SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   Form 10-K/A
(Mark One)


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

     For the fiscal year ended December 31, 1998

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

     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) 
                                                                 
Issuer's telephone number, including area code: (703) 356-3001

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

================================================================================
     Title of Each Class              Name of Each Exchange on Which Registered
--------------------------------------------------------------------------------
Common Stock, $.001 par value              NASDAQ SmallCap Stock Market
                                            Boston Stock Exchange
================================================================================

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  stock  held by
non-affiliates  of the  registrant  as of  March  31,  1999,  was  approximately
$28,731,184.

Indicate the number of shares outstanding of each of the registrant's classes of
Common Stock as of March 31, 1999: 11,463,221 shares.



                                       1
<PAGE>

                               INDEX TO FORM 10-K

PART I.......................................................................3

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

   Item 2. Properties.......................................................12

   Item 3. Legal Proceedings................................................12

   Item 4. Submission of Matters to a Vote of Security Holders..............12

PART II.....................................................................13

   Item 5. Market for Common Equity and Related Stockholder Matters.........13

   Item 6. Selected Financial Data..........................................16

   Item 7. Management's Discussion and Analysis of Financial Condition
   and Results of Operations................................................17

   Item 7A. Quantitative and Qualitative Disclosures About Market Risk......23

   Item 8. Financial Statements and Supplementary Data......................24

   Item 9. Changes In and Disagreements with Accountants on Accounting 
   and Financial Disclosure.................................................24

PART III....................................................................25

   Item 10.  Directors, Executive Officers, Promoters and Control  
   Persons; Compliance With Section 16(a) of the Exchange Act...............25

   Item 11.  Executive Compensation.........................................26

   Item 12.  Security Ownership of Certain Beneficial Owners 
   and Management...........................................................28

   Item 13.  Certain Relationships and Related Transactions.................30

PART IV.....................................................................31

   Item 14.  Exhibits and Reports on Form 8-K...............................31

   Signatures...............................................................33



                                       2
<PAGE>


                                     PART I

ITEM 1. BUSINESS.

The Netplex Group,  Inc. (the "Company" or "Netplex")  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 "Market  Opportunity,"  "Competition,"  "Service
Fulfillment  Model," "Growth Strategy",  and "Additional Factors That May Affect
Future  Results,"  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 Form 10-K report.  Forward
looking  statements can be identified by forward  looking words,  such as "may,"
"will," "expect," "intend," "anticipate,"  "believe," "estimate," and "continue"
or similar words.

Netplex is an  information  technology and  electronic  business  ("e-business")
services and solutions  provider  dedicated to helping  customers  capitalize on
information  systems  designed for a connected  business  world.  As  businesses
maneuver  to  benefit  from the  opportunities  created by the  emerging  global
networked  economy,  our services  help  customers  leverage  their  information
systems to gain a competitive advantage.

Netplex  provides  highly  specialized   solutions  (delivered  through  various
Specialized   Practice  Groups)  that  build,  manage,  and  protect  customers'
information  systems  and the  networks  upon which they run.  Each  Specialized
Practice Group is capable of delivering its services anywhere in the world.

We also have two  business  lines that  combine to deliver  services  focused on
specific geographic regions.  Our System Integration (SI) units,  operating from
several East Coast locations, serve as "trusted information technology advisors"
for a wide variety of businesses.  Each SI unit offers similar  network  systems
integration  and product  procurement  services,  yet is focused  exclusively on
serving its own geographic region.

Our Technical  Consulting  Services (TCS) units,  formerly known as IT Staffing,
represent  our other  regionally  focused  business  line.  Our three East Coast
Technical  Consulting Services locations draw upon an extensive central database
of  approximately  40,000  talented  IT  professionals  to  provide  short-  and
long-term technical consulting solutions.

To better  capitalize  on the  inherent  synergies  of our  business  units,  we
recently   introduced  the  Netplex  Service   Fulfillment  Model.  The  Service
Fulfillment Model is a broad and powerful business model designed to accommodate
the changing needs of the IT services industry and the technology workforce that
provides its services.  Delivered  through our  Specialized  Practice Groups and
regional field offices,  the Service  Fulfillment  Model positions us to combine
the  reliability  of a local partner with the expertise of a global  specialist.
Our  ability to  effectively  combine  "Specialized  Expertise"  with  "Regional
Operations" is one of Netplex's most significant differentiators.

Netplex's Contractors Resources (CR) subsidiary operates as a distinct business.
CR  eases  administrative  burdens  for its  members  (professional  independent
contractors)  by providing  "back office"  services such as tax  administration,
invoicing  and  invoice  tracking,  expense  reimbursements,  medical and dental
insurance,  401(k),  and pension  plans,  etc. Using CR to supply these services
allows CR members  to focus on growing  their  independent  contractor  business
without incorporating.

Company Background and Development

Netplex was  incorporated  in 1986 in New York under the name CompLink,  Ltd. In
1992,  CompLink  performed  an initial  public  offering to finance an effort to
develop a messaging  software  system.  In 1996,  CompLink  acquired,  through a
merger that was accounted for as a reverse merger,  The Netplex Group,  Inc. and
Contractors Resources (which was a subsidiary of America's Work Exchange, Inc.),
and  changed  its  name to The  Netplex  Group,  Inc.  See  Note 1 to  financial
statements  for a further  discussion  of this merger.  This merger  resulted in
Netplex providing new management and a revised corporate mission. Since then, we
have focused on taking  advantage of significant  industry  trends,  such as the
evolution  of  "e-business."  As  a  result,  we  have  attempted  to  grow  our
Specialized Practice Groups, Systems Integration units, and 


                                       3
<PAGE>


Technical  Consulting  Services  businesses with an eye toward  providing a full
range of services and solutions that benefit  organizations  as they embrace the
opportunities created by the emerging e-business era.

To facilitate this growth,  Netplex has acquired  several  companies  during the
last two years.  In 1997,  we acquired  Onion Peel  Solutions,  LLC, in Raleigh,
North Carolina.  In 1998, we acquired The PSS Group,  Inc.,  Automated  Business
Systems of North Carolina,  Inc., Kellar Technology Group,  Inc., and the retail
technical   consulting  business  of  Applied  Intelligence  Group,  Inc.  These
businesses  expanded our  experience,  technical  staff,  customer base,  market
exposure, revenue, and management capabilities.

How To Contact Us

On March 11, 1999, our principal  executive offices and headquarters  moved from
McLean, Va., to 1800 Robert Fulton Drive,  Second Floor,  Reston, Va., 20191. To
reach these offices,  contact us at 703-716-4777  (tel.) and 703-716-1110 (fax).
Please direct all Netplex-related emails to  info@netplexgroup.com  or visit our
web site at www.netplexgroup.com.

Market Opportunity

According  to several  recent  reports and  industry  studies,  the  Information
Technology  (IT)  services  industry  is  among  the  fastest  growing  economic
segments.  A 1998 Legg Mason report states that the IT services  market exceeded
$125 billion in 1997(1) and International Data Corporation  expects the industry
to grow more than 80% by 2002(2).  Meanwhile,  demand for the  technical  talent
needed to perform these  services is increasing due to a 42% decline in computer
science graduates(3) coupled with only a 5.5% per year growth rate for the total
U.S. IT  workforce(4).  Technical  talent has  escalated in value as a result--a
trend we expect to continue.

As the value of  technical  talent  increases,  we  believe  that the demand for
Netplex's    offerings--specialized   IT   services   and   capable   technology
consultants--will increase as well. We believe that we have positioned ourselves
to take advantage of opportunities that this trend creates.

While we believe that our position within the IT services  industry has been and
will continue to be lucrative,  we anticipate that the specific  industry sector
of Internet and e-business  integration  services will gain even more attention.
Over the last two years,  the demand for IT services  has shifted  significantly
towards electronic business--the use of the Internet and related technologies to
transform the way businesses  operate.  According to a 1998  International  Data
Corp.  report,  the Internet systems  integration  industry is projected to grow
over 750% during the next four years(5).

According  to a study  performed  by IBM,  this market is projected to reach $47
billion by the year 2002. One of the primary beneficiaries of this growth is the
"e-business  enabler"--the IT service provider that can make connected  business
information  systems work to their  maximum  potential in the era of  electronic
business in the global networked economy.

To  better  align  ourselves  with the trend  toward  e-business  solutions,  we
recently   shifted  our  marketing   focus   towards   becoming  a  provider  of
premium-level e-business-related services. Because we are already an established
specialist  in  many  of  the  IT  services  that  make  successful   e-business
implementations a reality, this shift in focus necessitates only minimal changes
to Netplex's  existing  offerings.  Further,  Internet systems  integration is a
natural  extension of Netplex's  core  competency  in  building,  managing,  and
protecting sophisticated networked systems.


----------
(1)  Legg Mason Equity Research,  Industry  Analysis on Investing in Information
     Technology Services, February 6, 1998

(2)  International Data Corporation, quoted in Red Herring, August 1998

(3)  Legg Mason Equity Research,  Industry  Analysis on Investing in Information
     Technology Services, February 6, 1998, representing 1986 to 1995

(4)  Source: Bureau of Labor Statistics, U.S. - Employment Projections

(5)  International Data Corporation, quoted in Red Herring, August 1998



                                       4
<PAGE>


To better  facilitate  our  migration  towards  becoming an  e-business  service
industry  specialist,  Netplex  recently  announced  the launch of an additional
Specialized    Practice    Group    dedicated   to   developing    sophisticated
transaction-based  e-commerce systems.  We believe that the new practice,  which
should begin  operations  in 1999,  may extend  Netplex's  existing  skill base,
helping us better  serve  existing  customers  and  generate  new  opportunities
throughout our business lines.

Service Breakdown

As mentioned earlier, one of Netplex's primary differentiators is its ability to
provide "Specialized  Expertise" with "Regional  Operations." By combining these
directives,  we are able to provide a wide variety of complementary  services to
customers of different sizes and in different industries.  Our diverse offerings
allow us to  penetrate  new  customer  accounts  from any of  several  different
"angles."  Further,  once we have established  presence with a new customer,  we
strive to learn as many  aspects of its  business  as  possible,  thus  creating
additional opportunities for our other offerings.

Each  Netplex   business  unit  is  presented  below  within  its  directive  of
"Specialized Expertise" or "Regional Operation."

Specialized Practice Groups

Netplex's  Specialized Practice Groups deliver specialized solutions that build,
manage, and protect customers'  information  systems and the networks upon which
they run.  Because our  Specialized  Practice  Groups are capable of  delivering
their services anywhere in the world, they represent our "Specialized Expertise"
directive.

E-commerce Systems (ECS)

ECS provides  comprehensive,  enterprise-wide  design and integration consulting
services  that help  organizations  intelligently  take  advantage of e-commerce
opportunities. ECS's experts help determine the best ways to define, create, and
integrate   sophisticated   e-commerce  initiatives  such  as  online  ordering,
tracking,   and  transaction  processing  systems.  The  practice  should  begin
operations in 1999.

Enterprise Systems Management (ESM)

ESM, a specialist in the areas of network, systems, and applications management,
has over a decade  of  experience  providing  architectural  and  implementation
services that manage complex networked systems. ESM specializes in service level
management  solutions  that  provide  a direct  correlation  between  management
services and return on investment.

Business Protection Services (BPS)

BPS, a specialized  consulting  practice with information  security and business
continuity  expertise,   provides   industry-leading  security  and  contingency
planning services.  BPS, whose services include information security consulting,
security  integration,  and contingency planning consulting,  is a specialist in
protecting a company's critical information assets.

Applied Intelligence Group (AIG)

AIG provides information  technology consulting and systems integration services
for the retail and  distribution  industry.  AIG's  premium-level  services help
customers create enterprise  applications  that manage the merchandise  pipeline
from the manufacturer to the customer.

Regional Operations

On the local level,  our Regional  Operations  comprise our Systems  Integration
(SI) and Technical  Consulting  Services  (TCS) units.  These groups,  which are
currently located  throughout the eastern United States,  use their demonstrated
experience to penetrate local accounts and provide inroads for our higher-margin
Specialized Practice Groups' services.

Systems Integration (SI)

SI's local  offices  provide  reliable  systems and  infrastructure  integration
solutions, hardware and software product procurement, and support for businesses
within specific geographic regions.  Customers look to SI as a "trusted advisor"
for all  business  information  issues.  SI  offers  the  Netplex  middle-market
customer  a  


                                       5
<PAGE>


close Information Systems partner relationship, providing an influential role in
the strategy and coordination of all information technology initiatives.  Often,
SI  will  manage  third-party  vendors  and  other  Netplex  business  units  in
delivering complete information solutions.

Technical Consulting Services (TCS)

TCS  (formerly  known as IT  Staffing)  provides  customers  with  hard-to-find,
top-quality talent for their projects' full life cycle. Our personal service and
industry-leading  database  enable  us to meet  customers'  needs  in a  rapidly
changing  environment.  TCS strives to find the "perfect  fit" for our customers
without  sacrificing  the standards  customers  have  established  for their own
employees.

Contractors Resources

Operating as a distinct business,  Netplex's CR subsidiary provides professional
independent   contractors   with  "back  office"  services  that  eliminate  the
distraction and expense of tedious  administrative duties, thus allowing them to
focus on growing their business without  incorporating.  CR gives Netplex access
to a fast-growing  labor pool,  enables us to keep a pulse on the changes in the
information industry,  and attracts high-level contract professionals across the
United States.

Financial Information About Segments

For  financial  information  regarding  our three  business  units,  Specialized
Practice Groups,  Regional Operations and Contractor Resources,  see footnote 17
to the Company's Consolidated Financial Statements.

Competition

Netplex   competes  with  many   regional   small  to  large  size  IT  services
organizations  that have developed a market presence in a particular  geographic
market or area of specialization.  The larger  organizations which Netplex views
as its  competitors in each of its business units include the "Big 5" consulting
firms,  International Network Services, Inc. (NASDAQ: INSS), companies purchased
by USWeb (NASDAQ: USWB), Sapient Corporation (NASDAQ:  SAPE), Proxicom,  AppNet,
and Cap Gemini.

Backlog

Due to the nature of their  businesses,  the Regional  Operations and Contractor
Resources business units do not have any backlog. The backlog of the Specialized
Practice Groups business unit is immaterial.

Service Fulfillment Model

Netplex  understands  that a successful IT services  organization  requires more
than premium-level  services.  It also needs an organized support structure that
ensures    successful    project    fulfillment    and   competent,    motivated
employees--regardless  of shifting business  requirements or technology changes.
As a result, we have established the Netplex Service Fulfillment Model.

The Netplex  Service  Fulfillment  Model is designed to accommodate the changing
needs of the IT services industry and the technology workforce that provides its
services.  Delivered  through  our  Specialized  Practice  Groups  and  Regional
Operations field offices,  the Service Fulfillment Model positions us to provide
the reliability of a local partner and the expertise of a specialist.

The Service Fulfillment Model is based on a carefully planned blend of permanent
Netplex  technical  associates  (our  Specialized  Practice  Groups  and  System
Integration  units),  as well  as a vast  pool of  contingent  technical  talent
(accessible  through our Technical  Consulting  Services  units and  Contractors
Resources).  A contingent workforce means that our operational structure becomes
more streamlined  without sacrificing our ability to provide effective services.
This boosts our  flexibility  in reacting to industry  changes and  improves our
overall resource  utilization.  This  flexibility  means that we can continually
reshape  and refine our  portfolio  of core  specialized  services  based on the
changes we foresee in the IT service  industry.  As a result, we believe that we
will  be able to  provide  complete,  ongoing,  customer-tailored  services  and
consulting, no matter which direction technology evolves.


                                       6
<PAGE>


A list  of the  current  business  units  and the  headings  under  which  their
financial results will now be presented is below.

Specialized Practice Groups      Regional Operations       Contractors Resources
---------------------------      -------------------       ---------------------
                                                                                
o    E-Commerce Systems          o    All Systems          o    Contractors     
     (ECS)                            Integration units         Resources       
                                                           
o    Applied Intelligence        o    All Technical       
     Group (AIG) (Retail              Consulting Services 
     Industry Systems                 units               
     Solutions)                  

o    Business Protections
     Services (BPS)

o    Enterprise Systems
     Management (ESM)

Acquisitions

In order to reach  critical  mass and create a  platform  upon which we can most
effectively reach our e-business  leadership goals,  Netplex  vigorously pursued
acquisitions  as an avenue  toward  growth  in 1998.  During  the year,  Netplex
acquired four companies that added  significantly to Netplex's core competencies
and helped position us to take advantage of a wider variety of  opportunities in
a greater number of locations. Netplex's 1998 acquisitions are listed below. For
details concerning these mergers, please refer to the discussion in "Acquisition
or Disposition of Assets" later in this document.

     The PSS Group

     In  January,  Netplex  acquired  The PSS  Group,  which now  operates  as a
     Technical Consulting Services unit.

     Automated Business Systems

     In June, Netplex acquired Automated Business Systems, which now operates as
     a Systems Integration unit for the southeast region.

     Applied Intelligence Group

     In  September,  Netplex  acquired  Applied  Intelligence  Group,  which now
     operates as a Specialized  Practice Group. AIG is widely  recognized as the
     premier  provider of IT consulting and solutions  focused on the retail and
     distribution industry.

Netplex  believes that 1998's  acquisitions  contributed to the critical mass we
need to sustain profitability and represent a platform for significant growth as
an e-business  services  specialist.  With this platform in place, we anticipate
that our growth will become more organic during 1999;  however, we will continue
to  consider  qualified  acquisition  opportunities  that  will  help us  attain
leadership in the e-business integration industry.



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<PAGE>


Strategic Relationships

Netplex   understands  the  critical  importance  of  developing  and  nurturing
relationships  with key  information  industry  leaders.  We  believe  that such
partnerships  are  essential  for  maintaining  our position as a  premium-level
service provider. As technologies evolve,  Netplex's ability to deliver the most
advanced solutions possible depends  significantly on our alliances with leading
technology   manufacturers.   With  the   addition  of  several  new   strategic
relationships in 1998, Netplex's major technology partners now include:


o    AT&T                               o    Lucent Technologies 
                                                                 
o    Check Point Software               o    Microsoft           
                                                                 
o    Cisco Systems                      o    Novell              
                                                                 
o    Hewlett-Packard                    o    Packeteer           
                                                                 
o    IBM                                o    Unisys              
                                        

Customers

While  many of  Netplex's  recent  contract  victories  have been with  existing
customers,  the Company has  continued to add new  clients.  Because our diverse
service  offerings often target  businesses of contrasting sizes and industries,
Netplex's  customer  base  includes a wide  variety of  companies.  Our  clients
include Fortune 500,  Fortune 1000, and  middle-market  firms. In addition,  our
customers  extend  into  the  retail,   healthcare,   financial  services,   and
telecommunications industries, among others. Some of our customers include:

o    America Online                     o    General Electric    
                                                                 
o    Amtrak                             o    GTE                 
                                                                 
o    Andersen Consulting                o    Hewlett-Packard     
                                                                 
o    AT&T                               o    Lucent Technologies 
                                                                 
o    Bankers Trust                      o    MCI Worldcom        
                                                                 
o    Brinker International              o    Mobil               
                                                                 
o    Chase                              o    New York Life       
                                                                 
o    Crabtree & Evelyn                  o    Union Camp          
                                                                 
o    Deloitte & Touche                  o    Unisys              
                                                                 
o    Freddie Mac                        o    The World Bank      
                                                                 
                                        
Geographic Positioning

Netplex expanded its geographic scope significantly in 1998 and currently has 12
office locations.  Of these, 11 are on the East Coast of the United States (from
Connecticut  to Florida)  and one is in Oklahoma  City,  OK. Most of the offices
represent points of presence for one or both of Netplex's two regionally focused
business lines:  Systems  Integration and Technical  Consulting  Services.  Over
time,  we intend to  expand  each  regional  office  to  include  both a Systems
Integration and Technical Consulting Services unit.

As discussed earlier,  the Specialized  Practice Groups represent the nationally
focused  component of Netplex's  business model.  While these groups can deliver
services anywhere in the world, they are based in the following locations:

Applied Intelligence Group..................Oklahoma City, OK
Business Protection Services................McLean, VA
Enterprise Systems Management...............New York, NY and Raleigh, NC
E-commerce Systems..........................Oklahoma City, OK


                                       8
<PAGE>


Acquisitions  were primarily  responsible for our geographic  expansion in 1998.
Netplex's  purchase of Automated  Business  Systems (ABS) greatly  increased our
Systems Integration  presence in the southeast region, while our purchase of The
PSS Group brought our Technical  Consulting  Services to the  Washington,  D.C.,
metropolitan area.

In addition  to the new offices  introduced  through our  acquisitions,  we also
opened our Tampa,  Fl.,  office,  which offers  Technical  Consulting  Services.
Expanding our geographic reach is a Netplex priority in 1999 and beyond.  We are
continually  assessing  the most  suitable  areas for  geographic  expansion and
expect to penetrate new markets when appropriate,  either organically or through
acquisitions.

Growth Strategy

Netplex intends to become an industry-leading provider of services and solutions
that help  businesses as they position  themselves to succeed in the  e-business
era. Our Specialized Practice Groups currently offer Netplex customers a focused
expertise in enterprise  systems  applications  for the Retail and  Distribution
industry,  network  implementation  and  performance  enhancement,   information
security,  and Internet-based  transaction  processing systems development.  Our
geographic  reach  into a growing  number of local  markets  enables  Netplex to
leverage our "Specialized  Expertise" of these Specialized  Practice Groups with
"Regional Operations" to build close, long-term relationships with prospects and
customers as they evolve into e-business enterprises.

Netplex  plans to continue its strategy of growth in building  and/or  acquiring
qualified  organizations in new geographic regions throughout the United States.
Netplex intends to continue to build or acquire additional Specialized Practices
that will add core  competencies  in  technologies  and targeted  industries  to
further  enhance our collection of expertise in e-business  systems.  We believe
that the blend of these  capabilities  places us in a  leadership  position as a
leading e-business IT services and solutions provider.

As mentioned earlier,  the Internet systems integration  industry--the  services
that will make  e-business a reality--is  projected to grow over 750% during the
next four years. By aligning our future marketing initiatives with an e-business
perspective, we expect that the high growth of this industry will translate into
significant  growth  for  Netplex.   As  a  result  our  pursuit  of  e-business
opportunities  is the  primary  component  of our  growth  strategy  in 1999 and
beyond.

Further,   Netplex  feels  that,  through  its  proven  success  of  integrating
acquisitions  with organic  growth,  it has established a model through which it
can deliver a full suite of quality,  premium-level services while maintaining a
healthy year-over-year growth rate.

Operations and Support

Despite the recent move of Netplex's  headquarters from McLean,  Va., to Reston,
Va., many of our operations and support services are still located in our McLean
office.  The  McLean  office  continues  to  house  most of  Netplex's  critical
information systems,  including the management  infrastructure for our wide area
network (WAN), the Netplex web site and intranet,  all electronic mail gateways,
finance and accounting systems, and purchasing systems. A centralized management
information  systems  department located in the McLean office manages all of the
systems.

Our marketing,  legal,  and human resources  support  services have moved to the
Reston, Va., office.

During  1998,  Netplex  improved  its  financial  systems  by  streamlining  and
simplifying  its transaction  processes.  We believe that our investment in this
infrastructure improvement will vastly improve the timeliness of data collection
and reporting to the business units.

Intellectual Property

Netplex does not hold any patents or registered  trademarks  other than those of
Onion Peel Solutions.  However, we consider the Netplex name and our database of
independent consultants to be highly proprietary.

Employees

As of March 20, 1999, we had  approximately 617 full-time  employees  (including
permanent and contract employees).

We are responsible  for, and pay the employer's  share of, Social Security taxes
(FICA),  federal and state unemployment taxes, worker's  compensation  insurance
and other costs relating to all of our employees. The suite of benefits we offer
our contract employees differs from the one we offer to our permanent employees.
Our  Contractors  


                                       9
<PAGE>


Resource's subsidiary tailors its benefits to its members,  representing a third
suite of benefits  offered by Netplex.  We believe that our  relations  with our
employees are good.

Acquisition or Disposition of Assets

PSS

On January 30, 1998,  the Company  completed the purchase of all of the stock of
The PSS Group,  Inc.  ("PSS"),  the technical  professional  staff  augmentation
operations and business of Preferred Systems Solutions,  Inc.  ("Preferred") and
formerly a wholly  owned  subsidiary  of  Preferred.  In  consideration  for the
purchase,  the  Company  paid  $300,000  at closing and on January 15, 1999 paid
$300,000 in cash. The Company used working  capital to finance the  acquisition.
The original  agreement  also provided that Preferred  would receive  additional
consideration if PSS met certain operating  targets.  Subsequent to December 31,
1998,  Preferred and Netplex  amended the agreement to eliminate the  additional
consideration.  Netplex instead agreed to purchase a split dollar life insurance
policy on the life of Preferred's  sole  shareholder and to fund the policy with
$1,700,000.  The funding is paid in four equal  annual  premiums,  and the first
annual premium was paid on January 29, 1999. Under the terms of the split dollar
life policy,  Netplex will receive a refund of the premiums  paid upon the death
of Preferred's  sole  shareholder.  The  acquisition was accounted for using the
purchase method of accounting.

ABS

On June 18,  1998,  the Company  completed  the  purchase of all of the stock of
Automated Business Systems of North Carolina,  Inc. and Kellar Technology Group,
Inc.  (Collectively "ABS"). In consideration for the purchase,  the Company paid
$200,000 and issued  450,000  shares of its Common  Stock.  The  agreement  also
provides  that  the  former   shareholders   of  ABS  will  receive   additional
consideration  (the "Earn-out") if ABS meets certain  operating  targets through
December 31, 2000.  The additional  consideration  will be paid one-half in cash
and one-half in Common Stock.  In connection with the  acquisition,  the Company
has entered  into  employment  agreements  with  certain  employees  of ABS. The
acquisition  was recorded  effective June 30, 1998 using the purchase  method of
accounting.  The results of operations for the period from June 18, 1998 to June
30,  1998 are not  material  and the  future  results of  operations  of ABS are
included beginning effective July 1, 1998.

AIG

On October 16,  1998,  the Company  completed  the  purchase of the  information
technology  consulting business of Applied  Intelligence Group, Inc. of Oklahoma
City ("AIG") effective September 1, 1998. In consideration for the purchase, the
Company paid  $3,000,000 and issued  643,770  shares of Class B Preferred  Stock
(valued at $1,000,000) at closing.  The Company used working  capital to finance
the  acquisition.  Such  working  capital was provided by (i) an increase in the
Company's line of credit from $2.0 million to $6.0 million, which credit line is
based on 80% of the  Company's  eligible  accounts  receivable  and (ii) certain
equity instruments as further described in Note 3 to the consolidated  financial
statements.  The Class B Preferred Stock is convertible into Common Stock of the
Company at any time on a share for share basis.  No dividends are payable on the
Preferred  Stock.  The holders of the Preferred Stock have agreed not to sell or
otherwise  distribute  their Preferred Stock or the Common Stock  underlying the
Preferred  Stock for a period of one year.  The agreement also provides that AIG
will receive  additional  consideration  (the  "Earn-out")  if AIG meets certain
operating targets.  The Earn-out will consist of (i) $1.5 million of cash if AIG
achieves approximately $9 million in net profits over the six quarters beginning
October 1998 and (ii) 643,700 shares of Class B Preferred  Stock if AIG achieves
certain net profit  targets over the nine quarters  beginning  October 1998. The
Company  has paid  $340,670  as of March 31,  1999  toward the  Earn-out  earned
through  December 31, 1998. The acquisition was accounted for using the purchase
method of accounting.  In connection with the  acquisition,  the Company entered
into employment agreements with certain employees of AIG.

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
"Manufacturing  and  Suppliers,"   "Competition"  and  "Proprietary  Rights  and
Licenses,"  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.


                                       10
<PAGE>


Failure to  Successfully  Integrate  Newly  Acquired  Business.  During 1998 the
Company  acquired  substantially  all of the  assets  of The  PSS  Group,  Inc.,
Automated  Business Systems of North Carolina,  Inc.,  Keller  Technology Group,
Inc.  and the  consulting  division  of Applied  Intelligence  Group,  Inc.  See
"Acquisition   or  Disposition   of  Assets."  The  Company   entered  into  the
acquisitions with the expectation that the acquisitions  would result in certain
benefits for the combined businesses.  Achieving the anticipated benefits of the
acquisitions  will depend in part upon whether  certain of the other  companies'
business  operations  and  their  product  offerings  can  be  integrated  in an
efficient and effective  manner.  This will require the dedication of management
resources that may temporarily  distract attention from the day-to-day  business
of the Company.  As of March 31, 1999,  integration of facilities as well as the
various functional departments has been partially accomplished.  The full extent
of the cost savings in  operations  is not known.  If the  integration  does not
result in the  anticipated  cost savings in operations,  there may be an adverse
effect on the Company's results of operations and financial condition.

Potential  Fluctuations in Operating Results. The Company incurred net losses of
$2.5, $2.9 and $2.0, million respectively, in the years ended December 31, 1998,
1997 and 1996.  There can be no assurance that the Company will be profitable on
a quarterly or annual basis in the future.  The  Company's  quarterly  operating
results  in the past have  fluctuated  and may  fluctuate  significantly  in the
future  depending  on such  factors as the timing and  delivery  of  significant
orders and contracts,  new product introductions and changes in pricing policies
by the Company.

The Company's  expense levels are based, in part, on its  expectations of future
revenues.  Many of the  Company's  expenses are  relatively  fixed and cannot be
changed in short periods of time. If revenue levels are below expectations,  net
income  will  be  disproportionately  affected  because  only a  portion  of the
Company's  expenses  varies with its revenue during any particular  quarter.  In
addition,  the Company typically does not have a significant  backlog to support
more than one quarter of revenue at any particular date.

As a result of the  foregoing  factors and potential  fluctuations  in operating
results,  the Company  believes that its results of operations in any particular
quarter  should not be relied upon as an  indicator  of future  performance.  In
addition,  in some future quarter the Company's  operating  results may be below
the  expectations  of public market analysts and investors.  In such event,  the
price of the  Company's  Common Stock would likely be  materially  and adversely
affected.

Dependence on Key Personnel.  The Company's success depends in large part on the
continued  service of its key technical and senior  management  personnel and on
its  ability  to  attract,  motivate  and  retain  highly  qualified  employees.
Competition  for highly  qualified  employees  is  intense,  and the  process of
identifying and successfully recruiting personnel with the combination of skills
and  attributes  required to execute the Company's  strategies is often lengthy.
Accordingly,  the loss of the  services of key  personnel  could have a material
adverse effect upon the Company's  business,  financial condition and results of
operations.  There can be no assurance  that the Company will be  successful  in
retaining  its key  technical and  management  personnel  and in attracting  and
retaining the personnel it requires for continued growth.

Management of Growth.  Although the Company  streamlined  its operations  during
1998,  the  Company's  long-term  success  will depend in part on its ability to
manage growth. If the Company is unable to hire a sufficient number of employees
with the appropriate  levels of experience to effectively manage its growth, the
Company's  business,  financial  condition  and results of  operations  could be
materially and adversely affected.

Possible  Volatility of Stock Price;  Decreased  Liquidity.  The Company's 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 the Company's  Common Stock in any given period.  Additionally,
the  Company  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,
which could result in an even more  immediate and adverse  effect on the trading
of the Company's Common Stock.

Liquidity if cash  generated  from  operations  is  insufficient  to satisfy the
Company's liquidity requirements, the Company may seek to sell additional equity
or convertible debt securities or obtain additional credit facilities.  However,
no assurance can be given that any such additional  sources of financing will be
available  on  acceptable  terms or at all.  The sale of  additional  equity  or
convertible debt securities could result in additional dilution to the Company's
stockholders.



                                       11
<PAGE>


ITEM 2. PROPERTIES.

The Company leases  approximately 10,000 square feet of space in McLean, Va. for
its corporate  offices and the  operations  of some business  units at a monthly
rental rate of $16,010. The Company also leases office space in Reston, Va., New
York City,  Central  and  Western  New  Jersey,  Raleigh  and  Charlotte,  North
Carolina,  Atlanta,  Georgia,  Tampa, Florida, and Edmond,  Oklahoma to serve as
operating offices of its businesses. These leases expire on different dates from
May 2000 to January 2006

Prior  to the  Netplex/CompLink  Merger  of June  1996,  the  Company's  primary
operating facility and corporate  headquarters was located in Great Neck, NY. As
a result  of the  Merger  the  Company's  corporate  offices  moved  from  these
facilities to McLean, VA. The Company settled the remaining obligation under the
Great Neck office lease in March 1997 for approximately $320,000.

The  Company  believes  that the  space in its  existing  corporate  and  branch
facilities  should be adequate for the foreseeable  future to support the growth
of its  existing  operations  in the  geographic  areas in  which  it  currently
operates.  The  Company  expects to expand its  operations  into new  geographic
regions  in the  future  and will need to lease  additional  branch  offices  to
support operations in those regions.


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 TDS and the  Company,  alleging
copyright  infringement  and breach of the  Company's  agreement.  The Complaint
claims  damages in excess of  $300,000  plus  punitive  damages.  The  agreement
included  a  licensing  fee  payable to the  Company by DSA on revenue  from the
licensing by DSA of software purchased under the agreement. The licensing fee is
payable for the three years  following  the  effective  date of the agreement at
12%, 10% and 5%, respectively. The Company has received no significant licensing
fees.  The case is currently in  discovery.  In the opinion of  Management,  the
lawsuit has little merit, and the outcome of the pending lawsuit will not have a
material adverse effect on the Company's financial  condition,  liquidity or the
results of  operations.  The Company  intends to vigorously  defend  against the
lawsuit.

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.

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 holders of the Company's Common Stock
during the fourth quarter of the Company's fiscal year ended December 31, 1998.




                                       12
<PAGE>


                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The  Common  Stock of the  Company  is  traded  on the  NASDAQ  SmallCap  market
("NASDAQ") and on the Boston Stock Exchange.

In 1998,  NASDAQ enacted new requirements for continued  listing on NASDAQ.  The
Company  complies  with  the  NASDAQ  requirements.  However,  there  can  be no
assurance that the Company will continue to meet the applicable requirements for
continued listing.

The  failure to meet the  maintenance  criteria  in the future may result in the
Common Stock no longer being  eligible for  quotation on NASDAQ and trading,  if
any,  of the Common  Stock  would  thereafter  be  conducted  in the  non-NASDAQ
over-the-counter  market. As a result of such delisting of the Common Stock from
NASDAQ,  it may be more  difficult  for  investors  to dispose  of, or to obtain
accurate quotations as to the market value of, the Common Stock.

The  regulations  of  the  Securities  and  Exchange  Commission  ("Commission")
promulgated  under the  Securities  Exchange Act of 1934, as amended  ("Exchange
Act"),  require additional  disclosure  relating to the market for penny stocks.
Commission  regulations  generally define a penny stock to be an equity security
that has a market  price of less  than  $5.00  per  share,  subject  to  certain
exceptions.  A  disclosure  schedule  explaining  the penny stock market and the
risks  associated  therewith  is required  to be  delivered  to a purchaser  and
various sales practice requirements are imposed on broker-dealers who sell penny
stocks to persons  other than  established  customers and  accredited  investors
(generally  institutions).  In  addition,  the  broker-dealer  must  provide the
customer  with  current  bid and  offer  quotations  for the  penny  stock,  the
compensation  of the  broker-dealer  and its  salesperson in the transaction and
monthly account  statements showing the market value of each penny stock held in
the  customer's  account.  If the  Company's  securities  become  subject to the
regulations  applicable to penny stocks (i.e., by NASDAQ delisting),  the market
liquidity for the Company's  securities could be severely  affected.  In such an
event, the regulations on penny stocks could limit the ability of broker-dealers
to sell the  Company's  securities  and thus the  ability of  purchasers  of the
Company's  securities to sell their securities in the secondary  market.  In the
absence of an active trading market,  holders of the Common Stock may experience
substantial difficulty in selling their securities.

Price Range of Common Stock

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

Fiscal 1997                                                     High        Low
-----------                                                     ----        ---
1st Quarter (Boston Stock Exchange) ......................      $3.25      $2.75
2nd Quarter (NASDAQ SmallCap Commencing April 20) ........       3.25       1.88
3rd Quarter ..............................................       3.13       1.50
4th Quarter ..............................................       2.94       0.75
Fiscal 1998
1st Quarter ..............................................      $1.72      $0.81
2nd Quarter ..............................................       1.81       1.25
3rd Quarter ..............................................       1.81       1.09
4th Quarter ..............................................       1.44        .88


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 March 20,  1999,  there were  approximately  185  holders of record of the
Company's  Common  Stock.  The Company  believes that at such date there were in
excess of 500 beneficial owners of the Company's Common Stock.

Recent Sales of Unregistered Securities

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


                                       13
<PAGE>


In June 1996, the Company, then known as CompLink, Ltd., issued 3,245,000 shares
of Common  Stock and options to  purchase  1,691,000  shares of Common  Stock in
connection  with its merger with  America's Work Exchange and The Netplex Group,
Inc. to the former  shareholders  of such  companies.  The options have a 5-year
term and are immediately exercisable.  This transaction was completed without an
underwriter and exemption from registration is claimed under Section 4(2) of the
Securities Act because it did not involve a public offering.

In July  1997,  the  Company  issued  80,000  shares  of  Common  Stock  and the
obligation to issue additional shares of Common Stock based on the closing price
of the  Common  Stock on  December  31,  1998 in  exchange  for the  outstanding
membership  interests of Onion Peel Solutions LLC. In February 1999, the Company
issued an  additional  297,396  shares of Common Stock based on the December 31,
1998 closing price.  This  transaction was completed  without an underwriter and
exemption from  registration is claimed under Section 4(2) of the Securities Act
because it did not involve a public offering.

In February  1998 the Company sold 80,000 shares of Common Stock and warrants to
purchase  100,000  shares of Common Stock at a price of $1.20 per share,  for an
aggregate  of  $100,000.  The  warrants  have a 5-year term and are  immediately
exercisable. This transaction was completed without an underwriter and exemption
from registration is claimed under Section 4(2) of the Securities Act because it
did not involve a public offering.

In March 1998, the Company sold  1,457,000  shares of Common Stock at a price of
$1.00 per share for an aggregate of $1,457,000 to certain  accredited  investors
and  employees of the Company.  These shares  carry  registration  rights.  This
transaction was completed without an underwriter and exemption from registration
is claimed under Section 4(2) of the Securities Act because it did not involve a
public offering.

In April 1998, the Company sold 1,500 units at a price of $1,000 per unit for an
aggregate of $1.5 million to certain accredited investors. Each unit consists of
a warrant  to  purchase  the  number of shares of Common  Stock  equal to $1,000
divided by an adjustable  exercise price and an additional warrant to acquire 52
shares of Common Stock at a price equal to the adjustable  exercise  price.  The
warrants have a 5-year term and are immediately exercisable. The Company paid an
aggregate  placement fee and  non-accountable  expense allowance of $284,500 and
also granted the placement  agent a warrant to purchase  39,000 shares of Common
Stock at a price of $1.47.  The warrants have a 10-year term and are immediately
exercisable. The placement agent for this transaction was The Zanett Corporation
and exemption from  registration is claimed under Section 4(2) of the Securities
Act because it did not involve a public offering.

In April 1998,  the Company  sold  100,000  shares of Common Stock at a price of
$1.50 per share for an  aggregate of $150,000 to certain  accredited  investors.
These shares carry registration  rights.  This transaction was completed without
an underwriter and exemption from  registration is claimed under Section 4(2) of
the Securities Act because it did not involve a public offering.

In April 1998,  the Company  sold  35,000  shares of Common  Stock at a price of
$1.375 per share for an  aggregate of $48,125 to certain  accredited  investors.
These shares carry registration  rights.  This transaction was completed without
an underwriter and exemption from  registration is claimed under Section 4(2) of
the Securities Act because it did not involve a public offering.

In June 1998, the Company,  in addition to other  consideration,  issued 450,000
shares of Common Stock in exchange for all of the outstanding  equity securities
of Automated  Business  Systems of North  Carolina,  Inc. and Kellar  Technology
Group, Inc.  (collectively "ABS") to the former shareholders of ABS. The Company
also agreed to issue additional shares of Common Stock through December 31, 2000
if ABS meets certain operating  targets.  This transaction was completed without
an underwriter and exemption from  registration is claimed under Section 4(2) of
the Securities Act because it did not involve a public offering.

In August 1998,  the Company  sold 451,000  shares of Common Stock at a price of
$1.3125 per share for an aggregate of $592,000 to certain accredited  investors.
These shares carry registration  rights.  This transaction was completed without
an underwriter and exemption from  registration is claimed under Section 4(2) of
the Securities Act because it did not involve a public offering.

In  September  1998,  the Company sold 1,700 units at a price of $1,000 per unit
and warrants to purchase  141,667 shares of Common Stock at an exercise price of
$1.3938  per  share for an  aggregate  of $1.5  million  to  certain  accredited
investors.  Each unit  consists of a warrant to purchase the number of shares of
Common Stock computed by dividing $1,700,000 by 125% of the fixed exercise price
of $1.3938, with respect to any exercise within the first year, and the lower of
the fixed exercise price and a variable exercise price (subject to a floor price
of $1.00),  with


                                       14
<PAGE>


respect to any exercise  after the first year.  The warrants have a 10-year term
and are immediately exercisable.  The Company paid an aggregate placement fee of
$175,000 and issued the  placement  agent  50,000  shares of Common  Stock.  The
placement  agent for this  transaction  was Zanett  Securities  Corporation  and
exemption from  registration is claimed under Section 4(2) of the Securities Act
because it did not involve a public offering.

In  September  1998,  the  Company  sold  1,500,000  shares  of  Class  C,  9.9%
Convertible  Preferred  Stock at a price of $1,000  per share  and  warrants  to
purchase up to 600,000 shares of Common Stock (under certain  circumstances) for
a price of $1.375  per share  for an  aggregate  of $1.5  million  to  Waterside
Capital.  The Class C  Preferred  Stock  bears a dividend  rate of 9.99% for the
first year, and 15%  thereafter.  The Preferred Stock is convertible at any time
after the  earlier of a change in control of the  Company or five years from the
date of  issuance  and is  redeemable  at the option of the  Company at any time
within the first five  years..  The  number of shares  into which the  Preferred
Stock is convertible is equal to $1,500,000 (plus accrued but unpaid  dividends)
divided  by 25%  of  the  20 day  average  trading  price  of the  Common  Stock
immediately  prior to  conversion.  The  warrants  issued  entitle the holder to
acquire  150,000 shares of Common Stock at $1.375 per share.  The Company may be
required to issue up to an additional  450,000  shares of Common Stock under the
warrants,  depending  upon the  term in which  the  Class C  Preferred  Stock is
outstanding.  The warrants have a 10-year term and are immediately  exercisable.
The Company paid an aggregate placement fee of $175,000 and issued the placement
agent  warrants to purchase  125,000  shares of Common Stock at $1.59 per share.
The warrants have a 5-year term and are immediately  exercisable.  The placement
agent  for  this  transaction  was  Ferris  Baker &  Watts  and  exemption  from
registration  is claimed under Section 4(2) of the Securities Act because it did
not involve a public offering.

In October 1998, the Company issued 643,770 shares of Class B Preferred Stock to
Applied  Intelligence  Group,  Inc.  in  connection  with the  purchase  of such
company's  information  technology  consulting  business.  Each share of Class B
Preferred  Stock is immediately  convertible  into one share of Common Stock. No
dividends are payable on Class B Preferred Stock. The Company also agreed to pay
AIG additional  consideration if the information  technology consulting business
meets certain operating targets. Such additional  consideration would include up
to  643,770  shares of Class B  Preferred  Stock if the  information  technology
consulting  business  achieves  approximately $9 million in net profits over the
next 9 quarters.  This  transaction  was completed  without an  underwriter  and
exemption from  registration is claimed under Section 4(2) of the Securities Act
because it did not involve a public offering.


                                       15
<PAGE>


ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
Year ended December 31
                                                              1998            1997            1996            1995            1994
                                                            --------        --------        --------        --------        --------
                                                                       (dollar amounts in thousands, except per share data)
<S>                                                         <C>             <C>             <C>             <C>             <C>     
Revenues                                                    $ 61,279        $ 40,468        $ 33,525        $ 26,782        $ 18,643
Cost of revenue                                               49,315          35,416          30,878          23,513          16,873
                                                            --------        --------        --------        --------        --------
Gross profit                                                  11,964           5,052           2,647           3,269           1,770
Expenses:
    Selling, general and administrative                       13,949           7,899           5,206           3,466           1,686
    Restructuring costs                                          160            --              --              --              --
    Acquired in-process technology                               250            --              --              --              --
                                                            --------        --------        --------        --------        --------
Operating loss                                                (2,395)         (2,873)         (2,559)           (197)             84
Other income (expense):
    Interest income (expense), net                              (154)            (26)             33               5               8
    Other income                                                --              --                 5              23              24
                                                            --------        --------        --------        --------        --------
Loss from continuing operations before
    income taxes                                              (2,549)         (2,873)         (2,521)           (169)            116
Income tax (benefit) provision                                  --                --             (34)             (4)             49
                                                            --------        --------        --------        --------        --------
    Loss from continuing operations                           (2,549)         (2,873)         (2,487)           (165)             67
Discontinued operations:                                        --   
   Loss from operations of discontinued
        business                                                --              --            (1,332)           --              --
    Net gain from disposal                                      --              --             1,820            --              --
                                                            --------        --------        --------        --------        --------
Income from discontinued operations                             --              --               488            --              --
Net income (loss)                                           $ (2,549)       $ (2,873)       $ (1,999)       $   (165)       $     67
                                                            ========        ========        ========        ========        ========

Basic and diluted earnings (loss) per
    common share
    Continuing operations                                   $  (0.31)       $  (0.46)          (0.51)          (0.05)           0.02
    Discontinued operations                                     --              --              0.09            --              --
                                                            --------        --------        --------        --------        --------
        Total                                               $  (0.31)       $  (0.46)       $  (0.42)       $  (0.05)       $   0.02
                                                            ========        ========        ========        ========        ========
    Weighted  average common shares
        outstanding, basic and diluted                         9,260           6,821           5,026           3,246           3,685
                                                            ========        ========        ========        ========        ========
At year-end
    Total assets                                            $ 20,651        $  6,912        $  9,889        $  7,799        $  2,592
                                                            ========        ========        ========        ========        ========
    Stockholders' equity                                    $  6,355        $  1,331        $  3,239        $    409        $    266
                                                            ========        ========        ========        ========        ========
</TABLE>


                                       16
<PAGE>


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

OVERVIEW

Based in Reston,  Virginia with twelve  offices,  eleven offices  throughout the
eastern  U.S and one office in  Oklahoma  City,  OK, The  Netplex  Group,  Inc.,
together with its wholly owned subsidiaries ("the Company" or "Netplex"),  is an
Information Technology (IT) and electronic business  ("e-business") services and
solutions provider.

The Company's  operations  have been  concentrated  on providing IT services and
solutions to U.S.-based commercial organizations since the beginning of 1994.

In July 1997,  the  Company  acquired  all  membership  interests  of Onion Peel
Solutions,  L.L.C.  ("Onion  Peel") to broaden its customer  base and expand the
fulfillment capacity of its Enterprise Systems Management service offerings.

In January 1998, the Company  acquired all  outstanding  stock of The PSS Group,
Inc.  ("PSS")  to  expand  its  staffing   organization  in  the  Washington  DC
metropolitan area and to broaden its customer base.

In June 1998, the Company  acquired  Automated  Business  Systems  ("ABS") which
expands the geographic  reach of the Company's  business to the  Charlotte,  NC;
Spartanburg, SC, and Atlanta, GA markets and broadens its customer base.

In  September  1998,  the  Company   acquired  certain  assets  of  the  Applied
Intelligence  Group ("AIG") which expands the Specialized  Practice Group adding
information  technology  consulting  expertise  in the retail  and  distribution
industry and expands the Company's geographic reach into the southwest.

The Company's IT and e-business services, including the above acquisitions, fall
into one of the following categories:

Specialized Practice Groups:  Deliver highly specialized  solutions and services
that build,  manage and protect customer's  information systems and the networks
upon  which  they  run.   These   solutions  and  services  are  generally  firm
deliverables that can be provided anywhere in the world by Specialized  Practice
Groups,  generally  delivered  on a  "proposed  estimate"  or "fixed fee" basis.
Netplex may re-sell and implement  "best in class"  technology  products,  under
certification with several leading technology  manufacturers in conjunction with
the solutions and services.

Regional Operations: Two business lines that deliver the following solutions and
services focused to specific geographic regions:

     Systems  Integration:  Deliver  network  systems  integration  and  product
procurement  services  delivered  to a  wide  variety  of  businesses  within  a
geographic  region.  These  solutions and services  provide  customers with firm
deliverables that are generally delivered on a "proposed estimate" or "fixed fee
basis".  Netplex may re-sell and implement `best in class"  technology  products
under certification with several leading technology manufacturers in conjunction
with the solutions and services.

     Technical  Consulting  Services:   provides  regionally  focused  services,
drawing on a growing database of approximately  40,000 talented IT professionals
to  provide  both  short-term  and  long-term  technical   consulting  services.
Consulting  rates vary based on the skills  and  experience  of the  consultants
requested by the customer.

Contractor   Resources:   Provides   "back   office"   services   such   as  tax
administration,  invoicing  and invoice  tracking,  expense  reimbursements  and
benefits  administration  to contract  IT  professionals.  These  "back  office"
services  are  targeted  at   independent-minded   IT   professionals   who  are
entrepreneurial and accustomed to the variability of contract assignments.

The results of operations  for PSS, ABS, and AIG are included in the  statements
for  operations  for the year ended December 31, 1998 beginning on the effective
date of their  acquisitions  January 1, 1998,  June 30, 1998,  and  September 1,
1998, respectively.


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<PAGE>


The  following  table  sets  forth the  revenue,  gross  profit,  business  unit
expenses,  and business unit income of each of the business  areas for the years
ended December 31, 1998, 1997, and 1996.

Consolidated Operating Results by Business Segment
Amounts in 000's
                                                 Year Ended December 31,
                                          ------------------------------------
                                            1998          1997          1996
                                          --------      --------      --------
Revenues
  Specialized Practice Groups             $  8,385      $  3,229      $  3,358
  Regional Operations                       18,013         5,191         3,725
  Contractors Resources                     34,881        32,048        26,442
                                          --------      --------      --------
    Revenues                                61,279        40,468        33,525
                                          --------      --------      --------

Gross profit
  Specialized Practice Groups                4,830         2,062           836
  Regional Operations                        5,802         1,894           676
  Contractors Resources                      1,332         1,096         1,135
                                          --------      --------      --------
    Gross profit                            11,964         5,052         2,647
                                          --------      --------      --------

Gross profit percentage
  Specialized Practice Groups                 57.6%         63.9%         24.9%
  Regional Operations                         32.2%         36.5%         18.1%
  Contractors Resources                        3.8%          3.4%          4.3%
                                          --------      --------      --------
    Gross profit percentage                   19.5%         12.5%          7.9%
                                          --------      --------      --------

Business unit expenses
  Specialized Practice Groups                4,584         2,497           657
  Regional Operations                        4,471         2,289         1,428
  Contractors Resources                      1,165         1,169         1,081
                                          --------      --------      --------
    Business unit expenses                  10,220         5,955         3,166
                                          --------      --------      --------

Business unit income (loss)
  Specialized Practice Groups                  246          (435)          179
  Regional Operations                        1,331          (395)         (752)
  Contractors Resources                        167           (73)           54
                                          --------      --------      --------
    Business unit income (loss)              1,744          (903)         (519)
                                          --------      --------      --------

Corporate expenses                           2,514         1,480         1,733
Inventory write-off                            131          --            --
Restructuring Costs                            160          --            --
Acquired in process technology                 250          --            --
                                          --------      --------      --------
  Total corporate and other costs            3,055         1,480         1,733
                                          --------      --------      --------

EBITDA                                      (1,311)       (2,382)       (2,253)

Interest, taxes, depreciation
  and amortization                           1,238           491           235
                                          --------      --------      --------

Loss from continuing operations           $ (2,549)     $ (2,873)     $ (2,487)
                                          ========      ========      ========



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<PAGE>


RESULTS OF OPERATIONS

1998 Compared to 1997

Revenue for the year ended  December  31,  1998  increased  approximately  $20.8
million or 51% to approximately $61.3 million, compared to $40.5 million for the
same period in 1997. This increase  includes a $12.8 million or 247% increase in
Regional  Operations  revenue,  a $5.2 million or 160%  increase in  Specialized
Practice  Groups  revenue,  and a $2.8  million or 9%  increase  in  Contractors
Resources revenue.

The  revenue  growth in 1998  includes  $13.5  million  of  revenue  contributed
collectively  by PSS ABS, and AIG acquired by the Company in January 1998,  June
1998,  and  September  1998,  respectively,  and $7.3  million or 18% in revenue
growth of the businesses owned as of December 31, 1997 ("organic  growth").  The
organic  revenue  growth in 1998  includes  increased  in  Regional  Operations,
Specialized Practice Groups, and Contractors  Resources revenues of $2.8 million
(56%),  $1.6 million  (33%),  and $2.9 million (9%),  respectively.  The organic
revenue growth in the Regional Operations and Specialized Practice Groups is due
primarily  to  increased  sales volume in 1998 as compared to the same period of
1997. The growth in Contractors  Resources  revenues is to due to an increase in
the number of contractor members increasing sales volume and increased rates for
services.

Gross Profit for the year ended December 31, 1998 increased  approximately  $6.9
million or 137% to approximately $12.0 million as compared to approximately $5.1
million for the same period of 1997.  This increase  includes an increased gross
profit in Regional  Operations  of $3.9 million or 206%, a $ 2.8 million or 134%
increase  in  Specialized  Practice  Groups and a $ 236,000 or 22%  increase  in
Contractors Resources gross profit.

The gross  profit  growth  includes  $5.2  million of gross  profit  contributed
collectively  by PSS,  ABS, and AIG  acquired in January  1998,  June 1998,  and
September 1998, respectively,  and a $1.7 million increase in gross profits from
businesses  owned as of December  31,  1997.  The growth in gross profit for the
businesses owned as of December 31, 1997 includes a $1.5 million increase or 37%
in Regional  Operations  and  Specialized  Practice  Groups  gross  profit and a
$236,000 increase in Contractors Resources gross profits.

Gross  profit  margins  increased  to  approximately  19.5%  for the year  ended
December  31, 1998 from 12.5% in the same period of 1997.  Specialized  Practice
Groups  gross  profit  margins  decreased  from  63.9% in 1997 to 57.6% in 1998.
Regional  Operations gross profit margins  decreased from 36.5% in 1997 to 32.2%
in 1998.  Contractors Resources gross profit margins increased from 3.4% in 1997
to 3.8% in 1998. The Gross profit margin for PSS, ABS, and AIG was 39%.

The decrease in  Specialized  Practice  Groups gross profit margins is primarily
due to the  higher  product  content  in the  1998  revenues  than in  1997  and
increased systems implementation consulting revenue. Product revenue and systems
implementation  consulting  revenue  commands a lower gross  profit  margin than
custom software development, high end consulting and system design work revenue,
which  did  not  grow  as  rapidly  as the  product  or  systems  implementation
consulting revenue in 1998. The Regional Operations gross profit margin decrease
is due to  higher  growth  in  Technical  Consulting  Services  than in  Systems
Integration.  Technical  Consulting Services command a lower gross profit margin
than Systems  Integration  work. The  acquisition of PSS in January 1998 and the
opening of a Tampa office in April 1998 fueled the Technical Consulting Services
growth.  Contractors  Resources  achieved higher gross profit margins  primarily
through increased service fees to its members.

Business  unit  expenses  for  the  year  ended   December  31,  1998  increased
approximately   $4.3  million  or  72%  to  approximately   $10.2  million  from
approximately  $5.9 million for the same period of 1997. This increase  includes
increases in Regional  Operations and Specialized  Practice Groups business unit
expenses  of  approximately   $2.2  million  and  $2.1  million,   respectively.
Contractors  Resources business unit expenses increased by $19,000. The increase
in business unit expenses was primarily due to the acquisitions of PSS, ABS, and
AIG that collectively increased business unit expenses in 1998 by $4.3 million.

Business unit income for the year was approximately  $1.7 million as compared to
a business unit loss of $903,000 for the same period of 1997, an  improvement of
approximately $2.6 million. This improvement includes increases in business unit
profits from Regional  Operations,  Specialized Practice Groups, and Contractors
Resources of $1.7 million, $681,000, and $217,000,  respectively.  Business unit
income for PSS, ABS, and AIG accounted for $923,000 of this improvement.

Corporate  expense for the year ended December 31, 1998 increased  approximately
$1.0  million or 67% to  approximately  $2.5  million  from  approximately  $1.5
million  in the same  period  of 1997.  This  increase  reflects  an


                                       19
<PAGE>


additional investment in corporate development  capability to support the growth
of operations and the integration of acquisitions.

Restructuring  costs of $160,000  were  recorded in the year ended  December 31,
1998  related  to  the  reduction  of  duplicate  costs  and   consolidation  of
facilities.  Acquired  in-process  technology  of  $250,000  from the  Company's
acquisition  of AIG was  written-off  in the 1998.  The  Company  also wrote off
$131,000 of certain software items in its inventory that became obsolete.

Earnings  before  interest,   income  taxes,   depreciation,   and  amortization
("EBITDA") for the year ended December 31, 1998 was a loss of approximately $1.3
million as compared to a loss of approximately  $2.4 million for the same period
of 1997,  an  improvement  in EBITDA of $1.1  million.  The  components  of this
improvement are discussed above.

Depreciation, amortization, and interest expense for the year ended December 31,
1998  increased  approximately  $747,000  to  approximately  $1.2  million  from
approximately $491,000 for the same period of 1997. This increase is principally
due to increased  amortization  and  depreciation  from the acquisitions of PSS,
ABS,  and AIG and  increased  borrowings  under  the  Company's  line of  credit
facility to support growth for the year ended December 31, 1998.

Due to the  generation  of net losses,  no provision or benefit for income taxes
was required for either the year ended December 31, 1998 or 1997.

The net loss decreased approximately $325,000 to approximately $2.5 million from
approximately  $2.9 million in the same period of 1997.  The  components of this
improvement are discussed above.

1997 Compared to 1996

Revenue  for the year ended  December  31,  1997  increased  approximately  $6.9
million or 21% to approximately  $40.5 million, as compared to $33.5 million for
the same period of 1996.  This increase  includes a $5.6 million or 21% increase
in  Contractors  Resources  revenue,  $1.5  million or 39%  increase in Regional
Operations  revenue,  partially  offset by a  decrease  of  $129,000  (or 4%) in
Specialized Practice Groups revenue.

The revenue growth in Contractors Resources is principally due to an increase in
the number of contractor  members working  through  Contractors  resources.  The
revenue growth in Regional Operations was generated by increased sales volume of
the Technical Consulting Services (formerly IT staffing).  The $129,000 decrease
in Specialized  Practice Groups includes a $1.1 million decrease in revenue from
Specialized Practice Groups owned by the Company at December 31, 1996, offset in
part by a $1.0 million  increase in revenue  generated  by Onion Peel  Solutions
which was  acquired by the Company in July 1997.  The $1.1  million  decrease in
revenues from Specialized Practice Groups owned by the Company in 1996 is due to
a decline in computer  product  resales volume in 1997 when compared to the same
period of 1996.

Gross Profit for the year ended December 31, 1997 increased  approximately  $2.4
million or 91% to approximately  $5.1 million as compared to approximately  $2.6
million for the same period of 1996. This increase  includes an increase of $1.2
million or 147% in Specialized  Practice Groups gross profit, and an increase of
$1.2 million or 180% increase in Regional  Operations gross profit,  offset by a
$39,000 or 3% decrease in  Contractors  Resources  gross  profit.  The increased
Specialized  Practice Groups gross profit, which includes a $500,000 increase in
gross profit  generated by  Specialized  Practice  Groups that were owned by the
Company at December 31,  1996,  is due to a shift in the revenue mix to a higher
proportion  of pure  services  revenue  than in the same  period  of  1996.  The
increased  Specialized Practice Groups gross profits also include  approximately
$700,000 in gross  profits  generated by Onion Peel,  which was acquired in July
1997. The increase in Regional  Operations  Gross profits is due  principally to
the revenue growth from the Technical Consulting Services Group. The decrease in
the Contractors  Resources gross profit is due primarily to discounting  service
rates to increase the number of contractor members and increase revenue volume.

Gross  Profit  margin  increased  to  approximately  12.51%  for the year  ended
December  31,  1997,  from  approximately  7.9 % for the  same  period  of 1996.
Specialized Practice Groups gross profit margins increased from 24.9% in 1996 to
63.9% in 1997.  Regional Operations gross profit margins increased from 18.1% in
1996 to 36.5% in 1997.  Contractors  Resources  gross  profit  margins  declined
slightly, from 4.3% in 1996 to 3.4% in 1997.

The Specialized  Practice Groups gross profit growth in 1997 is due to the shift
to a higher  proportion of pure services  revenue  generated by the  Specialized
Practice  Groups that the Company  operated at  December  31,  1996.  


                                       20
<PAGE>


Onion  Peel  (acquired  in  July  1997)  contributed  gross  profit  margins  of
approximately  80% on revenues it produced during 1997. The increase in Regional
Operations  gross  profit  margin is  primarily  due to the growth in  Technical
Services Group revenue.

Business  unit  expenses  for  the  year  ended   December  31,  1997  increased
approximately   $2.8  million  or  87%  to   approximately   $5.9  million  from
approximately  $3.1 million for the same period of 1996. This increase  includes
increases in Specialized Practice Groups,  Regional Operations,  and Contractors
Resources  business unit expenses of approximately $1.8 million,  $861,000,  and
$88,000, respectively. The increase in Specialized Practice Groups business unit
expenses of $1.8 million is principally  due to expansion of the sales force and
the  hiring of  additional  practice  management  technical  staff  and  related
training  expenditures  to pursue and prepare for prospective  engagements.  The
Specialized  Practice  Groups  increase also includes  $420,000 of business unit
expenses  for Onion  Peel  (acquired  in July  1997).  The  Regional  Operations
business unit expense  increase is principally due to the expansion of the sales
and  recruiting  forces in the  Technical  Consulting  Group.  The  increase  in
business  unit  expenses for  Contractors  Resources is  principally  due to the
expansion of its administrative workforce.

The  business  unit  income for the year ended  December  31, 1997 was a loss of
approximately  $903,000  as  compared  to an  operating  business  unit  loss of
$519,000  for the same  period of 1996,  an  increased  loss of  $361,000.  This
increase  includes  increased  business  unit losses from  Specialized  Practice
Groups  and  Contractors  Resources  of  $213,000  and  $104,000,  respectively,
partially  offset by a reduction in business  unit loss of $357,000 for Regional
Operations. Onion Peel contributed $489,000 of business unit income in 1997.

Corporate  expense for the year ended December 31, 1997 decreased  approximately
$231,000 or 13% to approximately  $1.5 million from  approximately  $1.7 million
when  compared  to the same  period of 1997.  This  decrease  resulted  from the
Company's  reduction of duplicate  corporate and central support  infrastructure
and related  professional  fees that occurred  after the merger with CompLink in
June 1996.

Earnings  before  interest,   income  taxes,   depreciation,   and  amortization
("EBITDA")  for year  ended  December  31,  1997 was a loss of $2.4  million  as
compared to a loss of approximately $2.3 million for the same period of 1997, an
additional  loss of  approximately  $100,000.  The components of this additional
loss are discussed above.

Depreciation, amortization, and interest expense for the year ended December 31,
1997   increased   approximately   $256,000  to   approximately   $491,000  from
approximately $235,000 for the same period of 1997. This increase is principally
due to increased  borrowings  under the Company's line of credit facility during
the year ended  December 31, 1997 as compared to the same period of 1996, and to
the  increased  depreciation  and  amortization  from  assets  acquired  in  the
acquisition of Onion Peel.

The  loss  from  continuing  operations  increased   approximately  $386,000  to
approximately  $2.9  million  compared  to loss from  continuing  operations  of
approximately  $2.5 million in the same period of 1996.  The  components  of the
increased loss are discussed above,

As a result of the net loss from  continuing  operations no provision or benefit
for income taxes was required for the year ended December 31, 1997. In 1996, the
Company  recorded a $34,000  income tax benefit  generated  from a change in the
deferred tax asset valuation allowance.

Income from discontinued  operations of approximately  $488,000 in 1996 resulted
from the Company's  discontinuance of its software  development and distribution
business.  This  income  includes a gain from the  disposal  of the  business of
approximately  $1.8 million  resulting  primarily from the sale of the Worldlink
product  technology to XcelleNet,  Inc., offset by losses of approximately  $1.3
million from the operations of this business from the date of acquisition in the
merger with CompLink (June 1, 1996 for accounting purposes) through the disposal
date.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1998, the Company had cash and cash equivalents of $870,465. The
Company had $4,041,000 outstanding on its line of credit facilities and had long
term capital lease obligations of $57,901.

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

For the year ended  December 31, 1998 the Company's  cash increased by $518,000.
This increase is comprised of cash used in operating activities of approximately
$4,655,000,  cash used in investing  activities of approximately  $3,722,000 and
cash provided by financing activities of approximately $8,894,000.


                                       21
<PAGE>


As of December 31, 1998, the Company maintains a line of credit with a bank that
allows  the  Company  to borrow  the  lesser of  $6,000,000  or 80% of  eligible
accounts receivable. Advances against this line of credit bear interest at 0.75%
over the bank's prime rate and require the Company to maintain certain financial
covenants.  The Company was not in  compliance  with certain  covenants  and has
obtained  a waiver  from the bank as of  December  31,  1998.  The  Company  had
borrowings of $4,041,000 under the line of credit as of December 31, 1998. As of
April 5, 1999 the Company had net  availability  of  $1,846,000  under the line.
This line of credit expires on July 1, 2000.

The Company also had a line of credit  facility  with a bank that it acquired in
the PSS acquisition (the "PSS line of credit"). The Company retired the PSS line
of credit in April  1998 and  repaid the  outstanding  balance of  approximately
$803,000.

In January 1998, the Company  completed the purchase of all of the stock of PSS.
In June 1998 the  Company  completed  the  purchase  of all of the stock of ABS.
Effective  September  1, 1998 the Company  acquired  certain  assets of AIG. See
additional  discussion  of the  PSS,  ABS,  and AIG  acquisitions  in Note  1(1)
-Acquisitions.

Capital  expenditures  for the year ended  December 31, 1998 were  approximately
$448,000.  Cash  paid in the  acquisitions  of ABS,  AIG,  and PSS;  net of cash
acquired totaled approximately $3,339,000.

Between January 1, 1998 and December 31, 1998, the Company has raised additional
equity totaling $6,347,000, as follows:

In February 1998 the Company raised  $100,000  through the sale of 80,000 shares
of un-registered  Common Stock plus a warrant to purchase an additional  100,000
shares at $1.20.

In March 1998 the Company raised  $1,457,000 of financing in a Private placement
with  accredited  investors  and  employees of the Company.  The Company  issued
shares of  un-registered  Common Stock to purchasers who have agreed not to sell
or otherwise  distribute their shares for a period of one year. These restricted
shares carry registration  rights and were offered at $1.00 per share. The funds
will be used to finance operations and additional acquisitions.

On  April 7,  1998  Netplex  completed  the  sale of  1,500  units of a  Private
placement,  totaling  $1.5  million  ($1.3  million net of  expenses).  The sale
represents  the first half of a  transaction  that could  include the sale of an
additional  1,500  units  for $1.5  million  at a future  date,  subject  to the
satisfaction of certain conditions.  See additional discussion in Note 3- Equity
Financings.

On April 26,  1998,  the  Company  raised  $150,000  of  financing  in a private
placement with accredited investors. The Company issued non-registered shares of
Common Stock to purchasers  who have agreed not to sell or otherwise  distribute
their  shares  for  a  period  of  one  year.  These  restricted   shares  carry
registration  rights and were offered at $1.50 per share. 

On April  27,  1998,  the  Company  raised  $48,125  of  financing  in a private
placement with accredited investors. The Company issued non-registered shares of
Common Stock to purchasers  who have agreed not to sell or otherwise  distribute
their  shares  for  a  period  of  one  year.  These  restricted   shares  carry
registration rights and were offered at $1.375 per share.

On August 28,  1998,  the  Company  raised  $592,000 of  financing  in a private
placement with accredited  investors.  The Company issued non -registered shares
of  Common  Stock  to  purchasers  who  have  agreed  not to sell  or  otherwise
distribute their shares for a period of one year. These restricted  shares carry
registration rights and were offered at $1.3125 per share.

On  September  28,  1998,  the  Company  completed  the sale of 1,700 units of a
Private  placement,  totaling $1.5 million  ($1.3 million net of expenses).  See
additional discussion in Note 3 - Equity Financings.

On September 30, 1998, the Company completed the sale of 1,500,000 shares of its
Class C, 9.9%  Preferred  Stock for $1.5 million  ($1.4 million net of expenses)
and  warrants to acquire up to 550,000  shares of common  stock based on certain
conditions. See additional discussion in Note 3 -Equity Financings.

Based on the Company's  current  operating  plan, the Company  believes that the
cash generated from operating activities, coupled with borrowings on its line of
credit  facility  which  was  expanded  from $2.0  million  to $6.0  million  in
September  1998,  will be sufficient to meet the  anticipated  needs for working
capital and capital expenditure for at least the next 12 months.  Thereafter, if
cash  generated  from  operations  is  insufficient  to  satisfy  the  Company's
liquidity needs, the Company may seek to obtain additional  capacity on its line
of  credit,   sell  convertible  


                                       22
<PAGE>


debt securities or sell additional equity securities. However, no assurances can
be  given  that  any  such  addition  financing  sources  will be  available  on
acceptable  terms  or at  all.  The  sale  of  convertible  debt  securities  or
additional  equity  securities  could  result  in  additional  dilution  to  the
Company's  stockholders.  The  Company  has no current  plans,  agreements,  and
commitments  and is not  engaged  in  any  negotiations  with  respect  to  such
transactions.

The proceeds of these equity  financings have been used to finance  acquisitions
and to provide additional corporate working capital.

YEAR 2000 COMPLIANCE

Many currently  installed  computer  systems and software  products are coded to
accept only  two-digit  entries in the date code  field.  These date code fields
will need to accept four- digit entries to  distinguish  21st century dates from
20th  century   dates.   This  problem  could  result  in  system   failures  or
miscalculations  causing  disruptions  of  business  operations.  As  a  result,
computer  systems and/or software used by many companies may need to be upgraded
to comply with such "Year 2000" requirements.  Significant uncertainty exists in
the software  industry  concerning the potential  effects  associated  with such
compliance.

The Company's vendors, customers,  suppliers, and service providers are under no
contractual  obligation  to  provide  Year  2000  information  to  the  Company.
Generally,  the Company  believes its key internal  software  systems are either
compliant,  the vendors  claim  compliance,  or the problems can be corrected by
purchasing  small  amounts of  hardware,  software or software  upgrades,  where
necessary.  The Company is also  continuing  its  assessment of the readiness of
external  entities,  such as  subcontractors,  suppliers,  vendors,  and service
providers that interface with the company.

Based on its assessments  and current  knowledge,  the Company  believes it will
not, as a result of the Year 2000 issue,  experience any material disruptions in
internal   processes,   information   processing   or  services   from   outside
relationships.  The Company presently believes that the Year 2000 issue will not
pose significant operational problems and the Company will be able to manage its
total Year 2000 transition  without any material effect on the Company's results
of operations or financial condition.  The most likely risks to the Company from
Year 2000 issues are external, due to the difficulty of validating all key third
parties'  readiness  for Year 2000.  The Company has sought and will continue to
seek  confirmation  of  such  compliance  and  seek  relationships,   which  are
compliant.

The Company currently anticipates that all of its internal systems and equipment
will be Year 2000  compliant  by the end of the second  quarter of 1999 and that
the  associated  costs will not have a material  adverse effect on the Company's
results of operations and financial condition.  However, the failure to properly
assess or timely  implement  a  material  Year 2000  problem  could  result in a
disruption in the Company's  normal  business  activities  or  operations.  Such
failures,  depending on the extent and nature,  could  materially  and adversely
effect the Company's  operations and financial  condition.  To date, the Company
has not developed a contingency plan.

The Company  does not believe  that the costs of its Year 2000 Program have been
or are material to its financial position or results of operations. All expenses
have been  charged  against  earnings  as incurred  and the  Company  intends to
continue to charge such costs against earnings as the costs are incurred.

The  Company  believes  that all of its  network  management  software  products
(America,  Productivity  Series,  Network Data Collector,  ROVE, and ROVE Motif)
will properly process/utilize dates beyond December 31, 1999.

The estimates and  conclusions  set forth herein  regarding Year 2000 compliance
contain  forward-looking  statements and are based on management's  estimates of
future  events  and  information  provided  by third  parties.  There  can be no
assurance  that  such  estimates  and  information  provided  will  prove  to be
accurate.  Risks to completing the Year 2000 project include the availability of
resources,  the Company's  ability to discover and correct  potential  Year 2000
problems  and the ability of  suppliers  and other third  parties to bring their
systems into Year 2000 compliance.


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  obligations  under its line of credit
are  short-term  in nature with an interest rate which  approximates  the market
rate.


                                       23
<PAGE>



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.

None.





                                       24
<PAGE>


                                    PART III

ITEM  10.  DIRECTORS,   EXECUTIVE  OFFICERS,   PROMOTERS  AND  CONTROL  PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

The  following  table  sets  forth the ages of the  Executive  Officers  and the
members of the Board of Directors and the  positions  they hold with The Netplex
Group, Inc., a New York Corporation (the "Company"):


     Name                   Age           Position
     ----                   ---           --------

Gene Zaino                  41      President,   Chief  Executive  Officer  and
                                    Chairman
Robert Skelton              37      Vice  President  -  Corporate  Development,
                                    General Counsel and Secretary
Walton E. Bell, III         57      Chief Financial Officer and Treasurer
Frank Lagattuta             55      Chief Operating Officer
Richard Goldstein (1) (2)   52      Director
Steven Hanau (1)            54      Director
J. Alan Lindauer            59      Director
Deborah Novick (2)          34      Director

(1)  Member of the Compensation Committee

(2)  Member of the Audit Committee

Gene Zaino has been a Director of the Company  since  August 1995 and became its
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 L.L.P.  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.

Robert Skelton  joined the Company as its Vice President of Human  Resources and
General  Counsel in September  1996 and became its  Secretary in November  1996.
From November 1990 to June 1996, Mr.  Skelton  served in similar  capacities for
Central Atlantic Toyota Distributors,  Inc., and Quality Port Processors,  Inc.,
subsidiaries  of Toyota Motor Sales,  USA. From July 1986 through  October 1990,
Mr. Skelton was an attorney with the law firm of Webster,  Chamberlain & Bean in
Washington  D.C. Mr. Skelton holds a Bachelors of Arts in Political  Science and
Modern  Language  from Union  College and a Juris Doctor from George  Washington
University. Mr. Skelton is an attorney and a member of the District of Columbia,
Maryland, and Virginia Bars.

Walton E.  Bell,  III joined  the  Company  in June 1998 as its Chief  Financial
Officer and became its Treasurer in August 1998. Prior thereto, he was the Chief
Financial Officer of Boat US from 1995 to 1998. Prior thereto,  Mr. Bell was the
Chief Financial  Officer of A.J.  Dwoskin & Associates,  Inc. from 1993 to 1995.
From  1987 to  1993,  Mr.  Bell  was  the  Chief  Executive  Officer  of  Sector
Technology, Inc. Mr. Bell also spent 22 years with Arthur Andersen (from 1966 to
1987)  achieving  partner  status and  establishing  a  microcomputer-consulting
group.  Mr. Bell holds a Bachelor of Science  Degree in Accounting  from Abilene
Christian College in Abilene, Texas, and is a Certified Public Accountant.

Frank  Lagattuta  was a director  of the  Company  from 1997 to 1999 and was its
Chief Operating  Officer in 1998 and 1999. Mr. Lagattuta served as the President
and Chief  Operating  Officer of  CompuLaw,  Ltd. of Los Angeles



                                       25
<PAGE>


from 1996 until June 1998. Prior thereto, he was the Vice President of Sales and
Marketing for Saft America,  Inc. from 1993 to 1996. Mr.  Lagattuta was the Vice
President of Sales and Marketing for BISS Sales,  Inc., from 1991 to 1993 and he
served as the  Executive  Vice  President  of Sales and  Marketing  for  Evernet
Systems,  Inc.,  from 1989 to 1991.  Mr.  Lagattuta also was employed in several
management  positions by Xerox  Corporation  from 1973 to 1989 and served as the
President of Xerox Computer  Services from 1987 to 1989. Mr.  Lagattuta  holds a
Bachelor of Science degree in Accounting  from Canisius  College and a Master of
Business  Administration  in  Finance  and  Accounting  from the  University  of
Southern  California.  Mr.  Lagattuta  declined to stand for  re-election to the
Board and has therefore resigned as Vice President,  Chief Operating Officer and
director of the Company.  Mr. Lagattuta  continues to be employed by the Company
and is directing the Company's Technical Consulting Services operations.

Deborah  Novick has been a Director of the Company  since  August,  1995 and has
served in a variety of  capacities at GKN  Securities  Corp.,  a New  York-based
investing  banking  company,  since August 1992,  including most recently Senior
Vice President -- Investment  Banking.  Prior  thereto,  Ms. Novick was a Senior
Analyst with Value Line,  Inc.,  from August 1989 until August 1992.  Ms. Novick
holds a Bachelor of Science degree from Cornell University.

Richard  Goldstein has served as a Director of the Company 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  thereto,  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.

J. Alan Lindauer became a Director of the Company 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 and managed the Company 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.

Steven Hanau became a Director of the Company in July 1998. Mr. Hanau has served
as President  of  Enterprise  Services at Wang Global  since August 1996.  Prior
thereto,  Mr.  Hanau spent  eight  years at I-NET,  becoming  its  President  of
Enterprise  Services until Wang Global acquired I-NET. Prior thereto,  Mr. Hanau
spent twenty two years in the U.S. Army,  holding high level  positions with 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.


ITEM 11.  EXECUTIVE COMPENSATION.

The following table sets forth, for the fiscal years indicated, all compensation
the Company paid to Gene Zaino, President and Chief Executive Officer and Robert
M.  Skelton,  Vice  President  -  Corporate  Development,  General  Counsel  and
Secretary.  In June 1996,  the  Company  then  called  CompLink  merged with The
Netplex Group,  Inc. and America's  Work Exchange,  Inc. and changed its name to
The  Netplex  Group,  Inc.  Compensation  paid for  periods  prior to June  1996
constitutes  compensation paid by such predecessor companies. The Company had no
executive officers, other than Mr. Zaino and Mr. Skelton, whose salary and bonus
exceeded $100,000 for the year ended December 31, 1998.


                                       26
<PAGE>


Summary Compensation Table

<TABLE>
<CAPTION>
                                                                   Long-Term 
                                                                 Compensation
                                          Annual Compensation       Awards   
                                                                  Securities 
                                  Fiscal                          Underlying        All Other
Name and Principal Position        Year         Salary($)         Options(#)      Compensation($)
---------------------------        ----         ---------        ------------     ---------------
<S>                                <C>          <C>                <C>               <C>        
Gene Zaino, President(1)           1998         $140,747                             $15,000    
                                   1997         $130,000           600,000 (3)       $ 4,563    
                                   1996         $116,423                             $27,125 (2)
Robert Skelton, Secretary          1998         $101,988                             $11,000    
                                   1997         $100,000            70,000 (3)       $ 2,903    
                                   1996         $ 32,731            50,000 (3)       $ 2,000    
</TABLE>

----------                                                       
(1)  Mr. Zaino is employed under an employment agreement pursuant to which he is
     paid a base salary of $130,000, which was increased by the Board in 1998 to
     $163,000 per annum.  See "Executive  Compensation -- Employment and Related
     Agreements."

(2)  Mr. Zaino  received  $5,425 per month from  December  1995 through May 1996
     pursuant to a consulting agreement with the Company.

(3)  Options to purchase  600,000  shares  issued to Mr. Zaino in 1995 under the
     1992 Incentive and Nonqualified Stock Option Plan were canceled in December
     1997. Options to purchase 600,000 shares were issued immediately thereafter
     at a lower exercise price.  None of Mr. Zaino's options have been exercised
     and 300,000 are vested as of December 31, 1998.  Options to purchase 70,000
     shares granted to Mr. Skelton in 1996 and 1997 under the Plan were canceled
     in  December  1997 and  options  to  purchase  70,000  shares  were  issued
     immediately  thereafter to Mr. Skelton at a lower exercise  price.  None of
     Mr.  Skelton's  options have been exercised and 35,000 shares are vested as
     of December 31, 1998. Mr. Skelton's  employment with the Company  commenced
     in 1996.

Aggregated Option Exercises and Fiscal Year-end Option Values

<TABLE>
<CAPTION>
                                 Number of Securities    
                                      Underlying                   Value of Unexercised In-The-Money 
                                Unexercised Options at                        Options at             
                                 December 31, 1998(1)                   December 31, 1998($)(1)      
                              --------------------------           ---------------------------------     
    Name                   Exercisable/       Unexercisable        Exercisable/        Unexercisable     
    ----                   ------------       -------------        ------------        -------------     
<S>                            <C>                  <C>                <C>                   <C>    
Gene Zaino                     300,000              300,000            $27,900               $27,900
Robert Skelton                  35,000               35,000             $3,255                $3,255
</TABLE>

----------
(1)  At December 31, 1998 the closing price of the Company's Common Stock on the
     Nasdaq SmallCap Market was $1.063.

Employment and Related Agreements

Mr. Zaino is employed under a three-year employment  agreement,  effective as of
June 7, 1996,  pursuant to which he is paid a base salary of $130,000 per annum,
which was  increased by the  Company's  Board in 1998 to $163,000.  Mr. Zaino is
also  entitled to receive an annual bonus based on the  financial  and operating
performance  of the 


                                       27
<PAGE>


Company.  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  Company  has  obtained  and is the  beneficiary  under  a  key-person  life
insurance policy for $1 million on Mr. Zaino.

Directors' Compensation

Directors  receive no fees or other  compensation  for attendance at meetings of
the Company's Board.

The Company has created the 1995 Directors'  Stock Option Plan (the  "Directors'
Plan")  pursuant  to which  any  Director  of the  Company  who is not a full or
part-time  employee  of  the  Company  may be  eligible  to  participate  in the
Directors'  Plan. To date,  options to purchase 90,000 shares at exercise prices
ranging from $1.06 to $3.56 per share have been granted to Directors.

Board of Directors Interlocks and Insider Participation

The Company's Board has a Compensation Committee consisting of Mr. Goldstein and
Mr. Hanau and an Audit Committee consisting of Mr. Goldstein and Ms. Novick and,
except as set forth in detail in Certain Relationships and Related Transactions,
there are no Board of Directors interlocks.


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 31, 1999,  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.


     Name of Beneficial Owner                   Number of Shares of Common Stock
                                                       Beneficially Owned 
                                                               (1)
                                                  Number                Percent
                                                  ------                -------
Gene Zaino                                      1,638,350(2)             15.5%
The Netplex Group, Inc.
1800 Robert Fulton Drive, Second Floor
Reston, Virginia  20191-9992



                                       28
<PAGE>


     Name of Beneficial Owner                   Number of Shares of Common Stock
                                                       Beneficially Owned 
                                                               (1)
                                                  Number                Percent
                                                  ------                -------
Zanett Lombardier, Ltd.                         1,076,040(3)              9.5%
Tower 49 31st Floor
12 E. 49th Street
New York, NY 10021

The viaLink Company                               643,770                 6.3%
13800 Benson Road
Edmond, OK 28227

Goldman Sachs Performance Partners LP             591,444(4)              5.5%
c/o Commodities Corporation LLC
701 Mount Lucas Road CN 850
Princeton, NJ 08540

The Estate of John Thompson                       585,716(5)              5.5%
1800 Robert Fulton Drive Second Floor
Reston, Virginia 20191

Robert Skelton                                     71,918(6)               *

Richard Goldstein                                  30,000(7)               *

Deborah Novick                                     16,250(8)               *

Steve Hanau                                        15,000                  *

J. Alan Lindauer                                        0                 --

Walton E. Bell, III                                     0(9)              --

Pamela Fredette                                         0                 --

All directors and                               1,757,703(10)            16.5%
   executive officers as a                                            

   Group (8 persons)


----------
*    Less than 1%.

(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  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)  Includes 373,420 shares of Common Stock,  subject to currently  exercisable
     options or warrants.

(3)  Includes 1,065,836 shares of Common Stock subject to currently  exercisable
     warrants.

(4)  Consists  of  539,310  shares  of  Common  Stock  subject  to  a  currently
     exercisable  prepaid warrant and 52,134 shares of Common Stock subject to a
     currently exercisable incentive warrant.

(5)  Includes  385,194  shares of Common Stock subject to currently  exercisable
     options or warrants.

(6)  Includes  70,000  shares of Common Stock  subject to currently  exercisable
     options.

(7)  Includes  15,000  shares of Common Stock  subject to currently  exercisable
     options.


                                       29
<PAGE>


(8)  Consists of 16,250 shares of Common Stock subject to currently  exercisable
     options or warrants.

(9)  Started July 1, 1998 and holds options to purchase 100,000 shares of Common
     Stock, none of which are currently exercisable.

(10) Includes 507,361 shares of Common Stock subject to options or warrants.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

In January 1997, on the occasion of its move from New York to McLean,  Virginia,
the Company loaned  $150,000 to Gene Zaino,  its chief  executive  officer,  for
relocation  expenses.  The loan  bears  interest  at 8% per  annum and is due in
January  2002.  The amount is  classified  as  long-term  debt on the  Company's
consolidated  balance  sheet at December  31, 1998.  At December  31, 1997,  the
outstanding  amount  due on the loan was  approximately  $161,000  which was the
largest  aggregate  amount  outstanding at any time during 1997. At December 31,
1998,  the  outstanding  amount due under the loan was  approximately  $175,000,
including  approximately  $25,000 in  accrued  interest,  which was the  largest
aggregate amount outstanding at any time during 1998.

Ms.  Novick,  who is  presently  a director  of the  Company,  is a Senior  Vice
President  of GKN  Securities  Corp.,  the  Placement  Agent of the 1996 Private
placement of $3,500,000 Class A Convertible  Preferred Shares consummated by the
Company  in  1996.  The  Company  paid GKN  Securities  Corp.  $432,500  in fees
associated with the completion of this transaction.

Mr.  Lindauer,  who is  presently  a director of the  Company,  is a Director of
Waterside  Capital  Corporation  as well as its  President  and Chief  Executive
Officer.  Waterside Capital  Corporation is a holder of class C preferred shares
and also lent the Company $800,000 under a subordinated note in 1999.

Please  refer  to Note 14 of the  Notes  to  Consolidated  Financial  Statements
regarding related party transactions.


                                       30
<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:

                                                                           Page
          Independent Auditors' Report..................................    F-2

          Consolidated Balance Sheets as of December 31, 1998 and 1997      F-3

          Consolidated Statements of Operations for the years ended         F-4
                   December 31, 1998, 1997 and 1996.....................

          Consolidated Statements of Stockholders' Equity for the years     F-5
                   ended December 31, 1998, 1997 and 1996...............

          Consolidated Statements of Cash Flows for the years ended.....    F-8
                   December 31, 1998, 1997 and 1996.....................

          Notes to Consolidated Financial Statements....................    F-9

     2.   Consolidated Financial Statement Schedules

The following  consolidated financial statement schedule of the Company for each
of the years ended  December 31, 1998,  1997,  and 1996 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 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

2.1       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.**

3.1       Composite Certificate of Incorporation, as amended.******

3.2       The Company's By-laws.**

4.1       Form of Common Stock Certificate.***

4.5       Form of Warrant  issued to  investors in  connection  with 1992 bridge
          financing.***

4.6       Form  of  Unit  Purchase  Option  granted  to the  Underwriter  of the
          Company's initial public offering.**

4.7       Form of Purchase  Option granted to Placement Agent in connection with
          the 1996 Private Placement.*****

4.8       Form  of  Warrant   issued  in   connection   with  the  1996  Private
          Placement.****

4.9       Certificate of Designation for the Preferred Stock.****

4.10      Form  of  Prepaid   Warrant  issued  to  Purchasers  in  Private  1998
          Placement******

4.11      Form of  Incentive  Warrant  issued  to  Purchasers  in  1998  Private
          Placement******

10.5      1992 Incentive and Non-Qualified Stock Option Plan.**

10.6      Amendment to 1992 Incentive and Non-Qualified Stock Option Plan.**

10.9      Form of  Indemnification  Agreement between the Officers and Directors
          of the Company and the Company.**


                                       31
<PAGE>


Exhibit                       Description of Document
Number

10.10     1995 Directors' Stock Option Plan.*****

10.11     1995 Consultant's Stock Option Plan.*****

10.12     Employment Agreement between the Company and Gene Zaino.*

10.13     Agreement by and among  XcelleNet,  Inc., The Netplex Group,  Inc. and
          Technology Development Systems, Inc. dated November 5, 1996******

21        Subsidiaries of The Netplex Group, Inc.******

23        Consent of KPMG LLP.******

27        Financial Data Schedule.******


(b)  The Company filed one report Form 8-K/A in the quarter  ended  December 30,
     1998, under Item 2 Acquisition and Disposition of Assets.

----------
*         Incorporated  by  reference  to the  Company's  Annual  Report on Form
          10-KSB for the fiscal year ended December 31, 1996.

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

***       Incorporated by reference to the Company's  Registration  Statement on
          Form SB-2,  filed with the Commission on January 29, 1993  (Commission
          file NO. 33-57546), as amended.

****      Incorporated by reference to the Company's  Registration  Statement on
          Form S-3,  filed with the  Commission on November 19, 1996, as amended
          (Commission File No. 333-16423).

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

******    Filed Herewith.


                                       32
<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, 1998.



                                        The Netplex Group, Inc.

                                        By: /s/ Gene Zaino            
                                            --------------------------------

                                        Gene Zaino

                                             Chairman, President 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, President and       April 20 , 1999
--------------------------         Chief Executive Officer
Gene Zaino                         [Principal Executive   
                                   Officer]               

/s/ Walton E. Bell, III            Chief Financial Officer       April 20 , 1999
--------------------------         and Treasurer [Principal
Walton E. Bell, III                Financial Officer]      
                                   
/s/ Neil Luden                     Vice President & Director     April 20, 1999
--------------------------
Neil Luden

/s/ Richard Goldstein              Director                      April 20, 1999
--------------------------
Richard Goldstein

/s/ Frank C. Lagattuta             Director                      April 20, 1999
--------------------------
Frank C. Lagattuta

/s/ Deborah Novick                 Director                      April 20, 1999
--------------------------
Deborah Novick

/s/ Steven Hanau                   Director                      April 20, 1999
--------------------------
Steven Hanu


                                       33
<PAGE>

                                                                     SCHEDULE II

                             THE NETPLEX GROUP, INC.

                        VALUATION AND QUALIFYING ACCOUNTS

                                 (IN THOUSANDS)

                      Balance at    Additions                           Balance
                     beginning of   charged to                         at end of
                        period      operations   Write-offs   *Other    period
                     ------------   ----------   ----------   ------   --------
Allowance for doubtful accounts 

Year Ended:

December 31, 1996       $  46         $ 140       $     (9)  $   --      $ 177
                        =====         =====       ========   ========    =====
December 31, 1997         177           (26)           (18)      --        133
                        =====         =====       ========   ========    =====
December 31, 1998       $ 133         $ 200       $   --     $    256    $ 589
                        =====         =====       ========   ========    =====
                                                                       
                                                                      
*    Amount represents allowance for bad debts on acquired accounts receivable.





<PAGE>


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                                            Page
                                                                            ----

Independent Auditors' Report............................................    F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997............    F-3
Consolidated Statements of Operations for the years ended                   
         December 31, 1998, 1997 and 1996...............................    F-4 
Consolidated Statements of Stockholders' Equity for the years                   
         ended December 31, 1998, 1997 and 1996.........................    F-5 
Consolidated   Statements  of  Cash  Flows  for  the  years  ended              
         December 31, 1998, 1997 and 1996...............................    F-8 
Notes to Consolidated Financial Statements..............................    F-9



                                      F-1
<PAGE>



                          Independent Auditors' Report



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, 1998 and 1997,
and the related consolidated statements of operations,  stockholders' equity and
cash flows for each of the years in the  three-year  period  ended  December 31,
1998. In connection with our audits of the consolidated financial statements, we
also have audited the accompanying  financial  statement Schedule II - Valuation
and Qualifying  Accounts,  for each of the years in the three-year  period ended
December  31,  1998.  These  consolidated  financial  statements  and  financial
statement  schedule are the  responsibility  of the  Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements and financial statement schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.  Also, in
our opinion,  the related  financial  statement  schedule,  when  considered  in
relation  to the  basic  consolidated  financial  statements  taken  as a whole,
presents fairly, in all material respects, the information set forth therein.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of The Netplex Group,
Inc. and  subsidiaries as of December 31, 1998 and 1997 and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December  31,  1998 in  conformity  with  generally  accepted  accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole,  presents  fairly,  in all material  respects,  the information set forth
therein.



                                             /s/ KPMG LLP



McLean, Virginia
April 19, 1999



                                      F-2
<PAGE>


                    THE NETPLEX GROUP, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                     Assets
                                                                             1998            1997
                                                                         ------------    ------------
<S>                                                                      <C>             <C>         
Current assets:
   Cash and cash equivalents                                             $    870,465    $    353,005
   accounts receivable, net of allowance for doubtful
      accounts of $589,000 and $133,000, respectively                      11,654,743       4,133,148
   Prepaids and other current assets                                          523,480         432,842
                                                                         ------------    ------------
     Total current assets                                                  13,048,688       4,918,995
                                                                         ------------    ------------

   Property and equipment, net                                              1,704,975         952,546
   Employee notes receivable                                                  248,762         193,464
   Other assets                                                               213,174          82,738
   Acquired software, net                                                   1,091,624         418,225
   Fulfillment data base, net                                                 797,148            --
   Other acquired intangible assets, net                                    1,773,333            --
   Goodwill, net                                                            1,772,919         346,529
                                                                         ------------    ------------
     Total assets                                                        $ 20,650,623    $  6,912,497
                                                                         ============    ============

                      Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable                                                      $  2,545,730    $    567,805
   Line of credit                                                           4,041,000       1,316,300
   Notes payable                                                              300,000            --
   Accrued expenses and other current liabilities                           6,418,326       3,383,024
   Obligation under capital lease, current portion                             97,315          96,073
   Deferred revenues                                                          835,827         109,497
                                                                         ------------    ------------
     Total current liabilities                                             14,238,198       5,472,699
   Capital lease obligations, net of current portion                           57,901         109,096
                                                                         ------------    ------------
     Total liabilities                                                     14,296,099       5,581,795
                                                                         ------------    ------------

Stockholders' equity:
   Class A Cumulative Preferred Stock: $.01 par value; liquidation
     preference of $4.00 per share for 1998 and 1997 and unpaid
     dividends of $267,004; 2,000,000 authorized, 987,753 shares
     outstanding in 1998 and 1,062,500 shares in 1997                           9,875          10,625
   Class B Preferred Stock: $.01 par value; liquidation preference of
     $3.50 per share; 1,500,000 authorized, 643,770 shares outstanding
     in 1998 and no shares outstanding in 1997                                  6,438            --
   Class C Cumulative Preferred Stock: $.01 par value; liquidation
     preference of $3.99 per share and unpaid dividends of $37,500;
     2,500,000 authorized; 1,500,000 share outstanding in 1998 and no
     shares outstanding in 1997                                                15,000            --
   Common Stock $.001 par value: 40,000,000 authorized; 10,204,735
     shares outstanding in 1998 and 7,470,370 shares in 1997                   10,204           7,470
   Additional paid in capital                                              13,821,531       6,272,407
   Accumulated deficit                                                     (7,508,524)     (4,959,800)
                                                                         ------------    ------------
   Commitments and contingencies
     Total stockholders' equity                                             6,354,524       1,330,702
                                                                         ------------    ------------
     Total liabilities and stockholders' equity                          $ 20,650,623    $  6,912,497
                                                                         ============    ============
</TABLE>


          See accompanying notes to consolidated financial statements.



                                      F-3
<PAGE>




                    THE NETPLEX GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


<TABLE>
<CAPTION>
                                                           1998           1997            1996
<S>                                                   <C>             <C>             <C>         
Revenues
  Services                                            $ 55,872,750    $ 39,394,880    $ 31,364,225
   Product                                               5,406,410       2,073,254       2,160,454
                                                      ------------    ------------    ------------
                                                        61,279,160      40,468,134      33,524,679
                                                      ------------    ------------    ------------
Cost of revenues
   Services                                             45,419,944      34,291,908      29,028,743
   Product                                               3,894,757       1,123,736       1,849,423
                                                      ------------    ------------    ------------
                                                        49,314,701      35,415,644      30,878,166
                                                      ------------    ------------    ------------
Gross profit                                            11,964,459       5,052,490       2,646,513

Operating expenses
   Selling, general and administrative expenses         13,949,309       7,899,756       5,205,906
   Restructuring costs                                     160,000            --              --
   Acquired in-process technology                          250,000            --              --
                                                      ------------    ------------    ------------
   Operating expenses                                   14,359,309       7,899,756      5,205,9061

   Operating loss                                       (2,394,850)     (2,847,266)     (2,559,393)

Other income (expense)
   Interest income (expense), net                         (153,874)        (26,337)         33,119
   Other income                                               --              --             4,808
                                                      ------------    ------------    ------------
                                                          (153,874)        (26,337)         37,927

Loss from continuing operations
   before income taxes                                  (2,548,724)     (2,873,603)     (2,521,466)

Income tax provision(benefit)                                 --              --           (34,000)
                                                      ------------    ------------    ------------

   Net loss from continuing operations                  (2,548,724)     (2,873,603)     (2,487,466)
                                                      ------------    ------------    ------------

Discontinued Operations
   Loss from operations of discontinued business              --              --        (1,332,050)

   Net gain from disposal                                                                1,820,129
                                                      ------------    ------------    ------------

   Income from discontinued operations                        --              --           488,079
                                                      ------------    ------------    ------------

   Net loss                                           $ (2,548,724)   $ (2,873,603)   $ (1,999,387)
                                                      ============    ============    ============

Basic and diluted earnings (loss) per common share:
   Continuing operations                              $      (0.31)   $      (0.46)   $      (0.51)
   Discontinued operations                                    --              --              0.09
                                                      ------------    ------------    ------------
    Total                                             $      (0.31)   $      (0.46)   $      (0.42)
                                                      ============    ============    ============
Weighted average common shares outstanding
    basic and diluted                                    9,259,599       6,820,863       5,026,306
                                                      ============    ============    ============
</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, 1998, 1997 AND 1996


<TABLE>
<CAPTION>
                                                          Class A Cumulative              Class B              Class C Cumulative
                                                              Convertible               Convertible                Convertible
                                                            Preferred Stock           Preferred Stock            Preferred Stock
                                                       ------------------------    -----------------------   -----------------------
                                                         Shares          $           Shares         $          Shares         $
                                                       ----------    ----------    ----------   ----------   ----------   ----------
<S>                                                     <C>          <C>             <C>        <C>          <C>          <C>   
Balance at December 31, 1995                                 --      $     --            --     $     --           --     $     --
   Private placement of Class A Cumulative,
     Convertible Preferred Stock                        1,750,000        17,500          --           --           --           --
                                                       ----------    ----------    ----------   ----------   ----------   ----------
Balance at December 31, 1996                            1,750,000        17,500          --           --           --           --
   Conversions of Preferred Stock to Common Stock        (687,500)       (6,875)         --           --           --           --
                                                       ----------    ----------    ----------   ----------   ----------   ----------
Balance at December 31, 1997                            1,062,500        10,625          --           --           --           --
   Conversions of Preferred Stock to Common Stock        (141,865)       (1,419)         --           --           --           --
   Dividends Paid in Kind                                  66,938           669          --           --           --           --
   Issuance of Class B Preferred Stock in
     connection with the Acquisition of AIG                  --            --         643,770        6,438         --           --
   Private Placement of Class C Preferred Stock              --            --            --           --      1,500,000       15,000
                                                       ==========    ==========    ==========   ==========   ==========   ==========
Balance at December 31, 1998                              987,573         9,875       643,770        6,438    1,500,000       15,000
                                                       ==========    ==========    ==========   ==========   ==========   ==========
</TABLE>


          See accompanying notes to consolidated financial statements.



                                      F-5
<PAGE>


                    THE NETPLEX GROUP, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONT'D)
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                                                               
                                                                                            Common Stock                 Additional
                                                                                    -----------------------------         Paid In
                                                                                       Shares              $               Capital 
                                                                                    -----------       -----------       -----------
<S>                                                                                   <C>             <C>               <C>        
Balance at December 31, 1995                                                          3,197,608       $    31,976       $   579,124
   Net loss                                                                                --                --                --   
   Reduction in par value resulting from the merger of the Company with
     Netplex from $0.01 to $.001 per share                                                 --             (28,778)           28,778
   Issuance of common shares in the merger of the Company with Netplex                3,245,295             3,245         1,767,488
   Private placement of Class A Cumulative, Convertible Preferred Stock                    --                --           3,024,346
   Preferred Stock dividends                                                               --                --             (98,194)
                                                                                    -----------       -----------       -----------
Balance at December 31, 1996                                                          6,442,903             6,443         5,301,542
  Net loss                                                                                 --                --                --   
  Conversions of Preferred Stock to Common Stock                                        687,500               687             6,188
  Exercise of Common Stock warrants                                                     225,000               225           537,275
  Preferred Stock dividends                                                                --                --             (82,500)
  Issuance of Common Stock Options                                                         --                --              40,000
  Issuance of Common Stock in connection with the Onion Peel Solutions,
    L.L.C. acquisition                                                                   80,000                80           399,920
  Exercise of Common Stock Options                                                       34,967                35            69,982
                                                                                    -----------       -----------       -----------
Balance at December 31, 1997                                                          7,470,370             7,470         6,272,407

<CAPTION>
                                                                                    Accumulated         
                                                                                      Deficit            Total 
                                                                                    -----------       -----------
<S>                                                                                 <C>               <C>        
Balance at December 31, 1995                                                        $   (86,810)      $   524,290
   Net loss                                                                          (1,999,387)       (1,999,387)
   Reduction in par value resulting from the merger of the Company with
     Netplex from $0.01 to $.001 per share                                                 --                --
   Issuance of common shares in the merger of the Company with Netplex                     --           1,770,733
   Private placement of Class A Cumulative, Convertible Preferred Stock                    --           3,041,846
   Preferred Stock dividends                                                               --             (98,194)
                                                                                    -----------       -----------
Balance at December 31, 1996                                                         (2,086,197)        3,239,288
  Net loss                                                                           (2,873,603)       (2,873,603)
  Conversions of Preferred Stock to Common Stock                                           --                --
  Exercise of Common Stock warrants                                                        --             537,500
  Preferred Stock dividends                                                                --             (82,500)
  Issuance of Common Stock Options                                                         --              40,000
  Issuance of Common Stock in connection with the Onion Peel Solutions,
    L.L.C. acquisition                                                                     --             400,000
  Exercise of Common Stock Options                                                         --              70,017
                                                                                    -----------       -----------
Balance at December 31, 1997                                                         (4,959,800)        1,330,702
</TABLE>



          See accompanying notes to consolidated financial statements.



                                      F-6
<PAGE>




                    THE NETPLEX GROUP, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONT'D)
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


<TABLE>
<CAPTION>
                                                                                                               
                                                                                   Common Stock             Additional         
                                                                           ----------------------------       Paid In    
                                                                              Shares            $             Capital          
                                                                           ------------    ------------    ------------
<S>                                                                          <C>           <C>             <C>         
Balance at December 31, 1997                                                  7,470,370           7,470       6,272,407
  Net loss                                                                         --              --              --   
  Conversions of Preferred Stock to Common Stock                                141,865             142           1,277
  Dividends Paid in Kind                                                           --              --              (669)
  Preferred Stock dividends                                                        --              --          (304,504)
  Private placements of Common Stock                                          2,123,000           2,123       2,343,440
  Private placements of Prepaid Common Stock purchase warrants                     --              --         2,582,490
  Issuance of Common Stock in connection with the Acquisition of ABS            450,000             450         590,175
  Issuance of Class B Preferred Stock in connection with the Acquisition
    of AIG                                                                         --              --           993,562
  Private placement of Class C Preferred Stock                                     --              --         1,324,457
  Exercise of Common Stock Options                                               19,500              19          18,896
                                                                           ------------    ------------    ------------
Balance at December 31, 1998                                                 10,204,735    $     10,204    $ 13,821,531
                                                                           ============    ============    ============

<CAPTION>
                                                                           Accumulated                
                                                                             Deficit           Total   
                                                                           ------------    ------------
<S>                                                                        <C>             <C>         
Balance at December 31, 1997                                                 (4,959,800)      1,330,702
  Net loss                                                                   (2,548,724)     (2,548,724)
  Conversions of Preferred Stock to Common Stock                                   --              --
  Dividends Paid in Kind                                                           --
  Preferred Stock dividends                                                        --          (304,504)
  Private placements of Common Stock                                               --         2,345,563
  Private placements of Prepaid Common Stock purchase warrants                     --         2,582,490
  Issuance of Common Stock in connection with the Acquisition of ABS               --           590,625
  Issuance of Class B Preferred Stock in connection with the Acquisition
    of AIG                                                                         --         1,000,000
  Private placement of Class C Preferred Stock                                     --         1,339,457
  Exercise of Common Stock Options                                                 --            18,915
                                                                           ------------    ------------
Balance at December 31, 1998                                               $ (7,508,524)   $  6,354,524
                                                                           ============    ============
</TABLE>


          See accompanying notes to consolidated financial statements.


                                      F-7
<PAGE>




                    THE NETPLEX GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                                        1998              1997              1996
                                                                                    -----------       -----------       -----------
<S>                                                                                 <C>               <C>               <C>         
Operating activities:
    Net loss                                                                        $(2,548,724)      $(2,873,603)      $(1,999,387)
    Adjustments to reconcile net loss to net cash
        used in operating activities:
      Depreciation and amortization                                                   1,083,741           464,213           587,902
      Acquired in-process R&D write-off                                                 250,000
      Expense on options granted                                                           --              40,000              --
      Gain on sale of Worldlink product technology                                         --                --          (1,820,129)
      Deferred income taxes                                                                --                --             (34,000)
      Change in assets and liabilities, net of Effects of acquisitions:
          Accounts receivable                                                        (5,985,628)          301,321          (789,955)
          Prepaid expenses and other current assets                                      32,656           117,712          (126,900)
          Accounts payable and accrued expenses                                       1,786,228        (2,159,896)        1,190,669
          Deferred revenue                                                              726,628          (219,770)         (131,643)
                                                                                    -----------       -----------       -----------
      Net cash used in operating activities                                          (4,655,099)       (4,330,023)       (3,123,443)
                                                                                    -----------       -----------       -----------

Investing activities:
      Net cash (paid )acquired in acquisitions                                       (3,339,043)            2,149         1,245,062
      Net proceeds from the sale of Worldlink product technology                           --                --           2,492,795
      Purchases of property and equipment                                              (382,779)         (105,438)         (631,983)
                                                                                    -----------       -----------       -----------
          Net cash provided by/(used in) operating activities                        (3,721,882)         (103,289)        3,105,874
                                                                                    -----------       -----------       -----------

Financing activities:
      Net proceeds from stock offerings                                               6,267,510              --           3,041,846
      Line of credit advances                                                         2,724,700         1,316,300           650,000
      Line of credit repayments                                                            --             (95,000)         (650,000)
      Proceeds from the exercise of stock options and warrants                           18,915           607,517              --
      Payment of dividends on Class A Preferred Stock                                      --            (180,694)             --
      Principal payments on capital lease obligations                                  (116,744)          (99,945)          (14,019)
      Repayments of other notes payable                                                    --             (59,496)         (159,870)
      Issuance of note receivable                                                          --            (200,000)             --
      Repayment of note receivable                                                      100,000              --                --
      Issuance of employee notes receivable                                                --            (193,464)             --
                                                                                    -----------       -----------       -----------
          Net cash used in financing activities                                       8,894,381         1,095,218         2,867,957
                                                                                    -----------       -----------       -----------

      Increase (decrease) in cash and cash equivalents                                  517,460        (3,338,094)        2,850,388

Cash and equivalents at beginning of period                                             353,005         3,691,099           840,711
                                                                                    -----------       -----------       -----------

Cash and equivalents at end of period                                               $   870,465       $   353,005       $ 3,691,099
                                                                                    ===========       ===========       ===========

Supplemental information:
    Cash paid  during the period for:
      Interest                                                                      $   187,201       $    61,366       $    24,247
                                                                                    ===========       ===========       ===========
      Income taxes                                                                  $      --         $      --         $    12,985
                                                                                    ===========       ===========       ===========
    Non-cash financing activity:
      Capital lease obligation                                                           52,732            88,098           241,561
                                                                                    ===========       ===========       ===========
</TABLE>

          See accompanying notes to consolidated financial statements.



                                      F-8
<PAGE>




                    THE NETPLEX GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996


(1)  The Business and Basis of Presentation

     The Business

     The Netplex Group, Inc. ("the Company") was incorporated in 1986 to provide
     IT  services  and  solutions.  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   services  to  independent
     consultants who become the Company's employees.

     Basis of presentation

     Merger with Netplex

     On June 7,  1996,  the  Company  (formerly  known  as  "CompLink,  Ltd." or
     "CompLink")  acquired  and merged  with  America's  Work  Exchange  and The
     Netplex Group,  Inc.  (collectively  referred to as "Netplex") in a reverse
     merger  transaction  by issuing  approximately  3,245,000  shares of Common
     Stock, or 50.4 % of the Company's outstanding stock after giving effect for
     the merger.  The merger  agreement  also provided for the Company to assume
     1,691,000 outstanding Common Stock options of Netplex.

     The merger has been  accounted for under the purchase  method of accounting
     as a reverse merger,  since the shareholders of Netplex,  which have common
     control,  received the larger of the voting rights of the combined  entity.
     As a result, Netplex is considered the acquirer for accounting purposes.

     The merger resulted in a  re-capitalization  of the acquirers,  so that the
     resulting  capitalization  of the  Company  after  the  merger  is  that of
     CompLink's  giving effect to the issuance of new shares and  elimination of
     CompLink's accumulated deficit. In addition, the par value of the Company's
     Common  Stock was  decreased  from  $0.01 per share to $0.001  per share in
     connection  with the merger.  The assets and  liabilities  of CompLink were
     recorded by the Company at book value, which approximates fair value.

     The  statement of operations  for the year ended  December 31, 1996 reflect
     those of Netplex  for the year and those of CompLink  and its  wholly-owned
     subsidiary,  Technology Development Systems ("TDS"),  commencing on June 1,
     1996.  The merger has been  accounted  for assuming that it occurred on May
     31, 1996. The operating results of CompLink and TDS from June 1, 1996 up to
     June 7, 1996 (the merger  date) have been  included in the  Company's  1996
     consolidated statement of operations, as such amounts are not material.

     Coincident  with the merger the Company's  name was changed from  CompLink,
     Ltd. to The Netplex Group,  Inc. and the entity known as The Netplex Group,
     Inc.  prior to the merger  changed its name to Netplex  Systems,  Inc.  The
     Company's  fiscal  year end was changed  from July 31 to December  31. Upon
     completion of the merger,  the Company consisted of Netplex Systems,  Inc.;
     America's Work Exchange ("AWE"), and its wholly- owned subsidiary, Software
     Resources of New Jersey, now known as Contractors Resources ("CR"), and The
     Netplex Group, Inc.  (formerly known as CompLink Ltd.) and its wholly-owned
     subsidiary, TDS.

     Acquisition of Onion Peel Solutions L.L.C.:

     On July 1, 1997,  the Company  acquired all of the  outstanding  membership
     interests of Onion Peel Solutions  L.L.C.  ("Onion  Peel"),  a Raleigh,  NC
     based  provider of network  management  solutions,  in exchange  for 80,000
     shares of its Common Stock,  subject to the issuance of  additional  shares
     based on the closing  price of the  Company's  Common Stock on December 31,
     1998.  At  December  31,  1998,  the  Company  was  obligated  to  issue an
     additional  297,396 shares to the acquirees  under the purchase  agreement.
     These shares were issued in February  1999. The  acquisition  was accounted
     for using the purchase method of accounting,  whereby the $400,000 purchase
     price  was  allocated  to the fair  value of the  assets  acquired  and the
     liabilities assumed.

     The  operating  results of Onion Peel have been  included in the  Company's
     consolidated results from July 1, 1997.


                                      F-9
<PAGE>


     Acquisition of PSS Group, Inc.:

     On January 30, 1998, the Company completed the purchase of all of the stock
     of  The  PSS  Group,  Inc.  ("PSS"),   the  technical   professional  staff
     augmentation  operations and business of Preferred Systems Solutions,  Inc.
     ("Preferred")  and  formerly a wholly owned  subsidiary  of  Preferred.  In
     consideration  for the  purchase,  the Company paid $300,000 at closing and
     $300,000 on January 15, 1999.  Subsequent  to December 31, 1998 the Company
     and Preferred amended the agreement to eliminate the Earn-out provision. In
     accordance  with the  amendment,  the  Company  agreed to  purchase a split
     dollar life insurance policy on the life of Preferred's  shareholder and to
     fund the policy with four equal annual payments beginning January 29, 1999.
     The acquisition was recorded  effective  January 1, 1998 using the purchase
     method of accounting.

     The purchase price of the PSS acquisition was determined to be $600,000 and
     was preliminarily allocated to the fair value of the assets and liabilities
     acquired, as follows:


                    Cash                       $   148,000
                    Accounts receivable            800,000
                    Fulfillment database           930,000
                    Other assets                   122,000
                    Less liabilities assumed    (1,400,000)
                                               ===========
                    Net assets acquired        $   600,000
                                               ===========


     The Company is amortizing the fulfillment database (resume database) over 7
     years using the straight-line method.

     As of  December  31,  1998,  the  Company has not paid and does not owe any
     additional  consideration to Preferred,  in connection with the acquisition
     of PSS.

     Acquisition of Automated Business Systems of North Carolina, Inc.:

     On June 18 1998, the Company  completed the purchase of all of the stock of
     Automated  Business Systems of North Carolina,  Inc. and Kellar  Technology
     Group, Inc.  (Collectively  "ABS"). In consideration for the purchase,  the
     Company paid $200,000 and issued  450,000  shares of its Common Stock.  The
     agreement  also provides that the former  shareholders  of ABS will receive
     additional  consideration,  payable  50% in cash and 50% in stock,  through
     December 31, 2000, if ABS meets certain  operating  targets.  In connection
     with the  acquisition,  the Company has entered into employment  agreements
     with certain employees of ABS. The acquisition was recorded  effective June
     30, 1998 using the purchase method of accounting.

     The purchase  price of the ABS  acquisition  was  determined to be $791,000
     (subject to adjustment for contingent  consideration) and was preliminarily
     allocated  to the fair  value of the assets and  liabilities  acquired,  as
     follows:


                     Cash                       $ 205,000
                     Accounts receivable          736,000
                     Property and equipment        51,000
                     Other assets                  33,000
                     Goodwill                     678,000
                     Less liabilities assumed    (912,000)
                                                =========
                     Net assets acquired        $ 791,000
                                                =========

     The Company is amortizing the goodwill  resulting from the acquisition over
     an estimated useful life of 7 years using the straight-line method.

     As of December 31, 1998,  the Company has recorded  $171,000 of  additional
     consideration  in  accordance  with  the  ABS  acquisition  agreement.  The
     consideration  consists  of  $85,000  in cash and  31,736  shares of Common
     Stock. Such  consideration was recorded as an addition to goodwill and will
     be recovered  over the remaining  life of the goodwill  resulting  from the
     transaction.


                                      F-10
<PAGE>


     Acquisition of Applied Intelligence Group, Inc.

     On October 16, 1998, the Company  completed the purchase of the information
     technology  consulting  business  of Applied  Intelligence  Group,  Inc. of
     Oklahoma City ("AIG") effective September 1, 1998. In consideration for the
     purchase,  the Company paid $3,000,000 and issued 643,770 shares of Class B
     Preferred Stock  ("Preferred  Stock") valued at $1,000,000 at closing.  The
     Class B Preferred Stock is convertible  into Common Stock of the Company at
     anytime  on a share  for share  basis.  No  dividends  are  payable  on the
     Preferred Stock. The holders of the Preferred Stock have agreed not to sell
     or otherwise distribute the Common Stock underlying the Preferred Stock for
     a period of one year.  The  agreement  also  provides that AIG will receive
     additional   consideration  (the  "AIG  Earn-out")  if  AIG  meets  certain
     operating targets. Such Earn-out would consist of (i) up to $1.5 million of
     cash based on net profit,  as defined in the agreement,  AIG generates over
     the next six  quarters  and (ii) up to 643,770  shares of Class B Preferred
     Stock if AIG achieves  approximately $9 million net profits over the next 9
     quarters.  The  acquisition  was accounted for using the purchase method of
     accounting.  In connection with the  acquisition,  the Company entered into
     employment agreements with certain employees of AIG.

     The purchase price of the AIG  acquisition  was determined to be $4,000,000
     (subject  to  adjustment  for  contingent  consideration).  The Company has
     allocated the purchase  price on a  preliminary  basis to the fair value of
     the  assets  and  liabilities  acquired  and  to  the  acquired  in-process
     technology, as follows:


                 Prepaid and other assets         $    52,000
                 Property and equipment               450,000
                 Acquired software                    850,000
                 Assembled workforce                1,000,000
                 viaLink non-compete agreement        900,000
                 Goodwill                             836,000
                 Less: liabilities assumed           (338,000)
                                                  -----------
                 Net assets acquired                3,750,000
                 Acquired in process technology       250,000
                                                  -----------
                  Purchase price                  $ 4,000,000
                                                  -----------


     The Company is amortizing the acquired software,  assembled workforce,  the
     non-compete,  and goodwill  resulting from the  acquisition  over estimated
     useful lives of 5, 5, 4, and 7 years, respectively, using the straight-line
     method.

     The Company has allocated $250,000 of the purchase price to its estimate of
     the fair value of certain  in-process  Internet commerce product technology
     that had not achieved  technological  feasibility as of  acquisition  date.
     Accordingly,  such costs were included in the  statement of operations  for
     1998.

     As of December 31, 1998, the Company has recorded approximately $340,000 of
     additional  consideration in accordance with the AIG acquisition agreement.
     Such  consideration  was  recorded as an  addition to goodwill  and will be
     recovered over the remaining life of such goodwill.

     The following  supplemental financial information presents the consolidated
     results of the Company from  continuing  operations,  on a pro forma basis,
     and the  resulting  increase in common  shares  outstanding,  as though the
     acquisitions of Onion Peel,  PSS, ABS, and AIG were  consummated on January
     1, 1996.

                                                      (Unaudited)
                                                Year Ended December 31,
                                            1998         1997         1996
                                          --------     --------     --------
                                        (In Thousands Except Per Share Amounts)
Revenue                                   $ 71,424     $ 57,382     $ 47,242
Net loss                                      (817)      (3,188)      (1,436)
Basic and diluted loss per share             (0.08)       (0.40)       (0.23)
Weighted Average shares outstanding          9,914        7,915        6,200


                                      F-11
<PAGE>


     The pro forma results of operations are not  necessarily  indicative of the
     actual results of operations that would have occurred had the purchase been
     made at the beginning of the period, or the results, which may occur in the
     future.

(2)  Summary of  Significant Accounting Policies

     Principles of Consolidation
     The accompanying  consolidated financial statements include the accounts of
     The Netplex Group, Inc. and its wholly owned subsidiaries.  All significant
     intercompany transactions have been eliminated during consolidation.

     Revenue Recognition

     The  majority  of  the  Company's  revenue  is  from  consulting   services
     contracts.  This revenue is recognized  when the services are performed and
     the costs are  incurred.  The Company  generally  recognizes  hardware  and
     software product revenue,  which does not involve  significant  integration
     services,  when the products are delivered to the customer site. Revenue on
     fixed price  contracts  for  services,  or both  hardware  and  significant
     integration  services is recognized on the percentage of completion  basis,
     based  on  the  efforts  expended  method  in  accordance  with  SOP  81-1,
     "Accounting  for Performance of  Construction  Type and Certain  Production
     Type  Contracts."  The amount of revenue  recognized  on the  percentage of
     completion  basis for 1996 and 1997 was  immaterial.  During  1998  Netplex
     recognized  $814,841 of revenue under the  percentage of completion  method
     The Company's  systems  integration  contracts are typically 3-6 months and
     are priced  either on a time and  material  ("T&M") or a fixed price basis.
     All but a de minimis  amount of the Company's  contracts  through 1997 were
     T&M.  In 1998 the  Company  proposed  more  business on a fixed price basis
     because it has found it is able to generate  higher  margins than under the
     T&M  proposal  and pricing  method.  Revenue for  maintenance  contracts is
     recognized  ratably  over the service  period of the  underlying  contract.
     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.  The Company records loss provisions if required for
     its contracts at the time that such losses are identified.

     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.  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.

     Property and equipment under capital leases are stated at the present value
     of the minimum lease  payments and are  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.

     Depreciation and amortization expense related to property and equipment was
     $578,564,  $391,091,  and $318,865  for the years ended  December 31, 1998,
     1997, and 1996.

     Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

     The Company  adopted the  provisions of SFAS No. 121,  "Accounting  for the
     Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
     ", on January 1, 1996. This Statement  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.  Adoption of
     this  Statement did not have a material  impact on the Company's  financial
     position, results of operations, or liquidity.


                                      F-12
<PAGE>


     Goodwill and Other Intangible Assets 

     Goodwill,  the cost in excess of the fair value of net assets acquired,  is
     being amortized by the straight-line  method, for periods ranging from 5 to
     15 years.  Accumulated amortization is $140,081 and $53,308 at December 31,
     1998 and 1997.  Management reviews the valuation and amortization period of
     goodwill  continually.  As part of this review,  the Company  estimates the
     value  and  future  benefits  of income  generated,  to  determine  that no
     impairment has occurred.

     Other intangible assets resulting from the Company's  acquisitions  consist
     of a fulfillment database, acquired software, an assembled workforce, and a
     non-compete agreement. Such assets are being amortized on the straight-line
     basis  over  periods  of 4 to 7  years.  Accumulated  amortization  of  the
     intangibles was $468,592 and $46,470 at December 31, 1998 and 1997.

     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  per share in  accordance  with SFAS 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 periods. For the years ended
     December 31, 1998,  1997 and 1996,  the assumed  exercise of the  company's
     outstanding stock options and warrants and Convertible  Preferred Stock has
     not been included in the calculation as the effect would be anti-dilutive.

     A  reconciliation  of the  numerators  and  denominators  of the  basic and
     diluted  EPS for the years  ended  December  31,  1998,  1997 and 1996,  is
     provided below:

<TABLE>
<CAPTION>
                                                        Income             Shares             Per-Share
                                                      (Numerator)       (Denominator)          Amount
                                                      -----------       -------------       -------------
<S>                                                   <C>                   <C>             <C>           
1998
Net loss from continuing operations                   $(2,548,724)                          $    
Preferred Stock dividend                                 (315,778)
                                                      -----------       -------------       -------------
Basic and diluted EPS
     Income available to common shareholders          $(2,864,502)          9,259,599       $       (0.31)
                                                      ===========       =============       =============

1997 
Net loss from continuing operations                   $(2,873,603)               --         $        --
Preferred Stock dividend                                 (275,625)               --                  --
                                                      -----------       -------------       -------------
Basic and diluted EPS
     Income available to common shareholders          $(3,149,228)        $ 6,820,863       $       (0.46)
                                                      ===========       =============       =============

1996
Net loss from continuing operations                   $(2,487,466)               --         $        --
Preferred Stock dividend                                  (98,194)               --                  --
                                                      -----------       -------------       -------------
Basic and diluted EPS
     Income available to common shareholders          $(2,585,660)          5,026,306       $       (0.51)
                                                      ===========       =============       =============
</TABLE>



                                      F-13
<PAGE>


     Stock Options                                                          

     The Company  accounts for its 1992 Incentive Stock Option plan ("ISO Plan")
     and the 1995  Directors'  Stock  Option  plan  (the  "Director'  Plan")  in
     accordance with the provisions of Accounting  Principles  Board Opinion No.
     25  "Accounting  for Stock  Issued to  Employees"  ("APB  25") and  related
     interpretations. Pursuant to APB 25 compensation expense is recorded on the
     date of grant only to the extent the current market price of the underlying
     stock exceeded the exercise  price. On January 1, 1996, the Company adopted
     Statement  of  Financial  Accounting  Standards  No. 123,  "Accounting  for
     Stock-Based   Compensation"   ("SFAS  123"),   which  permits  entities  to
     recognize,  as  expense  over the  vesting  period,  the fair  value of all
     stock-based  awards on the grant  date.  Alternatively,  SFAS  No.123  also
     allows  entities to continue to apply the  provisions of APB 25 and provide
     pro forma net  income  and pro forma  earnings  per share  disclosures  for
     employee  stock  option  grants made in 1995 and in future  years as if the
     fair-value-based  method defined in SFAS 123 had been applied.  The Company
     has  elected to  continue  to apply the  provisions  of APB  Opinion 25 and
     provide  the pro forma  disclosure  provisions  of SFAS 123 for the ISO and
     Directors' Plans.

     The Company's 1995 Consultant's plan (the " Consultant's  Plan") allows for
     the granting of options to both  organizations  and individuals who are not
     employees of the Company.  The Company  accounts for the options granted to
     non-employees based on the provisions of SFAS 123.

     Segment Reporting

     In June 1997, the Financial  Accounting Standards Board issued SFAS No. 131
     "Disclosures about Segments of an Enterprise and Related Information." This
     standard is effective for reporting periods beginning January 1, 1998. SFAS
     No. 131 amends the requirements for public  enterprises to report financial
     and  descriptive  information  about  its  reportable  operating  segments.
     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:
     Specialized Groups, Regional Operations, and Contractors Resources.

     Reclassifications

     Certain  1997 and 1996  amounts  have been  reclassified  to conform to the
     current year presentation.

     Use of Estimates

     The  preparation of  consolidated  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.

(3)  Equity Financings

     During 1998, the Company has raised  additional  equity,  excluding  equity
     securities issued in acquisitions, totaling $6,267,510 as follows:

     In February  1998 the Company  raised  $100,000  through the sale of 80,000
     shares  of  un-registered  Common  Stock  plus a  warrant  to  purchase  an
     additional 100,000 shares of Common Stock at $1.20.

     In March 1998 the  Company  raised  $1,457,000  of  financing  in a Private
     placement raised  primarily from accredited  investors and employees of the
     Company.  The Company issued 1,457,000 shares of un-registered Common Stock
     to  purchasers  who have agreed not to sell or otherwise  distribute  their
     shares for a period of one year. These restricted shares carry registration
     rights and were offered at $1.00 per share.

     On April 7, 1998  Netplex  completed  the sale of 1,500  units of a Private
     placement,  totaling $1.5 million  ($1.2 million after fees and  expenses).
     The sale represents the first half of a transaction  that could include the
     sale of an  additional  1,500  units  for $1.5  million  at a future  date,
     subject to the  satisfaction of certain  conditions.  Each unit sold in the
     private  placement  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  additional  incentive  warrant to acquire 52 shares of Common Stock
     (or an  aggregate  of 78,000  shares of Common  Stock).  The  Company  also
     granted the placement  agent a warrant to purchase  39,000 



                                      F-14
<PAGE>


     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 second half
     of the  transaction  would be for the sale of an  additional  and committed
     1,500 units, for $1,000 per unit.

     In April 1998 the  Company  raised  $198,000  of  financing  in two Private
     placements raised from accredited  investors.  The Company issued shares of
     un-registered  Common  Stock to  purchasers  who have agreed not to sell or
     otherwise  distribute  their  shares  for  a  period  of  one  year.  These
     restricted shares carry  registration  rights and were offered at $1.375 to
     $1.50 per share.

     On August 28, 1998, the Company  raised  $592,000 of financing in a private
     placement to accredited investors.  The Company issued un-registered shares
     of Common  Stock to  purchasers  who have  agreed not to sell or  otherwise
     distribute their shares for a period of one year.  These restricted  shares
     carry registration rights and were offered at $1.3125 per share.

     On September  28, 1998,  the Company  completed  the sale of 1,700 units of
     prepaid Common Stock  purchase  warrants in a Private  placement,  totaling
     $1.5  million  ($1.3  million net of  expenses).  The prepaid  warrants are
     exercisable  in shares of Common  Stock of the  Company as is  computed  by
     dividing  $1,700,000 by 125% of the fixed exercise  price of $1.3938,  with
     respect to any exercise  within thee first year, and the lower of the fixed
     exercise  price and a variable  exercise price (subject to a floor price of
     $1.00),  with respect to any exercise after the first year. As part of this
     transaction,  the Company also issued to the holders,  warrants to purchase
     141,667  shares of Common Stock at an exercise  price of $1.3938 per share.
     In  connection  with the  issuance of these  warrants,  the Company  issued
     50,000 shares of its Common Stock to the placement agent.

     On September 30, 1998, the Company  completed the sale of 1,500,000  shares
     of its Class C Convertible  Preferred Stock and warrants to purchase Common
     Stock for $1.5 million (1.3 million net of expenses). The Class C Preferred
     Stock  bears  a  dividend  rate  of  9.99%  for  the  first  year,  and 15%
     thereafter.  The  Preferred  Stock is  convertible  at any time  after  the
     earlier of a change in  control of the  Company or five years from the date
     of  issuance.  The  number of shares  into  which  the  Preferred  Stock is
     convertible  is equal to  $1,500,000  (plus  accrued but unpaid  dividends)
     divided by 25% of the 20 day  average  trading  price of the  Common  Stock
     immediately prior to conversion. In accordance with EITF Topic No. D-60 and
     Issue 98-5, the Company has measured the intrinsic  value of the beneficial
     conversion  feature of the Preferred  Stock to be $1,500,000.  As a result,
     the Company  will  accrete  this  discount as  additional  Preferred  Stock
     dividends  over the five years.  During 1998, the accretion of the discount
     of  approximately  $53,000  was  reported  as  additional  Preferred  Stock
     dividends in the Company's EPS calculation. The warrants issued entitle the
     holder to acquire  150,000 shares of Common Stock at $1.375 per share.  The
     Company  may be  required to issue up to an  additional  450,000  shares of
     Common Stock under the warrants, depending upon the term in which the Class
     C Preferred Stock is outstanding.  The Preferred Stock is redeemable at the
     option  of the  Company  at any  time  within  the  first  five  years.  In
     connection  with the issuance of this  Preferred  Stock and  warrants,  the
     Company issued warrants to purchase 250,000 shares of Common Stock at $1.59
     per share to the placement agent.

(4)  Liquidity

     Based on its current  operating  plan,  the Company  believes  that the net
     proceeds from the private  placements  together with cash anticipated to be
     provided by operating activities and amounts expected to be available under
     the line of credit will be  sufficient to meet its  anticipated  cash needs
     for  working  capital  and  capital  expenditures  for at least the next 12
     months.  If cash generated from  operations is  insufficient to satisfy the
     Company's liquidity  requirements,  the Company may seek to sell additional
     equity  or  convertible  debt  securities  or  obtain   additional   credit
     facilities.  However,  no assurance  can be given that any such  additional
     sources of financing  will be available on acceptable  terms or at all. The
     sale of additional  equity or convertible  debt securities  could result in
     additional  dilution  to  the  Company's  stockholders.  A  portion  of the
     Company's  cash may be used for  acquisitions  or to  acquire  or invest in
     complimentary  businesses  or  products  or to  obtain  the  right  to  use
     complementary technologies.

     The Company will continue to make significant  investments in its technical
     workforce, marketing, training and infrastructure to increase productivity,
     build its core  competency  practice unit skill base and product  offerings
     and foster growth of its operations.


                                      F-15
<PAGE>


(5)  Discontinuance of  Business 

     In December 1996, the Company made the decision to discontinue its software
     development and distribution  business,  through the sale of TDS's interest
     in its WorldLink product technology  ("WorldLink").  WorldLink  represented
     the  primary  asset  offering of the  Company's  software  development  and
     distribution  business.  The  operations  of the software  development  and
     distribution  business  have been  treated as  discontinued  operations  in
     accordance with the provisions of Accounting  Principles  Board Opinion No.
     30 (APB 30). Pursuant to APB 30, the revenue,  costs and expenses have been
     excluded  from their  respective  captions  in the  Company's  consolidated
     statements of operations and the net results have been reported  separately
     as income from discontinued operations.

     On December 31,  1996,  the Company  completed  the sale of its interest in
     WorldLink to XcelleNet,  Inc. for an aggregate  sale price of $2.5 million,
     net of expenses paid of approximately  $500,000 related to the sale. During
     1996,  the  remaining  net  assets  of TDS were  written  down to their net
     realizable  values and  consisted  primarily  of  accounts  receivable  and
     furniture  and  equipment,  which the  Company  is using in its  continuing
     operations.

(6)  Property and Equipment

     Property and equipment consists of the following:

                                                       December 31,
                                                ---------------------------
                                                    1998           1997
                                                -----------    -----------

    Computer software                           $   896,134    $   493,935
    Computer and office equipment                 1,011,359        628,537
    Furniture and fixtures                          907,679        188,563
    Equipment under capital leases                  598,653        335,197
    Leasehold improvements                          101,682         38,520
                                                -----------    -----------
                                                  3,515,507      1,684,752

    Accumulated depreciation and amortization    (1,810,532)      (732,206)
                                                -----------    -----------

    Property and equipment, net                 $ 1,704,975    $   952,546
                                                ===========    ===========


     Computer  software at December 31, 1998 includes  $407,338 of software that
     was  developed for internal  usage.  Such software was placed in service in
     January 1997 and is being amortized over a 4-year useful life.  Accumulated
     depreciation  related to this software was $172,000 and $70,000 at December
     31,  1998 and 1997.  Accumulated  depreciation  and  amortization  includes
     $445,344,  and $119,925  related to assets under capital leases at December
     31, 1998 and 1997, respectively.

(7)  Accrued Expenses

     Accrued expenses consists of the following:

                                                  December 31,
                                            -----------------------
                                               1998         1997
                                            ----------   ----------

            Payroll and employee benefits   $5,403,764   $2,954,522
            Other                            1,014,562      428,502
                                            ----------   ----------
                                            $6,418,326   $3,383,024
                                            ==========   ==========


(8)  Notes Payable to Bank

     On  September  29,  1998,  the Company  entered into a renewed bank line of
     credit facility agreement that expires on May 31, 2000. This line of credit
     facility provides for advances of 80% of eligible  accounts  receivable (as
     defined in the agreement) up to $6,000,000.  Amounts borrowed bear interest
     at the bank's prime rate plus 3/4% (8.5% at December 31, 1998). The Company
     had outstanding advances of $4,041,000 and $1,316,300 on the 


                                      F-16
<PAGE>


     line of credit at December 31, 1998 and 1997, respectively.  The Company is
     required to maintain a tangible  net worth of  $2,100,000  through June 29,
     1999 and  $2,750,000  thereafter.  The Company was not in  compliance  with
     certain  covenants  and has  obtained a waiver from the bank as of December
     31, 1998.  The Company is in compliance  with this covenant at December 31,
     1998.

(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, 1998,
     1997 and 1996 is as follows:

                                                         1998     1997     1996
                                                        -----    -----    ----- 
                                                             (in thousands)
Computed expected tax benefit on income from
continuing operations                                   $(867)   $(977)   $(857)
Non-deductible expenses:
  Change in valuation allowance for deferred tax          576      699      873
  assets
  Meals                                                   291      198      --
  Other                                                   --        80      (50)
                                                        $ --     $ --     $ (34)
                                                        =====    =====    =====


     The tax  effects of  temporary  differences  that give rise to  significant
     portions of deferred taxes assets and deferred tax  liabilities at December
     31, 1998, 1997 and 1996 are presented below:


<TABLE>
<CAPTION>
                                                            As of December 31,
                                                      -----------------------------
                                                        1998       1997       1996
                                                      -------    -------    -------
                                                              (in thousands)
<S>                                                   <C>        <C>        <C>    
Deferred tax assets:
     Net operating loss carryforwards                 $ 4,272    $ 4,010    $ 2,794
     Research and development credit carryforwards        187        187        187
     Excess  tax  basis  over  book  of net  assets       302        180        200
     acquired
     Inventory obsolescence reserve                       108         56         59
     Allowance for doubtful accounts receivable           146         48         74
     Accrued liabilities, not presently deductible       --            8        496
     Other                                               --         --           12
                                                      -------    -------    -------
         Total gross deferred tax assets                5,015      4,489      3,822
         Less valuation allowance                      (4,700)    (4,489)    (3,790)
                                                      -------    -------    -------
           Net deferred tax asset                         315       --           32
                                                      -------    -------    -------

Deferred tax liabilities:
     Intangible assets acquired                          (315)      --         --
     Obligation under capital leases                     --         --          (13)
     Other                                               --         --          (19)
                                                      -------    -------    -------
         Total deferred tax liabilities                  (315)      --          (32)
                                                      -------    -------    -------

         Net deferred tax asset (liability)           $  --      $  --      $  --
                                                      =======    =======    =======
</TABLE>


     The net change in the  valuation  allowance  in 1998,  1997,  and 1996 were
     increases of $211,000, $699,000,  and$$699,000,  respectively.  The Company
     has  provided a valuation  allowance  for the  majority of its deferred tax
     assets at December 31,  1998,  1997,  and 1996 since 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.


                                      F-17
<PAGE>


     As of December 31, 1998 the Company had net operating  loss carry  forwards
     (NOL's)  for Federal  income tax  purposes  of  approximately  $12,563,000.
     Additionally,  the Company had  $187,000 of research  and  development  tax
     credits  available to offset future  taxable  income.  The NOL's and credit
     carryforwards expire primarily in 2007 through 2018.The future annual usage
     of  approximately  $9,600,000  of these  NOL's and  credits  for income tax
     purposes is subject to annual  limitations and other conditions and may not
     be fully utilized for tax purposes due to the change in ownership resulting
     from the Company's merger in 1996.

(10) Commitments

     Employment Agreements

     The  Company  has  entered  into  employment  agreements  with  several key
     employees  of the  Company.  At December 31,  1998,  the  Company's  annual
     obligation under the agreements is approximately  $923,183per year over the
     next three years.

     Obligations Under Leases

     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, 1998:


                                                         Capital      Operating
      Year ending December 31:                           Leases        Leases
                                                         -------      ---------
           1999                                       $  110,685      $1,025,670
           2000                                           36,168       1,027,468
           2001                                           14,472         794,042
           2002                                           14,472         666,121
           2003                                            2,363         295,320
        Thereafter                                           --              --
                                                      ----------      ----------
      
      Total  minimum lease payments                      178,160      $3,808,621
                                                                      ==========
      
      Less: amount representing interest                  22,944
                                                      ----------
      
      Present value of minimum lease payments         $  155,216
                                                      ==========
      
     Total rent expense was approximately  $900,000,  $647,000, and $577,000 for
     the years ended December 31, 1998, 1997, and 1996.

(11) Preferred Stock

     On July 29, 1998,  at the Company's  annual  meeting of  shareholders,  the
     number of authorized shares of Preferred Stock was increased from 2,000,000
     to 6,000,000.

     Class A Cumulative Convertible

     0n September 19, 1996, the Company raised approximately  $3,000,000 through
     the  completion  of  a  Private  placement  offering  of  units  of  equity
     securities.  Each unit of equity  securities  consists of one share of $.01
     par value Class A Cumulative  Convertible  Preferred  Stock (the "Preferred
     Stock") and one Common Stock warrant to purchase one share of the Company's
     $0.001 par value Common Stock at an exercise price of $2.50.

     Each share of Preferred Stock is convertible into one share of Common Stock
     at any time,  at the  discretion of the holder.  The Preferred  Stock earns
     cumulative dividends at 10% per annum, payable in either cash or additional
     shares  of  Preferred  Stock  at  the  Company's  option.  Subject  to  the
     conversion rights, the Company may redeem the Preferred Stock at its stated
     value plus all accrued and unpaid  dividends upon: (1)  registration of the
     shares underlying the Preferred Stock, 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  Preferred  Stock has a per 


                                      F-18
<PAGE>


     share  liquidation  preference  of the greater of: (i) two times the stated
     value  of the  Preferred  Stock  (stated  value is $2 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.  During the years ended December 31, 1998
     and 1997,  141,865 and 687,500  preferred  shares were  converted to Common
     Stock. No conversions occurred in 1996.

     Each  warrant  issued  in  connection  with the  Private  placement  became
     exercisable  on March 19,  1997 and  expires on  September  19,  2001.  The
     Company has the right to call the  warrants at a  redemption  price of $.01
     per share upon: (1) registration of the shares underlying the warrant,  and
     (2) 30 days  written  notice  given  at any  time  upon  the  Common  Stock
     attaining  certain per share trading prices and maintaining such prices for
     a specified  period.  During 1997,  warrants to acquire  175,000  shares of
     Common Stock were  exercised.  No warrants to acquire share of Common Stock
     were exercised in 1998.

     Class B Convertible

     On October 16, 1998, the Company  completed the purchase of the information
     technology  consulting  business  of Applied  Intelligence  Group,  Inc. of
     Oklahoma City ("AIG") effective September 1, 1998. In consideration for the
     purchase,  the Company paid $3,000,000 and issued 643,770 shares of Class B
     Preferred  Stock  valued at  $1,000,000  at closing.  The Class B Preferred
     Stock is convertible into Common Stock of the Company at anytime on a share
     for share  basis.  No dividends  are payable on the  Preferred  Stock.  The
     holders  of the  Preferred  Stock  have  agreed  not to sell  or  otherwise
     distribute the Common Stock  underlying the Preferred Stock for a period of
     one year.

     Class C Cumulative Convertible

     See  Note 3  "Equity  Financings"  for  details  related  to the  Company's
     issuance of Class C Cumulative  Convertible  Preferred  Stock in connection
     with  the  financing  of  its  acquisition  of the  information  technology
     consulting business of Applied Intelligence Group.

(12) Common Stock and Warrants

     On July 29, 1998,  at the Company's  annual  meeting of  shareholders,  the
     number of authorized shares of Common Stock,  $.001 par value was increased
     from 20,000,000 to 40,000,000.

     In connection with the merger of the Company with Netplex,  effective April
     11, 1996, the Company provided its  underwriters  with warrants to purchase
     up to 125,000 shares of the Company's  Common Stock.  Each warrant entitles
     the holder to purchase,  through April 10, 2001,  one share of Common Stock
     at an exercise price of $3.50 per share.  These warrants became exercisable
     on October 11, 1996. The fair value of the warrants issued of approximately
     $170,000 had no effect on the Company's equity as a result of the merger.

     In connection  with the merger of the Company with Netplex,  effective June
     7, 1996, the  shareholders of Netplex were granted  warrants to purchase up
     to 150,000 shares of the Company's Common Stock.  Each warrant entitles the
     holder to purchase,  through June 6, 2001,  one share of Common Stock at an
     exercise  price of $2.50 per share.  These warrants  became  exercisable on
     October 7, 1996.  The fair value of the  warrants  issued of  approximately
     $270,000 had no effect on the Company's equity as a result of the merger.

     In  connection  with  the  Class  A  Convertible  Preferred  Stock  Private
     placement,  the Company provided the underwriters for the Private placement
     with the option to  purchase up to 87,500  units,  each  consisting  of one
     share of $.01 par value Class A Convertible  Preferred Stock and one Common
     Stock purchase warrant.  These units are exercisable at $2.00 per share and
     are  identical in all  respects to the units sold in the Private  placement
     transaction.  During 1997,  units to acquire 50,000 shares of the Company's
     Common  Stock were  exercised.  The  37,500  units are all  exercisable  at
     December 31, 1998.

     During 1998, the Company issued  warrants in connection with several equity
     issues (see Note 3 "Equity Issuances").


                                      F-19
<PAGE>


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

                                            Shares    Price
                                          ---------   -----
                     December 31, 1995    2,070,000   $2.64
                              Issued        225,000    2.83
                              Exercised        --      --
                                          ---------   -----
                     December 31, 1996    2,295,000   $2.66
                              Issued           --      --
                              Exercised        --      --
                                          ---------   -----
                     December 31, 1997    2,295,000   $2.66
                              Issued        814,102    1.29
                              Exercised        --      --
                                          ---------   -----
                     December 31, 1998    3,109,102   $2.30
                                          =========   =====
     

     As of December 21, 1998 and 1997 all of the warrants were  exercisable  and
     had an  average  remaining  life of 3 years  and 4 years for 1998 and 1997,
     respectively.

(13) Stock Options

     As of December 31, 1998,  the Company  maintains  three stock option plans;
     the 1992 Incentive Stock Option Plan (ISO Plan),  the 1995 Directors' Stock
     Option Plan (Directors'  Plan), and the 1995 Consultant's Stock Option Plan
     (Consultant's Plan).

     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
     3,000,000  shares of the Company's  authorized  but unissued  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 in the case  that the  optionee  is a holder  of more than 10% of the
     voting stock of the Company). Generally the options vest ratably and become
     fully  exercisable after 3 years from the date of grant but never less than
     6 months.  At December 31, 1998,  there were 514,800  shares  available for
     grant under this plan.

     The  Directors'  Plan  authorizes  the Board of  Directors to grant to each
     director  options  to  purchase  up  to  15,000  shares  of  the  Company's
     authorized but unissued Common Stock, upon election to the Board, and award
     aggregate  options  to  purchase  up to  300,000  shares  of the  Company's
     authorized  but unissued  Common Stock.  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. Option
     grants  under  this Plan from  inception  to date have  contained  two-year
     vesting periods.  At December 31,1998,  there were 210,000 shares available
     for grant under this Plan.

     The   Consultant's   Plan  authorizes  the  Board  of  Directors  to  grant
     organizations or individuals who are not eligible for the ISO or Directors'
     Plans  stock  options to  purchase  up to 800,000  shares of the  Company's
     authorized  but unissued  Common Stock.  The exercise  price,  terms of the
     option grant and vesting period for the Consultant's Plan stock options are
     at the Board's discretion.  At December 31,1998,  there were 376,172 shares
     available for grant under this Plan.


                                      F-20
<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> 
     December 31,1995                            724,500         $3.07            30,000        $3.56              --          $--

Assumed in Merger                              1,691,000          2.95              --           --                --           --
Granted                                          233,000          2.75            30,000         2.50              --           --
Exercised                                           --            --                --           --                --           --
Forfeited/Canceled                              (236,000)         5.50              --           --                --           --
Expired                                             --            --                --           --                --           --
                                              ----------         -----        ----------        -----        ----------        -----

     December 31, 1996                         2,412,500         $2.86            60,000        $3.03              --          $--

Granted                                        2,363,500          1.29            15,000         2.97            32,000         2.50
Exercised                                        (34,967)         2.00              --           --                --           --
Forfeited/Canceled                            (2,201,033)         2.78           (15,000)        2.50              --           --
Expired                                          (50,000)         4.40              --           --                --           --
                                              ----------         -----        ----------        -----        ----------        -----

     December 31, 1997                         2,490,000         $1.45            60,000        $3.15            32,000        $2.50

Granted                                          879,150          1.36            30,000         1.28           391,828         0.94
Exercised                                        (19,500)         0.97              --           --                --           --
Forfeited Canceled                              (864,450)         2.04              --           --                --           --
Expired                                             --            --                --           --                --           --
                                              ----------         -----        ----------        -----        ----------        -----

     December 31, 1998                         2,485,200          1.13            90,000         2.53           423,828         1.49
                                              ==========         =====        ==========        =====        ==========        =====
</TABLE>


     ISO Plan options

     At December  31,1998,  the range of exercise prices for the options granted
     under  the ISO plan was  $0.97-$2.00  and the  weighted  average  remaining
     contractual  life of those options was 8.9 years.  At December 31, 1998 and
     1997, the number of options  exercisable under the ISO Plan totaled 936,750
     and 545,834,  respectively.  The weighted  average  exercise price of those
     options was $1.08, and $2.73, respectively.

     Directors' Plan options

     At December  31,  1998,  the range of exercise  prices for options  granted
     under  the  Directors'  Plan  was  $1.06-  $3.56  and the  weighted-average
     remaining  contractual life of those options was 8.2 years. At December 31,
     1998 and 1997 the number of options  exercisable  under the Directors' Plan
     totaled  52,500 and 25,000,  respectively.  The  weighted-average  exercise
     price of those options was $3.17 and $3.55, respectively.

     Consultants' Plan options

     At December 31, 1998, the range of exercise  price for all options  granted
     under the  Consultants'  Plan was  $1.25 to $2.50 and the  weighted-average
     remaining  contractual life of those options was 4.1 years. At December 31,
     1998 and 1997 the number of options exercisable under the Consultants' Plan
     totaled 432,828 and 32,000, respectively.  No options were granted prior to
     1997.  The  weighted-average  exercise price of those options was $1.49 and
     $2.50 at December 31, 1998 and 1997, respectively. The Company accounts for
     the options  granted under the  Consultant's  Plan in accordance  with SFAS
     123. As a result,  the  Company  recorded  compensation  expense of $40,000
     during  1997 for the  32,000  options  granted,  based on the  value of the
     services  provided.  The  options  granted  during  1998  were  granted  in
     connection with certain equity issues, and as a result had no impact on the
     financial statements.


                                      F-21
<PAGE>


     The  Company  applies  APB  Opinion  No. 25 in  accounting  for its ISO and
     Directors' Plans and, accordingly, no compensation cost 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:

                                               1998         1997         1996
                                            (Thousands except per share amounts)

       Net loss - As reported                $(2,549)     $(2,874)     $(1,999)
                                             =======      =======      =======
       Net loss - Pro forma                  $(3,466)     $(4,836)     $(3,462)
                                             =======      =======      =======
       Net loss per share - As reported      $ (0.31)     $ (0.46)     $ (0.42)
                                             =======      =======      =======
       Net loss per share - Pro forma        $ (0.37)     $ (0.71)     $ (0.71)
                                             =======      =======      =======
       Weighted average shares outstanding     9,260        6,821        5,026
                                             =======      =======      =======
                                                                    
                                                                    
     The per share  weighted  average  fair value of the ISO options  granted in
     1998, 1997, and 1996 was $1.17,  $1.20, and $1.83 respectively on the grant
     date using the Black - Scholes  option  pricing  model  with the  following
     weighted average assumptions:

     o    1998:  expected dividend yield 0.0%, risk free interest rate of 5.36%,
          expected volatility of 106%, and an expected life of 6.75 years

     o    1997:  expected dividend yield 0.0%, risk free interest rate of 6.24%,
          expected volatility of 103%, and an expected life of 10 years

     o    1996:  expected dividend yield 0.0%, risk free interest rate of 6.70%,
          expected volatility of 44%, and an expected life of 10 years.

     The per share weighted  average fair value of the  Directors'  Plan options
     granted in 1998, 1997 and 1996 was $1.02,  $2.76 and $1.67  respectively on
     the grant  date  using the Black - Scholes  option  pricing  model with the
     following weighted average assumptions:

     o    1998 expected  dividend yield 0.0%,  risk free interest rate of 5.27%,
          expected volatility of 106%, and an expected life of 5 years

     o    1997:  expected dividend yield 0.0%, risk free interest rate of 6.97%,
          expected volatility of 103%, and an expected life of 10 years

     o    1996:  expected dividend yield 0.0%, risk free interest rate of 6.81%,
          expected volatility of 44%, and an expected life of 10 years.

(14) Related Party Transactions

     The Company paid  $23,756 in 1998,  $28,800 in 1997 and $17,900 in 1996 for
     accounting, tax and consulting services to a CPA firm in which a partner of
     the firm has been a director of the Company since July 1996.

     In January 1997, the Company issued a $150,000 loan to the chief  executive
     officer for  relocation  expenses.  The loan bears interest at 8% per annum
     and is due in January 2002.

     In June 1997,  the Company issued  options under the  Consultants'  Plan to
     purchase up to 32,000 shares of the  Company's  Common Stock at an exercise
     price  of  $2.50  per  share.  These  options  were  granted  to one of the
     Company's  legal  counsel in exchange  for legal  services  rendered in the
     amount of $40,000. The fair value of the options issued of $40,000 has been
     classified as additional paid in capital in the  accompanying  consolidated
     financial  statements for the year ended December 31, 1997. The options are
     for a term of 4 years and are immediately exercisable.



                                      F-22
<PAGE>


     A director  of the  Company is a Vice  President  of the  underwriter  (the
     "Underwriter")  of  the  Private  placement  completed  by the  Company  on
     September  19,  1996.  The Company paid the  Underwriter  $432,500 for fees
     associated with the completion of this transaction.

     The  Company  contracted  with an  entity  owned  by a  shareholder  of the
     Company,  for the  development  of certain  software  used in the Company's
     technical staffing operations. The Company paid the shareholder $150,000 in
     1996.

(15) Litigation

     From time to time,  the Company is subject to  litagation  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  TDS and the
     Company,  alleging  copyright  infringement  and  breach  of the  Company's
     agreement. The Complaint claims damages in excess of $300,000 plus punitive
     damages.  The agreement  included a licensing fee payable to the Company by
     DSA on revenue from the  licensing by DSA of software  purchased  under the
     agreement.  The licensing fee is payable for the three years  following the
     effective  date of the  agreement at 12%,  10%, and 5%,  respectively.  The
     Company has received no significant  licensing  fees. The case is currently
     in discovery.  In the opinion of Management,  the lawsuit has little merit,
     and the outcome of the  pending  lawsuit  will not have a material  adverse
     effect on the Company's  financial  condition,  liquidity or the results of
     operations. The Company intends to vigorously defend against the lawsuit.

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

(16) Employee Benefit Plans

     During 1996, the Company  sponsored a 401(k)  retirement  plan ("the Plan")
     under  which   substantially  all  full-time  employees  were  eligible  to
     participate.  The Company made no matching contributions to the Plan during
     1996. In addition,  the Company's CR subsidiary  provided a separate 401(k)
     plan for its  employees  during 1996.  The  Company's  contribution  to the
     subsidiary's 401(k) plan during 1996 was $628,333.

     On January 1, 1997,  the Company and  subsidiary  401(k) plans were merged.
     Under the  merged  Plan,  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 1998 and 1997 was $704,333  and  $647,418,
     respectively.

     The  Company's  CR  subsidiary  provides  a  profit  sharing  plan  for its
     employees  whereas up to 10% of the employees  salary can be contributed to
     the plan.  The Company made no matching  contributions  to this plan during
     1998, 1997, and 1996.

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

(17) 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 through out the United States.

     The Company's reportable segments are as follows:

     --   Specialized   Practice  Groups  (SPG)--provides  global   specialized
          solutions  that  build,  manage,  and protect  customers'  information
          systems and the networks upon which they run.

     --   Regional  Operations  (RO)--provides  local  systems  integration  and
          technical consulting services within regional markets.

     --   Contractors   Resources   (CR)--provides    professional   independent
          contractors with "back office" services that eliminate the distraction
          and expense of tedious  administrative  duties,  thus allowing them to
          focus on growing their business without incorporating.

     The Specialized  Practice Groups Segment  consists of three business units:
     Enterprise  Management Systems,  Business Protection Services,  and Applied
     Intelligence Group.


                                      F-23
<PAGE>


     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"). Intersegment revenues are immaterial.

     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, 1998, 1997, and 1996:

                                                             Segment
                            SPG         RO          CR        Total
                         --------    --------    --------    --------

          1998:
          Revenues       $  8,385    $ 18,013    $ 34,881    $ 61,279
          Gross profit      4,831       5,802       1,332      11,965
          EBITDA              247       1,330         167       1,744
          Total assets      8,378       6,794       4,269      19,441
          ===========================================================
          1997:
          Revenues       $  3,329    $  5,191    $ 32,048    $ 40,468
          Gross profit      2,062       1,894       1,096       5,052
          EBITDA             (435)       (395)        (73)       (903)
          Total assets      1,685         913       3,094       5,692
          ===========================================================
          1996:
          Revenues       $  3,358    $  3,725    $ 26,442    $ 33,525
          Gross profit        835         676       1,135       2,646
          EBITDA              178        (752)         54        (520)
          Total assets      1,647         521       3,116       5,284
          ===========================================================

Reconciliation of Segment Profit or (Loss) to (Loss) from Continuing Operations

                                               1998         1997         1996
                                             -------      -------      -------
     
     Segment EBITDA                          $ 1,744      $  (903)     $  (520)
     Unallocated corporate expenses           (3,055)      (1,480)      (1,378)
     Depreciation & amortization              (1,084)        (464)        (588)
     Interest expense, net                      (154)         (26)          33
     Tax expense                                --           --            (34)
                                             -------      -------      -------
     (Loss) from continuing operations       $(2,549)     $(2,873)     $(2,487)
                                             =======      =======      =======

(18) Restructuring Charge

     The Company  recorded a  restructuring  charge of $275,000 during the third
     quarter  of 1998,  related  to the  reduction  of  duplicate  costs and the
     consolidation  of  facilities,   including  severance  costs.  The  Company
     recorded  $115,000  during the forth quarter of 1998, as a reduction to the
     restructuring  charge,  resulting from an update of the Company's estimated
     restructuring costs.

(19) Subsequent Events

     On January 28, 1998, the Company raised  $800,000 of financing in a private
     placement  to  accredited  investors;  the Company  issued a note  payable,
     subordinated  to its line of  credit  with the  bank.  The note is  payable
     February 24, 2004 and bears interest at 14% payable monthly.

     .

                                      F-24