SECURITIES AND EXCHANGE COMMISSION
                        Washington, D.C. 20549




                              Form 10-KSB
(Mark One)


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

         For the fiscal year ended   December 31, 1997


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

         For the transition period from __________________ to__________________

                         Commission file number 1-11784



                             THE NETPLEX GROUP, INC.
--------------------------------------------------------------------------------
                 (Name of small business issuer in its charter)



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

8260 Greensboro Drive, 5th Floor, McLean, VA            22102
--------------------------------------------------------------------------------
(Address of principal executive offices)             (Zip code)


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

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


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

                                        Boston Stock Exchange
================================================================================

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

                                      None

         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 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 / / No / /.

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will 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-KSB
or any amendment to this Form 10-KSB. / X /

         State issuer's revenue for its most recent fiscal year $40,468,134

         State  the  aggregate   market  value  of  the  voting  stock  held  by
nonaffiliates of the registrant. The aggregate market value shall be computed by
reference to the price at which the stock as sold,  or the average bid and asked
prices of such stock, as of March 20, 1998. (See definition of affiliate in Rule
12b-2 of the Exchange Act). $9,428,201

         Note: If  determining  whether a person is an affiliate will involve an
unreasonable  effort and expense,  the issuer may calculate the aggregate market
value of the common  equity  held by  nonaffiliates  on the basis of  reasonable
assumptions, if the assumptions are stated.

         As of March 20, 1998,  there are 7,550,370  shares  outstanding  of the
Company' s Common Stock.

         Transitional  Small Business  Disclosure Format (Check one):
         Yes ______  No ______

         This report consists of __  consecutively  numbered pages (inclusive of
all exhibits and including  this cover page).  The Exhibit Index appears on page
__.


<PAGE>

                              INDEX OF FORM 10-KSB

PART I   ......................................................................2
ITEM 1.  BUSINESS..............................................................2
ITEM 2.  PROPERTIES............................................................9
ITEM 3.  LEGAL PROCEEDINGS.....................................................9
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................10
PART II  .....................................................................10
ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.............10
ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS.................................11
ITEM 7.  FINANCIAL STATEMENTS.................................................15
ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE..................................16
PART III .....................................................................16
ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
        COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.....................16
ITEM 10.  EXECUTIVE COMPENSATION..............................................17
ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......20
ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................21
PART IV  .....................................................................22
ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K....................................22
SIGNATURES....................................................................23


                                        i
<PAGE>
                                     PART I

ITEM 1.  BUSINESS.
Corporate Profile

Based in McLean,  Virginia with seven offices  throughout  the U.S., The Netplex
Group,  Inc.,  together  with its wholly owned  subsidiaries  ("the  Company" or
"Netplex"),  is an Information Technology (IT) company that provides the people,
technology,  and processes to build,  manage,  and protect business  information
systems.  Through the strategic teaming of business  consulting  practice areas,
operating  units,  and wholly owned  subsidiaries,  Netplex  believes that it is
positioned to deliver:


     *   IT  Solutions  - Design  and  implementation  of systems  solutions  to
         address IT related business needs;

     *   IT Staffing - Staff augmentation and flexible task outsourcing; and

     *   IT  Contractor  Resources - Business  services for the  independent  IT
         Consultant.

The following  describes  these three business areas and provides an at-a-glance
look at the industries served, strategic alliances,  geographic positioning, and
engagement  confidence  that the Company  believes  makes  Netplex a  preeminent
supplier of information technology services and solutions.

The Company was incorporated in 1986. From 1986 to June 1996, the Company, under
the name  CompLink,  Ltd.,  developed  and  marketed a  communications  software
product.

On June 7, 1996, the Company  (formerly  known as CompLink,  Ltd. or "CompLink")
acquired and merged with The Netplex  Group,  Inc. and America's  Work Exchange,
Inc.  (combined  entities  referred to as "Netplex" or "the Company") by issuing
approximately  3,245,000 shares of Common Stock. The agreement also provided for
CompLink to issue 1,691,000 options to purchase its Common Stock in exchange for
the 1,691,000  outstanding options to purchase the Common Stock of Netplex.  The
mergers have been  accounted  for under the purchase  method of  accounting as a
reverse  merger,  since  the  shareholders  of the  acquirees,  who have  common
control,  received the larger  percentage  of the voting  rights of the combined
entity. The mergers resulted in a recapitalization  of the Company,  so that the
resulting  capitalization  after the mergers will be that of CompLink's,  giving
effect to the new share issuance and the  elimination of CompLink's  accumulated
deficit.  The  acquisition  of the assets and  liabilities  of CompLink has been
accounted for at book value, which approximates fair value.

     *   IT Solutions

Through a  collection  of  specialized  systems  integration  and IT  consulting
practices,  each capable of providing  focused  business  solutions by combining
in-depth expertise,  proven methods, and leading technologies,  Netplex believes
it delivers  superior quality and measurable  results.  The Netplex IT Solutions
practice areas are:

     .   Network  Systems   Integration   (NSI):   providing   networked  office
         automation solutions;

     .   Enterprise  Network  Management  (ENM):  providing  network  management
         solutions;

     .   Enterprise Systems Management (ESM):  providing solutions to manage the
         systems that run businesses; and

     .   Business  Protection  Services  (BPS):  providing  solutions  that keep
         businesses in business.

These  IT  Solutions  practice  areas  span  several  performance   disciplines,
including:

         *    Strategic Planning               *   Custom Software Development
         *    Information Security             *   Technology Integration
         *    Hardware Product Fulfillment     *   Software Product Fulfillment
         *    Project Management               *   Systems Training
         *    Network Management               *   Systems Management
         *    Systems Integration              *   Business Resumption Planning

Each practice area employs a team of  subject-matter  experts to help businesses
develop, implement, and support their IT objectives.  Adherence to comprehensive
management  techniques  helps  ensure  that  every  detail in a project  plan is
subject to quality control and measures of technical excellence.  This commences
with an evaluation of the current user  environment and IT goals and ends with a
review process for determining the impact of value-added improvements.

                                       1

<PAGE>
Many  hardware  and  software  suppliers  have  engaged  Netplex  to manage  the
implementation of their technologies (see "Strategic Alliances").

The IT Solutions Market

The IT solutions  market is  experiencing  record growth in the  commercial  and
government  sectors.  The IT services industry is estimated at over $126 billion
in the U.S. and even larger  internationally.  It is growing at an estimated 18%
average annual rate.  The demand for IT services is growing,  driven by the Year
2000  problem,   the  Internet,   short  technology  cycles,   business  process
reengineering,   increasing  global  competition,   and  other  factors.   While
mainframes  continue  to be the  largest  area of demand  for work  assignments,
client/server  and  network  technology  demand is on the rise.  The  consulting
segment,  which includes information systems integration  services,  feasibility
studies,   business  protection  services,   cost-effectiveness   analysis,  and
technical and management program assistance, continues to be the fastest growing
sector of the IT  professional  services  industry.  This segment is forecast to
grow at a rate of 21.1% to reach $18.3 billion in aggregate revenue by 2001.

*        IT Staffing

Netplex  recognizes  the need for  technical  staff  augmentation.  IT  Staffing
Services  provides help to  organizations  confronted  with  technical  staffing
needs.  Clients gain access to the Netplex  recruiting  team,  which maintains a
proprietary  Database of a qualified pool of 40,000+ IT  professionals  with the
talent and  flexibility to undertake  virtually any technical  task. The Company
believes that the ability of its  consultants  enables it to deliver  qualified,
results-oriented technical staffing services.

Seasoned  professionals with many years of business experience provide strategic
direction,  planning,  and  input  on  complex  technical  issues.  Consultants,
engineers,  project managers,  analysts,  developers,  technicians, and other IT
professionals  provide  additional  capacity to solve technical  staffing needs.
Whether a need for  technical  services  arises  during  peak  periods,  systems
planning sessions,  project  roll-outs,  or technology  transitions,  Netplex IT
Staffing  believes it can apply a  qualified,  customized  skill-set  to quickly
fulfill a client engagement.

The  Company,  in  business  to  serve  as  an  extension  of  the  client's  IT
organization,  believes  it is  capable  of  providing  staff to  manage  any IT
operation.  The Netplex  technical  staff accepts  direction  from the client in
fulfilling all project  objectives;  thus,  allowing the client to maintain full
control  over the  timeline  and project  course.  Netplex IT Staffing  Services
provides the human and  technical  resources  to keep its client's  on-schedule,
technology-aware,  and  quality-fastened.  The Company's  staffing  services are
located primarily in New York, New Jersey,  and Washington,  D.C., where The PSS
Group, Inc., a wholly-owned subsidiary of Netplex acquired in January, 1998, has
been providing  technical  personnel for engagements  throughout the Washington,
D.C. metropolitan area since 1991.

The IT Staffing Market

The IT Staffing  industry  continues to grow.  Recent Bureau of Labor statistics
indicate  Personnel Supply Services added 43,000 jobs  (seasonally  adjusted) in
February of 1998. Compared to a year earlier,  February's job growth was up 5.6%
in Personnel Supply, the highest year-to-year  percentage growth since April and
March of 1997,  respectively.  Staffing  growth is  expected  to  remain  strong
throughout  1998 with a growth rate of over 25% in  information  technology  and
other  professional  specialties.  INPUT, a market research firm,  estimates the
total IT  market  in the U.S.  at $231  billion  in 1997.  According  to  INPUT,
compound   annual  growth  in  the  U.S.   Information   Technology   Commercial
Professional  Services  Market will continue at a rate of 17.3% through 2001. In
1996,  every segment of the IT professional  services  industry grew faster than
forecast  by  INPUT  evidencing  ongoing,  rising  demand  for  these  services.
Organizations are increasingly turning to external IT services  organizations to
develop,  support and enhance  their  internal IT  systems.  By  outsourcing  IT
services,  companies are able to (i) focus on their core  business,  (ii) access
specialized  technical skills,  (iii) implement IT solutions more rapidly,  (iv)
benefit from  flexible  staffing,  providing a variable cost solution to a fixed
cost issue, and (v) reduce the cost of recruiting,  training,  and adjusting the
number of employees as IT requirements change.

                                       2

<PAGE>

Netplex,  through its wholly owned subsidiary  Software Resources of New Jersey,
now known as Contractor's  Resources  ("CR"),  believes it can offer a specially
tailored program to both IT consultants and business.  This service  arrangement
enables  the  independent  contractor  to escape the  administrative  burdens of
incorporation;   thereby,  focusing  on  providing  the  technical  skills  that
businesses seek.

Consultant  Advantage - CR allows an independent  contractor  consultant to reap
the  benefits of  incorporation,  without  incorporating.  These IT  consultants
become CR employees set up with their own personal  profit centers  administered
by CR. This enables these  professionals  to pursue a vast array of  assignments
that would otherwise be impractical or cost prohibitive.

The business services that CR provides IT consultants include:

*    Contract Review and Administration    *    Financial Reporting
*    Group Medical, Dental, etc.           *    401K and Pension Administration
*    Payroll Administration                *    Personal Account Management

Personal Account  Management is coordinated  through a designated  Profit Center
Manager- a  highly-trained  service  professional who helps  consultants  manage
their  business  from the  review of a  consultant's  contract  to the  seamless
administration of benefits and financial planning.

Business   Advantage  -  CR  offers   businesses  a   convenient   solution  for
consolidating  the  administration  and  delivery of employee  services to their
existing  independent  contractor base. Because CR alleviates the administrative
burdens  that  independent  contractors  face,  while  offering a premier set of
benefits and "employment  services" to help the independent  contractor function
more  seamlessly,  businesses  are able to reap  the  benefits  of  consolidated
billing,  central  administration  processing,  and  focused  application  of  a
consultant's technical skills.

CR attracts  independently-minded  IT consultants  who want to take advantage of
today's favorable market for independent  contractors and be free of the arduous
and  time-consuming  tasks  associated  with  managing  their  own  corporation.
Businesses want to keep the  administrative  burdens that  contractors face to a
minimum allowing their consultants to concentrate on their assignments.

The IT Contractor Resources Market

The  Department  of Labor  estimates  that by the year  2000 at least 44% of all
workers  will  be  in  data  services,  gathering,  processing,  retrieving,  or
analyzing information. Already an estimated two-thirds of U.S. employees work in
the services sector.  This  environment  calls for different  organizations  and
different  kinds of workers.  As recently as the 1960's,  almost one-half of all
workers in the  industrialized  countries  were involved in making or helping to
make  things.  It is  predicted  that by the year 2000,  however,  no  developed
country will have more than  one-sixth  or  one-eighth  of its  workforce in the
traditional  roles of making  and  moving  goods.  It is these  trends  that are
driving  the  contractor  resources  market as more and more  people  shift from
permanent to flexible and part-time employment, many as independent contractors.
It is estimated  that less than half the workforce in the  industrialized  world
will be holding  conventional  full-time jobs in organizations by the year 2000.
Those full-timer or insiders will be the new minority.  Every year more and more
people will be  self-employed.  The U.S.  contingent  workforce of  temporaries,
self-employed,  part-timers, or consultants grew by 57% during the decade of the
80's.

Industries Served by Netplex

Netplex has  supplied  services  around the world  within the public and private
sector,  but has  tailored  its  service  offerings,  primarily,  to  U.S.-based
commercial  organizations.  Presently,  Netplex delivers information  solutions,
technical staff  augmentation,  and IT contractor services to several well-known
organizations within many industries including  Telecom/Communications,  Retail,
Insurance,   Legal  &  Professional  Services,   Pharmaceutical,   Associations,
Utilities,  Health Care,  Distribution,  Manufacturing,  and Financial Services.
Although  the  in-roads

                                       3

<PAGE>

Netplex has made to these markets are expansive, the diverse picture it presents
is only a sample of the range of services and solutions that Netplex believes it
provides on a daily and on-going basis.

Strategic Alliances

Netplex has engaged in strategic  partnerships (i.e.,  compliance with certified
training  programs)  with leading  software  and hardware  producers to become a
full-service  Information  Solutions  provider.  Among the  companies  for which
Netplex is certified to re-sell and implement technologies are:

Compaq                   IBM                 Remedy
Envive                   Microsoft           Tivoli
Hewlett-Packard          Novell              Unisys

In addition,  Netplex has provided services to many other organizations over the
past three years, including:

Amdahl                   Charles Schwab           New York Life
America Online           Chase Manhattan          SIAC
Arthur Andersen          Hewlett-Packard          U.S. West
AT&T                     Hoffman-LaRoche          Union Camp
Bell Atlantic Mobile     Lucent Technologies      Unisys
BellSouth                MCI                      United Nations
CNA Insurance                                     World Bank

Geographic Positioning

Netplex is strategically positioned in the Northeast, Mid-West, and Mid-Atlantic
region of the U.S.,  and has offices in Chicago,  Connecticut,  New Jersey,  New
York, North Carolina,  and Washington,  D.C. Netplex has assisted  organizations
throughout the United States with their networked  information systems goals and
internationally  has served clients in such countries as Ireland and Turkey. The
Company  intends  to open new  offices  in other  geographic  markets.  To date,
however,  the  Company  has not  entered  into any leases  with  respect to such
offices  and  there  can be no  assurance  that  Netplex  will in fact open such
offices.

Engagement Confidence

Netplex is aware of the threats  posed to business from  unreliable  information
systems,  insecure  environments,  lack of technical resources,  and unnecessary
downtime.  Netplex believes that experience enables it to provide the answers to
some common and  not-so-common  problems dealing with information  systems.  The
Company  believes  this  knowledge,  coupled with its technical  resource  base,
industry  experience,  and growth,  reinforces the ability of Netplex to fulfill
virtually any technical request.

Growth Strategy

Expand Existing IT Staffing Locations and Open New Branches

The Company believes it can significantly increase revenue in its three existing
IT staffing locations in New York, New Jersey, and Washington,  D.C. The Company
will  attempt to  achieve  this  growth by  expanding  the sales and  recruiting
organization in each location and increase business to existing customers.

The  Company  will also open  locations  in cities that it believes to have high
growth and market potential. The Company intends to accomplish this goal in part
by recruiting a skilled  Branch  Manager for each new location.  These  managers
will be  responsible  for  developing  local accounts and building the branch by
hiring sales people,  technical  recruiters,  administrators and replicating the
systems  and  procedures  from the  existing  operations.  The  expansion  of IT
Staffing also provides a greater supply of technical  talent to the IT Solutions
practice.

                                       4

<PAGE>
Expand Existing IT Solutions Practices

The Company believes that it can  significantly  expand its present IT Solutions
practice by expanding its sales staff,  encouraging practice area cross-selling,
and  promoting  lead   generation   from  the  IT  staffing  and  IT  contractor
organizations.  The natural  project  oriented  migration  of  personnel  across
practice  units,  enhanced  with  business  opportunity   recognition  training,
marketing skills development, and market lead generation incentives, will create
an effective low cost  marketing  force.  The Company  believes  that  effective
utilization of this force will give the IT Solutions  Practice a competitive and
cost efficient  advantage  over marketing  approaches of traditional IT solution
providers  and will  enable  the  Company  as a whole to cross  sell its  varied
services between practice units IT staffing and IT contractor resources.

Expand Contractors Resources Business

The  Company  believes  that the  trend of  predicted  continued  growth  of the
free-lance  worker in the market will  naturally  fuel the  expansion  of the IT
Contractors  Resource business.  The realization by these professional  services
providers  that their hours spent on clients  are more  profitable  to them than
hours spent performing "back-office"  administrative tasks should direct them to
an outsource solution. The Company intends to build upon this trend by education
and  recruitment  campaigns  through first time  marketing in  publications  and
participation  in job fairs.  The Company will also focus on  encouraging  large
organizations  employing  independent  consultants  to become  advocates  of the
"contractor  employee"  approach thus reducing  their risk of tax audits and the
potential tax penalties of having "independent  contractors" deemed employees by
the  Internal  Revenue  Service.  The  expansion  of the  Contractors  Resources
business  also  provides the Company  with access to a unique  reservoir of high
talent IT consultants.

Strategic Acquisitions

The Company  believes that  acquisitions  are a valuable and important  means of
achieving  critical mass,  enhancing  market share,  increasing  capabilities to
deliver large, complex solutions, and supplementing internal growth. The Company
will seek to acquire  companies in the IT Staffing  industry to  facilitate  its
expansion into new territories or to acquire IT solutions  businesses that offer
additional  strength to existing  practice areas. The Company  currently expects
that  acquisitions will be limited to profitable  companies.  The Company is not
currently  negotiating  to acquire any other  business  and has no  commitments,
understandings or arrangements with respect to any such acquisition.

The Company's  ability to expand  successfully  by  acquisition  depends on many
factors,  including the successful  identification and acquisition of businesses
and   management's   ability  to  integrate  and  operate  the  new   businesses
effectively.  The anticipated  benefits from any acquisition may not be achieved
unless the operations of the acquired  business are  successfully  combined with
those of the Company in a timely manner. The Company's senior management team is
experienced  in  identifying  acquisition  targets and has already  successfully
integrated businesses into the Company's existing infrastructure.

Operations and Support Services

From its headquarters in McLean,  Virginia, the Company provides its IT Staffing
branch  locations,  IT  Solutions  practices  areas,  and  Contractor  Resources
business with centralized  support services,  including  marketing,  finance and
accounting, information systems, legal support, human resources, and purchasing.

All of the Company's  branch locations are linked by, and can communicate over a
Wide Area  Network  managed  by a  centralized  Management  Information  Systems
department at the McLean headquarters. Branch locations rely on this network for
access to the Company's technical talent database and corporate Intranet.

The Company also uses numerous techniques to govern and guide sales, recruiting,
financial, and operating activities. The Company believes the investment made in
these processes will enhance its ability to grow and attract and retain superior
technical and managerial talent.

                                       5

<PAGE>
Customers

The Company strives to provide  technical talent and services to help businesses
deliver reliable,  timely, and secure  information across networked systems.  To
accomplish  this,  the Company  places great  emphasis in  developing  long-term
client  relationships.  Positioning  itself  as a  specialist  in  strategically
selected "best-of-class" technology and talent, Netplex strives to reinforce its
clients'  image of the  Company  as being  uniquely  qualified  to  provide  the
knowledge, experience and capacity to deliver IT services and solutions. This is
increasingly  important  as clients  seek to reduce  the number of vendors  with
which  they do  business.  For  this  reason,  the  Company  has  begun to focus
significant  efforts on qualifying for -- and remaining on -- multiple  clients'
vendor  lists.  The Company is  currently  approved on several  vendor  lists of
Fortune 500 companies.  The Company maintains a broad and  well-balanced  client
base. No single  customer  accounted for more than 10% of the Company's  revenue
over the past year.

Competition

The IT services industry is fragmented and highly  competitive at both the local
and national levels. Many participants in the information  technology consulting
market have significantly greater financial,  technical, and marketing resources
-- and generate greater revenue -- than the Company.  Many of these  competitors
have a nationwide presence equivalent to, or greater than, that of the Company.

The information technology services market includes participants in a variety of
market   segments,   including   systems   consulting  and  integration   firms,
professional   services  companies,   application   software  firms,   temporary
employment  agencies,  professional  services  groups of computer  equipment and
software companies,  accounting firms, and general consulting firms. Some of the
firms with which the Company competes in various  geographic and service markets
are  Andersen  Consulting,  Cap  Gemini  America,  Computer  Task  Group,  Inc.,
Alternative Resources, Inc, and The Registry.

The  Company  believes  the  principal  competitive  factors in the IT  services
industry  include  responsiveness  to  fulfill  client  needs,  speed of systems
integration,   quality  of  service,  technical  expertise,  project  management
capabilities, and price.

In staffing for client  projects,  the Company  competes for IT consultants with
many of those same  companies as well as other local and regional  technology or
staffing  service  providers.  Several  competitive  factors  affect a company's
success in recruiting and retaining such professionals  including  compensation,
availability of benefits, a continuous flow of quality  assignments,  and access
to advanced  training and  technical  support.  The Company  believes it is well
positioned  in all of these areas to attract the highest  quality IT talent.  IT
Staffing and CR offer the Company a  competitive  advantage to access a valuable
pool of high talent independent IT consultants.

Intellectual Property

The Company does not hold any patents or registered  trademarks other than those
of Onion Peel. However,  the Company considers the Netplex name and its Database
of independent consultants to be highly proprietary. Employees

As of March 20, 1998,  the Company had  approximately  417  full-time  employees
(including permanent and contract employees).

The  Company  is  responsible  for,  and pays the  employer's  share of,  Social
Security  taxes  (FICA),   federal  and  state  unemployment   taxes,   worker's
compensation  insurance,  and other costs relating to all of its employees.  The
Company offers a suite of benefits to its contract employees that is a different
selection  than  offered  permanent  employees.  The Company  believes  that its
relations with its employees are good.


                                       6

<PAGE>
Acquisition or Disposition of Assets

Private Placement

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

Each share of Preferred  Stock is convertible  into one share of Common Stock at
any time, at the discretion of the holder.  The Preferred Stock earns cumulative
dividends  at 10% per annum,  payable  in either  cash or  additional  shares of
Preferred Stock at the Company's option.  Subject to the conversion  rights, the
Company  may redeem the  Preferred  Stock at its stated  value  (which is $2 per
share) plus all accrued  and unpaid  dividends  upon:  (1)  registration  of the
shares  underlying the Preferred  Stock, and (2) 30 days written notice given at
any time upon the Common Stock  attaining  certain per share trading  prices and
maintaining  such prices for a specified  period.  The Preferred Stock 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:  (1)
registration  of the shares  underlying  the warrant (2) 30 days written  notice
given at any time upon the Common Stock attaining trading prices of $5 per share
and sustaining such prices for twenty (20) trading days.

Onion Peel

The Company acquired Onion Peel Solutions L.L.C.  ("Onion Peel"), a Raleigh,  NC
based  provider  of  network  management  solutions  as of  July  1,  1997.  For
consideration,  the  Company  issued  80,000  shares of its Common  Stock to the
owners  of Onion  Peel.  Additional  shares  may be issued  contingent  upon the
closing  price of the Company's  Common Stock on December 31, 1998.  The cost of
the acquisition was determined to be $400,000. The acquisition was accounted for
using the purchase method of accounting.

PSS

On January 30, 1998,  the Company  completed the purchase of all of the stock of
The PSS Group,  Inc.  ("PSS"),  the technical  professional  staff  augmentation
operations and business of Preferred Systems Solutions,  Inc.  ("Preferred") and
formerly a wholly  owned  subsidiary  of  Preferred.  In  consideration  for the
purchase, the Company paid $300,000 at closing and on or before January 15, 1999
will  pay  $300,000  in  cash or  200,000  shares  of its  Common  Stock  or any
combination  thereof, at Preferred's option. The Company used working capital to
finance the acquisition. The agreement also provides that Preferred will receive
additional  consideration  (the  "Earn-out")  if  PSS  meets  certain  operating
targets. Such Earn-out may be paid at the Company's option in cash or its Common
Stock,  or any combination  thereof.  In connection  with the  acquisition,  the
Company and PSS have entered into employment  agreements with certain  employees
of PSS.  The  acquisition  was  accounted  for  using  the  purchase  method  of
accounting.


                                       7

<PAGE>
In order to focus on the Company's  core business and reduce  corporate  losses,
the Company  completed the sale of its  WorldLink  technology  product  business
("WorldLink")to  XcelleNet, Inc. in December 1996 for a sale price of $3 million
in cash.

As a result of this sale,  the  Company  has  redirected  most of the  technical
talent from the WorldLink team to its IT Solutions practice groups.

ITEM 2.  PROPERTIES.

The Company leases approximately 10,000 square feet of space in McLean, Virginia
for its  corporate  offices  and  the  operations  of  some of the IT  Solutions
practice at a monthly  rental rate of $15,754.  The Company  also leases  office
space in New York City,  Central and Western New Jersey,  Raleigh,  N.C. and the
Greater  Chicago area to serve as  operating  offices of its  businesses.  These
leases expire on different dates from May 2000 to June 2001.

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

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

ITEM 3.  LEGAL PROCEEDINGS.

From time to time,  disagreements with individual employees and disagreements as
to the  interpretation,  effect or nature of the individual  agreements arise in
the  ordinary  course of  business  and may  result in legal  proceedings  being
commenced against the Company.

On December  31,  1996,  ACS Ltd.,  a software  distributor  based in the United
Kingdom,  filed a complaint  against  Technology  Development  Systems ("TDS") a
wholly owned  subsidiary  of the Company,  in the Circuit  Court of Cook County,
Illinois.  ACS alleges that TDS breached its  obligations  under the Distributor
Agreement  between the  Plaintiff  and TDS for the  WorldLink  product  when the
Company directed TDS to sell the WorldLink product  technology to a third party.
ACS is demanding a sum exceeding one million dollars for the breach of contract.
The case is  currently  in  discovery.  In the  opinion  of  Management  and the
Company's  legal counsel,  the lawsuit has little merit,  and the outcome of the
pending  lawsuit  will not  have a  material  adverse  effect  on the  Company's
financial condition, liquidity or the results of operations. The Company intends
to vigorously  defend against the lawsuit.  The TDS subsidiary which was part of
CompLink is currently inactive with no assets.

On September 4, 1997, Data Systems Analysts, Inc. ("DSA"), a software design and
consulting company,  filed a complaint against TDS and the Company in the United
States District Court -- District of New Jersey, alleging copyright infringement
and breach of the Company's  agreement to pay certain  royalties.  The Complaint
claims  damages  in  excess  of  $300,000  plus  punitive  damages.  The case is
currently in  discovery.  In the opinion of  Management,  the lawsuit has little
merit,  and the outcome of the pending lawsuit will not have a material  adverse
effect  on the  Company's  financial  condition,  liquidity  or the  results  of
operations. The Company intends to vigorously defend against the lawsuit.

The Company is not currently  involved in any litigation or proceedings which if
decided  against  the  Company  would have a  material  adverse  affect,  either
individually  or in the aggregate.  To the Company's  knowledge,  no


                                       8

<PAGE>
other  legal  proceedings,  that if decided  against  the  Company  would have a
material adverse affect, are currently contemplated by any individuals, entities
or governmental authorities.

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

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the holders of the Company's Common Stock
during the fourth quarter of the Company's fiscal year ended December 31, 1997.

                                     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.

NASDAQ recently enacted new requirements for continued listing on NASDAQ. NASDAQ
has  advised the Company  that it  believes  that the Company  fails to meet the
requirement  that  NASDAQ  companies  have  net  tangible  assets  of  at  least
$2,000,000.  The  Company  believes  that with the  proceeds  from two  recently
completed  Private  Placements  it is in  compliance  with NASDAQ's net tangible
assets  requirement.  However  there can be no  assurance  that the Company will
continue to meet the applicable requirements for continued listing. In addition,
the Company has an oral  hearing  with  NASDAQ  scheduled  for April 30, 1998 to
review  whether the Company is in compliance  with the new  requirements  and to
review the terms of one of the Private Placements.

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

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

                                       9
<PAGE>
                           PRICE RANGE OF COMMON STOCK

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

                             Fiscal 1996                        High       Low
                             -----------                        ----       ---
1st Quarter.................................................... $3.50     $2.38
2nd Quarter (OTC Electronic Bulletin Board commencing June 20)  3.38       2.77
3rd Quarter.................................................... 3.38       2.31
4th Quarter.................................................... 4.00       3.25
                             Fiscal 1997
1st Quarter....................................................$3.25      $2.75
2nd Quarter (NASDAQ SmallCap Commencing April 20)...            3.25      1.88
3rd Quarter.................................................... 3.13      1.50
4th Quarter.................................................... 2.94      0.75

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

As of March 20,  1998,  there  were  approximately  77  holders of record of the
Company's  Common  Stock.  The Company  believes that at such date there were in
excess of 500 beneficial owners of the Company's Common Stock.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS.

OVERVIEW

The Netplex  Group,  Inc. (the  "Company")  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 is headquartered  in McLean,  Virginia and has branch offices in the
Reston, Virginia, New York City, Central New Jersey, Raleigh, North Carolina and
Chicago Metropolitan markets.

In June 1996, the Company (formerly known as CompLink, Ltd.) acquired and merged
(the  "Merger")  with  America's  Work  Exchange,  its wholly  owned  subsidiary
Software Resources of New Jersey, now known as Contractors Resources ("CR"), and
The Netplex  Group,  Inc.  (collectively  referred to as "Netplex") in a reverse
merger transaction by issuing approximately 3,245,000 shares of Common Stock, or
50.4% of the Company's then outstanding  Common Stock after giving effect to the
Merger.  The Merger  agreement  provided  for the  Company  to issue  options to
purchase  1,691,000 shares of the Company's Common Stock in exchange for options
to purchase 1,691,000 shares of Netplex's Common Stock. As a result, Netplex was
considered the acquirer for accounting purposes.

The  assets  and  liabilities  of  CompLink  and its  wholly  owned  subsidiary,
Technology  Development Systems ("TDS"),  were recorded by the Company at merger
date  at book  value  which  approximated  fair  value.  At  merger,  CompLink's
operations  consisted  primarily of the  distribution  of  WorldLink  remote and
mobile workforce  automation software developed by TDS. The Company discontinued
the operations of its software  development  and  distribution  segment upon the
completion of the sale of its interest in the WorldLink  product  technology for
$3.0 million in December 1996.

The Company's  operations  have been  concentrated  on providing IT services and
solutions to U.S.-based commercial organizations since the beginning of 1997.

                                       10

<PAGE>
In July 1997, the Company acquired the net assets of Onion Peel Solutions, L.L.C
("Onion Peel") to broaden its customer base and expand the fulfillment  capacity
of its Enterprise  Systems  Management  service offerings in exchange for 80,000
shares of its Common Stock, subject to adjustment.

The  statement of operations  for the year ended  December 31, 1997 reflects the
results of Onion Peel from July 1, 1997, the date of acquisition.  The statement
of  operations,  for the year ended  December 31, 1996,  reflects the results of
Complink  commencing on June 1, 1996.  The operations of TDS are included in the
statement of operations  for the year ended  December 31, 1996, as  discontinued
operations beginning on June 1, 1996.

The above  acquisitions and disposition have resulted in the Company emerging in
1997 with three distinct areas of business operations: Design and implementation
of  solutions  for IT  systems  related  business  needs,  IT  Solutions;  Staff
augmentation and flexible task outsourcing,  IT Staffing, and: Business services
for the independent IT Consultant, IT Contractor Resources.

The  following  table sets  forth the  revenue  and gross  profit of each of the
business areas for 1997:

<TABLE>
<CAPTION>
                    IT
                 Contractor
                 Resources             IT Solutions          IT Staffing         Total
                 ---------             ------------          -----------         -----

<S>             <C>             <C>    <C>          <C>     <C>          <C>   <C>            <C> 
Revenues        $32,048,350     100%   $5,221,555   100%    $3,198,229   100%  $40,468,134    100%
%                  79.2%                  12.9%                7.9%               100%
Cost of Sales   30,952,246      96.6%   2,335,658   44.7%    2,127,740   66.5%  35,415,644    87.5%
%                  87.4%                   6.6%                6.0%               100%
Gross Profit     1,096,104       3.4%   2,885,897   55.3%    1,070,489   33.5%   5,052,490    12.5%
%                  21.7%                  57.1%               21.2%               100%
</TABLE>

RESULTS OF OPERATIONS

Fiscal 1997 Compared to Fiscal 1996
Revenue  for the year ended  December  31,  1997  increased  approximately  $6.9
million or 21% to approximately  $40.5 million, as compared to $33.5 million for
the same period in 1996.  This increase  includes a $5.6 million or 21% increase
in IT  Contractor  Resources  revenue,  a $1.6  million or 100%  increase  in IT
Staffing  revenue  offset by a $300,000 or 5% net  decrease in the IT  Solutions
revenue.  The IT  Solutions  decrease  includes a $1.3  million  decrease  in IT
Solutions  revenues driven principally from declines in computer product resales
and was partially offset by a $1.0 million revenue  increase  generated by Onion
Peel which was acquired in July 1997.

Gross Profit for the year ended December 31, 1997 increased  approximately  $2.4
million or 92% to approximately  $5.1 million as compared to approximately  $2.6
million for the same period of 1996. This increase  includes a $325,000 increase
in IT Contractors Resources gross profit, an approximately  $500,000 increase in
IT staffing  gross  profit and a $1.5  million  increase in IT  Solutions  gross
profit.  The increase in IT  Contractors  Resources and IT Staffing gross profit
are principally  due to the increases in revenues.  The increase in IT Solutions
gross  profit is primarily  due to a shift in the IT Solutions  product mix to a
higher proportion of pure service revenues than in 1996 and the inclusion of the
Onion  Peel  business  which  was added to IT  Solutions  through a July 1, 1997
acquisition.

Gross Profit increased to approximately  12.5 % in 1997 from  approximately 8.0%
in 1996,  primarily due to the  increased IT Solutions and IT Staffing  services
revenues which generate higher gross profit margins.

Selling,  general and  administrative  expenses for the year ended  December 31,
1997  increased  approximately  $2.7  million or 51.9% to $7.9 million from $5.2
million for the same  period of 1996.  The  primary  reason for the  increase in
selling,  general and administrative  expenses is the expansion of the sales and
recruiting  forces, and the hiring and 

                                       11

<PAGE>
training  of  technical  staff to pursue  and  prepare  for  prospective  client
engagements,  all of which  began in the  third  quarter  of 1996 and  continued
throughout 1997

Other income (expense) for the year ended December 31, 1997 decreased by $65,000
or 171% to  approximately  $26,000 of other  expense in 1997 from  approximately
$38,000 of other  income in 1996.  The  primary  reason for the  decrease is the
reduction  in cash  balances  from the  Company's  losses in 1997  coupled  with
increased borrowings on its line of credit facility during 1997.

The loss from  continuing  operations  before taxes  increased by  approximately
$352,000  or 14% to $2.9  million  from $2.5  million.  The  components  of this
increased loss are discussed above.

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

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

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1997 the Company had cash and cash equivalents of $353,005.  The
Company had $1,316,300  outstanding on its line of credit  facility and had long
term capital lease obligations of $109,096.

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

On July 1,  1997,  the  credit  line was  expanded  by the bank to the lesser of
$2,000,000  or 80% of eligible  accounts  receivable  and the interest  rate was
reduced  to 0.75%  over the  bank's  prime  rate.  The bank has  waived  certain
financial  covenants  contained in this line of credit  agreement with which the
Company was not in compliance at December  31,1997.  The Company is presently in
discussion  with the bank to extend the  credit  line when it expires on July 1,
1998.

During the year ended December 31, 1997, the Company received  $607,500 from the
exercise of outstanding options and warrants.

For the year ended  December 31, 1997 the Company's  operating  activities  used
approximately $4.3 million, investing activities used approximately $103,000 and
financing activities provided  approximately $1.0 million of the Company's cash.
The  primary  uses of cash  were the  Company's  net loss of $2.9  million,  and
decreased  accounts payable and accrued expenses of approximately  $2.1 million.
These uses of cash were  partially  offset by cash provided from the exercise of
warrants  and options of $607,500 and  borrowings  under the  Company's  line of
credit of $1,316,300.  The Company will continue to make significant investments
in its  technical  staff,  marketing,  training and  infrastructure  to increase
productivity,  build its  technical  staff  database  and  foster  growth of its
operations.

The  Company is  actively  pursuing  the  acquisition  of  additional  technical
consulting firms to broaden its customer base, expand its technical capacity and
enhance its fulfillment capability.

On January 30, 1998,  the Company  completed the purchase of all of the stock of
The PSS Group,  Inc.  ("PSS")  the  technical  professional  staff  augmentation
operations and business of Preferred Systems Solutions,  Inc.  ("Preferred") and
formerly a  wholly-owned  subsidiary  of  Preferred.  In  consideration  for the
purchase, the Company paid $300,000 at closing and on or before January 15, 1999
will  pay  $300,000  in  cash or  200,000  shares  of its  Common  Stock  or any
combination  thereof, at Preferred's option. The Company used working capital to
finance the acquisition. The agreement also provides that Preferred will receive
additional  consideration  (the  "Earn-out")  if  PSS  meets  certain  operating
targets. Such Earn-out may be made at the Company's option in cash or its Common

                                       12

<PAGE>
Stock, or any combination  thereof. If the Company elects to pay the Earn-out in
Common Stock, the value of the Common Stock will be based on the average closing
price of the  Company's  Common  Stock for the last quarter of the year in which
the payment was made.

Capital  expenditures  for the year ended  December 31, 1997 were  approximately
$105,000.

Between  January 1, 1998 and April 14, 1998,  the Company has raised  additional
equity totaling $3,057,000.

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

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

On  April 7,  1998  Netplex  completed  the  sale of  1,500  units of a  Private
Placement,  totaling $1.5 million,  to various purchasers The Zanett Corporation
("Zanett")  acted  as  placement  agent  for the  Private  Placement.  The  sale
represents  the first half of a  transaction  that will  include  the sale of an
additional  1,500 units for $1.5  million at a future  date.  Zanett  Lombardier
purchased 1,500 units at $1,000 per unit, with each unit consisting of a prepaid
Common Stock  purchase  warrant  entitling  the holder to acquire such number of
shares  of the  Company's  Common  Stock  as is equal to  $1,000  divided  by an
adjustable  exercise  price and an  additional  incentive  warrant to acquire 52
shares of Common Stock (or an aggregate of 78,000 shares of Common  Stock).  The
Company also granted Zanett a warrant to purchase 39,000 shares of Common Stock.
Zanett also received  placement  fees and a  non-accountable  expense  allowance
equal to  12.53%  of the  proceeeds  of the  offering.  The  second  half of the
transaction  is for the sale to  Zanett of an  additional  and  committed  1,500
units, for $1,000 per unit,  contingent on Netplex  recording three  consecutive
quarters of increased profits and revenues,  excluding any extraordinary  items.
With respect to the second half of the  transaction,  the exercise  price of the
purchase  warrants and the incentive  warrants will be based on the bid price of
the  Common  Stock at the  time of such  closing.  The  funds  from the  Private
Placement  will be  used  to fund  operations  and  acquisitions.  Under  NASDAQ
regulations,  certain  aspects  of  the  transaction  must  receive  shareholder
approval.  NASDAQ has also  advised the Company that it will review the terms of
the Private  Placement.  Such shareholder  approval is expected in the Company's
annual  meeting.  The Company  believes that the proceeds should ensure that the
Company will exceed  NASDAQ's  published net tangible  assets  requirement of $2
million.

Based on its current  operating plan, the Company believes that the net proceeds
from the Private  Placement  together  with cash  anticipated  to be provided by
operating  activities and amounts  expected to be available under a renegotiated
line of credit will be sufficient to meet its anticipated cash needs for working
capital and capital expenditures for at least the next 12 months. Thereafter, if
cash  generated  from  operations  is  insufficient  to  satisfy  the  Company's
liquidity  requirements,  the  Company  may seek to sell  additional  equity  or
convertible debt securities or obtain additional credit facilities.  However, no
assurance  can be given that any such  additional  sources of financing  will be
available  on  acceptable  terms or at all.  The sale of  additional  equity  or
convertible debt securities could result in additional dilution to the Company's
stockholders. A portion of the Company's cash may be used for acquisitions or to
acquire or invest in complimentary businesses or products or to obtain the right
to use complementary technologies.  The Company has no current plans, agreements
or commitments, and is not currently engaged in any negotiations with respect to
any such transaction.

The Company is  expecting  to incur  operating  losses  until it  achieves  full
productivity  of the majority of its sales force.  While it cannot be certain as
to when such levels of  productivity  can be attained,  the Company  anticipates
that its sales force will operate at levels below full  productivity  through at
least the first quarter of 1998.  The Company will continue to make  significant
investments in its technical workforce,  marketing,  training and infrastructure
to increase productivity, build its core competency practice unit skill base and
product  offerings and foster growth of


                                       13

<PAGE>
its  operations.   Despite  the  expectation  of  continued   operating  losses,
management  believes  that its current cash balance and credit  facility will be
sufficient to meet operating requirements for at least the next twelve months.

Recent Accounting Pronouncements

In February 1997,  FASB issued SFAS No. 129,  "Disclosure  of Information  about
Capital  Structure"  which is effective  for the year ending  December 31, 1998.
This  statement   continues  the  previous   requirements  to  disclose  certain
information about an entity's capital  structure found in Accounting  Principles
Board (APB) Opinion No. 10,  "Omnibus  Opinion -1966" and No. 15,  "Earnings per
Share" and FASB  Statement No. 47,  "Disclosure of Long-Term  Obligations."  The
Company has been subject to the  requirements of those standards and as a result
does not expect the  adoption  of SFAS No. 129 to have a material  impact on the
Company's financial statements.

In June 1997, FASB issued SFAS No. 130 "Reporting  Comprehensive  Income", which
is effective for the year ending December 31, 1998.  This statement  establishes
standards  for  the  reporting  and  display  of  comprehensive  income  and its
components in the financial statements.  Earlier application of this standard is
permitted;  however,  upon  adoption the Company will be required to  reclassify
previously  reported  annual  and  interim  financial  statements.  The  Company
believes that the  disclosure  of  comprehensive  income in accordance  with the
provisions  of SFAS No. 130 will not impact  the manner of  presentation  of its
financial statements as currently and previously reported.

In June 1997,  FASB  issued  SFAS No.  131,  "Disclosures  about  Segments of an
Enterprise  and Related  Information",  which is  effective  for the year ending
December  31,  1998.  This  statement  requires  companies  to  present  certain
information  about  operating  segments  and  related   information,   including
geographic and major customer  data, in its annual  financial  statements and in
condensed  financial  statements for interim periods.  The Company believes that
the  adoption  of SFAS No. 131 will  impact the  manner of  presentation  of its
financial statements.

In October,  1997, the AICPA  Accounting  Standards  Executive  Committee issued
Statement of Position 97-2,  "Software Revenue  Recognition" ("SOP 97-2"), which
supercedes  Statement of Position 91-1 "Software Revenue  Recognition.  SOP 97-2
focuses on when and in what amounts  revenue should be recognized for licensing,
selling, leasing, or otherwise marketing computer software, and is effective for
transactions entered into in fiscal years beginning after December 15, 1997. The
Company does not believe that the adoption of this new pronouncement will have a
material impact on its financial position and results of operations.

Inflation

The Company does not expect  inflation to have a significant  adverse  impact on
its operations.

Forward-Looking Statements

This Form 10-KSB contains certain forward-looking  statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities  and  Exchange  Act of 1934,  as  amended,  which are  intended to be
covered by the safe harbors  created  thereby.  Investors are cautioned that all
forward-looking  statements  involve risks and uncertainty,  (including with out
limitation,  the growth of the  Company,  future  financings,  acquisitions  and
expenses and general  market  conditions)  though the Company  believes that the
assumptions  underlying  the  forward-looking  statements  contained  herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements included in this Form 10-KSB
will prove  accurate.  In light of the  significant  uncertainties  inherent  in
forward-looking  statements  included herein,  the inclusion of such information
should not be regarded as a  representation  by the Company or any other  person
that the objectives and plans of the Company will be achieved.

Year 2000 Compliance

      The Company has  assessed  and  continues to assess the impact of the Year
2000 issue on its  operations,  including the development of cost estimates for,
and the extent of programming changes required to address,  this issue. Although
final cost estimates have yet to be determined,  the Company  expects that these
Year 2000 costs will not be material to the Company's  expenses  during 1998 and
1999.

ITEM 7.  FINANCIAL STATEMENTS.

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

                                       14

<PAGE>
ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE.

None.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.

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


     Name                        Age                         Position

Gene Zaino                       40      President, Chief Executive Officer and
                                         Chairman
Robert Skelton                   36      Vice President - Human Resources,
                                         General Counsel and Secretary
Matthew Jones                    36      Chief Financial Officer and Treasurer
Richard Goldstein (1)(2)         51      Director
Frank Lagattuta (1)              54      Director
Neil Luden                       42      Director
Deborah Novick (2)               33      Director

------------------

(1)  Member of the Compensation Committee

(2)  Member of the Audit Committee

Gene Zaino has been a Director of the Company  since  August 1995 and became its
Chief Executive  Officer and Chairman upon completion of the merger with Netplex
in June 1996. From November 1995 through the completion of the merger, Mr. Zaino
functioned  in the capacity of Chief  Executive  Officer.  Mr. Zaino started his
career at KPMG Peat Marwick  L.L.P.  in 1980.  He was a founding  principal of a
subsidiary of Evernet Systems,  Inc. which was acquired by Control Data Systems,
Inc. in 1993. In January 1994, Mr. Zaino  developed the business plan which lead
to the  formation  of  Netplex.  Mr.  Zaino is a Graduate of the  University  of
Pennsylvania, Wharton School and is a Certified Public Accountant.

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

Matthew  Jones  joined the Company as its Chief  Financial  Officer in September
1996 and became its Treasurer in November 1996.  From August 1992 through August
1996,  Mr.  Jones  served as the  Director of Finance for Telos  Corporation,  a
Virginia based Systems integrator and Computer services provider. From July 1984
to August  1992,  Mr.  Jones was  employed  in  various  capacities  with  Price
Waterhouse - lastly as an Audit Manager.  Mr. Jones holds a Bachelors of Science
in Business  Administration  -  Accounting  from  California  State  University,
Northridge and is a Certified Public Accountant.

Richard  Goldstein has served as a Director of the Company since July 1996.  Mr.
Goldstein has been a Partner of Tocci, Goldstein and Company, L.L.P., a New York
City based C.P. A. firm since  1992.  Prior  thereto,  Mr.


                                       15

<PAGE>
Goldstein  was a Tax Partner with KPMG Peat Marwick 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.

Frank  Lagattuta  became a  Director  of the  Company  in  September  1997.  Mr.
Lagattuta  has been  serving  since 1996 as the  President  and chief  operating
officer of CompuLaw, Ltd. of Los Angeles,  California. Prior thereto, he was the
Vice President of Sales and Marketing for Saft America,  Inc. form 1993 to 1996.
Prior thereto,  Mr.  Lagattuta was the Vice President of Sales and Marketing for
BISS Sales,  Inc. from 1991 to 1993.  Prior thereto,  he served as the Executive
Vice  President of Sales and  Marketing for Evernet  Systems,  Inc. from 1989 to
1991. Mr. Lagattuta also was employed in several  management  positions by Xerox
Corporation  from 1973 to 1989 and  served as the  President  of Xerox  Computer
Services from 1987 to 1989. Mr.  Lagattuta holds a Bachelor of Science degree in
Accounting  from  Canisius  College and a Master of Business  Administration  in
Finance and Accounting from the University of Southern California.

Neil Luden has served in various  capacities  with the Company  since June 1992.
Since June 1996,  Mr.  Luden has served as a  Director.  From June 1996  through
April 1997,  he also served as Vice  President.  From  December 1992 through the
Company's  Merger  with  Netplex in June  1996,  he served as  President  of the
Company  and a  Director.  Prior  thereto,  from  March 1990 to June 1992 he was
president and the sole  stockholder  of ALN  Enterprises,  Inc., a financial and
business  consulting  firm. From June 1983 to March 1990, Mr. Luden was employed
in various capacities with Prudential-Bache  Securities,  Inc., lastly as a Vice
President--Systems. Mr. Luden is a graduate of St. Johns University.

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

ITEM 10.  EXECUTIVE COMPENSATION.

The following table sets forth, for the fiscal years indicated, all compensation
awarded to,  earned by or paid Gene Zaino,  the  President  and Chief  Executive
Officer  of the  Company,  and all  compensation  paid to Robert  Skelton,  Vice
President - Human  Resources,  General Counsel and Secretary of the Company.  In
June 1996,  the Company  merged with the Netplex  and  America's  Work  Exchange
("AWE"),   compensation   paid  for  periods  prior  to  June  1996  constitutes
compensation paid by Netplex or AWE. The Company had no executive officer, other
than Mr. Zaino and Mr. Skelton,  whose salary  exceeded  $100,000 for year ended
December 31, 1997. The total  compensation paid to all executive officers of the
Company in the year ended December 31, 1997 was $330,273.

                                       16

<PAGE>
                           Summary Compensation Table

<TABLE>
<CAPTION>

                                                                                      Long-Term
                                                 Annual Compensation(1)             Compensation
                                                                                       Awards
                                          -------------------------------------------------------------
                                                                                             Securities
                               Fiscal                                 Other Annual           Underlying           All Other
Name and Principal Position     Year      Salary($)      Bonus($)     Compensation($)        Options(#)        Compensation($)
---------------------------     ----      ---------      --------     ---------------        ----------        ---------------

<S>                             <C>         <C>             <C>              <C>               <C>     <C>           <C>    
Gene Zaino, President           1997        $130,000      - 0 -            - 0 -               600,000 (3)           $ 4,563
                                1996        $116,423      - 0 -            - 0 -                - 0 -                $27,125 (2)
                                1995       $  86,100      - 0 -            - 0 -               615,000 (3)           $ 5,425 (2)
Robert Skelton, Secretary       1997        $100,000      - 0 -            - 0 -                70,000 (3)           $ 2,903
                                1996       $  32,731      - 0 -            - 0 -                50,000 (3)           $ 2,000
</TABLE>

-----------------------

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

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

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

Stock Option Grants
As part of a company-wide  non-cash employee  incentive granted by the Company's
Compensation  Committee,  Mr. Zaino agreed to cancel 600,000 options  previously
issued to him. The Company granted  600,0000  options to Mr. Zaino in the fiscal
year ended December 31, 1997. As part of the merger, Mr. Zaino exchanged options
that he held in Netplex and AWE for options to purchase an  aggregate of 600,000
shares at an exercise price ranging from $2.90 to $2.98 per share. These options
were canceled in 1997.  Options on 70,000 shares  granted to Mr. Skelton in 1996
and 1997 under the Employee Stock Option Plan were canceled in December 1997 and
options on 70,000 shares were granted to Mr. Skelton at a lower exercise  price.
in the fiscal year ended  December  31,  1997.  The  following  table sets forth
further  information  with  respect  to options  granted  to  Messrs.  Zaino and
Skelton:

<TABLE>
<CAPTION>

                           Number of       Percent of
                           Securities    Total Options
                           Underlying      Granted to
                            Options       Employees in     Per Share Exercise
       Name                 Granted       Fiscsal Year           Price              Expiration Date
       ----                 -------       ------------           -----              ---------------
<S>                         <C>               <C>               <C>                 <C>
Gene Zaino                  600,000           25%               $0.97               December 20, 2007

Robert Skelton               70,000            3%               $0.97               December 20, 2007
</TABLE>

Fiscal Year End Option Values

Mr. Zaino and Mr. Skelton exercised no options in the fiscal year ended December
31, 1997.  The  following  table sets forth  certain  information  regarding the
options held by Mr. Zaino and Mr. Skelton at December 31, 1997.

                                       17

<PAGE>

          Aggregate Option Exercises and Fiscal Year-End Option Values

<TABLE>
<CAPTION>

                                     Number of Securities
                                          Underlying                                 Value of Unexercised
                                    Unexercised Options at                                Options at
                                     December 31, 1997(1)                           December 31, 1997($)(1)
                         ---------------------------------------------   ----------------------------------
         Name            Exercisable                     Unexercisable   Exercisable                     Unexercisable
----------------------   -----------                     -------------   -----------                     -------------
<S>                            <C>                         <C>                  <C>                            <C>
Gene Zaino                    -0-                          600,000             -0-                            -0-
Robert Skelton                -0-                           70,000             -0-                            -0-
</TABLE>

--------------

(1)      At December 31, 1997 the closing price of the Company's Common Stock as
         reported by the NASDAQ was $0.875.  The  exercise  price for the option
         shares exceeded the fair market value on December 31, 1997.

Employment and Related Agreements
Mr. Zaino is employed under a three-year employment  agreement,  effective as of
June  7,1996,  pursuant to which he is paid a base salary of $130,000 per annum,
subject to increase by the Company's Board. Mr. Zaino may also receive an annual
bonus at the sole  discretion of the Company's  Board,  based upon the financial
and operating  performance of the Company.  Mr. Skelton is paid a base salary of
$100,000. Mr. Skelton may also receive an annual bonus at the sole discretion of
the Company's President.

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

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

The Company has created the 1995 Directors'  Stock Option Plan (the  "Directors'
Plan")  pursuant  to which  any  Director  of the  Company  who is not a full or
part-time  employee  of  the  Company  may be  eligible  to  participate  in the
Directors'  Plan. To date,  options to purchase 60,000 shares at exercise prices
ranging from $2.50 to $3.56 per share have been granted to Directors.

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

                                       18

<PAGE>
ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth information concerning ownership of the Company's
Common Stock, as of April 8, 1998, by each person known by the Company to be the
beneficial  owner of more than five percent of the Common Stock,  each director,
each nominee for  Director,  each  executive  officer and by all  directors  and
executive officers of the Company as a group.

      Name of Beneficial Owner     Number of Shares of Common Stock Beneficially
                                                   Owned (1)

                                         Number               Percent
                                         ------               -------

Gene Zaino                              1,329,850(2)          17.4%

Stan Fischer                            448,420(3)             5.9%
Scott Pogoda                              616,072              8.2%
     PO Box 10229
     Zephyr Cove, NV 89448
Deborah Novick                           16,250(4)               *
Richard Goldstein                        16,000(5)               *
Neil Luden                              100,000(6)               *
Frank Lagattuta                            8,000                 *
Matthew Jones                                0                   -

Robert Skelton                               0                   -

All directors and                      1,464,300(7)           18.9%
   Executive officers as a
   Group(7 persons)

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

(1)Beneficial  ownership  is  determined  in  accordance  with the  rules of the
Securities and Exchange  Commission and generally  includes voting or investment
power with respect to  securities.  Shares of Common Stock subject to options or
warrants  currently  exercisable,  or  exercisable  within 60 days,  are  deemed
outstanding  for computing the  percentage of the person holding such options or
warrants but are not deemed  outstanding  for  computing  the  percentage of any
other person.  Based on review of Schedules 13G and 13D that have been filed and
delivered to the Company,  the Company is not aware of any 5% beneficial holders
of its Common Stock, other than the persons specified in the table above.

(2) Includes 73,420 shares of Common Stock, subject to options or warrants.

(3) Includes  19,809 shares of Common Stock subject to options or warrants.  Mr.
Fischer is an employee and member of the senior  management  team of the Company
but is not an Executive Officer.

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

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

(6) Consists of 100,000 shares of Common Stock subject to options.

(7) Includes 197,170 shares of Common Stock subject to options or warrants.

                                       19

<PAGE>

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The Company  contracted  with an entity owned by Scott  Pogoda,  a  five-percent
shareholder  for the  development  of the  software to be used to  maintain  the
Company's  Centralized National Technical Database.  The Company paid Mr. Pogoda
$150,000 and has a remaining obligation of approximately $50,000 at December 31,
1997 related to the development of this software.

Ms. Novick is a Senior Vice President of GKN Securities  Corp.,  Placement Agent
of the 1996 Private Placement. The Company paid GKN Securities Corp. $432,500 in
fees associated with the completion of this transaction.


                                       20

<PAGE>

                                     PART IV
ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibit
      No.

     2.1      Agreement  and  Plan of  Reorganization  and  Merger  dated  as of
              November 20, 1995, by and among The Netplex Group, Inc., America's
              Work Exchange, Inc. and the Company.**
     3.1      The    Company's    Amended   and    Restated    Certificate    of
              Incorporation.***
     3.2      The Company's By-laws.**
     3.3      Amendment to the  Company's  Amended and Restated  Certificate  of
              Incorporation.*
     4.1      Form of Common Stock Certificate.***
     4.5      Form of Warrant issued to investors in connection with 1992 bridge
              financing.***
     4.6      Form of Unit Purchase  Option  granted to the  Underwriter  of the
              Company's initial public offering.**
     4.7      Form of Purchase  Option granted to Placement  Agent in connection
              with the 1996 Private Placement.*****
     4.8      Form of  Warrant  issued  in  connection  with  the  1996  Private
              Placement.****
     4.9      Certificate of Designation for the Preferred Stock.****
     4.10     Form of Prepaid  Warrant  issued to  Purchasers  in  1998  Private
              Placement.******
     4.11     Form of Incentive  Warrant  issued to  Purchasers  in 1998 Private
              Placement.******
     10.5     1992 Incentive and Non-Qualified Stock Option Plan.**
     10.6     Amendment to 1992 Incentive and Non-Qualified Stock Option Plan.**
     10.9     Form  of  Indemnification   Agreement  between  the  Officers  and
              Directors of the Company and the Company.**
     10.10    1995 Directors' Stock Option Plan.*****
     10.11    1995 Consultant's Stock Option Plan.*****
     10.12    Employment Agreement between the Company and Gene Zaino.*
     10.13    Agreement by and among  XcelleNet,  Inc., The Netplex Group,  Inc.
              and  Technology   Development  Systems,  Inc.  dated  November  5,
              1996.******
     10.14    Agreement  dated as of January 23, 1998 between The Netplex Group,
              Inc.,  Preferred Systems Solutions,  Inc., The PSS Group, Inc. and
              Robert Hisel, Jr.******
     11       Computation Re: Per Share Earnings.******
     23       Consent of KPMG Peat Marwick LLP.******
     27       Financial Data Schedule.******

(b)      The Company filed one report Form 8-K/A in the quarter  ended  December
         31, 1996, under Item 2 Acquisition and Disposition of Assets.

-----------------
*        Incorporated by reference to the Company's Annual Report on Form 10-KSB
         for the fiscal year ended December 31, 1996.
**       Incorporated by reference to the Company's  Current Report on Form 8-K,
         filed with the Securities and Exchange Commission (the "Commission") on
         June 7, 1996, as amended.
***      Incorporated  by reference to the Company's  Registration  Statement on
         Form SB-2,  filed with the  Commission on January 29, 1993  (Commission
         file No. 33-57546), as amended.
****     Incorporated  by reference to the Company's  Registration  Statement on
         Form S-3,  filed with the  Commission  on November 19, 1996, as amended
         (Commission File No. 333-16423).
*****    Incorporated  by reference to the Company's  Registration  Statement on
         Form S-8, filed with the  Commission on December 31, 1996,  (Commission
         File No. 333-19115).
******   Filed Herewith.

                                       21
<PAGE>
                                   SIGNATURES

In  accordance  with  Section 13 or 15(d) of the Exchange  Act,  the  registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized in the County of Fairfax, Commonwealth of Virginia on the 15th day of
April, 1998.



                                            The Netplex Group, Inc.

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



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

        Signature                       Title                      Date
 
  /s/   Gene Zaino               Chairman, President and          April 14, 1998
-------------------------        Chief Executive Officer 
        Gene Zaino               [Principal Executive Officer]

   /s/   Matthew G. Jones        Chief Financial Officer          April 14, 1998
-------------------------        and Treasurer [Principal
         Matthew G. Jones        Accounting Officer]


   /s/   Neil Luden              Vice President & Director        April 14, 1998
-------------------------
         Neil Luden


   /s/   Richard Goldstein        Director                        April 14, 1998
--------------------------
         Richard Goldstein


   /s/   Frank C. Lagattuta       Director                        April 14, 1998
---------------------------
         Frank C. Lagattuta


   /s/ Deborah Schondorf-Novick   Director                        April 14, 1998
-------------------------------
       Deborah Schondorf-Novick


                                       22
<PAGE>
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                                            Page
Independent Auditor's Report.........................................        F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996.........        F-3
Consolidated Statements of Operations for the years ended
   December 31, 1997 and 1996........................................        F-4
Consolidated Statements of Stockholders' Equity for the years
   ended December 31, 1997...........................................        F-5
Consolidated Statements of Cash Flows for the years ended
   December 31, 1997 and 1996........................................        F-6
Notes to Consolidated Financial Statements.........................          F-7



                                       F-1

<PAGE>
[Letterhead of KPMG Peat Marwick LLP]


                          Independent Auditors' Report



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



We have  audited the  accompanying  consolidated  balance  sheets of The Netplex
Group,  Inc. and subsidiaries  (the "Company") as of December 31, 1997 and 1996,
and the related consolidated statements of operations,  stockholders' equity and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of The Netplex Group,
Inc. and  subsidiaries as of December 31, 1997 and 1996 and the results of their
operations  and their cash flows for the years then ended,  in  conformity  with
generally accepted accounting principles.





                                                       /s/ KPMG Peat Marwick LLP



McLean, Virginia
April 10, 1998


                                       F-2
<PAGE>

                    THE NETPLEX GROUP, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>

                                  Assets                                          1997          1996
                                                                                ----------    ----------
Current assets
<S>                                                                             <C>           <C>       
     Cash and cash equivalents                                                  $  353,005    $3,691,099
     Accounts receivable, net of allowance for doubtful accounts of
     $133,000 and $177,000, respectively                                         4,133,148     4,304,662

     Notes receivable                                                              200,000          --
     Prepaids and other current assets                                             232,842       350,074
                                                                                ----------    ----------
         Total current assets                                                    4,918,995     8,345,835

     Property and equipment, net                                                   952,546     1,090,617
     Other assets                                                                   82,738        78,988
     Employee notes receivable                                                     193,464          --
     Acquired software, net                                                        418,225          --
     Goodwill, net                                                                 346,529       373,180
                                                                                ----------    ----------

         Total assets                                                           $6,912,497    $9,888,620
                                                                                ==========    ==========

                      Liabilities and Stockholders' Equity

Current liabilities
     Accounts payable                                                           $  567,805    $  936,865
     Line of credit                                                              1,316,300          --
     Accrued expenses                                                            3,383,024     5,166,184
     Deferred revenue                                                              109,497       329,267
     Obligation under capital lease, current portion                                96,073       106,347
                                                                                ----------    ----------
         Total current liabilities                                               5,472,699     6,538,663

     Obligation under capital lease, net of current portion                        109,096       110,669
                                                                                ----------    ----------

         Total liabilities                                                       5,581,795     6,649,332
                                                                                ----------    ----------

Stockholders' equity
     Class A Cumulative Convertible Preferred Stock; $.01 par value;
     liquidation preference of the greater of (i) two times the stated
     value of $2 per share plus all 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 the
     liquidation;  2,000,000 shares authorized,  1,062,500 and 1,750,000
     shares outstanding in 1997 and 1996, respectively                              10,625        17,500

Common stock, $.001 par value; 20,000,000 authorized,7,470,370 and
     6,442,903 shares outstanding in 1997 and 1996, respectively                     7,470         6,443
Additional paid in capital                                                       6,272,407     5,301,542
Accumulated deficit                                                             (4,959,800)   (2,086,197)
                                                                                ----------    ----------

         Commitments and contingencies

         Total stockholders' equity                                              1,330,702     3,239,288
                                                                                ----------    ----------

         Total liabilities and stockholders' equity                             $6,912,497    $9,888,620
                                                                                ==========    ==========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-3

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

<TABLE>
<CAPTION>

                                                                           1997         1996
                                                                       -----------    -----------

<S>                                                                    <C>            <C>
Revenue                                                                $40,468,134    $33,524,679

Cost of revenue                                                         35,415,644     30,878,166
                                                                       -----------    -----------

       Gross profit                                                      5,052,490      2,646,513

Selling, general and administrative expense                              7,899,756      5,205,906
                                                                       -----------   -------------

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

Other income/(expenses)
       Interest income/(expense), net                                      (26,337)        33,119
       Other income                                                           --            4,808
                                                                       ------------   -----------
                                                                           (26,337)        37,927
Loss from continuing operations
       before income taxes                                              (2,873,603)    (2,521,466)

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

       Loss from continuing operations                                  (2,873,603)    (2,487,466)

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

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

Income from discontinued operations                                           --          488,079

Net loss                                                               $(2,873,603)   $(1,999,387)
                                                                       ===========    ============
Basic and diluted earnings (loss) per common share
       Continuing operations                                           $     (0.46)   $     (0.51)
       Discontinued operations                                                --             0.09
                                                                       -----------   -------------

               Total                                                   $     (0.46)   $     (0.42)
                                                                       ===========    ============

       Weighted average common shares outstanding, basic and diluted     6,820,863      5,026,306
                                                                       ===========    ============
</TABLE>


          See accompanying notes to consolidated financial statements.


                                      F-4


<PAGE>
                    THE NETPLEX GROUP, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>

                                                               Class A  Cumulative
                                                            Convertible Preferred
                                                                  Stock                   Common stock            Additional
                                                         -------------------------     ----------------------       paid in    
                                                          Shares            $           Shares         $            capital    
                                                         ---------    -------------    ---------  -----------     -----------  


<S>                                                      <C>          <C>              <C>         <C>            <C>          
Balance at December 31, 1995                                  --      $      --        3,197,608   $    31,976    $   579,124  

   Net loss                                                                                                                    
   Reduction in par value resulting from the
     merger of the Company with Netplex
     from $0.01 per share to $0.001 per share                 --             --             --         (28,778)        28,778  
   Issuance of common shares in the merger of
     the Company with Netplex                                 --             --        3,245,295         3,245      1,767,488  
   Private placement of Class A Cumulative,
     Convertible Preferred Stock                         1,750,000         17,500           --            --        3,024,346  
   Preferred stock dividends                                  --             --             --            --          (98,194) 
                                                       -----------    -----------    -----------   -----------    -----------  

Balance at December 31, 1996                             1,750,000         17,500      6,442,903         6,443      5,301,542  

   Net loss                                                   --             --             --            --             --    
   Conversions of Preferred Stock to Common Stock         (687,500)        (6,875)       687,500           687          6,188  
   Exercise of common stock warrants                          --             --          225,000           225        537,275  
   Preferred stock dividends                                  --             --             --            --          (82,500) 
   Issuance of Common Stock options                           --             --             --            --           40,000  
   Issuance of Common Stock in connection with Onion
     Peel Solutions, L.L.C. acquisition
                                                              --             --           80,000            80        399,920  
   Exercise of Common Stock options                           --             --           34,967            35         69,982  
                                                       -----------    -----------    -----------   -----------    -----------  

Balance at December 31, 1997                             1,062,500    $    10,625      7,470,370   $     7,470    $ 6,272,407  
                                                       ===========    ===========    ===========   ===========    ===========  
</TABLE>
<TABLE>
<CAPTION>

                                                        Accumulated
                                                          deficit          Total
                                                        ------------   -----------


<S>                                                     <C>            <C>
Balance at December 31, 1995                            $   (86,810)   $   524,290

   Net loss                                              (1,999,387)    (1,999,387)
   Reduction in par value resulting from the
     merger of the Company with Netplex
     from $0.01 per share to $0.001 per share                  --             --
   Issuance of common shares in the merger of
     the Company with Netplex                                  --        1,770,733
   Private placement of Class A Cumulative,
     Convertible Preferred Stock                               --        3,041,846
   Preferred stock dividends                                   --          (98,194)
                                                        -----------    -----------

Balance at December 31, 1996                             (2,086,197)     3,239,288

   Net loss                                              (2,873,603)    (2,873,603)
   Conversions of Preferred Stock to Common Stock              --             --
   Exercise of common stock warrants                           --          537,500
   Preferred stock dividends                                   --          (82,500)
   Issuance of Common Stock options                            --           40,000
   Issuance of Common Stock in connection with Onion
     Peel Solutions, L.L.C. acquisition
                                                               --          400,000
   Exercise of Common Stock options                            --           70,017
                                                        -----------    -----------

Balance at December 31, 1997                            $(4,959,800)   $ 1,330,702
                                                        ===========    ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-5

<PAGE>
                    THE NETPLEX GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>


                                                                              1997         1996
                                                                          ------------  -------------
Operating activities
<S>                                                                       <C>           <C>         
     Net loss                                                             $(2,873,603)  $(1,999,387)
     Adjustments to reconcile net loss to net cash
     used in operating activities
        Depreciation and amortization                                         464,213       587,902
        Expense on options granted                                             40,000
        Gain on sale of WorldLink product technology                             --      (1,820,129)
        Deferred income taxes                                                    --         (34,000)
        Change in assets and liabilities, net of effects of acquisition:
                Accounts receivable                                           301,321      (789,955)
                Prepaid expenses and other current assets                     117,712      (117,496)
                Other assets                                                     --          (9,404)
                Accounts payable and accrued expenses                      (2,159,896)    1,190,669
                Deferred revenue                                             (219,770)     (131,643)
                                                                           ----------    -----------

                Net cash used in operating activities                      (4,330,023)   (3,123,443)
                                                                           ----------    -----------

Investing activities
        Capital expenditures                                                 (105,438)     (631,983)
        Net proceeds from the sale of WorldLink product technology               --       2,492,795
        Cash acquired in business acquisition                                   2,149     1,245,062
                                                                           ----------    ----------

                Net cash provided by/(used in) investing activities          (103,289)    3,105,874
                                                                           ----------    ----------

Financing activities
        Proceeds from the exercise of stock options and warrants              607,517          --
        Note receivable                                                      (200,000)
        Employee notes receivable                                            (193,464)
        Payment of dividends on Class A Preferred Stock                      (180,694)         --
        Principal payments on capital lease obligations                       (99,945)      (14,019)
        Line of credit advances                                             1,316,300       650,000
        Line of credit repayments                                             (95,000)     (650,000)
        Repayments of other notes payable                                     (59,496)     (159,870)
        Proceeds from Private Placement                                          --       3,041,846
                                                                           ----------    ----------

                Net cash provided by financing activities                   1,095,218     2,867,957
                                                                           ----------    ----------


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

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


Cash and cash equivalents at end of period                                $   353,005    $3,691,099
                                                                           ==========    ==========
Supplemental information Cash paid during the period for:
       Interest                                                                61,366        24,247
                                                                           ==========    ==========
       Income taxes                                                              --          12,985
                                                                           ==========    ==========

       Capital lease obligation                                                88,098       241,561
                                                                           ==========    ==========
</TABLE>


          See accompanying notes to consolidated financial statements.

                                      F-6

<PAGE>
                    THE NETPLEX GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996
(1)  The Business and Basis of Presentation

     The Business

     The Netplex Group, Inc. ("the Company") was incorporated in 1986 to provide
     IT  services  and  solutions.  Netplex is an  Information  Technology  (IT)
     company  that  provides  the  expertise  and  information  systems  to link
     employees,  customers,  prospects,  suppliers  and  manufacturers  to  help
     "network-enable"  organizations.  The Company re-sells  technology products
     when necessary to deliver to customers fully integrated  system  solutions.
     The  Company  also  provides  certain  business   services  to  independent
     consultants who become the Company's employees.

     Basis of presentation

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

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

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

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

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

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

     The  operating  results of Onion Peel have been  included in the  Company's
     consolidated  results  from July 1, 1997.  The  acquired  intangible  asset
     recorded on the consolidated balance sheet represents the fair value of

                                      F-7

<PAGE>
     Onion  Peel's  software  license  rights.  This  intangible  asset is being
     amortized on a straight - line basis over four years.  Amortization  of the
     software license rights was $46,470 in 1997.

     The following unaudited  supplemental  financial  information  presents the
     consolidated  results of the Company from continuing  operations,  on a pro
     forma  basis,  as though the merger with  CompLink and the  acquisition  of
     Onion Peel were  consummated  on January 1, 1996 and reflect the historical
     results of  operations  of the  purchased  business  adjusted  for goodwill
     amortization and increased common shares  outstanding from the merger.  The
     pro  forma  results  do not  include  the  operations  of the  discontinued
     business.

<TABLE>
<CAPTION>

                                                                        Unaudited
                                                                Year Ended December 31

                                                              1997          1996
                                                         ------------  ---------------

                                                   (in thousands except per share data)

<S>                                                     <C>           <C>         
Revenues                                                $     40,804  $     34,666
                                                         ============  ===========
Net loss from continuing operations                     $     (3,173) $     (2,865)
                                                         ============  ===========
Net loss per share from continuing operations           $      (0.46) $      (0.44)
                                                         ============  ===========
Weighted average common shares outstanding                     6,861         6,523
                                                         ============  ===========
</TABLE>

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

(2)  Summary of  Significant Accounting Policies

     Principles of Consolidation
     The accompanying  consolidated financial statements include the accounts of
     The Netplex Group, Inc. and its wholly owned subsidiaries, Netplex Systems,
     Inc., America's Work Exchange,  Software Resources of New Jersey, now known
     as Contractors Resources ("CR"),  Technology Development Systems, and Onion
     Peel Solutions,  L.L.C. All significant intercompany transactions have been
     eliminated during consolidation.

     Revenue Recognition
     The  majority  of  the  Company's  revenue  is  from  consulting   services
     contracts.  This revenue is recognized  when the services are performed and
     the costs are  incurred.  The Company  generally  recognizes  hardware  and
     software  product  revenue when the products are  delivered to the customer
     site.  Fixed price  contract  revenue is  recognized  on the  percentage of
     completion  basis based on costs  incurred to estimated  costs to complete.
     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 customer
     acceptance,  in  accordance  with the terms of the  contract.  The  Company
     records loss provisions if required for its contracts at the time that such
     losses are identified.

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

     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 7 years.

     Property and equipment under capital leases are stated at the present value
     of the minimum lease  payments and are  amortized  using the shorter of the
     lease term or the estimated useful life.

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

                                       F-8

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

     Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
     The Company  adopted the  provisions of SFAS No. 121,  "Accounting  for the
     Impairment of Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed
     Of", on January 1, 1996. This Statement requires that long-lived assets and
     certain identifiable intangibles be reviewed for impairment whenever events
     or changes in  circumstances  indicate that the carrying amount of an asset
     may not be  recoverable.  Recoverability  of  assets to be held and used is
     measured  by a  comparison  of the  carrying  amount  of an asset to future
     undiscounted  net cash flows expected to be generated by the asset. If such
     assets are  considered to be impaired,  the  impairment to be recognized is
     measured by the amount by which the  carrying  amount of the assets  exceed
     the fair value of the assets.  Assets to be disposed of are reported at the
     lower of the carrying  amount or fair value less cost to sell.  Adoption of
     this  Statement did not have a material  impact on the Company's  financial
     position, results of operations, or liquidity.

     Excess Costs Over Net Assets Acquired
     Excess  costs  over net assets  acquired  (goodwill)  resulting  from AWE's
     acquisition  of CR is  being  amortized  on a  straight-line  basis  over a
     recovery period of 15 years. The Company assesses the potential  impairment
     and recovery of goodwill on an annual basis and more  frequently if factors
     dictate. Management forecasts are used to evaluate the recovery of goodwill
     through determining  whether  amortization of the goodwill can be recovered
     through the undiscounted  operating cash flow (cash flow excluding goodwill
     amortization, non-recurring charges and interest expense). If an impairment
     of goodwill  appears to have  occurred,  impairment  is  measured  based on
     projected discounted operating cash flow (excluding goodwill  amortization,
     non  recurring   charges  and  interest  expense)  using  a  discount  rate
     reflecting   the   Company's   cost  of  funds.   The   assessment  of  the
     recoverability  of goodwill will be impacted if estimated  future operating
     cash flows are not achieved. The Company may assess the net carrying amount
     of goodwill using internal and or independent valuations.

     Accumulated  amortization  of  goodwill  related to the  purchase  of CR at
     December 31, 1997 was $53,308 and at December 31, 1996 was $26,656.

     Income Taxes
     Income taxes are accounted  for under the asset and liability  method under
     Statement of Financial  Accounting Standards No. 109 "Accounting for Income
     Taxes" ("SFAS 109"). 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
     In February 1997, the Financial  Accounting Standards Board ("FASB") issued
     Statement of Financial  Accounting  Standards No. 128, "Earnings Per Share"
     ("SFAS 128"),  which requires companies to present basic earnings per share
     and  diluted  earnings  per share  (EPS),  instead of the primary and fully
     diluted EPS that had previously been required. The Company adopted SFAS 128
     in the fourth  quarter  of 1997.  The impact to prior  years'  amounts  was
     immaterial.  Basic  net  loss per  common  share is  calculated  using  the
     weighted  average number of common shares  outstanding  during the periods.
     Diluted net loss per common share is calculated  using the weighted average
     number of common shares and dilutive  potential  common shares  outstanding
     during the periods.  For the years ended  December  31, 1997 and 1996,  the
     assumed  exercise of the company's  outstanding  stock options and warrants
     and Convertible Preferred Stock has not been included in the calculation as
     the effect would be anti-dilutive.


                                       F-9

<PAGE>

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

<TABLE>
<CAPTION>

                                                          Income             Shares             Per-Share
                                                        (Numerator)        (Denominator)           Amount
                                                        -----------        -------------           ------

1997
<S>                                                   <C>                  <C>                  <C>      
Net Loss                                              $  (2,873,603)            -               $      -

Preferred stock dividend                                    275,625             -                      -

Basic and diluted EPS
     Income available to common shareholders           $ (3,149,228)        6,820,863            $  (0.46)
                                                       ============         =========            =========

1996
Net Loss                                               $ (1,999,387)             -               $      -

Preferred stock dividend                                     98,194              -                      -
Basic and diluted EPS

     Income available to common shareholders           $ (2,097,581)        5,026,306            $  (0.42)
                                                       ============         =========            =========
</TABLE>

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

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

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

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

                                      F-10

<PAGE>

     agreements or commitments, and is not currently engaged in any negotiations
     with respect to any such transaction.

     The Company is expecting to incur  operating  losses until it achieves full
     productivity of the majority of its sales force. While it cannot be certain
     as to when  such  levels  of  productivity  can be  attained,  the  Company
     anticipates  that its  sales  force  will  operate  at  levels  below  full
     productivity  through at least the first quarter of 1998.  The Company will
     continue  to  make  significant  investments  in its  technical  workforce,
     marketing, training and infrastructure to increase productivity,  build its
     core competency  practice unit skill base and product  offerings and foster
     growth of its operations.  Despite the  expectation of continued  operating
     losses,  management  believes  that its  current  cash  balance  and credit
     facility will be sufficient to meet operating requirements for at least the
     next twelve months.

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

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

(5)  Property and Equipment
     Property and equipment consists of the following:



                                                          December 31,
                                                --------------------------------
                                                      1997             1996
                                                ----------------- --------------

Computer software                              $         493,935  $     464,318
Computer and office equipment                            628,537        460,422
Furniture and fixtures                                   188,563        212,561
Equipment under capital leases                           335,197        247,100
Leasehold Improvements                                    38,520         46,934
                                                ----------------- --------------
                                                       1,684,752      1,431,335

Accumulated depreciation and amortization               (732,206)      (340,718)
                                                ----------------- --------------

Property and equipment, net                    $         952,546  $    1,090,617
                                                ================= ==============

     Computer software at December 31, 1997,  includes $407,338 of software that
     was  developed for internal  usage.  Such software was placed in service in
     January 1997 and is being amortized over a 4-year useful life. Amortization
     expense  related  to  this  software  was  $67,890  for  1997.  Accumulated
     depreciation  and  amortization  includes  $119,925 related to assets under
     capital leases at December 31, 1997 and $29,125 at December 31, 1996.

                                      F-11

<PAGE>
(6)  Accrued Expenses
     Accrued expenses consists of the following:

                                           December 31,
                                  -------------------------------

                                        1997            1996
                                  ----------------  -------------

Payroll and employee benefits     $     2,954,522  $   3,592,795
Other                                     428,502        402,067
Cost of discontinued business            -               704,890
Merger costs                             -               466,432
                                  ----------------  -------------

                                  $     3,383,024  $   5,166,184
                                  ================  =============

(7)  Notes Payable to Bank
     On July 2, 1997,  the Company  entered into a bank line of credit  facility
     agreement  that  expires  on June 30,  1998.  This line of credit  facility
     provides for advances of 80% of eligible accounts receivable (as defined in
     the  agreement)  up to  $2,000,000.  Amounts  borrowed bear interest at the
     bank's   reference  rate  of  prime  (8.5%)  plus  3/4%.  The  Company  had
     outstanding  advances of  $1,316,300  on the line of credit at December 31,
     1997.

     At  December  31,  1997,  the Company was not in  compliance  with  certain
     financial covenants contained in its line of credit facility which requires
     the Company to maintain  minimum tangible net worth of a least $1.3 million
     and a  current  ratio of at least  1.10 to 1.00.  The bank has  waived  the
     Company's non compliance of these covenants.

(8)  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, 1997 and
     1996 is as follows:

                                                               1997       1996
                                                               ----       ----
                                                                (in thousands)

         Computed expected tax benefit on income from
           continuing operations                               $(977)    $(857)
         Non-deductible expenses and other                      (484)      (50)

         Change in valuation allowance for deferred tax
           assets allocated to income tax expense                493       873
                                                               -----     -----
                                                               $   -      $(34)
                                                               =====     =====

                                      F-12

<PAGE>

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

<TABLE>
<CAPTION>
                                                             As of December 31,
                                                        --------------------------
                                                           1997             1996

                                                                (in thousands)

    Deferred tax assets:
<S>                                                       <C>              <C>    
       Net operating loss carryforwards                   $4,010           $ 3,000
       Research and development credit carryforwards         187               187
       Excess tax basis over book of net assets acquired     150               200
       Inventory obsolescence reserve                         56                59
       Allowance for doubtful accounts receivable             48                74
       Accrued liabilities, not presently deductible           8               496
       Other                                                  30                11
                                                          ------          --------
            Total gross deferred tax assets                4,489             4,028
            Less valuation allowance                      (4,489)           (3,996)
                                                          -------         --------
            Net deferred tax asset                             -                32
                                                          -------         --------

    Deferred tax liabilities:

       Obligation under capital leases                         -               (13)

       Other                                                   -               (19)
                                                          -------         --------
             Total deferred tax liabilities                    -               (32)
                                                          -------         --------

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

     The net change in the valuation  allowance was an increase of approximately
     $493,000  in 1997 and an increase of  $3,911,000  in 1996.  The Company has
     provided a valuation  allowance for the majority of its deferred tax assets
     at December 31, 1997 and 1996 since the Company  could not conclude that it
     was more likely than not that it would realize these assets due principally
     to the Company's history of losses.

     As of December 31, 1997 the Company had net operating  loss carry  forwards
     (NOL's)  for Federal  income tax  purposes  of  approximately  $13,500,000.
     Additionally,  the Company had  $187,000 of research  and  development  tax
     credits  available to offset future  taxable  income.  The NOL's and credit
     carryforwards  expire  primarily in 2007 through  2012.  The future  annual
     usage of approximately $9,600,000 of these NOL's and credits for income tax
     purposes is subject to annual  limitations and other conditions and may not
     be fully utilized for tax purposes due to the change in ownership resulting
     from the Company's merger in 1996.

(9)  Commitments

     Employment agreements
     On June 7, 1996, in connection with the closing of the merger, the Board of
     Directors approved three-year  employment  agreements with the Chairman and
     Chief Executive  Officer and two executives of Netplex and AWE that provide
     for aggregate  base salaries  ranging from $110,000 to $130,000 with annual
     bonuses  up to 60% of base  salary  based of the  Company's  financial  and
     operating performance,  subject to Board approval.  These agreements expire
     on June 6, 1999.

                                      F-13

<PAGE>
     Obligations Under Leases
     The Company  leases  computer  equipment,  furniture,  vehicles  and office
     facilities under long-term lease agreements. The following is a schedule of
     future  minimum  lease  payments for capital and  non-cancelable  operating
     leases (with initial terms in excess of one year) as of December 31, 1997:



                                                       Capital         Operating
         Year ending December 31:                      Leases           Leases
                                                       ------           ------

               1998                                  $ 120,082       $  551,895
               1999                                    100,544          560,419
               2000                                     12,195          480,241
               2001                                          -          203,087
               2002                                          -           97,268
            Thereafter                                       -           48,634
                                                     ---------       -----------

         Total  minimum lease payments                 232,821       $1,941,544
                                                                     ===========

         Less: amount representing interest             27,652
                                                     ---------

         Present value of minimum lease payments     $ 205,169
                                                     =========

     Total rent  expense was  approximately  $647,000 and $577,000 for the years
     ended December 31, 1997 and 1996.

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

     Each share of Preferred Stock is convertible into one share of Common Stock
     at any time,  at the  discretion of the holder.  The Preferred  Stock earns
     cumulative dividends at 10% per annum, payable in either cash or additional
     shares  of  Preferred  Stock  at  the  Company's  option.  Subject  to  the
     conversion rights, the Company may redeem the Preferred Stock at its stated
     value plus all accrued and unpaid  dividends upon: (1)  registration of the
     shares underlying the Preferred Stock, and (2) 30 days written notice given
     at any time upon attaining  certain per share trading prices and sustaining
     such prices for a specified  period.  The  Preferred  Stock has a per share
     liquidation preference of the greater of: (i) two times the stated value of
     the  Preferred  Stock  (stated  value is $2 per share) plus any accrued and
     unpaid dividends,  or (ii) the amount that would have been received if such
     shares were converted to Common Stock on the business day immediately prior
     to liquidation.  During the year ended December 31, 1997, 687,500 preferred
     shares were converted to Common Stock. No conversions occurred in 1996.

     Each  warrant  issued  in  connection  with the  Private  Placement  became
     exercisable  on March 19,  1997 and  expires on  September  19,  2001.  The
     Company has the right to call the  warrants at a  redemption  price of $.01
     per share upon: (1) registration of the shares underlying the warrant,  and
     (2) 30 days  written  notice  given  at any  time  upon  the  Common  Stock
     attaining  certain per share trading prices and maintaining such prices for
     a specified  period.  During 1997,  warrants to acquire  175,000  shares of
     Common Stock were exercised.

     On March 27, 1997,  the Company  declared a dividend in the amount of $0.05
     per  share  ($82,500)  payable  in cash to the  holders  of  record  of the
     Company's Class A Preferred Stock on March 28, 1997.

     On  November  14,  1997,  the  Company  declared a dividend  payable to the
     holders of record of its Class A Preferred Stock on account of dividends in
     arrears  which were payable on June 30, 1997 and September 30,

                                      F-14

<PAGE>
     1997, in the amount of 0.0582  shares of Class A Preferred  Stock per share
     of Class A  Preferred  Stock.  The  related  shares  were not issued by the
     Company as of December 31, 1997.

     On  December  31,  1996,  the  Company   declared  a  dividend  payable  of
     approximately  $0.056  per  share to all  holders  of record of the Class A
     Preferred  Stock on January 15, 1997.  Accordingly,  the Company  accrued a
     dividend  payable of $98,194 at December  31,  1996,  which was paid during
     1997.

(11) Common Stock and Warrants
     Pursuant to an  agreement  dated March 25,  1992,  the Company sold 100,000
     units each  consisting of one share of Common Stock and one warrant with an
     aggregate  purchase  price of  $250,000  and issued an  additional  120,000
     warrants.  As of April 10,  1998,  all  warrants  have  expired  except for
     170,000 exercisable at $3.00 per share.

     In connection with the Company's initial public offering (IPO), the Company
     sold to the  underwriters for $100 the right to purchase up to an aggregate
     of 100,000  Units (Unit  Purchase  Option).  The Unit  Purchase  Options is
     exercisable  initially at $6.00 per Unit through March 1998.  The Units are
     identical  to those  offered  in the IPO,  except the  warrants  may not be
     redeemed by the Company.  The Unit Purchase Option  contains  anti-dilution
     provisions  providing  for  adjustments  to the  exercise  price  upon  the
     occurrence  of certain  events.  In  connection  with the merger,  the Unit
     exercise  price was reduced  from $6.00 to $2.40 per share from the effects
     of this  anti-dilution  provision.  The  exercise  price of the  underlying
     warrants  remained  at $5.25 per share.  These  warrants  expired in March,
     1998.

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

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

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

(12) Stock Options
     As of December 31, 1997,  the Company  maintains  three stock option plans;
     the 1992 Incentive Stock Option Plan (ISO Plan),  the 1995 Directors' Stock
     Option Plan (Directors' Plan) and the 1995  Consultant's  Stock Option Plan
     (Consultant's Plan).

     The ISO Plan includes both incentive and non-qualified  stock options.  The
     Board of Directors  may grant stock  options to employees to purchase up to
     3,000,000  shares of the Company's  authorized  but unissued  Common Stock.
     Stock options are granted with an exercise  price equal to the market price
     on the date of grant.  All stock options expire 10 years from grant date (5
     years in the case  that the  optionee  is a holder  of more than 10% of the
     voting stock of the  Company).  Generally the options vest and become fully
     exercisable  after 3 years  from the date of grant  but  never  less than 6
     months. At December 31, 1997, there were 475,033 shares available for grant
     under this plan.

     The  Directors'  Plan  authorizes  the Board of  Directors to grant to each
     director  options  to  purchase  up  to  15,000  shares  of  the  Company's
     authorized but unissued Common Stock, upon election to the Board, and award
     aggregate  options  to  purchase  up to  100,000  shares  of the  Company's
     authorized  but unissued  Common Stock.  The terms of option grants for the
     Directors'  Plan are  identical  to those of the ISO plan,  except that the
     vesting


                                      F-15

<PAGE>
     period for the Directors' Plan is at the Board's discretion.  Option grants
     under this Plan from  inception to date have contained  three-year  vesting
     periods. At December 31,1997,  there were 40,000 shares available for grant
     under this Plan.

     The   Consultant's   Plan  authorizes  the  Board  of  Directors  to  grant
     organizations or individuals who are not eligible for the ISO or Directors'
     Plans  stock  options to  purchase  up to 800,000  shares of the  Company's
     authorized  but unissued  Common Stock.  The exercise  price,  terms of the
     option grant and vesting period for the Consultant's Plan stock options are
     at the Board's discretion.  At December 31,1997,  there were 768,000 shares
     available for grant under this Plan.

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

<TABLE>
<CAPTION>

                              ISO Plan             Directors' Plan            Consultants' Plan
                              --------             ---------------            -----------------
                                      Wt. Avg.             Wt. Avg.                Wt. Avg.
                         Shares       Ex. Price  Shares    Ex. Price   Shares      Ex. Price
                       ---------      ---------  ------    ---------   ------      ---------

<S>                   <C>             <C>        <C>       <C>          <C>          <C>  
December 31,1995         724,500      $3.07      30,000    $3.56          --         $  --

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

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

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

  December 31, 1997   2,490,000       $1.45      60,000    $3.15        32,000       $2.50
                      ==========    =======      ======    =====        ======       =====
</TABLE>

     ISO Plan options
     At December  31,1997,  the range of exercise prices for the options granted
     under  the ISO plan was  $0.97-$4.00  and the  weighted  average  remaining
     contractual  life of those options was 8.8 years.  At December 31, 1997 and
     1996, the number of options  exercisable under the ISO Plan totaled 545,834
     and 867,167,  respectively.  The weighted  average  exercise price of those
     options was $2.73 and $3.00, respectively.

     Directors' Plan options
     At December  31,  1997,  the range of exercise  prices for options  granted
     under  the  Directors'  Plan  was  $2.50-$3.56  and  the   weighted-average
     remaining  contractual life of those options was 8.4 years. At December 31,
     1997, and 1996 the number of options  exercisable under the Directors' Plan
     totaled  25,000 and 15,000,  respectively.  The  weighted-average  exercise
     price of those options was $3.35.and $3.56, respectively.

     Consultants' Plan options
     At December 31, 1997, the exercise price for all options  granted under the
     Consultants' Plan was $2.50 and the weighted-average  remaining contractual
     life of those  options  was 4 years.  At  December  31,  1997 the number of
     options  exercisable under the Consultants' Plan totaled 32,000. No options
     were granted prior to 1997.  The  weighted-average  exercise price of those
     options was $2.50.

     The  Company  applies  APB  Opinion  No. 25 in  accounting  for its ISO and
     Directors' Plans and, accordingly, no compensation cost has been recognized
     for  its  stock  options  in the  financial  statements.  Had  the  Company

                                      F-16

<PAGE>

     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:

                                                    1997            1996
                                            ------------------------------------
                                            (Thousands except per share amounts)

Net loss - As reported                      $        (2,874) $       (1,999)
                                               ============  ===============
Net loss - Pro forma                        $        (4,836) $       (3,462)
                                               ============  ===============
Net loss per share - As reported            $         (0.46) $        (0.42)
                                               ============  ===============
Net loss per share - Pro forma              $         (0.71) $        (0.71)
                                               ============  ===============
Weighted average shares outstanding                   6,821           5,026
                                               ============  ===============

     Pro forma net loss reflects only the option grants in 1997, 1996, and 1995.
     Therefore,  the full  impact of  calculating  compensation  costs for stock
     options  under  SFAS No.  123 is not  reflected  in the pro  forma net loss
     amounts  presented  above because  compensation  cost is reflected over the
     option's vesting periods and compensation cost for options granted prior to
     January 1, 1995 is not considered.

     The per share  weighted  average  fair value of the ISO options  granted in
     1997 and 1996 was  $1.20  and  $1.83 on the  grant  date  using the Black -
     Scholes   option  pricing  model  with  the  following   weighted   average
     assumptions for 1997: expected dividend yield 0.0%, risk free interest rate
     of 6.24%,  expected  volatility of 103%,  and an expected life of 10 years;
     and 1996:  expected  dividend yield 0.0%, risk free interest rate of 6.70%,
     expected volatility of 44%, and an expected life of 10 years.

     The per share weighted  average fair value of the  Directors'  Plan options
     granted  in 1997 and 1996 was $2.76 and $1.67 on the grant  date  using the
     Black - Scholes  option pricing model with the following  weighted  average
     assumptions for 1997: expected dividend yield 0.0%, risk free interest rate
     of 6.97%,  expected  volatility of 103%,  and an expected life of 10 years;
     and 1996:  expected  dividend yield 0.0%, risk free interest rate of 6.81%,
     expected volatility of 44%, and an expected life of 10 years.

(13) Related Party Transactions
     The Company  paid $28,800 in 1997 and $17,900 in 1996 for  accounting,  tax
     and  consulting  services  to a CPA firm in which a partner of the firm has
     been a director of the Company since July 1996.

     In January, 1997, the Company issued a $150,000 loan to the chief executive
     officer for  relocation  expenses.  The loan bears interest at 8% per annum
     and is due upon demand.  The Company  does not intend to demand  payment of
     the loan during 1998, and thus the amount is classified as long-term in the
     accompanying  consolidated  balance  sheet  as of  December  31,  1997.  At
     December  31,  1997,  the  outstanding   amount  due  under  the  loan  was
     approximately   $161,000,   including   approximately  $11,000  in  accrued
     interest.

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

     A director of the  Company,  is a Vice  President of the  underwriter  (the
     "Underwriter")  of  the  Private  Placement  completed  by the  Company  on
     September 19, 1996 (see note 9). The Company paid the Underwriter  $432,500
     for fees associated with the completion of this transaction.

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

                                      F-17

<PAGE>
(14) Litigation
     From  time  to  time,   disagreements   with   individual   employees   and
     disagreements as to the interpretation,  effect or nature of the individual
     agreements arise in the ordinary course of business and may result in legal
     proceedings being commenced against the Company.

     On December 31, 1996, ACS Ltd., a software  distributor based in the United
     Kingdom, filed a complaint against Technology Development Systems ("TDS") a
     wholly  owned  subsidiary  of the  Company,  in the  Circuit  Court of Cook
     County,  Illinois.  ACS alleges that TDS breached its obligations under the
     Distributor  Agreement  between  the  Plaintiff  and TDS for the  WorldLink
     product  when  the  Company  directed  TDS to sell  the  WorldLink  product
     technology  to a third party.  ACS is demanding a sum exceeding one million
     dollars for the breach of contract. The case is currently in discovery.  In
     the opinion of Management and the Company's legal counsel,  the lawsuit has
     little  merit,  and the  outcome  of the  pending  lawsuit  will not have a
     material adverse effect on the Company's financial condition,  liquidity or
     the results of operations. The Company intends to vigorously defend against
     the  lawsuit.  The TDS  subsidiary  which was part of CompLink is currently
     inactive with no assets.

     On  September 4, 1997,  Data Systems  Analysts,  Inc.  ("DSA"),  a software
     design  and  consulting  company,  filed a  complaint  against  TDS and the
     Company,  alleging  copyright  infringement  and  breach  of the  Company's
     agreement. The Complaint claims damages in excess of $300,000 plus punitive
     damages. The case is currently in discovery.  In the opinion of Management,
     the lawsuit has little merit,  and the outcome of the pending  lawsuit will
     not have a material  adverse effect on the Company's  financial  condition,
     liquidity or the results of operations.  The Company  intends to vigorously
     defend against the lawsuit.

     The Company is not  currently  involved in any  litigation  or  proceedings
     which if decided against the Company would have a material  adverse affect,
     either  individually or in the aggregate.  To the Company's  knowledge,  no
     other legal  proceedings,  that if decided against the Company would have a
     material  adverse affect,  are currently  contemplated by any  individuals,
     entities or governmental authorities.

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

     On January 1, 1997,  the Company and  subsidiary  401(k) plans were merged.
     Under the  merged  Plan,  all full time  employees  with over 1000 hours of
     service to the Company or its subsidiaries are eligible to participate. The
     Company matches one-half of the employees' voluntary  contributions up to a
     maximum Company contribution of 5% of participants' salaries. The Company's
     contribution to the Plan during 1997 was $647,418.

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

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

(16) Recent Accounting Pronouncements
     In February  1997,  FASB issued SFAS No. 129,  "Disclosure  of  Information
     about Capital  Structure"  which is effective for the year ending  December
     31, 1998.  This statement  continues the previous  requirements to disclose
     certain information about an entity's capital structure found in Accounting
     Principles  Board (APB) Opinion No. 10, "Omnibus Opinion -1966" and No. 15,
     "Earnings per Share" and FASB  Statement No. 47,  "Disclosure  of Long-Term
     Obligations."  The Company has been  subject to the  requirements  of those
     standards  and as a result does not expect the  adoption of SFAS No. 129 to
     have a material impact on the Company's financial statements.

     In June 1997,  FASB issued SFAS No. 130 "Reporting  Comprehensive  Income",
     which is effective for the year ending  December 31, 1998.  This  statement
     establishes standards for the reporting and display of comprehensive income
     and its components in the financial statements. Earlier application of this
     standard is


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     permitted;   however,  upon  adoption  the  Company  will  be  required  to
     reclassify previously reported annual and interim financial statements. The
     Company believes that the disclosure of comprehensive  income in accordance
     with  the  provisions  of SFAS  No.  130  will not  impact  the  manner  of
     presentation  of its  financial  statements  as  currently  and  previously
     reported.

     In June 1997, FASB issued SFAS No. 131,  "Disclosures  about Segments of an
     Enterprise and Related Information", which is effective for the year ending
     December 31, 1998.  This statement  requires  companies to present  certain
     information  about operating  segments and related  information,  including
     geographic and major customer data, in its annual financial  statements and
     in condensed financial statements for interim periods. The Company believes
     that the adoption of SFAS No. 131 will impact the manner of presentation of
     its financial statements.

     In October, 1997, the AICPA Accounting Standards Executive Committee issued
     Statement of Position 97-2,  "Software Revenue  Recognition"  ("SOP 97-2"),
     which supercedes  Statement of Position 91-1 "Software Revenue Recognition.
     SOP 97-2 focuses on when and in what amounts  revenue  should be recognized
     for licensing,  selling, leasing, or otherwise marketing computer software,
     and is effective for  transactions  entered into in fiscal years  beginning
     after  December 15, 1997. The Company does not believe that the adoption of
     this  new  pronouncement  will  have a  material  impact  on its  financial
     position and results of operations.

(17) Subsequent Events
     On January 30, 1998, the Company completed the purchase of all of the stock
     of  The  PSS  Group,  Inc.  ("PSS"),   the  technical   professional  staff
     augmentation  operations and business of Preferred Systems Solutions,  Inc.
     ("Preferred")  and  formerly a wholly owned  subsidiary  of  Preferred.  In
     consideration for the purchase, the Company paid $300,000 at closing and on
     or before  January 15, 1999 will pay $300,000 in cash or 200,000  shares of
     its Common Stock or any combination  thereof,  at Preferred's  option.  The
     Company used working capital to finance the acquisition. The agreement also
     provides  that  Preferred  will  receive   additional   consideration  (the
     "Earn-out") if PSS meets certain  operating  targets.  Such Earn-out may be
     paid  at  the  Company's  option  in  cash  or  its  Common  Stock,  or any
     combination  thereof.  In connection with the acquisition,  the Company and
     PSS has entered into employment  agreements with certain  employees of PSS.
     The acquisition was recorded  effective  January 1, 1998 using the purchase
     method of accounting.  A $200,000 advance to the purchase price was made to
     PSS as of December  31, 1997 and is  included  in notes  receivable  in the
     accompany consolidated balance sheet.

     Between  January  1,  1998 and April  14,  1998,  the  Company  has  raised
     additional equity totaling $3,057,000 as follows:

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

     On March 17, 1998 the Company  raised  $1,457,000 of financing in a Private
     Placement  raised  primarily from accredited investors and employees of the
     Company.  The  Company  issued  shares of  non-registered  Common  Stock to
     purchasers  who  have  agreed  to  a  one-year  lock-up  provision.   These
     restricted shares carry  registration  rights and were offered at $1.00 per
     share.  The  funds  will be  used  to  finance  operations  and  additional
     acquisitions.

     On April 7, 1998  Netplex  completed  the sale of 1,500  units of a Private
     Placement,   totaling  $1.5  million,  to  various  purchasers  The  Zanett
     Corporation  acted as placement agent for the Private  Placement.  The sale
     represents the first half of a transaction that will include the sale of an
     additional 1,500 units for $1.5 million at a future date. Zanett Lombardier
     purchased  1,500 units at $1,000 per unit,  with each unit  consisting of a
     prepaid Common Stock purchase warrant  entitling the holder to acquire such
     number  of  shares  of the  Company's  Common  Stock as is equal to  $1,000
     divided by an adjustable exercise price and an additional incentive warrant
     to acquire 52 shares of Common Stock (or an  aggregate of 78,000  shares of
     Common Stock). The Company also granted Zanett a warrant to purchase 39,000
     shares  of  Common  Stock.  Zanett  also  received  placement  fees  and  a
     non-accountable  expense  allowance equal to 12.53% of the proceeeds of the
     offering.  The second half of the  transaction is for the sale to Zanett of
     an additional and committed 1,500 units, for $1,000 per unit, contingent on
     Netplex  recording  three  consecutive  quarters of  increased  profits and
     revenues,  excluding any  extraordinary  items.  With respect to the second
     half of the  transaction,  the exercise price of the purchase 

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<PAGE>

     warrants and the  incentive  warrants will be based on the bid price of the
     Common  Stock at the  time of such  closing.  The  funds  from the  Private
     Placement will be used to fund  operations and  acquisitions.  Under NASDAQ
     regulations,  certain aspects of the transaction  must receive  shareholder
     approval.  Such  shareholder  approval is expected in the Company's  annual
     meeting.  The Company  believes  that the proceeds  should  ensure that the
     Company will exceed NASDAQ's  published net tangible assets  requirement of
     $2 million.



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