<PAGE>

                      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

       For the fiscal year ended   December 31, 2000
                                  -------------------

                                      Or

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

       For the transition period from                     to
                                     --------------------    ------------------
     .

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

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


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


1800 Robert Fulton Drive, Ste. 250, Reston, VA     20191-4346
-------------------------------------------------------------------------------
(Address of principal executive offices)           (Zip code)

Registrant's telephone number, including area code: (703) 716-4777
                                                    --------------

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

<TABLE>
<CAPTION>
     Title of Each Class             Name of Each Exchange on Which Registered
---------------------------------    ------------------------------------------
<S>                                  <C>
Common Stock, $.001 par value        NASDAQ SmallCap Stock Market

                                     Boston Stock Exchange
</TABLE>

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

                                    None

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

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

  The aggregate market value of the registrant's voting and non-voting common
stock held by non-affiliates of the registrant as of March 19, 2001, was
approximately $2,760,118.

  Indicate the number of shares outstanding of each of the registrant's
classes of Common Stock as of March 19, 2001: 22,080,946 shares.

                      DOCUMENTS INCORPORATED BY REFERENCE

  No documents are incorporated herein by reference into Part III.
<PAGE>

                              Index to Form 10-K

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

 Item 1.  Business.........................................................    3
 Item 2.  Properties.......................................................   19
 Item 3.  Legal Proceedings................................................   19
 Item 4.  Submission of Matters to a Vote of Security Holders..............   20

PART II....................................................................   21

 Item 5.  Market for Common Equity and Related Stockholder Matters.........   21
 Item 6.  Selected Financial Data..........................................   24
 Item 7.  Management's Discussion and Analysis of Financial Condition
          and Results of Operations........................................   25
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......   28
 Item 8.  Financial Statements and Supplementary Data......................   28
 Item 9.  Changes In and Disagreements with Accountants on Accounting
          and Financial Disclosure.........................................   28

PART III...................................................................   30

 Item 10. Directors, Executive Officers, Promoters and Control Persons;
          Compliance With Section 16(a) of the Exchange Act................   30
 Item 11. Executive Compensation...........................................   31
 Item 12. Security Ownership of Certain Beneficial Owners and Management...   33
 Item 13. Certain Relationships and Related Transactions...................   34

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

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

 Signatures................................................................   38


                                       2
<PAGE>

                                     PART I

1.  Business.

Company Overview

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

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

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

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

Netplex

Overview

Netplex provides collaborative business solutions that concentrate within
selected industries. Netplex seeks to build ongoing business value by
continually redefining the most effective balance of traditional and emerging
business strategies, technologies, creative customer experiences, and
information security practices. By leveraging our in-depth industry
specializations, our services help clients strengthen customer loyalty, enhance
operations, and achieve a sustainable competitive advantage.

By understanding the business dynamics and technology trends of specific
industries, we seek to understand the business problems faced by companies
within these industries. This allows Netplex to develop and deliver business
solutions that serve our clients' unique strategic, technological, interactive,
and information security needs.

Netplex's primary vertical specialization is the Retail and Consumer Products
industry, where we specialize in end-to-end supply chain solutions. We have 16
years of experience delivering strategic, interactive, technology, and security
solutions to businesses throughout the retail market. Generally, our clients
comprise regional or national chains of 100 or more stores and with revenues
between $300 million and $2 billion. Netplex believes that it has achieved a
noteworthy and respected reputation in the Retail and Consumer Products industry
and that our history of successful projects helps gives us a competitive
advantage over many larger national consulting companies. While our Retail and
Consumer Products industry specialization remains our most prominent, we believe
that, as we choose to expand, we have planned our services portfolio so that it
will effectively serve other vertical industries.

Netplex's individual service disciplines are discussed in the "Description of
Netplex Services" section later in this document.

Market Opportunity

Netplex's market opportunity originates from the rapidly growing need for
business strategies and solutions that help organizations most efficiently
improve their internal operations and/or competitive advantage. Commonly, these
solutions necessitate the development of Web-based systems, the Web-enabling of
existing systems, and the determination of the most effective balance between
traditional and evolving technologies and methods.

Business solutions are commonly divided into two categories: business-to-
business ("B-to-B") and business-to-consumer ("B-to-C"). According to Gartner
Group estimates, the market for Internet-based B-to-B services is expected to
grow to approximately $7.29 trillion in 2004, from approximately $145 billion in
1999. Dataquest anticipates significant growth in the B-to-C market as well,
estimating that the market for Internet-based business-to-retail services will
grow from $31.2 billion in 1999 to $380.5 billion in 2003. Other recent
statistics indicate growth in the technology consulting services market.
International Data Corporation estimates that the market for IT consulting
services will grow from over $34 billion in 1999 to nearly $64 billion in 2003
worldwide. IDC goes on to

                                       3
<PAGE>

predict that the market for Internet services spending/1/ will grow from
approximately $16 billion in 1999 to over $84 billion by 2003.

Netplex believes that these statistics indicate a growing need for professional
services designed to build or enhance business systems. Many Netplex customers
have become participants in this growth by implementing business strategies that
balance traditional technologies and practices with those introduced by the
ubiquitous nature of the Internet. We believe that the vast majority of our
business systems services in 2001 and beyond will include a combination of
traditional and Web-based systems.

In our experience, we have found that businesses wishing to implement Internet-
integrated business systems strategies often require skill sets and capacity
that extend beyond their internal marketing and Information Systems (IS) staff.
As a result, several of our customers have selected us to provide business
systems consulting services intended to help them develop business strategies
and/or build the systems that most efficiently balance traditional processes
with emerging technologies and processes.

Description of Services

As mentioned in the Netplex Overview, our business solutions capabilities fall
into four primary disciplines. These are:

-  Strategy, which seeks to leverage broad industry knowledge to guide clients
   toward the most effective use of business practices and systems;

-  Technology, which seeks to develop, integrate, and implement sophisticated
   information systems;

-  Experience, which seeks to help clients create ongoing interactive
   relationships with their customers through creative, marketing, and brand-
   building services; and

-  Security, which seeks to maximize the overall integrity and minimize the
   potential threats to clients' information systems.

We believe that our solutions disciplines (described in more detail below)
together provide the appropriate breadth and quality of services that will
accommodate, on a single-source basis, the vast majority technology-related
project within our targeted industries.

Service Discipline: Strategy. Businesses wishing to use technology to maximize
their long-term business viability and competitive advantage often rely on our
Strategy experts to help determine the best ways to reach their goals. Working
collaboratively with our clients' executive-level managers, Netplex leverages
its industry and technology experience to help evaluate new or modified
opportunities for building revenues or improving operational efficiencies. Our
Strategy discipline also helps clients define or revise business models designed
to take advantage of these opportunities. This discipline is also charged with
developing the execution plan for bringing the new business models to reality.

Service Discipline: Technology. Our Technology discipline consists of
experienced developers, integrators, application experts, and project managers.
Clients rely on our Technology discipline to design and develop powerful and
secure business systems based either on the plans defined by our Strategy
discipline or requirements established elsewhere. This group is also responsible
for integrating newly developed systems with legacy systems to ensure economical
and reliable business systems, as well as creating and/or integrating e-commerce
capabilities to clients' Web applications. The Technology discipline also
includes a formal Customer Support Network, through which we closely monitor
clients' systems and react quickly to system failures.

Service Discipline: Experience. Our Experience discipline focuses on creative
services intended to create the best possible experience for our clients'
customers or Web visitors. The services often include defining of the
interactive relationship our clients wish to establish with their customers,
employees, investors, and partners. Once defined, our Experience discipline
develops creative multimedia, design, and digital marketing solutions that
become the springboard for our clients' interactive relationships. In 2000,
Netplex added kiosk design and development to its list of offerings and our
kiosk solutions have been deployed within several prominent retailers.
-----------
/1/ Internet services spending is defined as the consulting, implementation, and
operational services necessary to develop, deploy, and manage Internet sites.

                                       4
<PAGE>

Service Discipline: Security. Our Security discipline is responsible for
ensuring the integrity of clients' information systems and minimizing the threat
of losing information due to "hacking," theft, or natural disasters. Our
Security services include high-level information security strategy solutions,
through which we will often perform vulnerability analyses, test systems'
penetrability, and develop sound security architectures. In addition, we provide
business contingency and continuity planning services, which clients' rely on to
ensure the fastest-possible recovery from unexpected catastrophic events. We
have sold these services both as stand-alone services and as part of projects
originating from other Netplex disciplines. In 2000, our Security discipline
expanded its leadership presence in the healthcare industry by working with
hospitals and other health-related organizations to bring them into compliance
with the upcoming "Health Insurance Portability and Accessibility Act" (HIPAA)
security standards.

Competition

Despite the significant difficulties many technology services companies
experienced during 2000, Netplex remains in a very competitive market.
Successful participants in this market are no longer relying on serving "dot-
com" companies to attain revenue growth. Instead, most have realigned their
marketing direction toward Fortune 1000 companies or established players within
specific vertical markets. Netplex, in fact, established a industry-centric
marketing strategy in 1999 and our revenue from dot-com companies represented
less than 10% of our 2000 revenue.

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

-  e-Solutions and Interactive Development Companies. These are companies that
   specialize in planning, designing, developing, and deploying interactive
   online systems and/or integrating these systems with clients' existing
   infrastructure. Competitors in this category include AnswerThink, AppNet,
   Cysive, Proxicom, Razorfish, Sapient, and several others, both public and
   private. Of these, several have moved into the full-service e-solutions
   market by expanding specific core disciplines, while others are start-ups
   that have been built upon a full-service solutions delivery model.

-  Industry-Specific Solutions Integrators. These companies have expertise in
   and build solutions exclusively for specific vertical industries. Like
   Netplex, these companies often attempt to distinguish themselves by
   concentrating on a single or relatively few markets, thereby better enabling
   themselves to compete with larger and more well-funded consulting companies.
   Industry-specific solutions integrators include: Carreker Corporation, First
   Consulting Group, LakeWest Group, and several smaller companies.

-  "Big 5" Consulting Firms. Many of the "Big 5" consulting firms (such as
   Deloitte & Touche, KPMG, and Accenture) feature industry-concentrated
   practices and offer strategic and technological solutions similar to ours. As
   a result, Netplex frequently competes against these firms when bidding on
   projects, especially when the project in question deals with individual
   services from within our disciplines.

Differentiators

Netplex believes that it has several competitive differentiators:

End-to-End e-Solutions: Netplex attempts to compete with other companies in our
market by providing "end-to-end" solutions and developing relationships with
clients who seek a provider that can efficiently balance multiple strategic and
technical disciplines in developing or enhancing business systems. Netplex's
end-to-end solutions seek to cover clients' business requirements "three
dimensionally": from beginning to end, from front to back, and from efficiency
to new value. We provide beginning to end services that guide clients from the
strategic conception of their business initiatives through application
development and deployment. Simultaneously, Netplex serves clients' systems
initiatives from front to back--our services connect front-end on- and off-line
application design with back-end databases and legacy systems, while
incorporating the appropriate security elements. In addition, Netplex's services
are designed to help clients achieve a variety of different goals with their
systems, from saving costs through increased efficiency to taking advantage of
ways to build new value or revenue streams through their systems.

Industry Focus: As previously mentioned, Netplex focuses on understanding the
business dynamics and technology trends of specific vertical industries. As part
of our fundamental business strategy, Netplex establishes formal practice areas
dedicated to serving the unique needs of specific industries. As of today, our
largest vertical industry practice is in the Retail industry. Netplex employs
over 80 full-time billable professionals dedicated to creating

                                       5
<PAGE>

retail-specific solutions and our employees have amassed a cumulative 1,000
person-years of retail technology and strategy experience.

Clients

Netplex's client base includes Fortune 1000 and middle-market firms from various
industries. Because we concentrate on and market our services primarily to
specific industries, the vast majority of our clients fall within the
Retail/Consumer Products and Healthcare industries.

Our major Retail/Consumer Products clients include:


  -  American Eagle Outfitters            -  Hoover
  -  Academy Sports and Outdoors          -  King Pharmaceuticals
  -  ALDI                                 -  Liverpool Group
  -  Bakers Shoes                         -  The Museum Company
  -  Brinker International                -  The Nature Company
  -  Cabela's                             -  Neiman Marcus
  -  Chanel                               -  Phillips-Van Heusen
  -  The Christmas Tree Shops             -  SAKS
  -  Dick's Sporting Goods                -  Sport Chalet
  -  Duckwall-ALCO                        -  Trans World Entertainment
  -  Gart Bros. Sporting Goods            -  Value City Dept. Stores
  -  Hancock Fabrics                      -  Virgin Entertainment Group

Our major Healthcare clients include:

  -  Alegent Health                       -  Fauquier Hospital
  -  American Health Corp.                -  Innovex
  -  Baystate Health                      -  INOVA
  -  Blue Cross/Blue Shield of Florida    -  Quintiles

Major clients from within other
 industries include:

  -  America Online                       -  Oregon State Lottery
  -  King Pharmaceuticals                 -  Securities and Exchange Commission
  -  Major U.S. Stock Exchange            -  TeleCorp
  -  Oklahoma Christian Univ.             -  TRW

                                       6
<PAGE>

Netplex derived, and believes that it will continue to derive, a significant
portion of its revenue from a large number of clients. The Company recognized
revenue from unaffiliated customers constituting 25.0% and 27.8% in 2000 and
1999, respectively from two customers in each year.

Growth Strategy

Each of the following initiatives requires ample working capital.  No assurance
can be given that the Company's strategy will be successful.

-  Sustain  Growth in Systems Solutions Business. In 2001, Netplex intends to
   undertake several initiatives that are designed to bring exposure to our
   company and help us continue our growth. We intend to make investments in
   publicizing our services, strengths, and position in the market through
   coordinated advertising campaigns and public relations activity. We are also
   planning to grow our sales staff and our team of billable professionals to
   accommodate revenue growth. Between 1999 and 2000, Netplex's revenue per
   billable employee changed by only 2 percent, indicating that our professional
   recruitment efforts are virtually identically aligned with our growth.

-  Develop New Vertical Practice Areas. Netplex also intends to roll out new
   vertical practice areas. We believe that the growth of our retail
   specialization stems from our knowledge and experience in the retail
   technology market. We believe that this industry understanding will enable us
   to create customer solutions that are aligned to the demands of the retail
   industry. Consequently, we believe that we must build a core industry
   competency, either organically or through acquisition, before we formalize
   any new industry-focused practice.

-  Pursue Acquisitions. Netplex has made six acquisitions in its history. We
   believe that additional acquisitions may benefit our core service offerings
   and improve our growth. As a result, we intend to consider further
   acquisitions if management deems them appropriate to improving our market
   position and shareholder value. We expect to consider acquisitions that are
   complementary to our existing capabilities or geographical positioning, or
   ones that help us expand into additional vertical markets.

Seasonal Considerations

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

Backlog

The backlog of Netplex's project-based business was approximately $3,500,000 as
of March 1, 2001.

Strategic Relationships

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

Contact Information

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

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

                                       7
<PAGE>

Contractors Resources

Overview

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

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

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

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

Market Opportunity

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

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

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

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

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

Description of Services

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

Service Overview: MyBizOffice

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

                                       8
<PAGE>

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

The services we provide our members are as follows:

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

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

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

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

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

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

Service Overview: The Consultant Service Center

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

The Consultant Service Center relies on the Internet's expanded talent-finding
capabilities to introduce a low-cost alternative to the traditional
relationships between corporations and staffing companies. Traditionally,
businesses have used staffing companies for two purposes: locating qualified
consultants and providing these consultants' employment services (payrolling,
tax administration, benefits, etc.). With the growth of online talent location
and acquisition services, many businesses are now finding consultants without
the assistance of staffing companies. However, they often have little choice but
to turn to staffing companies to employ the consultant and provide the necessary
employment services. In this scenario, many staffing companies will often still
charge their full mark-up (generally between 25% and 50% of a consultant's
hourly rate), even though they did not locate the individual.
----------
/2/ In addition to its standard W-2 membership, Contractors Resources also
    provides services for several single-person corporations.

                                       9
<PAGE>

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

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

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

Competition

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

-  Working with a staffing company. Many IPs associate themselves with a
   staffing or professional services company/3/. These companies provide
   employment services (i.e., benefits, insurances, payrolling, tax
   administration, etc.) and actively attempt to match independent individuals
   with appropriate project positions. These companies typically charge a 25% to
   50% mark-up on their consultants' hourly rate. There are presently thousands
   of staffing companies in the U.S. and around the world and their IP bases
   range from under 10 to several thousand.

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

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

-  Using a "Virtual Corporate Office" or "back-office." A relatively new
   alternative, "back office" services provide a company-like infrastructure for
   IPs who prefer to find projects on their own. With the advent of the
   Internet, back-office services have been called Virtual Corporate Offices, as
   their services and financial tracking mechanisms are Internet-accessible.
   Like a staffing company, a Virtual Corporate Office serves as its IPs'
   employer of record and therefore provides services such as benefits,
   insurances, payrolling, tax administration, etc. Virtual Corporate Offices,
   however, do not charge to find projects for its IPs and are generally able to
   charge lower fees or mark-ups than staffing companies. Virtual Corporate
   Offices generally do not impede their IPs' freedom to choose their own
   clients, rates, and schedule. CR's MyBizOffice service falls into this
   category of services.
----------
/3/Staffing companies are organizations that provide skilled human resources on
   a non-permanent basis, meeting requirements specified by a client
   organization.

                                       10
<PAGE>

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

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

CR believes that the Virtual Corporate Office employment model alternative will
grow in popularity as more IPs recognize it as a viable option. As a result, CR
expects that additional companies will emerge in this market and that
competition will therefore intensify. CR may experience lower margins and/or a
reduction in the number of members as a result of competitive forces. If we
cannot compete effectively within this market, we may be unable to sustain or
grow our business.

Differentiators

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

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

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

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

Clients

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

Growth Strategy

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

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

Seasonal Considerations

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

                                       11
<PAGE>

Backlog

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

Strategic Relationships

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

The most prominent partnerships CR established during 2000 and the early part of
2001 include:

-  Monster Talent Market. In May, 2000, CR established a two-year partnership
   with Monster Talent MarketSM (MTM). MTM is an area within TMP Worldwide's
   Monster.com online job market service that specifically targets IPs and
   individuals who are considering working on their own. As a result of the
   partnership, the MyBizOffice service has been incorporated into the MTM site
   as a co-branded component.

-  TheBancorp.com. In October, 2000, CR established a partnership with
   TheBancorp.com, a provider of online banking services that are marketed
   through online establishments that serve as affiliates. Through this
   relationship, we have extended MyBizOffice's service offering to include
   TheBancorp.com's full suite of services, including checking and savings
   accounts, loans and mortgages, auto leases, an online brokerage services.

Contact Information

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

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

Corporate Information

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

Financial Information About Segments

For financial information regarding our business divisions (Netplex and
Contractors Resources) see Note 16 to the financial statements.

Company Background and Development

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

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

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

Geographic Positioning

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

                                       12
<PAGE>

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

Operations and Support

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

Intellectual Property

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

Employees

As of March 1, 2001 we had approximately 525 full-time employees (including
permanent and contract employees).  We believe that our relations with our
employees are good.

Additional Factors That May Affect Future Results

The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. Specifically, the Company
wishes to alert readers that the factors set forth in the sections entitled
"Competition" above, the factors set forth below, as well as other factors,
could in the future affect, and in the past have affected, the Company's actual
results and could cause the Company's results for future years or quarters to
differ materially from those expressed in any forward looking statements made by
or on behalf of the Company, including without limitation those contained in
this 10-K report. Forward looking statements can be identified by forward
looking words, such as "may," "will," "expect," "anticipate," "believe,"
"estimate" and "continue" or similar words.

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

WE HAVE INCURRED OPERATING LOSSES AND MAY NEVER BECOME PROFITABLE. We incurred
net losses of $15.3, $7.4 and $2.5 million in the years ended December 31, 2000,
1999 and 1998, respectively. There can be no assurance that we will be
profitable on a quarterly or annual basis in the future. Our quarterly operating
results in the past have fluctuated and may fluctuate significantly in the
future depending on factors such as the timing and delivery of significant
orders and contracts, new product introductions, and changes in our pricing
policies.

WE MAY BE UNABLE TO OBTAIN THE NECESSARY FUNDING TO OPERATE, EXPAND AND IMPROVE
OUR BUSINESS. As of December 31, 2000 and 1999, we had negative working capital
of $2.9million and $4.6 million, respectively.  We may need to raise substantial
additional capital to fund our operations. We are uncertain whether additional
financing will be available on acceptable terms or at all. If we raise
additional funds by issuing equity securities, our shareholders will be diluted.
If adequate funds are unavailable, we may delay, curtail, reduce the scope of,
or eliminate the expansion of our operations and/or our marketing and sales
efforts, and any of these actions could have a material adverse effect on our
financial condition and business operations.

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

                                       13
<PAGE>

bear the risk of cost overruns and inflation. New product introductions and
market acceptance of new and enhanced versions of our products or the products
of third parties may also significantly affect our operating results.

THE FUTURE SUCCESS OF OUR BUSINESS DEPENDS ON THE CONTINUED SERVICES OF GENE
ZAINO, OUR CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, AND OUR ABILITY TO
ATTRACT AND RETAIN TECHNICAL, MARKETING, SALES, AND MANAGEMENT PERSONNEL. Our
future success depends in large part on the continued services of Gene Zaino,
our Chairman, President and Chief Executive Officer. We have an employment
agreement with Mr. Zaino that expires in June 2002. Our success also depends in
large part upon our ability to attract and retain qualified technical project
managers and information technology personnel. We believe we need to hire
additional technical personnel to improve existing products and services and to
develop new products and services. In addition, we believe we need to hire new
sales personnel to sell our products and services. The inability to attract new
personnel could have a material adverse effect on our results of operations and
research and development efforts. It is difficult to locate technical,
marketing, sales, and management personnel with the combination of skills and
attributes required to execute our strategy. Although we have attracted and
retained qualified employees, qualified project managers are in particularly
great demand and will remain a limited resource for the foreseeable future. Our
employees can terminate their employment at any time. Accordingly, we may be
unable to continue to retain and attract qualified project managers.

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

-  companies that focus on the development of Web-based solutions ("e-Solutions
   Providers"), including AnswerThink, AppNet, Cysive, Proxicom, Razorfish, and
   Sapient;

-  companies that develop and integrate solutions for specific industries,
   including Carreker Corporation, First Consulting Group, LakeWest Group; and

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

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

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

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

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

                                       14
<PAGE>

shortfalls until late in the fiscal quarter or following the end of the quarter;
learning of these shortfalls late could result in an even more immediate and
adverse effect on the trading of our common stock.

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

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

WE HAVE A SIGNIFICANT NUMBER OF OUTSTANDING SHARES OF CONVERTIBLE PREFERRED
STOCK AND WARRANTS WITH CONVERSION OR EXERCISE PRICES THAT FLUCTUATE BASED ON
THE MARKET PRICE OF OUR COMMON STOCK. THE CONVERSION OF THESE PREFERRED SHARES
AND WARRANTS COULD RESULT IN THE DILUTION OF YOUR OWNERSHIP INTEREST AND
ADVERSELY IMPACT THE PRICE OF OUR COMMON STOCK. Class C Preferred Stock. To the
extent that our stock price decreases and we do not exercise our right of
redemption (which calls for a cash payment of $2.3 million on or before
September 28, 2003) prior to conversion, the number of shares of our common
stock to be issued upon conversion of our Class C Preferred Stock could increase
significantly; the issuance of additional shares of common stock could
substantially dilute your ownership interest and depress the price of our common
stock. Additionally, the perceived risk of dilution from conversion of the Class
C Preferred Stock may cause other shareholders to sell their shares before
conversion or encourage short sales of our common stock; those sales could also
place further downward pressure on the price of our common stock. The Class C
Preferred Stock is convertible after September 28, 2003 into the number of
shares equal to $2,300,000 plus accrued but unpaid dividends, divided by 25% of
the 20 day average trading price of our common stock immediately prior to
conversion. The conversion of the outstanding Class C Preferred Stock on the
basis of the 20 day average trading price of our common stock would result in
the issuance of 58,524,173 shares of common stock if the average trading price
had been calculated as of March 19, 2001. The conversion of the Class C
Preferred Stock into common stock may result in the sale of a significant number
of shares of common stock into the market; these sales could decrease the price
of our common stock. The rights and preferences of Class C Preferred Stock are
discussed in Note 11 to the financial statements.

Zanett Prepaid Warrants. In connection with a private placement, we issued to
Zanett Lombardier, Ltd. and/or its affiliates or designees prepaid common stock
purchase warrants to purchase an aggregate number of shares of common stock
equal to $1,500,000 divided by the lower of $10 or the amount obtained by
multiplying the average of the 5 lowest closing bid prices for the common stock
during the 20 consecutive trading day period ending on the  trading day
immediately preceding the date of determination or exercise by 0.65. If the
market value of our common stock decreases, the number of shares of common stock
to be issued upon exercise of these prepaid warrants could increase
significantly and result in significant dilution in your ownership interest. For
example, the exercise of these prepaid warrants on March 20, 2001 would have
resulted in the issuance of 20,491,803 shares of common stock, based on the
average of the 5 lowest closing bid prices for the common stock during the 20
consecutive trading day period immediately preceding that date, or $0.1126 per
share.

THE EXERCISE OF CERTAIN RIGHTS BY THE HOLDERS OF OUR PREFERRED STOCK COULD
RESULT IN SUBSTANTIAL DILUTION OF YOUR OWNERSHIP INTEREST AND ADVERSELY IMPACT
THE PRICE OF OUR COMMON STOCK. The conversion of Series D Preferred Stock and
Series E Preferred Stock and subsequent sales of common stock by the selling
shareholders may depress the price of our common stock and substantially dilute
your ownership interest. To the extent the Series D Preferred Stock is converted
into shares of common stock and to the extent the Series E Preferred Stock is
converted into shares of common stock rather than redeemed by us or dividends on
the Series E Preferred Stock are paid in shares of common stock rather than
cash, a significant number of additional shares of common stock may be sold into
the market and could decrease the price of our common stock due to the
additional supply of shares relative to demand in the market. In anticipation of
the sale of a large amount of shares of our common stock upon conversion of the
Series D Preferred Stock or the Series E Preferred Stock, or the payment of
dividends in lieu of cash on the Series E Preferred Stock, market participants
may engage in short sales of our common stock. Short sales could place further
downward pressure on the price of our common stock. Additionally, the perceived
risk of dilution from the occurrence of any of these events may cause

                                       15
<PAGE>

shareholders to sell their shares to avoid this dilution and could therefore
place further downward pressure on the price of our common stock.  Under the
terms of the restructuring contemplated by the Exchange, Redemption and
Conversion Agreement, the remaining Series D Preferred Stock, will be
convertible as of March 19, 2001 into approximately 2,107,524 shares of common
stock, subject to the 4.99% limitation and 9.99% limitation described below,
representing approximately 8.7% of the common stock that would be outstanding
following the conversion, based upon the common shares outstanding on March 19,
2001. The conversion of, and the payment of dividends in shares of common stock
in lieu of cash on, the Series D Preferred Stock may result in substantial
dilution to the interests of other holders of our common stock or, when added to
the number of shares acquired or held during the prior 60 days, would exceed
9.99% of our outstanding common stock. Even though no selling shareholder may
convert its Series D Preferred Stock if the conversion would make the selling
shareholder the beneficial owner of more than 4.99% of our then outstanding
common stock, this restriction does not prevent a selling shareholder from
selling a substantial number of shares in the market. By periodically selling
shares into the market, the individual selling shareholders intend to sell all
of their shares of common stock while never holding more than 4.99% at any
specific time or exceeding 9.99% during any 60 day period. A conversion of all
the Series E Preferred Stock at the fixed conversion price of $0.47 would result
in the issuance of 6,382,979 shares of common stock, excluding accrued
dividends. Also, dividends on the Series E Preferred Stock may be paid in shares
of common stock rather than cash, which would increase this number of shares
over time. We may be required to delist our shares from the Nasdaq Small Cap
Market as described below, in which event trading volume of our shares and the
price of our common stock might decrease substantially. The National Association
of Securities Dealers, Inc. imposes certain requirements on the issuance of
securities of a company listed on the Nasdaq Stock Market. For instance, any
company, including our company, is required to obtain shareholder approval (or
receive a waiver from the NASD) for an issuance of securities if the number of
securities to be issued could equal or exceed 20% of the issuer's outstanding
listed securities (immediately or by conversion). Also, the voting rights of
holders of securities that are convertible into common stock based on the future
stock price of the issuer cannot be disproportionate to their investment in the
issuer. We believe that the issuances of our Series D Preferred Stock and the
Series E Preferred Stock comply with the NASD rules. For instance, our Preferred
Stock does not have voting rights, except as required by law. Both the Series D
Preferred Stock and the Series E Preferred Stock limit our obligation to issue
our common stock upon the conversion of the Series D Preferred Stock and the
Series E Preferred Stock that exceeds 19.99% of the outstanding common stock on
the respective date of issuances of the Preferred Stock unless shareholder
approval or a waiver from the NASD is obtained. In order to avoid any penalty
which could include the delisting of our common stock, we obtained shareholder
approval for the issuance of shares of our common stock upon conversion of, or
the payment of dividends on (if any), the Series D Preferred Stock in excess of
19.99% of the number of outstanding shares of common stock on March 29, 2000,
the date of issuance of the Series D Preferred Stock.  Similarly, we were
obligated to call a meeting for stockholder approval (or obtain a waiver of the
approval requirement from the NASD) with respect to the issuance of the shares
of common stock issuable upon conversion of the Series E Preferred Stock. We did
not however obtain this approval or waiver. Accordingly, the holders of the
Series E Preferred Stock can require us to delist our stock from trading on the
Nasdaq SmallCap Market, which can be expected to reduce liquidity for our stock
and place downward pressure on the stock price. There is no similar limitation
on our obligation to issue shares of common stock upon conversion of the Class C
Preferred Stock. Consequently, the issuance of our Class C Preferred Stock may
not have complied with the NASD rules. We have not sought an interpretation or
waiver from the NASD with respect to the compliance with the NASD rules of the
issuance of the Class C Preferred Stock. If the NASD found that we are in
violation of its requirements the NASD could among other penalties possible
delist our shares of common stock from the Nasdaq Stock Market in which event
trading in our shares and the price of our common stock would likely decrease
substantially.

WE HAVE A SIGNIFICANT NUMBER OF OUTSTANDING WARRANTS, OPTIONS AND SHARES OF
PREFERRED STOCK THAT COULD ADVERSELY IMPACT THE PRICE OF OUR COMMON STOCK AND
OUR ABILITY TO OBTAIN ADDITIONAL FUNDING As of March 19, 2001, we had
outstanding: shares of Class A Preferred Stock that were immediately convertible
into 80,597 shares of common stock; shares of our Class C Preferred Stock that
are convertible after September 28, 2003 into the number of shares equal to
$2,300,000 plus accrued but unpaid dividends, divided by 25% of the 20 day
average trading price of the common stock immediately prior to conversion, which
if converted, would result in the issuance of 58,524,173 shares of common stock;
1,324 shares of our Series D Preferred Stock outstanding that were convertible
on March 19, 2001, together with unpaid dividends, into a total of 2,107,524
shares of common stock, at a conversion and exercise price of $0.65625 per
share; 3,000 shares of our Series E Preferred Stock that are convertible into a
total of 6,382,989 shares of our common stock at a fixed price of $0.47 per
share; prepaid warrants exercisable into 23,428,085 shares of common

                                       16
<PAGE>

stock; and other options and warrants to purchase an aggregate of 8,264,846
shares of our common stock at a weighted average exercise price of $3.86 per
share. As of March 19, 2001, there were outstanding convertible preferred
shares, warrants and options to acquire up to approximately 98,788,214 shares of
common stock at prices ranging from $0.0393 to $13.875 per share. The exercise
of all of the outstanding warrants, including the prepaid warrants, options
and/or conversion of the outstanding convertible preferred stock, would dilute
the then-existing shareholders' percentage ownership of our common stock, and
any sales in the public market could adversely affect prevailing market prices
for our common stock. Moreover, because the holders of outstanding warrants,
options and preferred stock will likely exercise or convert these securities,
our ability to obtain additional equity capital could be adversely affected
because we probably could obtain any needed capital on terms more favorable than
those provided by the conversion of these securities. We lack control over the
timing of any exercise or the number of shares issued or sold if exercises or
conversions occur.

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

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

WE ARE SUBJECT TO RISKS ASSOCIATED WITH OUR STRATEGY OF ACQUIRING OTHER
COMPANIES. We intend to look for complementary businesses to acquire so that we
can strengthen and expand our core business. However, we may not be able to find
any attractive candidates, or we may find that the acquisition terms proposed by
potential acquisition candidates are not favorable to us. In addition, we may
compete with other companies for these acquisition candidates, and that
competition may make an acquisition more expensive for us. Similarly,
instability in the U.S. securities markets and volatility in our stock price may
make acquisitions with our stock more expensive. Accordingly, our acquisition
strategy may not improve our overall business, financial condition, and results
of operations and could weaken them. If we are able to identify and acquire one
or more businesses, the integration of the acquired business or businesses may
be costly and may result in a decrease in our revenues or a decrease in the
value of our common stock for the following reasons, among others: we may not
adequately assess the risks inherent in a particular acquisition candidate or
correctly assess the candidate's potential contribution to our financial
performance; we may need to divert more management resources to integration than
we planned, and this diversion may adversely affect our ability to pursue other
more profitable activities; the difficulties of integration may be increased by
the necessity of coordinating geographically separated organizations,
integrating personnel with disparate business backgrounds and combining
different corporate cultures; we may not eliminate as many redundant costs as we
anticipated in selecting our acquisition candidates; and an acquisition
candidate may have liabilities or adverse operating issues that we failed to
discover through our diligence prior to the acquisition. Consequently, any
acquisition by us may not improve our business, financial condition, and results
of operations in either the short-term or long-term.

WE HAVE RECEIVED NOTICE FROM THE NASDAQ STOCK MARKET, INC. THAT OUR COMMON STOCK
WILL BE DELISTED FROM THE NASDAQ SMALL CAP.  ACCORDINGLY,  OUR STOCKHOLDERS
ABILITY TO SELL OUR COMMON STOCK MAY BE ADVERSELY EFFECTED.  ADDITIONALLY, THE
MARKET FOR SO-CALLED "PENNY STOCKS" HAS SUFFERED IN RECENT

                                       17
<PAGE>

YEARS FROM PATTERNS OF FRAUD AND ABUSE. We have been notified by The Nasdaq
Stock Market, Inc. that, because we have failed to maintain a minimum bid price
of $1.00 for Common Stock on the Nasdaq Small Cap, The Nasdaq Stock Market, Inc.
intends to delist our stock from the Nasdaq Small Cap. This delisting may occur
as soon as March 22, 2001. In the event we are delisted, our Common Stock will
likely trade on the OTCBB maintained by The Nasdaq Stock Market, Inc. Our Common
Stock, when available for trading on the OTCBB, will be subject to a Securities
and Exchange Commission rule that imposes special sales practice requirements
upon broker-dealers who sell such OTCBB securities to persons other than
established customers or accredited investors. For purposes of the rule, the
phrase "accredited investors" means, in general terms, institutions with assets
in excess of $5,000,000, or individuals having a net worth in excess of
$1,000,000 or having an annual income that exceeds $200,000 (or that, when
combined with a spouse's income, exceeds $300,000). For transactions covered by
the rule, the broker-dealer must make a special suitability determination for
the purchaser and receive the purchaser's written agreement to the transaction
prior to the sale. Consequently, the rule may affect the ability of broker-
dealers to sell our Common Stock and also may affect the ability of our current
stockholders to sell their securities in any market that might develop
therefore. In addition, the Securities and Exchange Commission has adopted a
number of rules to regulate "penny stocks." Such rules include Rules 3a51-1,
15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities
Exchange Act of 1934, as amended. Upon delisting from the Nasdaq Small Cap, our
Common Stock may constitute "penny stocks" within the meaning of the rules, the
rules would apply to Netplex and to its securities. The rules may further affect
the ability of owners of Common Stock to sell our securities in any market that
might develop for them.

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

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

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

As of September 30, 2000, the Company was not in compliance with the tangible
net worth covenant.  On January 10, 2001, the Company and the bank entered into
an Loan Amendment and Forebearance Agreement ("Forebearance Agreement") whereby
the bank agreed to forebear from exercising its rights and remedies under the
loan document due to the existing event of default until March 31, 2001;
provided no additional default occurs.  The tangible net worth covenant was
waived for the Forbearance Period.  Under the Forebearance Agreement the Company
may borrow 40% of eligible accounts receivable (as defined in the loan
agreement) up to $5.0 million bearing interest at the bank's prime rate plus
2.5%.  In the fourth quarter of 2000, the Company applied the $2.0 million
interest bearing deposit against its outstanding advance.  The Company had
borrowed $2,003,000 under the line of credit as of December 31, 2000.

On March 22, 2001, the Company signed a commitment letter with a finance company
which will, upon closing, provide the Company with a line of credit facility
which will replace its current bank line of credit.  The

                                       18
<PAGE>

commitment is subject to closing on formal legal documents which management
expects to occur in April 2001. Upon closing, the facility will permit
borrowings against eligible accounts receivable up to $4,000,000, collateralized
by substantially all of the Company's assets and repayable upon demand. Subject
to certain other restrictions, the borrowing base of accounts receivable will be
based on 80% of outstanding accounts receivable. Interest will be payable at
prime plus 1.75% (currently 9.75%). As a result of this commitment letter and
discussions with its current lender, management expects the Forebearance
Agreement described above to be extended to accommodate closing on this
replacement facility.

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 8,000 square feet of space in Reston, VA. for
its corporate offices and the operations of some business units. The Company
also leases office space in other cities including, Charlotte, North Carolina,
Bedford, Virginia, and Edmond, Oklahoma that serve as operating offices of its
businesses. These leases expire on various dates from July 2001 to January 2004.

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

Item 3.  Legal Proceedings.

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

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

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

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

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

XcelleNet has reached an agreement in principle to settle that portion of the
case against it in the amount of damages proven at trial on the claims against
XcelleNet, and has reserved its indemnity claim against the Company.

In December 2000, TMP filed suit against the Company and its Contractors
Resources subsidiary alleging that the Company failed to make a quarterly cash
payment under its co-branding agreement with TMP. The complaint seeks a judgment
of approximately $464,000.  The Company has disputed the allegations, denying
all liability and has asserted affirmative defenses, including that TMP did not
perform the agreement as required.  Since filing the suit, TMP has also notified
the Company that it has failed to make another payment under the agreement but
this alleged default has not yet become part of the litigation. While initial
discovery had commenced, both parties have agreed to stay all further discovery
pending a conference with the Court.  Management believes it has meritorious
defenses in this matter and the outcome will not have a material adverse impact
on its financial condition or results of operations.

                                       19
<PAGE>

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

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

No matters were submitted to a vote of the Company's Common Stock holders during
the Company's fourth quarter ended December 31, 2000.

                                       20
<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.

Price Range of Common Stock

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

<TABLE>
<CAPTION>
1999                               High         Low
----                              ------       -----
<S>                               <C>          <C>
1st Quarter....................   $ 3.50       $0.97
2nd Quarter....................   $ 3.44       $2.44
3rd Quarter....................   $ 3.38       $2.25
4th Quarter....................   $11.62       $1.66
<CAPTION>
2000
----
<S>                               <C>          <C>
1st Quarter....................   $19.50       $9.13
2nd Quarter....................   $12.44       $1.75
3rd Quarter....................   $ 2.94       $0.72
4th Quarter....................   $ 1.06       $0.06
</TABLE>

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 1, 2001 there were approximately 150 holders of record of the
Company's Common Stock. The Company believes that at such date there were in
excess of 6,767 beneficial owners of the Company's Common Stock.

Recent Sales of Unregistered Securities

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

In February, 1998, the Company sold 80,000 shares of Common Stock and warrants
to purchase 100,000 shares of Common Stock at a price of $1.80 per share, for an
aggregate of $100,000.  The warrants have a 5-year term and are immediately
exercisable.  This transaction was completed without an underwriter and
exemption from registration is claimed under Section 4(2) of the Securities Act
because it did not involve a public offering.

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

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

In April, 1998, the Company sold 100,000 shares of Common Stock for $1.50 per
share for an aggregate of $150,000 to accredited investors. These shares carry
registration rights. This transaction was completed without an

                                       21
<PAGE>

underwriter and exemption from registration is claimed under Section 4(2) of the
Securities Act because it did not involve a public offering.

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

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

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

In September, 1998, the Company sold 1,700 units for $1,000 per unit and
warrants to purchase 141,667 shares of Common Stock at an exercise price of
$1.3938 per share for an aggregate of $1.7 million to accredited investors.
Each unit consists of a warrant to purchase the number of shares of Common Stock
computed by dividing $1,700,000 by 1,019,000.  The warrants have a 10-year term
and are immediately exercisable. The Company paid a placement fee of $175,000
and issued the placement agent 50,000 shares of Common Stock.  The placement
agent for this transaction was Zanett Securities Corporation. Exemption from
registration is claimed under Section 4(2) of the Securities Act because it did
not involve a public offering.

In September, 1998, the Company sold 1,500,000 shares of Class C, Convertible
Preferred Stock at a price of $1.00 per share and warrants to purchase shares of
Common Stock for $1.375 per share for an aggregate of $1.5 million to Waterside
Capital. The Class C Preferred Stock bears a dividend rate of 9.99% that
increases to 15% per annum after the date there are no Class A Cumulative
Convertible Preferred Stock issued and outstanding. The Preferred Stock is
convertible at any time after the earlier of a change in control of the Company
or five years from the date of issuance and is redeemable at the option of the
Company at any time within the first five years. The number of shares into which
the Preferred Stock is convertible is equal to $1,500,000 (plus accrued but
unpaid dividends) divided by 25% of the 20 day average trading price of the
Common Stock immediately prior to conversion.  The warrants issued entitle the
holder to acquire 150,000 shares of Common Stock at $1.375 per share.  The
Company may be required to issue up to 400,000 additional shares of Common Stock
under the warrants, depending upon the term in which the Class C Preferred Stock
is outstanding.  The warrants have a 10-year term and are immediately
exercisable. The Company paid a placement fee of $175,000 and issued the
placement agent warrants to purchase 125,000 shares of Common Stock at $1.59 per
share. The warrants have a 5-year term and are immediately exercisable.  The
placement agent for this transaction was Ferris Baker & Watts and exemption from
registration is claimed under Section 4(2) of the Securities Act because it did
not involve a public offering.

In October, 1998, the Company issued 643,770 shares of Class B Preferred Stock
to Applied Intelligence Group, Inc. in connection with the purchase of such
company's information technology consulting business. Each share of Class B
Preferred Stock was immediately convertible into one share of Common Stock. No
dividends were payable on Class B Preferred Stock.

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

In March 2000, the Company sold 10,000 shares of convertible Series D Preferred
Stock that resulted in net proceeds to the Company of $9.4 million.  The
conversion ratio of the preferred to common was established based on 120% of the
weighted average stock price during the thirty trading day period between April
3, 2000 and May 16, 2000, which was $5.87 per share.  The Series D Preferred
Stock securities purchase agreement's call option provision, relating to the
time the Company must obtain additional financing, was amended effective July
31, 2000.

                                       22
<PAGE>

The amendment extended the call option trigger date to October 31, 2000
(previously August 1, 2000). The conversion price of the preferred stock and the
exercise price of the related warrants are based upon 120% of the weighted
average price of the Company's Common Stock for 15 consecutive trading days
beginning the first day after the holders are entitled to exercise the call
option.

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

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

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

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

Also, as part of the agreement, the Company redeemed 500 of the remaining 3,823
shares of Series D Preferred Stock at their original face value of $500,000, and
sold to the holders of the Series D Preferred Stock 1,000 shares of the
Company's common stock at a price of $0.65625 per share. As a result of that
sale, the remaining 3,323 shares of Series D Preferred Stock have an adjusted
conversion price of $.65625. Upon execution of the agreements, the Series D
Preferred Stockholders converted 1,178 shares of Series D Preferred Stock into
1,808,473 shares of common stock. The remaining 2,145 shares of Series D
Preferred Stock that they hold were convertible into 3,293,020 shares of common
stock.  As of March 19, 2001, there was 1,324 shares of Series D Preferred Stock
which are convertible into 2,017,524 shares of common stock.

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

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

During the years ended December 31, 2000, 1999 and 1998, 29,364, 877,612 and
141,865 shares of Class A Preferred Stock were converted into the same number of
shares of Common Stock, respectively.  During the year ended December 31, 1999,
the 643,770 shares of Class B Preferred Stock were converted into the same
number of shares of Common Stock.  The Class C Preferred Stock is not eligible
for conversion to Common Stock until September, 2003. On November 10, 2000 the
Company converted 1,178 and 6,177 shares of Class D Preferred Stock into
1,808,473 shares of Common Stock and 3,000 shares of Class E Preferred Stock,
respectively.  See Note 11 to the financial statements.

                                       23
<PAGE>

Item 6.  Selected Financial Data

<TABLE>
<CAPTION>
Year ended December 31
                                                2000        1999        1998          1997        1996
                                             ---------    --------    --------    ----------    --------
                                                   (amounts in thousands, except per share data)
<S>                                         <C>          <C>         <C>         <C>           <C>
Revenues (1)                                $   16,780   $  15,901   $  39,135   $    40,468   $  33,525
Cost of revenues                                 9,404       8,341      36,660        36,085      31,314
                                             ---------    --------    --------    ----------    --------
Gross profit                                     7,374       7,560       2,475         4,383       2,211
Expenses:
  Selling, general and administrative           21,228      13,530       5,555         7,230       4,770
  Restructuring costs                            1,512          --          --            --          --
  Acquired in-process technology                    --          --         250            --          --
                                             ---------    --------    --------    ----------    --------
Operating loss                                 (15,364)     (5,970)     (3,330)       (2,847)     (2,559)
Interest expense and (other income), net            41         384         154           (26)         38
                                             ---------    --------    --------    ----------    --------

Loss from continuing operations before
 income taxes                                  (15,405)     (6,354)     (3,484)       (2,873)     (2,521)
Income tax (benefit) provision                      --          --          --            --         (34)
                                             ---------    --------    --------    ----------    --------
Loss from continuing operations before
 minority interest                             (15,405)     (6,354)     (3,484)       (2,873)     (2,487)
Minority interest                                  482          83          --            --          --
                                             ---------    --------    --------    ----------    --------
Loss from continuing operations                (14,923)     (6,271)     (3,484)       (2,873)     (2,487)
Discontinued operations:
Income (loss) from discontinued
 operations (net of income taxes)                 (850)     (1,152)        935            --      (1,332)
Gain on sale of discontinued operations
 (net of income taxes)                             513          --          --            --       1,820
                                             ---------    --------    --------    ----------    --------
Net loss                                       (15,260)     (7,424)     (2,549)     (2,873)-      (1,999)
Preferred Stock dividend                        (1,076)       (500)       (316)           --          --
                                             ---------    --------    --------    ----------    --------
Loss applicable to common shareholder       $  (16,336)  $  (7,924)  $  (2,865)  $    (2,873)  $  (1,999)
                                             =========    ========    ========    ==========    ========

Basic and diluted earnings (loss) per
 common share
  Continuing operations                     $    (0.87)  $   (0.54)  $   (0.41)  $     (0.46)  $   (0.51)
  Discontinued operations                        (0.02)      (0.09)       0.10            --        0.09
                                             ---------    --------    --------    ----------    --------
    Total                                   $    (0.89)  $   (0.63)  $   (0.31)  $     (0.46)  $   (0.42)
                                             =========    ========    ========    ==========    ========
  Weighted average common shares
   outstanding, basic and diluted               18,356      12,516       9,260         6,821       5,026
                                             =========    ========    ========    ==========    ========
At year-end
  Total assets                              $   17,690   $  22,662   $  20,651   $     6,912   $   9,889
                                             =========    ========    ========    ==========    ========
  Stockholders' equity                      $    4,179   $   6,862   $   6,355   $     1,331   $   3,239
                                             =========    ========    ========    ==========    ========
</TABLE>
------------
(1) Effective January 1, 1999, Contractors Resources revenues represent only the
    fees realized for services rendered to the independent contractor. Prior to
    that date, revenues included the gross fees charged to the third party
    customer being serviced by the independent contractor.

                                       24
<PAGE>

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

OVERVIEW

The following table sets forth the revenue, gross profit, expenses, and income
of each of the business areas for the years ended December 31, 2000, 1999, and
1998.

Consolidated Operating Results by Segment

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
(amounts in thousands)                                  2000              1999              1998
                                                  --------------    --------------    --------------
<S>                                               <C>               <C>               <C>
Operating revenues
Netplex                                           $       15,241    $       14,527    $        3,954
Contractors Resources                                      1,539             1,374            35,181
                                                  --------------    --------------    --------------
 Operating revenues                                       16,780            15,901            39,135
                                                  --------------    --------------    --------------
Gross profit
Netplex                                                    6,365             6,584             1,150
Contractors Resources                                      1,011               976             1,325
                                                  --------------    --------------    --------------
 Gross profit                                              7,376             7,560             2,475
                                                  --------------    --------------    --------------
Gross profit percentage
Netplex                                                     41.8%             45.3%             29.1%
Contractors Resources                                       65.7%             71.0%              3.8%
                                                  --------------    --------------    --------------
 Gross profit percentage                                    44.0%             47.5%              6.3%
                                                  --------------    --------------    --------------
Operating expenses
Netplex                                                    5,895             3,823             1,209
Contractors Resources                                      4,964             2,533             1,144
                                                  --------------    --------------    --------------
 Operating Expenses                                       10,859             6,356             2,353
                                                  --------------    --------------    --------------
Segment EBITDA
Netplex                                                      470             2,761               (59)
Contractors Resources                                     (3,953)           (1,557)              181
                                                  --------------    --------------    --------------
 Segment EBITDA                                           (3,483)            1,204               122
                                                  --------------    --------------    --------------
Corporate expenses                                         7,811             5,542             2,210
                                                  --------------    --------------    --------------
EBITDA                                                   (11,294)           (4,338)           (2,088)
Restructuring charges                                      1,512                --                --
Interest, taxes, depreciation & amortization               2,117             1,934             1,396
                                                  --------------    --------------    --------------
Loss from continuing operations                          (14,923)           (6,272)           (3,484)
Income (loss) from discontinued operations net
 of income tax                                              (850)           (1,152)              935
Gain on sale of discontinued operations net of
 tax                                                         513                --                --
                                                  --------------    --------------    --------------
Net loss                                          $      (15,260)   $       (7,424)   $       (2,549)
                                                  ==============    ==============    ==============
</TABLE>

RESULTS OF OPERATIONS

2000 Compared to 1999

Revenue for the year ended December 31, 2000 increased $0.9 million or 5.5% to
$16.8 million, compared to $15.9 million for the same period in 1999.  This
increase includes a $0.7 million or 4.9% increase in Netplex revenue and a $0.2
million or 12.0% increase in Contractors Resources revenue.

Gross profit for the year ended December 31, 2000 decreased $0.2 million or 2.4%
to $7.4 million, compared to $7.6 million for the same period in 1999.
Contractors Resources gross profit for the year ended December 31, 2000 remained
relatively unchanged from the same period in 1999 while Netplex gross profit for
the year ended December 31, 2000 decreased $0.2 million or 3.3% to $6.4 million,
compared to $6.6 million for the same period in 1999.

Gross profit margins decreased to 44.0% for the year ended December 31, 2000
compared to 47.5% for the same period in 1999.  Netplex gross profit margins
decreased from 45.3% in 1999 to 41.8% in 2000.  This decrease in

                                       25
<PAGE>

Netplex gross margin was primarily due to lower technical staff utilization
levels in the year ended December 31, 2000 compared to the same period in 1999.
Contractors Resources gross profit margin decreased from 71.0% in 1999 to 65.7%
in 2000.

Segment operating expenses for the year ended December 31, 2000 increased $4.5
million or 70.8% to $10.9 million from $6.4 million for the same period of 1999.
This increase included increases in Netplex and Contractors Resources of $2.1
million or 54.2% and $2.4 million or 96.0%, respectively. The increase in
Netplex operating expenses was primarily attributable to increased expenditures
in marketing and sales. The increase in the Contractors Resources' operating
expenses was due primarily to the fees paid to TMP Interactive, Inc. under the
co-branding services arrangement of approximately $1.0 million and expenses
associated with the development of the web site in 2000.

Segment loss for the year ended December 31, 2000 was $3.5 million as compared
to a segment income of $1.2 million for the same period of 1999, a decline of
$4.7 million or 389.3%. This decline includes decreases in segment profits from
Netplex and Contractors Resources of $2.3 million or 83.0% and $2.4 million or
153.9%, respectively.

Corporate expense for the year ended December 31, 2000 increased $1.8 million or
30.1% to $7.8 million from $6.0 million in the same period of 1999. This
increase reflects additional expenditures required to support the growth of
operations and the integration of acquisitions. Subsequently, as a result of the
restructuring and discontinued operations, corporate expenses are expected to
decrease.

Restructuring charges of $1.5 million for the year ended December 31, 2000 were
the result of the closing of the Company's Roseland, New Jersey office,
including related workforce reductions.  There was no comparable charge in the
same period of 1999.

Earnings (from continuing operations) before interest, income taxes,
depreciation and amortization ("EBITDA") for the year ended December 31, 2000
was a loss of $11.3 million as compared to a loss of $4.3 million for the same
period of 1999, a decline in EBITDA of $7.0 million or 162.8%. The components of
this decrease are discussed above.

Depreciation, amortization, interest expense and minority interest for the year
ended December 31, 2000 increased $0.2 million to $2.1 million from $1.9 million
for the same period in 1999. This increase is principally due to the
amortization of the internally developed web application software for the
Contractors Resources operation.

Loss from discontinued operations for the year ended December 31, 2000 was $0.9
million compared to $1.2 million for the same period in 1999, an decrease of
$0.3 million or 26.2%.  See Note 3 to the financial statements for a description
of the discontinued operations.

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

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

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

1999 Compared to 1998

Revenue for the year ended December 31, 1999 was $53.1 million (recognizing CR
revenue on a gross basis, see Note 2 to the financial statements), an increase
of $14.0 million or 35.1% from $39.1 million for the year ended December 31,
1998. This increase includes a $10.6 million or 267.4% increase in Netplex
revenue and a $3.4 million or 9.8% increase in Contractors Resources revenue
recognized on the gross basis. The growth in Contractors Resources revenues is
to due to an increase in the number of contractor members.  The growth in
Netplex revenue was primarily attributable to the increased revenue from a full
years revenue of AIG which was acquired by the Company September 1, 1998.

Gross Profit for the year ended December 31, 1999, increased $5.1 million or
205.5% to $7.6 million as compared to $2.5 million for 1998. This increase
includes an increased gross profit in Netplex $5.4 million or 472.5%, offset by
a

                                       26
<PAGE>

decrease in gross profit for Contractors Resources of $0.3 million or 26.3%.
The increase in the gross profit for Netplex resulted from a full year of
operations of AIG.

Segment operating expenses for the year ended December 31, 1999, increased $4.0
million or 170.1% to $6.4 million from $2.4 million for the same period in 1998.
This increase includes increases in Netplex and Contractors Resources operating
expenses of approximately $2.6 million or 216.2% and $1.4 million or 121.4%,
respectively. The increase in operating expenses for Netplex are primarily due
to the acquisition of AIG.  The increase in Contractors Resources is primarily
due to increases in sales and marketing costs.

Segment income for 1999 was $1.2 million, increased $1.1 million or 886.9% from
$0.1million in 1998. This was primarily due to an increase in segment income
from Netplex of $2.8 million, or 216.2% offset by the segment loss from
Contractors Resources of $1.7 million or 960.2%.

Corporate expense for the year ended December 31, 1999, increased $3.3 million
or 150.8% to $5.5 million from $2.2 million in the same period of 1998. This
increase reflects an additional investment in corporate development capability
and infrastructure to support the growth of operations.

Earnings before interest, income taxes, depreciation, and amortization
("EBITDA") for the year ended December 31, 1999, was a loss of  $4.3 million as
compared to a loss of $2.1 million for the same period of 1998 a decline in
EBITDA of $2.2 million. The components of this $2.2 million are discussed above.

Depreciation, amortization, and interest expense for the year ended December 31,
1999, increased $0.5 million to $1.9 million from $1.4 million for the same
period of 1998. This increase is principally due to additional amortization and
depreciation from acquisitions and increased borrowings under the Company's line
of credit facility to support growth during the year ended December 31, 1999.

Due to the generation of net losses, no provision or benefit for income taxes
was recorded for either the year ended December 31, 1999 or 1998.  Any tax
benefits associated with net operating losses have been fully reserved for by a
valuation allowance.

The net loss in 1999 increased $4.9 to $7.4 million from $2.5 million in 1998.
The components of this increase are discussed above.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2000, the Company had cash and cash equivalents of $3.8 million.

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

For the year ended December 31, 2000, the Company's cash decreased by $0.5
million. This decrease resulted primarily from the $15.2 million operating loss
which was partially offset by $10.7 million of proceeds from the sale of stock
and prepaid warrants and $2.9 million of proceeds from the exercise of stock
options and warrants.

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

As of September 30, 2000, the Company was not in compliance with the tangible
net worth covenant.  On January 10, 2001, the Company and the bank entered into
an Loan Amendment and Forebearance Agreement ("Forebearance Agreement") whereby
the bank agreed to forebear from exercising its rights and remedies under the
loan document due to the existing event of default until March 31, 2001;
provided no additional default occurs.  The Company and the bank agreed the
Company does not need to comply with the tangible net worth covenant set forth
in the loan agreement.  Under the Forebearance Agreement the Company may borrow
40% of eligible accounts receivable (as defined in the agreement) up to $5.0
million bearing interest at the bank's prime rate plus 2.5%. In the fourth
quarter of 2000, the Company applied the $2.0 million interest bearing deposit
against its outstanding advance.  Outstanding advances were $2.0 million and
$5.1million at December 31, 2000 and 1999, respectively.

On March 22, 2001, the Company signed a commitment letter with a finance company
which will, upon closing, provide the Company with a line of credit facility
which will replace its current bank line of credit. The commitment

                                       27
<PAGE>

is subject to closing on formal legal documents which management expects to
occur in April 2001. Upon closing, the facility will permit borrowings against
eligible accounts receivable up to $4,000,000, collateralized by substantially
all of the Company's assets and repayable upon demand. Subject to certain other
restrictions, the borrowing base of accounts receivable will be based on 80% of
outstanding accounts receivable. Interest will be payable at prime plus 1.75%
(currently 9.75%). As a result of this commitment letter and discussions with
its current lender, management expects the Forebearance Agreement described
above to be extended to accommodate closing on this replacement facility.

Capital expenditures for the year ended December 31, 2000, were $1.3 million.

Dividends of approximately $367,000 were paid on the Company's Class A, Class C
and Class D Cumulative Preferred Stock during the year ended December 31, 2000.
The Company issued 190,608 shares of Common Stock in lieu of approximately
$125,000 of such dividends. At December 31, 2000, accrued dividends on the
Company's Class C, Class D and Class E Preferred Stock were approximately
$166,000.

During the year ended December 31, 2000, 29,364 shares of Class A Preferred
Stock were converted into the same number of shares of Common Stock. The Class C
shares are not eligible for conversion to Common Stock until September, 2003.
The conversions of the Class A Cumulative Preferred Stock during the year ended
December 31, 2000 will reduce the Company's obligation for dividend payments by
approximately $6,000 annually.

Stock options and warrants to purchase 2,093,005 shares of the Company's Common
Stock were exercised during the year ended December 31, 2000, generating cash
proceeds to the Company of $2.9 million.

In March 2000, the Company raised an additional $9.4 million for 10,000 shares
of its Class D Preferred Stock and $1.3 million in the sale of 1,500 units in a
private placement whereby each unit consisted of a prepaid Common Stock purchase
warrant entitling the holder to acquire such number of shares of the Company's
Common Stock as is equal to $1,000 divided by an adjustable exercise price and
an incentive warrant to acquire 78,000 shares of Common Stock.  The proceeds of
these equity sales have been used to provide additional working capital.  In
November 2000, the Company redeemed 500 shares of Preferred Class D shares for
$500,000 in connection with the restructuring of the Class D Preferred Stock
(see Note 11 to the financial statements).

Future Plans.
-------------

The Company believes that based on its current operating plan, that cash
generated from operating activities, borrowings on its line of credit facility
coupled with its recent equity infusions will be sufficient to meet its
anticipated working capital and capital expenditure requirements for at least
the next 12 months.  Beginning in the third quarter of 2000 and continuing into
early 2001, management has taken a number of steps to reduce its operating cash
flow requirements, including closing certain facilities and combining others,
reducing administrative staff, disposing of non-strategic business units and
implementing other cost containment initiatives.  If cash generated from
operations is insufficient to satisfy the Company's liquidity needs, the Company
may seek to increase its line of credit, sell convertible debt or equity
securities. However, no assurances can be given that any such addition financing
sources will be available on acceptable terms or at all. The sale of additional
convertible debt or equity securities could result in 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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company does not believe that there is any material market risk exposure
with respect to derivative or other financial instruments that would require
disclosure under this item. The Company's carries variable rate debt under its
line of credit with an interest rate that approximates the market rate.

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.

For the years ending December 31, 2000 and 1999, Grant Thornton LLP, independent
certified public accountants, examined our financial statements. The
shareholders have ratified the selection of Grant Thornton LLP as our auditors
for the year ending December 31, 1999 and have approved the appointment of Grant
Thornton LLP as our auditors for the year ending December 31, 2000.

                                       28
<PAGE>

During 1999 and 2000, there were no "disagreements" between Grant Thornton LLP
and us on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures.

As reported on our Form 8-K filed May 21, 1999, on May 14, 1999, KPMG LLP
resigned as our independent accountants. As stated in our Form 8-K filed May 21,
1999, the report of KPMG LLP on our financial statements for the fiscal year
ended December 31, 1998 did not contain adverse opinions or disclaimers of
opinion and were not qualified or modified as to uncertainty, audit scope, or
accounting principles. Additionally, as stated in the Form 8-K, in connection
with the audit of our consolidated financial statements for the fiscal year
ended December 31, 1998, and in the interim period subsequent to December 31,
1998, preceding the date of KPMG's resignation, there were no "disagreements"
with KPMG on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure which "disagreement" if not
resolved to the satisfaction of KPMG would have caused KPMG to make reference to
the matter in their report.

As stated in our Form 8-K filed June 2, 1999 and in the exhibits thereto, by
letter purported to be dated May 13, 1999, delivered to our audit committee by
facsimile on May 21, 1999, KPMG advised us that KPMG believed that there was a
matter involving our internal control structure and its operation that KPMG
considered to be a "reportable condition" under standards established by The
American Institute of Certified Public Accountants. In the letter dated May 13,
1999, and an ensuing letter addressed to the Securities and Exchange Commission
in response to the Item 4 disclosures set forth in our Form 8-K filed May 21,
1999, which letters were filed as Exhibits 16.1 and 16.2, respectively, to the
Form 8-K filed June 2, 1999, KPMG stated that the matter referred to a lack of
an adequate system of financial reporting, and more specifically, indicated
that:

  -  during KPMG's audit of our 1998 financial statements, KPMG noted that we
     had to seek extensions on several of our required filings with the
     Securities and Exchange Commission and that we had to amend our Forms 10-Q
     previously filed for the first three quarters of 1998;

  -  KPMG believed that our system of financial reporting was not adequate to
     enable us to report accurate and timely financial information;

  -  KPMG believed that our process for accumulating financial data neither
     provided management with sufficient time to evaluate the data in an effort
     to ensure accurate financial reporting nor did it enable us to meet
     financial reporting deadlines in a timely manner; and

  -  KPMG believed that our system of financial reporting did not include a
     periodic process of evaluating our financial reporting policies in light of
     significant events or changes in circumstances which might impact those
     policies.

As described in our Form 8-K filed June 2, 1999, we disagreed with KPMG's
assertion of a "reportable condition" and furthermore, we were of the view that
the "reportable condition" described in KPMG's letter did not rise to the level
of a "reportable event" as defined in Item 304 of Regulation S-K. Because KPMG
resigned before we received either letter, neither we nor our audit committee
had an opportunity to discuss the matters with KPMG.

The reports of our principal accountants on the financial statements for the
past two fiscal years contained no adverse opinion or disclaimer of opinion, and
were not qualified or modified as to uncertainty, audit scope, or accounting
principles. In connection with the audits for the two most recent fiscal years,
there have been no disagreements with our principal accountants on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
our principal accountants, would have caused them to make reference thereto in
their report on the financial statements for these years.

We engaged the firm of Grant Thornton LLP, as of November 13, 1999, to act as
our independent accountants. Our audit committee and Board of Directors approved
the engagement of Grant Thornton LLP. We authorized KPMG LLP to respond fully to
any inquiries of Grant Thornton LLP. We have not consulted with Grant Thornton
LLP regarding the application of accounting principles as to a specified
transaction or the type of opinion that might be rendered on our financial
statements or any matter that was either the subject of a "disagreement" or a
"reportable event" prior to their engagement as our independent accountants.

                                       29
<PAGE>

                                   PART III

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

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

<TABLE>
<CAPTION>
Name                      Age                      Title
-------------------------------------------------------------------------
<S>                    <C>         <C>
Gene Zaino                 43      Chief Executive Offices, Chairman,
                                   President and Director (Class III)
-------------------------------------------------------------------------
Peter Russo                54      Chief Financial Officer and Treasurer
-------------------------------------------------------------------------
Richard Goldstein          53      Director (Class III)
-------------------------------------------------------------------------
Steven L. Hanau            56      Director (Class II)
-------------------------------------------------------------------------
J. Alan Lindauer           61      Director (Class I)
-------------------------------------------------------------------------
</TABLE>

Gene Zaino has been a director of Netplex since August 1995 and became our Chief
Executive Officer and Chairman upon completion of the merger with Netplex in
June 1996.  From November 1995 through the completion of the merger, Mr. Zaino
functioned in the capacity of Chief Executive Officer.  Mr. Zaino started his
career at KPMG LLP in 1980.  He was a founding principal of a subsidiary of
Evernet Systems, Inc., which was acquired by Control Data Systems, Inc. in 1993.
In January 1994, Mr. Zaino developed the business plan that led to the formation
of Netplex.  Mr. Zaino is a graduate of the University of Pennsylvania's Wharton
School of Business and is a Certified Public Accountant.

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

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

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

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

Board Composition.  Our amended Certificate of Incorporation currently
authorizes six (6) directors.  Our Board of Directors currently consists of four
(4) members.  Our amended Certificate of Incorporation provides that our board
of directors will be divided into three classes, Class I, Class II, and Class
III, with each class serving staggered three-year terms.  The initial Class I
director, J. Alan Lindauer, was reelected to office at the 2000 annual meeting
of shareholders and will hold office until the 2003 annual meeting of
shareholders.  The initial Class II director, Steven

                                       30
<PAGE>

L. Hanau, will hold office until the 2001 annual meeting of shareholders. The
initial Class III directors, Gene Zaino and Richard Goldstein, will hold office
until the 2002 annual meeting of shareholders. Any additional directorships
resulting from an increase in the number of directors will be distributed among
the three classes so that, as nearly as possible, each class will consist of
one-third of the directors. This staggered classification of the board of
directors may have the effect of delaying or preventing changes in control or
management.

Section 16(a) Beneficial Ownership Reporting Compliance

Richard Goldstein filed four late Form 4's representing 5 transactions.
Additionally Mr. Goldstein failed to file the Form 4 for those transactions but
rectified the situation by filing a Form 5 on February 5, 2001.

Item 11.  Executive Compensation.

The following table sets forth, for the fiscal years indicated, all compensation
the Company paid to Gene Zaino, Chief Executive Officer and Peter J. Russo,
Chief Financial Officer. The Company had no other executive officers, whose
salary and bonus exceeded $100,000 for the year ended December 31, 2000.

Summary Compensation Table

<TABLE>
<CAPTION>
                                                                                         Long-Term
                                                          Annual Compensation        Compensation Awards
------------------------------------------------------------------------------------------------------------------------
                                                                                    Securities Underlying      All Other
    Name and Principal Position                        Fiscal Year     Salary($)            Options            Compensation
---------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>            <C>             <C>                     <C>
Gene Zaino, Chairman, CEO and President (1)                  2000       $275,000                700,000           $14,140
---------------------------------------------------------------------------------------------------------------------------
                                                             1999       $744,537                  7,500           $13,000
---------------------------------------------------------------------------------------------------------------------------
                                                             1998       $140,747                     --           $15,000
---------------------------------------------------------------------------------------------------------------------------
Peter J. Russo, Senior Vice-President and CFO (2)            2000       $182,211                300,000             4,663
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)  Mr. Zaino is employed under an employment agreement through June 2002
     pursuant to which he is currently paid a base salary of $275,000 per annum.
     In addition, pursuant to his employment agreement, Mr. Zaino may also
     receive an annual bonus at the sole discretion of the Board, based upon the
     financial and operating performance of the Company, which shall not exceed
     60% of base salary.  The Board approved additional compensation in the form
     of an annual cash incentive for the year ended December 31, 1999 for Mr.
     Zaino in the amount of $545,902.  The net proceeds of this cash incentive
     were used to repay a 1997 loan from the Company in January 2000.  The
     Company did not accrue any incentive compensation in 2000 on behalf of Mr.
     Zaino.  The Company has and is the beneficiary under a key-person life
     insurance policy for $2 million on Mr. Zaino.

(2)  Mr. Russo is employed under an employment agreement through January 3, 2002
     pursuant to which he is currently paid a base salary of $200,000 per annum.
     Mr. Russo is also entitled to receive an annual bonus based on the
     financial and operating performance of the Company. The Company did not
     accrue any incentive compensation in 2000 on behalf of Mr. Russo.  In
     addition, pursuant to his employment agreement, Mr. Russo is entitled to
     receive 12 months base pay upon change of control.

Aggregated Option Exercises and Fiscal Year-end Option Values

<TABLE>
<CAPTION>
                      Shares                     Number of Securities Underlying       Value of Unexercised
                    Acquired on      Value          Unexercised Options at            In-The-Money Options at
                   Exercise (#)   Realized ($)        December 31, 2000                December 31, 2000 (1)
--------------------------------------------------------------------------------------------------------------
Name                                              Exercisable     Unexercisable   Exercisable   Unexercisable
--------------------------------------------------------------------------------------------------------------
<S>               <C>            <C>            <C>              <C>              <C>           <C>
Gene Zaino              100,000        $6,000           618,750          603,750            --              --
--------------------------------------------------------------------------------------------------------------
Peter J. Russo          100,000        $6,000                --          200,000            --              --
--------------------------------------------------------------------------------------------------------------
</TABLE>
(1)  At December 31, 2000 the closing price of the Company's Common Stock on the
     Nasdaq SmallCap Market was $0.094.

Compensation of Directors.  Our Board of Directors are not paid to attend
meetings; however, each member receives options to purchase 15,000 shares of
common stock when he or she is first elected to the Board.  Options awarded to

                                       31
<PAGE>

directors are granted under a stock option plan established for the directors.
To date, options to purchase 285,000 shares at exercise prices ranging from
$0.47 to $3.56 per share have been granted to directors.  In February 2000, each
outside director received a cash bonus of $10,000.

Report Of The Compensation Committee

Overall Policy.  The Board of Directors of the Company establishes the overall
goals and objectives of the Company and the policies to be followed in pursuing
those goals and objectives, including the selection of necessary key management
personnel, and auditing the performance of those personnel. The major
responsibility for assisting in satisfying the compensatory aspect of the
overall supervisory duty of the Board rests with the Compensation Committee. The
membership of the Compensation Committee (collectively the "Committee") is
composed of independent non-employee directors who do not participate in any
executive compensation plan. In order to achieve the overall goals and
objectives of the Company, and recognizing the interest of the shareholders in
that achievement, the Committee has developed and maintains an executive
compensation policy based on a philosophy that links executive compensation to
individual and corporate performance, and return to shareholders. This policy
enables the Company to attract and retain highly motivated executive personnel
of outstanding ability and initiative, and creates an identity of interests
between executives and the Company's shareholders. The Company's executive
compensation plan consists of basic cash compensation, the opportunity for
annual cash incentive compensation, based on individual and corporate
performance, and continuing stock-based compensation, geared to corporate
performance. The Committee administers the Company's cash incentive compensation
policy and also comprises the Company's Stock Option Committee, which
administers the provisions of the stock-based compensation plan. The Committee
takes various factors into consideration when establishing and reviewing
executive compensation. There follows an explanation of general principles
governing basic cash compensation, annual cash incentive compensation, stock-
based incentive compensation and the factors considered in establishing basic
cash compensation for 2000.

Basic Cash Compensation.  The Committee, in determining basic cash compensation
of the executive officers of the Company, considers corporate profitability,
financial condition and the planned compensation budget for the Company.  The
Committee also considers the performance and compensation levels of other
companies as more fully set forth under the caption "2000 Compensation". The
Committee does not consider these factors by any formula and does not assign
specific weight to any given factor. Instead, the Committee applies its
collective business judgment to reach a consensus on compensation fair to the
Company, its shareholders and its executive officers.  Under an executive
employment agreement, the basic cash compensation of Mr. Zaino and Mr. Russo is
no less than $275,000 and $200,000 per year, respectively.

Annual Cash Incentive Compensation.  In addition to basic cash compensation, the
Committee, has developed an informal annual cash incentive compensation policy,
which is based on corporate profitability, financial condition, the planned
compensation budget for the Company and subjective appraisal by the Committee,
with the advice of the President, of the executive officer's performance. The
Committee does not consider these factors by any formula and does not assign
specific weight to any given factor. Instead, the Committee applies its
collective business judgment to reach a consensus on incentive compensation that
is fair to the Company, its shareholders and its executive officers.  The two
current executive officers of the Company are considered by the Committee to
have responsibilities that directly affect corporate performance and
profitability and, accordingly, are currently eligible to receive cash incentive
compensation.  Specific awards are chosen annually by the Committee.  To date,
the Committee has not awarded cash incentive compensation, except as set forth
above. Cash incentive compensation paid to those executive officers named in the
Summary Compensation Table wills be reflected in the Table under the caption
"Salary."

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

                                       32
<PAGE>

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

/s/ THE COMPENSATION COMMITTEE

Richard Goldstein

Steven Hanau

Performance Graph

                       [PERFORMANCE CHART APPEARS HERE]


The above graph demonstrates a comparison of cumulative total returns based upon
an initial investment of $100.00 in the Company's Common Stock as compared with
the Russell 2000 Index (with dividends reinvested) and the Nasdaq Stock Market-
U.S. Index. The stock price performance shown on the graph is not necessarily
indicative of future price performance and only reflects the Company's relative
stock price on December 29, 1995, December 31, 1996, December 31, 1997, December
31, 1998, December 31, 1999 and December 29, 2000.

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

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

The following table sets forth information concerning ownership of the Company's
Common Stock, as of March 1, 2001, 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.

                                       33
<PAGE>

<TABLE>
<CAPTION>
                                                         Number of Shares of Common Stock
Name of Beneficial Owner                                      Beneficially Owned (1)
-----------------------------------------------------------------------------------------
                                                               Number           Percent
-----------------------------------------------------------------------------------------
<S>                                                     <C>                   <C>
Gene Zaino**                                                 2,036,430 (2)        9.0%
-----------------------------------------------------------------------------------------
Peter J. Russo**                                               100,000             *
-----------------------------------------------------------------------------------------
Richard Goldstein**                                             82,500 (3)         *
-----------------------------------------------------------------------------------------
Steve Hanau**                                                   90,000 (4)         *
-----------------------------------------------------------------------------------------
J. Alan Lindauer**                                              80,000 (5)         *
-----------------------------------------------------------------------------------------
All directors and Executive officers as a Group
 (5 persons)                                                 2,388,930 (6)       10.4%
-----------------------------------------------------------------------------------------
</TABLE>
 *  Less than 1%.
**  Each of the executive officers and directors use 1800 Robert Fulton
    Drive, Second Floor, Reston, VA 20191 as their address for the purposes
    of this report.
(1) Beneficial ownership is determined in accordance with the rules of the
    Securities and Exchange Commission and, unless otherwise indicated,
    includes sole voting and investment power with respect to securities.
    Shares of Common Stock subject to options or warrants currently
    exercisable, or exercisable within 60 days, are deemed outstanding for
    computing the percentage of the outstanding Common Stock beneficially owned
    by the person holding such options or warrants but are not deemed
    outstanding for computing the percentage beneficially owned by any other
    person. Based solely on a review of Schedules 13G and 13D that have been
    filed and delivered to the Company, the Company is not aware of any 5%
    beneficial holders of its Common Stock, other than the persons specified in
    the table above.
(2) Consists of 622,500 shares of Common Stock subject to currently exercisable
    options and 1,413,930 shares of Common Stock owned.
(3) Consists of 82,500 shares of Common Stock subject to currently exercisable
    options.
(4) Consists of 67,500 shares of Common Stock subject to currently exercisable
    options and 22,500 shares of Common Stock owned.
(5) Consists of 75,000 shares of Common Stock subject to currently exercisable
    options and 5,000 shares of Common Stock owned.
(6) Includes 847,500 shares of Common Stock subject to currently exercisable
    options and warrants.

Item 13.  Certain Relationships and Related Transactions.

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

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

The Company paid approximately $18,000, $45,000 and $24,000 in 2000, 1999 and
1998, respectively for accounting, tax and consulting services to an accounting
firm, in which Mr. Goldstein, a director of the Company, is a partner.

                                       34
<PAGE>

                                    PART IV


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

(a) 1. Financial Statements and Schedules. The following financial statements
       are included herein:
<TABLE>
<CAPTION>
                                                                            Page
                                                                           ------
<S>                                                                        <C>
Independent Auditors' Reports............................................    F-2

Consolidated Balance Sheets as of December 31, 2000 and 1999...........      F-4

Consolidated Statements of Operations for the years ended December 31,
 2000, 1999 and 1998...................................................      F-5

Consolidated Statements of Stockholders' Equity for the years ended
 December 31, 2000, 1999 and 1998......................................      F-6

Consolidated Statements of Cash Flows for the years ended December 31,
 2000, 1999 and 1998...................................................      F-8

Notes to Consolidated Financial Statements.............................      F-10
</TABLE>

   2.  Consolidated Financial Statement Schedules

   The following consolidated financial statement schedule of the Company for
   each of the years ended December 31, 2000, 1999, and 1998 is filed as part of
   this Form 10-K, and should be read in conjunction with the Consolidated
   Financial Statements, and the related notes thereto of the Company.

   Schedule I - Quarterly Consolidated Financial Data

   Schedule II -- Valuation and Qualifying Accounts

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

   3. Exhibits

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

                                       35
<PAGE>

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

                                       36
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number                                        Description of Document
<S>         <C>
21          Subsidiaries of the Netplex Group, Inc.##
23(a)       Consent of Grant Thornton, LLP.#####
23(b)       Consent of  KPMG LLP.#####
24          Power of Attorney.++
</TABLE>

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

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

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

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

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

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

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

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

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

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

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

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

#### Previously filed.

##### Filed herewith

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

<TABLE>
<CAPTION>
Date                      Item Reported                                 Financial Statements
---------  -------------------------------------------  ----------------------------------------------------
<C>        <S>                                          <C>
 11/13/01  Restructuring of Series D Preferred Stock;                        None filed
           Issuance of Series E Preferred Stock

 11/14/01  Earnings announcement for the third fiscal   Condensed Consolidated Balance Sheets as of
           quarter 2000                                 September 30, 2000 and December 31, 1999 and
                                                        Condensed Consolidated Statements of Operations for
                                                        the three and nine months ended September 30, 2000
                                                        and 1999
</TABLE>

                                       37
<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 30th day
of March 2001.


                                         The Netplex Group, Inc.

                                         By: /s/   Gene Zaino
                                             ----------------
                                         Gene Zaino
                                         Chairman and C.E.O.


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

<TABLE>
<CAPTION>
                  Signature                                    Title                        Date
----------------------------------------       ----------------------------------     -----------------
<S>                                            <C>                                    <C>
/s/ Gene Zaino                                 Chairman, Chief Executive Officer          March 30, 2001
----------------------------------------       and Director [Principal Executive
Gene Zaino                                     Officer]

/s/ Peter Russo                                Chief Financial Officer and                March 30, 2001
----------------------------------------       Treasurer [Principal Financial
Peter Russo                                    Officer]

/s/ Richard Goldstein                          Director                                   March 30, 2001
----------------------------------------
Richard Goldstein
/s/ Steven Hanau                               Director                                   March 30, 2001
----------------------------------------
Steven Hanau
/s/ J. Alan Lindauer                           Director
</TABLE>

                                       38
<PAGE>

                                                                      SCHEDULE I

                   THE NETPLEX GROUP, INC. AND SUBSIDIARIES
              SCHEDULE I - QUARTERLY CONSOLIDATED FINANCIAL DATA

                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

In management's opinion, the interim financial data below reflects all
adjustments necessary to fairly state the results of the interim period
presented. Quarterly data for year 1999 and the first half of 2000 were restated
to reflect discontinued operations (Note 3 to the financial statements) and the
change in the manner the Company recognizes revenue in its Contractors Resources
segment (Note 2 to the financial statements). All other adjustments are of a
normal recurring nature necessary for a fair presentation of the information for
the periods presented. Results of any one or more quarters are not necessarily
indicative of annual results or continuing trends.

<TABLE>
<CAPTION>
                                                                 2000 QUARTERS ENDED

                                                 March 31    June 30      September 30   December 31
                                                 --------    -------      ------------   -----------
<S>                                              <C>         <C>          <C>            <C>
Total revenue                                    $ 3,801     $ 4,490        $ 4,531        $ 3,959
Gross profit                                       1,303       2,105          2,225          1,742
Net loss                                          (3,790)     (3,844)        (4,891)        (2,735)
Net loss per share (basic and diluted)           $  (0.2)    $  (0.2)       $  (0.2)       $ (0.15)

<CAPTION>
                                                                 1999 QUARTERS ENDED

                                                 March 31    June 30      September 30   December 31
                                                 --------    -------      ------------   -----------
<S>                                              <C>         <C>          <C>            <C>
Total revenue                                    $ 2,974     $ 4,332        $ 4,486        $ 4,109
Gross profit                                       1,565       2,216          1,895          1,883
Net income (loss)                                    123         127         (1,467)        (6,208)
Net income (loss) per share (basic and diluted)  $  0.00     $  0.00        $ (0.12)       $ (0.45)
</TABLE>

                                      39

<PAGE>

                                                                    SCHEDULE II

                            THE NETPLEX GROUP, INC.
                       VALUATION AND QUALIFYING ACCOUNTS

                                (IN THOUSANDS)

<TABLE>
<CAPTION>
                           Balance at    Additions                                Balance at
                          beginning of   charged to                                 end of
                             period      operations   Write-offs     Other*         period
                          ------------   ----------   ----------     -----        ----------
<S>                       <C>            <C>          <C>            <C>          <C>
Allowance for doubtful
 accounts
Year Ended:
 December 31, 1998          $  133      $  200         $  --         $256           $   589
                            ======      ======         =====         ====           =======
 December 31, 1999          $  589      $  501         $(748)        $ --           $   342**
                            ======      ======         =====         ====           =======
 December 31, 2000          $  342      $  207         $(152)        $ --           $   397
                            ======      ======         =====         ====           =======
</TABLE>

*  Amount represents allowance for bad debts of acquired accounts receivable.

** Amount includes allowance related to receivables in discontinued operations.


<TABLE>
<CAPTION>
                           Balance at    Additions                                Balance at
                          beginning of   charged to                                 end of
                             period      operations   Write-offs     Other*         period
                          ------------   ----------   ----------     -----        ----------
<S>                       <C>            <C>          <C>            <C>          <C>
Valuation allowance against
 deferred tax assets
Year Ended:
 December 31, 1998          $4,489      $  526         $  --         $ --           $ 5,015
                            ======      ======         =====         ====           =======
 December 31, 1999          $5,015       3,320         $  --         $ --           $ 8,335
                            ======      ======         =====         ====           =======
 December 31, 2000          $8,335       5,884         $  --         $ --           $14,219
                            ======      ======         =====         ====           =======
</TABLE>

                                      40
<PAGE>

                  Index to Consolidated Financial Statements

                                                                       Page
                                                                      ------

Independent Auditors' Reports......................................     F-2

Consolidated Balance Sheets as of December 31, 2000 and 1999.......     F-4

Consolidated Statements of Operations for the years ended
 December 31, 2000, 1999 and 1998..................................     F-5

Consolidated Statements of Stockholders' Equity for the years
 ended December 31, 2000, 1999 and 1998............................     F-6

Consolidated Statements of Cash Flows for the years ended
 December 31, 2000, 1999 and 1998..................................     F-8

Notes to Consolidated Financial Statements.........................    F-10

                                      F-1
<PAGE>

               Report of Independent Certified Public Accountants


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


We have audited the accompanying consolidated balance sheet of The Netplex
Group, Inc. and subsidiaries  (the "Company") as of December 31, 2000 and 1999,
and the related consolidated statements of operations, stockholders' equity and
cash flows for the each of the years in the two year period ended December 31,
2000. These financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Netplex Group,
Inc. and subsidiaries as of December 31, 2000 and 1999 and the results of their
operations and their cash flows for the each of the years in the two year period
ended December 31, 2000 in conformity with generally accepted accounting
principles.

We also audited the adjustments described in Note 3 to the financial statements
that were applied to restate 1998 financial statements. In our opinion, such
adjustments are appropriate and have been properly applied.

In connection with our audits of the consolidated financial statements referred
to above, we have audited Schedule II - Valuation and Qualifying Accounts, as of
December 31, 2000 and 1999. In our opinion this schedule presents fairly, in all
material respects, the information required to be set forth therein.



                                          /s/ Grant Thornton LLP


Vienna, Virginia
February 23, 2001 (except for Note 1, as to which the date is March 22, 2001)


                                      F-2
<PAGE>

                          Independent Auditors' Report


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


We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of The Netplex Group, Inc. and subsidiaries
(the "Company") for the year ended December 31, 1998, before the
reclassification to reflect the e-Infrastructure segment as a discontinued
operation as described in Note 3 to the consolidated financial statements. In
connection with our audit of the consolidated financial statements, we also
have audited the accompanying financial statement Schedule II - Valuation and
Qualifying Accounts, for the year ended December 31, 1998. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements (before reclassification)
referred to above present fairly, in all material respects, the results of
operations and cash flows of The Netplex Group, Inc. and subsidiaries for the
year ended December 31, 1998 in conformity with accounting principles generally
accepted in the United States of America. 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-3
<PAGE>

                    THE NETPLEX GROUP, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                                  (in thousands)
                                   December 31,

<TABLE>
<CAPTION>

                               Assets                                2000            1999
                                                                  -----------    ------------
<S>                                                              <C>             <C>
Current assets:
 Cash and cash equivalents...............................       $     3,817    $      4,351
 Accounts receivable, net of allowance for
  doubtful accounts of $397 and $94, respectively........             3,067           2,898
 Prepaid expenses and other current assets...............               881             826
 Current assets of discontinued operations...............             2,324           5,828
                                                                  -----------    ------------
    Total current assets.................................            10,089          13,903

 Property and equipment, net.............................             1,952           1,590
 Other assets............................................               661             420
 Goodwill and other intangible assets, net...............             3,249           4,221
 Long-term assets of discontinued operations.............             1,739           2,528
                                                                  -----------    ------------
      Total assets.........................................       $    17,690    $     22,662
                                                                  ===========    ============

                Liabilities and Stockholders' Equity

Current liabilities:
 Line of credit..........................................       $     2,003    $      5,126
 Accounts payable........................................             3,226           3,295
 Accrued expenses and other current liabilities..........             6,719           4,128
 Capital lease obligation, current portion...............                77             108
 Deferred revenues.......................................               335              33
 Current liabilities of discontinued operations..........               581           1,582
                                                                  ---------      ----------
    Total current liabilities............................            12,941          14,272
 Capital lease obligations long-term, net
  of current portion.....................................                92             168
 Long-term liabilities of discontinued operations........               478             878
                                                                  ---------      ----------
    Total liabilities....................................            13,511          15,318
                                                                  ---------      ----------
Commitments and contingencies
Minority interest in subsidiary............................              --             482
                                                                  ---------      ----------
Stockholders' equity
Preferred Stock:
 Class A Cumulative, $.01 par value, liquidation preference
  of $4.00 per share for 2000 and 1999; 2,000,000 shares
  authorized, 80,597 and 109,961 shares issued and
  outstanding at December 31, 2000 and 1999, respectively..               1               1
 Class C Cumulative, $.01 par value; liquidation preference
  of $3.99 per share; 2,500,000 shares authorized; 1,500,000
  share issued and outstanding at December 31, 2000 and 1999,
  respectively.............................................              15              15
 Class D Cumulative, $.01 par value; liquidation preference
  of $5,000 per share; 10,000 shares authorized; 2,145 shares
  and no shares issued and outstanding at December 31, 2000
  and 1999, respectively...................................               1              --
 Class E Cumulative, $.01 par value; liquidation preference
  of $1,000 per share; 3,000 shares authorized; 3,000 shares
  and no shares issued and outstanding at December 31, 2000
  and 1999, respectively...................................               1              --
 Common Stock: $.001 par value, 100,000,000 shares
  authorized, 20,820,448 and 16,137,250 shares issued and
  outstanding at December 31, 2000 and 1999, respectively..              21              16
Additional paid in capital.................................          34,333          21,762
Accumulated deficit........................................         (30,193)        (14,932)
                                                                  ---------      ----------
      Total stockholders' equity...........................           4,179           6,862
                                                                  ---------      ----------
      Total liabilities and stockholders' equity...........       $  17,690      $   22,662
                                                                  =========      ==========
</TABLE>

           See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>

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

<TABLE>
<CAPTION>

                                                2000                 1999                  1998
                                            -----------           ----------            ---------
<S>                                         <C>                   <C>                  <C>
Revenues
 Services.........................         $    14,113           $   13,769            $  38,368
 Product..........................               2,667                2,132                  767
                                           -----------           ----------            ---------
                                                16,780               15,901               39,135
                                           -----------           ----------            ---------
Cost of revenues
 Services..........................              7,454                6,812               35,792
 Product...........................              1,950                1,529                  868
                                                 9,404                8,341               36,660
                                           -----------           ----------            ---------
Gross profit.......................              7,376                7,560                2,475

Operating expenses
 Selling, general and
 administrative expenses...........             21,228               13,531                5,555
 Restructure charges...............              1,512                   --                   --
 Acquired In-Process
  technology.......................                 --                   --                  250
                                           -----------           ----------            ---------
Operating loss.....................            (15,364)              (5,971)              (3,330)
 Interest expense, net.............                (41)                (384)                (154)
                                           -----------           ----------            ---------
Net loss before income taxes.......            (15,405)              (6,355)              (3,484)
Provision for income taxes.........                 --                   --                   --
                                           -----------           ----------            ---------
Loss from continuing operations
 before minority interest..........            (15,405)              (6,355)              (3,484)
Minority interest..................                482                   83                   --
                                           -----------            ---------            ---------
Loss from continuing operations....            (14,923)              (6,272)              (3,484)
 (Loss) income from discontinued
 operations (net of income
 taxes) - Note 3...................               (850)              (1,152)                 935
Gain on sale of discontinued
 operations (net of income taxes)
 - Note 3..........................                513                   --                   --
                                           -----------            ---------            ---------
Loss from discontinued operations..               (337)              (1,152)                 935
Net Loss...........................            (15,260)              (7,424)              (2,549)
Preferred Stock dividend...........               (500)                (316)
                                           -----------            ---------            ---------
Loss applicable to common
 shareholders......................        $   (16,336)           $  (7,924)           $  (2,865)
                                           ===========            =========            =========

Basic and diluted loss per common share:
 Continuing operations.............        $     (0.87)          $    (0.54)           $   (0.41)
 Discontinued operations...........              (0.02)               (0.09)                0.10
                                           -----------           ----------            ---------
 Total.............................        $     (0.89)          $    (0.63)           $   (0.31)
                                           ===========           ==========           ==========
Weighted average common shares
 outstanding basic and diluted.....             18,356               12,516                9,260
                                           ===========           ==========           ==========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-5
<PAGE>

                    THE NETPLEX GROUP, INC. AND SUBSIDIARIES

                 Consolidated Statements of Stockholders' Equity

                  Years ended December 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                          Class A                                Class C             Class D           Class E
                                        Cumulative            Class B           Cumulative          Cumulative        Cumulative
                                        Convertible         Convertible         Convertible         Convertible       Convertible
                                      Preferred Stock     Preferred Stock      Preferred Stock     Preferred Stock   Preferred Stock
                                      -----------------   ----------------    ------------------  ---------------   ---------------
                                       Share      $        Shares      $       Shares       $       Shares      $    Shares      $
                                      -----------------   ----------------    ------------------  ---------------  ----------------
<S>                                     <C>      <C>      <C>         <C>       <C>       <C>     <C>        <C>   <C>         <C>
Balance at January 1, 1998..........  1,062,500 $10,625        --   $   --           --    $  --       --    $ --       --   $  --
Net loss............................         --      --        --       --           --       --       --      --       --      --
Conversions of Class A Preferred to
 Common Stock.......................   (141,865) (1,419)       --       --           --       --       --      --       --      --
Dividends paid in kind..............     66,938     669        --       --           --       --       --      --       --      --
Preferred Stock dividends...........         --      --        --       --           --       --       --      --       --      --
Private placements of Common Stock..         --      --        --       --           --       --       --      --       --      --
Private placement of Prepaid Common
 Stock purchase warrants............         --      --        --       --           --       --       --      --       --      --
Common Stock issued for the
 acquisition of ABS.................         --      --        --       --           --       --       --      --       --      --
Class B Preferred Stock issued for
 the acquisition of AIG.............         --      --   643,770    6,438           --       --       --      --       --      --
Private placement of Class C
 Preferred Stock....................         --      --        --       --    1,500,000   15,000       --      --       --      --
Exercise of Common Stock options....         --      --        --       --           --       --       --      --       --      --
                                       --------  ------   -------    -----    ---------  -------   ------   -----    -----   -----
Balance at December 31, 1998........    987,573  $9,875   643,770   $6,438    1,500,000  $15,000       --   $  --       --   $  --
Net loss............................         --      --        --       --           --       --       --      --       --      --
Conversions of Class A Preferred to
 Common Stock.......................   (877,612) (8,776)       --       --           --       --       --      --       --      --
Preferred Stock dividends...........         --      --        --       --           --       --       --      --       --      --
Exercise of Prepaid Common Stock
 purchase warrant...................         --      --        --       --           --       --       --      --       --      --
Conversion of subordinated debt to
 Class C Preferred Stock............         --      --        --       --           --       --       --      --       --      --
Common Stock issued for the
 acquisition of ABS.................         --      --        --       --           --       --       --      --       --      --

<CAPTION>

                                                                      Additional
                                                                        Paid In          Accumulated
                                               Common Stock             Capital            Deficit              Total
                                       ----------------------------  --------------     -------------        -----------
                                            Share            $              $                 $                    $
                                       ----------------------------  --------------     -------------        -----------
<S>                                     <C>             <C>           <C>                <C>                  <C>
Balance at January 1, 1998..........      7,470,370      $  7,470      $  6,272,407      $ (4,959,800)        $ 1,330,702
Net loss............................             --            --                --        (2,548,724)         (2,548,724)
Conversions of Class A Preferred 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 placement of Prepaid Common
 Stock purchase warrants............             --            --         2,582,490                --           2,582,490
Common Stock issued for the
 acquisition of ABS.................        450,000           450           590,175                --             590,625
Class B Preferred Stock issued for
 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
Net loss............................             --            --                --        (7,423,823)         (7,423,823)
Conversions of Class A Preferred to
 Common Stock.......................        877,612           873             7,903                --                  --
Preferred Stock dividends...........             --            --          (241,478)               --            (241,478)
Exercise of Prepaid Common Stock
 purchase warrant...................        554,421           555              (555)               --                  --
Conversion of subordinated debt to
 Class C Preferred Stock............             --            --           800,000                --             800,000
Common Stock issued for the
 acquisition of ABS.................        114,756           115           566,715                --             566,830
</TABLE>

                                      F-6
<PAGE>

<TABLE>
<CAPTION>
                                              Class A                              Class C            Class D            Class E
                                            Cumulative          Class B           Cumulative         Cumulative         Cumulative
                                            Convertible       Convertible         Convertible        Convertible        Convertible
                                         Preferred Stock    Preferred Stock      Preferred Stock   Preferred Stock   Preferred Stock
                                        -----------------  -----------------   ------------------- ---------------   ---------------
                                        Share        $     Shares        $     Shares      $       Shares      $       Shares     $
                                        -----------------  -----------------   ------------------- ---------------    --------------
<S>                                       <C>       <C>      <C>        <C>      <C>        <C>     <C>        <C>     <C>      <C>
Common Stock issued for the
 acquisition of Onion Peel
 Solutions, LLC.........................        --      --           --      --          --      --      --      --        --     --
Conversion of Class B Preferred
 Stock to Common Stock..................        --      --     (643,770) (6,438)         --      --      --      --        --     --
Common Stock issued.....................        --      --           --      --          --      --      --      --        --     --
Exercise of Common Stock warrants.......        --      --           --      --          --      --      --      --        --     --
Exercise of Common Stock options........        --      --           --      --          --      --      --      --        --     --
                                           -------  ------     -------- -------   --------- -------   -----   -----     -----  -----
Balance December 31, 1999...............   109,961  $1,099           -- $    --   1,500,000 $15,000      --    $ --        --  $  --
Net loss................................        --      --           --      --          --      --      --      --        --     --
Preferred Stock dividends...............        --      --           --      --          --      --      --      --        --     --
Conversions of Class A Preferred to
 Common Stock...........................   (29,364)   (294)          --      --          --      --      --      --        --     --
Private placement of Class D
 Preferred Stock........................       --       --           --      --          --      --  10,000     100        --     --
Exercise of Prepaid Common Stock
 purchase warrant.......................       --       --           --      --          --      --      --      --        --     --
Private placement of Prepaid Common
 Stock purchase warrants................       --       --           --      --          --      --      --      --        --     --
Conversion of Class D Preferred to
 Class E Preferred Stock................       --       --           --      --          --      --  (6,177)    (62)    3,000     30
Conversion of Class D Preferred to
 Common Stock...........................       --       --           --      --          --      --  (1,178)    (12)       --     --
Redemption of Series D Preferred Stock..       --       --           --      --          --      --    (500)     (5)       --     --
Restructure fees........................       --       --           --      --          --      --      --      --        --     --
Common Stock issued.....................       --       --           --      --          --      --      --      --        --     --
Exercise of Common Stock warrants.......       --       --           --      --          --      --      --      --        --     --
Exercise of Common Stock options........       --       --           --      --          --      --      --      --        --     --
                                           ------     ----    ---------  ------   --------- -------  ------   -----     ------  ----
Balance December 31, 2000...............    80,597    $805           --  $   --   1,500,000 $15,000   2,145   $  21     3,000   $ 30
                                           =======    ====    =========  ======   ========= =======  ======   =====     ======  ====
<CAPTION>

                                                                      Additional
                                                                        Paid In          Accumulated
                                               Common Stock             Capital            Deficit              Total
                                          -------------------------  --------------     -------------        -----------
                                            Share            $              $                 $                    $
                                         --------------------------  --------------     -------------        -----------
<S>                                      <C>             <C>           <C>                <C>                  <C>
Common Stock issued for the
 acquisition of Onion Peel
 Solutions, LLC.........................      297,396           297            (297)               --                --
Conversion of Class B Preferred
 Stock to Common Stock..................      643,770           648           5,790                --                --
Common Stock issued.....................       55,000            55             (55)               --                --
Exercise of Common Stock warrants.......    2,093,856         2,094       5,258,008                --         5,260,102
Exercise of Common Stock options........    1,295,704         1,296       1,544,856                --         1,546,152
                                           ----------    ----------    ---------------  - -----------      ------------
Balance December 31, 1999...............   16,137,250     $  16,137    $ 21,762,418     $ (14,932,347)     $  6,862,307
Net loss................................           --            --              --       (15,260,233)      (15,260,233)
Preferred Stock dividends...............      190,608           191        (533,196)               --          (533,005)
Conversions of Class A Preferred to
 Common Stock...........................       29,364            29             265                --                --
Private placement of Class D
 Preferred Stock........................           --            --       9,434,311                --         9,434,311
Exercise of Prepaid Common Stock
 purchase warrant.......................      560,748           561            (561)               --                --
Private placement of Prepaid Common
 Stock purchase warrants................           --            --       1,312,000                --         1,312,000
Conversion of Class D Preferred to
 Class E Preferred Stock................           --            --              32                --                --
Conversion of Class D Preferred to
 Common Stock...........................    1,808,473         1,808          (1,796)               --                --
Redemption of Series D Preferred Stock..           --            --        (499,995)               --          (500,000)
Restructure fees........................           --            --         (79,280)               --           (79,280)
Common Stock issued.....................        1,000             1             655                --               656
Exercise of Common Stock warrants.......      257,378           257         388,350                --           388,607
Exercise of Common Stock options........    1,835,627         1,836       2,551,032                --         2,552,868
                                          -----------    ----------    ---------------   ------------      ------------
Balance December 31, 2000...............   20,820,448    $   20,820    $ 34,334,235      $(30,192,582)     $  4,178,329
                                          ===========    ==========    ===============   ============      ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-7
<PAGE>

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

<TABLE>
<CAPTION>
                                                   2000       1999        1998
                                                 -------    --------    -------
<S>                                            <C>          <C>         <C>
Operating activities:
  Net loss..................................   $ (15,260)   $ (7,424)   $(2,549)
  Adjustments to reconcile
   net loss to net cash used in
   operating activities:
  Loss from discontinued operations.........         850       1,152       (935)
  Gain on sale of discontinued operations...        (513)         --         --
  Depreciation and amortization of
   property and equipment...................         961         612        732
  Amortization of goodwill and other
   intangibles..............................         996         939        259
  Acquired in-process R&D write-off.........          --          --        250

  Change in assets and liabilities of
   continuing operations, net of effects
   of acquisitions:
  Accounts receivable.......................        (169)      2,721     (1,486)
  Prepaid expenses and other current assets.         (55)       (350)       (44)
  Accounts payable and accrued expenses.....       2,491        (910)     4,089
  Deferred revenue..........................         302        (211)       134
                                                --------    --------    -------
  Net cash (used in) provided by
   continuing operating.....................     (10,397)     (3,471)       450
                                                --------    --------    -------
  Net cash provided by (used in)
   discontinued operations..................       2,555         (58)    (6,055)
                                                --------    --------    -------
Investing activities:
  Net cash (paid) acquired in
   acquisitions and earn-outs...............         (24)     (1,124)    (1,618)
  Purchases of property and equipment.......      (1,324)       (564)    (1,178)
  Other, net................................        (241)       (150)         7
                                                --------    --------    -------
    Net cash used in investing activities...      (1,589)     (1,838)    (2,789)
                                                --------    --------    -------
Financing activities:
  Sale of minority interest in
   subsidiary...............................        (482)        482         --
  Issuance of note payable..................          --         800         --
  Net proceeds from sale of stock...........       9,435          --      6,264
  Net proceeds from sale of
   prepaid warrants.........................       1,312          --         --
  Line of credit advances, net..............      (3,123)      1,085      2,725
  Proceeds from the exercise of
   stock options and warrants...............       2,943       6,806         19
  Purchase and retirement of
   preferred stock..........................        (579)         --         --
  Payment of Preferred Stock dividends......        (533)       (241)        --
  Payment of capital lease obligations......         (76)        (84)       (97)
                                                --------    --------    -------
     Net cash provided by
      financing activities..................       8,897       8,848      8,911
                                                --------    --------    -------
  (Decrease) increase in cash and
    cash equivalents........................        (534)      3,481        517

Cash and cash equivalents
 at beginning of year.......................       4,351         870        353
                                                --------    --------    -------
Cash and cash equivalents
 at end of year.............................    $  3,817    $  4,351    $   870
                                                ========    ========    =======

Supplemental information:
  Cash paid during the year for:
  Interest..................................   $     388   $     601   $    187
                                                ========    ========    =======
  Non-cash financing activity:
  Capital lease obligation..................          --         240         53
                                                ========    ========    =======
  Conversion of debt to equity..............          --         800         --
                                                ========    ========    =======
  Insurance premium obligation
   for non-compete agreement................          --       1,275         --
                                                ========    ========    =======
  Common stock issued for
   acquisitionsand earn-outs................   $      --      $  567     $1,591
                                                ========    ========    =======
</TABLE>

         See accompanying notes to consolidated financial statements.

                                      F-8
<PAGE>

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


(1)   The Business and Liquidity

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

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

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

      The Company has negative working capital at December 31, 2000 of
      approximately $2.9 million and has incurred significant losses from
      operations in each of the last three years. In addition, the Company is
      operating under a forebearance agreement with its principal lender that,
      among other things, reduced the borrowing base percentage applied to
      eligible accounts receivable. Management believes that cash on hand as of
      December 31, 2000 together with cash flows from operations in 2001 will be
      sufficient to meet its working capital requirement in 2001. In the third
      quarter of 2000, the Company began a restructuring of the Company which
      included closing and combining certain facilities, reduction of
      administrative staff, and disposing of non-strategic business units. In
      addition, recent business development efforts and refinements to the
      Company's staff compensation programs have improved utilization of
      billable, technical staff which should improve the profitability of the
      Company's continuing operations going forward.

      On March 22, 2001, the Company signed a commitment letter with a finance
      company which will, upon closing, provide the Company with a line of
      credit facility which will replace its current bank line of credit. The
      commitment is subject to closing on formal legal documents which
      management expects to occur in April 2001. Upon closing, the facility will
      permit borrowings against eligible accounts receivable up to $4,000,000,
      collateralized by substantially all of the Company's assets and repayable
      upon demand. Subject to certain other restrictions, the borrowing base of
      accounts receivable will be based on 80% of outstanding accounts
      receivable. Interest will be payable at prime plus 1.75% (currently
      9.75%). As a result of this commitment letter and discussions with its
      current lender, management expects the Forebearance Agreement described in
      Note 8 to be extended to accommodate closing on this replacement facility.

      In addition, the Company continues to explore opportunities in the capital
      markets to raise additional funds from third party investments in the
      Company. While management believes these efforts to increase borrowing
      capacity and generate funds from additional outside investments will be
      successful, no assurances can be given that the Company will be successful
      in obtaining additional working capital from these sources.

(2)   Summary of Significant Accounting Policies

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

                                      F-9
<PAGE>

      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." During 2000, 1999 and 1998 the Company recognized
      $1,675,000, $2,287,000 and $815,000 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. 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.

      The accompanying consolidated financial statements reflect a change in the
      manner the Company recognizes revenue in its Contractors Resources segment
      consistent with certain modifications made to CR's contractual
      arrangements during 1999 and in compliance with EITF 99-19, "Reporting
      Revenue Gross as a Principal versus Net as an Agent" and the Securities
      and Exchange Commission's view on revenue recognition issued in Staff
      Accounting Bulletin No. 101. As a result of the adoption of this new
      guidance, the results of operations for 1999 have been restated. Effective
      January 1, 1999, CR recognizes as revenue the fees (net revenue) it
      charges to its members for providing its back office services as these
      services are provided. Adoption of this guidance did not effect the
      presentation of results of operations for 1998 and prior periods. This
      change has no effect on the net income or loss reported from these
      operations. Gross service volume generated by CR's operations for the
      years ended December 31, 2000, 1999 and 1998 were $42,470,000 $38,624,000
      and $35,181,000.

      Management regularly reviews outstanding accounts receivable for
      collectability and provides for an allowance for doubtful accounts
      whenever necessary. As of December 31, 2000 and 1999, the Company was owed
      $1,242,000 and $1,059,000 by two customers at each date.

      The Company recognized revenue from unaffiliated customers constituting
      25.0% and 27.8% in 2000 and 1999, respectively from two customers in each
      year.

      Consistent with the Company's strategy, management targets vertical
      industry markets for its services. As of December 31, 2000 and 1999, 70.6%
      and 79.3%, respectively of the Company's accounts receivable were due from
      customers in the retail and consumer products industry. The Company had no
      concentrations of accounts receivable from any other industry group at
      December 31, 2000 and 1999.

      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. Computer software
      developed for internal use is amortized over 3 years in accordance with
      SOP 98-1 "Accounting for the Costs of Computer Software Developed or
      Obtained for Internal Use."

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

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

      Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
      -----------------------------------------------------------------------
      Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting
      for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
      Disposed Of " requires that long-lived assets and certain identifiable

                                      F-10
<PAGE>

      intangibles be reviewed for impairment whenever events or changes in
      circumstances indicate that the carrying amount of an asset may not be
      recoverable. Recoverability of assets to be held and used is measured by a
      comparison of the carrying amount of an asset to future undiscounted net
      cash flows expected to be generated by the asset. If such assets are
      considered to be impaired, the impairment to be recognized is measured by
      the amount by which the carrying amount of the assets exceeds the fair
      value of the assets. Assets to be disposed of are reported at the lower of
      the carrying amount or fair value less cost to sell.

      Goodwill and Other Intangible Assets
      -------------------------------------
      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 7 to
      15 years. 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 whether
      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.

      Investment in Common Stock
      --------------------------
      The Company has an investment in common stock of a privately held company
      included in other assets valued at $375,000 which is accounted for using
      the cost method.

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

      Earnings (loss) per share
      -------------------------
      The Company accounts for earnings (loss) per share in accordance with
      Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
      which requires companies to present basic earnings per share and diluted
      earnings per share (EPS). Basic net loss per common share is calculated
      using the weighted average number of common shares outstanding during the
      periods. Diluted net loss per common share is calculated using the
      weighted average number of common shares and dilutive potential common
      shares outstanding during the period. For the years ended December 31,
      2000, 1999 and 1998, the assumed exercise of the Company's outstanding
      stock options, warrants and Convertible Preferred Stock are not included
      in the calculation, as the effect would be anti-dilutive.

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

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

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

      Reclassifications
      -----------------
      Certain 1999 and 1998 amounts have been reclassified to conform to the
      current year presentation.

                                      F-11
<PAGE>

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

(3)   Discontinued Operations

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

      The following is a summary of the results of operations of the
      discontinued operations:

<TABLE>
<CAPTION>
                                            Year ended December 31,
                                      ----------------------------------
        (amounts in thousands)              2000               1999
                                      ----------------    --------------
<S>                                   <C>                 <C>
      Revenues...................     $         22,060    $       34,634
                                      ================    ==============
      Gross margin...............     $          5,248    $        8,958
                                      ================    ==============
      Loss from operations.......     $           (850)   $       (1,152)
                                      ================    ==============
</TABLE>


The following is a summary of adjustments made to the Statement of Operations to
reflect discontinued operations:

<TABLE>
<CAPTION>

                                    1998 as                             1998 Adjusted
                                  Previously                          for Discontinued
                                    Stated         Adjustments           Operations
                                 --------------    -----------        ----------------
                                                (amounts in thousands)

<S>                               <C>               <C>                    <C>
Revenues:
   Services                       $ 55,873            $ 17,505            $ 38,368
   Product                        $  5,406            $  4,639            $    767
                                  --------            --------            --------
                                  $ 61,279            $ 22,144            $ 39,135
                                  --------            --------            --------
Cost of revenues
   Services                       $ 47,389            $ 11,597            $ 35,792
   Product                        $  3,895            $  3,027            $    868
                                  --------            --------            --------
                                  $ 51,284            $ 14,624            $ 36,660
                                  --------            --------            --------

Operating expenses                $ 12,390            $  6,585            $  5,805
Operating loss                    $ (2,395)           $    935            $ (3,330)
Net loss                          $ (2,549)           $     --            $ (2,549)

</TABLE>

(4)   Restructure Charge

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

<TABLE>
<CAPTION>
                                                                                        Balance as of
                                                                 Utilized                December 31,
        (amounts in thousands)                Accrual        Cash         Noncash           2000
------------------------------------------------------------------------------------------------------
<S>                                        <C>           <C>           <C>               <C>
Write-down of Long Lived Assets.......      $       160   $        --   $        --       $        160
Employee Severance and termination
 benefits.............................              819           685            --                134
Excess Facility Costs.................              403           168            --                235
Other.................................              130           130            --                 --
                                            -----------   -----------   -----------       ------------
                                            $     1,512   $       983   $        --       $        529
                                            -----------   -----------   -----------       ------------
</TABLE>

      Management expects that the remaining accruals will be utilized in 2001.

                                      F-12
<PAGE>

(5)   Property and Equipment

      Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                         December 31,
                                            -----------------------------------
        (amounts in thousands)                    2000               1999
                                            ----------------     --------------
<S>                                           <C>                  <C>
      Computer software................     $          1,901     $        1,182
      Computer and office equipment....                1,767              1,317
      Furniture and fixtures...........                  667                547
      Equipment under capital leases...                  546                546
      Leasehold improvements...........                  110                 75
                                            ----------------     --------------
                                                       4,991              3,667
      Accumulated depreciation
       and amortization................               (3,039)            (2,077)
                                            ----------------     --------------
      Property and equipment, net......     $          1,952     $        1,590
                                            ================     ==============
</TABLE>

      Computer software at December 31, 2000 and 1999 includes $799,000 and
      $261,000 of software that was developed for internal use. Accumulated
      depreciation related to this software was $219,000 and $0 at December 31,
      2000 and 1999, respectively.

      Accumulated depreciation and amortization includes $545,000 and $526,000
      related to assets under capital leases at December 31, 2000 and 1999,
      respectively.

(6)   Goodwill and Other Intangible Assets

      Goodwill and other intangible assets consist of the following:

<TABLE>
<CAPTION>
                                                             December 31,
                                                    ---------------------------
                 (amounts in thousands)                  2000            1999
                                                    --------------    ---------
<S>                                               <C>                <C>
            Goodwill.........................        $    2,672       $  2,648
            Acquired software................               836            836
            Assembled workforce..............             1,000          1,000
            Non-Compete......................               900            900
                                                      ---------       --------
                                                          5,408          5,384
           Accumulated amortization..........            (2,159)        (1,163
                                                      ---------       --------
                                                     $    3,249       $  4,221
                                                      =========       ========
</TABLE>
(7)   Accrued Expenses

      Accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                                         December 31,
                                              --------------------------------
                 (amounts in thousands)             2000             1999
                                              ---------------    -------------
<S>                                           <C>               <C>
         Accrued wages...................     $    3,734        $   2,217
         Accrued restructure costs.......            529               --
         Accrued professional fees.......            572              404
         Accrued vacation................            309              295
         Accrued commissions.............            491              287
         Accrued payroll taxes...........             57               81
         Accrued earn-out................             --              103
         Accrued preferred dividends.....            166               --
         Accrued project expense.........            174              135
         Other...........................            687              606
                                              ----------        ---------
                                              $    6,719        $   4,128
                                              ==========        =========
</TABLE>
(8)   Line of Credit

      On July 31, 2000, the Company entered into a line of credit agreement with
      a bank that was set to expire on July 31, 2002. Under the line of credit
      the Company could borrow up to an amount equal to 85% of its eligible
      accounts receivable, as described in the line of credit, but not more than
      $6.0 million. The line of credit is

                                      F-13
<PAGE>

      secured by the Company's assets and bears interest at the bank's prime
      rate plus 1.75%. The terms of the line of credit required that the Company
      meet certain financial and other covenants, including maintaining minimum
      tangible net worth of $4.0 million. The Company has also agreed to
      maintain an interest-bearing deposit account of $2.0 million with the
      bank.

      As of September 30, 2000, the Company was not in compliance with the
      tangible net worth covenant. On January 10, 2001, the Company and the bank
      entered into an Loan Amendment and Forebearance Agreement ("Forebearance
      Agreement") whereby the bank agreed to forebear from exercising its rights
      and remedies under the loan document due to the existing event of default
      until March 31, 2001; provided no additional default occurs. The Company
      and the bank agreed the Company does not need to comply with the tangible
      net worth covenant set forth in the loan agreement. Under the Forebearance
      Agreement the Company may borrow 40% of eligible accounts receivable (as
      defined in the agreement) up to $5.0 million bearing interest at the
      bank's prime rate plus 2.5%. In the fourth quarter of 2000, the Company
      applied the $2.0 million interest bearing deposit against its outstanding
      advance. Outstanding advances were $2,003,000 and $5,126,000 at December
      31, 2000 and 1999, respectively.

      The Company expects to enter into a replacement line of credit facility in
      April 2001 as discussed in Note 1 which will result in the repayment of
      all amounts outstanding under the above facility.

(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, 2000
      1999 and 1998 is as follows:

<TABLE>

                   (amounts in thousands)                        2000               1999              1998
                                                            --------------     --------------    --------------
<S>                                                         <C>               <C>                <C>
      Pretax loss                                           $     (15,260)     $      (7,424)    $      (2,549)
                                                            --------------     --------------    --------------
      Computed Federal income tax benefit at 34%......             (5,188)            (2,524)             (867)
      Computed state income taxes, net of Federal
       benefits.......................................               (839)              (408)               --
      Permanent differences...........................                143              1,033               291
      Change in valuation allowance...................              5,884              1,899               576
                                                            -------------     --------------    --------------
                                                            $          --     $           --    $           --
                                                            =============     ==============    ==============
</TABLE>

      The tax effects of temporary differences that give rise to significant
      portions of deferred tax assets and deferred tax liabilities at December
      31, 2000, 1999 and 1998 are presented below:

<TABLE>

                (amounts in thousands)                       2000                1999               1998
                                                         --------------     ---------------    ---------------
<S>                                                   <C>                  <C>              <C>
   Deferred tax assets:
    Net operating loss carryforwards............         $       13,247     $         7,690    $         4,272
    Research and development credit
     carryforwards..............................                    187                 187                187
    Depreciation and amortization...............                    413                 215                 --
    Excess tax basis over book of net
     assets acquired............................                     --                  --                302
    Inventory obsolescence reserve..............                    107                 107                108
    Allowance for doubtful accounts receivable..                    157                 136                146
    Accrued vacation............................                    108                  --                 --
                                                         --------------     ---------------    ---------------

     Total gross deferred tax assets............                 14,219               8,335              5,015
     Less valuation allowance...................                (14,219)             (8,335)            (5,015)
                                                         --------------     ---------------    ---------------
      Net deferred tax asset....................         $           --     $            --    $            --
                                                         ==============     ===============    ===============
</TABLE>

      The Company has provided a valuation allowance for all of its deferred tax
      assets at December 31, 2000, 1999, and 1998 because the Company could not
      conclude that it was more likely than not that it would realize these
      assets due principally to the Company's history of losses.

      As of December 31, 2000 and 1999, the Company has NOL's for Federal and
      state income tax purposes of approximately $33,534,000 and $19,469,000
      which may be applied against future taxable income. Additionally, the
      Company has $187,000 of research and development tax credits ("Credits")
      available to offset future Federal income taxes. The NOL's and credits
      expire primarily in years 2002 through 2020. Approximately $12,100,000 of
      the NOL's and the credits are subject to annual limitations and other
      conditions

                                      F-14
<PAGE>

      as of December 31, 2000. Additionally, they may not be fully utilized for
      tax purposes due to the change in ownership resulting from the Company's
      merger in 1996 and an additional change in ownership in 1998.

(10)  Commitments

      Employment Agreements
      ---------------------
      The Company has employment agreements with several key employees. At
      December 31, 2000, the Company's annual obligation under the agreements is
      approximately $685,000 for each of the next three years.

      Acquisitions
      ------------
      In 1997, 1998 and 1999, the Company consummated five acquisitions
      accounted for as purchases. Certain of these acquisitions contained
      contingent consideration payable in cash or stock, dependent upon
      operational performance of the acquired businesses. During the years ended
      December 31, 2000, 1999 and 1998 the Company paid in either cash or stock
      $40,000, $1,720,523 and $438,666 in connection with these "earn-out"
      provisions, respectively. As of December 31, 2000, the Company is no
      longer obligated to pay any material future earn-out amounts pursuant to
      the terms of these acquisitions.

      Co-Branding Agreement
      ---------------------
      In May 2000, the Company, through its Contractors Resources subsidiary,
      entered into a two year co-branding agreement with TMP Interactive, Inc.
      (TMP) that among other things called for the Company to make cash payments
      totaling $5.0 million over the period of the agreement in quarterly
      installments of approximately $464,000. In connection with the agreement,
      as described in Note 11, the Company granted TMP warrants to purchase
      3,000,000 shares of the Company's common stock, of which 1,000,000
      warrants vested immediately and 2,000,000 warrants vested over the two
      year period of the co-branding agreement. The Company has recorded expense
      associated with this agreement by applying the provisions of Emerging
      Issues Task Force Bulletin 96-18, "Accounting for Equity Instruments That
      Are Issued to Other Than Employees for Acquiring, or in conjunction with
      Selling, Goods or Services" (EITF 96-18). Under EITF 96-18, the value of
      the warrants that vested immediately was determined at the issuance date
      and is being amortized over the two year period of the agreement. In
      addition, the value of the warrants which vest over the life of the
      agreement is periodically estimated at the end of each quarter to
      determine the ratable amount of expense associated with these warrants.
      The expense charge to operations in connection with the co-branding
      agreement for the year ended December 31, 2001 was approximately
      $1,260,000.

      The co-branding agreement is the subject to litigation described in Note
      14.

      Lease Obligations
      ------------------
      The Company leases computer equipment, furniture, vehicles, and office
      facilities under long-term lease agreements. The following is a schedule
      of future minimum lease payments for capital and non-cancelable operating
      leases (with initial terms in excess of one year) as of December 31, 2000:

<TABLE>
<CAPTION>
                                          Capital      Operating
               (amounts in thousands)     Leases        Leases
                                          -------      ---------
<S>                                    <C>             <C>
                  2001.............     $     118    $     1,093
                  2002.............           100            997
                  2003.............             2            682
                  2004.............            --            613
                  2005.............            --            187
                  Thereafter.......            --             --
                                        ---------    -----------
    Total minimum lease payments...           220    $     3,572
                                                     ===========
    Less: amount representing
     interest......................            51
                                        ---------
    Present value of minimum lease
    payments.......................           169
    Less current portion...........            77
                                        ---------
                                        $      92
                                        =========
</TABLE>

      Total rent expense under operating leases was approximately $1,248,000,
      $1,020,000 and $900,000 for the years ended December 31, 2000, 1999 and
      1998.

                                      F-15
<PAGE>

(11)  Stockholders' Equity

      As of December 31, 2000, the Company's authorized capital stock consisted
      of 100,000,000 shares of common stock, par value $.001 per share, and
      6,000,000 shares of preferred stock, par value $.01 per share.

      Preferred Stock

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

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

      Each warrant issued in connection with the private placement became
      exercisable on March 19, 1997, and expires on September 19, 2001. The
      Company has the right to call the warrants at a redemption price of $.01
      per share upon registration of the shares underlying the warrant, and 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.

      Class B Convertible
      -------------------
      During 1999 all shares of the Class B Preferred Stock were converted into
      643,770 shares of Common Stock. The holders of the shares agreed not to
      sell or otherwise distribute the Common Stock for one year.

      Class C Cumulative Convertible
      ------------------------------
      The Class C Cumulative Convertible Preferred Stock ("Class C Preferred")
      has a liquidation preference of $3.99 per share and a dividend rate of
      9.99% per annum that increases to 15% per annum after the date that there
      is no Class A Preferred issued and outstanding. The Class C Preferred 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 Class C Preferred is
      redeemable at the option of the Company at any time within five years from
      the date of issuance. At December 31, 2000 and 1999, the Class C Preferred
      is convertible into the number of shares equal to $2,300,000, plus accrued
      but unpaid dividends, divided by 25% of the 20 day average trading price
      of the Common Stock immediately prior to conversion. The Company has
      measured the intrinsic value of the beneficial conversion feature of the
      Class C Preferred to be $2,300,000 at December 31, 2000 and 1999,
      respectively. As a result, the Company will accrete this discount as
      additional Preferred Stock dividends over the five years. During 2000 and
      1999, the accretion of the discount of approximately $388,000 and $259,000
      was included as additional Preferred Stock dividends in the Company's EPS
      calculation.

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

                                      F-16
<PAGE>

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

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

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

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

      Also, as part of the agreement, the Company redeemed 500 of the remaining
      3,823 shares of Series D Preferred Stock at their original face value of
      $500,000, and sold to the holders of the Series D Preferred Stock 1,000
      shares of the Company's common stock at a price of $0.65625 per share. The
      Company incurred approximately $79,000 of printing and legal fees
      resulting from the restructure that were charged against additional paid
      in capital. As a result of that sale, the remaining 3,323 shares of Series
      D Preferred Stock will have an adjusted conversion price of $.65625. Upon
      execution of the agreements, the Series D Preferred Stockholders converted
      1,178 shares of Series D Preferred Stock into 1,808,473 shares of common
      stock. The remaining 2,145 shares of Series D Preferred Stock that they
      hold will be convertible into 3,293,020 shares of common stock.

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

      Warrants

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

      Monster Warrant. In connection with a co-branded services agreement,
      described in note 14 to the financial statements, entered into in May 2000
      by one of our subsidiaries and TMP Interactive, Inc. ("TMP"), the Company
      issued warrants to purchase up to 3,000,000 shares of common stock. The
      warrants are exercisable for a period of three years after the date they
      were issued. The exercise price for the warrants to purchase up to
      2,000,000 shares of common stock is $9.00 per share and these warrants
      vest over two years. The exercise price for the remaining warrants to
      purchase up to 1,000,000 shares of common stock is $6.00 per share and
      these warrants vested immediately.

      Roseland Warrant. The Company issued a warrant to purchase up to 15,000
      shares of common stock to Roseland II L.L.C. in connection with our
      leasing arrangements. The warrant is exercisable for a period of five
      years after the date the warrant was issued. The exercise price for the
      warrant is $7.72 per share.

      Silicon Valley Bank Warrant. The Company issued a warrant to purchase up
      to 75,000 shares of common stock to Silicon Valley Bank in connection with
      our line of credit. The warrant is exercisable for a period of five years
      after the date it was issued. The exercise price for the warrant is $6.00
      per share.

      Pennsylvania Merchants Group Warrant. The Company issued a warrant to
      purchase up to 500,000 shares of common stock to Pennsylvania Merchants
      Group in connection with an investment banking arrangement we have with it
      and the cancellation of the warrant to purchase 250,000 shares of common
      stock issued in 1999. The warrant is exercisable for a period of five
      years after the date it was issued. The exercise price for the warrant is
      $0.50 per share.

                                      F-17
<PAGE>

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

<TABLE>
<CAPTION>
                                               Shares                Price
                                           --------------     ---------------
<S>                                           <C>                    <C>
          January 1, 1998..............         2,295,000       $      2.66
                    Issued.............           814,102              1.29
                    Exercised..........                --                --
                    Expired............                --                --
                                           --------------       -----------
          December 31, 1998............         3,109,102       $      2.30
                    Issued.............           225,000              3.00
                    Exercised..........        (2,093,856)             2.52
                    Expired............           (45,000)             3.00
                                           --------------       -----------
          December 31, 1999............         1,195,246       $      2.15
                    Issued.............         4,257,000              6.62
                    Exercised..........          (795,465)             2.16
                    Canceled...........          (250,000)             3.00
                    Expired............            (2,854)             1.15
                                           --------------       -----------
          December 31, 2000............         4,403,927       $      6.42
                                           ==============       ===========
</TABLE>

      As of December 31, 2000, 1999 and 1998 all of the warrants were
      exercisable and had an average remaining life of 4.4, 3.5 and 3 years,
      respectively.

      Convertible Subordinated Note
      -----------------------------
      On January 28, 1999, the Company issued a subordinated note for $800,000,
      at 14% annual interest, through a private placement to an accredited
      investor. The note was subordinated to the Company's line of credit with a
      bank. On December 15, 1999, the note was exchanged for an increase in the
      number of shares that the Company's Class C Cumulative Convertible
      Preferred Stock ("Class C Preferred") is convertible into.

(12)  Stock Options

      The Company has three stock option plans.

      .   The ISO Plan includes both incentive and non-qualified stock options.
          The Board of Directors may grant stock options to employees to
          purchase up to 6,000,000 shares of the Company's Common Stock. Stock
          options are granted with an exercise price equal to the market price
          on the date of grant. All stock options expire 10 years from grant
          date (5 years or holder's of more than 10% of the voting stock of the
          Company). Generally the options vest ratably and become fully
          exercisable after 3 years but not less than 6 months from the date of
          grant. At December 31, 2000, approximately 481,000 options are
          available for grant under this plan.

      .   The Directors' Plan authorizes the Board of Directors to grant each
          director options to purchase up to 15,000 shares of the Company's
          Common Stock, upon election to the Board. Under this plan 300,000
          shares of the Company's Common Stock are available. The terms of
          option grants for the Directors' Plan are identical to those of the
          ISO plan, except that the vesting period for the Directors' Plan is at
          the Board's discretion. All options granted under this Plan either
          vest immediately or contain vesting periods up to two years. At
          December 31, 2000, 15,000 options are available for grant under this
          Plan.

      .   The Consultant's Plan authorizes the Board of Directors to grant
          organizations or individuals, who are not employees of the Company,
          options to purchase up to 800,000 shares of the Company's Common
          Stock. The exercise price, terms of the option grant and vesting
          period for the Consultant's Plan are at the Board's discretion. At
          December 31, 2000, approximately 5,000 options are available for grant
          under this Plan.

                                      F-18
<PAGE>

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

<TABLE>
<CAPTION>
                                ISO Plan                   Directors' Plan             Consultants' Plan
                     ----------------------------    -------------------------   ---------------------------
                                        Wt. Avg.                     Wt. Avg.                       Wt. Avg.
                         Shares         Ex. Price       Shares       Ex. Price        Shares        Ex. Price
                     ------------     -----------    ---------     -----------   -------------    ----------
<S>                    <C>              <C>            <C>           <C>         <C>              <C>
      January 1, 1998   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

Granted..............   1,517,750            2.28       37,500            2.85         315,000          1.07
Exercised............    (831,104)           1.11           --              --        (464,600)         1.34
Forfeited/Canceled...    (101,171)           1.89       (7,500)           2.85              --            --
Expired..............          --              --           --              --              --            --
                       ----------     -----------    ---------     -----------   -------------    ----------
    December 31, 1999   3,070,675     $      1.67      120,000     $      2.61         274,228    $     1.26

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

      ISO Plan
      --------
      At December 31, 2000, the exercise prices for options granted under the
      ISO plan were $0.47 to $3.94 and the weighted-average remaining
      contractual life of those options was 8.7 years. At December 31, 2000,
      1999 and 1998, the number of options exercisable under the ISO Plan was
      1,286,186, 1,175,898 and 936,750, respectively. The weighted-average
      exercise price of those options was $1.25, $1.04 and $1.08, respectively.

      Directors' Plan
      ----------------

      At December 31, 2000, the exercise prices for options granted under the
      Directors' Plan were $0.47 to $3.56 and the weighted-average remaining
      contractual life of those options was 8.9 years. At December 31, 2000,
      1999 and 1998, the number of options exercisable under the Directors' Plan
      was 240,000, 75,000 and 52,500, respectively. The weighted-average
      exercise price of those options was $0.93, $2.61and $3.17, respectively.

      Consultants' Plan
      ------------------
      At December 31, 2000, the exercise price for all options granted under the
      Consultants' Plan was $0.47 to $3.00 and the weighted-average remaining
      contractual life of those options was 8.76 years. All options, granted
      under the Consultants' Plan, are exercisable at the time of grant. The
      weighted-average exercise price of those options was $1.51, $1.25 and
      $1.49 at December 31, 2000, 1999 and 1998, respectively. During 2000, in
      accordance with SFAS No. 123, the Company recorded compensation expense of
      $8,400 for options granted, based on the value of the services provided.
      The options granted during 1999 and 1998 were in connection with certain
      equity issues, and as a result had no compensation expense.

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

                                      F-19
<PAGE>

<TABLE>

  (amounts in thousands except per share
   data)                                          2000            1999            1998
                                              ------------    ------------    ------------
    <S>                                      <C>             <C>             <C>
    Net loss - As reported...............    $     (15,260)  $      (7,424)  $      (2,549)
                                              ============    ============    ============
    Net loss - Pro forma.................    $     (15,867)  $     (10,806)  $      (3,466)
                                              ============    ============    ============
    Net loss per share - As reported.....    $       (0.89)  $       (0.63)  $       (0.31)
                                              ============    ============    ============
    Net loss per share - Pro forma.......    $       (0.92)  $       (0.86)  $       (0.37)
                                              ============    ============    ============
    Weighted average shares outstanding..           18,356          12,516           9,260
                                              ============    ============    ============
</TABLE>

      The per share weighted average fair value of the ISO on the grant date in
      2000, 1999 and 1998, was $0.34, $2.29 and $1.17, respectively using the
      Black- Scholes option pricing model with the following weighted average
      assumptions:

<TABLE>

                                              2000        1999       1998
                                          --------------------------------
<S>                                         <C>         <C>          <C>
       Dividend yield................          0.0%        0.0%       0.0%
                                          ========     =======    =======
       Risk-free interest rate.......         5.79%       5.98%      5.36%
                                          ========     =======    =======
       Expected volatility...........          141%        167%       106%
                                          ========     =======    =======
       Expected life (years).........         5.00        7.86       6.75
                                          ========     =======    =======
</TABLE>

      The per share weighted average fair value of the Directors' Plan options
      on the grant date in 2000, 1999 and 1998 was $0.25, $2.85 and $1.02,
      respectively using the Black - Scholes option pricing model with the
      following weighted average assumptions:

<TABLE>
                                              2000        1999       1998
                                          --------------------------------
<S>                                         <C>         <C>          <C>
       Dividend yield................          0.0%        0.0%       0.0%
                                          ========     =======    =======
       Risk-free interest rate.......         5.79%       6.10%      5.27%
                                          ========     =======    =======
       Expected volatility...........          141%        167%       106%
                                          ========     =======    =======
       Expected life (years).........         1.00        2.72       5.00
                                          ========     =======    =======
</TABLE>

(13)  Related Party Transactions

      The Company paid $18,000 in 2000, $45,000 in 1999 and $24,000 in 1998 for
      accounting, tax and consulting services to a CPA firm in which a partner
      of the firm is a director of the Company.

      A Director of the Company is the President and Director of a company that
      owns all of the Company's Class C Convertible Preferred Stock (Note 11).

(14)  Litigation

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

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

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

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

                                      F-20
<PAGE>

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

      XcelleNet has reached an agreement in principle to settle that portion of
      the case against it in the amount of damages proven at trial on the claims
      against XcelleNet, and has reserved its indemnity claim against the
      Company.

      In December 2000, TMP filed suit against the Company and its Contractors
      Resources subsidiary alleging that the Company failed to make a quarterly
      cash payment under its co-branding agreement with TMP. The complaint seeks
      a judgment of approximately $464,000. The Company has disputed the
      allegations, denying all liability and has asserted affirmative defenses,
      including that TMP did not perform the agreement as required. Since filing
      the suit, TMP has also notified the Company that it has failed to make
      another payment under the agreement but this alleged default has not yet
      become part of the litigation. While initial discovery had commenced, both
      parties have agreed to stay all further discovery pending a conference
      with the Court. Management believes it has meritorious defenses in this
      matter and the outcome will not have a material adverse impact on its
      financial condition or results of operations.

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

(15)  Employee Benefit Plans

      The Company has a 401(k) plan where all full time employees with over 1000
      hours of service to the Company or its subsidiaries are eligible to
      participate. The Company matches one-half of the employees' voluntary
      contributions up to a maximum Company contribution of 5% of participants'
      salaries. The Company's contribution to the Plan during 2000, 1999 and
      1998 was approximately $456,000, $406,000 and $706,000, respectively.

      The Company's CR subsidiary has a profit sharing plan for its employees
      whereby up to 10% of the employees salary can be contributed to the plan.
      The Company made no matching contributions to this plan during 2000, 1999
      and 1998.

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

(16)  Segment Information

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

      The Company had two reportable segments after the reclassification of the
      e-Infrastructure segment as a discontinued operation in the third quarter
      of 2000. All prior year's revenue, cost of services and operating expenses
      have been restated to reflect this reclassification. The Company's
      reportable segments are as follows:

      .   Netplex - provides professional services that constitute the strategic
          and creative aspects of Netplex's Netplex, as well as complete
          Internet-based application development, business security and
          protection consulting services and Retail Industry-focused consulting
          and integration services.

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

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

      The reportable segments are measured and resources are allocated both on
      income before income taxes and EBITDA, which represents the sum of income
      before taxes, depreciation, amortization, and interest. EBITDA is not a
      measure of performance or financial condition under generally accepted
      accounting principles, but is presented to provide additional information.
      The Company considers EBITDA to be a useful measure of the

                                      F-21
<PAGE>

      Company's performance, because EBITDA can be used to measure the Company's
      ability to service debt, fund capital expenditures and expand business.
      EBITDA should not be considered in isolation or as a substitute for other
      measures of financial performance or liquidity under generally accepted
      accounting principles. While EBITDA is frequently used as a measure of
      operations and the ability to meet debt service requirements, it is not
      necessarily comparable to other similarly titled captions of other
      companies due to the potential inconsistencies in the method of
      calculation.

      The table below presents information about segments used by the chief
      operating decision-maker of Netplex as of and for the years ended December
      31, 2000, 1999 and 1998. As discussed in Note 2, effective in 1999, the
      Company changed its method of recognizing revenue for CR to present its
      revenues on a net basis.

<TABLE>
<CAPTION>
    (amounts in thousands)          Netplex        CR           Total
                               ------------    ---------    -----------
<S>                            <C>             <C>              <C>

  2000:
  -----
   Revenues...............     $    15,241     $    1,539     $    16,780
   Gross profit...........           6,365          1,011           7,376
   Segment EBITDA.........             470         (3,953)         (3,483)
-------------------------------------------------------------------------

   Total segment assets...           7,823          3,101          10,924
   Discontinued assets....                                          4,063
   Unallocated assets.....                                          2,703
                                                              -----------
   Total assets...........                                    $    17,690
-------------------------------------------------------------------------

  1999:
  -----
   Revenues...............     $    14,527     $    1,374     $    15,901
   Gross profit...........           6,584            976           7,560
   Segment EBITDA.........           2,761         (1,557)          1,204
-------------------------------------------------------------------------

   Total segment assets...           8,573          4,987          13,560
   Discontinued assets....                                          8,356
   Unallocated assets.....                                            746
                                                              -----------
   Total assets...........                                    $    22,662
-------------------------------------------------------------------------

  1998:
  -----
   Revenues...............     $     3,954         35,181     $    39,135
   Gross profit...........           1,150          1,325           2,475
   Segment EBITDA.........             (59)           181             122
-------------------------------------------------------------------------

   Total segment assets...           1,595          4,760           6,355
   Discontinued assets....                                          8,592
   Unallocated assets.....                                          5,704
                                                              -----------
   Total assets...........                                    $    20,651
-------------------------------------------------------------------------
</TABLE>

      Reconciliation of Segment EBITDA to Net Operating Loss:

<TABLE>

                                                           2000             1999             1998
                                                   ------------     ------------     ------------
<S>                                                <C>             <C>              <C>
         Segment EBITDA.......................     $  (3,483)      $    1,204        $     122
         Unallocated corporate expenses.......         7,811            5,542            2,210
         Restructure charges..................         1,512               --               --
         Depreciation & amortization..........         2,076            1,550            1,242
         Interest expense, net................            41              384              154
         Tax expense..........................            --               --               --
                                                   ---------       ----------        ---------
         Loss from continuing operations......       (14,923)          (6,272)          (3,484)
         (Loss) income from discontinued
          operations, net of tax..............          (850)          (1,152)             935
        Gain on disposal of discontinued
          operations..........................           513               --               --
                                                   ---------       ----------        ---------
         Net operating loss...................     $ (15,260)      $   (7,424)       $  (2,549)
                                                   =========       ==========        =========
</TABLE>

                                      F-22