|SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, DC 20549


     _________________


FORM 10-K


ANNUAL REPORT
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934


For the fiscal year
ended December 31, 2002


Commission File No.
0-27042


ALPHANET SOLUTIONS, INC.


(Exact Name of
Registrant as Specified in Its Charter)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|New Jersey
 (State or other jurisdiction of incorporation or organization) |  | 22-2554535
(I.R.S. Employer Identification No.)
|-------------------------------------------------------------------------- |  | -----------------------------------------------

|7 Ridgedale Avenue, Cedar Knolls,
New Jersey 07927


_________________


(Address of Principal Executive Office,
including Zip Code)


(973) 267-0088


_________________


(Registrants telephone number
including area code)




SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF
THE ACT:


NONE


SECURITIES REGISTERED
PURSUANT TO SECTION 12(g) OF THE ACT:


Common Stock, $.01 par value


(Title of Class)







Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.


Yes     X
          
          
No.




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


Indicate
by check mark whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange act of 1934). 
    Yes     
          
          
No.     X




The aggregate market value of the
registrant's common stock held by non-affiliates of the registrant, computed by reference to the price at which the
common stock was last sold, or the average bid and asked price of such common stock, as of the last business day
of the registrant's most recently completed second fiscal quarter, is $6,335,752.


At
February 28, 2003, 6,388,188 shares of the registrant's common stock were outstanding.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|TABLE OF CONTENTS
|-----------------

|         | Item | Page                                                                                                       
|-------- | ---- | -----------------------------------------------------------------------------------------------------------
|
|PART I   |      | 1.     Business                                                                                            
|         |      | 2.     Properties                                                                                          
|         |      | 3.     Legal Proceedings                                                                                   
|         |      | 4.     Submission of Matters to a Vote of Security Holders                                                 
|PART II  |      | 5.     Market for the Registrants Common Equity
        and Related Shareholder Matters                   
|         |      | 6.     Selected Financial Data                                                                             
|         |      | 7.     Managements Discussion and Analysis of
        Financial Condition and Results of Operations       
|         |      | 7A.  Quantitative and Qualitative Disclosure About
Market 
        Risk                                    
|         |      | 8.     Financial Statements and Supplementary Data                                                         
|         |      | 9.     Changes in and Disagreements with Accountants
        on Accounting and Financial Disclosure        
|PART III |      | 10.   Directors and Executive Officers of the Registrant                                                   
|         |      | 11.   Executive Compensation                                                                               
|         |      | 12.   Security Ownership of Certain Benefical
        Owners and Management and Related Shareholder Matters
|         |      | 13.   Certain Relationships and Related Transactions                                                       
|         |      | 14.   Controls and Procedures                                                                              
|PART IV  |      | 15.   Exhibits, Financial Statement
Schedules and Reports on Form 8-K                                      

|                             |  | 
|---------------------------- |  | 
|EXHIBIT INDEX                |  | 
|FINANCIAL DATA AND SCHEDULES |  | 
|SIGNATURES                   |  | 
|CERTIFICATIONS               |  | 

---

|PART I


Item 1.     Business.


General


AlphaNet
Solutions, Inc. is an information technology (IT) professional services firm providing a
range of outsourced solutions in two major IT practice areas: IT Operations and Learning
Solutions. IT Operations includes: AlphaNet Technology and Outsourcing
SolutionsSM, which delivers IT projects and services around networks, servers,
desktops, storage, and information security; and AlphaNet Service Desk
SolutionsSM, which delivers services such as monitoring, management, hosting,
and helpdesk support for a wide variety of applications. AlphaNet Learning
SolutionsSM offers advanced technical training and management development
training through custom training programs, classroom instruction, and certification
programs. Together, these solutions help our clients reduce costs and create value by
leveraging our IT expertise rather than developing their own in-house capabilities.


Our company was incorporated in the State of New Jersey in 1984 under the name AlphaTronics Associates,
Inc.  In December 1995, we changed our name to AlphaNet Solutions, Inc.  The address of our principal executive
offices is 7 Ridgedale Avenue, Cedar Knolls, New Jersey 07927, and our telephone number is (973) 267-0088.


Our
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
and amendments to those reports filed or furnished to the Securities and Exchange
Commission are available free of charge on our Internet website,
www.alphanetsolutions.com, under Investor Info, as soon as reasonably
practicable after we electronically file such material with, or furnish it to, the
Securities and Exchange Commission.


AlphaNet
Solutions, AlphaNet Technology and Outsourcing Solutions, AlphaNet
Service Desk Solutions, AlphaNet Learning Solutions,
FlexiMon, and our logo are marks of our company. All other trade names,
trademarks or service marks appearing in this Annual Report on Form 10-K are the property
of their respective owners and are not the property of our company.


Forward Looking
Statements


Certain
statements are included in this Annual Report on Form 10-K which are not historical and
are forward-looking within the meaning of The Private Securities Litigation
Reform Act of 1995 and may be identified by such terms as continuing,
plan, goal, expect, believe,
may, will, and intend or similar terms. These
forward-looking statements may include, without limitation, statements regarding possible
future growth in the IT markets, the status of the trends favoring outsourcing of
management information systems (MIS) functions by large and mid-sized companies, the
anticipated growth and higher margins in the professional services component of our
business, the timing of the development and implementation of our companys new
service offerings and the utilization of such services by our customers, and trends in
future operating performance. Such forward-looking statements are subject to risks and
uncertainties, including, without limitation:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  | the
significant decline in demand for our services due to the current slowdown in IT spending;
| |  |  |  | - |  | ----------------------------------------------------------------------------------------------

| |  |  |  |  |  | frequent
changes in the executive management of our company and the risks associated with such
changes;
| |  |  |  | - |  | -------------------------------------------------------------------------------------------------------

| |  |  |  |  |  | the repositioning of our company as an IT professional services firm and all expected and
unexpected costs and events related to such repositioning, including, among other things,
| |  |  |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  |  | the
substantial  variability of our quarterly  operating results caused by a variety
     of factors, some of which are not in our control,
| |  |  |  |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  |  | intense
competition from other IT service providers,
| |  |  |  |  | - |  | ----------------------------------------------------

| |  |  |  |  |  |  | the
short-term  nature of our customers'  commitments,  with most of our client contracts
being terminable                            by our customers for convenience,
| |  |  |  |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  |  | patterns
of capital spending by our customers,
| |  |  |  |  | - |  | ----------------------------------------------

| |  |  |  |  |  |  | the
timing and size of customer contracts and deployments,
| |  |  |  |  | - |  | ----------------------------------------------------------

| |  |  |  |  |  |  | the
ability of our company to maintain its vendor certifications,
| |  |  |  |  | - |  | -----------------------------------------------------------------

| |  |  |  |  |  |  | the
timing and size of new customer contracts and projects,
| |  |  |  |  | - |  | -----------------------------------------------------------

| |  |  |  |  |  |  | competitive
pricing factors,
| |  |  |  |  | - |  | ----------------------------

| |  |  |  |  |  |  | market
factors affecting the availability of qualified technical personnel,
| |  |  |  |  | - |  | ---------------------------------------------------------------------------

| |  |  |  |  |  |  | the
timing of and customer response to our new service offerings,
| |  |  |  |  | - |  | -----------------------------------------------------------------

| |  |  |  |  |  |  | changes
in trends affecting outsourcing of IT services, and
| |  |  |  |  | - |  | -----------------------------------------------------------

| |  |  |  |  |  |  | disruption
in sources of supply;
| |  |  |  |  | - |  | --------------------------------

| |  |  |  |  |  | changes
in personnel and other operating costs;
| |  |  |  | - |  | -----------------------------------------------

| |  |  |  |  |  | industry
and general economic conditions;
| |  |  |  | - |  | -----------------------------------------

| |  |  |  |  |  | changes
in technical personnel, realized billing, and utilization rates;
| |  |  |  | - |  | ------------------------------------------------------------------------

| |  |  |  |  |  | the
ability to develop,  market,  provide,  and achieve  market  acceptance  of new and
 existing  service                   offerings to new and existing customers;
| |  |  |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  | our
ability to attract, hire, train, and retain qualified technical personnel;
| |  |  |  | - |  | ------------------------------------------------------------------------------

| |  |  |  |  |  | our
substantial reliance on a concentrated number of key customers;
| |  |  |  | - |  | -------------------------------------------------------------------

| |  |  |  |  |  | uncertainties
relating to potential acquisitions, if any, made by our company, such as our
ability to integrate acquired operations and retain key customers and personnel of the
acquired business;
| |  |  |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2
|-

---

| |  |  |  |  |  | our
reliance on the continued services of key executive officers and salespersons; and
| |  |  |  | - |  | --------------------------------------------------------------------------------------

| |  |  |  |  |  | our
ability to maintain  our  compliance  with the listing  requirements  for the Nasdaq
 national  market                   system.
| |  |  |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------

|These
risks and uncertainties could cause actual results to differ materially from results
expressed or implied by forward-looking statements contained in the document. These
forward-looking statements speak only as of the date of this document.


Industry Background


Information
Technology (IT) has become increasingly critical to business success. The rapidly changing
IT landscape requires organizations to implement, utilize, and maintain systems offering
varied levels of reliability, scalability, availability, and manageability. The following
client and industry trends are influencing the current direction of IT:


Client Trends:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  | Concentration
on staff and cost reductions
| |  |  |  | - |  | ------------------------------------------

| |  |  |  |  |  | Non-expansion
mode, outsourcing to augment internal support
| |  |  |  | - |  | -----------------------------------------------------------

| |  |  |  |  |  | Optimization
of previous IT investment
| |  |  |  | - |  | --------------------------------------

| |  |  |  |  |  | Increasing
complexity, sophistication, and conveyance of IT products and services
| |  |  |  | - |  | ---------------------------------------------------------------------------------

| |  |  |  |  |  | Return-on-investment
decision making for IT
| |  |  |  | - |  | -------------------------------------------

Industry Drivers:

| |  |  |  |  |  | Competition
for market share due to reduced demand for IT products and services
| |  |  |  | - |  | -------------------------------------------------------------------------------

| |  |  |  |  |  | Distributed
enterprises moving to the web
| |  |  |  | - |  | -----------------------------------------

| |  |  |  |  |  | Internet,
wireless, web appliances and information storage
| |  |  |  | - |  | ----------------------------------------------------------

| |  |  |  |  |  | Information
security
| |  |  |  | - |  | --------------------

| |  |  |  |  |  | Intense
competition in the markets for hardware and software
| |  |  |  | - |  | ------------------------------------------------------------

|IT Operations


Our
IT Operations practice is comprised of AlphaNet Technology and Outsourcing Solutions and
AlphaNet Service Desk Solutions.


3
|-------------------------------------------------------------------------------------------------------------------------------------------------

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|AlphaNet Technology and
Outsourcing SolutionsSM


AlphaNet
Technology and Outsourcing Solutions delivers IT operations services around networks,
servers, desktops, security, and storage. These services are delivered via selective
outsourcing agreements or on a project basis. We provide a broad range of professional
services, including:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  | Assessments, Architecture, and Design  Our business advisory services help clients
evaluate new and existing technology tools, processes, and standards and select those best
suited to meet their needs and solve their problems. We also help clients define their
business strategies.
| |  |  |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  | Rollouts and Migrations  We help clients roll out new operating systems and
applications across their enterprise on a local, regional, or national scale.
| |  |  |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  | Consolidations  We help clients assess their existing IT infrastructure to determine
and implement approaches to consolidate systems, resulting in simplified, less expensive,
and more effective infrastructures.
| |  |  |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  | Implementation  We provide complete project management services for complex
projects. Throughout all phases of the technology implementation process, from planning
and configuration through testing and handoff, we help our customers accelerate
deployment, simplify management, and reduce costs.
| |  |  |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

AlphaNet Service Desk
SolutionsSM

| |  |  |  |  |  | Help Desk  We provide on-site and remote help desk services as well as help desk
consulting. On-site and remote help desk services provide clients with an outsourced
service either at their facility or through our own and enable clients to leverage our
technical expertise, scalability, and infrastructure. On-site services include the
necessary people, processes, and technology for a help desk without the burden of managing
the service. For remote services, clients help desk calls are routed to our
facility, while the client retains control through a web-based interface, activity
reports, and customizable escalation procedures. We also help clients build, revamp,
extend, or transition their help desk services, integrating best practices in process
engineering, knowledge and incident management, metrics, evaluation, and communication.
| |  |  |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  | Break-Fix Maintenance  Our Emergency Response Team (ERT) Services provide
around-the-clock access to engineers with the highest level of certifications in most
network, server, desktop, and security environments. Our ERT teams are backed by
relationships with many of the leading manufacturers and suppliers in the market,
including Microsoft and Cisco. We offer multi-year fixed-fee contracts in which we
maintain a heterogeneous technology environment or contracts on a time and materials
basis.
| |  |  |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4
|-

---

| |  |  |  |  |  | Management Services  Our managed services include FlexiMonSM
Services, offered in partnership with eG Innovations, Managed Security Services, offered
in partnership with Computer Associates, and Managed Enterprise Storage Portal.
FlexiMon Services monitor IT services, including automated problem identification,
real-time end-user experience monitoring, and customization capabilities required to
effectively monitor all layers of IT infrastructures. Managed Security Services include
managed firewalls, virtual private networks, and intrusion detection and prevention, which
can be customized to meet each clients needs. Managed Enterprise Storage Portal is a
turnkey solution allowing each client to manage all its storage devices through one web
interface.
| |  |  |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Learning Solutions


AlphaNet Learning
SolutionsSM


Our
AlphaNet Learning Solutions practice is comprised of advanced technical training and
management development programs. Courses are offered by arrangement at clients
facilities, via the Internet, or at our three Learning Centers, located in Princeton,
Metro Park, and Cedar Knolls, New Jersey. Our Learning Centers are Prometric Authorized
Testing Centers, which provide independent testing services for industry certifications.


Advanced Technical
Training


We
are authorized and certified by Microsoft, Novell, and Citrix, to offer training classes
related to these vendors respective technologies. Training classes are utilized by a
variety of customers, including network administrators, MIS executives, professional and
administrative end-users, as well as our own employees. Many of the courses offered
provide attendees with the knowledge to earn specific professional certifications.


Management Development
Programs


We
offer management development programs that help participants develop general management
skills. Instruction includes courses in project management, communication effectiveness,
teambuilding, sales effectiveness, leadership, risk management, and change management.
Attendees at these courses primarily include mid- and upper-level managers.


Our
advanced technical training and management development programs are largely attended by
private enterprise professionals from mid-and upper-management. We have increased our
offerings of private custom corporate classes, which allows us to tailor training
specifically to meet the needs of our clients. At the same time, we have decreased our
schedule of programs available to the public in response to a constriction in demand for
public training classes as a result of the general economic downturn.




5
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|We
are a leading education affiliate of Boston University, authorized to offer technical,
critical skills, and management development programs, including project management
training for certification as a project management professional, under Boston
Universitys continuing education group.


We
are a member of United Training, a national consortium of Microsoft-certified technical
education centers offering technology training courses. Through participation in United
Trainings National Training Partnership Program, our clients are able to attend
training classes at pre-qualified partners locations throughout the United States.
We offer training at our New Jersey facilities both to our clients and to clients of other
members of the United Training consortium.


AlphaNet
Learning Solutions revenue is derived primarily from fees charged to corporate clients for
employee training.


The
Learning Solutions practice provides an ancillary benefit to our company by reducing our
cost to train our technical workforce while providing us with highly skilled consultants.


Product Sales


Beginning
in 1999, we began to exit from the product and product integration business, which
consisted of reselling computer and computer-related products, as well as performing
product integration work consisting of custom configuration of computer equipment. In
2002, we completed our exit of this business, and expect that our future business
operations will consist of our IT Operations and Learning Solutions practices described
above.


Sales and Marketing


We
currently focus our sales and marketing efforts on two target markets: (i) Fortune 1000
companies; and (ii) other large and mid-sized customers. Sales and marketing initiatives
were conducted with 19 employees as of December 31, 2002. Our direct sales and support
personnel provide account penetration and management, enhanced communications and
long-term relationship-building with our existing and potential customers. We focus our
sales and marketing efforts primarily in the New York, New Jersey and Philadelphia
metropolitan areas. Given the concentration of major corporations in these regions and the
trend toward outsourcing of IT services, we do not currently anticipate expanding the
geographic scope of our sales efforts.


Each
salespersons compensation is commission-based. Sales leads are derived from individual
business contacts and customer referrals from strategic partners, as well as available industry
research and reports. We also secure leads through internal telemarketing efforts, an outside
telemarketing agency, and via subscription to a lead referral program.





6
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Our
sales efforts are intended to focus on the business drivers of our clients
technology initiatives. We utilize our experienced senior network engineers and business
consultants with our direct sales personnel as part of our team approach to sales. Our
sales personnel also participate in training programs designed by manufacturers to
introduce their new and upgraded products and provide industry information and sales
technique instruction. We believe we maintain a competitive advantage by continually
educating our sales force on the latest business and technology sales techniques and
through the involvement of high-level business and technical personnel in the sales
process.


Customers


Our major customers in 2002 included:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               |                                
|------------------------------ | -------------------------------
|
|Kraft Foods                    | Matsushita Electric Corp.      
|Goldman Sachs & Co             | Bristol-Myers Squibb           
|Aventis Pharmaceuticals        | Fuji Photo Film USA, Inc.      
|MTA New York City Transit      | PSE&G                          
|Mercedes-Benz of North America | Automated Data Processing, Inc.

|During
2002, Kraft Foods, Goldman Sachs & Co., Aventis Pharmaceuticals, and MTA New York City
Transit accounted for 17%, 12%, 12%, and 10%, respectively, of net sales. During 2001,
Goldman Sachs & Co., Kraft Foods, FleetBoston Financial and PSE&G accounted for
15%, 13%, 13% and 11% respectively, of net sales. No other customer accounted for more
than 10% of our net sales during the year ended December 31, 2002. Sales to our top ten
customers totaled approximately 76%, 76%, and 73% of net sales for the years ended
December 31, 2002, December 31, 2001, and December 31, 2000, respectively.


In
December 1997, we entered into a four-year, $20.4 million contract with New York City
Transit, an agency of the Metropolitan Transportation Authority of the State of New York
(the MTA) to project manage, furnish and install local and wide-area computer
network components throughout the MTAs over 200 locations, including subway
stations, electrical power substations and a diverse group of train car maintenance
facilities. The aggregate amount of this contract was subsequently increased to $20.6
million. See Managements Discussion and Analysis of Results of Operations and
Financial Condition. On March 31, 2003, we entered into a settlement agreement with
the MTA pursuant to which we agreed to dismiss our appeal in consideration of the
MTAs agreement that: (i) the MTA Contract was completed as of January 31, 2003,
subject to warranty claims; (ii) in the event the MTA were to request services, such
services will be subject to change order authorizations and negotiated pricing; (iii) we
will be paid amounts remaining due under the MTA Contract subject to review and processing
by the MTA and satisfactory completion of our warranty obligation, and (iv) liquidated
damages due to project delays is $300,000.




7
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|A
significant reduction in our clients use of our services could have a material
adverse effect on our results of operations. There can be no assurance that our largest
customers will continue to use our services, or that use of our services by such customers
will continue at their previous levels. Our service contracts generally are terminable
upon relatively short notice. There can be no assurance that our service customers will
continue to enter into service contracts with us or that existing contracts will not be
terminated.


During
2002, 51% of our business was derived from four clients: Kraft Foods, Goldman Sachs &
Co., Aventis Pharmaceuticals and MTA New York City Transit. With the exception of warranty
and change-order work, our contract with MTA New York City Transit was concluded effective
January 31, 2003. The loss of the business associated with one or more of these clients
other than MTA New York City Transit could have a material adverse impact on our business.


Suppliers


From
time to time we retain the services of technical consultants/contractors, either
individually or through employment agencies, to help staff our client engagements. As of
December 31, 2002, we were using the services of approximately 23 such contractors.


Competition


The
markets for our IT Operations and Learning Solutions services are intensely competitive.
We believe that the principal competitive factors in the market include breadth of
offerings, price, customer service, technical expertise, the availability of skilled
technical personnel, adherence to industry standards, financial stability and reputation.
Our competitors include specialty consulting and other IT service providers, established
computer product manufacturers, and systems integrators. Many of our current and potential
competitors have longer operating histories and financial, sales, marketing, technical and
other resources substantially greater than ours. As a result, our competitors may be able
to adapt more quickly to changes in customer needs or to devote greater resources to the
sale of professional services in our areas of expertise. Such competitors could also
attempt to increase their presence in our markets by forming strategic alliances with
other competitors or customers of our company, offer new or improved services to our
customers, or increase their efforts to gain and retain market share through competitive
pricing. As the market for IT services has matured, price competition has intensified and
is likely to continue to do so. This has resulted in continued industry-wide downward
pricing pressure. Such competition in IT professional services has adversely affected, and
may adversely affect, our gross profits, margins and results of operations in the future.
We believe there are low barriers to entry into these markets, which enable new
competitors to offer competing products and services. The general economic downturn
experienced by the IT industry has led to an increase in the availability of seasoned
professionals with substantial experience at lower wages and salaries than ever before,
thus lowering the barriers to entry into our service market. There can be no assurance
that we will be able to continue to compete successfully with existing or new competitors.





8
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|We
believe that we compete effectively by providing expert professional services. We have
been a proven resource in the IT industry for over 19 years, have sufficient financial
resources, and a significant number of trained and certified engineers and consultants. We
also believe that we distinguish ourselves from our competition on the basis of our
technical expertise, competitive pricing, direct sales strategy and customer-service
orientation. Based on the level of our recurring business with many of our large
customers, we believe that we compare favorably to many of our competitors with respect to
the principal competitive factors set forth above. There can be no assurance that we will
be able to continue to maintain these attributes.


Employees


As
of December 31, 2002, we employed 190 full-time employees, of whom 139 were technical
personnel, 19 were engaged in sales and marketing, and 32 were engaged in finance,
administrations, and management. As of December 31, 2001, we employed 257 full-time
employees, of whom 182 were technical personnel, 22 were engaged in sales and marketing,
and 53 were engaged in finance, administration and management. The total number of
technical personnel declined from 182 in 2001 to 139 in 2002. We implemented
reductions-in-force throughout 2002 due to lower-than-expected demand for technical
services.


None
of our employees are represented by a collective bargaining agreement. Substantially all
employees have executed an invention assignment and confidentiality agreement. We require
that all new employees execute such an agreement as a condition of employment. While there
is strong competition for experienced sales and marketing personnel and qualified
technical professionals, we believe that we have been successful in attracting and
retaining skilled and experienced personnel. We consider our relations with our employees
to be good.


Our
success depends in part on our ability to attract, hire, train and retain qualified
managerial, technical and sales personnel, particularly for high-end network services.
There can be no assurance that we will be successful in attracting and retaining the
technical personnel necessary to conduct and expand our operations successfully. Our
ability to continue to expand and broaden the service component of our business and
improve our results of operations could be materially adversely affected if we are unable
to attract, hire, train and retain qualified technical personnel.


Item 2.   Properties.


We
currently lease or sublease all of our facilities. We lease our headquarters in Cedar
Knolls, New Jersey, totaling approximately 38,000 square feet of office space. We are
currently consolidating and attempting to sublet a portion of our Cedar Knolls facility.
There can be no assurance that we will be successful in our efforts to sublease this
space. The current lease expires in September 2003 and contains renewal options for two
additional five-year terms. In November 2002, we informed the landlord that we do not
intend to renew this lease for an additional five-year term and are currently engaged in
discussions with the landlord concerning a possible lease extension of shorter duration
and a reduction in space. We will continue to evaluate our space needs as our business
requirements warrant.





9
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|We
leased additional office space in Cedar Knolls, New Jersey, totaling 4,699 square feet,
which we had sublet pursuant to a sublease agreement which expired in November 2002. We
did not renew the lease. We lease office space for a Learning Center in Iselin, New
Jersey, consisting of 6,710 square feet, which expires in June 2003, and in Princeton, New
Jersey, consisting of 1,542 square feet, which expires in December 2003. Other leased
office space includes a 3,360-square-foot storage center located in East Hanover, New
Jersey. We believe our headquarters, sales offices, Learning Center, and Support Center
are adequate to support our current level of operations.



Item 3.   Legal
Proceedings.


In
connection with our ongoing disputes with the MTA concerning a contract entered into with
the MTA in December 1997, we filed certain legal proceedings as further discussed in Item
7 of this Report.



On
March 4, 2003, we reached settlements in principle with plaintiffs in a lawsuit
previously filed by a current and two former employees in New Jersey Superior Court,
Bergen County (Law Division) against us and certain of our current and former employees
alleging employment-related claims. The parties are currently engaged in the negotiation
of definitive settlement agreements. The plaintiffs were seeking compensatory and punitive
damages, attorneys fees and costs of suit. The litigation was in the early stages of
discovery when the settlements in principle were reached through court-ordered mediation.
The settlements are covered by insurance.


We
have no knowledge of any other material litigation to which we are a party or to which any
of our property is subject.


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


No
matter was submitted to a vote of the security holders during the fourth quarter of the
fiscal year ended December 31, 2002.



10
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|PART II


Item 5.   Market for the
Companys Common Equity and Related Shareholder Matters.


Our
common stock is traded on the Nasdaq National Market under the symbol ALPH.
The following table sets forth, for the periods indicated, the high and low sales prices
per share of common stock as reported by the Nasdaq National Market.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        | QUARTER ENDED2001
|----------------------- | -----------------
|
|March 31 (1st qtr.)     |                  
|June 30 (2nd qtr.)      |                  
|September 30 (3rd qtr.) |                  
|December 31 (4th qtr.)  |                  
|                        |                  

|                        | QUARTER ENDED2002
|----------------------- | -----------------
|
|March 31 (1st qtr.)     |                  
|June 30 (2nd qtr.)      |                  
|September 30 (3rd qtr.) |                  
|December 31 (4th qtr.)  |                  
|                        |                  

|The
prices shown above represent quotations among securities dealers, do not include retail
markups, markdowns or commissions and may not represent actual transactions.



On
February 28, 2003, the closing sale price for our common stock on the Nasdaq National
Market was $1.30 per share. As of February 28, 2003, the approximate number of holders of
record of our common stock was 284 and the approximate number of beneficial holders of our
common stock was 2,030.


Since
going public in 1996, we have not paid any dividends.



11
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Item 6.   Selected Financial Data.


The
selected consolidated financial data presented below has been derived from our
consolidated financial statements as audited by PricewaterhouseCoopers LLP, independent
accountants. Consolidated balance sheets at December 31, 2002 and 2001 and the related
consolidated statements of operations, changes in shareholders equity and cash flows
for each of the three years in the period ended December 31, 2002 and notes thereto appear
elsewhere in this Report. The selected financial data for the years ended December 31,
1999 and 1998 has been derived from audited financial statements which are not included in
this Report.



The
selected consolidated financial data set forth below should be read in conjunction with,
and is qualified in its entirety by our consolidated financial statements, related notes
and other financial information included elsewhere in this Annual Report on Form 10-K.


12
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|                                       | 
|-------------------------------------- | 
|
|                                       | 
|
|                                       | 
|
|Statement of Operations Data:          | 
|Net sales:                             | 
|Product                                | 
|Professional services                  | 
|                                       | 
|Cost of sales:                         | 
|Product                                | 
|Professional services (1)              | 
|Other  (2)                             | 
|                                       | 
|Gross profit:                          | 
|Product                                | 
|Professional services (1)              | 
|Other  (2)                             | 
|                                       | 
|Operating expenses:                    | 
|Selling, general & administrative (3)  | 
|Write-off of goodwill (4)              | 
|(Recovery) write-off of                | 
|capitalized asset (5)                  | 
|                                       | 
|Operating income (loss)                | 
|nex-i.com / Eureka loss (6)            | 
|Other income (expense), net (7)        | 
|Income (loss) before income taxes      | 
|                                      
|Provision benefit for income taxes (8) | 
|Net income (loss)                      | 
|                                       | 
|Earnings (loss) per share - Basic      | 
|Weighted average shares outstanding    | 
|                                      
|                                       | 
|Earnings (loss) per share - Diluted    | 
|Weighted average shares outstanding    | 
|                                       | 

---

|                                  |  |         |  |         | 
|--------------------------------- |  | ------- |  | ------- | 
|
|                                  |  |         |  |         | 
|                                  |  | 2002    |  | 2001    | 
|                                  |  |         |  |         | 
|                                  |  |         |  |         | 
|
|Balance Sheet Data:               | 
|Working capital                   |  | $25,511 |  | $23,787 | 
|Total assets                      |  | 33,183  |  | 34,312  | 
|Long term debt and capital lease  | 
|obligations, less current portion |  | --      |  | --      | 
|Shareholders' equity              |  | 27,140  |  | 26,342  | 
|                                  |  |         |  |         | 

|(1) |  | In 2002, we recorded charges relating to severance paid to professional
               service employees in the amount of $191,000. In 2001, we recorded charges
               relating to severance paid to professional service employees in the amount of
               $342,000.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | In 2000, we recorded charges of $4.9 million which included a $4.4 million
               charge for our estimated cost to complete our contract with the MTA, and $0.5
               million associated with unrecoverable vendor charges, and in 2002, we reduced
               these liabilities by approximately $0.6 million, of which $0.5 million related
               to a settlement with the New York City Transit Authority and $0.1 million
               related to vendor charges associated with the discontinuation of our product
               business.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | In 2002, we incurred net charges totaling $0.8 million, consisting of $0.4
               million of severance and other compensation payments, $0.1 million relating to
               the consolidation of our distribution and configuration facility, and $0.6
               million in sales recruiting and consulting costs, less $0.3 million relating
               primarily to a reduction in liabilities due to the discontinuation of our
               product business. In 2001, we incurred charges totaling $1.6 million, consisting
               of $1.0 million of severance and other compensation payments, $0.3 million of
               facility consolidation costs, and $0.3 million in consulting costs. In 2000,
               charges totaled $1.9 million and included $1.2 million of severance and other
               special compensation payments, and $0.7 million relating to a provision for
               uncollectable accounts receivable related to, among other things, various
               receivables from our telecom business, which was sold in that year. In 1999, we
               recorded a provision for uncollectible accounts receivable of $1.5 million,
               relating to one significant customer.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | In 2001, we wrote-off our legacy product business goodwill relating to the
               Lande, Lior, and Omnitech acquisitions.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Reflects a write-off in 1998 of capitalized software and consulting fees
               associated with our termination of an integrated accounting software program and
               implementation thereof. In 1999, we were successful in recovering $139,000 of
               such costs.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | In January 2000, we acquired a 30% equity interest (on an as converted basis) in
               nex-i.com Inc. (nex-i.com) for $1.8 million and in May 2000 incurred
               an additional cost of $416,000 from the issuance of warrants to an advisor in
               connection with such investment. Our equity interest in nex-i.com was
               subsequently reduced as a result of an additional financing of nex-i.com in July
               2000, in which we did not participate. During 2000, we recognized losses to the
               extent of our investment based upon our preferred stock funding interest and
               such losses amounted to approximately $2.2 million. In February 2001, a
               wholly-owned subsidiary of Eureka Broadband Corporation, a Delaware corporation
               (Eureka), merged with and into nex-i.com, in connection with which
               merger we received a series of preferred securities of Eureka in exchange for
               our equity securities of nex-i.com and loaned $382,000 to Eureka. In July 2001,
               the Preferred Securities and Loan were converted to common stock. We wrote-off
               the investment of $382,000 in the fourth quarter of 2001 after Eurekas
               principal operations were negatively impacted by the events of September 11,
               2001.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13
|--

---

|(7) |  | In August 2001, certain of our employees joined EDS, L.L.C. in connection with
               the selection of EDS, L.L.C. as a provider of Help Desk services previously
               provided by us to one of our customers. We recorded fees received from EDS in
               connection with its hiring of such employees amounting to approximately $0.4
               million; and such fees were recorded as other income. In the third quarter of
               2000, we recorded a gain of $370,000 relating to the settlement of litigation
               related to a receivable.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) |  | In 2002, we recognized a total federal income tax benefit of $4.4 million,
               including a reduction in our federal income tax valuation allowance of $3.3
               million.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14
|--

---

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


General


We
are an information technology (IT) professional services firm providing a range of
outsourced solutions in two major IT practice areas: IT Operations and Learning Solutions.
Our IT Operations include: AlphaNet Technology and Outsourcing SolutionsSM,
which delivers IT projects and services around networks, servers, desktops, storage, and
information security; and AlphaNet Service Desk SolutionsSM, which delivers
services such as monitoring, management, hosting, and helpdesk support, via its operations
center, for a wide variety of applications. AlphaNet Learning SolutionsSM
offers advanced technical training and management development training through custom
training programs, classroom instruction, and certification programs. Together, these
solutions help our clients reduce costs and create value by leveraging our IT expertise
rather than developing their own in-house capabilities.


Over
the past few years, ending in 2002, we have shifted our business model from a product
reseller and integration business to a model that focuses on higher-margin professional
services. As a result of this shift, our product sales and integration services declined
significantly. In 2001, we wrote off goodwill of $1.9 million related to the product
business in accordance with the provisions of SFAS 121.


In
2002, we continued to face reduced manpower requirements due to an industrywide shift in
IT spending, including a pronounced slowdown in IT spending, principally resulting from
the continued economic downturn. In 2002, we reduced the number of our full-time employees
from approximately 250 employees at January 1, 2002 to 190 employees at December 31, 2002
as a result of our reduced revenue stream.


Many
companies reduced their IT expenditures in 2002 due to the continuing economic downturn.
This reduction adversely impacted our business, particularly our IT staffing and
professional services operations. We have responded to these challenges by eliminating
non-core service offerings and focusing on our core competencies in IT operations and
learning solutions, with particular emphasis on outsourcing solutions to help meet our
clients technology and management development needs in a more cost-effective manner.
We have also focused on revenue generation by rebuilding our sales force, implementing
improved sales management processes and revamping our organizational structure, sales
compensation and incentive programs to better align our practice groups and compensation
metrics with our goals of revenue growth, client satisfaction and professional staff
utilization levels.


Our
cost of sales includes primarily, in the case of product sales, the cost to us of products
acquired for resale and, in the case of professional services revenue, salaries and
related expenses for billable technical personnel. Our selling, general and administrative
costs consist of operating expenses. The most significant operating expense is personnel
and related costs. Personnel costs include direct sales, marketing and sales support,
executive management, practice executives, and general and administrative personnel costs.


15
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|During
the last three fiscal years, due to increased operational efficiencies, our gross margins
earned on professional services revenues increased to 30.8% for 2002 from 28.4% for 2001
and 28.9% for 2000. We believe that our ability to provide a broad range of technical
services, coupled with our long-term relationships with large customers, provide us with
the potential to grow our professional services business.



Our
net sales, gross profit, operating income and net income and losses have varied
substantially from quarter to quarter and are expected to do so in the future. Many
factors, some of which are not within our control, have contributed and may in the future
contribute to fluctuations in operating results. These factors include:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  | the
short-term nature of our customers commitments;
| |  |  |  | - |  | ----------------------------------------------------

| |  |  |  |  |  | patterns
of capital spending by customers;
| |  |  |  | - |  | ------------------------------------------

| |  |  |  |  |  | the
timing, size, and mix of product and service orders and deliveries;
| |  |  |  | - |  | -----------------------------------------------------------------------

| |  |  |  |  |  | the
timing and size of new projects;
| |  |  |  | - |  | ------------------------------------

| |  |  |  |  |  | pricing
changes in response to various competitive factors;
| |  |  |  | - |  | -----------------------------------------------------------

| |  |  |  |  |  | market
factors affecting the availability of qualified technical personnel;
| |  |  |  | - |  | ---------------------------------------------------------------------------

| |  |  |  |  |  | timing
and customer acceptance of new product and service offerings;
| |  |  |  | - |  | --------------------------------------------------------------------

| |  |  |  |  |  | changes
in trends affecting outsourcing of IT services;
| |  |  |  | - |  | -------------------------------------------------------

| |  |  |  |  |  | disruption
in sources of supply;
| |  |  |  | - |  | --------------------------------

| |  |  |  |  |  | changes
in product, personnel, and other operating costs; and
| |  |  |  | - |  | -------------------------------------------------------------

| |  |  |  |  |  | industry
and general economic conditions.
| |  |  |  | - |  | -----------------------------------------

|Our
operating results have been, and we expect that they will continue to be, impacted by
changes in technical personnel billing and utilization rates. Many of our costs,
particularly costs associated with professional services and revenue, such as
administrative support personnel and facilities costs, are primarily fixed costs. Our
overall expense levels are based in part on expectations of future revenues.


Critical Accounting
Policies and Estimates


Our
company makes certain judgments and estimates in preparing our financial statements. The
most significant accounting policies and estimates include revenue recognition policies,
and estimates, such as assessing the collectibility of accounts receivable, the
realizability of tax assets, MTA contract costs and the carrying value of goodwill. Actual
results could differ from those estimates.


Revenue Recognition


Professional
service revenue is recognized when the applicable services are rendered. We recognize
revenue on service contracts on a prorated basis over the life of the contracts. Revenues
under our contract with the MTA are recognized on the percentage-of-completion method
based on total costs incurred relative to total estimated costs. Fees related to our
training programs are recognized over the duration of the applicable training program or
when our contractual obligation expires. We recognize sales of products when title and
risk of loss pass to the customer, which takes place either when the products are shipped
or upon delivery to the customer based upon the sales terms of the respective
transactions.


16
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|MTA Contract


In
December 1997, we entered into a $20.4 million contract with the MTA (the MTA
Contract) to furnish and install local and wide-area computer network components,
including network and telecommunications hardware, software and cabling throughout the
MTAs over 200 locations. The aggregate amount of the MTA Contract was subsequently
increased to $20.6 million. We have been the prime contractor on this project with
responsibility for project management, systems procurement, and installation. The work
provided is in contiguous locations and payment, including a contractually-mandated
holdback equal to 5% of total contract value for one year following completion of the
contract, is predicated upon achieving specific milestone events. In the event of default,
in addition to all other remedies at law, the MTA reserved the right to terminate our
services and complete the MTA Contract itself at our cost. In the event of our unexcused
delay, under terms of the contract, we may be obligated to pay, as liquidated damages, the
sum of $100 to $200 per day, per site. The MTA Contract is a fixed unit price contract,
and the quantities are approximate, for which the MTA has expressly reserved the right,
for each item, to direct the amount of equipment and related installation be increased,
decreased, or omitted entirely on 30 days notice. The MTA has the right to suspend the
work on 10 days notice for up to 90 days and/or terminate the contract, at any time, on
notice, paying only for the work performed to the date of termination. The project is
subject to the prevailing wage rate and classification for telecommunications workers, as
determined by the New York City Comptrollers office, over which we have no control,
and which is generally adjusted in June of each year.


We
performed services and supplied products to the MTA since the inception of the MTA
Contract. The work performed at MTA sites has required greater than the originally
estimated labor and other costs to complete. In May 1999, we submitted a formal request to
the MTA for equitable adjustment in the amount of approximately $1.5 million and for a
time extension. This request was supplemented with a further submission in October 1999.
In January 2000, the Project Manager for the MTA Contract denied our request, thereby
triggering our right under the contract to appeal the Project Managers denial to the
MTAs Dispute Resolution Office (the DRO). We filed a Notice of Appeal
with the DRO in February 2000, and pursuant to the DROs request, filed further
written submissions and participated in an arbitral session with the DRO subsequent
thereto. In November 2000, the DRO rendered a written decision denying in full our Request
for Equitable Adjustment and Time Extension. Pursuant to the terms of the MTA Contract, in
March 2001, we appealed the DROs denial of our Request to the New York Supreme Court
(the Court). On April 22, 2002, the Court rendered it decision on our appeal,
denying all of our claims for review of the determination made by the DRO. On May 31,
2002, we filed an appeal of this decision with the New York Supreme Court, Appellate
Division. In February 2003 we perfected this appeal through the filing of brief with the
New York Supreme Court, Appellate Division.




17
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|On
March 31, 2003, we entered into a settlement agreement with the MTA, pursuant to which we
agreed to dismiss our appeal in consideration of the MTAs agreement that: (i) the
MTA Contract was completed as of January 31, 2003, subject to warranty claims; (ii) in the
event the MTA were to request services, such services will be subject to change order
authorizations and negotiated pricing; (iii) we will be paid amounts remaining due under
the MTA Contract subject to review and processing by the MTA and satisfactory completion
of our warranty obligation; and (iv) liquidated damages due to project delays is
$300,000.


On
July 19, 2000, the MTA advised us of a determination by the Bureau of Labor Law (the
Bureau) of the New York City Comptrollers office, communicated to the
MTA by letter from the Bureau dated June 22, 2000, that, as of July 1, 2000, the labor
classification for all low voltage cabling carrying voice, data, video, or any combination
thereof, is electrician. The Bureaus determination is based on a New York State
Supreme Court Appellate Division decision dated May 18, 2000. The workers we currently and
historically used to perform cabling work have been classified as telecommunication
workers. We believe it is probable that the Bureaus determination will apply to our
cabling activities under the contract, thereby likely requiring the reclassification of
its telecommunications workers as electricians retroactive to July 1, 2000. Since the
prevailing wage for electricians is substantially higher than that for telecommunications
workers, we expect to incur materially increased labor costs as a result of the
Bureaus determination. On October 16, 2000, the MTA Project Manager denied our
request for a change order to compensate us for the increased costs we expect to incur in
connection with the reclassification of certain of our telecommunications workers as
electricians. On January 19, 2001, we initiated a dispute within the meaning
of the applicable federal regulations governing the MTA Contract by filing a complaint
with the United States Department of Labor (the Department of Labor). In its
complaint, we requested that the Department of Labor adjudicate this dispute and either
issue a determination affirming that the prevailing wage rate for telecommunications
workers, as originally specified by the MTA, is the applicable rate for this project, or
directing the MTA to compensate us for the change in wage classification made during the
performance of the contract in violation of federal regulations. By letter dated March 12,
2001, the Department of Labor advised us that, without knowing which, if any, federal wage
decision was included in the MTA Contract, it is unable to make a determination that any
violation of federal labor law has occurred.


On
February 12, 2002, we were informally advised by the Department of Labor that the
Department has concluded that no federal wage determinations were included or required to
be included in the MTA Contract because the project has insufficient federal funding to
trigger the federal wage regulations. The Department of Labor asserts that our claim is
not one which is governed by federal regulation or one over which the Department is
willing to exercise jurisdiction.




18
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|On
April 23, 2002, we received a letter from the Department of Labor dated April 9, 2002
stating that the Department does not have jurisdiction over the dispute because it was
advised by the New York City Comptrollers office that no federal funds were provided
for the MTA Contract. We have been advised that there are legitimate grounds on which the
Department of Labors position, as well as the above-referenced wage reclassification
may be challenged. In March 2003, we met with the Comptrollers office to discuss
this matter and are currently evaluating an appropriate course of action. There can be no
assurance we will be successful, either in whole or in part, in our efforts.


Based
upon the settlement of the MTA contract disputes and our current estimate for our
warranty obligation and the labor wage rate matter discussed above, we reduced our
MTA contract-related reserves by $500,000 in the fourth quarter of 2002.


Goodwill


In
September 2001, we acquired certain of the assets of the ICM Education Division of
Computer Horizons Corp. for $510,950 in cash. The acquisition was accounted for as a
purchase and was included in our Results of Operations in the period ended September 30,
2001. In accordance with this purchase agreement, we made a post-closing adjustment and
recorded additional goodwill of $135,000 in connection with the acquisition in the third
quarter of 2002.


In
accordance with the provisions of Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets, we evaluated the recoverability of the
goodwill associated with this acquisition. We used publicly available information to
estimate the fair value of this business, as well as estimated the future discounted cash
flows of this business. Based upon this review, we concluded that no impairment loss
existed at December 31, 2002. The most critical element of this estimate relates to our
ability to sustain sufficient revenues associated with this business. The market for
training services is highly competitive, and we are investing our resources to enhance the
business prospects of this operation. If these investments are not successful, or other
factors cause a reduction in training revenues, or increase in costs associated with this
business, a future impairment loss may be recognized.


Income Taxes


The
Company has provided a valuation allowance against its deferred tax assets due to the
uncertainty of their realization. At such time as it is determined that it is more likely
than not that the deferred tax assets are realizable, the valuation allowance will be
reduced. The reduction in the valuation allowance could have a material positive affect on
our net results in the period in which such determination is made. In addition, our
effective tax rate would likely increase significantly in periods subsequent to the
initial reversal of the valuation allowance.




19
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Accounts Receivable


The
Company regularly reviews the collectibility of accounts receivable due from clients. It
makes estimates of expected realization of these assets. There can be no assurance that
additional charges will not be required as a result of future reviews.


Results of Operations


The
following table sets forth, for the periods indicated, certain financial data as a
percentage of net sales, and the percentage change in the dollar amount of such data
compared to the prior year:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                             | Percentage of Net SalesYear Ended December 31, | PercentageIncrease(Decrease)
|-------------------------------------------- | ---------------------------------------------- | ----------------------------
|                                             |                                                |                             
|
|Net sales:                                   |                                                |                             
|Product                                      |                                                |                             
|Professional Services                        |                                                |                             
|                                             |                                                |                             
|Cost of sales                                |                                                |                             
|Gross profit                                 |                                                |                             
|Operating expenses:                          |                                                |                             
|Selling, general & administrative            |                                                |                             
|Write-off of Goodwill                        |                                                |                             
|                                             |                                                |                             
|Operating loss                               |                                                |                             
|Other income (expense), net                  |                                                |                             
|Income (loss) before income taxes            |                                                |                             
|Provision (benefit)  for income taxes        |                                                |                             
|Net income (loss)                            |                                                |                             
|Gross profit (as a percentage of related net |                                                |                             
|sales):                                      |                                                |                             
|Product                                      |                                                |                             
|Professional services                        |                                                |                             

|20
|--

---

|Comparison of Years Ended December 31, 2002 and 2001


Net
Sales:  Net sales decreased by $26.0 million to $25.9 million for the 12 months ended
December 31, 2002, from $51.9 million for the 12 months ended December 31, 2001. The
decrease of $26.0 was primarily due to a reduction in product sales of $12.8 million and a
reduction in professional service revenues of $13.2 million. The decline in product sales
is attributable to our decision to exit the product business due to the low margins
associated with that business. The downturn in technology spending has adversely impacted
our professional service revenues. Increased competition, including from such firms as
Siemens, EDS, and IBM Global Services, as well as smaller, local and regional firms, has
resulted in significant reductions in the services we provide to certain of our key
customers. We have been unable to secure sufficient new projects to offset this decline
and, accordingly, our professional service revenues have declined. Revenue under the MTA contract (consisting of both
product and services) amounted to approximately $2.6 million and $3.7 million for the years ended December 31,
2002 and 2001, respectively.


Gross
profit:Gross profit decreased by $4.4 million to $7.8 million for the 12 months ended
December 31, 2002, from $12.2 million for the 12 months ended December 31, 2001. In 2002,
gross profit was favorably impacted from adjustments in the aggregate amount of $569,000
associated with the settlement of contract disputes with the MTA which resulted in a
reduction of recorded contract liabilities of $500,000, and a reduction of liabilities of
$69,000 related to vendor charges due to the discontinuation of our product business. This
decrease was attributable to the decline in both product sales and professional service
revenue during the 12 months ended December 31, 2002. Gross profit increased by 6.9% to
30.3% in the 12 months ended December 31, 2002, up from 23.4% in the 12 months ended
December 31, 2001. The gross profit percentage on product sales, without the benefit of
the vendor liability adjustment, decreased by 5.2% to 6.9% in the 12 months ended December
31, 2002, down from 12.1% in the 12 months ended December 31, 2001. Professional service
gross profits, without the benefit of the MTA contract liability adjustment, increased by
2.4% to 30.8% in the 12 months ended December 31, 2002, up from 28.4% in the 12 months
ended December 31, 2001, as a result of increased operational efficiencies. As a result of
the reduction in professional service revenues, we reduced our billable staff and incurred
$191,000 of severance compensation costs during the 12 months ended December 31, 2002, as
compared to $342,000 of severance compensation during the 12 months ended December 31,
2001.


Selling,
general and administrative expenses: Selling, general, and administrative expenses
decreased by $4.8 million to $11.7 million in the 12 months ended December 31, 2002, down
from $16.5 million in the 12 months ended December 31, 2001. Selling, general, and
administrative expenses in the 12 months ended December 31, 2002 included $353,000 of
severance costs, $625,000 relating to business consulting and sales recruiting costs,
$65,000 relating to the closure of our product distribution and configuration facility,
and a reduction of expenses of $301,000 relating primarily to a reduction in liabilities
due to the discontinuation of our product business. Selling, general, and administrative
expenses in the 12 months ended December 31, 2001 included $953,000 of severance costs,
$284,000 relating to business consulting and sales recruiting costs, $355,000 of facility
consolidation costs.



Other
income and expenses, net:Other income and expenses consisted of interest income of
$357,000 and $10,000 in miscellaneous income in the year ended December 31, 2002. Other
income consisted of interest income of $743,000 in the year ended December 31, 2001 and
$417,000 in fees received from the transfer of certain employees to EDS, L.L.C. offset by
our write-off of our investment in Eureka Broadband Corporation of $382,000 after its
principal operations were negatively impacted by the events of September 11, 2001.


Provision
for income taxes: In the year ended December 31, 2002, we recorded net federal income
tax benefits of $4.4 million, including a reduction of the federal income tax valuation
allowance of $3.3 million. We were able to recognize this benefit as a result of changes
enacted to the Internal Revenue Code in the first quarter of 2002. We received $1.8
million of this benefit from the Internal Revenue Service in September 2002, and expect to
receive the remaining $2.6 million in the third quarter of 2003. In the year ended
December 31, 2001, we recorded a $2.2 million tax benefit, and income tax valuation
allowance of $2.2 million.


Comparison of Years Ended December 31, 2001 and 2000


Net
sales: Net sales in the year ended December 31, 2001 of $51.9 million decreased 42.5%,
or $38.4 million, from net sales of $90.3 million in the year ended December 31, 2000. We
had been continuing to focus on migration to a professional services company. As a result,
revenue from sales of products as a percentage of overall revenues had declined from 48.7%
in 2000 to 30.4% in 2001, while professional services revenues as a percentage of overall
revenues had increased from 51.3 % in 2000 to 69.6% in 2001. Professional services revenue
in 2001 of $36.1 million decreased 22.2%, or $10.3 million, from $46.4 million in the
prior year. Product sales in 2001 of $15.8 million decreased 64.1%, or $28.2 million, from
$44.0 million in the prior year. Our primary sales effort had been directed at selling
professional services, and product sales were offered on a select basis as a supplement to
the professional services offerings. Revenue under the MTA Contract (consisting of both
product and services) amounted to approximately $3.7 million and $5.3 million for the
years ended December 31, 2001 and 2000, respectively.




21
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Gross
profit:Gross profit in the year ended December 31, 2001 of $12.2 million decreased
0.8%, or $0.1 million, from gross profit of $12.3 million in the year ended December 31,
2000, increasing as a percentage of revenues to 23.4% in 2001 from 13.6% in 2000. The
increase in the gross profit percentage was attributable to selective product sales with
higher margins, an increase in professional service margins and nonrecurring other charges
of $4.9 million in 2000. Gross profit from professional services activities in 2001 of
$10.3 million decreased 23.1%, or $3.1 million, from $13.4 million in 2000 and decreased
as a percentage of services and support revenues to 28.4% in 2001 from 28.9% in 2000. We
recorded $0.3 million of severance in 2001. Gross profit from product sales in 2001 of
$1.9 million decreased 50.0%, or $1.9 million, from $3.8 million in 2000, while increasing
as a percentage of product sales to 12.1% in 2001 from 8.5% in 2000.



Selling,
general and administrative expenses: Selling, general and administrative expenses in
the year ended December 31, 2001 of $16.5 million decreased 31.3%, or $7.5 million, from
$24.0 million in the year ended December 31, 2000. In 2001, we recorded charges totaling
$1.6 million, which included $1.0 million of severance and other special compensation
payments, $0.3 of facility consolidation costs and $0.3 million in consulting costs. In
2000, we recorded charges totaling $1.9 million, consisting of $1.2 million of severance
and other special compensation payments, and $0.7 million relating to a provision for
uncollectible accounts receivable related to, among other things, various receivables for
our telecom business, divested during 2000.




22
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Goodwill
write-off: In the fourth quarter of 2001, we wrote off our product business goodwill
of $1,874,000.


Other
income, net: Other income consisted of interest income of $743,000 in the year ended
December 31, 2001, and $417,000 in fees received from the transfer of certain employees to
EDS, L.L.C., offset by our write-off of our investment in Eureka Broadband Corporation of
$382,000. In 2000, other income consisted of interest income of $1.1 million and $370,000
associated with the settlement of litigation. Interest income decreased from 2000 as a
result of lower interest rates.


Eureka
Broadband Corporation: In February 2001, a wholly-owned subsidiary of Eureka Broadband
Corporation, merged with and into nex-i.com, in connection with which we received a series
of preferred securities of Eureka Broadband Corporation in exchange for our equity
securities of nex-i.com and loaned $382,000 to Eureka. The preferred securities and loan
were converted to common stock of Eureka Broadband Corporation in July 2001. In the fourth
quarter, we wrote off the investment we held in the common stock in the amount of
$382,000.


Provision
for income taxes: In the year ended December 31, 2001, we recorded a $2,248,000 tax
benefit, and income tax valuation allowance of $2,248,000. The provision for income taxes
in the year ended December 31, 2000 was $474,000 reflecting income tax benefits of
$4,979,000 reduced by a valuation allowance of $5,453,000.


Risk Factors:


We
offer professional services in our IT Operations and Learning Solutions practices.
Services revenue is recognized as such services are performed. Most of our services are
billed on a time-and-materials basis. Our advanced technical training and management
development training services are fee-based on a per-course basis. Generally, our service
arrangements with our customers may be terminated by such customers with limited advance
notice and without significant penalty. The most significant cost relating to the services
component of our business is personnel costs which consist of salaries, benefits,
payroll-related expenses and training and recruiting costs. Thus, the financial
performance of our service business is based primarily upon billing margins (billable
hourly rates less the cost to us of such service personnel on an hourly basis) and
utilization rates (billable hours divided by paid hours).



Our
business has been significantly impacted by the multi-year downturn in spending for
information technology professional services. This downturn, coupled with increased
competition from other IT professional services providers and the increased supply of
competent IT professionals available to our customers, has resulted in significant
reductions in the services we provide to customers. For these reasons, in 2002 our
professional service revenues have continued to decline and there can be no assurance that
these negative trends will not persist.





23
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Portions
of our service revenue are derived from fixed-fee projects, under which we assume greater
financial risk if we fail to accurately estimate the costs of projects. We assume greater
risk on fixed-fee projects than on time-and-material projects. If a miscalculation for
resources or time occurs on fixed-fee projects, the costs of completing these projects may
exceed the price, which could result in a loss on the project and a decrease in net
income. We recognize revenue from fixed-fee projects based on our estimate of the
percentage of each project completed in a reporting period.



Our
common stock is quoted on the Nasdaq National Market System. There has been substantial
volatility in the market price of our common stock. The trading price of our common stock
has been, and is likely to continue to be, subject to significant fluctuations in response
to variations in quarterly operating results, the gain or loss of significant contracts,
changes in management, general trends in the industry, recommendations by industry
analysts, and other events or factors. In addition, the equity markets in general have
experienced extreme price and volume fluctuations which have affected the market price of
our common stock, as well as the stock of many technology companies. Often, price
fluctuations are unrelated to operating performance of the specific companies whose stock
is affected.


Due
to our reliance on a small number of key accounts, our revenues are subject to sharp
fluctuations which can be difficult to forecast. During 2002, 51% of our business was
derived from four clients: Kraft Foods, Goldman Sachs & Co., Aventis Pharmaceuticals
and the MTA. Our contract with the MTA was concluded effective January 31, 2003, subject
to warranty claims. The loss of the business associated with one or more of these clients
other than the existing MTA Contract which was operated at a loss could have a material
adverse impact on our business. Due to budgetary constraints, two of the aforementioned
clients have delayed until at least the second half of 2003 large-scale deployment
projects originally scheduled for the first quarter of 2003, and another key client has
been steadily downsizing the outsourced deskside and network support services we have been
providing to it. There can be no assurance that our business with these clients will
continue at the same levels previously enjoyed by our company or that we will be able to
replace any lost revenue with incremental business from other sources.


Recently Issued
Accounting Standards


In
June 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal
Activities (SFAS No. 146), the provisions of which are effective for any exit or
disposal activities initiated by us after December 31, 2002.  SFAS No. 146 provides
guidance on the recognition and measurement of liabilities associated with exit or
disposal activities and requires that such liabilities be recognized when incurred.
The adoption of the provisions of SFAS No. 146 will impact the measurement and timing
of costs associated with any exit and disposal activities initiated after December 31,
2002.  SFAS No. 146 is not expected to have a material effect on our results of
operation, financial position, or cash flow.



24
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Liquidity and Capital
Resources:


Cash
and cash equivalents at December 31, 2002 of $22.9 million decreased by 3.8%, or $0.9
million, from $23.8 million at December 31, 2001. Working capital, which is the excess of
current assets over current liabilities, at December 31, 2002 was $25.5 million as
compared to $23.8 million at December 31, 2001 representing an increase of $1.7 million,
or 7.1%. The increase in working capital is primarily attributable to federal income tax
benefits recognized in 2002.


Since
its inception, we have funded our operations primarily from cash generated by operations,
and the net proceeds from our public offerings. Cash used by operations for the fiscal
year ended December 31, 2002 was $0.5 million. As measured in day sales outstanding, our
accounts receivable days outstanding decreased from 73 days at December 31, 2001 to 71
days at December 31, 2002. Excluding MTA receivables, days sales outstanding in accounts
receivable at December 31, 2002 was 40 days.



Capital
expenditures of $0.1 million, $0.2 million, and $1.1 million during the years ended
December 31, 2002, 2001, and 2000, respectively, were primarily for the purchase of
computer equipment and upgraded software implementations. We anticipate additional capital
expenditures in 2003 to replace equipment in our training business, to purchase equipment
for the expansion of our managed service business, and to upgrade our business systems.



In
2003, we expect we will receive $2.6 million in federal income tax refunds resulting from
the recently enacted tax law changes. We received $1.8 million in 2002 from these tax law
changes.



In
September 2002, our companys board of directors authorized the purchase of up to
750,000 of our outstanding common shares. Purchases were to be made from time to time
through March 23, 2003, except during certain restricted periods, in open market or
privately negotiated transactions. As of December 31, 2002, we had purchased 51,500 shares
pursuant to this program at an average price of $1.52. The acquired shares are being held
in treasury to be used for general corporate purposes.



We
believe that our available funds, together with existing and anticipated credit
facilities, will be adequate to satisfy our current and planned operations for at least
the next 12 months.



SELECTED UNAUDITED
QUARTERLY RESULTS OF OPERATIONS


The
table on the following page presents certain condensed unaudited quarterly financial
information for each of the eight most recent quarters during the period ended December
31, 2002. This information is derived from our unaudited consolidated financial statements
that include, in our opinion, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of results of operations for such periods,
when read in conjunction with our audited consolidated financial statements and notes
thereto appearing elsewhere in this Annual Report on Form 10-K.




25
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|                                  | Quarter Ended
|--------------------------------- | -------------
|
|
|Net sales:                        |              
|Product                           |              
|Professional services (1)         |              
|                                  |              
|Cost of sales:                    |              
|Product                           |              
|Professional services (2)         |              
|Other  (3)                        |              
|                                  |              
|Gross profit:                     |              
|Product                           |              
|Professional services (1) (2)     |              
|Other (3)                         |              
|                                  |              
|                                  |              
|Operating expenses:               |              
|Selling, general and              |              
|administrative (4)                |              
|Write-off of goodwill (5)         |              
|                                  |              
|Operating income (loss)           |              
|Other income (expense), net (6)   |              
|                                  |              
|Income/(loss) before income taxes |              
|Benefit for income taxes (7)      |              
|Net income (loss)                 |              
|Net income (loss) per share       |              
|(diluted)                         |              
|As a Percentage of Net Sales:     |              
|Net sales:                        |              
|Product                           |              
|Professional services (1)         |              
|                                  |              
|Cost of sales (2) (3)             |              
|Gross profit (1) (2) (3)          |              
|Operating expenses:               |              
|Selling, general and              |              
|administrative (4)                |              
|Write-off of goodwill (5)         |              
|                                  |              
|                                  |              
|Operating income (loss)           |              
|Other income (expense), net (6)   |              
|Income before income taxes        |              
|Benefit for income taxes (7)      |              
|Net income (loss)                 |              
|Gross profit (as a percentage of  |              
|related net sales):               |              
|Product                           |              
|Professional services (1) (2) (3) |              

|26
|--

---

|(1) |  | During the quarter ended December 31, 2002, we recorded additional service
               revenue of $61,000 due to the expiration of certain contractual liabilities.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | During the quarters ended March 31, 2002, June 30, 2002, September 30, 2002, and
               December 31, 2002, we recorded charges which included $70,000, $54,000, $32,000,
               and $35,000, respectively, of severance and other special compensation payments.
               During the quarters ended March 31, 2001, June 30, 2001, September 30, 2001, and
               December 31, 2001, we recorded charges which included $46,000, $68,000, $33,000,
               and $195,000, respectively, of severance and other special compensation
               payments.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | For the quarter ended December 31, 2002, we recorded adjustments in the
               aggregate amount of $569,000 associated with the settlement of contract disputes
               with the MTA which resulted in a reduction of recorded contract liabilities of
               $500,000, and $69,000 of liabilities related to vendor charges due to the
               discontinuation of our product business.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | During the quarters ended March 31, 2002, June 30, 2002, September 30, 2002, and
               December 31, 2002, we recorded charges which included $34,000, $188,000,
               $121,000, and $10,000, respectively, of severance and other special compensation
               payments. During the quarters ended June 30, 2002, September 30, 2002, and
               December 31, 2002, we recorded charges which included $253,000, $315,000, and
               $57,000, respectively, of sales recruiting and consulting costs. During the
               quarter ended June 30, 2002, we also recorded charges consisting of $65,000
               relating to the closure of our distribution and configuration facility. In the
               quarter ended December 31, 2002, we recorded a reduction in liabilities in the
               amount of $301,000 due to the discontinuation of our product business. During
               the quarters ended March 31, 2001, June 30, 2001, September 30, 2001, and
               December 31, 2001, we recorded charges which included $128,000, $166,000,
               $36,000, and $623,000, respectively, of severance and other special compensation
               payments. During the quarter ended December 31, 2001, we also recorded charges
               consisting of $355,000 of facility consolidation costs, and $284,000 of
               consulting costs.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | In the quarter ended December 31, 2001, we wrote off our legacy product related
               business goodwill relating to the Lande, Lior, and OmniTech acquisitions in the
               amount of $1,874,000.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | In the quarter ended September 30, 2001, certain employees joined EDS, L.L.C. in
               connection with the selection of EDS, L.L.C. as a provider of Help Desk services
               which we previously provided to one of our customers. We recognized other income
               of $417,000 in connection with the transfer of these employees.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) |  | In each of the quarters in 2002, we recorded federal income tax benefits as a
               result of changes enacted to the Federal Income Tax laws in the first quarter of
               2002. We recorded a total of $4.4 million of benefits, of which $3.3 million
               related to a reduction in our valuation allowance.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|27
|--

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|Item 7A.   Quantitative
and Qualitative Disclosure About Market Risk


Not
applicable.


Item 8. Financial
Statements and Supplementary Data.


Reference
is made to Item 15(a)(1) and (2) and to page F-1 for a list of financial statements and
supplementary data required to be filed pursuant to this Item 8.


Reference
is made to Item 7 Managements Discussion and Analysis of Results of Operations
and Financial Condition  Selected Unaudited Quarterly Results of Operations on
pages 25-28 for selected unaudited quarterly financial data.


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

Not applicable.


28
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|PART III


Item 10.   Directors and
Executive Officers of the Registrant.


STAN GANG


Stan
Gang, 68, founded our company and is currently the Chairman of the Board. From 1984
through June 1999, and again from March 2001 to December 2001, Mr. Gang served as our
Chairman of the Board and Chief Executive Officer. Effective December 1, 2001, Mr. Gang
retired as our Chief Executive Officer. From June 1999 to March 2001, Mr. Gang was our
Chairman of the Board. Mr. Gang has 40 years of experience in the computer sales and
services industry. Prior to forming our company, Mr. Gang was employed in various
management capacities by IBM Corporation, MAI Equipment Corporation and Memorex Telex. Mr.
Gang has been a director of our company since 1984. Mr. Gang is the father of Michael
Gang, a director of our company.



MICHAEL GANG


Michael
Gang, 36, joined our company in April 1989 and has served as a National Account
Manager/Sector Director since that time. From September 1995 through October 1997, Mr.
Gang also served as our Secretary. Mr. Gang has been a director of our company since
September 1995. Mr. Gang is the son of Stan Gang, a director of our company.



IRA COHEN


Ira
Cohen, 51, has served as a director since May 1999. Since 1988, Mr. Cohen has served as a
Managing Director of Updata Capital, Inc., an investment banking firm focused on mergers
and acquisitions in the information technology industry. Mr. Cohen founded Updata
Software, Inc. and, from 1986 to 1988, served as that companys Chief Financial
Officer. Mr. Cohen is also a director of Datastream Systems, Inc. Mr. Cohen holds a
Bachelor of Science degree in Accounting from the City University of New York and is a
registered Certified Public Accountant in New York and New Jersey. Mr. Cohen is a
principal of Fallen Angel Equity Fund, L.P.



THOMAS F. DORAZIO


Thomas
F. Dorazio, 45, has served as a director of our company since May 1999. Since March 2003,
Mr. Dorazio has been Vice President, Operations of SOURCECORP, a provider of business
process outsourcing solutions. Previously, from 1995 until February 2003, Mr. Dorazio was
Vice President of Information Services for the New York State Electric and Gas Corporation
and, from 1998 until February 2003, Mr. Dorazio was Chairman of the Board of Energy East
Telecommunications, Inc., a wholly-owned subsidiary of Energy East Corporation. Mr.
Dorazio serves on the Advisory Board of the Syracuse University Center for Business
Information Technologies.



29
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|DOREEN A. WRIGHT


Doreen
A. Wright, 46, has served as a director of our company since March 2001. Ms. Wright has
served as Senior Vice President, Chief Information Officer of Campbell Soup Company since
2001. Prior thereto, from 1999 to 2001, Ms. Wright was the Executive Vice President and
Chief Information Officer of Nabisco, Inc. From 1995 to 1998, Ms. Wright was Senior Vice
President, Operations & Systems of Prudential Investments, a division of the
Prudential Insurance Company of America. Ms. Wright currently serves on the Board of
Overseers for the Annenberg Center at the University of Pennsylvania.


BERNARD M. GOLDSMITH


Bernard M. Goldsmith, 58, has served
as a director of our company since July 2002. Mr. Goldsmith has served as a Managing
Director of Updata Capital, Inc., an investment banking firm focused on mergers and
acquisitions in the information technology industry, since 1986. Mr. Goldsmith is also a
director of Dendrite International, Inc. Mr. Goldsmith is a principal of Fallen Angel
Equity Fund, L.P.


RICHARD G. ERICKSON


Richard
G. Erickson, 41, joined our company in March 2002 as Chief Executive Officer in a
consulting capacity through New England Associates, LLC, a professional services
turnaround consultancy of which he is president. Mr. Erickson also serves as our President
through New England Associates, LLC. Previously (since November 2001), Mr. Erickson was
Senior Vice President, Operations of Scient, Inc., an e-business consulting firm, and held
the same position with iXL Enterprises, Inc. prior to the 2001 merger of Scient and iXL.
From 1998 to 2000, Mr. Erickson was Managing Director, Tri-State Region, of Aztec
Technology Partners, a network and e-infrastructure consulting services firm. From 1988 to
1998, Mr. Erickson was a principal and President of Digital Network Associates, a network
integration services company.


WILLIAM S. MEDVE


William
S. Medve, 43, joined our company in April 2000 as Senior Vice President, Chief Financial
Officer and Treasurer. In March 2001, he was named an Executive Vice President. From 1997
to 2000, Mr. Medve was Senior Vice President, Finance of Microwarehouse, Inc. Prior
thereto, from 1994 to 1997, he was Chief Financial Officer of various business units of
The Walt Disney Co., and from 1983 to 1994 was with PricewaterhouseCoopers LLP. Mr. Medve
is a registered Certified Public Accountant in New Jersey.




30
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|JACK P. ADLER


Jack
P. Adler, 49, joined our companyin March 1999 as Senior Vice President, Secretary
and General Counsel. In March 2001, Mr. Adler was named an Executive Vice President. From
1997 to 1999, Mr. Adler was Senior Vice President, Secretary and General Counsel of EA
Engineering, Science and Technology, Inc. Previously, from 1983 to 1996, Mr. Adler was
in-house counsel for several corporations in the telecommunications, computer, and
environmental industries.


MARK PERLSTEIN


Mark
Perlstein, 38, joined our company in September 2002 as Executive Vice President, Sales and
Operations. Prior thereto (since April 2002), Mr. Perlstein was a consultant to our
company. Previously (since 2001), Mr. Perlstein provided revenue-generation and turnaround
consulting services in the technology and services markets. From 1998 to 2001, Mr.
Perlstein was a sales and operations executive with Aztec Technology Partners, a network
and e-infrastructure consulting services firm. From 1997-1998, Mr. Perlstein was Vice
President of Sales of Digital Network Associates, a network integration services company.


Committees of the
Directors


The
members of the Audit and Compensation Committees of the Board of Directors are Messrs.
Cohen and Dorazio and Ms. Wright. Mr. Cohen is Chair of the Audit Committee; Mr. Dorazio
is Chair of the Compensation Committee. The members of the Nominating Committee are
Messrs. Goldsmith, Cohen, Dorazio and Ms. Wright. Mr. Goldsmith is Chair of the Nominating
Committee.


Section 16(a) Beneficial
Ownership Reporting Compliance


Section
16(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act),
requires our directors, executive officers, and shareholders who beneficially own more
than 10% of any class of our equity securities (Reporting Persons) to file
initial reports of ownership and reports of changes in ownership with respect to our
equity securities with the Securities and Exchange Commission (the SEC). All
Reporting Persons are required by SEC regulation to furnish us with copies of all reports
that such Reporting Persons file with the SEC pursuant to Section 16(a).


Based
solely upon a review of these filings, we believe that the required filings by the
Reporting Persons were timely made, except that in August 2002, W. Medve and J. Adler,
each an officer of our company, reported on a Form 4 receipt of a grant of stock options
in August 2001 not previously reported on a Form 4 or Form 5, but which had been reflected
in our Form 10-K for the year ended December 31, 2001.



31
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|Item 11.   Executive
Compensation.


Summary
Compensation Table. The following table sets forth compensation information for all
individuals serving as our Chief Executive Officer or acting in a similar capacity during
the last completed fiscal year and our other most highly compensated executive officers,
who were serving as our executive officers at the end of the last fiscal year.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                              |      |         |         |    | Annual Compensation | Long-TermCompensation Awards
|----------------------------- | ---- | ------- | ------- | -- | ------------------- | ----------------------------
|
|                              |      |         |         |    |                     |                             
|Stan Gang (1)                 | 2002 | 250,016 | --      | -- | --                  | --                          
|Chairman of the Board         | 2001 | 250,016 | --      | -- | --                  | 1,400                       
|                              | 2000 | 250,016 | --      | -- | --                  | 1,400                       
|                              |      |         |         |    |                     |                             
|Richard G. Erickson (2)       | 2002 | 135,000 | 150,000 |    | 25,000              | --                          
|President and Chief Executive | 2001 | --      | --      | -- | --                  | --                          
|Officer                       | 2000 | --      | --      | -- | --                  | --                          
|                              |      |         |         |    |                     |                             
|                              |      |         |         |    |                     |                             
|William S. Medve (3)          | 2002 | 224,654 | 22,000  | -- | 125,000             | --                          
|Executive Vice President,     | 2001 | 213,808 | --      | -- | 30,000              | 2,842                       
|Chief Financial Officer and   | 2000 | 136,615 | 10,000  | -- | 50,000              | 2,510                       
|Treasurer                    
|                              |      |         |         |    |                     |                             
|Jack P. Adler (4)             | 2002 | 204,481 | 12,500  | -- | 40,000              | --                          
|Executive Vice President,     | 2001 | 195,154 | --      | -- | 10,000              | 2,608                       
|Secretary and General         | 2000 | 157,692 | 10,000  | -- | 20,000              | 3,400                       
|Counsel                      
|                              |      |         |         |    |                     |                             
|Vincent Tinebra (5)           | 2002 | 245,078 | --      | -- | --                  | --                          
|President, Chief Operating    | 2001 | 158,230 | 60,000  | -- | 150,000             | 1,400                       
|Officer                      
|                              |      |         |         |    |                     |                             
|Mark Perlstein (6)            | 2002 | 154,462 | 57,000  |    | 100,000             | --                          
|Executive Vice President,     | 2001 | --      | --      | -- | --                  | --                          
|Sales and Operations          | 2000 | --      | --      | -- | --                  | --                          

|(1) |  | Mr. Gang retired as our Chief Executive Officer effective December 1, 2001 and
               payments in 2002 related to his Severance Agreement with our company.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Mr. Erickson has been serving as Chief Executive Officer of our company since
               March 2002 in a consulting capacity through New England Associates, LLC, a
               turnaround consultancy of which he is president.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|32
|--

---

|(3) |  | Mr. Medve joined our company in April 2000 as Senior Vice President, Chief
               Financial Officer and Treasurer.
|--- |  | --------------------------------------------------------------------------------------------------------------------------

|(4) |  | Mr.
     Adler joined our company in March 1999 as Senior Vice President,  Secretary
and General Counsel.
|--- |  | ---------------------------------------------------------------------------------------------------------

|(5) |  | Mr.
Tinebra joined our company in March 2001 as President and Chief Operating Officer.  He
was separated from AlphaNet Solutions in May 2002.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | Mr. Perlstein joined our company in September 2002 as Executive Vice President,
               Sales and Operations; prior thereto (since April 2002), Mr. Perlstein served as
               a consultant to our company. Salary amount includes amounts paid to Mr.
               Perlstein as a consultant.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) |  | The costs of certain benefits are not included because they did not exceed the
               lesser of $50,000 or 10% of the total annual salary and bonus as reported above.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) |  | Represents
     401(k)  contributions made by our company on behalf of each named executive
officer.
|--- |  | ----------------------------------------------------------------------------------------------------

|* |  | This
table includes only executive officers. For compensation of Michael Gang, see Item 13.
|- |  | -------------------------------------------------------------------------------------------

|33
|--

---

|STOCK OPTION GRANTS IN
2002


The
following table sets forth information regarding stock options granted during the fiscal
year ended December 31, 2002 pursuant to our 1995 Stock Plan to each of the named
executive officers.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Name                | Number ofSecuritiesUnderlyingOptionsGranted(#) | % of Total OptionsGranted to Employeesin Fiscal Year | Exercise orBase Price ($/Sh) | ExpirationDate | Potential RealizableValue At AssumedAnnual Rates of Stock
Price Appreciation for Option Term(1)5%  ($)     10%  ($) |       
|------------------- | ---------------------------------------------- | ---------------------------------------------------- | ---------------------------- | -------------- | ------------------------------------------------------------------------------------------------------------------- | ------
|
|                   
|Stan Gang           |                                                | --                                                   |                              | --             |                                                                                                                     | --    
|Richard G. Erickson |                                                | 25,000                                               |                              | 4.1            | %                                                                                                                   | $ 2.19
|William S. Medve    |                                                | 125,000                                              |                              | 20.6           | %                                                                                                                   | $ 1.11
|Jack P. Adler       |                                                | 40,000                                               |                              | 6.6            | %                                                                                                                   | $ 1.11
|Vincent Tinebra     |                                                | --                                                   |                              | --             |                                                                                                                     | --    
|Mark Perlstein      |                                                | 100,000                                              |                              | 16.5           | %                                                                                                                   | $ 1.10
|                    |                                               

|(1) |  | Represents the difference between (i) the market value of the common stock for
               which the option may be exercised, assuming that the market value of the common
               stock on the date of grant appreciates in value to the end of the ten-year
               option term at rates of 5% and 10% per annum, respectively, and (ii) the
               exercise price of the option.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|34
|--

---

|Option
Exercises and Year-End Option Holdings.The following table sets forth information
regarding option exercises during the fiscal year ended December 31, 2002 as well as
fiscal 2002 year-end option holdings for each named executive officer.





AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                    | SharesAcquired on | Value | Number of SecuritiesUnderlying Unexercised
Options At Fiscal Year-End |    | Value of UnexercisedIn-The-Money Options At
Fiscal Year-End (1) |       
|------------------- | ----------------- | ----- | --------------------------------------------------------------------- | -- | --------------------------------------------------------------- | ------
|
|                   
|Stan Gang           |                   | --    |                                                                       | -- |                                                                 | --    
|Richard G. Erickson |                   | --    |                                                                       | -- |                                                                 | 25,000
|William S. Medve    |                   | --    |                                                                       | -- |                                                                 | 83,750
|Jack P. Adler       |                   | --    |                                                                       | -- |                                                                 | 46,000
|Vincent Tinebra     |                   | --    |                                                                       | -- |                                                                 | --    
|Mark Perlstein      |                   | --    |                                                                       | -- |                                                                 | 25,000
|                    |                  

|(1) |  | Based on a year-end fair market value of the underlying securities equal to
               $1.38 per share at December 31, 2002.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------

|Compensation of Directors


Our
non-employee directors currently receive compensation of $1,500 per meeting for each
meeting attended, other than brief telephonic meetings. Each of the non-employee directors
who serve on the Audit, Compensation and Nominating Committees of the Board of Directors
also receives a $500 fee per meeting attended for each committee meeting held on a day or
days other than the day of a regularly-scheduled Board of Directors meeting. We also
provide reimbursement to directors for reasonable and necessary expenses incurred in
connection with attendance at meetings of the Board of Directors and its Committees.


Pursuant
to the AlphaNet Solutions, Inc. 1995 Non-Employee Director Stock Option Plan, non-employee
directors also receive fully-vested options to purchase 5,000 shares of common stock upon
the date first elected a director and additional fully-vested options to purchase 5,000
shares of common stock upon the date of each re-election at an annual meeting of
shareholders. We made our most recent annual grant of options to non-employee directors on
July 31, 2002.




35
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Directors
who are employees of our company are eligible to participate in our 1995 Stock Plan.


Employment Contracts,
Termination of Employment and Change-of-Control Arrangements


Effective
March 15, 2002, we entered into a letter agreement with Richard G. Erickson, which was
amended effective February 14, 2003, pursuant to which we retained Mr. Erickson as Chief
Executive Officer through New England Associates, LLC, a professional services turnaround
consultancy of which Mr. Erickson is president. Mr. Erickson also serves as President.
Pursuant to the terms of the letter agreement, as amended, setting forth the terms of his
engagement, Mr. Erickson has been retained through June 30, 2003, which we may extend
through December 31, 2003, at $35,000 per month. In February 2003, we paid all amounts due
by us to Mr. Erickson which remained unpaid as of February 14, 2003, aggregating $100,000.


On
or before June 30, 2003 (or such later date to which we extend Mr. Ericksons
consulting engagement with us), at the sole discretion of our Board of Directors, we may
convert Mr. Ericksons consulting engagement with us into an 18-month mutually agreed
upon employment agreement generally in accordance with the provisions of our March 15,
2002 letter agreement with Mr. Erickson, as amended, except that under such an employment
agreement, we would not be required to grant to Mr. Erickson any additional options to
purchase shares of our common stock.


In
connection with our March 15, 2002 letter agreement with Mr. Erickson, we granted to Mr.
Erickson non-qualified fully-vested options to purchase 25,000 shares of our common stock
as of the closing price of our common stock on such date. In connection with the amendment
to the March 15, 2002 letter agreement, on February 7, 2003, we granted to Mr. Erickson
non-qualified options to purchase 275,000 shares of our common stock as of the closing
price of our common stock on such date. Twenty-five percent of these options vested
immediately upon grant, and the balance vest in equal annual installments over the ensuing
three years.


In
the event that we do not enter into a mutually acceptable employment agreement with Mr.
Erickson on or before June 30, 2003 (or such later date to which we extend Mr.
Ericksons consulting engagement), or Mr. Ericksons consulting engagement with
us terminates for any reason other than Mr. Ericksons voluntary termination before
June 30, 2003 (or such later date to which we extend Mr. Ericksons consulting
engagement) or because of certain acts or omissions by Mr. Erickson constituting cause for
our termination of Mr. Ericksons consulting engagement with us (as described in our
March 15, 2002 letter agreement with Mr. Erickson, as amended), then:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  | we
will pay Mr.  Erickson,  as an additional  engagement  fee, an engagement  termination
fee of $420,000,                   representing 12 months of his $35,000 per month
engagement fee; and
| |  |  |  | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|36
|--

---

| |  |  |  |  |  | 100% of the 275,000 options granted to Mr. Erickson on February 7, 2003 will vest, and
such options, and the 25,000 options that we granted to Mr. Erickson in connection with
our March 15, 2002 letter agreement with Mr. Erickson, will be exercisable thereafter for
one year.
| |  |  |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In
the event Mr. Ericksons consulting engagement with us is terminated because he
voluntarily terminates his engagement with us before June 30, 2003 (or such later date to
which we extend Mr. Ericksons consulting engagement) or Mr. Ericksons
consulting engagement with us is terminated by us because of certain acts or omissions by
Mr. Erickson constituting cause for such termination (as described in our March 15, 2002
letter agreement with Mr. Erickson, as amended), then:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  | all
unvested options granted to Mr. Erickson will be cancelled;
| |  |  |  | - |  | ---------------------------------------------------------------

| |  |  |  |  |  | vested
     options,  if any, will be exercisable in accordance  with the plan pursuant
to which they are issued;
| |  |  |  | - |  | -----------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  | we
will not pay the engagement termination fee, or any portion thereof, to Mr. Erickson; and
| |  |  |  | - |  | --------------------------------------------------------------------------------------------

| |  |  |  |  |  | Mr. Erickson will receive
any unpaid portion of his engagement fee through the date of
termination.
| |  |  |  | - |  | ---------------------------------------------------------------------------------------------------

|Mr. Ericksons
consulting engagement provides that in the event that Mr.
          Ericksons engagement has not been terminated prior to a
          Change-of-Control (as described below), upon a
          Change-of-Control, 100% of the 275,000 options granted to Mr.
          Erickson on February 7, 2003 will vest, and such options, and the 25,000 options
          that we granted to Mr. Erickson in connection with our March 15, 2002 letter
          agreement with Mr. Erickson, will be exercisable thereafter for one year (except
          as otherwise provided in our March 15, 2002 letter agreement with Mr. Erickson,
          as amended).


Under
our Change-of-Control agreement with Mr. Erickson, a Change-of-Control is
deemed to occur upon the occurrence of any of the following events:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  | our
dissolution or liquidation;
| |  |  |  | - |  | -------------------------------

| |  |  |  |  |  | a
merger or consolidation in which we are not the surviving corporation (except as
otherwise provided in our March 15, 2002 letter agreement with Mr. Erickson, as amended);
| |  |  |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  | a
merger in which we are the surviving corporation but after which our shareholders prior
to such merger (other than any shareholder which merges (or which owns or controls another
corporation which merges) with us in such merger) own less than 50% of the voting shares
or other equity interests in our company after such merger;
| |  |  |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|37
|--

---

| |  |  |  |  |  | a
sale of substantially all of our assets;
| |  |  |  | - |  | ------------------------------------------

| |  |  |  |  |  | an
acquisition,  sale or transfer of a majority of our  outstanding  shares by
tender offer or similar transaction;
| |  |  |  | - |  | -------------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  | a
     new or existing  shareholder who may be a member of management  (other than
Mr. Erickson) or an affiliate of ours obtains  unilateral  control,  directly or
indirectly,  of us or our Board of  Directors,  whether alone or in concert with
others;
| |  |  |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  | a
     new  shareholder  or  group  of  shareholders   that  may  include  current
management (other than Mr. Erickson) or affiliates obtains  unilateral  control,
directly or indirectly, of us or our Board of Directors;
| |  |  |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  | an
     involuntary  change in the  composition,  as of February 14, 2003,  of more
than 33% of our Board of Directors; or
| |  |  |  | - |  | --------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  | any person, entity or combination thereof controls, individually or collectively through
ownership, assignment, voting proxy or the like, 50% or more of the outstanding voting
shares ordinarily having the right to vote for the election of our directors or the
combined voting power thereof.
| |  |  |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Effective
April 12, 2002, Vincent Tinebra entered into a Severance and Release Agreement providing
for Mr. Tinebras resignation as our President and Chief Operating Officer. Pursuant
to the agreement, Mr. Tinebra served in a consulting capacity with us from April 12, 2002
through May 10, 2002 in accordance with the agreement during this period and for an
additional 26 weeks thereafter, we continued to pay his base salary and certain other
benefits. In connection with Mr. Tinebras resignation, the president title was
assumed by Mr. Erickson and the position of chief operating officer was eliminated.


On
July 18, 2002, we entered into an Agreement and Mutual Releases with Stan Gang, Chairman
of the Board, relating to Mr. Gangs retirement as our Chief Executive Officer
effective December 1, 2001. Pursuant to the Agreement with Mr. Gang we have agreed to pay
Mr. Gang $375,000 (less standard withholdings and authorized deductions). This payment
will be payable as follows: (i) an aggregate of $373,200 is payable in equal installments
in accordance with our regular payroll cycle, during the period from March 1, 2002 through
August 31, 2003; and (ii) an aggregate of $1,800 is to be paid to Mr. Gang in equal
installments on March 1, 2004, August 1, 2004 and March 1, 2005.


Effective
September 3, 2002, we entered into Change-of-Control Agreements with William S. Medve,
Executive Vice President, Chief Financial Officer and Treasurer, and with Jack P. Adler,
Executive Vice President, Secretary and General Counsel, and effective September 9, 2002,
we entered into a Change-of-Control Agreement with Mark Perlstein, Executive Vice
President, Sales and Operations. Pursuant to these Change-of Control Agreements upon a
Change-of-Control (as described below) that results in either involuntary
termination of employment with us or the voluntary resignation of the executive due to a
reduction in salary or benefits, these executives are entitled to (i) a lump sum payment
equal to one year of salary and benefits, and (ii) a lump sum payment equal to the
executives pro rata performance bonus for the then-current fiscal year (computed as
of the effective date of the Change-of-Control).





38
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Under
our Change-of-Control agreements with each of Messrs. Medve, Adler, and Perlstein, a
Change-of-Control is deemed to occur upon the occurrence of any of the
following events:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  | our
dissolution or liquidation;
| |  |  |  | - |  | -------------------------------

| |  |  |  |  |  | a
merger or consolidation in which we are not the surviving corporation (except as
otherwise provided in our Change-of-Control agreements with Messrs. Medve, Adler
and Perlstein);
| |  |  |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  | a
merger in which we are the surviving corporation but after which our shareholders
(other than any shareholder which merges (or which owns or controls another
corporation which merges) with us in such merger) own less than 50% of the shares
or other equity interests in our company;
| |  |  |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  | a
sale of substantially all of our assets;
| |  |  |  | - |  | ------------------------------------------

| |  |  |  |  |  | an
acquisition, sale or transfer of a majority of our outstanding shares by tender
offer or similar transaction;
| |  |  |  | - |  | ----------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  | a
new or existing shareholder who may be a member of management or an affiliate of ours
obtains unilateral control, directly or indirectly, of us or our Board of Directors,
whether alone or in concert with others;
| |  |  |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  | a
new shareholder or group of shareholders not including current management or affiliates
obtains unilateral control, directly or indirectly, of us or our Board of Directors;
| |  |  |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  | an
involuntary change in the composition, as of the effective date of the respective
agreements, of more than 33% of our Board of Directors; or
| |  |  |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  | any
person, entity or combination thereof controls, individually or collectively through
ownership, assignment, voting proxy or the like, 50% or more of the outstanding voting
shares ordinarily having the right to vote for the election of our directors or the
combined voting power thereof.
| |  |  |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|39
|--

---

|Effective
September 3, 2002, we entered into a Severance Agreement with William S. Medve, Executive
Vice President, Chief Financial Officer and Treasurer, and effective September 9, 2002, we
entered into Severance Agreements with each of Jack P. Adler, Executive Vice President,
Secretary, and General Counsel, and Mark Perlstein, Executive Vice President, Sales and
Operations. These Severance Agreements apply in the event that employment of any of the
executives is terminated involuntarily by us at any time for reasons other than for
Cause (as defined in the Severance Agreements), or by the employee for
Good Reason (as defined in the Severance Agreements). The Severance Agreements
provide for (i) the continuation of payment of the executives current base salary
for a period of one year after the date of termination, and (ii) an immediate payment on
the date of termination of a lump sum equal to the executives pro rata performance
bonus for the then-current fiscal year.


Compensation Committee
Interlocks and Insider Participation


Our
Compensation Committee is comprised of Thomas F. Dorazio (Chairperson), Ira Cohen,
and Doreen A. Wright. Currently, except as disclosed below, there are no Compensation
Committee interlocks between our company and any other entities involving our
companys executive officers and directors who serve as executive officers of such
entities.


Ira
Cohen, a director and member of our Audit, Compensation and Nominating Committees, and
Bernard M. Goldsmith, a director and member of our Nominating Committee, are Managing
Directors of Updata Capital, Inc. (Updata Capital), an investment advisory
firm. In October 2000, our Board of Directors authorized the execution of an engagement
letter with Updata Capital, pursuant to which Updata Capital was engaged on an exclusive
basis as a financial advisor to assist our management and Board of Directors in examining
strategic alternatives to maximize shareholder value. The engagement, which was terminable
by either party on thirty days prior notice, provided for the payment of a
success fee to Updata Capital of the aggregate consideration paid in certain
transactions. The engagement letter also contained customary expense reimbursement and
indemnification provisions. We terminated the engagement effective July 2001. From time to
time thereafter, we renewed this arrangement with Updata Capital to act in a similar
capacity. No amounts were paid by us to Updata Capital in 2002 in connection with the
engagement.




40
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Board Compensation
Committee Report on Executive Compensation


Basic Policy
Considerations


Our
executive compensation policy is designed to attract and retain highly qualified
individuals for its executive positions and to provide incentives for such executives to
achieve maximum company performance by aligning the executives interest with that of
shareholders by basing a portion of compensation on our performance.


Our
Compensation Committee generally reviews and determines base salary levels for our
executive officers during the course of the fiscal year and determines actual bonuses
after the end of the fiscal year based upon company and individual performance.


Our
executive officer compensation program is comprised of base salary, discretionary annual
cash bonuses, stock options, auto allowance, and various other benefits, including medical
insurance and a 401(k) plan, which are generally available to all of our employees.


Salaries
are established in accordance with industry standards through review of publicly available
information concerning the compensation of officers of comparable companies. Consideration
is also given to relative responsibility, seniority, experience, and performance. Salary
increases are generally made based on increases in the industry for similar companies with
similar performance profiles and/or attainment of certain division or company goals.


Annual
Compensation-Executive Officers Other Than Chief Executive Officer


Certain
senior executives and key managers who have a direct and measurable ability to impact our
financial results are eligible to participate in our Incentive Plan, subject to approval
by our Compensation Committee. The purpose of the plan is to motivate senior executives
through variable compensation toward the attainment of corporate and individual goals.
Each participant is assigned an incentive target expressed as a percentage of base salary.
The incentive target is payable based on corporate financial objectives, as well as by
mutually agreed individual management objectives (MBOs).


During
2002, all executive officers, other than the Chief Executive Officer, were eligible to
receive bonuses targeted to both corporate financial objectives and individual
performance. For 2002, provided our company achieved certain specified corporate financial
objectives, Messrs. Perlstein, Medve and Adler were eligible to receive total potential
cash incentive compensation equal to 60%, 40% and 25% of their annual base salaries,
respectively, of which 50%, 25% and 25% were attributable to MBOs for Messrs. Perlstein,
Medve and Adler, respectively. Each of Messrs. Medve, Adler, and Perlstein achieved the
MBO element of the bonus program and received a bonus attributable to satisfaction of
these targets. The Compensation Committee, however, limited the bonuses paid to Messrs.
Perlstein, Medve and Adler to their respective MBO targets due to the operating losses
sustained by our company in 2002.



41
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Long-Term Compensation
Stock Options


Our
stock option program is designed to relate executives and certain middle
managers long-term interests to shareholders long-term interests. In general,
stock option awards are granted on an annual basis if warranted by our growth and
profitability. Stock options are awarded on the basis of individual performance and/or the
achievement of internal strategic objectives.


2002 Compensation for
Chief Executive Officer


Richard
G. Erickson, who has served as our Chief Executive Officer since March 2002, and who also
serves as our President, through New England Associates, LLC, a professional services
turnaround consultancy of which he is president, currently receives a monthly engagement
fee of $35,000. We have retained Mr. Erickson through June 30, 2003, which retention may
extend through December 31, 2003.


In
connection with our March 15, 2002 letter agreement with Mr. Erickson, we granted to Mr.
Erickson non-qualified fully-vested options to purchase 25,000 shares of our common stock
as of the closing price of our common stock on that date. In connection with an amendment
to the March 15, 2002 letter agreement, on February 7, 2003, we granted to Mr. Erickson
non-qualified options to purchase 275,000 shares of our common stock as of the closing
price of our common stock on such date, 25% of which vested immediately upon grant, with
the balance to vest in equal annual installments over the ensuing three years.


In
establishing Mr. Ericksons compensation package, the Compensation Committee
considered the compensation practices of our peers in the industry and determined that Mr.
Ericksons compensation provides necessary and appropriate incentives to improve our
business performance and create shareholder value. The Compensation Committee chose to
structure a significant portion of Mr. Ericksons compensation as stock options,
since the value of the portion of Mr. Ericksons compensation represented by stock
options is directly related to future corporate performance and serves to align his
interests with those of our shareholders.


We
paid a portion of Mr. Ericksons engagement fee in the form of two lump sum bonuses.
Mr. Erickson received a bonus of $90,000 in December 2002 for the period from March 15,
2002 through September 15, 2002, and received a bonus of $100,000 as of February 14, 2003
for the period from September 15, 2002 through February 14, 2003.


In
addition to these bonus payments, for the period from March 15, 2002 through February 14,
2003, we paid the balance of Mr. Ericksons engagement fee in the form of payments to
Mr. Erickson of $15,000 per month. On February 14, 2003, we increased our engagement fee
payments to Mr. Erickson to $35,000 per month and Mr. Erickson was no longer eligible to
receive a bonus.




42
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Based
on review of available information, the Compensation Committee believes that Mr.
Ericksons total annual compensation, including both cash and equity components, is
reasonable and appropriate given the size and historical performance of our business, our
position as compared to our peers in the industry, and the specific challenges faced by us
during 2002, including improving our companys operating performance in the face of a
punishing economic environment in the IT sector.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Compensation CommitteeTHOMAS F. DORAZIOThomas F. Dorazio(Chairperson)Ira CohenDoreen A. Wright
| |  | ----------------------------------------------------------------------------------------------

|43
|--

---

|Performance Graph


The
graph set forth below shows the cumulative total shareholder return (i.e., price change
plus reinvestment of dividends, if any) on the common stock of our company, for the period
beginning at the market close on December 31, 1997, the last trading day before the
beginning of our fifth preceding fiscal year, and ending on December 31, 2002, the last
day of our last completed fiscal year, as compared over such period with similar data for:
(i) the Nasdaq Composite Index, and (ii) the Peer Group Index (capitalization weighted).
The stock performance graph assumes that $100 was invested on December 31, 1997. The stock
performance shown on the graph below is not indicative of future price performance.


COMMON STOCK
PERFORMANCE GRAPH(1)(2)


Among the Company, the
Nasdaq Composite Indexand the Peer Group Index(3)


(Capitalization
Weighted)


COMPARISON OF 5 YEAR
CUMULATIVE TOTAL RETURN*AMONG ALPHANET SOLUTIONS, INC.,


THE NASDAQ STOCK
MARKET (U.S.) INDEX AND A PEER GROUP




44
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|                           | Cumulative Total ReturnFiscal Year Ended December 31,
|-------------------------- | -----------------------------------------------------
|
|
|ALPHANET SOLUTIONS, INC    |                                                      
|NASDAQ STOCK MARKET (U.S.) |                                                      
|PEER GROUP                 |                                                      

|(1) |  | Graph assumes $100 invested on December 31, 1997 in our companys Common
               Stock, the Nasdaq Composite Index and the Peer Group Index (capitalization
               weighted).
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Cumulative total return assumes reinvestment of dividends, if any.
|--- |  | ------------------------------------------------------------------

|(3) |  | We constructed the Peer Group Index consisting of other computer systems
               integrators that also provide information technology consulting services to
               their clients, CompuCom Systems, Inc., Datatec Systems, Inc., Government
               Technology Services, Inc., Micros-to-Mainframes, Inc., Pomeroy Computer
               Resources, Inc., and TransNet Corporation. We believe that these companies most
               closely resemble our companys business mix and that their performance is
               representative of the industry.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|45
|--

---

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

There
were, as of February 28, 2003, approximately 284 holders of record and approximately 2,030
beneficial owners of our Common Stock. The following table sets forth certain information,
as of February 28, 2003, with respect to holdings of the Common Stock by (i) each person
known by us to beneficially own more than 5% of the total number of shares of Common Stock
outstanding as of such date, (ii) each of our directors, and named executive
officers, and (iii) all directors and executive officers as a group.

|Name and Addressof Beneficial Owner (1)                                    | Amount and Nature ofBeneficial Ownership(1) | Percent of Class(2)
|-------------------------------------------------------------------------- | ------------------------------------------- | -------------------
|                                                                           |                                             |                    
|Certain Beneficial Owners:                                                 |                                             |                    
|                                                                          
|Stan Gang (3)                                                              |                                             | 1,967,300          
|7 Ridgedale Avenue                                                         |                                            
|Cedar Knolls, NJ 07927                                                     |                                            
|                                                                          
|Fallen Angel Equity Fund, L.P. (4)                                         |                                             | 687,100            
|c/o Fallen Angel Capital, LLC                                              |                                            
|125 Half Mile Road                                                         |                                            
|Red Bank, NJ 07733                                                         |                                            
|                                                                          
|Royce & Associates, Inc. (6)                                               |                                             | 567,000            
|1414 Avenue of the Americas, 9th Floor                                     |                                            
|New York, NY 10019                                                         |                                            
|                                                                          
|Dimensional Fund Advisors Inc. (5)                                         |                                             | 414,200            
|1299 Ocean Avenue, 11th Floor                                              |                                            
|Santa Monica, CA  90401                                                    |                                             |                    
|                                                                          
|Directors, nominees, and named executive officers who are not named above: |                                            
|Michael Gang (7)                                                           |                                             | 51,250             
|Ira Cohen (8)                                                              |                                             | 20,000             
|Thomas F. Dorazio (9)                                                      |                                             | 32,500             
|Doreen A. Wright (10)                                                      |                                             | 27,500             
|Bernard M. Goldsmith (11)                                                  |                                             | 5,000              
|Richard G. Erickson (12)                                                   |                                             | 93,750             
|William S. Medve (13)                                                      |                                             | 83,750             
|Jack P. Adler (14)                                                         |                                             | 51,000             
|Vincent Tinebra                                                            |                                             | --                 
|Mark Perlstein (15)                                                        |                                             | 31,250             
|All directors and executive officers as a group                            |                                            
|(11 persons)                                                               |                                             | 2,363,300          
|                                                                          

* Less than one percent

|46
|--

---

|(1) |  | Except as set forth in the footnotes to this table and subject to applicable
               community property law, the persons named in the table have sole voting and sole
               investment power with respect to all shares of Common Stock shown as
               beneficially owned by such shareholder.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Applicable ownership percentage is based on 6,388,188shares of Common
               Stock outstanding on February 28, 2003, plus shares which represent presently
               exercisable stock options held by each such holder which are exercisable within
               the 60 days after February 28, 2003, as applicable.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Pursuant to a Schedule 13G/A filed with the SEC on January 11, 2002. Does not
               include 135,000 shares of Common Stock owned by The Gang Annuity Trust dated
               January 3, 1994. Mr. Gang disclaims beneficial ownership of such shares.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Pursuant to a Schedule 13D/A filed with the SEC on August 20, 1999.
|--- |  | -------------------------------------------------------------------

|(5) |  | Pursuant to a Schedule 13G/A filed with the SEC on February 11, 2003.
|--- |  | ---------------------------------------------------------------------

|(6) |  | Pursuant to a Schedule 13G/A filed with the SEC on January 31, 2003.
|--- |  | --------------------------------------------------------------------

|(7) |  | Represents 51,250 shares of Common Stock underlying options which are
               exercisable as of February 28, 2003 or within the 60 days after such date.
               Excludes 48,750 shares underlying options which become exercisable over time
               after such period. In addition, excludes 135,000 shares owned by The Gang
               Annuity Trust. Mr. Gang disclaims beneficial ownership of such shares.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) |  | Represents 20,000 shares of Common Stock underlying options which are
               exercisable as of February 28, 2003 or within the 60 days after such date. Does
               not include 687,100 shares of Common Stock owned by Fallen Angel Equity Fund,
               L.P., a Delaware limited partnership, in which Mr. Cohen is a limited partner.
               Mr. Cohen disclaims beneficial ownership of such shares of Common Stock.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) |  | Represents 32,500 shares of Common Stock underlying options which are
               exercisable as of February 28, 2003 or within the 60 days after such date.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) |  | Represents 27,500 shares of Common Stock underlying options which are
               exercisable as of February 28, 2003, or within the 60 days after such date.
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) |  | Represents 5,000 shares of Common Stock underlying options which are exercisable
               as of February 28, 2003, or within 60 days after such date. Does not include
               687,100 shares of Common Stock owned by Fallen Angel Equity Fund, L.P., a
               Delaware limited partnership, in which Mr. Goldsmith is a limited partner. Mr.
               Goldsmith disclaims beneficial ownership of such shares of Common Stock.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(12) |  | Represents 93,750 shares of Common Stock underlying options which are
               exercisable as of February 28, 2003 or within the 60 days after such date.
               Excludes 206,250 shares underlying options which become exercisable over time
               after such period.
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(13) |  | Represents 83,750 shares of Common Stock underlying options which are
               exercisable as of February 28, 2003 or within the 60 days after such date.
               Excludes 121,250 shares underlying options which become exercisable over time
               after such period.
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|47
|--

---

|(14) |  | Represents 51,000 shares of Common Stock underlying options which are
               exercisable as of February 28, 2003 or within the 60 days after such date.
               Excludes 59,000 shares underlying options which become exercisable over time
               after such period.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(15) |  | Represents 31,250 shares of Common Stock underlying options which are
               exercisable as of February 28, 2003 or within the 60 days after such date.
               Excludes 93,750 shares underlying options which become exercisable over time
               after such period.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|SUMMARY OF EXISTING
EQUITY COMPENSATION PLANS


The
following table sets forth certain information about our companys 1995 Stock Plan
and 1995 Non-Employee Director Stock Option Plan. These plans are our companys only
equity compensation plans and each was previously approved by our companys
shareholders.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Equity Compensation Plan Information
|------------------------------------
|                                    
|
|                                    
|Equity compensation plans           
|approved by security holders        
|                                    
|                                    
|Equity compensation plans not       
|approved by security holders        
|                                    
|Total                               
|                                    

|48
|--

---

|Item 13.   Certain
Relationships and Related Transactions.


In
2002, 2001, and 2000 we paid, as compensation for services rendered to us and for sales
generated, an aggregate of $448,222, $325,100, $491,400, respectively, to Michael Gang,
the son of Stan Gang, our Chairman of the Board.  Michael Gang serves as National Account
Manager/Sector Director and has served as a director since September 1995 and as Secretary
from September 1995 to October 1997.


Richard
G. Erickson, serves as our Chief Executive Officer and President through New England
Associates, LLC, a professional services turnaround consultancy of which Mr. Erickson is
president. In 2002, we entered into a consulting arrangement with Mr. Erickson, through
New England Associates, LLC, which is discussed under Item 11 of this report, Executive
Compensation, under the heading Employment Contracts, Termination of Employment and
Change-of-Control Arrangements.


In
1995, the Board of Directors adopted a policy requiring that any transactions between our
company and its officers, directors, principal shareholders and their affiliates be on
terms no less favorable to our company than could be obtained from unrelated third parties
and that any such transactions be approved by a majority of the disinterested members of
our Board of Directors.


Item 14.   Controls and
Procedures


Within
the 90 days prior to the date of this report, we carried out an evaluation, under the
supervision and with the participation of management, including our President and Chief
Executive Officer and our Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14.
Based upon the evaluation, they concluded that our disclosure controls and procedures are
effective in alerting them timely to material information relating to the company
(including its consolidated subsidiaries) required to be included in this report. There
have been no significant changes in our internal controls or in other factors that could
significantly affect internal controls subsequent to the date of the evaluation.


49
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|PART IV


Item 15.   Exhibits,
Financial Statement Schedules, and Reports on Form 8-K.


     (a)    
          (1) Financial Statements.


Reference
is made to the Index to Consolidated Financial Statements on page F-1.


     (2)       
          Financial Statement Schedules and Supplementary Data.





     Schedule II - Valuation and Qualifying Accounts.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | All
other financial statement schedules are omitted because the information is not required,
or is otherwise included in the Consolidated Financial Statements or the notes thereto
included in this Annual Report on Form 10-K.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(3)       
          Exhibits.

Reference
is made to the Index to Exhibits on pages 51-57.

(b)    
          Reports on Form 8-K.

| | On November 20, 2002, we filed with the Commission a Current Report on Form 8-K reporting
events under Item 5  Other Events.
| | -----------------------------------------------------------------------------------------------------------------------------

|50
|--

---

|ExhibitNo. |  | Description ofExhibit
|---------- |  | ---------------------

|3.1* |  | Amended
and Restated Certificate of Incorporation.
|---- |  | --------------------------------------------------

|3.2* |  | Amended
and Restated Bylaws.
|---- |  | ----------------------------

|4.1*# |  | 1995
Stock Plan of the Company.
|----- |  | -------------------------------

|4.2*# |  | 1995
Non-Employee Director Stock Option Plan.
|----- |  | ---------------------------------------------

|4.3*# |  | 401(k)
Plan, adopted October 1991.
|----- |  | ----------------------------------

|10.1*# |  | Employment
Agreement dated October 1, 1995 between the Company and Stan Gang.
|------ |  | -----------------------------------------------------------------------------

|10.2*# |  | Employment
Agreement dated October 1, 1995 between the Company and Bruce Flitcroft.
|------ |  | -----------------------------------------------------------------------------------

|10.3*# |  | Employment
Agreement dated October 1, 1995 between the Company and Philip M. Pfau.
|------ |  | ----------------------------------------------------------------------------------

|10.4*# |  | Employment
Agreement dated October 1, 1995 between the Company and Dennis Samuelson.
|------ |  | ------------------------------------------------------------------------------------

|10.5*# |  | Employment
Agreement dated October 1, 1995 between the Company and Lawrence Mahon.
|------ |  | ----------------------------------------------------------------------------------

|10.6*# |  | Employment
Agreement dated October 1, 1995 between the Company and John Centinaro.
|------ |  | ----------------------------------------------------------------------------------

|10.7*# |  | Employment
Agreement dated October 1, 1995 between the Company and John Crescenzo.
|------ |  | ----------------------------------------------------------------------------------

|10.8*# |  | Employment
Agreement effective November 1, 1995 between the Company and Gary S. Finkel.
|------ |  | ---------------------------------------------------------------------------------------

|10.9* |  | Lease
dated June 27, 1994 by and between Sutman Associates and the Company, as amended.
|----- |  | ---------------------------------------------------------------------------------------

|10.10* |  | Form
of Invention Assignment and Confidentiality Agreement.
|------ |  | -----------------------------------------------------------

|51
|--

---

|10.11* |  | Agreement
dated July 1, 1994 by and between the Company and MicroAge Computer  Centers,  Inc., as
                  amended.
|------ |  | ----------------------------------------------------------------------------------------------------------------------------

|10.12* |  | Reseller
 Agreement  dated  November  7, 1994 by and  between  the  Company  and Ingram  Alliance
                  Reseller Company, a division of Ingram Micro, Inc. as amended.
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.13* |  | Agreement
 for Wholesale  Financing  dated May 20, 1988 by and between the Company and IBM Credit
                  Corporation.
|------ |  | --------------------------------------------------------------------------------------------------------------------------------

|10.14 |  | Dealer
Loan and  Security  Agreement  by and between the Company and Finova  Capital
 Corporation                   dated  December 20, 1996.  (Incorporated  by  reference to
the  Company's  Form 10-K for the year                   ended December 31, 1996 filed
with the Commission on March 27, 1997.)
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.15* |  | Agreement
by Stan Gang dated February 19, 1996 to indemnify the Company for certain losses.
|------ |  | -------------------------------------------------------------------------------------------

|10.16 |  | Asset
 Purchase  Agreement  dated  July  18,  1996  by and  between  Stan  Gang  and  Lior,
 Inc.                   (Incorporated  by  reference  to the  Company's  Current  Report
 on Form  8-K,  filed  with  the                   Commission on August 5, 1996.)
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.17 |  | Assignment
 of Asset  Purchase  Agreement  dated July 24, 1996 by and  between  Stan Gang and the
                  Company.  (Incorporated by reference to the Company's  Current Report
on Form 8-K, filed with the                   Commission on August 5, 1996.)
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.18 |  | Loan
and Security  Agreement  dated June 30, 1997 by and between  First Union  National  Bank
and                   the Company.  (Incorporated  by reference to the  Company's  Form
10-Q for the  quarterly  period                   ended June 30, 1997, filed with the
Commission on August 13, 1997.)
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.19 |  | Asset
 Purchase  Agreement  dated  August 1, 1997 by and between the Company and The Lande
Group,                   Inc.  (Incorporated  by reference to the Company's Form 10-Q for
the quarterly  period ended June                   30, 1997, filed with the Commission on
August 13, 1997.)
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.20 |  | Assignment
 of lease dated  August 1, 1997 by and between The Lande  Group,  Inc.,  460 West 34th
                  Street  Associates,  and the Company of a lease dated  December  23,
1996 by and between 460 West                   34th Street  Associates  and The Lande
Group,  Inc.  (Incorporated  by reference to the Company's                   Form 10-Q
for the  quarterly  period ended  September  30,  1998,  filed with the  Commission  on
                  November 16, 1998.)
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|52
|--

---

|10.21 |  | Form
of  Indemnification  Agreement  entered  into by past and present  Directors  and
 Officers.                   (Incorporated  by reference to the Company's Form 10-Q for
the quarterly  period ended  September                   30, 1998, filed with the
Commission on November 16, 1998.)
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.22 |  | First
 Amendment to and  Reaffirmation  of Loan Document dated  September 30, 1998 by and
between                   First Union National Bank and the Company.  (Incorporated  by
reference to the Company's  Amended                   Form 10-Q for the  quarterly
 period ended  September  30,  1998,  filed with the  Commission  on
                  November 25, 1998.)
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.23 |  | Revolving
 Note dated  September  30,  1998 by and  between  First  Union  National  Bank and the
                  Company.  Incorporated by reference to the Company's  Amended Form 10-Q
for the quarterly  period                   ended September 30, 1998, filed with the
Commission on November 25, 1998.
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.24 |  | Sublease,
 American International  Recovery,  Inc. to the Company.  (Incorporated by reference to
                  the Company's Form 10-Q for the quarterly  period ended June 30, 1998,
 filed with the Commission                   on August  14, 1998.)
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.25 |  | Employee
 Stock  Purchase  Plan.  (Incorporated  by reference to the Company's  Form 10-Q for the
                  quarterly period ended June 30, 1998, filed with the Commission on
August  14, 1998.)
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.26 |  | Sub-Sublease
 Agreement  dated as of May 25, 1999 by and between the Company and  Datajump,  Inc.
                  (Incorporated  by reference to the Company's  Form 10-Q for the
 quarterly  period ended June 30,                   1999, filed with the Commission on
August 12, 1999.)
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.27 |  | #
          Form of Change of  Control  Agreements  entered  into as of June 8, 1999 with
 certain  executive                   officers  of the  Company.  (Incorporated  by
 reference  to the  Company's  Form  10-Q  for  the                   quarterly period
ended June 30, 1999, filed with the Commission on August 12, 1999.)
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.28 |  | Second
 Amendment to and  Reaffirmation  of Loan Documents  dated as of September 28, 1999 by
and                   between First Union  National Bank and the Company.  (Incorporated
 by reference to the Company's                   Form 10-Q for the  quarterly  period
ended  September  30,  1999,  filed with the  Commission  on                   November
12, 1999.)
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.29 |  | Revolving
 Note dated as of September 28, 1999 by and between  First Union  National Bank and the
                  Company.  (Incorporated  by reference to the Company's  Form 10-Q for
the quarterly  period ended                   September 30, 1999, filed with the
Commission on November 12, 1999.)
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|53
|--

---

|10.30 |  | Third
 Amendment  to and  Reaffirmation  of Loan  Documents  dated as of  January  1, 2000 by
and                   between First Union  National Bank and the Company.  (Incorporated
 by reference to the Company's                   Form 10-K for the year ended December
31, 1999 filed with the Commission on March 30, 2000.)
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.31 |  | Revolving
 Note A dated as of January 1, 2000 by and between  First Union  National  Bank and the
                  Company.  (Incorporated  by reference to the Company's  Form 10-K for
the year ended December 31,                   1999 filed with the Commission on March 30,
2000.)
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.32 |  | Revolving
 Note B dated as of January 1, 2000 by and between  First Union  National  Bank and the
                  Company.  (Incorporated  by reference to the Company's  Form 10-K for
the year ended December 31,                   1999 filed with the Commission on March 30,
2000.)
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.33 |  | Securities
 Purchase  Agreement  dated as of January  14, 2000 by and among the  Company,  Fallen
                  Angel  Equity Fund LP, John L.  Steffens and  nex-i.com  inc.
 (Incorporated  by reference to the                   Company's  Form 10-K for the year
ended  December 31, 1999 filed with the Commission on March 30,                   2000.)
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.34 |  | Registration
 Rights  Agreement  dated as of January  14, 2000 by and among the  Company,  Fallen
                  Angel  Equity Fund LP, John L.  Steffens and  nex-i.com  inc.
 (Incorporated  by reference to the                   Company's  Form 10-K for the year
ended  December 31, 1999 filed with the Commission on March 30,                   2000.)
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.35 |  | Co-Sale
 Agreement  dated as of January 14, 2000 by and among the  Company,  Fallen  Angel Equity
                  Fund LP, John L.  Steffens,  nex-i.com  inc. and Ira A.  Baseman.
 (Incorporated  by reference to                   the Company's  Form 10-K for the year
ended  December 31, 1999 filed with the Commission on March                   30, 2000.)
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.36 |  | Fourth
 Amendment to and  Reaffirmation  of Loan Document  dated December 21, 2000 by and
between                   First Union  National  Bank and the Company.  (Incorporated  by
reference to the  Company's  Form                   10-K for the year ended December 31,
2000 filed with the Commission on March 30, 2001.)
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.37 |  | Revolving
 Note dated as of December 21, 2000 by and between  First Union  National  Bank and the
                  Company.  (Incorporated  by reference to the Company's  Form 10-K for
the year ended December 31,                   2000 filed with the Commission on March 30,
2001.)
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|54
|--

---

|10.38 |  | Plan
of Merger of Eureka  Telecommunications  II, Inc. with and into nex-i.com inc.
(Incorporated                   by  reference  to the  Company's  Form 10-K for the year
ended  December  31, 2000 filed with the                   Commission on March 30, 2001.)
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.39 |  | Second
 Amended and  Restated  Certificate  of  Incorporation  of Eureka  Broadband
 Corporation.                   (Incorporated  by  reference  to the  Company's  Form
10-K for the year ended  December  31, 2000                   filed with the Commission
on March 30, 2001.)
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.40 |  | Recruitment
 Agreement  dated  July 3, 2001,  by and  between  the  Company  and EDS  Information
                  Services  L.L.C.  Incorporated  by reference to the Company's  Form 8-K
filed with the Commission                   on July 16, 2001.)
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.41 |  | Asset
Purchase  Agreement  dated August 31,2002 by and between the Company and Computer
 Horizons                   Corp.  (Incorporated  by reference to the  Company's  Form
10-Q for the quarter  ended  September                   30, 2001 filed with the
Commission on November 13, 2001.)
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.42 |  | Agent
 Agreement  dated as of January 17, 2002, by and between the Company and  MoreDirect,
 Inc.                   (Incorporated  by  reference  to the  Company's  Form 10-K for
the year ended  December  31, 2001                   filed with the Commission on March
27, 2002.)
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.43# |  | Offer
 letter   dated  March  15,  2002  by  and  between  the  Company  and  Richard
  Erickson.                   (Incorporated  by  reference  to the  Company's  Form 10-K
for the year ended  December  31, 2001                   filed with the Commission on
March 27, 2002.)
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.44# |  | Severance
 and  Release  Agreement,  dated as of April 12,  2002,  by and between the Company and
                  Vincent Tinebra.  (Incorporated  by reference to the Company's  Current
Report on Form 8-K, filed                   with the Commission on May 2, 2002.)
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.45# |  | Agreement
 and Mutual  Releases,  entered into by the Company and Stan Gang,  the Chairman of the
                  Board of Directors of the Company,  on July 18, 2002,  relating to Mr.
 Gang's  retirement as the                   Chief Executive Officer of the Company,
 effective  December 1, 2001.  (Incorporated by reference                   to the
Company's Current Report on Form 8-K, filed with the Commission on July 19, 2002.)
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.46 |  | Indemnification
 Agreement  dated  as of July 31,  2002 by and  among  the  Company,  Richard  G.
                  Erickson and New England  Associates,  LLC.  (Incorporated  by
reference  to the  Company's  Form                   10-Q for the quarter ended June 30,
2002 filed with the Commission on August 13, 2002.)
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|55
|--

---

|10.47# |  | Change-of-Control
 Agreement by and between the Company and William S. Medve,  dated September 3,
                  2002.  (Incorporated  by reference to the Company's  Current  Report on
Form 8-K,  filed with the                   Commission on September 10, 2002.)
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.48# |  | Severance
 Agreement  by and between the Company and William S. Medve,  dated  September 3, 2002.
                  (Incorporated  by  reference  to the  Company's  Current  Report  on
Form  8-K,  filed  with  the                   Commission on September 10, 2002.)
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.49# |  | Change-of-Control
 Agreement  by and between the Company and Jack P. Adler,  dated  September  3,
                  2002.  (Incorporated  by reference to the Company's  Current  Report on
Form 8-K,  filed with the                   Commission on September 10, 2002.)
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.50# |  | Severance
 Agreement  by and between the Company  and Jack P.  Adler,  dated  September  3, 2002.
                  (Incorporated  by  reference  to the  Company's  Current  Report  on
Form  8-K,  filed  with  the                   Commission on September 10, 2002.)
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.51# |  | Change-of-Control
 Agreement by and between the Company and Mark  Perlstein,  dated  September 9,
                  2002.  (Incorporated  by reference to the Company's  Current  Report on
Form 8-K,  filed with the                   Commission on September 10, 2002.)
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.52# |  | Severance
 Agreement  by and between the Company and Mark  Perlstein,  dated  September  9, 2002.
                  (Incorporated  by  reference  to the  Company's  Current  Report  on
Form  8-K,  filed  with  the                   Commission on September 10, 2002.)
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.53# |  | Amendment
to Consulting  Agreement  between the Company and Richard G.  Erickson,  dated February
                  14, 2003.  (Incorporated  by reference to the  Company's  Form 8-K
filed with the  Commission  on                   February 14, 2003.)
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.54# |  | Amendment
to Consulting  Agreement  between the Company and Richard G.  Erickson,  dated February
                  28, 2003.  (Incorporated  by reference to the  Company's  Form 8-K
filed with the  Commission  on                   March 3, 2003.)
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.55 |  | Settlement
 Agreement  dated  March 25,  2003,  by and  between the Company and the New York City
                  Transit  Authority  (Incorporated  by  reference  to  the  Company's
 Form  8-K  filed  with  the                   Commission on March 26, 2003.)
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|21 |  | Subsidiaries
of the Company.  (Incorporated  by reference to the Company's Form 10-K for the year
                  ended December 31, 1996 filed with the Commission on March 27, 1997.)
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|56
|--

---

|23+ |  | Consent
of PricewaterhouseCoopers LLP.
|--- |  | --------------------------------------

_________________

|* |  | Incorporated
 by reference to the Company's  Registration  Statement of Form S-1  (Registration
 Statement          No. 33-97922) declared effective on March 20, 1996.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|# |  | A
management  contract or compensatory plan or arrangement  required to be filed as an
exhibit pursuant to          Item 15(c) of Form 10-K.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------

|+ |  | Filed
herewith.
|- |  | ---------------

|57
|--

---

|ALPHANET SOLUTIONS, INC.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|------------------------------------------------------------------

|                                                             | Page
|------------------------------------------------------------ | ----
|                                                             |     
|Report of Independent Accountants                            |     
|                                                             |     
|Consolidated balance sheets as of December 31, 2002 and 2001 |     
|                                                             |     
|Consolidated statements of operations for the years          |     
|ended December 31, 2002, 2001, and 2000                      |     
|                                                             |     
|Consolidated statements of changes in shareholders'          |     
|equity for the years ended December 31, 2002, 2001, 2000     |     
|                                                             |     
|Consolidated statement of cash flows for the years ended     |     
|December 31, 2002, 2001, and 2000                            |     
|                                                             |     
|Notes to consolidated financial statements                   |     

|F-1
|---

---

|REPORT OF INDEPENDENT
ACCOUNTANTS


To the Board of Directors and
Shareholders of AlphaNet Solutions, Inc.:


In our opinion,  the consolidated
 financial  statements listed in the index appearing under Item 15(a)(1) on page 50
present  fairly,  in all  material  respects,  the  financial  position  of  AlphaNet
 Solutions,  Inc.  and its wholly-owned  subsidiary at December 31, 2002 and 2001,  and
the results of their  operations  and their cash flows for each of the three years in the
period  ended  December 31,  2002,  in  conformity  with  accounting  principles
generally  accepted  in the United  States of  America.  In  addition,  in our  opinion,
 the  financial  statement schedule listed in the index appearing under Item 15(a)(2) on
page 50 presents  fairly,  in all material  respects, the  information set forth therein
when read in conjunction  with the related  consolidated  financial  statements. These
 financial  statements  and  the  financial  statement  schedule  are  the
 responsibility  of the  Company's management;  our responsibility is to express an
opinion on these financial  statements and the financial statement schedule based on our
audits.  We conducted our audits of these  statements in accordance  with auditing
 standards generally  accepted in the United  States of America,  which  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, assessing the accounting principles used and significant  estimates made by
management,  and evaluating the overall financial statement presentation.  We believe
that our audits provide a reasonable basis for our opinion.



PricewaterhouseCoopers LLP
 Florham Park, NJ 
March 25, 2003



F-2
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|ALPHANET SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS(in thousands, except share data)
|-------------------------------------------------------------------------------------

|ASSETS                                                          | December 31,
|--------------------------------------------------------------- | ------------
|                                                                |             
|
|Current assets:                                                 |             
|Cash and cash equivalents                                       |             
|Accounts receivable, less allowance for doubtful accounts of    |             
|$415 and $622 at December 31, 2002 and 2001, respectively       |             
|Inventory                                                       |             
|Income taxes                                                    |             
|Prepaid expenses and other current assets                       |             
|                                                                |             
|Total current assets                                            |             
|                                                                |             
|Property and equipment, net                                     |             
|Goodwill, net                                                   |             
|Other assets                                                    |             
|                                                                |             
|                                                                |             
|Total assets                                                    |             
|                                                                |             
|                                                                |             
|LIABILITIES AND SHAREHOLDERS' EQUITY                            |             
|                                                                |             
|Current liabilities:                                            |             
|Current portion of capital lease obligations                    |             
|Accounts payable and deferred revenue`                          |             
|Accrued expenses                                                |             
|Deferred revenue                                                |             
|Accrued contract loss                                           |             
|                                                                |             
|                                                                |             
|Total current liabilities                                       |             
|                                                                |             
|                                                                |             
|                                                                |             
|Total liabilities                                               |             
|                                                                |             
|Commitments and contingencies (Note 7)                          |             
|Shareholders' equity:                                           |             
|Preferred stock-- $0.01 par value; authorized 3,000,000 shares, |             
|none issued                                                     |             
|Common stock-- $0.01 par value; authorized 15,000,000 shares,   |             
|6,588,413 shares issued at December 31, 2002 and                |             
|December  31, 2001                                              |             
|Additional paid-in capital                                      |             
|Accumulated Deficit                                             |             
|Treasury stock-- at cost; 202,100 shares at December 31, 2002   |             
|and 150,600 shares at December 31, 2001                         |             
|                                                                |             
|Total  shareholders' equity                                     |             
|                                                                |             
|Total liabilities and shareholders' equity                      |             
|                                                                |             

|See accompanying notes to consolidated financial statements.

F-3
|-----------------------------------------------------------------

---

|
|

# ALPHANET SOLUTIONS,
INC. CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share amounts)

|                                                    | Year Ended December 31,
|--------------------------------------------------- | -----------------------
|                                                    |                        
|
|Net sales:                                          |                        
|Product                                             |                        
|Professional services                               |                        
|                                                    |                        
|                                                    |                        
|Cost of sales:                                      |                        
|Product                                             |                        
|Professional services                               |                        
|Other                                               |                        
|                                                    |                        
|                                                    |                        
|                                                    |                        
|Gross profit                                        |                        
|                                                    |                        
|Operating expenses:                                 |                        
|Selling, general and administrative                 |                        
|Write-off of goodwill                               |                        
|                                                    |                        
|                                                    |                        
|                                                    |                        
|Operating loss                                      |                        
|                                                    |                        
|Other income and expenses:                          |                        
|Interest income, net                                |                        
|Nex-i.com / Eureka                                  |                        
|Other income                                        |                        
|                                                    |                        
|                                                    |                        
|                                                    |                        
|Loss before income taxes                            |                        
|                                                    |                        
|Provision (benefit) for income taxes                |                        
|                                                    |                        
|Net  income (loss)                                  |                        
|                                                    |                        
|Net income (loss) per share:                        |                        
|                                                    |                        
|Basic                                               |                        
|                                                    |                        
|Diluted                                             |                        
|                                                    |                        
|Shares used to compute net income (loss) per share: |                        
|Basic                                               |                        
|                                                    |                        
|Diluted                                             |                        
|                                                    |                        
|                                                    |                        

|F-4
|---

---

|ALPHANET SOLUTIONS, INC.CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
|-------------------------------------------------------------------------------------------------

|                             | CommonShares | CommonStock | TreasuryShares | TreasuryStock | Paid-InCapital | RetainedEarningsAccumulated | Total
|---------------------------- | ------------ | ----------- | -------------- | ------------- | -------------- | --------------------------- | -----
|                             |              |             |                |               |                |                             |      
|Balance at December 31, 1999 |              |             |                | 6,423         |                | $                           | 64   
|                             |              |             |                |               |                |                             |      
|Exercise of stock            |              |            
|options                      |              |             |                | 79            |                |                             | 1    
|Employee stock purchases     |              |             |                | 34            |                |                             | --   
|Issuance of stock           
|warrants                     |              |             |                | --            |                |                             | --   
|Net income                   |              |             |                | --            |                |                             | --   
|                             |              |             |                |               |                |                             |      
|Balance at December 31, 2000 |              |             |                | 6,536         |                | $                           | 65   
|                             |              |             |                |               |                |                             |      
|Exercise of stock           
|options                      |              |             |                | 6             |                |                             | --   
|Employee stock purchases     |              |             |                | 46            |                |                             | 1    
|Net loss                     |              |             |                | --            |                |                             | --   
|                             |              |             |                |               |                |                             |      
|Balance at December 31, 2001 |              |             |                | 6,588         |                | $                           | 66   
|                             |              |             |                |               |                |                             |      
|Non-employee stock           |              |            
|options cost                 |              |             |                | --            |                |                             | --   
|Purchase of treasury         |              |            
|stock                        |              |             |                | --            |                |                             | --   
|Net income                   |              |             |                | --            |                |                             | --   
|                             |              |             |                |               |                |                             |      
|Balance at December 31, 2002 |              |             |                | 6,588         |                | $                           | 66   
|                             |              |             |                |               |                |                             |      

|See accompanying notes to consolidated financial statements.




F-5
|--------------------------------------------------------------------

---

|ALPHANET SOLUTIONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS(in thousands)
|---------------------------------------------------------------------------

|                                                                      | Year Ended December 31,
|--------------------------------------------------------------------- | -----------------------
|                                                                      |                        
|
|                                                                      |                        
|Cash flows from operating activities:                                 |                        
|Net (loss)  income                                                    |                        
|Adjustments to reconcile
net income to net cash provided by (used in) |                        
|operating activities:                                                 |                        
|Nex-i.com loss recognition                                            |                        
|MTA contract loss                                                     |                        
|Depreciation and amortization                                         |                        
|Deferred income taxes                                                 |                        
|Goodwill write-off                                                    |                        
|Write-off of assets                                                   |                        
|Write-off of Eureka Broadband
common stock                            |                        
|Provision for accounts receivable                                     |                        
|Provision for inventory                                               |                        
|Non-cash non-employee stock option charge                             |                        
|Income taxes                                                          |                        
|Increase (decrease) from changes in:                                  |                        
|Accounts receivable                                                   |                        
|Inventories                                                           |                        
|Prepaid expenses and other current assets                             |                        
|Other assets                                                          |                        
|Income taxes                                                          |                        
|Accounts payable                                                      |                        
|Accrued expenses and deferred revenue                                 |                        
|Contract liability                                                    |                        
|                                                                      |                        
|Net cash (used in)  provided by operating activities                  |                        
|                                                                      |                        
|Cash flows from investing activities:                                 |                        
|Property and equipment expenditures                                   |                        
|Business acquisitions                                                 |                        
|                                                                      |                        
|Proceeds from sale of equipment                                       |                        
|Eureka Broadband investments                                          |                        
|                                                                      |                        
|Net cash used in investing activities                                 |                        
|                                                                      |                        
|Cash flows from financing activities:                                 |                        
|Repayment of capital lease obligations                                |                        
|Repayment of Shareholder Advance                                      |                        
|Net proceeds from sales of common stock                               |                        
|Exercise of stock options                                             |                        
|Purchase of treasury stock                                            |                        
|                                                                      |                        
|Net cash (used in) provided by
financing activities                   |                        
|                                                                      |                        
|Net increase (decrease) in cash and cash equivalents                  |                        
|                                                                      |                        
|Cash and cash equivalents, beginning of period                        |                        
|                                                                      |                        
|Cash and cash equivalents, end of period                              |                        
|                                                                      |                        

|See accompanying
notes to consolidated financial statements.



F-6
|-------------------------------------------------------------------

---

|ALPHANET SOLUTIONS,
INC.



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


     1.    
          Summary of Significant Accounting Policies:


Nature of Business:


AlphaNet
Solutions, Inc. (the Company) is an information technology (IT) professional
services firm providing a range of outsourced solutions in two major IT practice areas: IT
Operations and Learning Solutions. IT Operations includes: AlphaNet Technology and
Outsourcing SolutionsSM, which delivers IT projects and services around
networks, servers, desktops, storage, and information security; and AlphaNet Service Desk
SolutionsSM, which delivers services such as monitoring, management, hosting,
and helpdesk support for a wide variety of applications. AlphaNet Learning
SolutionsSM offers custom training programs, classroom instruction, and
certification programs. Together, these solutions help the Companys clients reduce
costs, create value by leveraging our IT expertise rather than developing their own
in-house capabilities.



Basis of Consolidation:


The consolidated
financial statements include the accounts of the Company and its wholly-owned inactive
subsidiary. All material intercompany accounts and transactions have been eliminated in
consolidation.


Cash
and Cash Equivalents:


The
Company considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents. The Company has bank balances, including cash
equivalents, which at times may exceed Federally insured limits.



Financial Instruments:


The
carrying value of financial instruments such as cash and cash equivalents, trade
receivables, and payables approximates their fair value at December 31, 2002 and 2001.


Inventory:


Inventory,
consisting entirely of goods for resale, are stated at the lower of cost or market, with
cost determined on the weighted average method.



Property
and Equipment:


Property
and equipment are stated at cost less accumulated depreciation. Repairs and maintenance
costs which do not extend the useful lives of the assets are expensed as incurred. The
Company provides for depreciation on property and equipment, except for leasehold
improvements, on the straight-line method over the estimated useful lives of the assets,
generally two to seven years. Leasehold improvements are amortized on the straight-line
method over the shorter of the estimated useful lives of the assets or the
remaining term of the applicable lease.




F-7
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Costs
of computer software developed or obtained for internal use and costs associated with
technology under development are capitalized and amortized over the estimated useful lives
of the assets, generally two-to-five years. Capitalization of costs begins when conceptual
and design activities have been completed, and when management has authorized and
committed to fund a project. Costs capitalized include external and internal direct costs
of labor, materials and services. Costs associated with training and general and
administrative activities are expensed as incurred.



Recoverability
of Long-Lived Assets:


The
Company reviews the recoverability of its long-lived assets on a periodic basis in order
to identify business conditions which may indicate a possible impairment. The assessment
for potential impairment is based primarily on the Companys ability to recover the
unamortized balance of its long-lived assets from expected future undiscounted cash flows.
If the total expected future undiscounted cash flows is less than the carrying amount of
the assets, a loss is recognized for the difference between the fair value (computed based
upon the expected future discounted cash flows) and the carrying value of the assets.


Goodwill


The
Company evaluates its goodwill by assessing the fair value by comparison to available
information to determine the estimated enterprise value and would recognize a loss if
these computations indicated an impairment.


The
Lior, Lande and Omnitech businesses were acquired by the Company in 1996, 1997 and 2000,
respectively; these businesses were primarily engaged in reselling and product integration
(referred to as the product business). These businesses were fully integrated
into the product business operations of the Company. Ending in 2002, the Company shifted
its business model from a product reseller and integration business to a model which
minimized low-margin product business, and focused on higher-margin professional services.
As a result of this shift, the Companys product sales have declined significantly
since these acquisitions.  In 2001, the Company determined that, based upon its current and
future business model and current and estimated financial performance as it relates to
this business, that these conditions would result in negative cash flows and accordingly,
the Company recorded a write-off of the product business related goodwill of $1.9
million in accordance with the provisions of SFAS 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of.


In
accordance with SFAS No. 142, Goodwill and Other Intangible Assets, prior year amounts were not restated for the effect of adopting this standard. A reconciliation of
the previously reported net income (loss) and earnings (loss) per share to the amounts
adjusted for the reduction of goodwill amortization expense, net of the related income tax effect,
is as follows:



F-8
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|                                                             | Year Ended December 31,
|------------------------------------------------------------ | -----------------------
|
|
|
|Net income (loss):                                           |                        
|Reported net income (loss)                                   |                        
|Amortization adjustment                                      |                        
|
|Adjusted net loss                                            |                        
|
|Income  (loss) per share of common stock - basic:            |                        
|Reported income (loss) per share - basic                     |                        
|Amortization adjustment                                      |                        
|
|Adjusted loss per share - basic                              |                        
|
|Income (loss) per share of common stock -
assuming dilution: |                        
|Reported income (loss) per share - assuming dilution         |                        
|Amortization adjustment                                      |                        
|
|Adjusted loss per share - assuming dilution                  |                        
|

Stock-Based
Compensation:

In
1995, the Financial Accounting Standards Board issued Statement No. 123, Accounting
for Stock-Based Compensation (FAS 123) which requires companies to
measure stock compensation plans based on the fair value method of accounting or to
continue to apply APB No. 25, Accounting for Stock Issued to Employees
(APB 25), and to provide pro forma footnote disclosure under the fair value
method. Effective January 1, 1996, the Company adopted the disclosure-only provisions of
FAS 123 and continues to follow APB 25 and related interpretations to account for the
Companys stock compensation plans.

At
December 31, 2002, the Company had two stock-based compensation plans. The Company applies
APB 25 and related interpretations in accounting for its plans. During 2001, 2000 and
1999, no compensation cost has been recognized for its stock option plans, which are
described below. Had compensation cost been determined based on the fair value of the
options at the grant dates consistent with the method prescribed under FAS 123, the
Companys pro forma net income and pro forma earnings per share would have been
reduced to the adjusted pro forma amounts indicated below:

|F-9
|---

---

|                             | 2002       | 2001 | 2000       
|---------------------------- | ---------- | ---- | -----------
|
|Net income (loss)            |            |      |            
|As reported                  | $      831 |      | ($5,494    
|Pro forma                    | $      546 |      | ($5,867    
|Net income (loss) per share: |           
|As reported:                
|Basic                        | $     0.13 |      | $     (0.86
|Diluted                      | $     0.13 |      | $     (0.86
|Pro forma:                   |           
|Basic                        | $     0.08 |      | $     (0.91
|Diluted                      | $     0.08 |      | $     (0.91
|                             |           

|Revenue Recognition:


Professional
service revenue is recognized when the applicable services are rendered. The Company
recognizes revenue on service contracts on a prorated basis over the life of the
contracts. Revenues under the Companys contract with New York City Transit, an
agency of the Metropolitan Transit Authority of the State of New York (MTA),
are recognized on the percentage-of-completion method based on total costs incurred
relative to total estimated costs. Fees related to the Companys training programs
are recognized over the duration of the applicable training program. Deferred revenue
represents the unearned portion of each service contract and the unamortized balance of
training fees as of the balance sheet date. The Company recognizes sales of products when
title and risk of loss passes to the customer, which takes place either when the products
are shipped or upon delivery to the customer based upon the sales terms of the respective
transactions.


Revenues
are recognized on a time and materials basis, or on a percentage of completion basis,
depending on the contract, as services are provided by partners, employees and
subcontractors. Revenue from time and material service contracts is recognized as the
services are provided. Revenue from fixed price long-term contracts is recognized over the
contract term based on the percentage of services provided during the period compared to
the total estimated services to be provided over the entire contract. Losses on contracts
are recognized during the period in which the loss first becomes probable and reasonably
estimable. Revenue recognized in excess of billings is recorded as unbilled services.
Billings in excess of revenue recognized are recorded as deferred revenue until the above
revenue recognition criteria are met. Reimbursable costs, such as travel and other third
party costs, incurred in connection with providing professional services, which are
billed, are included in revenues and incurred costs are included in cost of sales.



F-10
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|In
December 1999, the Securities and Exchange Commission (SEC) issued a Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements. SAB 101 summarizes certain of the SEC Staffs views in applying
generally accepted accounting principles to revenue recognition in Financial Statements.
Adoption of SAB101 did not have a material effect on the Companys results of
operations.




Use of Estimates:


The preparation
of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the
reporting period. The Companys most significant accounting estimates include
assessing the collectability of accounts receivable, inventory valuation, MTA Contract
costs, the realizability of tax assets, and the recoverability of goodwill. Actual results
could differ from those estimates. The markets for the Companys services and
products are characterized by intense competition, technology advances and new
product/service introductions, all of which could impact the future value of the
Companys assets.


In
December 1997, the Company entered into a $20.4 million contract with the MTA (the
MTA Contract) to furnish and install local and wide-area computer network
components, including network and telecommunications hardware, software and cabling
throughout the MTAs over 200 locations. The aggregate amount of this contract was
subsequently increased to $20.6 million. The Company is the prime contractor on this
project and is responsible for project management, systems procurement, and installation.
The work is provided in contiguous locations and payment, including a
contractually-mandated holdback equal to 5% of total contract value for one year following
completion of the contract, is predicated upon achieving specific milestone events. In the
event of default, in addition to all other remedies at law, the MTA reserves the right to
terminate our services and complete the MTA Contract itself at our cost. In the event of
an unexcused delay by the Company, the Company may be obligated to pay, as liquidated
damages, the sum of $100 to $200 per day, per site. The MTA Contract is a fixed unit price
contract, and the quantities are approximate, for which the MTA has expressly reserved the
right, for each item, to direct the amount of equipment and related installation be
increased, decreased, or omitted entirely on 30 days notice. The MTA has the right to
suspend the work on 10 days notice for up to 90 days and/or terminate the contract, at any
time, on notice, paying only for the work performed to the date of termination. The
project is subject to the prevailing wage rate and classification for telecommunications
workers, as determined by the New York City Comptrollers office, over which the
Company has no control, and which is generally adjusted in June of each year and may be so
adjusted in the future.

F-11
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|The
Company has performed services and supplied products to the MTA since the inception of the
MTA Contract. The work performed at MTA sites has required greater than the
originally estimated labor and other costs to complete. In May 1999, the Company submitted
a formal request to the MTA for equitable adjustment in the amount of approximately $1.5
million and for a time extension. This request was supplemented with a further submission
in October 1999. In January 2000, the Project Manager for the MTA Contract denied the
Companys request, thereby triggering the Companys right under the contract to
appeal the Project Managers denial to the MTAs Dispute Resolution Office (the
DRO). The Company filed a Notice of Appeal with the DRO in February 2000, and
pursuant to the DROs request, filed further written submissions and participated in
an arbitral session with the DRO subsequent thereto. In November 2000, the DRO rendered a
written decision denying in full our Request for Equitable Adjustment and Time Extension.
Pursuant to the terms of the MTA Contract, in March 2001, the Company appealed the
DROs denial of its Request to the New York Supreme Court (the Court). On
April 22, 2002, the Court rendered it decision on the Companys appeal, denying all
of the Companys claims for review of the determination made by the DRO. On May 31,
2002, the Company filed an appeal of this decision with the New York Supreme Court,
Appellate Division. In February 2003, the Company perfected this appeal through the filing
of briefs with the New York Supreme Court, Appellate Division.


On
March 31, 2003, the Company entered into a settlement agreement with the MTA, pursuant to
which the Company agreed to dismiss its appeal in consideration of the MTAs
agreement that: (i) the MTA Contract was completed as of January 31, 2003, subject to
warranty claims; (ii) in the event the MTA were to request services, such services will be
subject to change order authorization and negotiated pricing; (iii) the Company will be
paid amounts remaining due under the MTA Contract subject to review and processing by the
MTA and satisfactory completion of our warranty obligation; and (iv) liquidated damages due
to project delays is $300,000. Based upon the settlement of the MTA Contract and the
Companys current estimate for its warranty obligation and the labor wage rate
matter discussed below, the Company reduced its MTA-contract related reserves by $500,000 in the
fourth quarter of 2002.


On
July 19, 2000, the MTA advised the Company of a determination by the Bureau of Labor Law
(the Bureau) of the New York City Comptrollers office, communicated to
the MTA by letter from the Bureau dated June 22, 2000, that, as of July 1, 2000, the labor
classification for all low voltage cabling carrying voice, data, video, or any combination
thereof, is electrician. The Bureaus determination is based on a New York State
Supreme Court Appellate Division decision dated May 18, 2000. The workers currently and
historically used by the Company to perform cabling work have been classified as
telecommunication workers. The Company believes it is probable that the Bureaus
determination will apply to the Companys cabling activities under the contract,
thereby likely requiring the reclassification of its telecommunications workers as
electricians retroactive to July 1, 2000. Since the prevailing wage for electricians is
substantially higher than that for telecommunications workers, the Company expects to
incur materially increased labor costs as a result of the Bureaus determination.



F-12
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|On
October 16, 2000, the MTA Project Manager denied the Companys request for a change
order to compensate the Company for the increased costs it expects to incur in connection
with the reclassification of certain of its telecommunications workers as electricians. On
January 19, 2001, the Company initiated a dipute within the meaning of the
applicable federal regulations governing the MTA Contract by filing a complaint with the
United States Department of Labor (the Department of Labor). In its complaint,
the Company requested that the Department of Labor adjudicate this dispute and either
issue a determination affirming that the prevailing wage rate for telecommunications
workers, as originally specified by the MTA, is the applicable rate for this project, or
directing the MTA to compensate the Company for the change in wage classification made
during the performance of the contract in violation of federal regulations.


By
letter dated March 12, 2001, the Department of Labor advised the Company that, without
knowing which, if any, federal wage decision was included in the MTA Contract, it is
unable to make a determination that any violation of federal labor law has occurred.


On
February 12, 2002, the Company was informally advised by the Department of Labor that the
Department has concluded that no federal wage determinations were included or required to
be included in the MTA contract because the project has insufficient federal funding to
trigger the federal wage regulations. The Department of Labor asserts that the
Companys claim is not one which is governed by federal regulation or one over which
the Department is willing to exercise jurisdiction.


On
April 23, 2002, the Company received a letter from the Department of Labor dated April 9,
2002 stating that the Department does not have jurisdiction over the dispute because it
was advised by the New York City Comptrollers office that no federal funds were
provided for the MTA Contract. The Company has been advised that there are legitimate
grounds on which the Department of Labors position, as well as the above-referenced
wage reclassification may be challenged. In March 2003, the Company met with the
Comptrollers office to discuss this matter and is currently evaluating an
appropriate course of action. There can be no assurance the Company will be successful,
either in whole or in part, in its efforts.


Income Taxes:


The
Company accounts for income taxes under the asset and liability method. Under the asset
and liability method, deferred tax assets and liabilities are recognized based upon
differences arising from the carrying amounts of the Companys assets and liabilities
for tax and financial reporting purposes using enacted tax rates in effect for the year in
which the differences are expected to reverse. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period when the change
in tax rates is enacted. Based upon the Companys recent history of operating losses,
the Company has recorded a valuation allowance equal to its total deferred tax assets,
except when the Company can recover such amounts from the carryback to years when the
Company paid income taxes.



F-13
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Reclassifications:


Certain
prior year amounts have been reclassified to conform to the current years
presentation.


Retirement Plan:


The
Company adopted a 401(k) retirement plan in 1991. Employees of the Company who have
attained the age of 21 are eligible to participate in the plan. Employees can elect to
contribute up to 15% of their gross salary to the plan. The Company may make discretionary
matching cash contributions up to 2% of the salary of the participating individual
employee. Participants vest in the Companys contributions to the plan over a
six-year period based upon years of service. Participants are fully vested at all times in
their employee contributions to the plan. The Companys matching contributions were
$221,000, $304,000 and $377,000 to this plan in 2001, 2000 and 1999, respectively. The
Companys matching contributions were suspended in September 2001.



Concentrations
of Credit Risk:


Financial
instruments, which potentially subject the Company to significant concentrations of credit
risk, consist principally of interest-bearing investments and accounts receivable.



The
Company maintains cash and cash equivalents and investments with various major financial
institutions.



The
Companys customer base is principally comprised of Fortune 1000 companies and,
accordingly, the Company generally does not require collateral. The Company performs
credit evaluations of customers and establishes credit limits as appropriate.



Business Segments:


The
Company operates in one business segment, as a provider of IT professional services.


F-14
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Recently Issued
Accounting Standards:


In
June 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No.146, Accounting for Costs Associated with Exit or Disposal
Activities (SFAS No. 146), the provisions of which are effective for any exit or
disposal activities initiated by us after December 31, 2002. SFAS No. 146 provides
guidance on the recognition and measurement of liabilities associated with exit or
disposal activities and requires that such liabilities be recognized when incurred. The
adoption of the provisions of SFAS No. 146 will impact the measurement and timing of costs
associated with any exit and disposal activities initiated after December 31, 2002. SFAS No. 146 is not
expected to have a material effect on our results of operation, financial position, or cash flow.




2.  Acquisitions


In
September 2001, the Company acquired certain of the assets of the ICM Education Division
of Computer Horizons Corp. for $510,950. The acquisition was accounted for as a purchase
and was included in the Results of Operations in the period ended September 30, 2001. In
accordance with this purchase agreement, the Company made a post-closing adjustment and
recorded additional goodwill of $135,000 in connection with the acquisition in the third
quarter of 2002. As of December 31, 2002 and 2001, the Company had goodwill of $646,000
and $511,000 relating to the purchase of ICM from Computer Horizons in September
2001.


3.  Inventory


Inventory consists of the following:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                | 
|------------------------------- | 
|
|                                | 
|
|                                | 
|Inventory-finished products     | 
|Less:  Reserve for obsolescence | 
|                                | 
|                                | 
|                                | 

|4.   Property and Equipment, net

Property and equipment, net,
consists of the following:
|-----------------------------------------------------------------------------------------

|                                                 | 
|------------------------------------------------ | 
|
|                                                 | 
|
|Furniture, fixtures and equipment                | 
|Software                                         | 
|Transportation equipment                         | 
|Leasehold improvements                           | 
|                                                 | 
|                                                 | 
|Less - Accumulated depreciation and amortization | 
|                                                 | 
|                                                 | 
|                                                 | 

|Depreciation
expense and amortization of leasehold improvements for the years ended December 31, 2002,
2001 and 2000 were, $1,073,000, $1,490,000, and $2,293,000, respectively.


In
2002, the Company wrote off its fully depreciated assets and related depreciation and
amortization.


F-15
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|5.   Accrued Expenses


Accrued expenses consist of
the following:
|------------------------------------------------------------------

|                                   |  |       
|---------------------------------- |  | ------
|
|                                   |  |       
|
|
|Accrued payroll and vacation costs |  | $1,144
|Sales taxes                        |  | 174   
|Other                              |  | 409   
|                                   |  |       
|                                   |  | $1,727
|                                   |  |       

|6.    
          Stock Ownership and Compensation Plans




At
December 31, 2002, the Company had two stock-based compensation plans. The Company applies
APB 25 and related interpretations in accounting for its plans. During 2001, 2000 and
1999, no compensation cost has been recognized for its stock option plans, which are
described below. Had compensation cost been determined based on the fair value of the
options at the grant dates consistent with the method prescribed under FAS 123, the
Companys pro forma net income and pro forma earnings per share would have been
reduced to the adjusted pro forma amounts indicated below:


1995 Stock Plan:


On
August 25, 1995, the Companys 1995 Stock Plan (the 1995 Plan) was
adopted by the Board of Directors and approved by the shareholders of the Company. A total
of 1,500,000 shares is reserved for issuance upon exercise of options granted or to be
granted under the 1995 Plan. The options expire ten years after the date of grant. Some of
the options issued under the 1995 Plan become exercisable in five equal annual
installments commencing one year after the date of grant provided that the optionee
remains an employee at the time of vesting of the installments. Other options issued under
the 1995 Plan vest 25% immediately upon grant and the balance in three equal annual
installments.


1995 Non-Employee
Director Stock Option Plan:


In
1995, the Board of Directors adopted and the Companys shareholders approved the
Companys 1995 Non-Employee Director Stock Option Plan, which provides for the grant
of options to purchase a maximum of 100,000 shares of Common Stock of the Company to
non-employee Directors of the Company. As subsequently amended by the Companys
shareholders in 1999, the 1995 Non-Employee Director Stock Option Plan provides that each
person who is elected a Director of the Company and who is not also an employee or officer
of the Company shall be granted, on the effective date of such election and each
successive date on which he or she is re-elected a Director, an option to purchase 5,000
shares of Common Stock, at an exercise price per share equal to the then fair market value
of the shares. The options, which expire ten years after the date of grant, vest
immediately upon grant.




F-16
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|A
summary of the stock options granted under the 1995 Plan and the 1995 Non-Employee
Director Stock Option Plan as of and for the years ended December 31, 2002, 2001, and 2000
is presented below:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                   | Year Ended December 31
|---------------------------------- | ----------------------
|
|                                   |                       
|
|                                   |                       
|Outstanding at beginning of year   |                       
|Granted                            |                       
|Exercised                          |                       
|Forfeited                          |                       
|                                   |                       
|Outstanding at end of year         |                       
|                                   |                       
|Options exercisable at end of year |                       

|             | Shares Underlying Options Outstanding | Options Exercisable
|------------ | ------------------------------------- | -------------------
|             |                                      
|
|             |                                       |                    
|$1.10 - 1.58 |                                       | 602,125            
|$1.83 - 2.63 |                                       | 159,500            
|$3.13 - 4.63 |                                       | 227,880            
|$5.31 - 6.50 |                                       | 12,000             
|             |                                       |                    
|$1.10 - 6.50 |                                       | 1,001,505          
|             |                                       |                    

|The
fair value of each option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions for 2002, 2001, and 2000: dividend
yield of 0%; expected volatility of approximately 77% for 2002, 73% for 2001 and 95% for
2000.


The
weighted-average fair value of options granted during 2002, 2001, and 2000 was $1.27,
$2.11 and $3.05, respectively. Effective December 15, 1998, all then-outstanding stock
options were repriced to $4.25 per share, except stock options issued pursuant to the 1995
Non-Employee Director Stock Option Plan and 2,500 shares previously issued at $4.00.


In
March 2002, the Company granted 25,000 stock options to its non-employee CEO and recorded
a non-cash charge of $46,000. In February 2003, the Company granted an additional 275,000
stock options to its non-employee CEO. The Company will record a non-cash charge of
approximately $220,000 in 2003. These charges were estimated using the Black-Scholes
method to determine the fair value of these options.



F-17
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|7.  Commitments and Contingencies


The
Company occupies six facilities under operating leases which expire at various dates
through August 2003 and call for annual base rentals plus real estate taxes. The remaining
future minimum payments under non-cancelable leases as of December 31, 2002, were
$479,000.



Rent
expense, including real estate taxes, for the years ended December 31, 2002, 2001, and
2000 was $759,000, $843,000, and $898,000, respectively.



On
March 4, 2003, the Company reached settlements in principle with plaintiffs in a lawsuit
previously filed by a current and two former employees in New Jersey Superior Court,
Bergen County (Law Division) against the Company and certain of its current and former
employees alleging employment-related claims. The parties are currently engaged in the
negotiation of definitive settlement agreements. The plaintiffs were seeking compensatory
and punitive damages, attorneys fees and costs of suit. The litigation was in the
early stages of discovery when the settlements in principle were reached through
court-ordered mediation. The settlements are covered by insurance.



In
connection with the Companys ongoing disputes with the MTA concerning a contract
entered into with the MTA in December 1997, the Company filed certain legal proceedings.
See Note 1  Use of Estimates.



The
Company has no knowledge of any other material litigation to which it is a party or to
which any of its property is subject.



     8.  Supplementary Cash Flow Information


Following
is a summary of supplementary cash flow information for the years ended December 31, 2002,
2001 and 2000:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                            | Year Ended December 31, (in thousands)
|----------------------------------------------------------- | --------------------------------------
|                                                            |                                       
|                                                            | 2002                                  
|                                                            |                                       
|Cash Payments:   Interest paid                              |                                       
|Income taxes paid (refunded)                                |                                       
|Non cash items:      Warrants issued in connection with the |                                       
|Companys investment in nex-i.com                           |                                       

|9.  Income Taxes


The
Company accounts for income taxes under the asset and liability method which requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of differences between the carrying amounts and the tax bases of the assets
and liabilities.



F-18
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|The
components of the provision (benefit) for income taxes for 2002, 2001 and 2000 are as
follows:
|--------------------------------------------------------------------------------------------------

|                    | Year Ended December 31,(in thousands)
|------------------- | -------------------------------------
|
|                    |                                      
|Current:            |                                      
|Federal             |                                      
|State and local     |                                      
|                    |                                      
|                    |                                      
|Deferred:           |                                      
|Federal             |                                      
|State and local     |                                      
|                    |                                      
|                    |                                      
|Valuation allowance |                                      
|                    |                                      
|                    |                                      
|                    |                                      

|A  reconciliation  of the federal
 statutory rate to the Company's  effective tax rate for 2002,  2001 and 2000 is as
follows:
|------------------------------------------------------------------------------------------------------------------------------

|                                                                   | Year Ended December 31,
|------------------------------------------------------------------ | -----------------------
|
|                                                                   |                        
|Tax benefit at statutory rate                                      |                        
|State and local income taxes (benefit), net of federal tax benefit |                        
|Valuation allowance                                                |                        
|Other, net                                                         |                        
|                                                                   |                        
|Effective tax rate                                                 |                        
|                                                                   |                        

|The tax effects of temporary  differences  that give rise to significant  portions of the net deferred tax
asset balance at December 31, 2002 and 2001 as follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                          | Year Ended December 31,
|----------------------------------------- | -----------------------
|
|                                          |                        
|Accounts receivable allowances            |                        
|Inventory reserves                        |                        
|Accrual for compensated absences          |                        
|Accumulated depreciation and amortization |                        
|Goodwill                                  |                        
|Other                                     |                        
|nex-i.com losses                          |                        
|Contract loss                             |                        
|Net tax operating losses                  |                        
|                                          |                        
|Total deferred tax assets                 |                        
|Valuation Allowance                       |                        
|                                          |                        
|                                          |                        
|                                          |                        

|F-19
|----

---

|The
Company recorded a federal income tax benefit of $4.4 million in 2002, including $3.3
million from a reduction in its valuation allowance as a result of changes to the Internal
Revenue Code enacted in the first quarter of 2002. These changes allowed the Company to
carryback 2001 and 2002 income tax losses to prior tax periods. The Company received $1.8
million of this benefit in September 2002, and expects to receive $2.6 million in the
third quarter of 2003. The remaining federal tax net operating losses can be carried back
two years and forward twenty years with State net operating losses that begin to expire in
seven years. The nex-i.com losses are subject to capital loss limitation and will expire
in five years upon recognition of the loss for tax purposes. Should the Company undergo an
ownership change as defined in Section 382 of the Internal Revenue Code, the
Companys tax net operating loss carryforwards generated prior to the ownership
change will be subject to an annual limitation which could reduce or defer the utilization
of these losses.





     10.       
          Earnings Per Share


The
Financial Accounting Standards Board issued Statement No. 128 Earnings per
Share (SFAS No. 128) specifies the computation, presentation and
disclosure requirements for earnings per share (EPS) of entities with publicly
held common stock or potential common stock. The statement defines two EPS calculations,
basic and diluted. The objective of basic EPS is to measure the performance of an entity
over the reporting period by dividing income available to common stockholders by the
weighted average number of shares outstanding. The objective of diluted EPS, consistent
with that of basic EPS, is to measure the performance of an entity over the reporting
period, while giving effect to all dilutive potential common shares that were outstanding
during the period. The calculation of diluted EPS is similar to basic EPS except both the
numerator and denominator are increased for the conversion of options for potential
dilutive common shares.


COMPUTATION OF EARNINGS
PER SHARE


(in thousands, except
per share amounts)
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                              | For the Years Ended December 31,
|--------------------------------------------- | --------------------------------
|
|                                              |                                 
|Net income (loss)                             |                                 
|                                              |                                 
|Weighted average number of shares outstanding |                                 
|                                              |                                 
|Net income (loss) per share                   |                                 
|                                              |                                 
|Diluted:                                      |                                 
|Weighted average number of shares outstanding |                                 
|Dilutive effects of stock options             |                                 
|                                              |                                 
|Weighted average number of common and common  |                                 
|equivalent shares outstanding                 |                                 
|                                              |                                 
|Net income (loss) per share                   |                                 
|                                              |                                 

|F-20
|----

---

|11.  Employee
Stock Purchase Plan


On December 31, 1997, the
Company adopted an Employee Stock Purchase Plan (the 1997 Plan) for employees
of the Company and its subsidiaries. The 1997 Plan was approved by the Companys
shareholders at its 1998 Annual Meeting. The 1997 Plan was adopted to provide a further
incentive for employees to promote the best interests of the Company and to encourage
stock ownership by employees. A total of 500,000 shares of common stock are authorized for
issuance pursuant to the 1997 Plan.



In general, the 1997 Plan
provides for eligible employees to designate in advance of specified purchase periods
(monthly) a percentage of compensation (up to 10%) to be withheld from their pay and
applied toward the purchase of such number of whole shares of Common Stock as can be
purchased at a price of 85% of the stocks trading price at the end of each such
period. No employee can purchase more than $15,000 worth of capitalized common stock
annually, and no common stock can be purchased by any person which would result in the
purchaser owning five percent or more of the total combined voting power or value of all
classes of stock of the Company.


The 1997 Plan is intended to
satisfy the requirements of Section 423(b) of the Internal Revenue Code of 1986, as
amended, which requires that it be approved by shareholders within one year after the
earlier of its adoption by the Board of Directors or the plans effective date. The
1997 Plan is intended to comply with certain requirements of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended.


During
the years ended December 31, 2001, 2000 and 1999, employees purchased 52,204, 33,548
shares and 49,691 shares, respectively, under the 1997 Plan for aggregate proceeds of
approximately $78,000, $117,000 and $177,000, respectively.



     12.  Share Repurchase Program


In September 2002, the
Companys board of directors authorized the purchase of up to 750,000 of the
Companys outstanding common shares. Purchases could be made from time to time
through March 23, 2003, except during certain restricted periods, in open market or
privately negotiated transactions. As of December 31, 2002, the Company had purchased
51,500 shares pursuant to this program at an average price of $1.52. The acquired shares
are being held in treasury to be used for general corporate purposes.



13.  Significant
Customers and Vendors


During
2002, Kraft Foods, Goldman Sachs & Co., Aventis Pharmaceuticals, and MTA New York City
Transit accounted for 17%, 12%, 12%, and 10% respectively, of net sales. During 2001,
Goldman Sachs, Nabisco/Kraft, FleetBoston Financial and PSE&G accounted for 15%, 13%,
13% and 11% respectively, of net sales. No other customer accounted for more than 10% of
our net sales during the three years ended December 31, 2002. Sales to the top ten
customers totaled approximately 76%, 76%, and 73% of net sales for the years ended
December 31, 2002, December 31, 2001, and December 31, 2000, respectively.






F-21
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|The Company purchases the
majority of its products primarily from two aggregators of computer hardware, software and
peripherals. During 2002, the Company acquired approximately 67%, and 3% of its products
for resale from Ingram and Tech Data, respectively. Agreements with these aggregators
provide for, among other things, certain discount pricing for meeting agreed-upon purchase
levels and minimum purchase commitments.


14.  
Related Party Transactions


In
2002, 2001 and 2000, the Company paid, as compensation for services rendered to the
Company and for sales generated, an aggregate of $448,222, $325,100, $491,400,
respectively, to Michael Gang, the son of Stan Gang, the Chairman of the Board.
Michael Gang serves as National Account Manager/Sector Director and has served as
a director since September 1995 and as Secretary of the Company from September 1995
to October 1997.


Richard
G. Erickson, serves as the Chief Executive Officer and President of the Company through
New England Associates, LLC, a professional services turnaround consultancy of which Mr.
Erickson is President. In 2002, the Company entered into a consulting arrangement with Mr.
Erickson, through New England Associates, LLC. Professional service fees recognized under
the Agreement with New England Associates, LLC amounted to $135,000 as of December 31,
2002.







F-22
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|                                 | SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
|-------------------------------- | -----------------------------------------------
|
|
|
|
|
|Allowance for doubtful accounts: |                                                
|2002                             |                                                
|2001                             |                                                
|2000                             |                                                
|
|Inventory Reserve:               |                                                
|2002                             |                                                
|2001                             |                                                
|2000                             |                                                
|

|F-23
|----

---

|SIGNATURES


Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | ALPHANET SOLUTIONS, INC.
| |  | ------------------------

|Date:  March 31, 2003 |  | By:  /s/ RICHARD G. ERICKSON     

         Richard G. Erickson*
         President and Chief Executive Officer
        (Principal Executive Officer)
|--------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|* Mr. Erickson currently serves as
President and Chief Executive Officer of AlphaNet Solutions, Inc. in a consulting capacity
through New England Associates, LLC, a professional services turnaround consultancy of
which he is president.


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|/s/ | STAN GANG

Stan Gang | Chairman of the Board | March 31, 2003
|--- | ------------------------------ | --------------------- | --------------

|/s/ | RICHARD G. ERICKSON
Richard G. Erickson | President, Chief Executive Officer and Director
(Principal Executive Officer) | March 31, 2003
|--- | ------------------------------------------------- | ----------------------------------------------------------------------------- | --------------

|/s/ | WILLIAM S. MEDVE
William S. Medve | Executive Vice President,
 Treasurer and Chief Financial Officer
(Principal Financial and 
Accounting Officer) | March 31, 2003
|--- | ------------------------------------------- | -------------------------------------------------------------------------------------------------------------- | --------------

|/s/ | MICHAEL GANG
Michael Gang | Director | March 31, 2003
|--- | ----------------------------------- | -------- | --------------

|/s/ | IRA COHEN
Ira Cohen | Director | March 31, 2003
|--- | ----------------------------- | -------- | --------------

|/s/ | THOMAS F. DORAZIO
Thomas F. Dorazio | Director | March 31, 2003
|--- | --------------------------------------------- | -------- | --------------

|/s/ | DOREEN A. WRIGHT
Doreen A. Wright | Director | March 31, 2003
|--- | ------------------------------------------- | -------- | --------------

|/s/ | BERNARD M. GOLDSMITH
Bernard M. Goldsmith | Director | March 31, 2003
|--- | --------------------------------------------------- | -------- | --------------

|58
|--

---

|CERTIFICATIONS


I, Richard G. Erickson, certify that:


     1.       
          I have reviewed this annual report on Form 10-K of AlphaNet Solutions, Inc.;


     2.       
          Based on my knowledge, this annual report does not contain any untrue statement
          of a material fact or omit to state a material fact necessary to make the
          statements made, in light of the circumstances under which such statements were
          made, not misleading with respect to the period covered by this annual report;


     3.       
          Based on my knowledge, the financial statements, and other financial information
          included in this annual report, fairly present in all material respects the
          financial condition, results of operations and cash flows of the registrant as
          of, and for, the periods presented in this annual report;


     4.       
          The registrants other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


     a)       
          designed such disclosure controls and procedures to ensure that material
          information relating to the registrant, including its consolidated subsidiaries,
          is made known to us by others within those entities, particularly during the
          period in which this annual report is being prepared;


     b)       
                evaluated the effectiveness of the registrants disclosure controls
          and procedures as of a date within 90 days prior to the filing date of this
          annual report (the Evaluation Date); and


     c)       
          presented in this annual report our conclusions about the effectiveness of
          the disclosure controls and procedures based on our evaluation as of the
          Evaluation Date;


     5.       
          The registrants other certifying officers and I have disclosed, based on
          our most recent evaluation, to the registrants auditors and the audit
          committee of registrants board of directors (or persons performing the
          equivalent function):


     a)       
          all significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrants ability to record,
          process, summarize and report financial data and have identified for the
          registrants auditors any material weaknesses in internal controls; and


     b)       
          any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrants internal
          controls; and


     6.       
          The registrants other certifying officers and I have indicated in this
          annual report whether or not there were significant changes in internal controls
          or in other factors that could significantly affect internal controls subsequent
          to the date of our most recent evaluation, including any corrective actions with
          regard to significant deficiencies and material weaknesses.


Date:   March 31, 2003
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | /S/ RICHARD G. ERICKSON
Richard G. Erickson
President and Chief Executive Officer 
(Principal Executive Officer)
| | --------------------------------------------------------------------------------------------------------------------------

|59
|--

---

|I, William S. Medve, certify that:


     1.       
          I have reviewed this annual report on Form 10-K of AlphaNet Solutions, Inc.;


     2.       
          Based on my knowledge, this annual report does not contain any untrue statement
          of a material fact or omit to state a material fact necessary to make the
          statements made, in light of the circumstances under which such statements were
          made, not misleading with respect to the period covered by this annual report;


     3.       
          Based on my knowledge, the financial statements, and other financial information
          included in this annual report, fairly present in all material respects the
          financial condition, results of operations and cash flows of the registrant as
          of, and for, the periods presented in this annual report;


     4.       
          The registrants other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


     a)       
          designed such disclosure controls and procedures to ensure that material
          information relating to the registrant, including its consolidated subsidiaries,
          is made known to us by others within those entities, particularly during the
          period in which this annual report is being prepared;


     b)       
          evaluated the effectiveness of the registrants disclosure controls
          and procedures as of a date within 90 days prior to the filing date of this
          annual report (the Evaluation Date); and


     c)       
          presented in this annual report our conclusions about the effectiveness of
          the disclosure controls and procedures based on our evaluation as of the
          Evaluation Date;


     5.       
          The registrants other certifying officers and I have disclosed, based on
          our most recent evaluation, to the registrants auditors and the audit
          committee of registrants board of directors (or persons performing the
          equivalent function):


     a)       
          all significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrants ability to record,
          process, summarize and report financial data and have identified for the
          registrants auditors any material weaknesses in internal controls; and


     b)       
          any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrants internal
          controls; and


     6.       
          The registrants other certifying officers and I have indicated in this
          annual report whether or not there were significant changes in internal controls
          or in other factors that could significantly affect internal controls subsequent
          to the date of our most recent evaluation, including any corrective actions with
          regard to significant deficiencies and material weaknesses.



Date: March 31, 2003
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | /S/ WILLIAM S. MEDVE
William S. Medve Executive Vice President, Chief Financial Officer and Treasurer(Principal
Financial and Accounting Officer)
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|60
|--