
at a fixed price of $0.47 per share; prepaid warrants exercisable into
91,752,862 shares of common stock; and other options and warrants to purchase an
aggregate of 7,895,581 shares of our common stock at a weighted average exercise
price of $0.85 per share. As of March 1, 2002, there were outstanding
convertible preferred shares, warrants and options to acquire up to
approximately 108,236,178 shares of common stock at prices ranging from $0.028
to $13.875 per share. The exercise of all of the outstanding warrants, including
the prepaid warrants, options and/or conversion of the outstanding convertible
preferred stock, would dilute the then-existing shareholders' percentage
ownership of our common stock, and any sales in the public market could
adversely affect prevailing market prices for our common stock. Moreover,
because the holders of outstanding warrants, options and preferred stock will
likely exercise or convert these securities, our ability to obtain additional
equity capital could be adversely affected because we probably could obtain any
needed capital on terms more favorable than those provided by the conversion of
these securities. We lack control over the timing of any exercise or the number
of shares issued or sold if exercises or conversions occur.

WE WILL BE PENALIZED IF WE FAIL TO MAINTAIN THE REGISTRATION OF THE SHARES
UNDERLYING OUR SERIES D PREFERRED STOCK AND OUR SERIES E PREFERRED STOCK, AND
THE PREPAID WARRANTS, INCENTIVE WARRANTS AND PLACEMENT AGENT WARRANTS If we fail
to maintain the effectiveness of our Registration Statement for the public sale
of our common shares acquired upon conversion of the Series D Preferred Stock
(for any reason other than the issuance of a stop order by SEC), the holders of
the Series D Preferred Stock will be entitled to demand that we redeem their
remaining shares of Series D Preferred Stock at a 25% premium. If we fail to
maintain the timely effectiveness of our SEC Registration Statement for the
public sale of our common shares acquired upon conversion of the Series E
Preferred Stock, we will be subject to a penalty, required to be paid in cash
(if the Company can do so) equal to 1% of the principal (plus interest) amount
of the Series E Preferred Stock then outstanding, per day (up to 15 days during
any 365 day period) that such effectiveness if not obtained or maintained.

FUTURE SALES OF RESTRICTED SHARES COULD DECREASE THE MARKET PRICE OF OUR COMMON
STOCK AND IMPAIR OUR ABILITY TO RAISE CAPITAL. Future sales of common stock by
our existing shareholders under exemptions from registration or through the
exercise of outstanding registration rights could have a material adverse affect
on the market price of our common stock and could materially impair our future
ability to raise capital through an offering of equity securities. A substantial
number of shares of common stock are, or will be in the near future, available
for sale under exemptions from registration or have been, or are being
registered pursuant to registration rights and we are unable to predict the
effect, if any, that market sales of these shares or the availability of these
shares for future sale will have on the market price of the common stock
prevailing from time to time.

OUR COMMON STOCK WAS DELISTED FROM THE NASDAQ SMALL CAP. ACCORDINGLY, OUR
STOCKHOLDERS ABILITY TO SELL OUR COMMON STOCK MAY BE ADVERSELY EFFECTED.
ADDITIONALLY, THE MARKET FOR SO-CALLED "PENNY STOCKS" HAS SUFFERED IN RECENT
YEARS FROM PATTERNS OF FRAUD AND ABUSE. We were notified by The Nasdaq Stock
Market, Inc. that, because we failed to maintain a minimum bid price of $1.00
for Common Stock on the Nasdaq Small Cap, The Nasdaq Stock Market, Inc. delisted
our stock from the Nasdaq Small Cap. This delisting occurred on April 12, 2001.
Our Common Stock currently trades on the OTCBB maintained by The Nasdaq Stock
Market, Inc and is subject to a Securities and Exchange Commission rule that
imposes special sales practice requirements upon broker-dealers who sell such
OTCBB securities to persons other than established customers or accredited
investors. For

                                       16

<PAGE>

purposes of the rule, the phrase "accredited investors" means, in general terms,
institutions with assets in excess of $5,000,000, or individuals having a net
worth in excess of $1,000,000 or having an annual income that exceeds $200,000
(or that, when combined with a spouse's income, exceeds $300,000). For
transactions covered by the rule, the broker-dealer must make a special
suitability determination for the purchaser and receive the purchaser's written
agreement to the transaction prior to the sale. Consequently, the rule may
affect the ability of broker-dealers to sell our Common Stock and also may
affect the ability of our current stockholders to sell their securities in any
market that might develop therefore. In addition, the Securities and Exchange
Commission has adopted a number of rules to regulate "penny stocks." Such rules
include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9
under the Securities Exchange Act of 1934, as amended. Our Common Stock may
constitute "penny stocks" within the meaning of the rules, the rules would apply
to Netplex and to its securities. The rules may further affect the ability of
owners of Common Stock to sell our securities in any market that might develop
for them.

Shareholders should also be aware that, according to Securities and Exchange
Commission, the market for penny stocks has suffered in recent years from
patterns of fraud and abuse. Such patterns include (i) control of the market for
the security by one or a few broker-dealers that are often related to the
promoter or issuer; (ii) manipulation of prices through prearranged matching of
purchases and sales and false and misleading press releases.; (iii) "boiler
room" practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales persons; (iv) excessive and undisclosed
bid-ask differentials and markups by selling broker-dealers; and (v) the
wholesale dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired level, along with the resulting
inevitable collapse of those prices and with consequent investor losses. We is
aware of the abuses that have occurred historically in the penny stock market.
Although we do not expect to be in a position to dictate the behavior of the
market or of broker-dealers who participate in the market, management will
strive within the confines of practical limitations to prevent the described
patterns from being established with respect to the Company's securities.

WE HAVE NEVER PAID AND DO NOT CURRENTLY INTEND TO PAY DIVIDENDS. We have never
paid dividends on our common stock. We intend to retain any future earnings to
finance our growth. In addition, dividends on common stock are subject to the
preferences for dividends on the preferred stock. Any future dividends will
depend upon our earnings, if any, our financial requirements, and other factors.

LIQUIDITY AND GOING CONCERN OPINION. The Company has incurred significant losses
from operations and has used cash in operations in each of the last five years.
In addition, as of December 31, 2001, the Company has a stockholders' deficit of
approximately $6.0 million and a working capital deficit of approximately $8.7
million. Our independent accountants have rendered an opinion on our most recent
financial statements indicating that these factors raise substantial doubt about
the Company's ability to continue as a going concern.

Over the past two years, management has undertaken restructuring efforts aimed
at, among other things, improving the productivity and billable utilization of
its staff and reducing operating expenses. These restructuring efforts have
included headcount reductions, consolidation of facilities and management of
discretionary expenses. However, these actions were taken in a period where
economic conditions in the United States and abroad created downward pressure on
spending for information technology initiatives, including demand for the
Company's consulting services. In 2001, the Company did experience lower
operating losses than those reported in 2000 and a reduction in cash used in
operations. However, given the Company's current operating outlook and
continuing economic uncertainty, the Company's liquidity and financial position
are such that additional capital will be needed in 2002 to sustain operations.

In late 2001, the Company began exploring alternatives to raising additional
capital and restructuring its obligations and capital structure. Among the
alternatives considered included a rights offering aimed at raising capital
through the issuance of additional shares of its Netplex Systems subsidiary. At
this time, management has chosen to not pursue the rights offering further,
choosing instead to entertain offers for the operations comprising Netplex
Systems (either as a whole or in parts). In March 2002, the Company entered into
non-binding letter of intent to sell the assets of its retail consulting
business for approximately $6.0 million in cash, subject to several conditions
to closing, including due diligence and entering into purchase and sale
agreements and employment agreements with key individuals in this business.
While management is optimistic that this transaction will close by the end of
May, no assurances can be given at this time that the Company will be able to
close on this sale or one with other potential buyers. In addition, the Company
continues to entertain offers for the remaining businesses within its Netplex
Systems business.

                                       17

<PAGE>

If the above sale is successfully completed, management intends to focus on
improving the operations of its Contractors Resources business by growing both
its business to consumer service ("MyBizOffice") and its business to business
service ("Consultant Service Center") offerings. Critical to the success of
these operations is the Company's ability to continue to attract members
to the MyBizOffice solution and to grow the Consultant Service Center business
by obtaining contracts and master agreements with employers who contract with
large numbers of independent consultants. No assurances can be given that the
Company will be successful in these efforts.

While the proceeds from a sale such as that above will help to sustain
operations, management believes that to sustain operations for the foreseeable
future, certain of its obligations and liabilities will need to be restructured.
While management has been involved in discussions relative to such obligations
with each respective party, no definitive agreements have been reached at this
time and no assurances can be given that these efforts will be successful.

Item 2. Properties.

The Company leases approximately 8,000 square feet of space in Reston, VA. for
its corporate offices and the operations of some business units. The Company
also leases office space in other cities including, Charlotte, North Carolina,
and Edmond, Oklahoma that serve as operating offices of its businesses. These
leases expire on various dates from November 2002 to September 2004.

The Company believes that the space in its existing corporate and branch
facilities are adequate for the foreseeable future to support the growth of its
existing operations in the geographic areas in which it currently operates.

Item 3. Legal Proceedings.

From time to time, the Company is subject to litigation in the ordinary course
of business.

On September 4, 1997, Data Systems Analysts, Inc. ("DSA"), a software design and
consulting company, filed a complaint against Technology Development Systems,
Inc. ("TDS") and the Company, alleging copyright infringement and breach of the
Company's agreement. The Complaint also seeks damages against XcelleNet, Inc.,
which the Company has indemnified. The Complaint claims damages in excess of
$300,000 plus punitive damages.

In June of 2000, the Company, TDS and XcelleNet, Inc. filed a complex motion for
summary judgment, asking the Court to dismiss the majority of DSA's claims in
the case. DSA also filed a motion for summary judgment asking the court to enter
judgment in its favor on several of its claims. The district court judge held
oral arguments on the counter-motions on Friday, January 19, 2001.

On March 6, 2001, the court denied the motion by TDS and XcelleNet in its
entirety. It granted plaintiff's motion for summary judgment on liability and
directed that damages be tried to a jury on May 24, 2001.

On March 20, 2001, the Company filed a motion for reconsideration of the
granting of summary judgment on two portions of the order.

Prior to the May 24, 2001 trial date and before any motions for reconsideration,
the parties mutually agreed to enter into settlement negotiations.

On December 28, 2001 the Company and DSA entered into a settlement agreement for
dismissal of the lawsuits, with prejudice whereby the Company agreed to pay DSA
$1,400,000 plus transfer its 125,000 shares of Tavve Software Company stock it
held for investment purposes. The Company agreed to pay (i) $900,000 on or
before December 31, 2001 or $900,000 on or before March 31, 2002 plus interest
(prime rate plus 3%) from January 1, 2002, and (ii) $250,000 on each of June 30,
2002 and December 31, 2002. The Company did not pay the amount due on December
31, 2001. Upon the closing of the Offering on or before March 31, 2002, in lieu
of the payment terms above, the Company agreed to pay (i) 50% of the cash
proceeds after the first $1,000,000 up to a maximum of $700,000 and the
difference of such cash proceeds and $900,000 on March 31, 2002 and (ii)
$250,000 on each of June 30, 2002 and December 31, 2002.

In December 2000, TMP Interactive, Inc. ("Monster.com") filed suit against the
Company and its Contractors Resources subsidiary alleging that the Company
failed to make a quarterly cash payment under its co-branding agreement with
Monster.com. The complaint seeks a judgment of approximately $464,000. The
Company has disputed the allegations, denying all liability and has asserted
affirmative defenses, including that TMP did not

                                       18

<PAGE>

perform the agreement as required. Since filing the suit, Monster.com has also
notified the Company that it has failed to make another payment under the
agreement but this alleged default has not yet become part of the litigation.
While initial discovery had commenced, both parties have agreed to stay all
further discovery and enter into settlement discussions.

On August 7, 2001, the Company and Monster.com entered into a mutually agreeable
settlement whereby the Company would pay Monster.com fees of $230,000 and grant
a warrant to purchase 4,000,000 shares of the Company's common stock at $0.47
per share which is fully exercisable at any time on or before August 7, 2004. As
of December 31, 2001, the Company's remaining liability was $110,000. In
conjunction with this agreement, the Company recorded a selling and general and
administrative charge in the three month period ended September 30, 2001 of
$590,000. Of this amount, $360,000 was related to the valuation of the warrants
granted to Monster.com.

The principal risks that the Company insures against are workers' compensation,
personal injury, property damage, general liability, and fidelity losses. The
Company maintains insurance in such amounts and with such coverages and
deductibles as management believes are reasonable and prudent.

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

No matters were submitted to a vote of the Company's Common Stock holders during
the Company's fourth quarter ended December 31, 2001.

                                       19

<PAGE>

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

The Common Stock of the Company is traded on the NASD Over the Counter Bulletin
Board ("OTCBB")

Price Range of Common Stock

The quotations set forth in the table reflect inter-dealer prices from NASD,
without retail mark-up, markdown or commission, and may not necessarily
represent actual transactions:

2000                                               High      Low
----                                               ----      ---
1st Quarter                                      $19.50    $9.13
2nd Quarter                                      $12.44    $1.75
3rd Quarter                                      $ 2.94    $0.72
4th Quarter                                      $ 1.06    $0.06
2001
----
1st Quarter                                      $ 0.69    $0.09
2nd Quarter                                      $ 0.34    $0.08
3rd Quarter                                      $ 0.19    $0.06
4th Quarter                                      $ 0.12    $0.02

The Company has not paid any cash dividends on its Common Stock and does not
intend to pay cash dividends on its Common Stock for the foreseeable future. The
Company intends to retain future earnings, if any, to finance future
development.

As of April 15, 2002 there were approximately 150 holders of record of the
Company's Common Stock. The Company believes that at such date there were in
excess of 6,000 beneficial owners of the Company's Common Stock.

Recent Sales of Unregistered Securities

The Company sold the following securities in the past three years that were not
registered under the Securities Act of 1933, as amended.

On January 28, 1999, the Company issued a note for $800,000, at 14% annual
interest, through a private placement to an accredited investor. On December 15,
1999, the note was exchanged for an increase in the number of shares that the
Company's Class C Convertible Preferred Stock is convertible into. Class C
shares are not eligible for conversion to Common Stock until September 30, 2003
and are redeemable by the Company for a cash payment of $2.3 million on or
before September 28, 2003.

In March 2000, the Company sold 10,000 shares of convertible Series D Preferred
Stock that resulted in net proceeds to the Company of $9.4 million. The
conversion ratio of the preferred to common was established based on 120% of the
weighted average stock price during the thirty trading day period between April
3, 2000 and May 16, 2000, which was $5.87 per share. The Series D Preferred
Stock securities purchase agreement's call option provision, relating to the
time the Company must obtain additional financing, was amended effective July
31, 2000. The amendment extended the call option trigger date to October 31,
2000 (previously August 1, 2000). The conversion price of the preferred stock
and the exercise price of the related warrants was based upon 120% of the
weighted average price of the Company's Common Stock for 15 consecutive trading
days beginning the first day after the holders are entitled to exercise the call
option.

On November 10, 2000, the Company entered into an Exchange, Redemption and
Conversion Agreement (the "Exchange Agreement") with the holders of the
Company's Series D Preferred Stock that provided for the following:

     --the exchange of $6,177,000 of the original face amount of the Series D
       Preferred Stock and warrants held by the holders of the Series D
       Preferred Stock in exchange for the Company's issuance of $3,000,000 of
       its new Series E Preferred Stock;

                                       20

<PAGE>

  -- the waiver by the holders of the Series D Preferred Stock of their right to
     receive further dividends under the Series D Preferred Stock

  -- the waiver of certain other rights of the holders of the Series D Preferred
     Stock, including the right to acquire additional shares of Series D
     Preferred Stock, the right to require the Company to redeem the Series D
     Preferred Stock upon the occurrence of certain events beyond the Company's
     control, and the waiver of certain anti- dilution rights.

Also, as part of the agreement, the Company redeemed 500 of the remaining 3,823
shares of Series D Preferred Stock at their original face value of $500,000, and
sold to the holders of the Series D Preferred Stock 1,000 shares of the
Company's common stock at a price of $0.65625 per share. As a result of that
sale, the remaining 3,323 shares of Series D Preferred Stock have an adjusted
conversion price of $.65625. Upon execution of the agreements, the Series D
Preferred Stockholders converted 1,178 shares of Series D Preferred Stock into
1,808,473 shares of common stock. The difference between the original face value
of the Series D Preferred Stock of $6,177,000 and the face value of the new
Series E Preferred Stock of $3,000,000, equaling $3,177,000, was recorded as an
addition to Additional Paid in Capital and has been added back in the loss
applicable to common shareholders for computing earnings per share. In 2001, the
holders converted and additional 821 shares into 1,251,047 shares of common
stock. At December 31, 2001, 1,324 shares of Series D Preferred Stock remain
outstanding and are convertible into 2,017,523 shares of common stock.

The Series E Preferred Stock has terms similar to the restructured Series D
Preferred Stock, with the primary exceptions being that the Series E Preferred
Stock was redeemable for $3,000,000 at the Company's option on or before April
30, 2001, provided that the Company redeems at least $1,500,000 of such stock on
or before January 30, 2001 which the Company did not redeem. The Series E
Preferred Stock accrues dividends at the rate of 7% per year. The Series E
Preferred Stock is convertible into shares of common stock at a conversion price
of $0.47 per share equal to 6,382,979 shares. Pursuant to a related Registration
Rights Agreement, the Company registered with the Securities and Exchange
Commission the 1,000 additional shares of common stock sold as part of the
transaction as well as the shares issuable to the holders of the Series E
Preferred Stock upon conversion of that stock to common stock.

On March 29, 2000, the Company sold 1,500 units for $1,000 per unit in a private
placement for $1.5 million ($1.3 million after fees and expenses). Each unit
sold consisted of a prepaid Common Stock purchase warrant entitling the holder
to acquire such number of shares of the Company's Common Stock as is equal to
$1,000 divided by an adjustable exercise price and an incentive warrant to
acquire 78,000 shares of Common Stock. The Company also granted the placement
agent a warrant to purchase 39,000 shares of Common Stock plus a placement fee
and a non-accountable expense allowance equal to 12.53% of the proceeds of the
offering. The placement agent for this transaction was Zanett Securities
Corporation. Exemption from registration is claimed under Section 4(2) of the
Securities Act because it did not involve a public offering.

During the years ended December 31, 2000 and 1999, 29,364 shares and 877,612
shares of Class A Preferred Stock were converted into the same number of shares
of Common Stock, respectively. During the year ended December 31, 1999, the
643,770 shares of Class B Preferred Stock were converted into the same number of
shares of Common Stock. During the years ended December 31, 2001 and 2000, 821
and 1,178 shares of Class D Preferred Stock were converted into 1,251,047 and
1,808,473 shares of Common Stock, respectively and during the year ended
December 31, 2000, 6,177 shares of Class D Preferred Stock were converted into
3,000 shares of Class E Preferred Stock. See Note 11 to the financial
statements.

On September 28, 2001, the Company entered into an agreement with Waterside
Capital Corporation ("Waterside") whereby

  -- the Company paid $2,052,780 in the form of $1,000,000 cash and two secured
     commercial promissory notes in the original principal amounts of $900,000
     and $152,780 for:

       .  Waterside's surrender to the Company for cancellation 1,500,000 shares
          of its Class C Preferred Stock;

       .  Waterside's guarantee of up to $400,000 of the Company's subsidiary,
          Systems, revolving credit facility; and

                                       21

<PAGE>

       .  Waterside surrendered for cancellation its warrant exercisable for
          300,000 shares of the Company's Common Stock;

  -- the Company paid $50,000 of closing fees associated with the transaction;
     and

  -- Waterside purchased from the Company 1,000 shares of the Company's
     subsidiary, Systems, preferred stock for $1,000,000 which is recorded as a
     minority interest in the balance sheet.

The difference between the original face value (net of transaction fees) of the
Series C Preferred Stock of $2,139,000 and the aggregate of the principal value
of the note of $900,000 and the $1,000,000 of cash, equaling $239,000, was
recorded as an addition to Additional Paid in Capital and has been added back in
the loss applicable to common shareholders for computing earnings per share.

The promissory notes bear interest of 10% per annum. The $900,000 note is
payable in quarterly installments of $15,000 and the $152,780 note is payable at
the earlier of the closing of the Offering or January 1, 2002.

In May 2001, the Company issued 50,000 shares of its common stock to Gruntal &
Co. LLC for investment banking advisory services. These shares were valued at
$14,500 based upon the current market price at issuance and the shares are
unregistered.

                                       22

<PAGE>

Item 6. Selected Financial Data

<TABLE>
<CAPTION>
Year ended December 31                            2001         2000         1999         1998         1997
                                               ----------   ----------   ----------   ----------   ----------
                                                         (amounts in thousands, except per share data)

<S>                                            <C>          <C>          <C>          <C>          <C>
Revenues (1)                                   $   21,345   $   27,428   $   31,411   $   43,944   $   40,468
Cost of revenues                                   11,887       16,973       20,259       39,086       36,085
                                               ----------   ----------   ----------   ----------   ----------
Gross profit                                        9,458       10,455       11,152        4,858        4,383
Expenses:
    Selling, general and administrative            17,367       24,218       16,066        6,780        7,230
    Restructuring costs                                --        1,512           --           --           --
    Acquired in-process technology                     --           --           --          250           --
                                               ----------   ----------   ----------   ----------   ----------
Operating loss                                     (7,909)     (15,275)      (4,914)      (2,172)      (2,847)
Interest expense and (other income), net              150           41          384          154          (26)
Offering costs                                        489           --           --           --           --
                                               ----------   ----------   ----------   ----------   ----------
Loss from continuing operations before
    income taxes                                   (8,548)     (15,316)      (5,298)      (2,326)      (2,873)
Income tax (benefit) provision                         --           --           --           --           --
                                               ----------   ----------   ----------   ----------   ----------
Loss from continuing operations before
    minority interest                              (8,548)     (15,316)      (5,298)      (2,326)      (2,873)
Minority interest                                      --          482           83           --           --
                                               ----------   ----------   ----------   ----------   ----------
Loss from continuing operations                    (8,548)     (14,834)      (5,215)      (2,326)      (2,873)
Discontinued operations:
Loss from discontinued operations (net of
    income taxes)                                      87         (939)      (2,209)        (223)          --
Gain on sale of discontinued operations
    (net of income taxes)                              --          513           --           --           --
                                               ----------   ----------   ----------   ----------   ----------
Net loss                                           (8,461)     (15,260)      (7,424)      (2,549)    (2,873)-
Preferred Stock dividend                             (663)      (1,076)        (500)        (316)          --
Contributions from exchange of Preferred
    Stock                                             239        3,177           --           --           --
                                               ==========   ==========   ==========   ==========   ==========
Loss applicable to common shareholder          $   (8,895)  $  (13,159)  $   (7,924)  $   (2,865)  $   (2,873)
                                               ==========   ==========   ==========   ==========   ==========

Basic and diluted earnings (loss) per
    common share
    Continuing operations                      $    (0.40)  $    (0.67)  $    (0.46)  $    (0.29)  $    (0.46)
    Discontinued operations                            --        (0.05)       (0.17)       (0.02)          --
                                               ----------   ----------   ----------   ----------   ----------
        Total                                  $    (0.40)  $    (0.72)  $    (0.63)  $    (0.31)  $    (0.46)
                                               ==========   ==========   ==========   ==========   ==========
    Weighted average common shares
        outstanding, basic and diluted             22,509       18,356       12,516        9,260        6,821
                                               ==========   ==========   ==========   ==========   ==========
At year-end
    Total assets                               $    8,687   $   17,690   $   22,662   $   20,650   $    6,912
                                               ==========   ==========   ==========   ==========   ==========
    Stockholders' equity (deficit)             $   (6,044)  $    4,179   $    6,862   $    6,354   $    1,331
                                               ==========   ==========   ==========   ==========   ==========
</TABLE>

(1) Effective January 1, 1999, the Company's Contractors Resources - MyBizOffice
segment revenues represent only the fees realized for services rendered to the
independent contractor. Prior to that date, revenues included the gross fees
charged to the third party customer being serviced by the independent
contractor. The Company accounts for revenue generated by the Contractors
Resources - Consultant Service Center segment on a gross basis due to the
economic risks associated with the transactions.

                                       23

<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our financial statements and the
related notes. This discussion contains forward-looking statements based upon
current expectations that involve risks and uncertainties, including our plans,
objectives, expectations and intentions. Our actual results and the timing of
certain events could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth under "Additional Factors That May Affect Future Results", "Business" and
elsewhere herein.

The Company has incurred significant losses from operations and has used cash in
operations in each of the last five years. In addition, as of December 31, 2001,
the Company has a stockholders' deficit of approximately $6.0 million and a
working capital deficit of approximately $8.7 million. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not contain any adjustments that might
result from the outcome of this uncertainty.

Over the past two years, management has undertaken restructuring efforts aimed
at, among other things, improving the productivity and billable utilization of
its staff and reducing operating expenses. These restructuring efforts have
included headcount reductions, consolidation of facilities and management of
discretionary expenses. However, these actions were taken in a period where
economic conditions in the United States and abroad created downward pressure on
spending for information technology initiatives, including demand for the
Company's consulting services. In 2001, the Company did experience lower
operating losses than those reported in 2000 and a reduction in cash used in
operations. However, given the Company's current operating outlook and
continuing economic uncertainty, the Company's liquidity and financial position
are such that additional capital will be needed in 2002 to sustain operations.

In late 2001, the Company began exploring alternatives to raising additional
capital and restructuring its obligations and capital structure. Among the
alternatives considered included a rights offering aimed at raising capital
through the issuance of additional shares of its Netplex Systems subsidiary. At
this time, management has chosen to not pursue the rights offering further,
choosing instead to entertain offers for the operations comprising Netplex
Systems (either as a whole or in parts). In March 2002, the Company entered into
non-binding letter of intent to sell the assets of its retail consulting
business for approximately $6.0 million in cash, subject to several conditions
to closing, including due diligence and entering into purchase and sale
agreements and employment agreements with key individuals in this business.
While management is optimistic that this transaction will close by the end of
May, no assurances can be given at this time that the Company will be able to
close on this sale or one with other potential buyers. In addition, the Company
continues to entertain offers for the remaining businesses within its Netplex
Systems business.

If the above sale is successfully completed, management intends to focus on
improving the operations of its Contractors Resources business by growing both
its business to consumer service ("Mybizoffice") and its business to business
service ("Consultant Service Center") offerings. Critical to the success of
these operations is the Company's ability to continue to attract members to the
Mybizoffice solution and to grow the Consultant Service Center business by
obtaining contracts and master agreements with employers who contract with large
numbers of independent consultants.

While the proceeds from a sale such as that above will help to sustain
operations, management believes that to sustain operations for the foreseeable
future, certain of its obligations and liabilities will need to be restructured.
While management has been involved in discussions relative to such obligations
with each respective party, no definitive agreements have been reached at this
time and no assurances can be given that these efforts will be successful.

2001 Compared to 2000

Revenue for the year ended December 31, 2001 decreased $6.1 million or 22.2% to
$21.3 million, compared to $27.4 million for the same period in 2000. Product
revenue decreased $3.1 million or 11.3% resulting from a change in order size
and the increased volume of orders that were recorded on a net basis. Product
revenue is the result of multiple product orders ranging from a few thousand
dollars to orders in excess of $1.0 million. In the year ended December 31,
2000, the Company had two product contracts that together amounted to
approximately $2.0 million. In the year ended December 31 2001, the Company's
products orders did not include contracts of a similar

                                       24

<PAGE>

magnitude largely due to the down-turned economy whereby companies are
hesitating to embark on new systems-related projects. Additionally, the Company
sold $1.7 million of product to clients through third party leasing companies in
2001 whereby the Company did not take the risk of loss and thereby recorded the
transaction at its net margin on the sale. Service revenue decreased $3.0
million or 10.9%. The Company believes the weakened U.S. economic conditions in
the fourth quarter caused many of its customers and potential customers to defer
or cancel altogether expenditures on systems-related projects causing a decrease
this service revenue. When these purchasing trends will reverse cannot be
predicted at this time. The Company recognized $1.4 million of revenue in the
year ended December 31, 2001 from its new Contractors Resources Customer Service
Center "CR-CSC" business segment introduced in late 2000.

Gross profit for the year ended December 31, 2001 decreased $1.0 million or 9.5%
to $9.5 million, compared to $10.5 million for the same period in 2000. This
decrease was primarily associated with the decrease in revenue during the same
period.

Gross profit margins increased to 44.3% for the year ended December 31, 2001
compared to 38.1% for the same period in 2000. This increase is primarily
attributed to product gross margin increase attributed to the sales that were
recorded on a net basis in 2001.

Selling, general and administrative expenses ("SG&A") include sales and
marketing, facility, administration, IT and financial services. SG&A decreased
$6.8 million or 28.2% to $17.4 million from $24.2 million for the same period in
2000. Of this decrease, approximately, $2.3 million resulted from the reductions
in staff (41 employees) primarily from the restructuring in 2000, $1.3 million
resulted from the reductions in staff (31 employees) in 2001, $0.7 of rent
expense reductions for terminated leases, $1.3 million reduction of marketing
costs which includes the $0.6 million reduction of fees paid to TMP Interactive
(monster.com) and $0.9 million reduction in web development costs. These
reductions were partially offset by the $0.8 million settlement costs associated
with the Monster.com litigation and the $1.5 million settlement costs associated
with the DSA litigation (see Note 13).

The Company incurred approximately $489,000 of legal, accounting and printing
costs associated with its filing of a registration statement ("Offering") with
the Securities and Exchange Commission which contemplated granting at no cost to
its security holders, transferable rights to purchase shares of common stock of
its wholly owned subsidiary, Systems. The Company expensed these Offering costs
in 2002 based upon the Company's decision to abandon the offering and sell
Systems in a private transaction as discussed above.

Income from discontinued operations for the year ended December 31, 2001 was
$0.1 million compared to a loss from discontinued operations of $0.9 million for
the same period in 2000. See Note 3 to the financial statements for a
description of the discontinued operations.

No provision for income taxes was required for the year ended December 31, 2001
due to the generation of net losses. No provision for income taxes was required
for the year ended December 31, 2000 due to utilization of net operating loss
carry forwards generated in previous years.

Net loss for the year ended December 31, 2001 was $8.5 million compared to $15.3
million in the same period of 2000, a decrease in net loss of $6.8 million or
44.6%. The components of this decrease are discussed above.

2000 Compared to 1999

Revenue for the year ended December 31, 2000 decreased $4.0 million or 12.7% to
$27.4 million, compared to $31.4 million for the same period in 1999. This
decrease is primarily attributed to a decrease in product revenue of $4.2
million which was attributed to a large product sale of approximately $3.3
million in 1999. This single order size was not replicated in 2000.

Gross profit for the year ended December 31, 2000 decreased $0.7 million or 6.3%
to $10.5 million, compared to $11.2 million for the same period in 1999. Product
gross profit decreased by $0.4 million due to lower volume of product sales
primarily attributable to the large product sale in 1999 that was not replicated
in 2000. Service Gross Profit decreased $0.3 million. In the third quarter of
1999, the Company began to expand its technical staff to address anticipated
growth in the service sector. The Company utilized the newly hired technical
staff to support proposal production before their assignment to contracts.

Gross profit margins increased to 38.1% for the year ended December 31, 2000
from 35.5% for the same period in 1999. Services gross margins decreased by 2.5%
from 49.7% in 1999 to 47.2% in 2000 which was due to lower technical staff
utilization levels in the year ended December 31, 2000 compared to the same
period in 1999. Product

                                       25

<PAGE>

gross profit margin increased 4.2% from 20.4% in 1999 to 24.6% in 2000. This
increase was associated with the $0.6 million sale that was structured using a
third party leasing company and recorded on a net basis.

Selling, general and administrative expenses include sales and marketing,
facility, administration, IT and financial services. SG&A increased $8.2 million
or 50.7% to $24.2 million from $16.1 million for the same period of 1999. This
increase was primarily attributed to $2.6 million of increased marketing and
sales expenditures, including approximately $1.0 million of co-branding fees
paid to TMP Interactive (monster.com), $1.2 million of expenses associated with
the development of the CR web site in 2000, $0.5 million of additional facility
costs associated with the Roseland, NJ lease and $0.9 associated with the
increase in administrative staff (11 employees).

Restructuring charges of $1.5 million for the year ended December 31, 2000 were
the result of the closing of the Company's Roseland, New Jersey and Tampa,
Florida offices and related payroll, severance, legal expenses. The cost
reduction plan was a decision made by management and approved by the board of
directors due to insufficient revenue growth, low utilization of technical
staff, as well as excess general and administration expenses given the drop in
revenue. As a result of this plan, management expects to raise the productivity
and utilization of staff, and decrease overhead costs by consolidating offices.
Under the restructuring plan, thirty-seven employees were terminated, four were
from the technical staff, five were from Contractor Resources, and 28 were from
sales and corporate administration. This decrease in employees and reduction in
office space should result in a decrease of annual payroll and related expenses
of $4.6 million and rent of $0.7 million. Management anticipates that this plan
will result in a decrease of cost of revenues and selling and general
administration of, $500,000 and $4,800,000, respectively. The realization of
such decreases commenced in the last three months of calendar year 2000.

Loss from discontinued operations for the year ended December 31, 2000 was $0.9
million compared to $2.2 million for the same period in 1999, an decrease of
$1.3 million or 57.5%. See Note 3 to the financial statements for a description
of the discontinued operations.

Gain on the disposal of discontinued operations for the nine month period ended
December 31, 2000 was $0.5 million. There was no comparable gain in the same
period of 1999. See Note 3 to the financial statements for a description of the
gain on the disposal of discontinued operations.

No provision for income taxes was required for the year ended December 31, 2000
due to the generation of net losses. No provision for income taxes was required
for the year ended December 31, 1999 due to utilization of net operating loss
carryforwards generated in previous years.

Net loss for the year ended December 31, 2000 was $15.3 million compared to $7.4
million in the same period of 1999, a decrease of $7.8 million or 105.5%. The
components of this decrease are discussed above.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2001, the Company had cash and cash equivalents of $1.3 million.

The following decreased the Company's liquidity and capital resources:

For the year ended December 31, 2001, the Company's cash decreased by $2.6
million. This decrease resulted primarily from the $8.5 million operating loss
which was partially offset by $2.5 million of depreciation and amortization,
$1.8 million decrease in accounts receivable and $0.5 million increase in
accounts payable and accrued expenses.

On July 31, 2000, the Company entered into a line of credit agreement with a
bank that was set to expire on July 31, 2002 and was secured by the Company's
assets. As of September 30, 2000, the Company was not in compliance with the
tangible net worth covenant. On January 10, 2001, the Company and the bank
entered into an Loan Amendment and Forebearance Agreement ("Forebearance
Agreement") whereby the bank agreed to forebear from exercising its rights and
remedies under the loan document due to the existing event of default until
March 31, 2001; provided no additional default occurs. The Company and the bank
agreed the Company did not need to comply with the tangible net worth covenant
set forth in the loan agreement. Under the Forebearance Agreement the Company
could borrow 40% of eligible accounts receivable (as defined in the agreement)
up to $5.0 million bearing interest at the bank's prime rate plus 2.5%.

On May 4, 2001, the Company's subsidiary, Netplex Systems, Inc. ("Systems")
entered into a Commercial Revolving Loan, Demand Loan and Security Agreement
("Revolving Loan") with American Commercial Finance Corporation ("Lender") which
expires on March 31, 2003. This Revolving Loan replaced the pre-existing bank
line of credit which was repaid on May 4, 2001. Under the Revolving Loan,
Systems can borrow an amount equal to

                                       26

<PAGE>

80% of eligible accounts receivable as defined in the agreement, up to $3.0
million. The Revolving Loan bears interest at the prime rate plus 1.75% and is
secured by (i) System's , the Company's and each of the Company's subsidiaries'
assets, (ii) a $400,000 guaranty from a shareholder, Waterside Capital (the
"Guaranty") and (iii) fidelity guaranties from two of the Company's officers. As
of December 31, 2001, balance of the Revolving Loans was $1.1 million.

Capital expenditures for the year ended December 31, 2001, were $0.1 million.

Dividends of approximately $214,000 were paid on the Company's Class A, Class C
and Class D Cumulative Preferred Stock during the year ended December 31, 2001.
The Company issued 929,865 shares of Common Stock in lieu of approximately
$105,000 of such dividends. At December 31, 2001, accrued dividends on the
Company's Class A, Class D and Class E Preferred Stock were approximately
$160,000.

On September 28, 2001, the Company entered into an agreement with Waterside
Capital Corporation ("Waterside") whereby

..    the Company paid $2,052,780 in the form of $1,000,000 cash and two secured
     commercial promissory notes in the original principal amounts of $900,000
     and $152,780 for:

     .    Waterside's surrender to the Company for cancellation 1,500,000 shares
          of its Class C Preferred Stock;

     .    Waterside's guarantee of up to $400,000 of the Company's subsidiary,
          Systems, revolving credit facility; and

     .    Waterside surrendered for cancellation its warrant exercisable for
          300,000 shares of the Company's Common Stock;

..    the Company paid $50,000 of closing fees associated with the transaction;
     and

..    Waterside purchased from the Company 1,000 shares of the Company's
     subsidiary, Systems, preferred stock for $1,000,000 which is recorded as a
     minority interest in the balance sheet.

The difference between the original face value (net of transaction fees) of the
Series C Preferred Stock of $2,139,000 and the aggregate of the principal value
of the note of $900,000 and the $1,000,000 of cash, equaling $239,000, was
recorded as an addition to Additional Paid in Capital and has been added back in
the loss applicable to common shareholders for computing earnings per share.

The promissory notes bear interest of 10% per annum. The $900,000 note is
payable in quarterly installments of $15,000 and the $152,780 note is payable on
January 1, 2002.

The Company has incurred significant losses from operations and has used cash in
operations in each of the last five years. In addition, as of December 31, 2001,
the Company has a stockholders' deficit of approximately $6.0 million and a
working capital deficit of approximately $8.7 million. These factors raise
substantial doubt about the Company's ability to continue as a going concern.

Over the past two years, management has undertaken restructuring efforts aimed
at, among other things, improving the productivity and billable utilization of
its staff and reducing operating expenses. These restructuring efforts have
included headcount reductions, consolidation of facilities and management of
discretionary expenses. However, these actions were taken in a period where
economic conditions in the United States and abroad created downward pressure on
spending for information technology initiatives, including demand for the
Company's consulting services. In 2001, the Company did experience lower
operating losses than those reported in 2000 and a reduction in cash used in
operations. However, given the Company's current operating outlook and
continuing economic uncertainty, the Company's liquidity and financial position
are such that additional capital will be needed in 2002 to sustain operations.

In late 2001, the Company began exploring alternatives to raising additional
capital and restructuring its obligations and capital structure. Among the
alternatives considered included a rights offering aimed at raising capital
through the issuance of additional shares of its Netplex Systems subsidiary. At
this time, management has chosen to not pursue the rights offering further,
choosing instead to entertain offers for the operations comprising Netplex
Systems (either as a whole or in parts). In March 2002, the Company entered into
non-binding letter of intent to sell the assets of its retail consulting
business for approximately $6.0 million in cash, subject to several conditions
to closing, including due diligence and entering into purchase and sale
agreements and employment agreements with key

                                       27

<PAGE>

individuals in this business. While management is optimistic that this
transaction will close by the end of May, no assurances can be given at this
time that the Company will be able to close on this sale or one with other
potential buyers. In addition, the Company continues to entertain offers for the
remaining businesses within its Netplex Systems business.

While the proceeds from a sale such as that above will help to sustain
operations, management believes that to sustain operations for the foreseeable
future, certain of its obligations and liabilities will need to be restructured.
While management has been involved in discussions relative to such obligations
with each respective party, no definitive agreements have been reached at this
time and no assurances can be given that these efforts will be successful.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company does not believe that there is any material market risk exposure
with respect to derivative or other financial instruments that would require
disclosure under this item. The Company's carries variable rate debt under its
line of credit with an interest rate that approximates the market rate. Based
upon the amount outstanding under the line of credit at December 31, 2001 of
$1,094,000, one percent change in the applicable interest rate would increase or
decrease the interest charge to the Company by approximately $11,000 annually.

Item 8. Financial Statements and Supplementary Data

See Consolidated Financial Statements listed in the accompanying index to
Consolidated Financial Statements on Page F-1 herein.

Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.

Not applicable.

                                       28

<PAGE>

                                    PART III

Item 10. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.

The following table lists the names and ages of all of our executive officers
and directors and the positions and offices held by each individual:

       --------------------------------------------------------------------
        Name                  Age    Title
       --------------------------------------------------------------------
        Gene Zaino             44    Chief Executive Offices, Chairman,
                                     President and Director (Class III)
       --------------------------------------------------------------------
        Peter Russo            55    Chief Financial Officer and Treasurer
       --------------------------------------------------------------------
        Richard Goldstein      54    Director (Class III)
       --------------------------------------------------------------------
        Steven L. Hanau        57    Director (Class II)
       --------------------------------------------------------------------
        J. Alan Lindauer       62    Director (Class I)
       --------------------------------------------------------------------
-
Gene Zaino has been a director of Netplex since August 1995 and became our Chief
Executive Officer and Chairman upon completion of the merger with Netplex in
June 1996. From November 1995 through the completion of the merger, Mr. Zaino
functioned in the capacity of Chief Executive Officer. Mr. Zaino started his
career at KPMG LLP in 1980. He was a founding principal of a subsidiary of
Evernet Systems, Inc., which was acquired by Control Data Systems, Inc. in 1993.
In January 1994, Mr. Zaino developed the business plan that led to the formation
of Netplex. Mr. Zaino is a graduate of the University of Pennsylvania's Wharton
School of Business and is a Certified Public Accountant.

Peter Russo joined Netplex in January, 2000 as our Chief Accounting Officer and
was promoted to Chief Financial Officer in October 2000. Mr. Russo was the
Executive Vice President and Chief Financial Officer for Template Software, from
May 1999 to January 2000, Senior Vice President and Chief Financial Officer at
Computer People, Inc. from April 1997 to May 1999, Senior Vice President and
Chief Financial and Administrative Officer at TRC Companies, Inc. from June 1993
to April 1997 and Treasurer and Controller at Gerber Scientific, Inc. from May
1990 to June 1993. Prior to that, Mr. Russo spent 11 years with a predecessor to
Pricewaterhouse Coopers, from 1969 to 1980, the last four years as Senior Audit
Manager. Mr. Russo holds a bachelor's degree in accounting from Niagara
University and is a Certified Public Accountant.

Richard Goldstein has served as a director of Netplex since July 1996. Mr.
Goldstein has been a Partner of Tocci, Goldstein and Company, L.L.P., a New York
City-based C.P.A. firm since 1992. Prior to 1992, Mr. Goldstein was a Tax
Partner with KPMG LLP. Mr. Goldstein holds a Bachelor of Business Administration
in Accounting and Master of Business Administration in Taxation from the City
University of New York and is a Certified Public Accountant.

Steven Hanau became a director of Netplex in July 1998. Mr. Hanau became the
Chief Operating Officer of DigitalNet, Inc in February 2002. Mr. Hanau served as
Senior Vice-President, Marketplace Services for Commerce One from September 2000
to January 2002. Mr. Hanau served as Senior Vice-President of e-Business
Outsourcing for AppNet from April 2000 to August 2000. Mr. Hanau served as
President of Enterprise Services at Wang Global since August 1996. Prior to
1996, Mr. Hanau spent eight years at I-NET, becoming its President of Enterprise
Services until Wang Global acquired I-NET. Mr. Hanau spent twenty two years in
the U.S. Army, holding high level positions within the Army Chief of Staff and
the Office of the Secretary of Defense. Mr. Hanau holds a degree from the United
States Military Academy and earned advanced degrees in operations research from
Stanford University and in business administration from Long Island University.

J. Alan Lindauer became a director of Netplex in November 1998. Mr. Lindauer has
also been serving as a director of Waterside Capital Corporation since July 1993
and was named as its President and Chief Executive Officer in March 1994. Mr.
Lindauer has also served as President of JTL, Inc., since 1986. Also since 1986,
Mr. Lindauer has served as a director of Commerce Bank of Virginia. In 1963, Mr.
Lindauer started Minute-Man Fuels, which he managed until 1985. Mr. Lindauer
holds a Bachelor of Business Administration in Accounting and a Master of
Business Administration from Old Dominion University. He is a Certified
Management Consultant.

Board Composition. Our amended Certificate of Incorporation currently authorizes
six (6) directors. Our Board of Directors currently consists of four (4)
members. Our amended Certificate of Incorporation provides that our board

                                       29

<PAGE>

of directors will be divided into three classes, Class I, Class II, and Class
III, with each class serving staggered three-year terms. The initial Class I
director, J. Alan Lindauer will hold office until the 2003 annual meeting of
shareholders. The initial Class II director, Steven L. Hanau will hold office
until his successor is duly elected and qualify. The initial Class III
directors, Gene Zaino and Richard Goldstein, will hold office until the 2002
annual meeting of shareholders. Any additional directorships resulting from an
increase in the number of directors will be distributed among the three classes
so that, as nearly as possible, each class will consist of one-third of the
directors. This staggered classification of the board of directors may have the
effect of delaying or preventing changes in control or management.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that
the Company's directors and executive officers, and persons who own more than
10% of a registered class of the Company's equity securities, file with the
Securities and Exchange Commission (the "Commission") initial reports of
ownership and reports of change in ownership of Common Stock of the Company. The
same persons are also required by Commission regulation to furnish the Company
with copies of all Section 16(a) forms that they file. To the Company's
knowledge, based solely on a review of the copies of such reports furnished to
the Company, and written representations that no other reports were required
during the fiscal year ended December 31, 2001, compliance was made with all
Section 16(a) filing requirements applicable to the Company's executive
officers, directors and persons who own more than 10% of a registered class of
the Company's equity securities.

Item 11. Executive Compensation.

The following table sets forth, for the fiscal years indicated, all compensation
the Company paid to Gene Zaino, Chief Executive Officer and Peter J. Russo,
Chief Financial Officer. The Company had no other executive officers, whose
salary and bonus exceeded $100,000 for the year ended December 31, 2001.

Summary Compensation Table

<TABLE>
<CAPTION>
     ---------------------------------------- -------------------------- -------------------- --------------
                                                                              Long-Term
                                                                             Compensation
                                                 Annual Compensation            Awards
     ---------------------------------------- -------------------------- -------------------- --------------
                                                                              Securities        All Other
           Name and Principal Position         Fiscal Year    Salary($)   Underlying Options   Compensation
     ---------------------------------------- ------------- ------------ -------------------- --------------
     <S>                                      <C>           <C>          <C>                  <C>
     Gene Zaino, Chairman, CEO and
     President (1)                                2001        $275,000                    --        $ 2,991
     ---------------------------------------- ------------- ------------ -------------------- --------------
                                                  2000        $275,000               700,000        $14,140
     ---------------------------------------- ------------- ------------ -------------------- --------------
                                                  1999        $744,537                 7,500        $13,000
     ---------------------------------------- ------------- ------------ -------------------- --------------

     ---------------------------------------- ------------- ------------ -------------------- --------------
     Peter J. Russo, Senior Vice-President
     and CFO (2)                                  2001        $200,000                    --        $ 3,462
     ---------------------------------------- ------------- ------------ -------------------- --------------
                                                  2000        $182,211               300,000          4,663
     ---------------------------------------- ------------- ------------ -------------------- --------------

     ---------------------------------------- ------------- ------------ -------------------- --------------
</TABLE>

(1)  Mr. Zaino is employed under an employment agreement through June 2002
     pursuant to which he is currently paid a base salary of $275,000 per annum.
     Effective August 6, 2001, Mr. Zaino elected to participate in The Netplex
     Group, Inc. Employee Deferred Compensation Plan, deferring annual
     compensation of $125,000. For the year ended December 31, 2001, Mr. Zaino
     deferred $48,077 under this plan which equals 480,769 share units where one
     share unit is equal to the value of one share of The Netplex Group, Inc.'s
     common stock. Additionally, pursuant to his employment agreement, Mr. Zaino
     may also receive an annual bonus at the sole discretion of the Board, based
     upon the financial and operating performance of the Company, which shall
     not exceed 60% of base salary. The Board approved additional compensation
     in the form of an annual cash incentive for the year ended December 31,
     1999 for Mr. Zaino in the amount of $545,902. The net proceeds of this cash
     incentive were used to repay a 1997 loan from the Company in January 2000.
     The Company did not accrue any incentive compensation in 2001 or 2000 on
     behalf of Mr. Zaino. The Company has, and is the beneficiary of, a
     key-person life insurance policy for $2 million on Mr. Zaino.

(2)  Mr. Russo is employed under an employment agreement through January 3, 2002
     pursuant to which he is currently paid a base salary of $200,000 per annum.
     Effective August 6, 2001, Mr. Russo elected to participate

                                       30

<PAGE>

     in The Netplex Group, Inc. Employee Deferred Compensation Plan, deferring
     annual compensation of $50,000. For the year ended December 31, 2001, Mr.
     Russo deferred $19,231 under this plan which equals 192,308 share units
     where one share unit is equal to the value of one share of The Netplex
     Group, Inc.'s common stock. Mr. Russo is also entitled to receive an annual
     bonus based on the financial and operating performance of the Company. The
     Company did not accrue any incentive compensation in 2001 or 2000 on behalf
     of Mr. Russo. In addition, pursuant to his employment agreement, Mr. Russo
     is entitled to receive 12 months base pay upon change of control.

Aggregated Option Exercises and Fiscal Year-end Option Values
<TABLE>
<CAPTION>
     --------------- -------------------------- ---------------------------- --------------------------
                        Shares                      Number of Securities        Value of Unexercised
                      Acquired on    Value         Underlying Unexercised      In-The-Money Options at
                     Exercise (#)  Realized ($) Options at December 31, 2001    December 31, 2001 (1)
     --------------- ------------- ------------ ---------------------------- --------------------------
     Name                                        Exercisable   Unexercisable Exercisable  Unexercisable
     --------------- ------------- ------------ ---------------------------- --------------------------
     <S>             <C>           <C>          <C>                          <C>
     Gene Zaino                 --          $--      822,500         400,000          --             --
     --------------- ------------- ------------ ---------------------------- --------------------------
     Peter J. Russo             --          $--       66,667         133,333          --             --
     --------------- ------------- ------------ ---------------------------- --------------------------
</TABLE>

(1)  At December 31, 2001 the closing price of the Company's Common Stock on the
OTCBB was $0.04.

Compensation of Directors. Our Board of Directors are not paid to attend
meetings; however, each member receives options to purchase 15,000 shares of
common stock when he or she is first elected to the Board. Options awarded to
directors are granted under a stock option plan established for the directors.
To date, options to purchase 285,000 shares at exercise prices ranging from
$0.47 to $3.56 per share have been granted to directors. In February 2000, each
outside director received a cash bonus of $10,000.

Report Of The Compensation

Committee Overall Policy. The Board of Directors of the Company establishes the
overall goals and objectives of the Company and the policies to be followed in
pursuing those goals and objectives, including the selection of necessary key
management personnel, and auditing the performance of those personnel. The major
responsibility for assisting in satisfying the compensatory aspect of the
overall supervisory duty of the Board rests with the Compensation Committee. The
membership of the Compensation Committee (collectively the "Committee") is
composed of independent non-employee directors who do not participate in any
executive compensation plan. In order to achieve the overall goals and
objectives of the Company, and recognizing the interest of the shareholders in
that achievement, the Committee has developed and maintains an executive
compensation policy based on a philosophy that links executive compensation to
individual and corporate performance, and return to shareholders. This policy
enables the Company to attract and retain highly motivated executive personnel
of outstanding ability and initiative, and creates an identity of interests
between executives and the Company's shareholders. The Company's executive
compensation plan consists of basic cash compensation, the opportunity for
annual cash incentive compensation, based on individual and corporate
performance, and continuing stock-based compensation, geared to corporate
performance. The Committee administers the Company's cash incentive compensation
policy and also comprises the Company's Stock Option Committee, which
administers the provisions of the stock-based compensation plan. The Committee
takes various factors into consideration when establishing and reviewing
executive compensation. There follows an explanation of general principles
governing basic cash compensation, annual cash incentive compensation,
stock-based incentive compensation and the factors considered in establishing
basic cash compensation for 2001.

Basic Cash Compensation. The Committee, in determining basic cash compensation
of the executive officers of the Company, considers corporate profitability,
financial condition and the planned compensation budget for the Company. The
Committee also considers the performance and compensation levels of other
companies as more fully set forth under the caption "2001 Compensation". The
Committee does not consider these factors by any formula and does not assign
specific weight to any given factor. Instead, the Committee applies its
collective business judgment to reach a consensus on compensation fair to the
Company, its shareholders and its executive officers. Under an executive
employment agreement, the basic cash compensation of Mr. Zaino and Mr. Russo is
no less than $275,000 and $200,000 per year, respectively.

Annual Cash Incentive Compensation. In addition to basic cash compensation, the
Committee, has developed an informal annual cash incentive compensation policy,
which is based on corporate profitability, financial condition, the planned
compensation budget for the Company and subjective appraisal by the Committee,
with the advice of the President, of the executive officer's performance. The
Committee does not consider these factors by any formula

                                       31

<PAGE>

and does not assign specific weight to any given factor. Instead, the Committee
applies its collective business judgment to reach a consensus on incentive
compensation that is fair to the Company, its shareholders and its executive
officers. The two current executive officers of the Company are considered by
the Committee to have responsibilities that directly affect corporate
performance and profitability and, accordingly, are currently eligible to
receive cash incentive compensation. Specific awards are chosen annually by the
Committee. To date, the Committee has not awarded cash incentive compensation,
except as set forth above. Cash incentive compensation paid to those executive
officers named in the Summary Compensation Table wills be reflected in the Table
under the caption "Salary."

Stock-Based Incentive Compensation. The 1992 Incentive and Nonqualified Stock
Option Plan is designed to create a common interest between key employees,
including executive officers, and shareholders on a long-term basis. Its purpose
is to encourage participants to maintain and increase their proprietary
interests as shareholders in the Company and to benefit from the long-term
performance of the Company. The Committee believes that a close linking of
shareholder and key employee interests through the grant of stock options is
important to the continuing success of the Company because stock options have no
realizable value unless the price of the Common Stock increases. The exercise
price of the stock options equals the market price of the Common Stock on the
date of grant and the options have a ten year life. The Plan is administered by
the Committee, which comprises the Company's Stock Option Committee. The
Committee employs the same principles with respect to stock-based incentive
compensation as it does with respect to grants of cash incentive compensation.

Deferred Compensation. The Netplex Group, Inc. Employee Deferred Compensation
Plan was adopted by the Board of Directors on August 6, 2001. The plan is
designed to create a common interest between key employees, including executive
officers, who have the capacity to make substantial contributions to the success
of the Company. Its purpose is to encourage participants to maintain and
increase their proprietary interests as shareholders in the Company and to
benefit from the long-term performance of the Company by deferring a percentage
of their compensation into their benefit accounts on a non-elective basis,
periodically as earned. As with incentive stock options, the Committee believes
that a close linking of shareholder and key employee interests through the
deferred compensation is important to the continuing success of the Company
because share units to which the deferred compensation is converted to have no
realizable value unless the price of the Common Stock increases. Each
participants deferred compensation is converted to share units at a ratio
determined by the plan administrator.

2001 Compensation. The Committee, in determining the 2000 basic cash
compensation of the executive officers of the Company, considered the factors
described in this Report. Gene Zaino is Chairman of the Board and Chief
Executive Officer of the Company and, as such, has the ultimate management
responsibility for the strategic direction, performance, operating results and
financial condition of the Company, and the execution of corporate policies and
procedures. Pursuant to their respective employment agreements, Mr. Zaino and
Mr. Russo receive a base salary of $275,000 and $200,000, respectively. The
Committee did not award cash or stock-based incentive compensation to such
executive officers for the year ended December 31, 2000. Mr. Zaino and Mr. Russo
defer annual compensation of $125,000 and $50,000, respectively, on a
non-elective basis.

/s/ THE COMPENSATION COMMITTEE

Richard Goldstein

Steven Hanau

                                       32

<PAGE>

Performance Graph

                               [PERFORMANCE GRAPH]

The above graph demonstrates a comparison of cumulative total returns based upon
an initial investment of $100.00 in the Company's Common Stock as compared with
the Russell 2000 Index (with dividends reinvested) and the Nasdaq Stock
Market-U.S. Index. The stock price performance shown on the graph is not
necessarily indicative of future price performance and only reflects the
Company's relative stock price on December 31, 1996, December 31, 1997, December
31, 1998, December 31, 1999, December 29, 2000 and December 2001.

THE INFORMATION CONTAINED IN THE STOCK PERFORMANCE GRAPH SHALL NOT BE DEEMED TO
BE `SOLICITING MATERIAL' OR TO BE FILED WITH THE SEC, NOR SHALL SUCH INFORMATION
BE INCORPORATED BY REFERENCE INTO ANY FUTURE FILING UNDER THE SECURITIES ACT OR
THE EXCHANGE ACT, EXCEPT TO THE EXTENT THE COMPANY SPECIFICALLY INCORPORATES IT
BY REFERENCE INTO SUCH FILING.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth information concerning ownership of the Company's
Common Stock, as of March 1, 2002, by each person known by the Company to be the
beneficial owner of more than five percent of the Common Stock, each director,
each nominee for Director, each executive officer, and by all directors and
executive officers of the Company as a group.

<TABLE>
<CAPTION>
          ------------------------------------------------------------ ------------------------
                                                                          Number of Shares of
                                                                             Common Stock
          Name of Beneficial Owner                                       Beneficially Owned (1)
          ------------------------------------------------------------ ------------------------
                                                                               Number   Percent
          ------------------------------------------------------------ -------------- ---------
          <S>                                                          <C>            <C>
          Gene Zaino**                                                   2,641,650(2)     11.1%
          ------------------------------------------------------------ -------------- ---------
          Peter J. Russo**                                                 526,322(3)      2.3%
          ------------------------------------------------------------ -------------- ---------
          Richard Goldstein**                                              110,000(4)        *
          ------------------------------------------------------------ -------------- ---------
          Steve Hanau**                                                     90,000(5)        *
          ------------------------------------------------------------ -------------- ---------
          J. Alan Lindauer**                                                80,000(6)        *
          ------------------------------------------------------------ -------------- ---------
          All directors and Executive officers as a Group (5 persons)    3,447,972(7)     14.3%
          ------------------------------------------------------------ -------------- ---------
</TABLE>

          *    Less than 1%.
          **   Each of the executive officers and directors use 1800 Robert
               Fulton Drive, Second Floor, Reston, VA 20191 as their address for
               the purposes of this report.

(1)  Beneficial ownership is determined in accordance with the rules of the
     Securities and Exchange Commission and, unless otherwise indicated,
     includes sole voting and investment power with respect to securities.
     Shares of Common Stock subject to options or warrants currently
     exercisable, or exercisable within 60 days, are deemed outstanding for
     computing the percentage of the outstanding Common Stock beneficially owned
     by the person holding such options or warrants but are not deemed
     outstanding for computing the percentage beneficially

                                       33

<PAGE>

     owned by any other person. Based solely on a review of Schedules 13G and
     13D that have been filed and delivered to the Company, the Company is not
     aware of any 5% beneficial holders of its Common Stock, other than the
     persons specified in the table above.
(2)  Consists of 822,500 shares of Common Stock subject to currently exercisable
     options and 1,819,150 shares of Common Stock owned.
(3)  Consists of 66,667 shares of Common Stock subject to currently exercisable
     options and 459,655 shares of Common Stock owned.
(4)  Consists of 82,500 shares of Common Stock subject to currently exercisable
     options and 27,500 shares of Common Stock owned.
(5)  Consists of 67,500 shares of Common Stock subject to currently exercisable
     options and 22,500 shares of Common Stock owned.
(6)  Consists of 75,000 shares of Common Stock subject to currently exercisable
     options and 5,000 shares of Common Stock owned.
(7)  Includes 1,114,167 shares of Common Stock subject to currently exercisable
     options and warrants.

Item 13.  Certain Relationships and Related Transactions.

In January 1997 the Company loaned $150,000 to Mr. Zaino, its chief executive
officer, for relocation expenses. The loan bears interest at 8% per annum. The
note and accrued interest were paid in full in January 2000.

Mr. Lindauer, is a director of the Company and the President, Chief Executive
Officer and Director of Waterside Capital Corporation ("WTC"), the holder of the
Company's Class C preferred shares. On January 28, 1999, WTC lent the Company
$800,000 under a subordinated note. On December 15, 1999 the subordinated note
was exchanged for an increase in the number of shares that the Company's Class C
Convertible Preferred Stock is convertible into.

On September 28, 2001, the Company entered into an agreement with Waterside
Capital Corporation ("Waterside") whereby

     --   the Company paid $2,052,780 in the form of $1,000,000 cash and two
          secured commercial promissory notes in the original principal amounts
          of $900,000 and $152,780 for:

          .    Waterside's surrender to the Company for cancellation 1,500,000
               shares of its Class C Preferred Stock;

          .    Waterside's guarantee of up to $400,000 of the Company's
               subsidiary, Systems, revolving credit facility; and

          .    Waterside surrendered for cancellation its warrant exercisable
               for 300,000 shares of the Company's Common Stock;

     --   the Company paid $50,000 of closing fees associated with the
          transaction; and

     --   Waterside purchased from the Company 1,000 shares of the Company's
          subsidiary, Systems, preferred stock for $1,000,000 which is recorded
          as a minority interest in the balance sheet.

The promissory notes bear interest of 10% per annum. The $900,000 note is
payable in quarterly installments of $15,000 and the $152,780 note is payable at
the earlier of the closing of the Offering or January 1, 2002.

The Company paid approximately $3,000, $18,000 and $45,000 in 2001, 2000 and
1999, respectively for accounting, tax and consulting services to an accounting
firm, in which Mr. Goldstein, a director of the Company, is a partner.

                                       34

<PAGE>

                                     PART IV

Item 14.  Exhibits and Reports on Form 8-K.

(a)  1.   Financial Statements and Schedules. The following financial statements
          are included herein:

<TABLE>
<CAPTION>
                                                                                Page
                                                                                ----

               <S>                                                              <C>
               Independent Auditors' Report ..................................  F-2

               Consolidated Balance Sheets as of December 31, 2001 and 2000     F-3

               Consolidated Statements of Operations for the years ended        F-4
                  December 31, 2001, 2000 and 1999

               Consolidated Statements of Stockholders' Equity for the years    F-5
                  ended December 31, 2001, 2000 and 1999

               Consolidated Statements of Cash Flows for the years ended        F-7
                  December 31, 2001, 2000 and 1999

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

     2.   Consolidated Financial Statement Schedules

          The following consolidated financial statement schedule of the Company
          for each of the years ended December 31, 2001, 2000 and 1999 is filed
          as part of this Form 10-K, and should be read in conjunction with the
          Consolidated Financial Statements, and the related notes thereto of
          the Company.

          Schedule I - Quarterly Consolidated Financial Data

          Schedule II -- Valuation and Qualifying Accounts

          Schedules other than those listed above have been omitted because they
          are not applicable or the required information is shown in the
          Consolidated Financial Statements or the Notes thereto.

     3.   Exhibits

     Exhibit                        Description of Document
     Number

       2       Agreement and Plan of Reorganization and Merger dated as of
               November 20, 1995, by and among The Netplex Group, Inc.,
               America's Work Exchange, Inc. and the Company.**
       3(a)    Amended and Restated Certificate of Incorporation.*
       3(b)    Amendment to the Amended and Restated Certificate of
               Incorporation.**
       3(c)    Amendment to the Amended and Restated Certificate of
               Incorporation.***
       3(d)    Bylaws.***
       3(e)    Certificate of Amendment of the Certificate of Incorporation of
               Netplex Systems, Inc.++++
       4(a)    Common Stock Purchase Warrant issued to the Pennsylvania Merchant
               Group, dated October 1, 1999.****
       4(b)    Securities Purchase Agreement, dated as of March 28, 2000, by and
               among Netplex and the Buyers.***
       4(c)    Form of Warrant Agreement, dated as of March __, 2000, by and
               between Netplex and each of the Buyers.***(A schedule of Buyers
               is filed as Exhibit 99(a)).
       4(d)    Registration Rights Agreement, dated as of March 28, 2000, by and
               among Netplex and the Buyers.***
       4(e)    Investor Rights Agreement dated September 30, 1998.*****
       4(f)    Registration Rights Agreement between Netplex and Waterside
               Capital Corporation dated

                                       35

<PAGE>

   Exhibit                   Description of Document
   Number

           September 30, 1998.*****
     4(g)  Stock Purchase Warrant dated September 30, 1998.*****
     4(h)  Placement Agency Agreement dated September 25, 1998.*****
     4(i)  Incentive Stock Purchase Warrant dated September 28, 1998.*****
     4(j)  Prepaid Common Stock Warrant dated September 28, 1998.****
     4(k)  Registration Rights Agreement between Netplex and the Initial
           Investors dated September 28, 1998.*****
     4(l)  Securities Purchase Agreement dated September 25, 1998.*****
     4(m)  Form of Prepaid Common Stock Purchase Warrant, dated March ___, 2000
           by and between Netplex and each of the Holders.*** (A schedule of
           Holders is filed as Exhibit 99(b)).
     4(n)  Form of The Netplex Group, Inc. Incentive Stock Purchase Warrant,
           dated as of March ___, 2000, by and between Netplex and each of the
           Holders.*** (A schedule of Holders is filed as Exhibit 99(c)).
     4(o)  Form of Prepaid Warrant issued to Purchasers in April 1998 Private
           Placement.****** (A schedule of Purchasers is filed as
           Exhibit 99(d)).
     4(p)  Form of Incentive Warrant issued to Purchasers in April 1998 Private
           Placement.****** (A schedule of Purchasers is filed as
           Exhibit 99(e)).
     4(q)  Warrant issued to TMP Interactive, Inc. for the right to purchase
           2,000,000 shares of common stock, dated May, 2, 2000.****
     4(r)  Warrant issued to TMP Interactive, Inc. for the right to purchase
           1,000,000 shares of common stock, dated May 2, 2000.****
     4(s)  Warrant issued to Roseland II L.L.C. for the right to purchase 15,000
           shares of common stock, dated May 15, 2000.####
     4(t)  Warrant issued to Silicon Valley Bank for the right to purchase
           75,000 shares of common stock, dated July 31, 2000. ####
     4(u)  Registration Rights Agreement between Netplex and Silicon Valley Bank
           dated July 31, 2000. ####
     4(v)  Anti-dilution Agreement between Netplex and Silicon Valley Bank dated
           July 31, 2000. ####
     4(w)  Amendment #1 to Securities Purchase Agreement Dated March 28, 2000 By
           and among The Netplex Group, Inc., HFTP Investment L.L.C., Wingate
           Capital Ltd., and Fisher Capital Ltd. dated and effective July 31,
           2000.####
     4(x)  Warrant issued to Pennsylvania Merchants Group for the right to
           purchase 500,000 shares of common stock, dated December 12, 2000.####
     4(y)  Registration Rights Agreement between Netplex Systems, Inc. and
           Waterside Capital Corporation dated September 28, 2001.++++
     4(z)  Investor Rights Agreement and Amended and Restated Investor Rights
           Agreement between Netplex Systems, Inc. and Waterside Capital
           Corporation dated September 30, 2001.++++
     4(aa) Stipulation of Settlement by and among TMP Interactive Inc. and The
           Netplex Group, Inc. dated August 7, 2001#####
     10(a) 1992 Incentive and Non-Qualified Stock Option Plan.*******
     10(b) Amendment to 1992 Incentive and Non-Qualified Stock Option
           Plan.*******
     10(c) Form of Indemnification Agreement between the Officers and Directors
           of Netplex and Netplex (with schedule attached). ####
     10(d) 1995 Directors Stock Option Plan.#
     10(e) 1995 Consultant's Stock Option Plan.#
     10(f) Employment Agreement between Netplex and Gene Zaino.**
     10(g) Agreement by and among XcelleNet, Inc., the Netplex Group, Inc. and
           Technology Development Systems, Inc. dated November 5, 1996.##
     10(h) Employment Agreement between Netplex and Peter Russo ####
     10(i) Loan and Security Agreement between Netplex and Silicon Valley Bank,
           dated July 31, 2000. ####
     10(j) Pledge Agreement between America's Work Exchange, Inc. and Silicon
           Valley Bank, dated July 31, 2000. ####
     10(k) Continuing Guaranty by and among The Netplex Group, Inc., Netplex
           Systems, Inc.,

                                       36

<PAGE>

   Exhibit                   Description of Document
   Number

           America's Work Exchange, Inc., Contractors Resources, Inc., and
           Silicon Valley Bank, dated as of July 31, 2000. ####
     10(l) Security Agreement by and among The Netplex Group, Inc. Contractors
           Resources, Inc. and Silicon Valley Bank, Commercial Finance Division,
           dated as of July 31, 2000.####
     10(m) Amendment to Loan Documents and Forebearance Agreement between
           Netplex and Silicon Valley Bank, dated January 10, 2001 ####
     10(n) Commercial Revolving Loan, Demand Loan and Security Agreement dated
           as of April 30, 2001, by and between Netplex Systems, Inc. and
           American Commercial Finance Corporation.+++
     10(o) Master Agreement between The Netplex Group, Inc., Netplex Systems,
           Inc. and Waterside Capital Corporation dated September 28, 2001.++++
     10(p) Secured Commercial Note for $900,000 by and among The Netplex Group,
           Inc. and Waterside Capital Corporation dated September 28, 2001.++++
     10(q) Secured Commercial Note for $154,697.45 by and among The Netplex
           Group, Inc. and Waterside Capital Corporation dated September 28,
           2001.++++
     10(r) Security Agreement (Preferred Stock and Credit Guaranty) between
           Netplex Systems, Inc. and Waterside Capital Corporation dated
           September 28, 2001.++++
     10(s) Security Agreement ($900,000 and $154,697.45 Commercial Notes)
           between Netplex Systems, Inc. and Waterside Capital Corporation dated
           September 28, 2001.++++
     10(t) The Netplex Group, Inc. Employee Deferred Compensation Plan#####
     10(u) Settlement Agreement and Release by and among Data Systems Analysts,
           Inc. and The Netplex Group, Inc. and Technology Development Systems,
           Inc. dated December 28, 2001. #####
     16    Letter regarding change in certifying accountant.+
     21    Subsidiaries of the Netplex Group, Inc.##
     23    Consent of Grant Thornton, LLP.#####
     24    Power of Attorney.++

* Incorporated by reference to the Registrant's Registration Statement on Form
SB-2 filed with the Securities and Exchange Commission January 29, 1993
(Commission File No. 33-57546).

** Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1996 filed with the Securities and
Exchange Commission March 31, 1997 (Commission File No. 33-57546).

*** Incorporated by reference to the Registrant's Current Report on Form 8-K
filed with the Securities and Exchange Commission April 3, 2000 (Commission File
No. 1-11784).

**** Previously filed in connection with this offering pursuant to the
Registrant's Registration Statement on Form S-3 filed with the Securities and
Exchange Commission May 9, 2000 (Commission File No. 333- 36572).

***** Incorporated by reference to the Registrant's Registration Statement on
Form S-3 filed with the Securities and Exchange Commission November 13, 1998
(Commission File No. 333-67321).

****** Incorporated by reference to the Registrant's Annual Report on Form 10- K
for the year ended December 31, 1997 filed with the Securities and Exchange
Commission on April 15, 1998.

******* Incorporated by reference to the Registrant's Current Report on Form 8-
K, filed with the Securities and Exchange Commission June 7, 1996, as amended.

+  Incorporated by reference to the Registrant's Current Report on Form 8- K
filed with the Securities and Exchange Commission on June 2, 1999 (Commission
File No. 001-11784).

++ Previously filed in connection with this offering pursuant to the
Registrant's Registration Statement on Form S-3 filed with the Securities and
Exchange Commission May 9, 2000 (Commission File No. 333-36572) and pursuant to
the Registrant's Registration Statement on Form S-3 filed with the Securities
and Exchange Commission May 22, 2000 (Commission File No. 333-37594).

                                       37

<PAGE>

+++ Previously filed on Form 10- Q for the three month period ended March 31,
2001 filed with the Securities and Exchange Commission on May 15, 2001.
(Commission File No. 001-11784)

++++ Previously filed on Form 10- Q for the three month period ended September
30, 2001 filed with the Securities and Exchange Commission on November 14, 2001.
(Commission File No. 001-11784)

# Incorporated by reference to the Registrant's Registration Statement on Form
S-8, filed with the Securities and Exchange Commission on December 31, 1996
(Commission File No. 333-19115).

## Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1999 filed with the Securities and Exchange
Commission April 3, 2000 (Commission File No. 001-11784).

### Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q/A, filed with the Securities and Exchange Commission on May 16, 2000
(Commission File No. 001-11784).

#### Previously filed.

##### Filed herewith

(b) The Company filed on Form 8-K in the quarter ended December 31, 2000 the
following:

During the fiscal quarter ended December 31, 2001, the Company filed no reports
on Form 8-K.

                                       38

<PAGE>

Signatures

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized in the County of Fairfax, Commonwealth of Virginia on the 15th day
of April 2002.

                                                        The Netplex Group, Inc.
                                                        By: /s/ Gene Zaino
                                                        ----------------------
                                                        Gene Zaino
                                                        Chairman and C.E.O.

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

     Signature                         Title                        Date
     ---------                         -----                        ----
/s/ Gene Zaino            Chairman, Chief Executive Officer     April 15, 2002
--------------            and Director [Principal Executive
Gene Zaino                Officer]

/s/ Peter Russo           Chief Financial Officer and           April 15, 2002
---------------           Treasurer [Principal Financial
Peter Russo               Officer]

/s/ Richard Goldstein     Director                              April 15, 2002
---------------------
Richard Goldstein

/s/ Steven Hanau          Director                              April 15, 2002
----------------
Steven Hanau

/s/ J. Alan Lindauer      Director                              April 15, 2002
--------------------
J. Alan Lindauer

                                       39

<PAGE>

                                                                      SCHEDULE I

                    THE NETPLEX GROUP, INC. AND SUBSIDIARIES
         SCHEDULE I - QUARTERLY CONSOLIDATED FINANCIAL DATA (unaudited)
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

In management's opinion, the interim financial data below reflects all
adjustments necessary to fairly state the results of the interim period
presented. Quarterly data for year 2000 were restated to reflect the
re-incorporation of discontinued operations (Note 3 to the financial
statements). All other adjustments are of a normal recurring nature necessary
for a fair presentation of the information for the periods presented. Results of
any one or more quarters are not necessarily indicative of annual results or
continuing trends.

                               2001 QUARTERS ENDED
<TABLE>
<CAPTION>
                                                 March 31      June 30      September 30      December 31
                                               ------------  -----------  ----------------  ---------------
<S>                                            <C>           <C>          <C>               <C>
  Total revenue                                $      7,582  $     5,240  $          4,239  $         4,284
  Gross profit                                        3,081        2,195             1,915            2,267
  Net loss                                           (1,426)      (2,191)           (2,405)          (2,439)
  Net loss per share (basis and diluted)       $      (0.08) $     (0.11)            (0.11)           (0.11)
</TABLE>

                               2000 QUARTERS ENDED
<TABLE>
<CAPTION>
                                                 March 31      June 30      September 30      December 31
                                               ------------  -----------  ----------------  ---------------
<S>                                            <C>           <C>          <C>               <C>
  Total revenue                                $      6,875  $     7,368  $          7,423  $         5,762
  Gross profit                                        2,479        2,904             3,029            2,043
  Net loss                                           (3,790)      (3,844)           (4,891)          (2,735)
  Net loss per share (basis and diluted)       $      (0.23) $     (0.23) $          (0.28)            0.02
</TABLE>

                                       40

<PAGE>

                                                                     SCHEDULE II

                             THE NETPLEX GROUP, INC.

                        VALUATION AND QUALIFYING ACCOUNTS

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                              Balance at       Additions                       Balance at
                             beginning of      charged to                        end of
                                period         operations      Write-offs        period
                           ----------------  --------------  --------------  --------------
  Allowance for doubtful accounts
  Year Ended:
<S>                        <C>               <C>             <C>             <C>
  December 31, 1999       $             589  $          501  $         (748) $          342*
                           ================   =============   =============   =============
  December 31, 2000       $             342  $          207  $         (152) $          397
                           ================   =============   =============   =============
  December 31, 2001       $             397  $          528  $          659  $          266
                           ================   =============   =============   =============
</TABLE>
* Amount includes allowance related to receivables in discontinued operations

<TABLE>
<CAPTION>
                              Balance at       Additions                       Balance at
                             beginning of      charged to                        end of
                                period         operations      Write-offs        period
                           ----------------  --------------  --------------  --------------
  Valuation allowance against deferred tax assets
  Year Ended:
<S>                     <C>                  <C>             <C>             <C>
  December 31, 1999       $           5,015  $        3,320  $           --  $        8,335
                           ================   =============   =============   =============
  December 31, 2000       $           8,335  $        5,884  $           --  $       14,219
                           ================   =============   =============   =============
  December 31, 2001       $          14,219  $        4,043  $           --  $       18,262
                           ================   =============   =============   =============
</TABLE>

                                       41

<PAGE>

                   Index to Consolidated Financial Statements

                                                                           Page
                                                                           ----

    Independent Auditors' Report                                            F-2
    Consolidated Balance Sheets as of December 31, 2001 and 2001            F-3
    Consolidated Statements of Operations for the years ended               F-4
        December 31, 2001, 2000 and 1999
    Consolidated Statements of Stockholders' Equity for the years           F-5
        ended December 31, 2001, 2000 and 1999
    Consolidated Statements of Cash Flows for the years ended               F-7
        December 31, 2001, 2000 and 1999
    Notes to Consolidated Financial Statements                              F-8

                                       F-1

<PAGE>

               Report of Independent Certified Public Accountants

Board of Directors and Stockholders
The Netplex Group, Inc.:

We have audited the accompanying consolidated balance sheets of The Netplex
Group, Inc. and subsidiaries (the "Company") as of December 31, 2001 and 2000,
and the related consolidated statements of operations, stockholders' equity and
cash flows for the each of the three years in the period ended December 31,
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Netplex Group,
Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for the each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America.

The accompanying consolidated financial statements have been presented assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has incurred significant losses
from operations and has used cash in operations in each of the last five years.
In addition, as of December 31, 2001, the Company has a stockholders' deficit of
approximately $6.0 million and a working capital deficit of approximately $8.7
million. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plan in regard to these matters is
also described in Note 1. The consolidated financial statements do not contain
any adjustments that might result from the outcome of this uncertainty.

In connection with our audits of the consolidated financial statements referred
to above, we have audited Schedule II - Valuation and Qualifying Accounts, for
each of the three years in the period ended December 31, 2001. In our opinion
this schedule presents fairly, in all material respects, the information
required to be set forth therein.

/s/ Grant Thornton LLP

Vienna, Virginia
February 15, 2002
(except for Note 3, as to which the date is March 26, 2002)
_______________________

                                       F-2

<PAGE>

                    THE NETPLEX GROUP, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
                                  DECEMBER 31,

<TABLE>
<CAPTION>
                                         Assets                                      2001          2000
                                                                                   -------       -------
<S>                                                                                <C>           <C>
Current assets:
    Cash and cash equivalents                                                      $ 1,252       $ 3,818
    Accounts receivable, net of allowance for doubtful accounts of $266 and $397,
      respectively                                                                   2,487         4,368
    Prepaid expenses and other current assets                                          442           897
    Current assets of discontinued operations                                           --         1,006
                                                                                   -------       -------
      Total current assets                                                           4,181        10,089
    Property and equipment, net                                                      1,074         2,051
    Other assets                                                                       160           886
    Goodwill and other intangible assets, net                                        3,272         4,566
    Long-term assets of discontinued operations                                         --            98
                                                                                   -------       -------
      Total assets                                                                 $ 8,687       $17,690
                                                                                   =======       =======
                          Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
    Line of credit                                                                 $ 1,094       $ 2,003
    Accounts payable                                                                 3,206         2,787
    Accrued compensation and other accrued expenses                                  5,643         7,156
    Accrued litigation settlements                                                   1,510            --
    Capital lease obligation, current portion                                          108            77
    Note payable, current portion                                                    1,062           425
    Other current liabilities                                                          282           426
    Current liabilities of discontinued operations                                      --            67
                                                                                   -------       -------
      Total current liabilities                                                     12,905        12,941
    Capital lease obligations long-term, net of current portion                          2            92
    Note payable, net of current portion                                               825           425
    Long-term liabilities of discontinued operations                                    --            53
                                                                                   -------       -------
      Total liabilities                                                             13,732        13,511
                                                                                   -------       -------
Commitments and contingencies
Minority interest in subsidiary                                                      1,000            --
                                                                                   -------       -------
Stockholders' equity (deficit)
Preferred Stock:
    Class A Cumulative, $.01 par value, liquidation preference of $4.00 per
    share for 2000 and 1999; 2,000,000 shares authorized, 80,597 and 80,597
    shares issued and outstanding at December 31, 2001 and 2000, respectively            1             1
    Class C Cumulative, $.01 par value; liquidation preference of $3.99 per
    share; 2,500,000 shares authorized; no shares and 1,500,000 shares issued and
    outstanding at December 31, 2001 and 2000, respectively                             --            15
    Class D Cumulative, $.01 par value; liquidation preference of $5,000 per
    share; 10,000 shares authorized; 1,324 and 2,145 shares issued and
    outstanding at December 31, 2001 and 2000, respectively                              1             1
    Class E Cumulative, $.01 par value; liquidation preference of $1,000 per
    share; 3,000 shares authorized; 3,000 shares issued and outstanding at
    December 31, 2001 and 2000                                                           1             1
    Common Stock: $.001 par value, 100,000,000 shares authorized, 23,050,360 and
    20,820,448 shares issued and outstanding at December 31, 2001 and 2000,
    respectively                                                                        23            21
Additional paid in capital                                                          32,583        34,333
Accumulated deficit                                                                (38,654)      (30,193)
                                                                                   -------       -------
      Total stockholders' equity (deficit)                                          (6,045)        4,179
                                                                                   -------       -------
      Total liabilities and stockholders' equity (deficit)                         $ 8,687       $17,690
                                                                                   =======       =======
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-3

<PAGE>

                    THE NETPLEX GROUP, INC. AND SUBSIDIARIES
                      Consolidated Statements of Operations
                      (in thousands, except per share data)
                            Years Ended December 31,

<TABLE>
<CAPTION>
                                                                 2001            2000            1999
                                                             ------------    ------------    ------------
<S>                                                          <C>             <C>             <C>
Revenues
  Services                                                   $     13,456    $     16,415    $     16,175
  Product                                                           7,889          11,013          15,236
                                                             ------------    ------------    ------------
                                                                   21,345          27,428          31,411
                                                             ------------    ------------    ------------
Cost of revenues
  Services                                                          6,918           8,669           8,137
  Product                                                           4,969           8,304          12,122
                                                             ------------    ------------    ------------
                                                                   11,887          16,973          20,259
                                                             ------------    ------------    ------------
Gross profit                                                        9,458          10,455          11,152

Operating expenses
  Selling, general and administrative expenses                     17,367          24,218          16,066
  Restructure charges                                                  --           1,512              --
                                                             ------------    ------------    ------------
  Operating loss                                                   (7,909)        (15,275)         (4,914)
Interest expense, net                                                (150)            (41)           (384)
Offering costs                                                       (489)             --              --
                                                             ------------    ------------    ------------
Net loss before income taxes                                       (8,548)        (15,316)         (5,298)
  Provision for income taxes                                           --              --              --
                                                             ------------    ------------    ------------
Loss from continuing operations before minority interest           (8,548)        (15,316)         (5,298)
  Minority interest                                                    --             482              83
                                                             ------------    ------------    ------------
Loss from continuing operations                                    (8,548)        (14,834)         (5,215)
  Gain (loss) from discontinued operations (net of
    income taxes) - Note 3                                             87            (939)         (2,209)
  Gain on sale of discontinued operations (net of income
    taxes) - Note 3                                                    --             513              --
                                                             ------------    ------------    ------------
Gain (loss) from discontinued operations                               87            (426)         (2,209)
                                                             ------------    ------------    ------------
Net Loss                                                           (8,461)        (15,260)         (7,424)
Preferred Stock dividend                                             (663)         (1,076)           (500)
Contributions from exchange of Preferred Stock                        239           3,177              --
                                                             ============    ============    ============
Loss applicable to common shareholders                       $     (8,895)   $    (13,159)   $     (7,924)
                                                             ============    ============    ============

Basic and diluted loss per common share:
  Continuing operations                                      $      (0.40)   $      (0.67)   $      (0.45)
  Discontinued operations                                              --           (0.05)          (0.18)
                                                             ------------    ------------    ------------
  Total                                                      $      (0.40)   $      (0.72)   $      (0.63)
                                                             ============    ============    ============
Weighted average common shares outstanding basic and
  diluted                                                          22,509          18,356          12,516
                                                             ============    ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-4

<PAGE>

                    THE NETPLEX GROUP, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                                                    Class D
                              Class A Cumulative                        Class C Cumulative        Cumulative
                                 Convertible      Class B Convertible  Convertible Preferred      Convertible
                               Preferred Stock    Preferred Stock              Stock            Preferred Stock
                              ------------------  -------------------  ---------------------  -------------------
                                Share      $       Shares        $       Shares       $        Shares     $
                              -----------------------------------------------------------------------------------
<S>                           <C>        <C>      <C>        <C>        <C>          <C>      <C>      <C>
Balance at January 1, 1999      987,573  $9,875    643,770   $ 6,438    1,500,000    15,000      --    $    --
Net loss                             --      --         --        --           --        --      --         --
Conversions of Class A
   Preferred to Common Stock   (877,612)  8,776)        --        --           --        --      --         --
Preferred Stock dividends            --      --         --        --           --        --      --         --
Exercise of Prepaid Common
   Stock purchase warrant            --      --         --        --           --        --      --         --
Conversion of subordinated
   debt  to Class C Preferred
   Stock                             --      --         --        --           --        --      --         --
Common Stock issued for the
   acquisition of ABS                --      --         --        --           --        --      --         --
Common Stock issued for the
   acquisition of Onion Peel
   Solutions, LLC                    --      --         --        --           --        --      --         --
Conversion of Class B
   Preferred Stock to Common
   Stock                             --      --   (643,770)   (6,438)          --        --      --         --
Common Stock issued                  --      --         --        --           --        --      --         --
Exercise of Common Stock
   warrants                          --      --         --        --           --        --      --         --
Exercise of Common Stock
   options                           --      --         --        --           --        --      --         --
                              ---------  ------   --------   -------    ---------  --------  ------    -------
Balance December 31, 1999       109,961  $1,099         --   $    --    1,500,000    15,000      --    $    --
Net loss                             --      --         --        --           --        --      --         --
Preferred Stock dividends            --      --         --        --           --        --      --         --
Conversions of Class A

   Preferred to Common Stock    (29,364)   (294)        --        --           --        --      --         --
Private placement of Class D
   Preferred Stock                   --      --         --        --           --        --  10,000        100
Exercise of Prepaid Common
   Stock purchase warrant            --      --         --        --           --        --      --         --

<CAPTION>
                                    Class E
                                   Cumulative                              Additional
                                   Convertible                               Paid In     Accumulated
                                 Preferred Stock        Common Stock         Capital       Deficit         Total
                               -------------------  --------------------  ------------  -------------  -------------
                                 Shares      $        Shares       $             $            $
                               -------------------------------------------------------------------------------------
<S>                            <C>        <C>         <C>        <C>       <C>          <C>            <C>
Balance at January 1, 1999         --     $    --     10,204,73  $10,204   $13,821,531  $ (7,508,524)  $  6,354,524
Net loss                           --          --            --       --            --    (7,423,823)    (7,423,823)
Conversions of Class A
   Preferred to Common Stock       --          --       877,612      873         7,903            --             --
Preferred Stock dividends          --          --            --       --      (241,478)           --       (241,478)
Exercise of Prepaid Common
   Stock purchase warrant          --          --       554,421      555          (555)           --             --
Conversion of subordinated
   debt  to Class C Preferred
   Stock                           --          --            --       --       800,000            --        800,000
Common Stock issued for the
   acquisition of ABS              --          --       114,756      115       566,715            --        566,830
Common Stock issued for the
   acquisition of Onion Peel
   Solutions, LLC                  --          --       297,396      297          (297)           --             --
Conversion of Class B
   Preferred Stock to Common
   Stock                           --          --       643,770      648         5,790            --             --
Common Stock issued                --          --        55,000       55           (55)           --             --
Exercise of Common Stock
   warrants                        --          --     2,093,856    2,094     5,258,008            --      5,260,102
Exercise of Common Stock
   options                         --          --     1,295,704    1,296     1,544,856            --      1,546,152
                               ------     ------- -------------  -------   -----------  ------------   ------------
Balance December 31, 1999          --     $    --     16,137,25  $16,137   $21,762,418  $(14,932,347   $  6,862,307
Net loss                           --          --            --       --            --   (15,260,233)   (15,260,233)
Preferred Stock dividends          --          --       190,608      191      (533,196)           --       (533,005)
Conversions of Class A
   Preferred to Common Stock       --          --        29,364       29           265            --             --
Private placement of Class D
   Preferred Stock                 --          --            --       --     9,434,311            --      9,434,411
Exercise of Prepaid Common
   Stock purchase warrant          --          --       560,748      561          (561)           --             --
</TABLE>

                                      F-5

<PAGE>

<TABLE>
<CAPTION>
                                                                                                                         Class D
                                        Class A Cumulative                             Class C Cumulative              Cumulative
                                       Convertable Preferred  Class B Convertable     Convertible Preferred            Convertible
                                               Stock             Preferred Stock                 Stock              Preferred Stock
                                       --------------------  -----------------------  ---------------------------  -----------------
                                         Share        $         Shares        $            Shares           $       Shares    $
                                       ---------------------------------------------------------------------------------------------
<S>                                   <C>           <C>          <C>        <C>        <C>              <C>       <C>      <C>
Private placement of Prepaid
  Common Stock purchase warrants           --           --           --         --             --             --       --      --
Conversion of Class D Preferred
  to Class E Preferred Stock               --           --           --         --             --             --   (6,177)    (62)
Conversion of Class D
  Preferred to Common Stock                --           --           --         --             --             --   (1,178)    (12)
Redemption of Series D Preferred
  Stock                                    --           --           --         --             --             --     (500)     (5)
Restructure fees                           --           --           --         --             --             --       --      --
Common Stock issued                        --           --           --         --             --             --       --      --
Exercise of Common Stock warrants          --           --           --         --             --             --       --      --
Exercise of Common Stock options           --           --           --         --             --             --       --      --
                                      -------       ------       ------     ------     ----------       --------  -------  ------
Balance December 31, 2000              80,597       $  805           --     $   --      1,500,000         15,000    2,145  $   21
Net loss                                   --           --           --         --             --             --       --      --
Preferred Stock dividends                  --           --           --         --             --             --       --      --
Issue Common Stock in lieu of
  Dividends                                --           --           --         --             --             --       --      --
Conversion of Class D
  Preferred to Common Stock                --           --           --         --             --             --     (821)     (8)
Common Stock issued                        --           --           --         --             --             --       --      --
Redemption of Series C
  Preferred Stock                          --           --           --         --     (1,500,000)       (15,000)      --      --
Redemption legal fees                      --           --           --         --             --             --       --      --
Fair market value of warrants
  issued                                   --           --           --         --             --             --       --      --
Conversion of deferred
  compensation to equity                   --           --           --         --             --             --       --      --
                                      -------       ------       ------     ------     ----------       --------  -------  ------
Balance December 31, 2001              80,597       $  805           --     $   --             --             --    1,324  $   13
                                      =======       ======       ======     ======     ==========       ========  =======  ======

<CAPTION>
                                           Class E
                                         Cumulative                                    Additional
                                         Convertible                                     Paid In      Accumulated
                                       Preferred Stock            Common Stock           Capital        Deficit          Total
                                    -----------------------  -----------------------  -------------  --------------  ---------------
                                      Shares          $         Shares         $            $               $              $
                                  --------------------------------------------------------------------------------------------------
<S>                                    <C>           <C>     <C>           <C>       <C>            <C>            <C>
Private placement of Prepaid
  Common Stock purchase warrants           --           --           --         --      1,312,000             --      1,312,000
Conversion of Class D Preferred
  to Class E Preferred Stock            3,000           30           --         --             32             --             --
Conversion of Class D
  Preferred to Common Stock                --           --    1,808,473      1,808         (1,796)            --             --
Redemption of Series D Preferred
  Stock                                    --           --           --         --       (499,995)            --       (500,000)
Restructure fees                           --           --           --         --        (79,280)            --        (79,280)
Common Stock issued                        --           --        1,000          1            655             --            656
Exercise of Common Stock warrants          --           --      257,378        257        388,350             --        388,607
Exercise of Common Stock options           --           --    1,835,627      1,836      2,551,032             --      2,552,868
                                       ------        -----   ---------     -------     ----------   ------------   ------------
Balance December 31, 2000               3,000        $  30   20,820,448    $20,820   $ 34,334,235   $(30,192,580   $  4,178,331
Net loss                                   --           --           --         --             --     (8,461,155)    (8,461,155)
Preferred Stock dividends                  --           --           --         --       (334,732)            --       (334,732)
Issue Common Stock in lieu of
  Dividends                                --           --      928,865        929        103,611             --        104,540
Conversion of Class D
  Preferred to Common Stock                --           --    1,251,047      1,251         (1,242)            --             --
Common Stock issued                        --           --       50,000         50         14,450             --         14,500
Redemption of Series C
  Preferred Stock                          --           --           --         --     (1,931,235)            --     (1,946,235)
Redemption legal fees                      --           --           --         --        (50,000)            --        (50,000)
Fair market value of warrants
  issued                                   --           --           --         --        360,000             --        360,000
Conversion of deferred
  compensation to equity                   --           --           --         --         90,000             --         90,000
                                       ------        -----   ----------    -------     ----------   ------------   ------------
Balance December 31, 2001               3,000        $  30   23,050,360    $23,050   $ 32,585,086   $(38,653,735   $ (6,044,751
                                       ======        =====   ==========    =======     ==========   ============   ============

          See accompanying notes to consolidated financial statements.

</TABLE>


                                       F-6


<PAGE>

                    THE NETPLEX GROUP, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                                 (in thousands)
                            Years ended December 31,


<TABLE>
<CAPTION>
                                                                                   2001         2000         1999
                                                                                ----------   ----------   ----------
<S>                                                                             <C>          <C>          <C>
Operating activities:
  Net loss                                                                      $   (8,461)  $  (15,260)  $   (7,424)
  Adjustments to reconcile net loss to net cash used in operating activities:
    Loss (income) from discontinued operations                                         (87)         939        2,209
    Gain on sale of discontinued operations                                             --         (513)          --
    Depreciation and amortization of property and equipment                          1,047        1,025          654
    Amortization of goodwill and other intangibles                                   1,294        1,287          701
    Amortization of fair market value of warrants                                      360           --           --
    Deferred compensation                                                               90           --           --
    Stock issued for services rendered                                                  14           --           --
    Change in assets and liabilities of continuing operations, net of
      effects of acquisitions:
      Accounts receivable                                                            1,881        1,275        1,535
      Prepaid expenses and other current assets                                        455          (58)        (343)
      Other assets, net                                                                726         (237)        (358)
      Accounts payable and accrued expenses                                         (1,031)       2,035         (587)
      Accrued litigation settlements                                                 1,510           --           --
      Deferred revenue                                                                (176)         294         (228)
                                                                                ----------   ----------   ----------
    Net cash (used in) provided by continuing operating activities                  (2,378)      (9,213)      (3,841)
                                                                                ----------   ----------   ----------
    Net cash provided by (used in) discontinued operations                           1,071        1,591         (451)
                                                                                ----------   ----------   ----------
Investing activities:
    Net cash paid in acquisitions and earn-outs                                         --          (25)      (1,708)
    Purchases of property and equipment                                                (88)      (1,361)        (685)
                                                                                ----------   ----------   ----------
        Net cash used in investing activities                                          (88)      (1,386)      (2,393)
                                                                                ----------   ----------   ----------
Financing activities:
    Line of credit advances, net                                                      (909)      (3,123)       1,085
    Issuance of note payable                                                            --           --        2,075
    Payment of note payable                                                             --         (425)          --
    Payment of capital lease obligations                                               (90)         (76)         (38)
    Sale of minority interest in subsidiary                                          1,000         (482)         482
    Net proceeds from sale of stock                                                     --        9,435           --
    Net proceeds from sale of prepaid warrants                                          --        1,312           --
    Proceeds from the exercise of stock options and warrants                            --        2,943        6,806
    Purchase and retirement of preferred stock                                        (941)        (579)          --
    Payment of preferred stock dividends                                              (231)        (533)        (241)
                                                                                ----------   ----------   ----------
        Net cash (used in) provided by financing activities                         (1,171)       8,472       10,169
                                                                                ----------   ----------   ----------
    (Decrease) increase in cash and cash equivalents                                (2,566)        (536)       3,484
Cash and cash equivalents at beginning of year                                       3,818        4,354          870
                                                                                ----------   ----------   ----------
Cash and cash equivalents at end of year                                        $    1,252   $    3,818   $    4,354
                                                                                ==========   ==========   ==========
Supplemental information:
  Cash paid during the year for interest                                        $      202   $      388   $      601
                                                                                ==========   ==========   ==========
  Non-cash financing activity:
    Issuance of note for redemption of Preferred Stock                               1,055           --           --
                                                                                ==========   ==========   ==========
    Capital lease obligation                                                            --           --          240
                                                                                ==========   ==========   ==========
    Conversion of debt to equity                                                        --           --          800
                                                                                ==========   ==========   ==========
    Insurance premium obligation for non-compete agreement                              --           --        1,275
                                                                                ==========   ==========   ==========
    Common stock issued for acquisitions and earn-outs                          $       --   $       --   $      567
                                                                                ==========   ==========   ==========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-7

<PAGE>

                    THE NETPLEX GROUP, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 2000, 1999 and 1998


(1)  The Business and Liquidity

     In 1996, a merger was consummated between Complink, Inc., America's Work
     Exchange and The Netplex Group, Inc. (collectively referred to as "Netplex"
     or "the Company"). The merger was accounted for under the purchase method
     of accounting as a reverse merger, since the shareholders of Netplex, which
     had common control, received the larger of the voting rights of the
     combined entity. As a result, Netplex was considered the acquirer for
     accounting purposes.

     The Company provides strategic, interactive, technology, and security
     solutions primarily in the Retail and Consumer Products industry. Netplex
     is an Information Technology (IT) company that provides the expertise and
     information systems to link employees, customers, prospects, suppliers, and
     manufacturers to help "network-enable" organizations. The Company re-sells
     technology products when necessary to deliver to customers fully integrated
     system solutions. The Company also provides certain business management and
     administrative services for independent consultants and organizations who
     have a contingent work force. In both respects, the contractors become the
     Company's employees.

     The Company's continuing operations are principally conducted from
     locations in Oklahoma, Virginia and at customer locations throughout the
     United States.

     The Company has incurred significant losses from operations and has used
     cash in operations in each of the last five years. In addition, as of
     December 31, 2001, the Company has a stockholders' deficit of approximately
     $6.0 million and a working capital deficit of approximately $8.7 million.
     These factors raise substantial doubt about the Company's ability to
     continue as a going concern. The consolidated financial statements do not
     contain any adjustments that might result from the outcome of this
     uncertainty.

     Over the past two years, management has undertaken restructuring efforts
     aimed at, among other things, improving the productivity and billable
     utilization of its staff and reducing operating expenses. These
     restructuring efforts have included headcount reductions, consolidation of
     facilities and management of discretionary expenses. However, these actions
     were taken in a period where economic conditions in the United States and
     abroad created downward pressure on spending for information technology
     initiatives, including demand for the Company's consulting services. In
     2001, the Company did experience lower operating losses than those reported
     in 2000 and a reduction in cash used in operations. However, given the
     Company's current operating outlook and continuing economic uncertainty,
     the Company's liquidity and financial position are such that additional
     capital will be needed in 2002 to sustain operations.

     In late 2001, the Company began exploring alternatives to raising
     additional capital and restructuring its obligations and capital structure.
     Among the alternatives considered included a rights offering aimed at
     raising capital through the issuance of additional shares of its Netplex
     Systems subsidiary. At this time, management has chosen to not pursue the
     rights offering further, choosing instead to entertain offers for the
     operations comprising Netplex Systems (either as a whole or in parts). In
     March 2002, the Company entered into non-binding letter of intent to sell
     the assets of its retail consulting business for approximately $6.0 million
     in cash, subject to several conditions to closing, including due diligence
     and entering into purchase and sale agreements and employment agreements
     with key individuals in this business. While management is optimistic that
     this transaction will close by the end of May, no assurances can be given
     at this time that the Company will be able to close on this sale or one
     with other potential buyers. In addition, the Company continues to
     entertain offers for the remaining businesses within its Netplex Systems
     business.

     If the above sale is successfully completed, management intends to focus on
     improving the operations of its Contractors Resources business by growing
     both its business to consumer service ("Mybizoffice") and its business to
     business service ("Consultant Service Center") offerings. Critical to the
     success of these operations is the Company's ability to continue to attract
     members to the Mybizoffice solution and to grow the Consultant Service
     Center business by obtaining contracts and master agreements with employers
     who contract with large numbers of independent consultants. No assurances
     can be given that the Company will be successful in these efforts.

                                       F-8

<PAGE>



     While the proceeds from a sale such as that above will help to sustain
     operations, management believes that to sustain operations for the
     foreseeable future, certain of its obligations and liabilities will need to
     be restructured. While management has been involved in discussions relative
     to such obligations with each respective party, no definitive agreements
     have been reached at this time and no assurances can be given that these
     efforts will be successful.

(2)  Summary of Significant Accounting Policies

     Principles of Consolidation
     ---------------------------
     The accompanying consolidated financial statements include the accounts of
     The Netplex Group, Inc. and its majority owned subsidiaries. Minority
     interest represents minority shareholders' proportionate share of the
     equity in the Company's Contractors Resources and Netplex Systems
     subsidiaries. All significant inter-company transactions have been
     eliminated in consolidation.

     Revenue Recognition
     -------------------
     The Company derives its revenue from service contracts and from third party
     software and hardware resale contracts. Such contracts are sold exclusive
     of maintenance which are provided under separate service agreements.

     Revenue from time and materials contracts is recognized as services are
     performed and costs are incurred. Net revenues exclude reimbursable
     expenses charged to clients. Revenue for fixed-price contracts is
     recognized in accordance with American Institute of Certified Public
     Accountants (AICPA) Statement of Position ("SOP") 81-1 "Accounting for
     Performance of Construction -Type and Certain Production-Type Contracts"
     using the percentage of completion method as costs are incurred and SAB
     101, "Revenue Recognition" for all other transactions not covered by SOP
     81-1. The Company records loss provisions for its contracts, if required,
     at the time such losses are identified. Revenue for maintenance contracts
     is recognized over the term of the arrangements. Deferred revenue
     represents the unearned portion of maintenance contracts and amounts billed
     in advance of work performed, in accordance with the terms of the contract.

     Revenue from consulting service contracts in the Company's CR-MyBizOffice
     segment is recognized as the fees (net revenue) it charges to its members
     for providing its back office services as these services are provided.
     Gross billings generated by MyBizOffice segment operations for the years
     ended December 31, 2001, 2000 and 1999 were $37.0 million, $42.5 million
     and $38.6 million, respectively.

     The Company recognizes revenue in its CR-CSC segment based on the gross
     amount billed to the customer derived from the hours worked and the
     contractual rate applied to those hours. This policy is consistent with the
     guidance provided by EITF 99-19 considering the Company has credit risk for
     the gross amounts of each transaction and can assert certain rights over
     the activities of each consultant.

     The Company recognizes revenue on software sales in accordance with SOP
     97-1, "Software Revenue Recognition". Accordingly, the Company recognizes
     software and hardware revenue as products are shipped, provided that
     collection is determined to be probable and no significant obligations
     remain. In 2001 and 2000, the Company reported approximately $1.7 million
     and $0.6 million, respectively, of sales associated with transactions
     structured using a third party leasing company on a "net" basis in
     accordance with EITF 99-19, "Reporting Revenue Gross as a Principal versus
     Net as and Agent" and other guidance provided by the Securities and
     Exchange Commission. All other sales were recorded on a gross basis in
     accordance with this guidance.

     Management regularly reviews outstanding accounts receivable for
     collectability and provides for an allowance for doubtful accounts whenever
     necessary. As of December 31, 2001 and 2000, the Company was owed $1.2
     million by two customers at each date, respectively.

     The Company recognized revenue from unaffiliated customers constituting
     25.0% and 27.8% of total revenue in 2000 and 1999 from the combination of
     two customers in each year, respectively. No one customer constituted
     revenue greater than 10% of the total 2001 revenue.

     Consistent with the Company's strategy, management targets vertical
     industry markets for its services. As of December 31, 2001, 2000 and 1999,
     46.7%, 47.9% and 44.9%, respectively of the Company's revenue was

                                       F-9

<PAGE>

     generated from customers in the retail and consumer products industry. As
     of December 31, 2001 and 2000, 37.6% and 49.5%, respectively of the
     Company's accounts receivables were due from customers in the retail and
     consumer products industry. The Company had no concentrations of accounts
     receivable from any other industry group at December 31, 2001 and 2000.

     Cash and Cash Equivalents
     -------------------------
     The Company considers all highly liquid investments with maturity, at date
     of purchase, of three months or less to be cash equivalents. Cash
     equivalents are comprised of money market accounts, and are stated at cost,
     which approximates fair value.

     Property and Equipment
     ----------------------
     Property and equipment is recorded at cost. The Company purchases computer
     software for internal use, which is recorded at cost accordance with
     Statement of Position 98-1 "Accounting for the Costs of Computer Software
     Developed or Obtained for Internal Use." Depreciation and amortization are
     provided for using the straight-line method over the estimated useful lives
     of the assets, which range from 3 to 5 years. Computer software developed
     for internal use is amortized over 3 years in accordance with SOP 98-1.

     Property and equipment under capital leases is amortized using the shorter
     of the lease term or the estimated useful life.

     Upon sale or retirement of property and equipment, the costs and related
     accumulated depreciation are eliminated from the accounts and any gain or
     loss on such disposition is reflected in the statement of operations.
     Expenditures for repairs and maintenance are charged to operations as
     incurred.

     Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
     -----------------------------------------------------------------------
     Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
     the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
     Disposed Of " requires that long-lived assets and certain identifiable
     intangibles be reviewed for impairment whenever events or changes in
     circumstances indicate that the carrying amount of an asset may not be
     recoverable. Recoverability of assets to be held and used is measured by a
     comparison of the carrying amount of an asset to future undiscounted net
     cash flows expected to be generated by the asset. If such assets are
     considered to be impaired, the impairment to be recognized is measured by
     the amount by which the carrying amount of the assets exceeds the fair
     value of the assets. Assets to be disposed of are reported at the lower of
     the carrying amount or fair value less cost to sell.

     Goodwill and Other Intangible Assets
     ------------------------------------
     On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
     Statement of Financial Accounting Standards (SFAS) 141, Business
     Combinations, and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is
     effective for all business combinations completed after June 30, 2001. SFAS
     142 is effective for fiscal years beginning after December 15, 2001;
     however, certain provisions of this Statement apply to goodwill and other
     intangible assets acquired between July 1, 2001 and the effective date of
     SFAS 142. Major provisions of these Statements and their effective dates
     for the Company are as follows:

     .    all business combinations initiated after June 30, 2001 must use the
          purchase method of accounting. The pooling of interest method of
          accounting is prohibited except for transactions initiated before July
          1, 2001.

     .    intangible assets acquired in a business combination must be recorded
          separately from goodwill if they arise from contractual or other legal
          rights or are separable from the acquired entity and can be sold,
          transferred, licensed, rented or exchanged, either individually or as
          part of a related contract, asset or liability

     .    goodwill, as well as intangible assets with indefinite lives, acquired
          after June 30, 2001, will not be amortized. Effective January 1, 2002,
          all previously recognized goodwill and intangible assets with
          indefinite lives will no longer be subject to amortization.

     .    effective January 1, 2002, goodwill and intangible assets with
          indefinite lives will be tested for impairment annually and whenever
          there is an impairment indicator all acquired goodwill must be
          assigned to reporting units for purposes of impairment testing and
          segment reporting.

     The Company will amortize goodwill, the cost in excess of the fair value of
     net assets acquired, and intangible assets resulting from the Company's
     acquisitions, consisting of a fulfillment database, acquired software, an
     assembled workforce, and a non-compete agreement, recognized prior to July
     1, 2001, under its current method

                                       F-10

<PAGE>

     until January 1, 2002 at which time annual and quarterly goodwill
     amortization of $1,294,000 and $323,500 will no longer be recognized.
     Goodwill and intangible assets are being amortized on a straight line basis
     for periods ranging from 5 to 7 years and 4 to 7 years, respectively. By
     December 31, 2002 the Company will have completed a transitional fair value
     based impairment test of goodwill as of January 1, 2002. Impairment losses,
     if any, resulting from the transitional testing will be recognized by the
     quarter ended June 30, 2002, as a cumulative effect of a change in
     accounting principle.

     Investment in Common Stock
     --------------------------
     The Company had an investment in common stock of a privately held company
     included in other assets valued at $375,000 which was accounted for using
     the cost method. This investment was disposed of in the DSA litigation
     settlement in 2001.

     Income Taxes
     ------------
     Income taxes are accounted for using the asset and liability method. Under
     this method, deferred tax assets and liabilities are recognized for the
     future tax consequences of differences between the financial statement
     carrying amounts of existing assets and liabilities and their respective
     tax bases and operating loss and tax credit carryforwards. Deferred tax
     assets and liabilities are measured by applying enacted statutory tax
     rates, that are applicable to the future years in which the deferred tax
     assets or liabilities are expected to be settled or realized. Any change in
     tax rates on deferred tax assets and liabilities is recognized in net
     income in the period in which the rate change is enacted.

     Earnings (loss) per share
     -------------------------
     The Company accounts for earnings (loss) per share in accordance with
     Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
     which requires companies to present basic earnings per share and diluted
     earnings per share (EPS). Basic net loss per common share is calculated
     using the weighted average number of common shares outstanding during the
     periods. Diluted net loss per common share is calculated using the weighted
     average number of common shares and dilutive potential common shares
     outstanding during the period. For the years ended December 31, 2001, 2000
     and 1999, the assumed exercise of the Company's outstanding stock options,
     warrants and Convertible Preferred Stock are not included in the
     calculation, as the effect would be anti-dilutive. These currently
     anti-dilutive outstanding stock options and warrants, Convertible Preferred
     Stock, and contingently issuable shares, combined, total 94,238,699 and
     87,355,559 for the years ended December 31, 2001 and 2000, respectively.

     Stock Options
     -------------
     The Company accounts for activity under its stock option plans in
     accordance with the Statement of Financial Accounting Standards No. 123,
     "Accounting for Stock-Based Compensation" ("SFAS No. 123") and related
     interpretations. As permitted by SFAS No. 123, the Company has elected to
     continue to apply the provisions of APB Opinion 25 and provide the pro
     forma disclosure provisions of SFAS No. 123.

     The Company accounts for the options granted to consultants based on the
     provisions of SFAS No. 123.

     Deferred Compensation.
     ----------------------
     The Company adopted a non-qualified, unfunded deferred compensation plan,
     The Netplex Group, Inc. Employee Deferred Compensation Plan, (the "Plan"),
     on August 6, 2001. Under the Plan, key employees defer compensation on a
     non-elective and elective basis. Each participant's deferred compensation
     is converted to share units at a ratio determined by the Plan's
     administrator. Such share units will be converted into the Company's Common
     Stock on a one to one ratio at the earlier of the termination of the
     participant, change of control of the Company or the 24 month anniversary
     of the Plan. The total of participant deferrals, which are reflected in
     additional paid in capital, are approximately $90,000 at December 31, 2001.

     Segment Reporting
     -----------------
     The Company accounts for its segments pursuant to Statement of Financial
     Accounting Standards (SFAS No. 131) "Disclosures about Segments of an
     Enterprise and Related Information." Operating segments, as defined in SFAS
     No. 131, are components of an enterprise for which separate financial
     information is available and is evaluated regularly by the Company in
     deciding how to allocate resources and in assessing performance. The
     financial information is required to be reported on the basis that it is
     used internally for evaluating the segment performance. The Company
     believes it operates in three segments as defined: Systems, Contractors
     Resources - mybizoffice and Contractors Resources - Consultant Service
     Center.

     Reclassifications
     -----------------

                                       F-11

<PAGE>

     Certain 2000 and 1999 amounts have been reclassified to conform to the
     current year presentation.

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

     New Accounting Pronouncements
     -----------------------------
     In August 2001 the Financial Accounting Standards Board (FASB) issued
     Statement of Financial Accounting Standard (SFAS) 144, Accounting for the
     Impairment or Disposal of Long-Lived Assets, which among other things,
     establishes one accounting model for long-lived assets to be disposed of by
     sale. SFAS 144 is effective for financial statements issued for years
     beginning after December 15, 2001, and interim periods within those
     financial statements, early application is encouraged. The Company adopted
     SFAS 144 effective January 1, 2001, in accordance with early application of
     the standard, in recording the disposal Netplex Systems.

(3)  Discontinued Operations

     On September 29, 2000, the Company announced its decision to sell its
     e-Infrastructure operations. The Company was seeking a buyer for various
     businesses within the e-Infrastructure segment and although it was
     difficult to predict, the Company expected to complete the sales within the
     12 months subsequent to the above measurement date. Accordingly, effective
     with the issuance of the third quarter 2000 financial statements, the
     results of operations and the net assets of the Company's e-Infrastructure
     segment were classified as discontinued operations and prior periods have
     been restated. The results of the discontinued segment did not reflect any
     interest or management fees allocated by the Company. On September 29,
     2000, the Company sold its Onion Peel subsidiary (previously included as a
     part of the e-Infrastructure segment) for $949,000 ($574,000 of cash and
     $375,000 of stock) and recorded a gain of $513,000. The Company believed
     that the remaining businesses within this segment would not generate future
     operating losses prior to disposal and therefore no provision was recorded
     in the financial statements. The following is a summary of the results of
     operations of the discontinued operations:

                                            Year ended December 31,
                                       --------------------------------
                (amounts in thousands)   2001        2000        1999
                                       --------   ---------   ---------
          Revenues                     $  1,114   $  22,060   $  34,634
                                       ========   =========   =========
          Gross margin                 $    323   $   5,248   $   8,958
                                       ========   =========   =========
          Gain (loss) from operations  $     87   $    (850)  $  (1,152)
                                       ========   =========   =========

     During the fourth quarter of 2000 and the first quarter of 2001, the
     Company streamlined the operations of its discontinued systems integration
     business (previously included in the e-Infrastructure segment) and
     increased its service offerings to include data management and information
     security focusing on systems infrastructure reliability. As a result, the
     systems integration business became an integral component of Netplex
     Systems, enabling it to offer customers a more complete information systems
     solution. Therefore, effective April 1, 2001, the results of operations of
     the systems integration business and net assets have been reclassified as
     continuing operations within the Netplex operating segment and prior
     periods have been restated. The following is a summary of the systems
     integration operations that was previously reported as discontinued.

                                         December 31,   December 31,
                                            2000           1999
                                         ---------------------------
                (amounts in thousands)
               Total Assets              $      2,753   $      4,516
               Total Liabilities                   89            552
               Revenue                         10,648         15,510
               Operating Income          $         89   $      1,057


     In January 2002 management made the decision to not pursue the rights
     offering, issuing additional shares of Netplex Systems stock, choosing
     instead to entertain offers for the operations comprising Netplex Systems
     (either as a whole or in parts). On March 26, 2002, the Company entered
     into non-binding letter of intent to sell the assets of its retail
     consulting business for approximately $6.0 million in cash, subject to
     several conditions to closing, including due diligence and entering into
     purchase and sale agreements and employment agreements with key individuals
     in this business. The Company continues to pursue the sale of the remaining
     portions of Netplex System. In accordance Statement of Financial Accounting
     Standard No, 144, "Accounting for the Impairment or Disposal of Long-Lived
     Assets", the assets of Netplex Systems are classified as continuing
     operations as of December 31, 2001 as the decision to dispose of Netplex
     Systems was made subsequent to December 31, 2001 but prior to the issuance
     of the financials. The major classes of assets and liabilities Netplex
     Systems are as follows as of December 31:

                                             2001             2000
                                        --------------------------------
            (amounts in thousands)
         Accounts receivable              $     2,175      $     4,619
         Fixed assets, net                        495              952
         Goodwill                               2,358            3,002
         Other Intangibles                        789            1,379
         Accrued compensation                   1,069            1,144
         Other liabilities                $       362      $       868

(4)  Restructure Charge

     In the third quarter of 2000, the Company recorded a restructure charge of
     $1,512,000 primarily associated with the closing of the Company's Roseland,
     New Jersey office and the related costs. Included in the total are the
     estimated costs for facility closures, the write-down of redundant and
     duplicative property, severance and other

                                      F-12

<PAGE>

     employee costs related to the facility closures and duplicative position
     eliminations. As a part of the restructuring, 37 employees were terminated.
     Of those terminated, 4 were from the technical staff, 5 from Contractors
     Resources, and 28 were from sales and corporate administration.

       ------------------------------------------------------------------------
                                                                       Balance
                                                                        as of
                                                                       December
                      (amounts in thousands)        Accrual  Utilized  31, 2001
       ------------------------------------------------------------------------
       Asset relocation costs                      $    160 $     147  $     13
       Employee severance and termination benefits      819       790        29
       Excess facility costs                            403       425       (22)
       Other                                            130       130        --
                                                   -------- ---------  --------
                                                   $  1,512 $   1,492  $     20
                                                   -------- ---------  --------

     Management expects that the remaining accruals will be utilized in 2002.

(5)  Property and Equipment

     Property and equipment consists of the following:
                                                         December 31,
                                                   ----------------------
                      (amounts in thousands)          2001        2000
                                                   ----------  ----------
         Computer software                         $    1,949  $    1,910
         Computer and office equipment                  2,003       1,924
         Furniture and fixtures                           784         717
         Equipment under capital leases                   599         546
         Leasehold improvements                            79         111
                                                   ----------  ----------
                                                        5,414       5,208
         Accumulated depreciation and amortization     (4,340)     (3,157)
                                                   ----------  ----------
         Property and equipment, net               $    1,074  $    2,051
                                                   ==========  ==========

     Computer software at December 31, 2001 and 2000 includes $799,000 of
     software that was developed for internal use. Accumulated depreciation
     related to this software was $509,000 and $219,000 at December 31, 2001 and
     2000, respectively.

     Accumulated depreciation and amortization includes $599,000 and $546,000
     related to assets under capital leases at December 31, 2001 and 2000,
     respectively.

                                      F-13

<PAGE>

(6)  Goodwill and Other Intangible Assets

     Goodwill and other intangible assets consist of the following:

                                                              December 31,
                                                        -----------------------
                               (amounts in thousands)      2001         2000
                                                        ----------   ----------
          Goodwill                                      $    4,466   $    4,466
          Acquired software                                    836          836
          Assembled workforce                                1,000        1,000
          Non-Compete                                          900          900
                                                        ----------   ----------
                                                             7,202        7,202
Accumulated amortization                                    (3,930)      (2,636)
                                                        ----------   ----------
                                                        $    3,272   $    4,566
                                                        ==========   ==========

(7)  Accrued Compensation and Other Accrued Expenses

     Accrued compensation and other accrued expenses consist of the
     following:

                                                              December 31,
                                                        -----------------------
                               (amounts in thousands)      2001         2000
                                                        ----------   ----------
          Accrued wages                                 $    3,255   $    3,762
          Accrued restructure costs                             20          529
          Accrued professional fees                            346          572
          Accrued vacation                                     250          341
          Accrued commissions                                  883          727
          Accrued payroll taxes                                 20           57
          Accrued earn-out                                      52           --
          Accrued preferred dividends                          159          166
          Accrued project expense                              124          213
          Other                                                534          789
                                                        ----------   ----------
                                                        $    5,643   $    7,156
                                                        ==========   ==========

(8)  Line of Credit

     On July 31, 2000, the Company entered into a line of credit agreement with
     a bank that was set to expire on July 31, 2002. Under the line of credit
     the Company could borrow up to an amount equal to 85% of its eligible
     accounts receivable, as described in the line of credit, but not more than
     $6.0 million. The line of credit is secured by the Company's assets and
     bears interest at the bank's prime rate plus 1.75%. The terms of the line
     of credit required that the Company meet certain financial and other
     covenants, including maintaining minimum tangible net worth of $4.0
     million. The Company has also agreed to maintain an interest-bearing
     deposit account of $2.0 million with the bank.

     As of September 30, 2000, the Company was not in compliance with the
     tangible net worth covenant. On January 10, 2001, the Company and the bank
     entered into an Loan Amendment and Forebearance Agreement ("Forebearance
     Agreement") whereby the bank agreed to forebear from exercising its rights
     and remedies under the loan document due to the existing event of default
     until March 31, 2001; provided no additional default occurred. The Company
     and the bank agreed the Company did not need to comply with the tangible
     net worth covenant set forth in the loan agreement. Under the Forebearance
     Agreement the Company could borrow 40% of eligible accounts receivable (as
     defined in the agreement) up to $5.0 million bearing interest at the bank's
     prime rate plus 2.5%. In the fourth quarter of 2000, the Company applied
     the $2.0 million interest bearing deposit against its outstanding advance.

     On May 4, 2001, the Company's subsidiary, Netplex Systems, Inc. ("Systems")
     entered into a Commercial Revolving Loan, Demand Loan and Security
     Agreement ("Revolving Loan") with American Commercial Finance Corporation
     ("Lender") which expires on March 31, 2003. This Revolving Loan replaced
     the pre-existing bank line of credit which was repaid on May 4, 2001. Under
     the Revolving Loan, Systems can borrow an amount equal to 80% of eligible
     accounts receivable as defined in the agreement, up to $3.0 million. The
     Revolving Loan bears interest at the prime rate plus 1.75% (6.75% at
     December 31, 2001) and is secured by (i) System's , the Company's and

                                      F-14

<PAGE>

     each of the Company's subsidiaries' assets, (ii) a $400,000 guaranty from a
     shareholder, Waterside Capital (the "Guaranty") and (iii) fidelity
     guaranties from two of the Company's officers.

     Outstanding advances were $1,094,000 and $2,003,000 at December 31, 2001
     and 2000, respectively.

(9)  Income Taxes

     The reconciliation between the actual income tax expense and income tax
     computed by applying the statutory Federal income tax rate to earnings
     before provision for income taxes for the year ended December 31, 2001,
     2000 and 1999 is as follows:

<TABLE>
<CAPTION>
                                       (amounts in thousands)     2001         2000         1999
                                                               ----------   ----------   ----------
        <S>                                                    <C>          <C>          <C>
        Pretax loss                                            $   (8,461)  $  (15,260)  $   (7,424)
                                                               ----------   ----------   ----------
        Computed Federal income tax benefit at 34%                 (2,877)      (5,188)      (2,524)
        Computed state income taxes, net of Federal benefits         (465)        (839)        (408)
        Permanent differences                                         131          143        1,033
        Change in valuation allowance                               3,211        5,884        1,899
                                                               ----------   ----------   ----------
                                                               $       --   $       --   $       --
                                                               ==========   ==========   ==========
</TABLE>

     The tax effects of temporary differences that give rise to significant
     portions of deferred tax assets and deferred tax liabilities at December
     31, 2001, 2000 and 1999 are presented below:

<TABLE>
<CAPTION>
                                       (amounts in thousands)     2001         2000         1999
                                                               ----------   ----------   ----------
        <S>                                                    <C>          <C>          <C>
        Deferred tax assets:
           Net operating loss (NOL) carryforwards              $   16,660   $   13,247   $    7,690
           Research and development credit carryforwards              187          187          187
           Depreciation and amortization                              830          413          215
           Inventory obsolescence reserve                              --          107          107
           Allowance for doubtful accounts receivable                 105          157          136
           Accrued commissions                                        349           --           --
           Accrued vacation                                            78          108           --
           Other                                                       53           --           --
                                                               ----------   ----------   ----------
             Total gross deferred tax assets                       18,262       14,219        8,335
             Less valuation allowance                             (18,262)     (14,219)      (8,335)
                                                               ----------   ----------   ----------
               Net deferred tax asset                          $       --   $       --   $       --
                                                               ==========   ==========   ==========
</TABLE>

     The Company has provided a valuation allowance for all of its deferred tax
     assets at December 31, 2001, 2000, and 1999 because the Company could not
     conclude that it was more likely than not that it would realize these
     assets due principally to the Company's history of losses.

     As of December 31, 2001 and 2000, the Company has NOL's for Federal and
     state income tax purposes of approximately $42,178,000 and $33,534,000
     which may be applied against future taxable income. Additionally, the
     Company has $187,000 of research and development tax credits ("Credits")
     available to offset future Federal income taxes. The NOL's and credits
     expire primarily in years 2002 through 2021. Certain of the NOL's and
     credits are subject to annual limitations and other conditions as of
     December 31, 2001. Additionally, they may not be fully utilized for tax
     purposes due to the change in ownership resulting from the Company's merger
     in 1996 and an additional change in ownership in 1998.

(10) Commitments

     Employment Agreements
     ---------------------
     The Company has employment agreements with several key employees. At
     December 31, 2001, the Company's annual obligation under the agreements is
     approximately $650,000 for the next year and $375,000 for each of the next
     two subsequent years.

     Acquisitions
     ------------
     In 1997, 1998 and 1999, the Company consummated five acquisitions accounted
     for as purchases. Certain of these acquisitions contained contingent
     consideration payable in cash or stock, dependent upon operational
     performance of the acquired businesses. During the years ended December 31,
     2000 and 1999 the Company paid in either cash or stock of $40,000 and
     $1,720,523, respectively in connection with these "earn-out" provisions,

                                      F-15

<PAGE>

     respectively. As of December 31, 2000, the Company was no longer obligated
     to pay any material future earn-out amounts pursuant to the terms of these
     acquisitions.

     Lease Obligations
     -----------------
     The Company leases computer equipment, furniture, vehicles, and office
     facilities under long-term lease agreements. The following is a schedule of
     future minimum lease payments for capital and non-cancelable operating
     leases (with initial terms in excess of one year) as of December 31, 2001:

                                                     Capital    Operating
                      (amounts in thousands)         Leases       Leases
                                                     ------       ------
                2002                                 $  114          621
                2003                                      2          297
                2004                                     --          182
                2005                                     --           18
                Thereafter                               --           10
                                                     ------      -------
        Total minimum lease payments                    116      $ 1,128
                                                                 =======
        Less: amount representing interest                6
                                                     ------
        Present value of minimum lease payments         110
        Less current portion                            108
                                                     ------
                                                     $    2
                                                     ======

     Total rent expense under operating leases was approximately $584,000,
     $1,248,000 and $1,020,000 for the years ended December 31, 2001, 2000 and
     1999, respectively.

(11) Stockholders' Equity

     As of December 31, 2001, the Company's authorized capital stock consisted
     of 100,000,000 shares of common stock, par value $.001 per share, and
     6,000,000 shares of preferred stock, par value $.01 per share. Preferred
     Stock

     Class A Cumulative Convertible
     ------------------------------
     On September 19, 1996, the Company raised approximately $3,000,000 through
     a private placement of units. Each unit consisted of one share of $.01 par
     value Class A Cumulative Convertible Preferred Stock (the "Class A
     Preferred") and one warrant to purchase one share of the Company's Common
     Stock at $2.50 per share.

     Each share of Class A Preferred is convertible into one share of Common
     Stock at any time, at the discretion of the holder. The Class A Preferred
     has a cumulative dividend of 10% per annum, payable in either cash or
     additional shares of Class A Preferred at the Company's option. Subject to
     the conversion rights, the Class A Preferred has a redemption value equal
     to its stated value plus all accrued and unpaid dividends upon: (1)
     registration of the shares underlying the Class A Preferred, and (2) 30
     days written notice given at any time upon attaining certain per share
     trading prices and sustaining such prices for a specified period. The Class
     A Preferred has a per share liquidation preference of the greater of: (i)
     $4 per share plus any accrued and unpaid dividends, or (ii) the amount that
     would have been received if such shares were converted to Common Stock on
     the business day immediately prior to liquidation.

     Each warrant issued in connection with the private placement became
     exercisable on March 19, 1997, and expired on September 19, 2001.

     Class C Cumulative Convertible
     ------------------------------
     The Class C Cumulative Convertible Preferred Stock ("Class C Preferred")
     had a liquidation preference of $3.99 per share and a dividend rate of
     9.99% per annum that was set to increase to 15% per annum after the date
     that there was no Class A Preferred issued and outstanding. The Class C
     Preferred was convertible at any time after the earlier of a change in
     control of the Company or five years from the date of issuance. The Class C
     Preferred was redeemable soley at the option of the Company at any time
     within five years from the date of issuance. At December 31, 2000, the
     Class C Preferred was convertible into the number of shares equal to
     $2,300,000, plus accrued but unpaid dividends, divided by 25% of the 20 day
     average trading price of the Common Stock immediately prior to conversion.
     The Company measured the intrinsic value of the beneficial conversion
     feature of the Class C Preferred to be $2,300,000 at December 31, 2000. As
     a result, the Company began to accrete this

                                      F-16

<PAGE>

     discount as additional Preferred Stock dividends over the five years.
     During 2001 and 2000, the accretion of the discount of approximately
     $329,000 and $388,000 was included as additional Preferred Stock dividends
     in the Company's EPS calculation.

     On September 28, 2001, the Company entered into an agreement with the
     holder of the Class C Preferred, Waterside Capital Corporation
     ("Waterside"), whereby

     .    the Company paid $2,052,780 in the form of $1,000,000 cash and two
          secured commercial promissory notes in the original principal amounts
          of $900,000 and $152,780 for:

          .    Waterside's surrender to the Company for cancellation 1,500,000
               shares of its Class C Preferred Stock;

          .    Waterside's guarantee of up to $400,000 of the Company's
               subsidiary, Systems, revolving credit facility; and

          .    Waterside surrendered for cancellation its warrant exercisable
               for 300,000 shares of the Company's Common Stock;

     .    the Company paid $50,000 of closing fees associated with the
          transaction; and

     .    Waterside purchased from the Company 1,000 shares of the Company's
          subsidiary, Systems, preferred stock for $1,000,000 which is recorded
          as a minority interest in the balance sheet.

     The difference between the original face value (net of transaction fees) of
     the Series C Preferred Stock of $2,139,000 and the aggregate of the
     principal value of the note of $900,000 and the $1,000,000 of cash,
     equaling $239,000, was recorded as an addition to Additional Paid in
     Capital and has been added back in the loss applicable to common
     shareholders for computing earnings per share.

     The promissory notes bear interest of 10% per annum. The $900,000 note is
     payable in quarterly installments of $15,000 and the $152,780 note is
     payable on January 1, 2002.

     Class D and E Convertible
     -------------------------
     On March 29, 2000, the Company received $10.0 million ($9.4 million net of
     expenses) for 10,000 shares of its Class D Preferred Stock. The conversion
     ratio of the preferred to common was established based on 120% of the
     weighted average stock price during the thirty trading day period between
     April 3, 2000 and May 16, 2000, which was $5.87 per share. The Series D
     Preferred Stock securities purchase agreement's call option provision,
     relating to the time the Company must obtain additional financing, was
     amended effective July 31, 2000. The amendment extended the call option
     trigger date to October 31, 2000 (previously August 1, 2000). The
     conversion price of the preferred stock and the exercise price of the
     related warrants are based upon 120% of the weighted average price of the
     Company's Common Stock for 15 consecutive trading days beginning the first
     day after the holders are entitled to exercise the call option.

     On November 10, 2000, the Company entered into an Exchange, Redemption and
     Conversion Agreement (the "Exchange Agreement") with the holders of the
     Company's Series D Preferred Stock that provides for the following:

     .    the exchange of $6,177,000 of the original face amount of the Series D
          Preferred Stock and warrants held by the holders of the Series D
          Preferred Stock in exchange for the Company's issuance of $3,000,000
          of its new Series E Preferred Stock;

     .    the waiver by the holders of the Series D Preferred Stock of their
          right to receive further dividends under the Series D Preferred Stock

     .    the waiver of certain other rights of the holders of the Series D
          Preferred Stock, including the right to acquire additional shares of
          Series D Preferred Stock, the right to require the Company to redeem
          the Series D Preferred Stock upon the occurrence of certain events
          beyond the Company's control, and the waiver of certain anti- dilution
          rights.

     Also, as part of the agreement, the Company redeemed 500 of the remaining
     3,823 shares of Series D Preferred Stock at their original face value of
     $500,000, and sold to the holders of the Series D Preferred Stock 1,000
     shares of the Company's common stock at a price of $0.65625 per share. The
     Company incurred approximately $79,000 of printing and legal fees resulting
     from the restructure that were charged against additional paid in

                                      F-17

<PAGE>

     capital. As a result of that sale, the remaining 3,323 shares of Series D
     Preferred Stock will have an adjusted conversion price of $.65625. Upon
     execution of the agreements, the Series D Preferred Stockholders converted
     1,178 shares of Series D Preferred Stock into 1,808,473 shares of common
     stock. The difference between the original face value of the Series D
     Preferred Stock of $6,177,000 and the face value of the new Series E
     Preferred Stock of $3,000,000, equaling $3,177,000, was recorded as an
     addition to Additional Paid in Capital and has been added back in the loss
     applicable to common shareholders for computing earnings per share. In
     2001, the holders converted and additional 821 shares into 1,251,047 shares
     of common stock. At December 31, 2001, 1,324 shares of Series D Preferred
     Stock remain outstanding and are convertible into 2,017,523 shares of
     common stock.

     The Series E Preferred Stock has terms similar to the restructured Series D
     Preferred Stock, with the primary exceptions being that the Series E
     Preferred Stock accrues dividends at the rate of 7% per year and the Series
     E Preferred Stock was redeemable for $3,000,000 at the Company's option on
     or before April 30, 2001, provided that the Company redeemed at least
     $1,500,000 of such stock on or before January 30, 2001 which the Company
     did not. The Series E Preferred Stock becomes convertible into shares of
     common stock at a conversion price of $0.47 per share if it is not redeemed
     or upon the occurrence of certain other events. Pursuant to a related
     Registration Rights Agreement, the Company registered with the Securities
     and Exchange Commission the 1,000 additional shares of common stock sold as
     part of the transaction as well as the shares issuable to the holders of
     the Series E Preferred Stock upon conversion of that stock to common stock.

     Warrants

     On March 29, 2000, the Company sold 1,500 units in a private placement for
     $1.5 million ($1.3 million after fees and expenses). Each unit sold
     consisted of a prepaid Common Stock purchase warrant entitling the holder
     to acquire such number of shares of the Company's Common Stock as is equal
     to $1,000 divided by an adjustable exercise price of $0.0195 which
     calculates to 76,923,077 shares as of December 31, 2001, and an incentive
     warrant to acquire 78,000 shares of Common Stock. The Company also granted
     the placement agent a warrant to purchase 39,000 shares of Common Stock
     plus a placement fee and a non-accountable expense allowance equal to
     12.53% of the proceeds of the offering. The value of these warrants was
     equal to the proceeds received.

     Monster Warrant. In connection with a co-branded services agreement entered
     into in May 2000 by one of our subsidiaries and TMP Interactive, Inc.
     ("TMP"), the Company issued warrants to purchase up to 3,000,000 shares of
     common stock. The warrants are exercisable for a period of three years
     after the date they were issued. The exercise price for the warrants to
     purchase up to 2,000,000 shares of common stock is $9.00 per share and
     these warrants vest over two years. As of December 31, 2000 the fair value
     was calculated at $0 using a risk free interest rate of 5.1%, volatility of
     106%, and an expected term of three years. The exercise price for the
     remaining warrants to purchase up to 1,000,000 shares of common stock is
     $6.00 per share and these warrants vested immediately. The fair value of
     these warrants of $2.9 million was calculated on the measurement date using
     a risk-free rate of 6.7%, volatility of 106%, and an expected term of three
     years. On August 7, 2001, the Company agreed to cancel the warrants to
     purchase up to 3,000,000 shares of common stock and grant warrants to
     purchase up to 4,000,000 shares of common stock in connection with the
     litigation settlement (see Note 14). The exercise price for these warrants
     is $0.47 per share and they are exercisable at any time on or before August
     7, 2004. The Company recorded a selling and general and administrative
     charge in the three month period ended September 30, 2001 of $360,000 that
     was related to the value of the warrants derived using the Black-Scholes
     method. This calculation was made using a risk-free interest rate of 4.04%,
     volatility of 171%, and expected term of three years.

     Roseland Warrant. The Company issued a warrant on May 22, 2000, to purchase
     up to 15,000 shares of common stock to Roseland II L.L.C. in connection
     with our leasing arrangements. The warrant is exercisable for a period of
     five years after the date the warrant was issued. The exercise price for
     the warrant is $7.72 per share. On the date issued the fair value
     calculated for this warrant was $17,550 to be amortized over sixty months,
     the life of the lease. This calculation was made using a risk-free interest
     rate of 6.1%, volatility of 59%, and expected term of five years.

     Silicon Valley Bank Warrant. The Company issued a warrant on July 31, 2000,
     to purchase up to 75,000 shares of common stock to Silicon Valley Bank in
     connection with our line of credit. The warrant is exercisable for a period
     of five years after the date it was issued. The exercise price for the
     warrant is $6.00 per share. On the date issued the fair value calculated
     for this warrant was $18,000 and has since been expenses due to the

                                      F-18

<PAGE>

     termination of the line of credit agreement. This calculation was made
     using a risk-free interest rate of 6.1%, volatility of 59%, and an expected
     term of five years.

     Pennsylvania Merchants Group Warrant. The Company issued a warrant on
     December 12, 2000, to purchase up to 500,000 shares of common stock to
     Pennsylvania Merchants Group in connection with an investment banking
     arrangement we have with it and the cancellation of the warrant to purchase
     250,000 shares of common stock issued in 1999. The warrant is exercisable
     for a period of five years after the date it was issued. The exercise price
     for the warrant is $0.50 per share. The fair value was calculated at
     $90,000 using a risk-free rate of 5.1%, volatility of 106%, and an expected
     term of five years. As this warrant was issued in connection with the
     issuance of capital securities, no expense was recognized.

     The following table sets forth the warrants outstanding and their
     weighted-average exercise price:

                                                        Shares         Price
                                                     -----------    ------------
          January 1, 1999                              3,109,102    $      2.30
                   Issued                                225,000           3.00
                   Exercised                          (2,093,856)          2.52
                   Expired                               (45,000)          3.00
                                                     -----------    ------------
          December 31, 1999                            1,195,246    $      2.15
                   Issued                              4,257,000           6.62
                   Exercised                            (795,465)          2.16
                   Canceled                             (250,000)          3.00
                   Expired                                (2,854)          1.15
                                                     -----------    ------------
          December 31, 2000                            4,403,927    $      6.42
                   Issued                              4,000,000           0.47
                   Exercised                                  --             --
                   Canceled                           (3,300,000)          7.64
                   Expired                              (250,000)          2.22
                                                     -----------    ------------
          December 31, 2001                            4,853,927    $      0.41
                                                     ===========    ============

     As of December 31, 2001, 2000 and 1999 all of the warrants were exercisable
     and had an average remaining life of 2.7, 4.4 and 3.5 years, respectively.

(12) Stock Options

     The  Company has three stock option plans.

     .    The ISO Plan includes both incentive and non-qualified stock options.
          The Board of Directors may grant stock options to employees to
          purchase up to 6,000,000 shares of the Company's Common Stock. Stock
          options are granted with an exercise price equal to the market price
          on the date of grant. All stock options expire 10 years from grant
          date (5 years for holder's of more than 10% of the voting stock of the
          Company). Generally the options vest ratably and become fully
          exercisable after 3 years but not less than 6 months from the date of
          grant. At December 31, 2001, approximately 1,301,000 options are
          available for grant under this plan.

     .    The Directors' Plan authorizes the Board of Directors to grant each
          director options to purchase up to 15,000 shares of the Company's
          Common Stock, upon election to the Board. Under this plan 300,000
          shares of the Company's Common Stock are available. The terms of
          option grants for the Directors' Plan are identical to those of the
          ISO plan, except that the vesting period for the Directors' Plan is at
          the Board's discretion. All options granted under this Plan either
          vest immediately or contain vesting periods up to two years. At
          December 31, 2001, 15,000 options are available for grant under this
          Plan.

     .    The Consultant's Plan authorizes the Board of Directors to grant
          organizations or individuals, who are not employees of the Company,
          options to purchase up to 800,000 shares of the Company's Common
          Stock. The exercise price, terms of the option grant and vesting
          period for the Consultant's Plan are at the Board's discretion. At
          December 31, 2001, approximately 5,000 options are available for grant
          under this Plan.

                                      F-19

<PAGE>

Stock option activity for the Plans during the periods indicated is as follows:

<TABLE>
<CAPTION>
                                   ISO Plan                Directors' Plan         Consultants' Plan
                           -------------------------    ---------------------  ------------------------
                                           Wt. Avg.                  Wt. Avg.                 Wt. Avg.
                              Shares      Ex. Price      Shares     Ex. Price     Shares     Ex. Price
                           ------------   ----------    ---------  ----------  ----------    ----------
<S>                        <C>            <C>           <C>        <C>         <C>           <C>
           January 1, 1999    2,485,200   $     1.13      90,000   $     2.53     423,828    $     1.49
Granted                       1,517,750         2.28      37,500         2.85     315,000          1.07
Exercised                      (831,104)        1.11          --           --    (464,600)         1.34
Forfeited/Canceled             (101,171)        1.89      (7,500)        2.85          --            --
Expired                              --           --          --           --          --            --
                           ------------    ----------   --------   ----------  ----------    ----------
         December 31, 1999    3,070,675   $     1.67     120,000   $     2.61     274,228    $     1.26

Granted                       2,494,200         0.50     180,000         0.47      40,000          0.47
Exercised                      (995,712)        0.86     (37,500)        2.91    (247,828)         1.14
Forfeited/Canceled             (931,209)        2.12     (15,000)        2.85          --            --
Expired                              --           --          --           --          --            --
                           ------------    ----------   --------   ----------  ----------    ----------
         December 31, 2000    3,637,954   $     0.98     247,500   $     0.99      66,400    $     1.38
Granted                              --           --         ---           --          --            --
Exercised                            --           --          --           --          --            --
Forfeited/Canceled             (820,200)        1.23          --           --          --            --
Expired                              --           --          --           --          --            --
                           ------------   -----------   --------   ----------  ----------    ----------
         December 31, 2001    2,817,754   $     0.91     247,500   $     0.99      66,400    $     1.38
                           ============   ===========   ========   ==========  ==========    ==========
</TABLE>

ISO Plan
--------
At December 31, 2001, the exercise prices for options granted under the ISO plan
were $0.47 to $3.00 and the weighted-average remaining contractual life of those
options was 7.6 years. At December 31, 2001, 2000 and 1999, the number of
options exercisable under the ISO Plan was 1,750,250, 1,286,186 and 1,175,898,
respectively. The weighted-average exercise price of those options was $1.08,
$1.25 and $1.04, respectively.

Directors' Plan
---------------
At December 31, 2001, the exercise prices for options granted under the
Directors' Plan were $0.47 to $3.56 and the weighted-average remaining
contractual life of those options was 7.9 years. At December 31, 2001, 2000 and
1999, the number of options exercisable under the Directors' Plan was 247,500,
240,000 and 75,000, respectively. The weighted-average exercise price of those
options was $0.99, $0.93 and $2.61, respectively.

Consultants' Plan
-----------------
At December 31, 2001, the exercise price for all options granted under the
Consultants' Plan was $0.47 to $3.00 and the weighted-average remaining
contractual life of those options was 7.76 years. All options, granted under the
Consultants' Plan, are exercisable at the time of grant. The weighted-average
exercise price of those options was $1.38, $1.51 and $1.25 at December 31, 2001,
2000 and 1999, respectively. During 2000, in accordance with SFAS No. 123, the
Company recorded compensation expense of $8,400 for options granted, based on
the value of the services provided. The options granted during 1999 were in
connection with certain equity issues, and as a result had no compensation
expense.

The Company applies APB Opinion No. 25 in accounting for its ISO and Directors'
Plans and, accordingly, no compensation expense has been recognized for its
stock options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net loss would have been increased to
the pro forma amounts indicated below:

                                      F-20

<PAGE>

<TABLE>
<CAPTION>
          (amounts in thousands except per share data)   2001        2000        1999
                                                       --------   ---------   ---------
          <S>                                          <C>        <C>         <C>
          Net loss - As reported                       $ (8,461)  $ (15,260)  $  (7,424)
                                                       ========   =========   =========
          Net loss - Pro forma                         $ (8,757)  $ (15,867)  $ (10,806)
                                                       ========   =========   =========
          Net loss per share - As reported             $  (0.40)  $   (0.72)  $   (0.63)
                                                       ========   =========   =========
          Net loss per share - Pro forma               $  (0.41)  $   (0.69)  $   (0.86)
                                                       ========   =========   =========
          Weighted average shares outstanding            22,509      18,356      12,516
                                                       ========   =========   =========
</TABLE>

     The per share weighted average fair value of the ISO on the grant date in
     2000 and 1999, was $0.34 and $2.29, respectively using the Black - Scholes
     option pricing model with the following weighted average assumptions:

                                                         2000        1999
                                                       --------   ---------
               Dividend yield                               0.0%        0.0%
                                                       ========   =========
               Risk-free interest rate                     5.79%       5.98%
                                                       ========   =========
               Expected volatility                          141%        167%
                                                       ========   =========
               Expected life (years)                       5.00        7.86
                                                       ========   =========

     The per share weighted average fair value of the Directors' Plan options on
     the grant date in 2000 and 1999 was $0.25 and $2.85, respectively using the
     Black - Scholes option pricing model with the following weighted average
     assumptions:

                                                         2000        1999
                                                       --------   ---------
               Dividend yield                               0.0%        0.0%
                                                       ========   =========
               Risk-free interest rate                     5.79%       6.10%
                                                       ========   =========
               Expected volatility                          141%        167%
                                                       ========   =========
               Expected life (years)                       1.00        2.72
                                                       ========   =========

(13) Related Party Transactions

     The Company paid $3,000 in 2001, $18,000 in 2000 and $45,000 in 1999 for
     accounting, tax and consulting services to a CPA firm in which a partner of
     the firm is a director of the Company.

     A Director of the Company is the President and Director of the company that
     owned all of the Company's Class C Convertible Preferred Stock which was
     converted to debt and to Class A Preferred Stock of the Company's
     subsidiary, Netplex Systems, Inc. (See Note 11).

(14) Litigation

     From time to time, the Company is subject to litigation in the ordinary
     course of business.

     On September 4, 1997, Data Systems Analysts, Inc. ("DSA"), a software
     design and consulting company, filed a complaint against Technology
     Development Systems, Inc. ("TDS") and the Company, alleging copyright
     infringement and breach of the Company's agreement. The Complaint also
     seeks damages against XcelleNet, Inc., which the Company has indemnified.
     The Complaint claims damages in excess of $300,000 plus punitive damages.
     The Company is vigorously defending against the action although an
     unsuccessful mediation session and settlement conference were held in an
     attempt to resolve the dispute. The nature and amount of damages, if DSA's
     allegations are proven, appear uncertain.

     In June of 2000, the Company, TDS and XcelleNet, Inc. filed a complex
     motion for summary judgment, asking the Court to dismiss the majority of
     DSA's claims in the case. DSA also filed a motion for summary judgment
     asking the court to enter judgment in its favor on several of its claims.
     The district court judge held oral arguments on the counter-motions on
     Friday, January 19, 2001.

     On March 6, 2001, the court denied the motion by TDS and XcelleNet in its
     entirety. It granted plaintiff's motion for summary judgment on liability
     and directed that damages be tried to a jury on May 24, 2001. The
     provisions of the agreement that the opinion finds the Company violated
     could lead to substantial damages being awarded against the Company. While
     part of the theory for copyright damages was dismissed, another part was
     left to be tried. It, too, could result in substantial damages.

                                      F-21

<PAGE>

     On March 20, 2001, the Company filed a motion for reconsideration of the
     granting of summary judgment on two portions of the order. There can be no
     assurance that reconsideration will be granted.

     Prior to the May 24, 2001 trial date and before any motions for
     reconsideration, the parties mutually agreed to enter into settlement
     negotiations.

     On December 28, 2001 the Company and DSA entered into a settlement
     agreement for dismissal of the lawsuits, with prejudice whereby the Company
     agreed to pay DSA $1,400,000 plus transfer its 125,000 shares of TAVEE
     stock it held for investment purposes which had a carrying value of
     $375,000. The Company agreed to pay (i) $900,000 on or before December 31,
     2001 or $900,000 on or before March 31, 2002 plus interest from January 1,
     2002, and (ii) $250,000 on each of June 30, 2002 and December 31, 2002. The
     Company did not pay the amount due on December 31, 2001.

     In December 2000, TMP Interactive, Inc. ("Monster.com") filed suit against
     the Company and its Contractors Resources subsidiary alleging that the
     Company failed to make a quarterly cash payment under its co-branding
     agreement with Monster.com. The complaint seeks a judgment of approximately
     $464,000. The Company has disputed the allegations, denying all liability
     and has asserted affirmative defenses, including that TMP did not perform
     the agreement as required. Since filing the suit, Monster.com has also
     notified the Company that it has failed to make another payment under the
     agreement but this alleged default has not yet become part of the
     litigation. While initial discovery had commenced, both parties have agreed
     to stay all further discovery and enter into settlement discussions.

     On August 7, 2001, the Company and Monster.com entered into a mutually
     agreeable settlement whereby the Company would pay Monster.com fees of
     $230,000 and grant a warrant to purchase 4,000,000 shares of the Company's
     common stock at $0.47 per share which is fully exercisable at any time on
     or before August 7, 2004. In conjunction with this agreement, the Company
     recorded a selling and general and administrative charge in the three month
     period ended September 30, 2001 of $590,000. Of this amount, $360,000 was
     related to the value of the warrants granted to Monster.com derived using
     the Black-Scholes method.

     The Company is not currently involved in any other litigation or
     proceedings, which if decided against the Company would have a material
     adverse affect, either individually or in the aggregate.

(15) Employee Benefit Plans

     The Company has a 401(k) plan where all full time employees with over 1000
     hours of service to the Company or its subsidiaries are eligible to
     participate. The Company matches one-half of the employees' voluntary
     contributions up to a maximum Company contribution of 5% of participants'
     salaries. The Company's contribution to the Plan during 2001, 2000 and 1999
     was approximately $224,000, $456,000 and $406,000, respectively.

     The Company's CR subsidiary has a profit sharing plan for its employees
     whereby up to 10% of the employees salary can be contributed to the plan.
     The Company made no matching contributions to this plan during 2001, 2000
     and 1999.

     The Company does not provide any post retirement or post employment
     benefits.

(16) Segment Information

     In accordance with SFAS No. 131, "Disclosures about Segments of an
     Enterprise and Related Information," the Company's reportable segments are
     strategic business units that offer different products and services to
     different industries throughout the United States.

     In 2001, the Company had three reportable segments after it initiated a new
     segment, Consultant Service Center ("CSC"), which included the migration of
     the Company's staffing business, within the Contractors Resources
     subsidiary. The Company's reportable segments are as follows:

     .    Netplex Systems ("Systems") - technology consulting and information
          systems integration services that seek to help clients make efficient,
          cost-effective, and reliable use of their information technology
          systems. As discussed in Notes 1 and 3, management is entertaining
          offers for the operations of this segment (either in whole or in
          parts).

                                      F-22

<PAGE>

..    Contractors Resources - mybizoffice ("CR-MBO") - provides business
     infrastructure and advisory services for its membership of independent
     contractors, which allow members to maximize the freedom and wealth
     potential of the independent lifestyle while enjoying the benefits
     associated with full-time employment.

..    Contractors Resources - Consultant Service Center ("CR-CSC") - provides
     low-cost employment, payrolling, recruiting, and benefits provisioning for
     clients' contingent work force thereby enabling businesses to reduce
     consultant management costs and better position themselves to engage and
     work with their contingent work force.

The Company's accounting policies for these segments are the same as those
described in the summary of Significant Accounting Policies, except that income
tax expense is not allocated to each segment. In addition, the Company evaluates
the performance of its segments and allocates resources based on gross margin,
and earnings before interest, taxes, depreciation and amortization ("EBITDA").
Inter-segment revenues are immaterial.

The reportable segments are measured and resources are allocated both on income
before income taxes and EBITDA, which represents the sum of income before taxes,
depreciation, amortization, and interest. EBITDA is not a measure of performance
or financial condition under generally accepted accounting principles, but is
presented to provide additional information. The Company considers EBITDA to be
a useful measure of the Company's performance, because EBITDA can be used to
measure the Company's ability to service debt, fund capital expenditures and
expand business. EBITDA should not be considered in isolation or as a substitute
for other measures of financial performance or liquidity under generally
accepted accounting principles. While EBITDA is frequently used as a measure of
operations and the ability to meet debt service requirements, it is not
necessarily comparable to other similarly titled captions of other companies due
to the potential inconsistencies in the method of calculation.

The table below presents information about segments used by the chief operating
decision-maker of Netplex as of and for the years ended December 31, 2001, 2000
and 1999.

<TABLE>
<CAPTION>
       (amounts in thousands)      CR-MBO    CR-CSC      CR-Total      Systems      Total
     --------------------------------------------------------------------------------------
     2001:
     ----
     <S>                         <C>        <C>         <C>          <C>         <C>
     Revenues                    $  1,412   $  1,432    $  2,844     $ 18,501    $  21,345
     Gross profit                   1,152        177       1,329        8,129        9,458
     Segment EBITDA                                         (829)       2,014        1,185
                                                        -----------------------------------
     Total segment assets                                  2,361        5,888        8,249
     Discontinued assets                                                                --
     Unallocated assets                                                                438
                                                                                 ----------
     Total assets                                                                $   8,687
     --------------------------------------------------------------------------------------
     2000:
     ----
     Revenues                    $  1,539   $     --    $  1,539     $ 25,889    $  27,428
     Gross profit                   1,011         --       1,011        9,444       10,455
     Segment EBITDA                                       (3,953)         623       (3,330)
                                                        -----------------------------------
     Total segment assets                                  3,953       10,576       14,529
     Discontinued assets                                                             1,104
     Unallocated assets                                                              2,057
                                                                                 ----------
     Total assets                                                                $  17,690
     --------------------------------------------------------------------------------------
     1999:
     ----
     Revenues                    $  1,374   $     --    $  1,374     $ 30,037    $  31,411
     Gross profit                     976         --         976       10,176       11,152
     Segment EBITDA                                       (1,557)       3,818        2,261
                                                        -----------------------------------
     Total segment assets                                  5,193       13,089       18,282
     Discontinued assets                                                             3,634
     Unallocated assets                                                                746
                                                                                 ----------
     Total assets                                                                $  22,662
     --------------------------------------------------------------------------------------
</TABLE>

                                      F-23

<PAGE>

Reconciliation of Segment EBITDA to Net Operating Loss:

<TABLE>
<CAPTION>
                                                                    2001       2000       1999
                                                                  --------   --------   --------
          <S>                                                     <C>        <C>        <C>
          Segment EBITDA                                          $  1,185   $ (3,330)  $  2,261
          Unallocated corporate expenses                             7,104      8,120      5,542
          Restructure charges                                           --      1,512         --
          Depreciation, amortization & minority interest             2,479      1,831      1,550
          Interest expense, net                                        150         41        384
          Tax expense                                                   --         --         --
                                                                  --------   --------   --------
          Loss from continuing operations                           (8,548)   (14,834)    (5,215)
          (Loss) income from discontinued operations, net of tax        87       (939)    (2,209)
          Gain on disposal of discontinued operations                   --        513         --
                                                                  --------   --------   --------
          Net operating loss                                      $ (8,461)  $(15,260)  $ (7,424)
                                                                  ========   ========   ========
</TABLE>

                                      F-24