SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    Form 10-K
(Mark One)


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

       For the fiscal year ended   December 31, 1998

[   ]  TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
       ACT OF 1934 [NO FEE REQUIRED]

       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.

<PAGE>
                               INDEX TO FORM 10-K

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

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

      Item 2. Properties.....................................................11

      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........................................14

      Item 7. Management's Discussion and Analysis of Financial Condition
      and Results of Operations..............................................15

      Item 8. Financial Statements and Supplementary Data....................21

      Item 9. Changes In and Disagreements with Accountants on Accounting
      and Financial Disclosure...............................................21

PART III.....................................................................22

      Item 10.  Directors, Executive Officers, Promoters and Control
      Persons; Compliance With Section 16(a) of the Exchange Act.............22

      Item 11.  Executive Compensation.......................................23

      Item 12.  Security Ownership of Certain Beneficial Owners
      and Management.........................................................26

      Item 13.  Certain Relationships and Related Transactions...............27

PART IV......................................................................28

      Item 14.  Exhibits and Reports on Form 8-K.............................28

      Signatures.............................................................30



<PAGE>
                                     PART I

ITEM 1. BUSINESS.

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
"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.

The Netplex Group,  Inc.  (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 if 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
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
on 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 Technical Consulting Services businesses with an eye toward providing
a full range of services

                                       3
<PAGE>
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,  call 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 19971 and International Data Corporation expects the industry to
grow more than 80% by 20022.  Meanwhile,  demand for the technical talent needed
to perform these services is increasing due to a 42% decline in computer science
graduates3  coupled  with only a 5.5% per year growth rate for the total U.S. IT
workforce4.  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 years5.

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 high-margin  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.

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 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.

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.

<TABLE>
<CAPTION>

Specialized Practice Groups        Regional Operations           Contractors Resources
---------------------------        -------------------           ---------------------

<S>                              <C>                             <C>
o  E-Commerce Systems            o  All Systems Integration      o  Contractors Resources
   (ECS)                            units
o  Applied Intelligence          o  All Technical Consulting
   Group (AIG) (Retail              Services units
   Industry Systems
   Solutions)

o  Business Protections
   Services (BPS)

o  Enterprise Systems
   Management (ESM)
</TABLE>

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.


                                       7
<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  continues  to add new clients  regularly.  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 prominent  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,  Netplex's  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 the company's
Wide Area Network  (WAN),  the corporate 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 its 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.

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


                                       11
<PAGE>
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..............................................  $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.


                                       13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Year ended December 31
<TABLE>
<CAPTION>

                                                                               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>
                                       14

<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.

                                       15
<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
<TABLE>
<CAPTION>

                                                                    Year Ended December 31,
                                                   ----------------------------------------------------------
                                                       1998               1997                  1996
                                                   ---------------------------------    ---------------------
     Revenues
<S>                                                 <C>           <C>                    <C>             
          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                  1,146                  1,081
                                                     ---------    -------------------    ------------------
               Business unit expenses                 10,220                  5,932                 3,166
                                                     ---------    -------------------    ------------------

     Business unit income (loss)
          Specialized Practice Groups                    246                   (435)                  179
          Regional Operations                          1,331                   (395)                 (752)
          Contractors Resources                          167                    (50)                   54
                                                     ---------    -------------------    ------------------
               Business unit income (loss)             1,744                   (880)                 (519)
                                                     ---------    -------------------    ------------------

     Corporate expenses                                2,514                  1,502                 1,733
     Inventory write-off                                  131      -                     -
     Restructuring Costs                                 160       -                     -
     Acquired in process technology                      250       -                     -
                                                     ---------    -------------------    ------------------
          Total corporate and other costs              3,055                  1,502                 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)
                                                     =========    ===================    ==================
</TABLE>


                                       16
<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 $880,000 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

                                       17
<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.

                                       18
<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
$65,000, 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  $880,000  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.

                                       19
<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
-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  debt  securities  or  sell  additional   equity
securities. However, no assurances can be given that any such addition


                                       20
<PAGE>

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 AND 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.

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.

                                      21

<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  has been a Director of the Company  since  September  1997 and
became its Chief  Operating  Officer in June 1998. Mr.  Lagattuta  served as the
President and Chief Operating Officer of CompuLaw, Ltd. of Los


                                       22
<PAGE>
Angeles 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.

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
awarded to,  earned by or paid Gene Zaino,  the  President  and Chief  Executive
Officer  of the  Company,  and all  compensation  paid to Robert  Skelton,  Vice
President  -  Corporate  Development,  General  Counsel,  and  Secretary  of the
Company.  In June 1996,  the Company  merged with the Netplex and America's Work
Exchange  ("AWE"),  compensation paid for periods prior to June 1996 constitutes
compensation paid by Netplex or AWE. The Company had no executive officer, other
than Mr. Zaino and Mr. Skelton,  whose salary  exceeded  $100,000 for year ended
December 31, 1998. The total  compensation paid to all executive officers of the
Company in the year ended December 31, 1998, was $380,721.

                                       23
<PAGE>
<TABLE>
<CAPTION>

                           Summary Compensation Table
                                                                                       Long-Term
                                            Annual Compensation                       Compensation

                                                                                         Awards
                                           ----------------------------------------   -------------
                                                                                         Securities

Name and Principal Position    Fiscal      Salary($)      Bonus($)   Other Annual        Underlying           All Other
---------------------------                ---------     --------
                                Year                                 Compensation($)     Options(#)           Compensation($)
                                ----                                 ---------------     ----------           ---------------
<S>                             <C>         <C>             <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 $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
       Employee  Stock Option Plan were  canceled in December  1997.  Options to
       purchase  600,000 shares were  thereafter  issued to Mr. Zaino 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 Employee Stock
       Option Plan were canceled in December 1997 and options to purchase 70,000
       shares were granted  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.

Stock Option Grants

The  following  table sets forth  further  information  with  respect to options
granted to Messrs. Zaino and Skelton:


     Name        Number of    Percent of         Per Share     Expiration Date
                 Securities  Total Options    Exercise Price
                 Underlying   Granted to
                  Options    Employees in
                  Granted     Fiscal Year
--------------  -----------  --------------   ---------------  -----------------
Gene Zaino        600,000         0%              $0.97        December 20, 2007
Robert Skelton     70,000         0%              $0.97        December 20, 2007


                                       24
<PAGE>

Fiscal Year End Option Values

Mr. Zaino and Mr. Skelton exercised no options in the fiscal year ended December
31, 1998.  The  following  table sets forth  certain  information  regarding the
options held by Mr. Zaino and Mr. Skelton at December 31, 1998.

          Aggregate Option Exercises and Fiscal Year-end Option Values

                       Number of Securities
                            Underlying                Value of Unexercised
                      Unexercised Options at               Options at
                       December 31, 1998(1)          December 31, 1998($)(1)
                    -----------------------------  ---------------------------
      Name          Exercisable     Unexercisable  Exercisable   Unexercisable
      ----          -----------     -------------  -----------   -------------
Gene Zaino           300,000          300,000        $27,900       $27,900
Robert Skelton        35,000           35,000         $3,255        $3,255
--------------

(1)  At December  31, 1998 the closing  price of the  Company's  Common Stock as
     reported by the NASDAQ 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 $163,000 per annum,
subject to increase by the Company's Board. Mr. Zaino may also receive an annual
bonus at the sole  discretion of the Company's  Board,  based upon the financial
and operating  performance of the Company.  Mr. Skelton is paid a base salary of
$110,000. Mr. Skelton may also receive an annual bonus at the sole discretion of
the Company's President.

The Company has  key-person  life  insurance  in the amount of $1 million on the
life of 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.


                                       25
<PAGE>

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%
Zanett Lombardier, Ltd.                      1,076,040(3)            9.5%
The viaLink Company                            643,770               6.3%
The Estate of John Thompson                    585,716(4)            5.5%
Waterside Capital Corporation                        0(10)            *
Goldman Sachs Performance Partners LP          591,444(9)            5.5%
Deborah Novick                                  16,250(5)             *
Richard Goldstein                               30,000(6)             *
J. Alan Lindauer                                     0                --
Frank Lagattuta                                 15,500(6)             *
Walton E. Bell, III                               0(7)                --
Robert Skelton                                  35,103(8)             *


Steve Hanau                                     15,000                *

All directors and
   Executive officers as a                   1,757,703(11)          16.5%

   Group(8 persons)
___________________
*  Less than 1%.

(1)  Beneficial  ownership is  determined  in  accordance  with the rules of the
     Securities  and  Exchange  Commission  and  generally  includes  voting  or
     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 person
     holding  such  options  or  warrants  but are not  deemed  outstanding  for
     computing the percentage of any other person.  Based on 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.

Includes 338,420 shares of Common Stock, subject to options or warrants.

                                       26
<PAGE>

(2)  Includes 1,065,836 shares of Common Stock subject to warrants.

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

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

(5)  Includes of 7,500 shares of Common Stock subject to options.

(6)  Started  July 1, 1998 and has  100,000  shares of Common  Stock  subject to
     option, none vested.

(7)  Consists of 35,000 shares of Common Stock subject to options.

(8)  Consists  of a prepaid  warrant  currently  convertible  to 539,310  common
     shares and an incentive warrant for 52,134 common shares.

(9)  Waterside  Capital  Corporation  owns 1,500,000 shares of Class C Preferred
     Stock  which is  convertible  upon the  earlier  of a change in  control or
     September  30,  2003 at 25% of  market  at the time of  conversion,  90,000
     consultants stock options, and 150,000 incentive warrants.

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


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

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.


                                       27
<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 Auditor's 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


     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          The   Company's   Amended  and  Restated   Certificate   of
                     Incorporation.***
        3.2          The Company's By-laws.**
        3.3          Amendment to the Company's Amended and Restated Certificate
                     of Incorporation.*
        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.**



                                       28
<PAGE>

        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******
        23           Consent of KPMG LLP.******
        27           Financial Data Schedule.******

    (b)     The  Company  filed  one  report  Form  8-K/A in the  quarter  ended
            December 31,  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.



                                       29
<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



                                       30
<PAGE>

                                                                     SCHEDULE II

                             THE NETPLEX GROUP, INC.

                        VALUATION AND QUALIFYING ACCOUNTS

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                   Balance at     Additions
                                  beginning of   charged to                         Balance at end 
                                     period      operations   Write-offs    *Other   of period
                                     ------      ----------   ----------    ------  --------------

<S>                                <C>           <C>          <C>           <C>     <C>
Allowance for doubtful accounts

Year Ended:
December 31, 1996                  $       46    $ 140        $       (9)   $  -    $      177
                                   ==========    ==========   ==========    ======  ==========
December 31, 1997                         177            (8)         (36)      -           133
                                   ==========    ==========   ==========    ======  ==========
December 31, 1998                  $      133    $      456   $     --      $ 256   $      589
                                   ==========    ==========   ==========    ======  ==========
</TABLE>


*Amounts represents allowance for bad debts on acquired accounts receivable.



                                       31
<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 based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of 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>
                                                                                          Additional
                                                                       Common Stock         Paid In     Accumulated
                                                                ----------------------
                                                                   Shares         $         Capital        Deficit       Total
                                                               ----------   ---------    -----------    -----------    -----------
<S>                                                             <C>         <C>          <C>            <C>            <C>        
Balance at December 31, 1995                                    3,197,608   $  31,976    $   579,124    $   (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          --       (28,778)        28,778           --             --
    Issuance of common shares in the merger of the
     Company with Netplex                                       3,245,295       3,245      1,767,488           --        1,770,733
    Private placement of Class A Cumulative,
     Convertible Preferred Stock                                     --          --        3,024,346           --        3,041,846
    Preferred Stock dividends                                        --          --          (98,194)          --          (98,194)
                                                               ----------   ---------    -----------    -----------    -----------
Balance at December 31, 1996                                    6,442,903       6,443      5,301,542     (2,086,197)     3,239,288
    Net loss                                                         --          --             --       (2,873,603)    (2,873,603)
    Conversions of Preferred Stock to Common Stock                687,500         687          6,188           --             --
    Exercise of Common Stock warrants                             225,000         225        537,275           --          537,500
    Preferred Stock dividends                                        --          --          (82,500)          --          (82,500)
    Issuance of Common Stock Options                                 --          --           40,000           --           40,000
    Issuance of Common Stock in connection with the
     Onion Peel Solutions, L.L.C. acquisition                      80,000          80        399,920           --          400,000
    Exercise of Common Stock Options                               34,967          35         69,982           --           70,017
                                                               ----------   ---------    -----------    -----------    -----------
Balance at December 31, 1997                                    7,470,370       7,470      6,272,407     (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>
                                                                                         Additional
                                                                  Common Stock            Paid In       Accumulated
                                                         ---------------------------
                                                             Shares          $            Capital         Deficit         Total
                                                         ------------   ------------   ------------    ------------    ------------
<S>                                                       <C>           <C>            <C>             <C>              <C>      
Balance at December 31, 1997                                7,470,370          7,470      6,272,407      (4,959,800)      1,330,702
    Net loss                                                     --             --             --        (2,548,724)     (2,548,724)
    Conversions of Preferred Stock to Common Stock            141,865            142          1,277            --              --
    Dividends Paid in Kind                                       --             --             (669)           --
    Preferred Stock dividends                                    --             --         (304,504)           --          (304,504)
    Private placements of Common Stock                      2,123,000          2,123      2,343,440            --         2,345,563
    Private placements of Prepaid
     Common Stock purchase warrants                              --             --        2,582,490            --         2,582,490
    Issuance of Common Stock in connection
     with the Acquisition of ABS                              450,000            450        590,175            --           590,625
    Issuance of Class B Preferred Stock in
     connection with the Acquisition of AIG                      --             --          993,562            --         1,000,000
    Private placement of Class C Preferred Stock                 --             --        1,324,457            --         1,339,457
    Exercise of Common Stock Options                           19,500             19         18,896            --            18,915
                                                         ------------   ------------   ------------    ------------    ------------
Balance at December 31, 1998                               10,204,735   $     10,204   $ 13,821,531    $ (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.

         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

                                      F-12
<PAGE>
         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  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.


                                      F-14
<PAGE>
         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 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.

(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 assets                  576         699          873
    Meals                                     291         198         --   
    Other                                     --           80          (50)
                                             $--        $  --        $ (34)
                                             ====       =====        =====
                                                                

                                      F-16
<PAGE>

         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)
Deferred tax assets:
<S>                                                                <C>               <C>               <C>    
        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 acquired              302               180               200
        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                      5,091             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.

         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.

                                      F-17
<PAGE>
(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:

<TABLE>
<CAPTION>

                                                                             Segment
                                 SPG             RO             CR            Total      Reconciliation     Total
                                 ---             --             --            -----      --------------     -----
                                                                        (In Thousands)
1998:
<S>                         <C>             <C>           <C>             <C>            <C>             <C>
Revenues                    $   8,385       $  18,013     $   34,881      $  61,279      $      -        $  61,279
Gross profit                    4,831           5,802          1,332         11,965             -           11,965
EBITDA                            247           1,330            167          1,744         (3,055)         (1,311)
Total assets                    8,378           6,794          4,269         19,441          1,210          20,651
===================================================================================================================
1997:
Revenues                    $   3,329       $   5,191     $   32,048      $  40,468      $      -         $ 40,468
Gross profit                    2,062           1,894          1,096          5,052             -            5,052
EBITDA                           (435)           (395)           (51)          (881)        (1,502)         (2,383)
Total assets                    1,685             913          3,094          5,692          1,220            6,912
===================================================================================================================
1996:
Revenues                    $   3,358       $    3,725    $   26,442      $  33,525      $      -         $ 33,525
Gross profit                      835             676          1,135          2,646             -            2,646
EBITDA                            178            (752)            54           (520)        (1,733)         (2,253)
Total assets                    1,647             521          3,116          5,284          4,605           9,889
==================================================================================================================
</TABLE>

(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 fourth quarter of 1998, as a reduction to
         the  restructuring  charge,  resulting  from an update of the Company's
         estimated restructuring cots.

(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