# 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, 2001

## 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, no 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.     [ X ]



At
February 28, 2002, 6,588,413 shares of Common Stock of the Company were outstanding. The
aggregate market value of Common Stock held by non-affiliates on February 28, 2002, based
on the last sales price on such date, was approximately $7,478,026.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# TABLE OF CONTENTS

|         |  |                                                                                                     
|-------- |  | ----------------------------------------------------------------------------------------------------
|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 Company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 Company                                               
|         |  | 11.   Executive Compensation                                                                        
|         |  | 12.   Security Ownership of Certain Benefical
        Owners and Management                         
|         |  | 13.   Certain Relationships and Related Transactions                                                
|PART IV  |  | 14.   Exhibits, Financial Statement Schedules
         and Reports on Form 8-K                      

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

---

# PART I

## Item 1.
     Business.

## General

AlphaNet
Solutions, Inc is an information technology (IT) professional services firm
providing expertise in Business Advisory, Technology Implementation, and Managed
Services. We also provide professional development services.  We endeavor to provide business and technology solutions that enable our
clients to meet the demands of the changing IT landscape. We focus on business
continuity, security, network architecture and web-enabled managed service solutions. We
provide a complete range of technology implementation and support services. Together,
these solutions help our clients reduce costs, create value and address the new economics
of computing.

Our
customers are primarily Fortune 1000 and other large and mid-sized companies across most
major industries throughout the New York, New Jersey and Philadelphia metropolitan areas.
Our major professional services customers include Goldman Sachs, Kraft Foods, FleetBoston
Financial, Mercedes-Benz of North America, JP Morgan/Chase, Matsushita Electronics and PSE&G.

We
have over 18 yearsexperience in providing a wide range of professional services in
the ever-changing IT marketplace. Starting in 1984 as a technology product-focused
reseller of hardware and software, we have evolved as a provider of IT professional
services. We focus on meeting the business and technology requirements of the rapidly
changing IT landscape in many industry sectors and continue to expand and modify our
services to address this changing landscape. We form strategic relationships with select
hardware and software manufacturers to develop new business and service offerings and
stay at the leading edge of technology.

We
continue to refine our professional services offerings and strategies. In 2001, we
launched our AIM (Advise, Implement, and Manage)
strategy. This strategy focuses on providing integrated business and technology solutions
that enhance IT lifecycle management.

Most
of our services involve newer technologies that include packaged hardware and software
solutions. To provide these services, we have significantly enhanced our existing
partnerships with hardware and software manufacturers. These partnerships have become
increasingly important to our service offerings and can provide us with a competitive
advantage in our marketplace. Our current vendor partnerships and certifications include,
among others, Microsoft Gold Partner for Enterprise Systems, Cisco Systems Silver Patner,
Citrix Gold Partner, Computer Associate Enterprise Storage Partner, and Novell Platinum
Partner.

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.

AlphaNet
Solutions, eMobile Solutions, Digital Defense Strategy, 
CorServ, SecurServ, Advanced SecurServ, 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 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 services and support component of our business, the timing of the development and
implementation of the Companys new service offerings and the utilization of such
services by our customers, and trends in future operating performance. Such
forward-looking statements include risks and uncertainties, including, but not limited
to:

| |  |  | 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 our recent retention of a new CEO;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------

| |  |  | 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 within our control,
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

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

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

| |  |  | the timing and customer response 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;
| | - |  | -----------------------------------------

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

| |  |  | the
intense competition in the markets for the Companys products and services;
| | - |  | -------------------------------------------------------------------------------

| |  |  | the
ability to develop, market, provide, and achieve market acceptance of 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;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |  |  | material
risks and uncertainties associated with the MTA Contract.
| | - |  | ------------------------------------------------------------------

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 an organizations business
success. The rapidly changing IT landscape requires organizations to implement, utilize
and maintain systems offering optional levels of reliability, scalability, availability,
and manageability. The following client and industry drivers are influencing the current
direction of IT:

| |  |  | Client Drivers
| | - |  | --------------

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

| |  |  | Non-expansion mode, out-tasking to augment internal support
| | - |  | -----------------------------------------------------------

| |  |  | Maximization of IT investment for stakeholders and investors
| | - |  | ------------------------------------------------------------

| |  |  | Industry Drivers
| | - |  | ----------------

| |  |  | Microsoft Windows 2000/XP deployment and migrations
| | - |  | ---------------------------------------------------

| |  |  | Distributed enterprises moving to the Web
| | - |  | -----------------------------------------

| |  |  | Internet, wireless, web appliances and storage
| | - |  | ----------------------------------------------

| |  |  | Information security and IT business exposure
| | - |  | ---------------------------------------------

| |  |  | Regulatory and compliance issues
| | - |  | --------------------------------

As a
result of these drivers and diminished budgets, many organizations are re-evaluating
their network systems and trying to maximize their existing IT investment rather than
expanding their systems. The rapid pace of change in networking technology has further
increased the complexity of designing and implementing these network systemsincreasing
the demand for experienced business and technology professionals who can assist
businesses in assessing, implementing, and managing complex network solutions.

## Services

Our
AIM (Advise, Implement, and Manage) strategy is
designed to follow the lifecycle of an organizations business and technology
initiatives. We assist customers in the planning stage (Business Advisory), with
implementation of the planned solution (Technology Implementation), and support for the
solution (Managed Services), providing a complete end-to-end turnkey solution.

## Business
Advisory

We
assess an organizations business processes, consider its initiative and
requirements, and create a plan for success. We incorporate industry standard approaches
and best practices in the delivery of these services. Through our business consulting
services, we assist customers by providing a business technology review, business
continuity management services, technology planning and economic assessment and
information security. Where applicable, we perform a full range of technical and
operational services to effectively prepare customers for the impact of, and compliance
with, the Health Insurance Portability and Accountability Act of 1996 (HIPAA). We also
provide specialized consulting services that focus on technologies from Microsoft,
Novell, Computer Associates, Cisco Systems and Citrix in providing our business advisory
services.

## Technology
Implementation

We
provide the following technology infrastructure and knowledge management solutions,
enabling us to identify the critical components of an organizations information
technology infrastructure. These services facilitate the flow of information throughout
the enterprise and provide more power and speed to gather data and maximize an
organizations return on investment.

---

| | Infrastructure
Solutions
| | ------------------------

| |  |  | Network Operating Systems
| | - |  | -------------------------

| |  |  | Storage Management
| | - |  | ------------------

| |  |  | Convergent Network Services
| | - |  | ---------------------------

| |  |  | Wireless & Mobile
| | - |  | -----------------

| |  |  | e-Provisioning Services
| | - |  | -----------------------

| |  |  | ¤ |  | Applications (Server-based Computing)
| |  |  | - |  | -------------------------------------

| |  |  | ¤ |  | Directory (Active Directory, e-Directory)
| |  |  | - |  | -----------------------------------------

| | Knowledge
Management
| | --------------------

| |  |  | Messaging and Collaboration
| | - |  | ---------------------------

| |  |  | Portal Development and Implementation
| | - |  | -------------------------------------

| |  |  | ¤ |  | Specialized Digital Dashboards
| |  |  | - |  | ------------------------------

| |  |  | ¤ |  | Enterprise Information and Knowledge Sharing
| |  |  | - |  | --------------------------------------------

| |  |  | Microsoft .NET Solutions - Information anytime, anywhere
| | - |  | --------------------------------------------------------

| |  |  | Education Services
| | - |  | ------------------

## Managed Services

We
offer the following managed services, which are designed to reduce the risks and costs of
operating, maintaining and protecting an organizations information infrastructure:

| |  |  | Managed LAN / WAN CoreServsm
Management of essential infrastructure components such as servers, switches and routers.
| | - |  | ----------------------------------------------------------------------------------------------------------------------

| |  |  | Managed Security - SecurServsm
Management of Firewall and VPN services, URL filtering and connectivity health.
| | - |  | --------------------------------------------------------------------------------------------------------------

| |  |  | Managed e-Commerce - Advanced SecurServsm
Extends SecurServ to provide complex intrusion detection, web server health and web
content protection.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------

## Professional
Development Services

Our
company is authorized and certified by Microsoft, Novell, Lotus, Citrix, and Gartner
Institute to offer training classes related to their specific technologies. These 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.

We
offer training in a variety of venues, including the clients facilities, our two
education facilities (Learning Centers), and over the Internet. Training at
the Learning Centers focuses on technical and business skills courses for customers,
employees, and the general public.

The
Learning Centers are Prometric Authorized Testing Centers, which provide independent
testing services for industry certifications.

---

Training
revenue is derived primarily from fees charged to corporate clients for employee
training, fees charged to individual students for open enrollment classes, and fees for
self-directed learning that are purchased as web-delivered courses or self-study books.

The
Professional Development organization provides an ancillary benefit to our company by
reducing our cost to train our technical workforce while providing us with highly skilled
consultants. We believe that our Professional Development organization provides a
strategic benefit in attracting technical talent to our company.

## Product Sales

We
provide our clients with a single source solution by offering IT products from leading
hardware and software manufacturers. In 2001, 31% of our net sales and 14% of our gross
profits before special charges were generated from product sales. Historically, we
offered PC workstations, network file servers, networking and communications equipment,
application and operating systems software and related value-added services such as
electronic product ordering, product configuration, testing warehousing and delivery
through our established vendor alliances with Ingram and Tech Data, major aggregators and
distributors of computer hardware and software. In January 2002, we entered into an
agency arrangement with More Direct, Inc. (MoreDirect). MoreDirect operates
an internet-based, business-to-business electronic marketplace which enables information
technology buyers to efficiently source, evaluate, purchase and track a wide variety of
computer hardware, software and related technology products from leading technology
wholesale distributors. We expect that our product fulfillment and related product sales
and gross profits will decrease as MoreDirect fulfills our clients technology
product requirements in which we act as an agent for our customers.

## Sales and Marketing

We
currently focus our sales and marketing efforts on two target markets: (i) the Enterprise
level-large Fortune 1000 companies; and (ii) other large and mid-sized customers. Sales
and marketing initiatives were conducted with 22 employees as of December 31, 2001. 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, in whole or in part, commission-based. Sales leads
are derived primarily from individual business contacts and customer referrals from
alliance partners, vendor partners and suppliers, as well as available industry research
and reports.

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 include:
| | ----------------------------

| | Goldman Sachs & Co.            |  | MTA New York City Transit | 
| | ------------------------------ |  | ------------------------- | 
| | Nabisco / Kraft                |  | Matsushita Electric Corp. | 
| | FleetBoston Financial          |  | Fuji Photo Film USA, Inc. | 
| | PSE&G                          |  | Lucent Technologies       | 
| | Mercedes-Benz of North America |  | Ernst & Young LLP         | 

During
2001, Goldman Sachs, Nabisco/Kraft, FleetBoston Financial and PSE&G accounted for
15%, 13%, 13% and 11% respectively, of net sales. During the fiscal year ended December
31, 2000, FleetBoston Financial and Goldman Sachs accounted for 17% and 13%,
respectively of our net sales. During the fiscal year ended December 31, 1999, PSE&G
and Mercedes-Benz of North America accounted for approximately 13% and 12%, respectively
of our net sales. No other customer accounted for more than 10% of our net sales during
the three years ended December 31, 2001. Sales to our top ten customers totaled
approximately 76%, 73% and 65% of net sales for the years ended December 31, 2001,
December 31, 2000 and December 31, 1999, respectively. In December 1997, we entered into
a fouryear, $20.4 million contract with the MTA (MTA Contract) 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.

Except
for the MTA Contract, there are no ongoing written commitments by customers to purchase
products from us. All of our product sales are made on a purchase-order basis. Almost all
services are provided through written commitments.

A
significant reduction in orders from any of our largest customers could have a material
adverse effect on our results of operations. There can be no assurance that our largest
customers will continue to place orders with us, or that orders 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.

## Suppliers

We
rely on manufacturers and aggregators of computer hardware, software and peripherals to
develop, manufacture and supply all of the computer components sold and serviced by the
Company. Historically, we primarily utilized Ingram and Tech Data, both major aggregators
of computer hardware and software, to procure the majority of our products for resale to
our customers. In January 2002, we entered into an agency arrangement with MoreDirect,
Inc. (MoreDirect). MoreDirect operates an internet-based,
business-to-business electronic marketplace which enables information technology buyers
to efficiently source, evaluate, purchase and track a wide variety of computer hardware,
software and related technology products from the manufacturers of lending technology
wholesale distributors. We are planning for and expect that our product fulfillment and
related product sales will decrease as MoreDirect fulfills our clientstechnology
product requirements.

---

The
distribution agreements with Ingram and Tech Data give us access to these aggregatorsextensive
inventories and provide us with electronic ordering capability, product configuration,
testing, warehousing and delivery. We order IT products, including workstations, servers,
enterprise computing products, networking and communications equipment, and application
software from such aggregators on an as needed basis, thereby reducing the Companys
need to carry large inventories.

Our
purchases from Ingram accounted for approximately 53%, 49%, and 57% of our total product
purchases in 2001, 2000, and 1999, respectively. Such purchases totaled approximately
$7.5 million, $19.2 million and $41.9 million during such respective periods. Our
agreement with Ingram may be terminated with or without cause by either party upon 30
days prior written notice. Our purchases from Tech Data accounted for 9%, 22% and 10% of
our total product purchases in 2001, 2000, and 1999, respectively. These purchases
totaled approximately $1.3 million, $8.8 million and $7.5 million during such respective
periods. Our agreement with Tech Data may be terminated with or without cause by either
party upon 30 days prior written notice. Our agreements with Ingram and Tech Data provide
for discounted pricing and rebates, provided that the Company meets agreed-upon purchase
level targets.

In
addition to our agreements with MoreDirect, Ingram and Tech Data, we maintain
standard authorized dealership agreements directly with many leading manufacturers of
computer hardware and software. Under the terms of these agreements, we are authorized to
resell to end users and provide warranty service (for which we are paid by the
manufacturers) on the products of such manufacturers. In general, the agreements do not
mandate minimum purchases and include termination provisions ranging from immediate
termination to termination upon 90 days prior written notice. However, some of our vendor
partners require minimum purchases of their products to maintain certain levels of
authorization. Failure to meet these minimum purchases may result in a lower level of
authorization or termination of an authorization. Many of such agreements are based upon
our continued relationships with authorized aggregators. Generally, however, we have not
purchased products directly from these manufacturers.

---

## Competition

The
markets for our IT products and services are intensely competitive. We believe that the
principal competitive factors in the market for IT products and services 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 (some of which supply products to us), distributors,
aggregators, computer resellers (many of which are able to purchase products at prices
lower than the prices that are available to us), 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 IT products and services. 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 products and
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 products and services has
adversely affected, and likely will continue to adversely affect, our gross profits,
margins and results of operations. We believe there are low barriers to entry into its
markets which enable new competitors to offer competing products and services. There can
be no assurance that we will be able to continue to compete successfully with existing or
new competitors.

We
believe that we compete effectively by providing expert Business Advisory, Technology
Implementation and Managed Services. In addition, we have been a proven resource in the
IT industry for over 18 years, have a strong balance sheet 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, vendor partnerships and certifications, relationships with MoreDirect, Ingram
and Tech Data, 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, 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. As of December 31, 2000, we employed 475 full-time
employees. The total number of technical personnel declined from 371 in 2000 to 182 in
2001. We implemented reductions-in-force throughout 2001 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. In
addition, we require that all new employees execute such 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 its 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 implement our strategy to expand and broaden the services 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. We lease additional office space in Cedar Knolls, New Jersey,
totaling 4,699 square feet, which we have sublet pursuant to a sublease agreement
expiring in November 2002. We also leased a facility in Parsippany, New Jersey, which
totaled 5,253 square feet, which we had sublet pursuant to a sublease agreement. The
lease expired in May 2001; we have not renewed the lease. We lease office space for a
Learning Center in Iselin, New Jersey, consisting of 6,710 square feet
and in Princeton, New Jersey, consisting of 3,398 square feet. Other leased office space
includes a 16,800-square-foot eMobile Support Center located in East Hanover, New Jersey.
We leased approximately 5,410 square feet of office space in King of Prussia,
Pennsylvania for our Philadelphia-area sales office.  On December 31, 2001 this
lease expired and was not renewed. We believe our headquarters, sales offices, Learning
Center and eMobile Support Center are adequate to support our current level of
operations. See Note 8 of Notes to Consolidated Financial Statements.

## Item 3.
     Legal Proceedings.

On
July 7, 2000, Polo Ralph Lauren Corporation (Polo) filed a counterclaim
against us in a lawsuit which we filed against Polo on February 16, 2000 in the Superior
Court of New Jersey, Law Division (Morris County) for collection of an overdue receivable
in the amount of $893,330. In June 2001, we reached a settlement with Polo, in which we
received payment of $375,000 from Polo. The matter is now closed.

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

On
March 18, 2002, the Company received a copy of a Complaint filed by a current and former
employee in the Superior Court of New Jersey, Law Division (Bergen County) against our
company and certain of its employees alleging employment-related claims. The plaintiffs
are seeking compensatory and punitive damages in an unspecified amount, attorneysfees
and costs of suit. Our company and the named individual defendants believe they have
meritorious defenses to the plaintiffs claims and are prepared to defend against
them vigorously.

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, 2001.

---

# 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 ENDED
2000 |      |    
|------------------ | ---- | ---
|                   | HIGH | LOW

|March 31 (1st qtr.)     |  | $     11 | .75 | $     4 | .25
|----------------------- |  | -------- | --- | ------- | ---
|June 30 (2nd qtr.)      |  | 6        | .56 | 3       | .63
|September 30 (3rd qtr.) |  | 5        | .00 | 2       | .38
|December 31 (4th qtr.)  |  | 4        | .25 | 1       | .38

|QUARTER ENDED
2001 |      |    
|------------------ | ---- | ---
|                   | HIGH | LOW

|March 31 (1st qtr.)     |  | $     2 | .13 | $     1 | .31
|----------------------- |  | ------- | --- | ------- | ---
|June 30 (2nd qtr.)      |  | 2       | .36 | 1       | .06
|September 30 (3rd qtr.) |  | 3       | .20 | 1       | .15
|December 31 (4th qtr.)  |  | 2       | .10 | 1       | .46

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, 2002, the closing sale price for the Common Stock on the Nasdaq National
Market was $2.00 per share. As of February 28, 2002, the approximate number of holders of
record of the Common Stock was 314 and the approximate number of beneficial holders of
the Common Stock was 2,532.

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

## 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, 2001 and 2000 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, 2001 and notes thereto
appear elsewhere in this Report. The selected financial data presented below at December
31, 1999, 1998 and 1997 and 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.

|                                      | Year Ended December 31,
|------------------------------------- | -----------------------
|
|
|Statement of Operations Data:         |                        
|Net sales:                            |                        
|Product                               |                        
|Services and support                  |                        
|                                      |                        
|                                      |                        
|                                      |                        
|Cost of sales:                        |                        
|Product                               |                        
|Services and support(1)               |                        
|Other charges (2)                     |                        
|                                      |                        
|                                      |                        
|                                      |                        
|Gross profit:                         |                        
|Product                               |                        
|Services and support(1)               |                        
|Other charges (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 before income taxes            |                        
|Provision for income taxes            |                        
|                                      |                        
|Net income (loss)                     |                        
|                                      |                        
|Earnings (loss) per share - Basic     |                        
|                                      |                        
|Weighted average shares outstanding   |                        
|                                      |                        
|Earnings (loss) per share - Diluted   |                        
|                                      |                        
|Weighted average shares outstanding   |                        
|                                      |                        

|                                 | Year Ended December 31,
|-------------------------------- | -----------------------
|
|
|Balance Sheet Data:              |                        
|Working capital                  |                        
|Total assets                     |                        
|Long term debt and capital lease |                        
|obligations, less current        |                        
|portion                          |                        
|Shareholders equity             |                        

---

|(1) |  | Our company recorded special charges relating to severance paid to consultants in 2001 in the amount of
$342,000.
|--- |  | -----------------------------------------------------------------------------------------------------------------

|(2) |  | In 2000, we recorded special charges of $4.9 million which included a $4.4
          million charge for our estimated cost to complete the MTA Contract, and $0.5
          million associated with unrecoverable vendor charges.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | In 2001, we incurred special 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, special
          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. In 1999, we recorded a provision for
          uncollectable accounts receivable of $1.5 million.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

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

|(5) |  | Reflects a one-time 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 11th,
          2001.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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. Our company recorded fees paid to it by
          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.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) |  | On August 1, 1997, we consummated the acquisition of certain assets and assumed
          certain liabilities of the Lande Group, Inc. (Lande), a computer
          equipment reseller and provider of systems integration services, for $1.5
          million, including acquisition costs. The original acquisition price was $1.8
          million, subsequently reduced by the return of $250,000 held in escrow. The
          operations related to the acquired assets and liabilities of Lande are included
          in the accompanying consolidated financial statements subsequent to August 1,
          1997. See Note 3 of Notes to Consolidated Financial Statements.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

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

### General

Founded
in 1984, we are an IT professional services firm providing business consulting,
infrastructure design and implementation, managed services, business continuity planning,
and security and professional development to Fortune 1000 and other large and mid-sized
companies located primarily in the New York-to-Philadelphia corridor. In 2001, the Companys
professional service activities and related revenues accounted for 69% of its business.

Except
for the MTA Contract entered into in December 1997, there are no ongoing written
commitments by customers to purchase products from us and all product sales are made on a
purchase-order basis. As the market for IT products has matured, price competition has
intensified and is likely to continue to intensify. During 2001 and 2000, our gross
profits, margins and results of operations were adversely affected by such continued
product pricing pressure and by a significant reduction in product purchase orders from
our customers. In addition, our gross profits, margins and results of operations could be
adversely affected by a disruption in our sources of product supply.

In
2001, we emphasized professional services which command higher margins than product
sales. We have entered into an arrangement which will allow us to outsource most of our
product procurement business and concentrate on our core offerings in three main areas:
Business Advisory, Technology Implementation and Managed Services. Within these three
areas, several new services were added in 2001. In Business Advisory there are two areas
of specialization: Business Consulting and Enterprise Technology Solutions. Business
Consulting assesses common business processes such as security, technology assessment and
economic justification, business continuity (contingency planning) and the Health
Insurance Portability and Accountability Act of 1996 (HIPAA). Enterprise Technology
Solutions provide vendor-specific consulting services from strategic partners such as
Microsoft and Cisco. In Technology Implementation, there are two areas of specialization:
Infrastructure and Information Management services. In 2001, three additional services
were added: Storage Management, Wireless & Mobile and Portal Services. In connection
with our Managed Services offerings, we have rebranded the Managed Services we provide to
our clients. CorServSM provides base-level real-time monitoring and
management of essential infrastructure components. SecurServSM extends
the CorServ services to include firewalls and other essential security components,
providing managed URL filtering for traffic control. AdvanceSecurServSM provides
complex intrusion detection and web content protection services. We have moved the
primary functionality of these management and monitoring services to a highly secure and
redundant facility. This has enabled us to streamline our operations and reduce the costs
associated with delivering these services, while at the same time significantly
increasing the reliability and security of these offerings. The competition for quality
technical personnel has decreased as compared to previous years. This is primarily due to
a slow economy.

Over
the past few years, we embarked on a plan to shift our business model from a product
reseller and integration business to a model that focuses on higher-margin technology
professional services. As a result of this shift, our product sales have declined
significantly. During the fourth quarter of 2001, management concluded that the carrying
value of goodwill amounting to $1.9 million related to this business was not recoverable.

---

Although
it remains our objective to shift our professional services business towards higher-end
business advisory, managed services and related revenues, we nevertheless currently
derive approximately 97% of our professional services business from technology
implementation services, including deskside and network support help desk services and
training. There can be no assurance that we will be successful in improving our
penetration of the higher-end technology consulting services market in the future.

In
2001, we faced reduced manpower requirements due to an industrywide shift in IT spending,
including a pronounced slowdown in IT spending, principally resulting from the recent
economic downturn. In 2001, we reduced our employee population from approximately 475
employees to 257 employees as at December 31, 2001 as a result of our reduced revenue
stream.

Many
companies reduced their IT expenditures in 2001 due to the economic downturn. This
reduction adversely impacted our business, particularly our IT staffing and professional
services groups. We believe that industry trends are being driven by, among other things,
the Internet, Microsoft and the tragic events of September 11, 2001. These trends include
enhanced demand for information security and related business continuity offerings,
wireless integration and the architecture, deployment and support of Microsofts new
operating systems and .NET strategy. We are focused on delivering these newer services.
Our efforts include new and enhanced partnerships with industry leaders such as
Microsoft, Novell, Cisco and Computer Associates and the realignment of our professional
services and sales personnel towards these new business and technology services.

---

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 services and support revenue, salaries
and related expenses for billable technical personnel. Our selling, general and
administrative costs consist of operating expenses, including personnel and related
costs, such as sales commissions earned by employees involved in the sales of IT
products, services and support. Personnel costs also include direct sales, marketing and
sales support, and general and administrative personnel costs. Sales commissions are
recorded as revenue is recognized.

During
the last three fiscal years, the gross margins earned on services and support sales, or
professional services decreased from 33.4% for 1999, to 28.9% for 2000, and increased to
32.3% for 2001. We believe that our ability to provide a broad range of technical
services, coupled with our long-term relationships with large customers, provides 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;
| | - |  | ------------------------------------

| |  |  | o
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.
| | - |  | -----------------------------------------

Operating
results have been and may in the future also be affected by the cost, timing and other
effects of acquisitions, including the mix of revenues of acquired companies. Therefore,
you should not rely upon past operating results and period-to-period comparisons as an
indication of future operating performance.

Our
operating results have been and will continue to be impacted by changes in technical
personnel billing and utilization rates. Many of our costs, particularly costs associated
with services and support 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.

Our
company makes certain judgments and estimates in preparing its financial statements. Our
companys most significant accounting estimates include assessing the collectibility
of accounts receivable, inventory valuation, rebate accruals, the realizability of the
MTA contract costs, the realizability of deferred tax assets, and the amortization period
and carrying value of intangibles. Actual results could differ from those estimates.

---

## Revenue Recognition

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.  Under the arrangement with MoreDirect, we do not recognize sales of product to
our customers; we receive an agency fee associated with such sales from MoreDirect.  Consulting and other
services and support 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 the
Metropolitan Transit Authority Contract (the MTA Contract) are recognized on the percentage-of-completion method
based on total costs incurred relative to total estimated costs.  Prepaid fees
related to the Companys training programs are deferred and amortized to income over the duration of the applicable
training program.  Deferred revenue is included in accrued expenses and represents
the unearned portion of each service contract and the unamortized balance of prepaid training
fees received as of the balance sheet date.

## Inventories

Inventories
are stated at the lower of cost or market.  Cost is determined on a weighted average basis.  We regularly review inventory
quantities on hand and write down our inventory for
estimated market value based upon assumptions about future demand and market conditions.  Our estimates of future product demand
may prove to be inaccurate, in which case we may have understated or overstated the provision required for excess
and obsolete inventory.  If actual market conditions are less favorable than those expected by management,
additional inventory write-downs may be required.  If our inventory is determined to be undervalued, we may
have over-reported our costs of goods sold in previous periods and would be required to recognize such additional operating income at the time of sale.
Therefore, although we make every effort to ensure the accuracy of our estimates of future product demand, any
significant unanticipated changes in demand, industry or product technological developments could
have a significant impact on the value of our inventory and our reported operating results.

## Valuation of Intangibles and
 Long-Lived Assets

We
assess the impairment of identifiable intangibles, long-lived assets and related
goodwill whenever events or changes in circumstances indicate that the carrying
value may not be recoverable. Factors we consider important which could trigger
an impairment review include the following:

| |  |  | significant underperformance relative
to expected historical or projected future operating results;
| | - |  | ---------------------------------------------------------------------------------------------------

| |  |  | significant changes in the manner
of our use of the acquired assets or the strategy for our overall business;
| | - |  | -------------------------------------------------------------------------------------------------------------

| |  |  | significant negative
industry or economic trends;
| | - |  | -------------------------------------------------

| |  |  | significant decline in
our stock price for a sustained period; and
| | - |  | ------------------------------------------------------------------

| |  |  | our market capitalization
relative to net book value.
| | - |  | -----------------------------------------------------

When
we determine that the carrying value of intangibles, long-lived assets and
related goodwill may not be recoverable based upon the existence of one or more
of the above indicators of impairment, we measure any impairment based on
current and estimated future profitability and undiscounted cash flows.

As
a result of the implementation of SFAS 142, Goodwill and Other Intangible
Assets, which is effective for fiscal years beginning after December 15, 2001,
goodwill will no longer be amortized to the income statement. In lieu of
amortization, we are required to perform an initial impairment review of our
goodwill and an annual impairment review thereafter. As a result of our initial
impairment review, we do not believe that any impairment charge is required.
However, there can be no assurance that a material impairment charge will not be
required as a result of future annual reviews.

## Income Taxes

The
Company accounts for income taxes under the provisions of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, which requires
use of the asset and liability method. Deferred income taxes are recorded for
temporary differences between financial statement carrying amounts and the tax
bases of assets and liabilities. Deferred tax assets and liabilities reflect the
tax rates expected to be in effect for the years in which the differences are
expected to reverse. A valuation allowance is provided if it is more likely than
not that some or all of the deferred tax asset will not be realized.

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.

## Accounts Receivable and Rebates

We
regularly review the collectibility of accounts receivable and rebates due from
clients and vendors, respectively. We make 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.

---

## MTA Contract

In
December 1997, we entered into a four-year, $20.4 million contract with the Metropolitan
Transportation Authority of New York 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. We are the prime contractor on this
project and are responsible for project management, systems procurement, and
installation. The work is grouped in contiguous locations and payment 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 unexcused delay by us, we may be
obligated to pay, as liquidated damages, the sum of $100 to $200 per day, per site. While
we are currently performing in accordance with the contract terms, there can be no
assurance that any such events of default or unexcused delays will not occur. In
addition, 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 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, managed by the New York City Controllers
office, over which our company has no control, and which is generally adjusted in June of
each year and may be so adjusted in the future.

We
have performed services and supplied products to the MTA since the inception of the MTA
Contract. The work performed to date at MTA sites has required greater than 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 our 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 has not yet ruled on our appeal.

On
July 19, 2000, the MTA advised us of a determination by the Bureau of Labor Law
(hereinafter, 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 us to perform cabling work have been classified as
telecommunications 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 it expects to incur in connection with the reclassification of certain of its
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. In its complaint, we request 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 that is governed by federal
regulations or one over which the Department is willing to exercise jurisdiction. We are
currently awaiting a formal response from the Department to this effect and will decide
upon appropriate action after review of such response. There can be no assurance we will
be successful, in whole or in part, in our efforts.

---

In the
second quarter of 2000, our company recognized a loss of $4.4 million for costs estimated
to be in excess of the MTA contract value. For the years ended December 31, 2001 and
2000, revenues recorded in connection with the MTA Contract amounted to approximately
$3.7 million and $5.3 million, respectively. For the year ended December 31, 2001, our
company recognized no gross margin on such revenue.

## MoreDirect,
Inc.

During
the fourth quarter of 2001, we initiated an effort to undertake a fundamental change in
dealing with client product requirements. This effort was finalized in January 2002, and
we signed an agreement with MoreDirect, Inc., a leading web-enabled solution provider for
the procurement of corporate IT products, whereby MoreDirect will provide product-related
procurement services to our clients and we will receive an agency fee on such sales from
MoreDirect. The arrangement provides that MoreDirect will bill our clients and assume
product and the customer receivable risk, and that MoreDirect will deal directly with our
clients.

## EDS, L.L.C.

In
August 2001, we agreed that certain of our employees could join 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 received a one-time payment of $417,000, which we
recorded as other income in the accompanying consolidated financial statements. As a
result of this transaction, we have incurred monthly reductions of revenue and operating
income from this customer of $400,000 and $60,000, respectively. We cannot assure you
that we will be successful in replacing this revenue or operating income with business
from this or other customers in the foreseeable future.

---

## ICM Education
Division of Computer Horizons Corp.

In
September 2001, we acquired certain of the assets of the ICM Education Division of
Computer Horizons Corp., a premier provider of vendor-authorized technical and private
training services for corporations, financial institutions, governmental agencies and
professional services firms in the tri-state region for $511,000. We do not deem the
acquisition of ICM Education Division to be material.

---

## 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 the identified
line items compared to the prior year:

|                                             | Percentage of Net SalesYear Ended December 31, | Percentage
Increase
Decrease
of theIdentified Line Items
|-------------------------------------------- | ---------------------------------------------- | --------------------------------------------------------
|
|Net sales:                                   |                                                |                                                         
|Product                                      |                                                | 30.5                                                    
|Services and support                         |                                                | 69.5                                                    
|                                             |                                                |                                                         
|                                             |                                                | 100.0                                                   
|Cost of sales                                |                                                | 74.5                                                    
|                                             |                                                |                                                         
|Gross profit                                 |                                                | 25.5                                                    
|                                             |                                                |                                                         
|Operating expenses:                          |                                               
|Selling, general & administrative:           |                                                | 34.0                                                    
|Write-off of goodwill                        |                                                | 3.6                                                     
|(Recovery) write-off of capitalized          |                                               
|asset                                        |                                                | --                                                      
|                                             |                                                |                                                         
|                                             |                                                | 37.6                                                    
|                                             |                                                |                                                         
|Operating income                             |                                                | (12.1                                                   
|                                             |                                                |                                                         
|Other income (expense), net                  |                                                | 1.5                                                     
|                                             |                                                |                                                         
|Income before income taxes                   |                                                | (10.6                                                   
|                                             |                                                |                                                         
|Provision for income taxes                   |                                                | --                                                      
|                                             |                                                |                                                         
|Net income                                   |                                                | (10.6                                                   
|                                             |                                                |                                                         
|Gross profit (as a percentage of related net |                                               
|sales):                                      |                                               
|Product                                      |                                                | 12.1                                                    
|Services and support                         |                                                | 31.4                                                    

Comparison
of Years Ended December 31, 2001 and 2000

Net
Sales:  Net sales in 2001 of $51.6 million decreased 42.9%, or $38.7 million, from net
sales of $90.3 million in 2000. We have continued to focus on professional services. As a
result, revenue from sales of products as a percentage of overall revenues has declined
from 48.7% in 2000 to 30.5% in 2001, while services and support revenues as a percentage
of overall revenues has increased from 51.3 % in 2000 to 69.5% in 2001. Services and
support revenue in 2001 of $35.9 million decreased 22.7%, or $10.5 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 is directed
at selling professional services, and product sales are offered on a select basis as a
supplement to the professional services offerings, and in 2002 will be offered primarily
through our agency arrangement with MoreDirect. 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.

---

Gross
profit:  Gross profit in 2001 of $13.2 million increased 7.2%, or $0.9 million, from
gross profit of $12.3 million in 2000, increasing as a percentage of revenues to 25.5% in
2001 from 13.6% in 2000. The increase in the gross profit percentage is attributable to
selective product sales with higher margins, an increase in service and support margins
and nonrecurring other charges of $4.9 million in 2000, consisting of $4.4 million
associated with our MTA contract and $0.5 million associated with non-recoverable vendor
charges. Gross profit from services and support activities in 2001 of $11.3 million
decreased 15.9%, or $2.1 million, from $13.4 million in 2000 and increased as a
percentage of services and support revenues to 31.4% in 2001 from 28.9% in 2000. Our
company recorded $0.3 million of severance in 2001. Gross profit from product sales in
2001 of $1.9 million decreased 49.1%, 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. Our
company recognized no gross profit on the MTA contract in 2001.

Selling,
general and administrative expenses:  Selling, general and administrative expenses in
2001 of $17.6 million decreased 26.7%, or $6.4 million, from $24.0 million in 2000. In
2001, we recorded special 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, our company recorded special 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 uncollectable
accounts receivable related to, among other things, various receivables for our telecom
business, divested during 2000.

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

Other
income (expense), net:  Other income (expense) consisted of interest income of $0.7
million in 2001, and $0.4 million in fees paid to our company by EDS in connection with
its hiring of certain of our employees in connection with the selection of EDS for
services previously provided by us to one of our customers. In 2000, other income
(expense) consisted of interest income of $1.1 million and $0.4 million associated with
the settlement of litigation. Interest income decreased from 2000 as a result of lower
interest rates.

In
February 2001, a wholly-owned subsidiary of Eureka Broadband Corporation, a Delaware
corporation, 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. The preferred securities and loan were converted
to Eureka common stock in July 2001. In the fourth quarter, our company wrote off the
investment it held in the common stock in the amount of $382,000, after Eurekas
principal operations were negatively impacted by the events of September 11th,
2001.

Provision
for income taxes:  In 2001, we recorded at a 41.0% effective rate, a $2,248,000 tax
benefit, and income tax valuation allowance of $2,248,000. The provision for income taxes
in 2000 was $474,000. Income tax benefits of $4,979,000 were provided for at a 41.0%
effective tax rate for 2000. In 2000, tax adjustments of $5,586,000 were recorded,
including a valuation allowance of $5,453,000 and other items of $133,000. Our company
expects that it will record a tax benefit of $1.8 million in 2002 associated with 2001
tax losses, which can be carried back to prior tax years, resulting from recently enacted
changes to the Internal Revenue Code.

---

## Comparison of
Years Ended December 31, 2000 and 1999

Net
sales:  Net sales in 2000 of $90.3 million decreased 33.8%, or $46.2 million, from net
sales of $136.6 million in 1999. We have continued to focus on our strategy of
repositioning our company to a professional services company. As a result, revenue from
sales of products as a percentage of overall revenues has continued to decline, from
61.0% in 1999 to 48.7% in 2000, while services and support revenues as a percentage of
overall revenues has increased from 39.0% in 1999 to 51.3% in 2000. Services and support
revenue in 2000 of $46.4 million decreased 12.9%, or $6.9 million, from $53.3 million in
the prior year. Many of the services which we performed in prior years such as desktop
support services, configuration and installation were performed to support product sales.
As product sales declined, a portion of our service revenues also declined. Product sales
in 2000 of $44.0 million decreased 47.2%, or $39.3 million, from $83.3 million in the
prior year. Our primary sales effort is directed at selling professional services, and
product sales are 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 $5.3 million and $3.5 million for the years ended December 31,
2000 and 1999, respectively.

Gross
profit:  Gross profit in 2000 of $12.3 million decreased 52%, or $13.4 million, from
gross profit of $25.7 million in 1999, decreasing as a percentage of revenues from 18.8%
in 1999 to 13.6% in 2000. The decline is attributable to a reduction in net sales, lower
product and services and support margins, and to second quarter charges of $4.4 million
associated with our contract with the MTA and $0.5 million associated with unrecoverable
vendor charges. Gross profit from services and support activities in 2000 of $13.4
million decreased 24.7%, or $4.4 million, from $17.8 million in 1999 and also declined as
a percentage of services and support revenues from 33.4% in 1999 to 28.9% in 2000. Gross
profit from product sales in 2000 of $3.8 million decreased 52.4%, or $4.1 million, from
$7.9 million in 1999, while declining as a percentage of product sales from 9.5% in 1999
to 8.5% in 2000.

Selling,
general and administrative expenses:  Selling, general and administrative expenses in
2000 of $24.0 million decreased 3.1%, or $0.8 million, from $24.7 million in 1999. In
2000, we recorded special charges of $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 companys
telecom business, divested during the year. In 1999, we recorded a special charge for
uncollectable accounts receivable of $1.5 million.

Interest
income, net:  Interest income increased from $0.6 million in 1999 to $1.1 million as a
result of higher cash balances throughout 2000.

Nex-i.com:
  In January 2000, we invested in Series A convertible participating preferred stock of
nex-i.com Inc. We recorded our share of losses incurred by nex-i.com to the full extent
of the cost of our investment.

Provision
for income taxes:  The provision for income taxes in 2000 was $474,000. Income tax
benefits of $4,979,000 were provided for at a 41.0% effective tax rate for 2000. In 2000,
tax adjustments of $5,586,000 were recorded including a valuation allowance of $5,453,000
and other items of $133,000. In 1999, the provision for income taxes was $794,000, which
was based upon a 41.0% effective tax rate.

---

## Risk Factors:

We
offer business consulting, infrastructure design, managed services, business continuity
planning, and security. We also offer enterprise solutions including remote network
management and call center support, as well as professional development. Services revenue
is recognized as such services are performed. Most of our services are billed on a
time-and-materials basis. Our professional development and 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).

In
1999, we embarked on an effort to reposition ourselves from a value-added reseller to a
professional services company. The competition for low-margin technology products
increased significantly and, more recently, the demand for technology products has
declined. As a result, we have been attempting to transition to selling higher-margin
services, some of which are related to technology product orders. During this period, we
have been selective in accepting product offers. As such, during this period our products
sales have declined from $83.3 million in 1999 to $15.8 million in 2001.

Our
professional service revenues declined from $53.3 million in 1999, to $46.4 million in
2000, and have further declined to $35.9 million in 2001. In the fourth quarter of 2001,
our most recent quarter, our professional service revenues further declined to $6.7
million in the quarter, or an annual rate of $26.8 million. From the first quarter of
2000 through the fourth quarter of 2001, we have operated at a loss.

In
January 2002, we entered into an agency agreement with MoreDirect, Inc., an
internet-based, business-to-business electronic marketplace which enables information
technology buyers to efficiently source, evaluate, purchase and track a wide variety of
computer hardware, software and related technology products. This agreement will permit
us to further exit the product business and concentrate on our core professional service
offerings. Certain of our professional service offerings are dependent on technology
product purchases by our existing and prospective clients, irrespective of how such
clients procure their products. Accordingly, the downturn in technology spending has
adversely impacted our professional service revenues. Further, competition by larger
firms such as Siemens, EDS and IBM Global Services in such areas as desktop support and
integration services 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.
There can be no assurance these negative trends will not continue.

---

Portions
of our professional 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, and 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.

## Recently
Issued Accounting Standards:

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

In
July 2001, the Financial Accounting Standard Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 141, "Business Combinations," which supersedes Accounting
Principles Board (APB) Opinion No. 16. SFAS No. 141 requires all business combinations
initiated after June 30, 2001 be accounted for under the purchase method. In addition,
SFAS No. 141 establishes criteria for the recognition of intangible assets separately
from goodwill. The adoption of SFAS No. 141 did not have a material effect on our results
of operations, financial position or cash flow.

In
July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets,which
supersedes APB Opinion No. 17. Under SFAS No. 142 goodwill and indefinite lived
intangible assets will no longer be amortized, but rather will be tested for impairment
at least annually. In addition, the amortization period of intangible assets with finite
lives will no longer be limited to 40 years. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001, which for us means the standard was adopted on January
1, 2002. We do not expect the adoption of SFAS No. 142 will have a material effect on our
results of operations, financial position or cash flow.

On
August 15, 2001, the FASB issues FASB No. 143, Accounting for Asset Retirement
Obligations.This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. It applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development and/or the normal operation of long-lived assets, except for certain
obligations of lessees. We do not expect the adoption of FASB No. 143 to have a material
effect on our results of operations.

---

On
October 3, 2001, the FASB issued FASB No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. The objectives of FASB No. 144 are to address the
significant issues relating to the implementation of FASB Statement No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and
to develop a single accounting model, based on the framework established in FAS No.121,
for long-lived assets to be disposed of by sale, whether previously held and used or
newly acquired. We do not expect the adoption of FAS No. 144 will have a material effect
on our results of operations.

On
November 15, 2001, the FASB issued Topic No. D-103, Income Statement
Characterization of Reimbursements Received For Out-of-Pocket Expenses Incurred. The
FASB will require in 2002 companies to report these disbursements as revenues, versus a
reduction of cost of sales. This classification has no impact on reported losses. Our
company had such reimbursements of $283,000 in 2001. For the years 2000 and 1999, this
information was not segregated in the accounting records. Our company will adopt such
reporting in the first quarter of 2002.

## Liquidity and Capital
Resources:

Cash
and cash equivalents at December 31, 2001 of $23.8 million increased by $6.6 million,
from $17.2 million at December 31, 2000. Working capital, which is the excess of current
assets over current liabilities, at December 31, 2001 was $23.8 million as compared to
$26.3 million at December 31, 2000 representing a decrease of $2.5 million. The decline
in working capital was primarily a result of our losses for the year.

Since
its inception, we have funded our operations primarily from cash generated by operations,
and the net proceeds from our public offerings. Cash provided by operations for the
fiscal year ended December 31, 2001 was $7.7 million. This was primarily due to the
reduction in accounts receivables resulting from a reduction in sales. As measured in day
sales outstanding, our accounts receivable days outstanding decreased from 78 days at
December 31, 2000 to 73 days at December 31, 2001. Excluding MTA receivables, days sales
outstanding in accounts receivable at December 31, 2001 and 2000 were 53 days and 76 days,
respectively.

Capital
expenditures of $0.2 million, $1.1 million, and $1.6 million during the years ended
December 31, 2001, 2000, and 1999, respectively, were primarily for the purchase of
computer equipment and upgraded software implementations. We anticipate additional
capital expenditures to expand the services component of its business and enhance our MIS
infrastructure.

Our
company currently anticipates that, in 2002, it will receive $1.8 million in Federal income
tax refunds resulting from the recently enacted changes to the Internal Revenue Code.

---

On
June 30, 1997, we executed a Loan and Security Agreement with First Union National Bank
(the Bank), whereby the Bank expanded our credit facility to enable us to
borrow, based upon eligible accounts receivable, up to $15.0 million for short-term
working capital purposes. Such facility included a $2.5 million sublimit for letters of
credit and a $5.0 million sublimit for acquisition advances. Under the facility, we were
permitted to borrow, subject to certain post-closing conditions and covenants, (i) for
working capital purposes at the Banks prime rate less 0.50% or LIBOR plus 1.25% and
(ii) for acquisitions at the Banks prime rate less 0.25% or LIBOR plus 1.50%. Our
obligations under such facility were collateralized by a first priority lien on our
accounts receivable and inventory, except for inventory for which the Bank subordinated
its position to certain other lenders pursuant to intercreditor agreements. On September
30, 1998, we executed a Loan and Security Agreement with the Bank, whereby the Bank
extended our credit facility for an additional year through September 30, 1999. Effective
October 1, 1999, the Bank extended our credit facility on substantially the same terms
and conditions for an interim period ending December 31, 1999. Effective January 1, 2000,
the Bank extended our credit facility for an additional year ending December 31, 2000 on
substantially similar terms; however, the Bank provided $2 million of the $15 million
credit line to us on an uncollateralized basis. Under this credit facility, we were
required to maintain a minimum fixed charge coverage ratio, and a total liabilities to
net worth ratio. At December 31, 2000, the facility expired and we did not renew it.

In
August 1998, our Board of Directors authorized the repurchase up to 225,000 shares of our
outstanding Common Stock at market price. On May 20, 1999, the Board of Directors
authorized repurchase up to 225,000 additional shares of our Common Stock at market
price. During the year ended December 31, 1998, 136,800 shares of our Common Stock were
repurchased for approximately $667,000, an average price of $4.87 per share. During the
year ended December 31, 1999, 13,800 shares of our Common Stock was repurchased for
approximately $53,000, an average price of $3.89 per share. We did not repurchase any
outstanding shares of stock in 2000 or 2001. As of December 31, 2001, a total of 150,600
shares of our Common Stock has been repurchased for approximately $720,000, an average
price of $4.78 per share since the inception of the repurchase program in August 1998.

Our
Employee Stock Purchase Plan was approved by our shareholders in May 1998. During 1998,
80,888 shares of Common Stock were sold to employees under the plan for approximately
$509,000, an average price of $6.29 per share. During 1999, employees purchased an
additional 49,691 shares under the plan for approximately $177,000, an average price of
$3.54 per share. During 2000, employees purchased 33,548 shares of stock at an average
price of approximately $3.51 per share at a total value of $117,000. In 2001, employees
purchased 52,204 shares of stock at an average price of approximately $1.50 per share at
a total value of $78,000. We have issued an aggregate of 216,331 shares since the
inception of the Employee Stock Purchase Plan at an average price of $4.07 per share,
receiving total proceeds of $881,000. In September 2001, our company discontinued this
plan.

In
January 2000, we invested $1.8 million in exchange for 3,101,000 shares of Series A
Convertible Participating Preferred Stock in a private internet start-up nex-i.com
Inc. (nex-i.com). The investment represented approximately 30% of nex-i.com
equity on an as converted basis. We have recorded our share of losses to the
extent of our investment based upon our preferred stock funding interest. On July 27,
2000, nex-i.com received $12,100,000 in a Series B Convertible Participating Preferred
Stock financing (the Series B Financing), in which we did not participate.
Following the July financing, our investment in nex-i.com represented approximately 15%
of nex-i.com equity on an  as converted basis. In connection with the Series B
Financing, and in consideration of our release of nex-i.com from certain commercial
commitments to the Company made at the time of the Series A financing, we received up to
100,000 warrants to purchase shares of nex-i.com Series B Convertible Participating
Preferred Stock at an exercise price ranging from $1.50 to $1.85 per share. 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 several
classes of preferred stock in Eureka in exchange for our Series A Convertible
Participating Preferred Stock in nex-i.com. Coincident to and as a condition of the
merger, we were required to lend $382,000 to Eureka in exchange for a convertible
promissory note. The note bore interest at the rate of 8% per annum, which could have
been paid by Eureka in cash on March 31, 2001 (the Maturity Date) or
converted by Eureka into shares of Eureka preferred stock on the Maturity Date, in the
discretion of the holders of 51% of the aggregate outstanding principal of all similar
notes. In July 2001, the Eureka preferred stock and note held by us was converted to
common stock. We wrote off our investment in Eureka common stock of $382,000 in the
fourth quarter of 2001, after Eurekas principal operations were impacted by the
negative events of September 11th, 2001. In consideration of our investment in
Eureka, Eureka committed to purchase a minimum of $146,000 of our network monitoring,
cabling, field engineering and other services during the first twelve months following
the closing of the merger and a minimum of $182,000 of such services during the second
twelve months following the closing. Eureka also committed to use good faith efforts to
ultimately purchase a minimum of $500,000 of our services during the twenty-four month
period following the closing. To date, Eureka has failed to honor these commitments;
however, on March 6, 2002, Eureka entered into a Support Agreement with our company
pursuant to which Eureka agreed to purchase network monitoring and call center support
services from us in the aggregate amount of approximately $87,835. This sum includes
payment of a past-due receivable in the amount of $20,000.

---

Our
interests in Eureka are subject to two agreements among Eureka and its shareholders. We
do not deem the rights and restrictions set forth in the two agreements to be material.
The restrictions include a limitation on transfer of our equity interest in Eureka in
certain circumstances and the requirement to sell the equity interest when a transfer is
approved by a vote of the interest holders. In addition, upon the agreement of a
substantial amount of other interest holders, we have the right to demand that our equity
interest be registered under the Securities Act of 1933, and the right, without other
interest holders, to have our equity interest included in certain other registrations
under such Act.

We
purchase certain inventory and equipment through a financing arrangement with IBM Credit
Corporation. In 2000, we had a financing agreement with Finova Capital Corporation as
well, but in 2001 Finova Capital Corporation ceased operations. At December 31, 2001,
there was an outstanding balance of approximately $254,000 for IBM Credit Corporation.
Obligations under such financing arrangements are collateralized by substantially all of
our assets.

Our company
leases six facilities under operating lease agreements through August 2002 which have
aggregate net lease obligations of $1.1 million, net of sublease rentals, at December 31, 2001.

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 twelve 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, 2001. 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.

[This space left blank
intentionally]

|                                      | 
|------------------------------------- | 
|
|
|
|
|                                      | 
|Net sales:                            | 
|Product                               | 
|Services and support                  | 
|                                      | 
|                                      | 
|                                      | 
|Cost of sales:                        | 
|Product                               | 
|Services and support (1)              | 
|Other charges (2)                     | 
|                                      | 
|                                      | 
|                                      | 
|Gross profit:                         | 
|Product                               | 
|Services and support (1)              | 
|Other charges (2)                     | 
|                                      | 
|                                      | 
|                                      | 
|Operating expenses:                   | 
|Selling, general and                  | 
|administrative (3)                    | 
|Write-off of goodwill (4)             | 
|                                      | 
|                                      | 
|                                      | 
|Operating income (loss)               | 
|Other income (expense), net (5)       | 
|Nex-i.com / Eureka loss (6)           | 
|                                      | 
|Income (loss) before income taxes     | 
|Provision (benefit) for income        | 
|taxes (7)                             | 
|                                      | 
|Net income (loss)                     | 
|                                      | 
|Net income (loss) per share (diluted) | 
|                                      | 
|As a Percentage of Net Sales:         | 
|Net sales:                            | 
|Product                               | 
|Services and support                  | 
|                                      | 
|                                      | 
|Cost of sales                         | 
|                                      | 
|Gross profit                          | 
|                                      | 
|Operating expenses:                   | 
|Selling, general and                  | 
|administrative (3)                    | 
|Write-off of goodwill (4)             | 
|                                      | 
|                                      | 
|                                      | 
|Operating income (loss)               | 
|Other income (expense), net           | 
|                                      | 
|Income before income taxes            | 
|Provision for income taxes            | 
|                                      | 
|Net income                            | 
|                                      | 
|Gross profit (as a percentage of      | 
|related net sales):                   | 
|Product                               | 
|Services and support (1)              | 

---

| |  | (1) |  | During
the quarters ended March 31, 2001, June 30, 2001, September 30, 2001, and December 31,
2001, we      recorded special charges which included $46,000,
$68,000, $33,000 and $195,000, respectively, of severance and other special compensation
payments for our consultants.
| |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (2) |  | During
the quarter ended June 30, 2000, we recorded special charges of $4.4 million associated
with our contract with the MTA and $451,000 associated with unrecoverable vendor charges.
| |  | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (3) |  | During
the quarters ended March 31, 2001, June 30, 2001, September 30, 2001, and December 31,
2001, our recorded special 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 special charges consisting of $355,000
of facility consolidation costs, and $284,000 of consulting costs. During the quarters
ended March 31, 2000, June 30, 2000, and September 30, 2000, we recorded special charges
which included $275,000, $554,000 and $394,000, respectively, of severance and other
special compensation payments. During the quarter ended June 30, 2000, we recorded
additional bad debt expenses of $750,000.
| |  | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (4) |  | In
the quarter ended December 31, 2001, we wrote off our legacy product related business
goodwill relating to the acquisition of Lande, Lior and OmniTech in the amount of
$1,874,000.
| |  | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (5) |  | 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, and we recognized other income of $417,000.
In the quarter ended September 30, 2000, we recognized a gain of $370,000 associated with
the settlement of litigation.
| |  | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (6) |  | In
the quarter ended March 31, 2001, a wholly owned subsidiary of Eureka Broadband
Corporation 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. The preferred securities and note were converted
to common stock. In the fourth quarter of 2001, we wrote off our investment in Eureka
common stock in the amount of $382,000. In each of the quarters ended March 31, 2000,
June 30, 2000 and September 30, 2000, we recorded our share of losses in our investment
in nex-i.com, Inc., totaling $2,249,000.
| |  | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (7) |  | In
each of the quarters ended March 31, 2001, June 30, 2001, September 30, 2001 and December
31, 2001, we recorded an income tax valuation allowance to the extent of any deferred tax
benefit resulting from incurred losses. In each of the quarters ended June 30, 2000,
September 30, 2000 and December 31, 2000, we recorded an income tax valuation allowance
to the extent of any deferred tax benefit resulting from incurred losses.
| |  | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

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

Not
applicable.

## Item 8.
     Financial Statements and Supplementary Data.

Reference
is made to Item 14(a)(1) and (2) on 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 15-31 for selected unaudited quarterly financial data.

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

Not
applicable.

---

# PART III

## Item 10.
     Directors and Executive Officers of the Company.

STAN GANG

Stan
Gang, 67, founded AlphaNet Solutions 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
Chairman of the Board and Chief Executive Officer of the Company. Effective December 1,
2001, Mr. Gang retired as the Company's Chief Executive Officer. From June 1999 to March
2001, Mr. Gang was Chairman of the Board of the Company. Mr. Gang has 40 years of
experience in the computer sales and services industry. Prior to joining AlphaNet
Solutions, Mr. Gang was employed in various management capacities by IBM Corporation, MAI
Equipment Corporation and Memorex Telex. Mr. Gang has been a Director of AlphaNet
Solutions since 1984. Mr. Gang is the father of Michael Gang, a nominee for Director
described below.

MICHAEL GANG

Michael
Gang, 35, joined AlphaNet Solutions in April 1989 and has been a National Account
Manager/Sector Director of AlphaNet Solutions since that time. From September 1995
through October 1997, he also served as Secretary of AlphaNet Solutions. Mr. Gang has
been a Director of AlphaNet Solutions since September 1995. Mr. Gang is the son of Stan
Gang, a nominee for Director described above.

IRA COHEN

Ira
Cohen, 50, has, since 1988, 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 has been a Director of AlphaNet Solutions since May 1999.

THOMAS F. DORAZIO

Thomas
F. Dorazio, 44, has, since 1995, been Vice President of Information Services for the New
York State Electric and Gas Corporation ("NYSE&G") and, since 1998, Chairman of the Board
of Energy East Telecommunications, Inc., a wholly-owned subsidiary of Energy East
Corporation. Mr. Dorazio also serves on the Advisory Board of the Syracuse University
Center for Business Information Technologies. Mr. Dorazio has been a Director of AlphaNet
Solutions since May 1999.

---

DOREEN A. WRIGHT

Doreen
A. Wright, 45, has, since 2001, been Senior Vice President, Chief Information Officer of
Campbell Soup Company. 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 Rutgers Business Board of Advisors and on the Board of Trustees of the American
Repertory Ballet. Ms. Wright has been a Director of AlphaNet Solutions since March 2001.

VINCENT TINEBRA

Vincent
Tinebra, 44, joined AlphaNet Solutions in March 2001 as President and Chief Operating
Officer. From 1990 to 2000, Mr. Tinebra was a senior executive with Inacom Corporation
(formerly Vanstar Corporation), where he served as Senior Vice President, Solution
Delivery Field Operations (2000), Senior Vice President of Professional Services, Eastern
Region (1998 to 2000) and Senior Vice President of Sales (1996 to 1998).

WILLIAM S. MEDVE

William
S. Medve, 42, joined AlphaNet Solutions in April 2000 as Senior Vice President, Chief
Financial Officer and Treasurer. In March 2001, he was named an Executive Vice President
of AlphaNet Solutions. 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 CPA.

JACK P. ADLER

Jack
P. Adler, 48, joined AlphaNet Solutions in March 1999 as Senior Vice President,
Secretary and General Counsel. In March 2001, he was named an Executive Vice President of
AlphaNet Solutions. 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, he was in-house counsel for several leading corporations in the telecommunications,
computer, and environmental industries. Mr. Adler is a member of the American and New
Jersey Corporate Counsel Associations and the New Jersey General Counsels Group.

## Executive Management of
AlphaNet Solutions, Inc and Certain Compensation Arrangements with Respect Thereto.

Following
Stan Gangs retirement as Chief Executive Officer of our company effective December
1, 2001, the duties of the CEO devolved upon the Executive Committee of our Board of
Directors, consisting of Ira Cohen, Thomas F. Dorazio and Doreen A. Wright. Effective
March 15, 2002, the Board retained Richard Erickson, a technology and operations
executive with 20 years of industry experience, as Chief Executive Officer. Mr. Erickson,
who joined our company in a consulting capacity through New England Associates, LLC, a
professional services turnaround consultancy of which Mr. Erickson is President, was most
recently Senior Vice President, Operations of Scient, Inc., an e-business consulting
firm. Mr. Erickson previously 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.

Pursuant
to the terms of his engagement, Mr. Erickson has been retained for a minimum term of six
months at $15,000 per month, plus a bonus of $90,000 payable upon certain contingencies
and a fully-vested option or warrant for 25,000 shares of our Common Stock. During the
term of his consulting engagement, Mr. Erickson will execute the duties and exercise the
responsibilities of chief executive officer. At the discretion of our Board of Directors,
the consulting engagement may be converted into an employment agreement at an annual base
salary of $260,000. Mr. Erickson would also be entitled to, among other things, a
performance bonus of up to 80% of base salary based on mutually agreed criteria and an
additional 275,000 stock options, including a guaranteed minimum realizable sum of
$600,000, representing the aggregate difference between the exercise price of options and
the fair market value of our Common Stock underlying such options, on the exercise of all
options held by Mr. Erickson in the event of a sale or merger of our company within two
years of the commencement of his employment. In the event of the conversion of the
consulting engagement into an employment agreement, Mr. Erickson would be nominated for
election as a member of our Board of Directors.

---

## 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.

# SUMMARY COMPENSATION TABLE

|Long-Term
                                                                                        Compensation
                                                    Annual Compensation                    Awards
                                              ---------------------------------            ------

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

                                                                     Other Annual        Securities        All Other
  Name and Principal Position    Fiscal                           Compensation (6)($)    Underlying      Compensation
                                  Year   Salary ($)   Bonus ($)                         Options (#)         (7)($)

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

Stan Gang (1)                   2001     250,016          -                -                  -              1,400
Chairman & CEO                  2000     250,016          -                -                  -              1,400
                                1999     250,000          -                -                  -              2,308


Donald A. Deieso (2)            2001     177,541          -                -                  -                -
Former President and Chief      2000     240,000          -                -                  -                -
Executive Officer               1999     128,307        96,000             -               105,000             -

William S. Medve (3)            2001     213,808          -                -               30,000            2,842
Executive Vice President,       2000     136,615        10,000             -               50,000            2,510
Chief Financial Officer and
Treasurer

Jack P. Adler (4)               2001     195,154          -                -               10,000            2,608
Executive Vice President,       2000     157,692        10,000             -               20,000            3,400
Secretary and General           1999     122,308        45,000             -               20,000            2,529
Counsel

Vincent Tinebra (5)             2001     218,230        60,000             -               150,000           1,400
President, Chief Operating
Officer
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

| |  | (1) |  | Mr. Gang retired as
our Chief Executive Officer effective December 1, 2001. Mr. Gang
continues to receive his base salary of approximately $250,000 plus benefits in
anticipation of agreement upon a mutually satisfactory severance package. Our company has
recorded an estimated charge of $500,000 associated with this arrangement.
| |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (2) |  | Dr.
Deieso joined AlphaNet Solutions in June 1999 as President and Chief Executive Officer.
He was separated from AlphaNet Solutions in March 2001.
| |  | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| |  | (5) |  | Mr.
Tinebra joined AlphaNet Solutions in March 2001 as President and Chief Operating Officer.
| |  | --- |  | ---------------------------------------------------------------------------------------------

| |  | (6) |  | 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.
| |  | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (7) |  | Represents
401(k) contributions made by AlphaNet Solutions on behalf of each named executive officer.
| |  | --- |  | -----------------------------------------------------------------------------------------------------

---

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

There
were, as of February 28, 2002, approximately 314 holders of record and approximately
2,532 beneficial owners of our Common Stock. The following table sets forth certain
information, as of February 28, 2002, 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, nominees, and
named executive officers, and (iii) all directors and executive officers as a group.

|Name and Address 
of Beneficial Owner(1) | Amount and Nature of
Beneficial Ownership(1) |  | Percent of Class(2) |  |  | 
|---------------------------------------- | -------------------------------------------- |  | ------------------- |  |  | 

---

|Certain Beneficial Owners:                       |  |           |  |      |   |  | 
|------------------------------------------------ |  | --------- |  | ---- | - |  | 
|Stan Gang (3)                                    |  | 1,967,300 |  | 29.9 | %
|7 Ridgedale Avenue                               | 
|Cedar Knolls, NJ 07927                           | 
|Fallen Angel Equity Fund, L.P. (4)               |  | 687,100   |  | 10.4 | % |  | 
|c/o Fallen Angel Capital, LLC
125 Half Mile Road | 
|Red Bank, NJ 07733                               | 
|Royce & Associates, Inc. (6)                     |  | 559,500   |  | 8.5  | %
|1414 Avenue of the Americas, 9th Floor           | 
|New York, NY 10019                               | 
|Dimensional Fund Advisors Inc. (5)               |  | 436,400   |  | 6.6  | %
|1299 Ocean Avenue, 11th Floor                    | 
|Santa Monica, CA 90401                           |  |           | 

Directors, nominees, and named
executive officers who are not named above:

|Michael Gang (7)      |  | 36,000 |  |  | * |  | 
|--------------------- |  | ------ |  |  | - |  | 
|Ira Cohen (8)         |  | 15,000 |  |  | *
|Thomas F. Dorazio (9) |  | 27,500 |  |  | *
|Doreen A. Wright (10) |  | 22,500 |  |  | *
|Vincent Tinebra (11)  |  | 37,500 |  |  | *
|William S. Medve (12) |  | 32,500 |  |  | *
|Jack P. Adler (13)    |  | 24,000 |  |  | *
|Donald A. Deieso (14) |  | 0      |  |  | *

All directors and executive officers
as a group (9 persons)

| |  | 2,162,300 |  |  | 32.82 | % | 
| |  | --------- |  |  | ----- | - | 

|* |  | Less
than one percent
|- |  | ---------------------

---

| |  | (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 6,588,413 shares of Common Stock outstanding on February
28, 2002, plus presently exercisable stock options held by each such holder which are
exercisable within the 60 days after February 28, 2002.
| |  | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (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 and information furnished by
Fallen Angel Equity Fund, L.P.
| |  | --- |  | ------------------------------------------------------------------------------------------------------------------------------

| |  | (5) |  | Pursuant
to a Schedule 13G/A filed with the SEC on February 12, 2002.
| |  | --- |  | ---------------------------------------------------------------------

| |  | (6) |  | Pursuant
to a Schedule 13G/A filed with the SEC on February 7, 2002.
| |  | --- |  | --------------------------------------------------------------------

| |  | (7) |  | Represents
36,000 shares of Common Stock underlying options which are exercisable as of February 28,
2002 or within the 60 days after such date. Excludes 14,000 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
15,000 shares of Common Stock underlying options which are exercisable as of February 28,
2002 or within the 60 days after such date. Does not include 634,900 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
27,500 shares of Common Stock underlying options which are exercisable as of February 28,
2002 or within the 60 days after such date.
| |  | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (10) |  | Represents
22,500 shares of Common Stock underlying options which are exercisable as of February 28,
2002, or within the 60 days after such date.
| |  | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (11) |  | Represents
32,500 shares of Common Stock underlying options which are exercisable as of February 28,
2002 or within the 60 days after such date. Excludes 112,500 shares underlying options
which become exercisable over time after such period.
| |  | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (12) |  | Represents
32,500 shares of Common Stock underlying options which are exercisable as of February 28,
2002 or within the 60 days after such date. Excludes 47,500 shares underlying options
which become exercisable over time after such period.
| |  | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (13) |  | Represents
24,000 shares of Common Stock underlying options which are exercisable as of February 28,
2002 or within the 60 days after such date. Excludes 26,000 shares underlying options
which become exercisable over time after such period.
| |  | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

| |  | (14) |  | Represents
0 shares of Common Stock underlying options which are exercisable as of February 28, 2002
or within the 60 days after such date.
| |  | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------

## Item 13.
     Certain Relationships and Related Transactions.

In
2001, we paid, as compensation for services rendered to us and for sales generated, an
aggregate of $325,100 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 of the Company from September 1995 to
October 1997.

In
1995, the Board of Directors adopted a policy requiring that any future 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.

---

## PART IV

## Item 14.
     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.
| |  | ---------------------------------------------------------------------------------

|(a)  (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.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(a)  (3) |  | Exhibits.
|-------- |  | ---------

| |  | Reference  is
made to the Index to Exhibits on pages 41-45.
| |  | -----------------------------------------------------------

|(b) |  | Reports
on Form 8-K.
|--- |  | --------------------

| |  | We  filed
no Current Reports on Form 8-K during the last quarter of the period covered by this
Annual Report.
| |  | -------------------------------------------------------------------------------------------------------------

---

# EXHIBIT INDEX

|No. |  | 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.
|------ |  | -----------------------------------------------------------

|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.
|------ |  | ---------------------------------------------------------------------------------------------------------------------

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

|10.16(lambda) |  | Asset
Purchase Agreement dated July 18, 1996 by and between Stan Gang and Lior, Inc.
|------------- |  | ------------------------------------------------------------------------------------

|10.17(lambda) |  | Assignment
of Asset Purchase Agreement dated July 24, 1996 by and between Stan Gang and the Company.
|------------- |  | ----------------------------------------------------------------------------------------------------

|10.18** |  | Loan
and Security Agreement dated June 30, 1997 by and between First Union National Bank and
the Company.
|------- |  | ---------------------------------------------------------------------------------------------------------

|10.19** |  | Asset
Purchase Agreement dated August 1, 1997 by and between the Company and The Lande Group,
Inc.
|------- |  | --------------------------------------------------------------------------------------------------

|10.20## |  | Assignment
of lease dated August 1, 1997 by and between The Lande Group, Inc., 460 West 34thStreet Associates, and the Company of a lease dated December 23, 1996 by and
between 460 West 34thStreet Associates and The Lande Group, Inc.
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.21## |  | Form
of Indemnification Agreement entered into by past and present Directors and Officers.
|------- |  | ------------------------------------------------------------------------------------------

|10.22*** |  | First
Amendment to and Reaffirmation of Loan Document dated September 30, 1998 by and between
First Union National Bank and the Company.
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------

|10.23*** |  | Revolving
Note dated September 30, 1998 by and between First Union National Bank and the Company.
|-------- |  | -------------------------------------------------------------------------------------------------

|10.24**** |  | Sublease,
American International Recovery, Inc. to the Company.
|--------- |  | ---------------------------------------------------------------

|10.25***** |  | Employee
Stock Purchase Plan.
|---------- |  | -----------------------------

|10.26 |  | @
Sub-Sublease Agreement dated as of May 25, 1999 by and between the Company and Datajump,
Inc.
|----- |  | -----------------------------------------------------------------------------------------------

|10.27 |  | @
Form of Change of Control Agreements entered into as of June 8, 1999 with certain
executive officers of the Company.
|----- |  | ----------------------------------------------------------------------------------------------------------------------

|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.
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------

|10.29= |  | Revolving
Note dated as of September 28, 1999 by and between First Union National Bank and the
Company.
|------ |  | -------------------------------------------------------------------------------------------------------

|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.
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------

|10.31++ |  | Revolving
Note A dated as of January 1, 2000 by and between First Union National Bank and the
Company.
|------- |  | ------------------------------------------------------------------------------------------------------

|10.32++ |  | Revolving
Note B dated as of January 1, 2000 by and between First Union National Bank and the
Company.
|------- |  | ------------------------------------------------------------------------------------------------------

|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.
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

|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.
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

|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.
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|10.37++++ |  | Fourth Amendment to and
Reaffirmation of Loan Document dated December 21, 2000 by and between First
Union National Bank and the Company.
|--------- |  | ----------------------------------------------------------------------------------------------------------------------------------------

|10.37++++ |  | Revolving
Note dated as of December 21, 2000 by and between First Union National Bank and the
Company.
|--------- |  | ------------------------------------------------------------------------------------------------------

|10.38++++ |  | Plan
of Merger of Eureka Telecommunications II, Inc. with and into nex-i.com inc.
|--------- |  | ---------------------------------------------------------------------------------

|10.39++++ |  | Second
Amended and Restated Certificate of Incorporation of Eureka Broadband Corporation.
|--------- |  | -----------------------------------------------------------------------------------------

|10.40++++ |  | Recruitment
Agreement dated July 3, 2001, by and between the Company and EDS Information Services
L.L.C.
|--------- |  | --------------------------------------------------------------------------------------------------------

|10.41 |  | Asset
Purchase Agreement dated August 31,2002 by and between the Company and Computer Horizons
Corp.
|----- |  | ----------------------------------------------------------------------------------------------------

|10.42 |  | Agent
Agreement dated as of January 17, 2002, by and between the Company and MoreDirect, Inc.
|----- |  | ---------------------------------------------------------------------------------------------

|10.43 |  | Offer
letter dated March 15, 2002 by and between the Company and Richard Erickson.
|----- |  | ----------------------------------------------------------------------------------

|21+ |  | Subsidiaries
of the Company.
|--- |  | ----------------------------

|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.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|** |  | 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.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------

|*** |  | 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.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|**** |  | 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.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------

|***** |  | Incorporated
by reference to the Companys Registration Statement on Form S-8 dated June 29,
1998.
|----- |  | --------------------------------------------------------------------------------------------------

|(lambda) |  | Incorporated
by reference to the Companys Current Report on Form 8-K, filed with the Commission
on August 5, 1996.
|-------- |  | -------------------------------------------------------------------------------------------------------------------

|# |  | A
management contract or compensatory plan or arrangement required to be filed as an
exhibit pursuant to Item 14(c) of Form 10-K.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------

|+ |  | 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.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------

|@ |  | 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.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------

|= |  | 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.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

|++ |  | 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.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------

|+++ |  | 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.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------

|++++ |  | Incorporated
by reference to the Companys Form 8-K filed with the Commission on July 16, 2001.
|---- |  | -----------------------------------------------------------------------------------------------

| |  | 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.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------

---

# ALPHANET SOLUTIONS, INC.

# INDEX TO CONSOLIDATED FINANCIAL DATA AND SCHEDULES STATEMENTS

`Page
                                                                                                        ----

Report of Independent Accountants......................................................................   F-2

Consolidated balance sheets as of December 31, 2001 and 2000...........................................   F-3

Consolidated statements of operations for the years ended December 31, 2001, 2000, and 1999............   F-4

Consolidated statements of changes in shareholders' equity for the years ended December 31, 2001,
2000 and 1999..........................................................................................   F-5

Consolidated statements of cash flows for the years ended December 31, 2001, 2000 and 1999 ............   F-6

Notes to consolidated financial statements.............................................................   F-7


                                           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 accompanying index appearing under Item
14(a)(1) on page 43 present fairly, in all material respects, the financial position of
AlphaNet Solutions, Inc. and its wholly-owned subsidiary at December 31, 2001 and 2000,
and the results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001, 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 accompanying index appearing under Item 14(a)(2) on page
43 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 
February 28, 2002

F-2

---

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

`December 31,
                                                                                  -----------------------
                                                                                    2001           2000
                                                                                    ----           ----
                                 ASSETS

Current assets:
     Cash and cash equivalents...........................................        $23,797        $17,164
     Accounts receivable, less allowance for doubtful accounts of
             $622 and $3,923 at December 31, 2001 and 2000, respectively.          7,416         17,520
     Inventory...........................................................            170            858
     Income taxes .......................................................              -          1,576
     Prepaid expenses and other current assets...........................            374            426
                                                                                 -------         ------
          Total current assets...........................................         31,757         37,544

Property and equipment, net..............................................          1,992          3,235
Goodwill, net............................................................            511          2,134
Other assets ............................................................             52             92
                                                                                 -------         ------
          Total assets...................................................        $34,312        $43,005
                                                                                 =======        =======

                  LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Current portion of capital lease obligations........................           $  8          $  23
     Accounts payable....................................................          1,020          4,405
     Accrued expenses....................................................          3,992          3,540
     Accrued contract loss...............................................          2,950          3,273
                                                                                 -------        -------
          Total current liabilities......................................          7,970         11,241

Capital lease obligations................................................              -              8
                                                                                 -------        -------
          Total liabilities..............................................          7,970         11,249
                                                                                 -------        -------

Commitments and contingencies (Note 8)...................................
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 and 6,536,209 shares issued and outstanding  at
        December  31, 2001 and 2000, respectively........................             66             65
     Additional paid-in capital..........................................         35,092         35,013
     Accumulated Deficit.................................................         (8,096)        (2,602)
         Treasury stock-- at cost; 150,600 shares at December 31, 2001
         and  2000, respectively.........................................           (720)          (720)
                                                                                 -------        -------
          Total  shareholders' equity.....................................        26,342         31,756
                                                                                 -------        -------
Total liabilities and shareholders' equity................................       $34,312        $43,005
                                                                                 =======        =======



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,
                                                             -------------------------------------
                                                               2001           2000          1999
                                                               ----           ----          ----
Net sales:
     Product                                               $ 15,764       $ 43,967      $ 83,298
     Services and support.............................       35,859         46,373        53,265
                                                           --------       --------      --------
                                                             51,623         90,340       136,563
                                                           --------       --------      --------
Cost of sales:
     Product                                                 13,853         40,212        75,409
     Services and support.............................       24,606         32,992        35,493
`       Other charges.................................           --          4,851            --
                                                           --------       --------      --------
                                                             38,459         78,055       110,902
                                                           --------       --------      --------
               Gross profit...........................       13,164         12,285        25,661
                                                           --------       --------      --------
Operating expenses:
     Selling, general and administrative..............       17,565         23,969        24,743
         Write-off of goodwill........................        1,874              -             -
        Recovery on written-off capitalized asset.....            -              -          (139)
                                                           --------       --------      --------
                                                             19,439         23,969        24,604
                                                           --------       --------      --------
Operating  (loss) income..............................      (6,275)       (11,684)         1,057

Other income and expenses:
     Interest income, net.............................          743          1,075           577
        Nex-i.com / Eureka............................         (382)        (2,249)            -
     Other income.....................................          420            390           302
                                                           --------       --------      --------
                                                                781          (784)           879
                                                           --------       --------      --------
(Loss) Income before income taxes.....................      (5,494)       (12,468)         1,936

Provision for income taxes............................            -            474           794
                                                           --------       --------      --------
Net (loss) income.....................................    $  (5,494)     $ (12,942)     $  1,142
                                                          =========      =========      ========

Net (loss) income per share:

     Basic............................................     $ (0.86)       $ (2.04)        $ 0.18
                                                           --------       --------      --------
     Diluted..........................................     $ (0.86)       $ (2.04)        $0.18
                                                           --------       --------      --------
Shares used to compute net income (loss) per share:

     Basic............................................        6,422          6,353         6,253
                                                           --------       --------      --------
     Diluted..........................................        6,422          6,353         6,265
                                                           --------       --------      --------

               See accompanying notes to consolidated financial statements.

                                           F-4`

---

# ALPHANET SOLUTIONS,
INC.

# CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERSEQUITY

# (in thousands)

`Common        Common    Treasury     Treasury     Paid-In         Retained
                                      Shares         Stock      Shares      Stock       Capital         Earnings       Total
                                                                                                     (Accumulated
                                                                                                         Deficit)
                                    ----------  ------------ ----------- ------------ ------------ ----------------------------
 Balance at December 31, 1998......    6,366          $ 63       (137)        (667)     $ 33,942    $   9,198        $ 42,536

      Exercise of stock options....        7             -          -            -            32            -              32
      Employee stock purchases.....       50             1          -            -           176            -             177
           Purchase treasury
           stock...................        -             -        (14)         (53)            -            -             (53)
      Net income...................        -             -          -            -                      1,142           1,142
                                       -----          ----        ----        -----     --------    ---------        ---------
 Balance at December 31, 1999......    6,423          $ 64       (151)        (720)     $ 34,150    $  10,340        $ 43,834

      Exercise of stock options....       79             1          -            -           330            -             331
      Employee stock purchases.....       34             -          -            -           117            -             117
      Purchase of treasury stock...        -             -          -            -           416            -             416
      Net income...................        -             -          -            -             -      (12,942)         (12,942)
                                       -----          ----        ----        -----     --------    ---------        ---------
 Balance at December 31, 2000......    6,536          $ 65       (151)       ($720)     $ 35,013    $  (2,602)       $  31,756


      Exercise of stock options....        6             -          -            -             9            -                9
      Employee stock purchases.....       46             1          -            -            70            -               71
      Net loss.....................        -             -          -            -             -       (5,494)          (5,494)
                                        -----          ----      -----        -----     ---------   ----------       ----------
 Balance at December 31, 2001......    6,588          $ 66       (151)       ($720)     $ 35,092    $  (8,096)       $  26,342
                                       =====          ====       =====        =====     ========    =========        =========


               See accompanying notes to consolidated financial statements.


                                           F-5`

---

# ALPHANET SOLUTIONS,
INC.>CONSOLIDATED STATEMENT OF CASH FLOWS

# (in thousands)

`Year Ended December 31,
                                                                                -----------------------------------
                                                                                 2001          2000         1999
                                                                                 ----          ----         ----
Cash flows from operating activities:

   Net (loss)  income.....................................................   $(5,494)     $(12,942)       $ 1,142
   Adjustments to reconcile net income to net cash provided by (used in)
     operating activities:
        Nex-i.com loss recognition........................................         -         2,249              -
        MTA contract loss.................................................         -         4,400              -
     Depreciation and amortization........................................     1,749         2,518          2,666
     Deferred income taxes................................................         -           313           (128)
        Goodwill write-off................................................     1,874             -              -
        Loss on disposal of capital asset.................................         -             -            149
        Write-off of Eureka Broadband common stock........................        382            -              -
        Provision for accounts receivable.................................        173           923         1,989
        Provision for inventory...........................................         70            32           300
     Recovery on written-off capitalized asset............................          -             -          (139)
     Increase (decrease) from changes in:
        Accounts receivable...............................................      9,931         8,257         4,368
        Inventories.......................................................        618         1,643           672
        Prepaid expenses and other current assets.........................         52           808         1,075
        Other assets......................................................         40            40           (22)
             Income axes..................................................      1,576             -             -
        Accounts payable..................................................     (3,385)       (3,068)       (3,460)
        Accrued expenses..................................................        452          (448)       (2,742)
        MTA contract liability............................................       (323)         (646)       (1,296)
                                                                               ------        ------        ------
     Net cash provided by operating activities............................      7,715         4,079         4,574
                                                                               ------        ------        ------
Cash flows from investing activities:

   Property and equipment expenditures....................................       (246)       (1,091)       (1,618)
   Business acquisitions..................................................       (511)         (250)           -
    Proceeds from sale of equipment.......................................          -            22            11
    Loan to Eureka Broadband..............................................       (382)            -             -
     Investment in Nex-i.com..............................................          -        (1,834)            -
                                                                               ------        ------        ------
     Net cash used in investing activities................................     (1,139)       (3,153)       (1,607)
                                                                               ------        ------        ------
Cash flows from financing activities:

   Repayment of capital lease obligations.................................        (23)          (20)          (15)
    Repayment of Shareholder Advance......................................          -          (675)            -
   Net proceeds from sales of common stock................................          -           117           177

   Exercise of stock options and employee stock purchases.................         80           331            32
   Purchase of treasury stock.............................................          -             -           (53)
                                                                               ------        ------        ------
     Net cash  (used in) provided by financing activities.................         57          (247)          141
                                                                               ------        ------        ------

Net increase in cash and cash equivalents.................................      6,633           679         3,108
Cash and cash equivalents, beginning of period............................     17,164        16,485        13,377
                                                                               ------        ------        ------
Cash and cash equivalents, end of period..................................    $23,797       $17,164       $16,485
                                                                              =======       =======       =======


               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 expertise in Business Advisory, Technology
Implementation, Managed, and Professional Development Services. We provide business and technology solutions
which enable our clients to meet the demands of the
changing IT landscape. The Company focuses on business continuity, security, network
architecture and web-enabled managed service solutions. In addition, the Company provides
a complete range of technology implementation and support services. Together, these
solutions help clients reduce costs, create value and address the new economics of
computing. The Companys customers are primarily Fortune 1000 and other large and
mid-sized companies across major industries throughout the New York, New Jersey and
Philadelphia metropolitan areas.

Basis of Consolidation:

The
consolidated financial statements include the accounts of the Company and its
wholly-owned 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, 2001 and 2000.

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.

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.

Revenue Recognition:

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.

Professional
service revenues are recognized on a time and materials basis, or on a percentage of
completion basis, depending on the contract, as services are provided.  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 consulting
services, are not included in revenues. Our company had such reimbursements of $283,000
in 2001. For the years 2000 and 1999, this information was not segregated in the
accounting records.

F-8

---

Revenues
under the Metropolitan Transit Authority Contract (the MTA Contract) are
recognized on the percentage-of-completion method based on total costs incurred relative
to total estimated costs. Prepaid fees related to the Companys training programs
are deferred and amortized to income over the duration of the applicable training
program. Deferred revenue is included in accrued expenses (See Note 5) and represents the
unearned portion of each service contract and the unamortized balance of prepaid training
fees received as of the balance sheet date.

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.

In
connection with the Companys product sales, it receives manufacturer rebates and
other incentives on product sales to third parties. The Company accrues for such rebates
and incentives, as earned, and they are recorded as a reduction to cost of goods sold.
Product rebates amounted to $0.5 million, $2.5 million and $4.7 million in 2001, 2000,
and 1999, respectively.

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, rebate
accruals, the realizability of MTA Contract costs, the realizability of deferred tax
assets, and the amortization period and carrying value of intangibles. 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 four-year, $20.4 million contract with the
Metropolitan Transportation Authority of New York to furnish and install local and
wide-area computer network components including network and telecommunications hardware,
software and cabling throughout certain of 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 grouped in contiguous
locations and payment 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 the services of the Company and complete the MTA Contract itself at the Companys
cost. In the event of 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.

F-9

---

The
Company has performed services and supplied products to the MTA since the inception of
the MTA Contract. The work performed to date at MTA sites has required greater than
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 its 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 the Companys
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 the Companys
Request to the New York Supreme Court under an Article 78 proceeding.

On
July 19, 2000, the MTA advised the Company of a determination by the Bureau of Labor Law
(hereinafter, 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 telecommunications 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. 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 dispute within the meaning of the
applicable federal regulations governing the MTA Contract by filing a complaint with the
United States Department of Labor. In its complaint, the Company requests that the
Department of Labor adjudicate this dispute, and either issue a determination affirming
that the prevailing wage rate for telecommunication 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
that the Department of Labor 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, and that the
Department of Labor asserts that the Companys claim is not one that is governed by
federal regulations or one over which the Department of Labor is willing to exercise
jurisdiction. The Company is currently awaiting a written response from the Department of
Labor and will determine appropriate action after review of such response. There can be
no assurance the Company will be successful, either in whole or in part, in its efforts.

F-10

---

Due to
the determination by the Bureau communicated to the Company on July 19, 2000, as well as
lower than anticipated gross margins on networking activities and higher than expected
costs of completion, the Company revised its estimated costs for the project during the
2000 second quarter. As a result, in the second quarter of 2000, the Company took a
charge of $4.4 million for costs projected in excess of the contract value. For the years
ended December 31, 2001 and 2000, revenues recorded in connection with the MTA Contract
amounted to approximately $3.7 million and $5.3 million, respectively. The Company
recognized no gross profit on the MTA contract in 2001.

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.

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 cash
contributions were $221,000, $304,000 and $377,000 to this plan in 2001, 2000 and 1999,
respectively. The Companys matching cash 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.

F-11

---

The
Company maintains cash and cash equivalents and investments with various major financial
institutions. The Company performs periodic evaluations of the relative credit standing
of these financial institutions.

At
December 31, 2001, approximately 78.1% of the Companys accounts receivable were due
from ten customers. 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 technology solutions for
its clients. To provide these solutions, the Company provides consulting services and, if
necessary, products.

## 2.  Recently
Issued Accounting Standards:

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

In
July 2001, the Financial Accounting Standard Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 141, "Business Combinations," which supersedes Accounting
Principles Board (APB) Opinion No. 16. SFAS No. 141 requires all business combinations
initiated after June 30, 2001 be accounted for under the purchase method. In addition,
SFAS No. 141 establishes criteria for the recognition of intangible assets separately
from goodwill. The adoption of SFAS No. 141 did not have a material effect on our results
of operations, financial position or cash flow.

In
July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets,which
supersedes APB Opinion No. 17. Under SFAS No. 142 goodwill and indefinite lived
intangible assets will no longer be amortized, but rather will be tested for impairment
at least annually. In addition, the amortization period of intangible assets with finite
lives will no longer be limited to 40 years. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001, which for us means the standard was adopted on January
1, 2002. We do not expect the adoption of SFAS No. 142 will have a material effect on our
results of operations, financial position or cash flow.

On
August 15, 2001, the FASB issues FASB No. 143, Accounting for Asset Retirement
Obligations.This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. It applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development and/or the normal operation of long-lived assets, except for certain
obligations of lessees. We do not expect the adoption of FASB No. 143 to have a material
effect on our results of operations.

F-12

---

On
October 3, 2001, the FASB issued FASB No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. The objectives of FASB No. 144 are to address the
significant issues relating to the implementation of FASB Statement No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and
to develop a single accounting model, based on the framework established in FAS No.121,
for long-lived assets to be disposed of by sale, whether previously held and used or
newly acquired. We do not expect the adoption of FAS No. 144 will have a material effect
on our results of operations.

On
November 15, 2001, the Emerging Issues Task Force (EITF) issued Topic No. D-103, Income Statement
Characterization of Reimbursements Received For Out-of-Pocket Expenses Incurred. The
EITF will require in 2002 companies to report these disbursements as revenues, versus a
reduction of cost of sales. This classification has no impact on reported losses. Our
company had such reimbursements of $238,000 in 2001. For the years 2000 and 1999, this
information was not segregated in the accounting records. Our company will adopt such
reporting in the first quarter of 2002.

## 3.  Business combinations
and goodwill impairment

On
September 4, 2001, the Company announced that it had acquired certain of the assets of
the ICM Education Division of Computer Horizons Corp., a premier provider of
vendor-authorized technical and private training services for corporations, financial
institutions, governmental agencies and professional services firms in the tri-state
region for $511,000. The Company acquired no tangible or separately identifiable
intangible assets. The acquisition of ICM is not deemed by the Company to be material
and, as such, pro-forma financial information is not presented. This acquisition was
accounted for in accordance with FAS No. 141 and accordingly, the associated goodwill is
not subject to amortization under FAS No. 142.

In
1996, 1997, and 2000, the Company acquired Lior, Inc., The Lande Group, Inc. and Omnitech
Corporate Solutions, Inc., respectively, which were businesses primarily engaged in
product reselling and related product integration (referred to as the product
business). These businesses were fully integrated into the product business
operations of the Company. Over the course of the last several years, the Company
embarked on a plan to shift its business model from a product reseller 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. Further, during the fourth quarter of 2001, the
Company initiated an effort to undertake a fundamental change in dealing with client
product requirements. This effort was finalized in January 2002, and the Company signed
an agreement with MoreDirect, Inc., a leading web-enabled solution provider for the
procurement of corporate IT products, whereby MoreDirect will provide product-related
procurement services to the Companys clients and the Company will receive an agency
fee on such sales and, thereby, substantially reducing the future cash flows attributed to its
products business. The arrangement provides that MoreDirect will bill the client and
assume the inventory and receivable risk, as well as deal directly with the Companys
clients. Therefore, the Company has determined that, based upon its current and future
business model and current and estimated future financial performance of its product
business, will generate negative cash flows and accordingly, the Company has written-off
its product business related to goodwill of $1.9 million in accordance with the
provisions of SFAS 121.

F-13

---

## 4.  Inventory

`Inventory consists of the following:

                                                      -----------------------
                                                          December 31,
                                                         (in thousands)
                                                      -----------------------
                                                        2001           2000
                                                        ----           ----
Inventory-finished products.................            $298         $1,145

Less:  Reserve for obsolescence.............             128            287
                                                       -----         ------
                                                       $ 170         $  858
                                                       =====         ======`

## 5. Property
and Equipment, net

Property and equipment, net,
consists of the following:

`-----------------------
                                                                        December 31,
                                                                       (in thousands)
                                                                    -----------------------
                                                                      2001           2000
                                                                      ----           ----
Furniture, fixtures and equipment............................      $11,761        $11,493
Transportation equipment.....................................          286            286
Leasehold improvements.......................................          954          1,146
                                                                    ------         ------
                                                                    13,001         12,925
Less-- Accumulated depreciation and amortization.............       11,009          9,690
                                                                    ------         ------
                                                                    $1,992         $3,235
                                                                    ======         ======`

Depreciation
expense and amortization of leasehold improvements for the years ended December 31, 2001,
2000 and 1999 were, $1,490,000, $2,293,000, and $2,490,000, respectively.

F-14

---

## 6.  Accrued
Expenses

Accrued expenses consist of the
following:

`----------------------
                                                           December 31,
                                                          (in thousands)
                                                       ----------------------
                                                        2001           2000
                                                        ----           ----
Accrued payroll and vacation costs............       $ 1,307        $ 1,103
Deferred revenue..............................         1,575          2,093
Sales taxes...................................            69            154
Other.........................................         1,041            190
                                                     -------        -------
                                                     $ 3,992        $ 3,540
                                                     =======        =======`

F-15

---

## 7.  Debt

Notes Payable Bank:

On
June 30, 1997, the Company and the Bank executed a Loan and Security Agreement whereby
the Bank expanded the Companys facility (the Facility) to enable the
Company to borrow, based upon eligible accounts receivable, up to $15.0 million for
short-term working capital purposes. The Facility included a $2.5 million sublimit for
letters of credit and a $5.0 million sublimit for acquisition advances. Under the
Facility, the Company was entitled to borrow, subject to certain post-closing conditions
and covenants, (i) for working capital purposes at the Banks prime rate less 0.50%
or LIBOR plus 1.25% and (ii) for acquisitions at the Banks prime rate less 0.25% or
LIBOR plus 1.50%. The Companys obligations under such facility were collateralized
by a first priority lien on the Companys accounts receivable and inventory, except
for inventory for which the Bank has or will have subordinated its position to certain
other lenders pursuant to intercreditor agreements. Effective January 1, 2000, the
Company and the Bank extended the Facility to December 31, 2000 on substantially similar
terms; however, the Bank provided $2.0 million of the $15.0 million credit line to the
Company on a uncollaterlized basis. Under the Facility, the most restrictive financial
covenants required the Company to maintain a minimum fixed charge coverage ratio and a
total liabilities to net worth ratio. As of December 31, 1999 and 1998, there were no
amounts outstanding under the Facility. The Facility expired on December 31, 2000 and was
not renewed.

## 8.  Stock Ownership and
Compensation Plans

At
December 31, 2001, 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:

`2001               2000              1999
                                              ----               ----              ----
                                            (in thousands, except per share amounts)
Net income

     As reported........................  $(5,494)          $(12,942)           $ 1,142
     Pro forma .........................   (5,867)           (13,363)               789
Net income per share:
     As reported:.......................
          Basic.........................  $ (0.86)          $  (2.04)           $  0.18
             Diluted....................  $ (0.86)          $  (2.04)           $  0.18
        Pro forma:
             Basic......................  $ (0.91)          $  (2.10)           $  0.13
             Diluted....................  $ (0.91)          $  (2.10)           $  0.13`

F-16

---

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 2001, 2000, and 1999: dividend
yield of 0%; expected volatility of approximately 73% for 2001, 95% for 2000 and 67% for
1999.

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 1,000,000 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.

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, 2001, 2000, and
1999 is presented below:

F-17

---

`Year Ended December 31,

                                                    2001                      2000                    1999
                                            -----------------------    --------------------    ---------------------

                                                             Weighted              Weighted                Weighted
                                                             Average               Average                 Average
                                               Shares        Exercise     Shares   Exercise       Shares   Exercise
                                                (000)        Price        (000)     Price         (000)      Price
                                                ----         --------     ----     ---------      ----     --------

Outstanding at beginning of year..........        641        $4.19          856      $4.37          542       $5.15

Granted...................................        433         2.11          244       4.40          542        4.18
Exercised.................................        (6)         1.32         (79)       4.20          (7)        4.25
Forfeited.................................      (334)         4.20        (380)       4.34        (221)        4.25
                                                ----          ----        ----        ----        ----         ----

Outstanding at end of year................        734         3.01          641       4.18          856        4.37
                                                =====         ====          ===       ====          ===        ====

Options exercisable at end of year........        393         3.38          352       4.22          289        4.75
                                                =====         ====          ===       ====          ===        ====



                                        Options Outstanding                                Options Exercisable
                       -------------------------------------------------------      -----------------------------------
                            Number                                   Weighted             Number
     Range of          Outstanding at      Average Remaining          Average           Exercisable    Weighted Average
  Exercise Prices          12/31/01         Contractual Life       Exercise Price       at 12/31/01     Exercise Price
  ---------------      --------------      -----------------       --------------       -----------     --------------
     $1.37 - 2.00              207,000                   9.2            $1.71                89,000              $1.70
     $2.63 - 3.94              301,000                   8.6            $2.99               132,000              $3.27
     $4.06 - 5.31              224,000                   6.1            $4.31               171,000              $4.32
     $6.50 - 6.50                2,000                   8.1            $6.50                 1,000              $6.50
                               -------                                                      -------
     $1.37 - 6.50              734,000                   8.0            $3.01               393,000              $3.38
                               =======                                                      =======`

The
weighted-average fair value of options granted during 2001, 2000, and 1999 was $2.11,
$3.05 and $2.37, 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.

F-18

---

## 9.  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 future
minimum payments under non-cancelable leases as of December 31, 2001 are as follows:

`Net
                         Lease           Sublease              Lease
                   Obligations            Rentals        Obligations
                                    (in thousands)
2002..............       $ 772                $57              $ 715
2003..............         372                  -                372
2004..............           -                  -                  -
                        ------               ----             ------
                        $1,144               $ 57             $1,087
                        ======               ====             ======`

Rent
expense, including real estate taxes, for the years ended December 31, 2001, 2000, and
1999 was $843,000, $898,000, and $1,027,000, respectively.

The
Company has obtained financing terms from IBM Credit Corporation and Finova Capital
Corporation for the purchase of inventory. The payables are collateralized by
substantially all the assets of the Company. The balances included in accounts payable at
December 31, 2001 and 2000, were $254,000 and $1,540,000, respectively. On December 26,
2000, the Company was advised that Finova Capital Corporation was exiting this line of
business. Under the Companys current agreement with IBM Credit Corporation, there
is sufficient availability, to meet the current requirements for the purchase of
inventory.

On
July 7, 2000, Polo Ralph Lauren Corporation (Polo) filed a counterclaim
against the Company in a lawsuit filed by the Company against Polo on February 16, 2000
in the Superior Court of New Jersey, Law Division (Morris County) for collection of an
overdue receivable in the amount of $893,000. In June 2001, the Company reached a
settlement with Polo, in which the Company received a payment of $375,000 from Polo. The
matter is now closed.

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

On
March 18, 2002, the Company received a copy of a Complaint filed by a current and former
employee in the Superior Court of New Jersey, Law Division (Bergen County) against the
Company and certain of its employees alleging employment-related claims. The plaintiffs
are seeking compensatory and punitive damages in an unspecified amount, attorneys fees
and costs of suit. Our company and the named individual defendants believe they have
meritorious defenses to the plaintiffs claims and are prepared to defend against
them vigorously.  The Company does not believe these matters will have a material adverse
effect on its financial condition, results of operations or cash flows.

F-19

---

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.

## 10.  Supplementary
Cash Flow Information

Following
is a summary of supplementary cash flow information for the years ended December 31,
2001, 2000 and 1999:

`Year Ended December 31,
                                                                              (in thousands)
                                                                     ----------------------------------

Cash Payments (Refunds):                                                  2001        2000        1999
                                                                     ----------  ----------  ----------
Interest paid.................................................         $     -        $ 10        $ 24
Income taxes paid (refunded)..................................         (1,576)         425         273
Non-cash investing and financing activities:
Equipment acquired under capital lease........................               -           -          17
   Warrants issued in connection with the Company's investment in
   nex-i.com..................................................               -         416           -`

## 11.   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.

The
components of the provision (benefit) for income taxes for 2001, 2000 and 1999 are as
follows:

`Year Ended December 31,
                                                             (in thousands)
                                               ---------------------------------------------

                                                     2001              2000           1999
                                               ------------    --------------  -------------
Current:
     Federal...............................     $      -           $(1,576)           $684
     State and local.......................            -                 -             238
                                               ----------          --------           ----
                                                       -            (1,576)            922
                                               ----------          --------           ----
Deferred:
     Federal...............................         1,863           (2,530)            (95)
     State and local.......................           385             (873)            (33)
                                               ----------          --------           ----
                                                    2,248           (3,403)           (128)

           Valuation allowance.............         2,248            5,453               -
                                               ----------          --------           ----
                                                        -          $   474            $794
                                               ==========          ========           ====`

F-20

---

A
reconciliation of the Federal statutory rate to the Companys effective tax rate for
2001, 2000 and 1999 is as follows:

`Year Ended December 31,
                                                                                   ---------------------------------------

                                                                                         2001          2000         1999
                                                                                   ------------  ------------  -----------
     Tax benefit at statutory rate...........................................         (34.0%)       (34.0%)        34.0%
     State and local income taxes (benefit), net of federal tax benefit......          (7.0%)        (7.0%)         7.0%
        Valuation allowance..................................................          41.0          43.7             -
     Other, net..............................................................             -           1.1             -
                                                                                       -----         -----        -------
     Effective tax rate......................................................           0.0%          3.8%         41.0%
                                                                                       =====         =====        =======`

The
tax effects of temporary differences that give rise to significant portions of the net
deferred tax asset balance at December 31, 2001 and 2000 as follows:

`Year Ended December 31,
                                                                               ---------------------------
                                                                                   2001            2000
                                                                               ----------       ---------
 Accounts receivable allowances........................................            $255          $1,608
 Inventory reserves....................................................             146             118
 Accrual for compensated absences......................................             421             200
 Accumulated depreciation and amortization.............................             239              58
 Goodwill write down, accrued lease and fixed asset charge.............             885               -
 Other.................................................................             251             192
 nex-i.com losses......................................................             922             922
 MTA loss..............................................................           1,210           1,254
 Net tax operating losses..............................................           3,372           2,677
                                                                                -------         -------
 Total deferred tax assets.............................................           7,701           7,029
 Valuation Allowance...................................................          (7,701)         (5,453)
                                                                                -------         -------
                                                                                 $    -          $1,576
                                                                                =======         =======`

For
the year ended December 31, 2001, the Company recognized a valuation allowance of
$2,248,000. The Companys tax federal net operating losses can be carried back two years and
forward twenty years while its state net operating losses 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. Additionally, should the Company undergo an
ownership change as defined in Section 382 of the Internal Revenue Code, the Companys
federal 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. The Companys deferred tax asset balance as of December 31, 2000 of
$1,576,000 was realized through the carryback to previous tax years in which federal
income taxes were paid.

## 12.  Earnings
Per Share

The
Financial Accounting Standards Board issued Statement No. 128 Earnings per Share(SFAS
No. 128) specifies the computation, presentation ad 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 potential dilutive common shares.

F-21

---

# COMPUTATION OF
EARNINGS PER SHARE

# (in thousands, except per
share amounts)

`For the Years Ended December 31,
                                                                       2001         2000          1999
                                                                       ----         ----          ----

 Net income...........................................             $(5,494)    $(12,942)       $ 1,142
                                                                   =======     =========       =======
 Basic:
    Weighted average number of shares outstanding.....               6,422        6,353         6,253
                                                                   =======     =========       =======
    Net income per share..............................             $ (0.86)   $   (2.04)      $  0.18
                                                                   =======     =========       =======
 Diluted:
    Weighted average number of shares outstanding....                6,422        6,353         6,253

    Dilutive effects of stock options                                    -            -            12
                                                                   --------    ---------        ------
    Weighted average number of common and common
        equivalent shares outstanding................                6,422        6,353         6,253
                                                                   ========    =========       =======
    Net income per share.............................              $ (0.86)     $ (2.04)       $ 0.18
                                                                   ========     ========       =======`

F-22

---

## 13.   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. The Company discontinued the 1997
Plan in September 2001.

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 of the earlier of its adoption by the Board of Directors or the plans
effective date. In addition, 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. In September 2001, the
Company discontinued this plan.

## 14.  Stock
Repurchase Program

In
August 1998, the Board of Directors authorized the Company to repurchase up to 225,000
shares of its outstanding common stock at market price. On May 20, 1999, the Board of
Directors authorized the Company to repurchase up to 225,000 additional shares of its
common stock at market price. During the year ended December 31, 1998, 136,800 shares of
the Companys common stock were repurchased for approximately $667,000, an average
price of $4.87 per share. During the year ended December 31, 1999, 13,800 shares of the
Companys common stock was repurchased for approximately $53,000, an average price
of $3.89 per share. As of December 31, 2001 and 2000, a total of 150,600 shares of the
Companys common stock has been repurchased for approximately $720,000 at an average
price of $4.78 per share since the inception of the repurchase program in August 1998.
There were no stock repurchases in 2000 or 2001.

F-23

---

## 15.  Significant Customers and Vendors

During
2001, Goldman Sachs, Nabisco/Kraft, Summit Bancorp/Fleet Boston and PSE&G accounted
for 15%, 13%, 13%, and 11% respectively, of the Companys net sales. In 2000, Summit
Bancorp and Goldman Sachs accounted for approximately 17% and 13% of the Companys
net sales, respectively. During the fiscal year ended December 31, 1999, PSE&G and
Mercedes Benz of North America accounted for approximately 13% and 12% respectively of
the Companys net sales. No other customer accounted for more than 10% of the Companys
net sales during the three years ended December 31, 2001, 2000, and 1999.

In
August 2001, the Company agreed that certain of its employees could join EDS, L.L.C. in
connection with the selection of EDS, L.L.C. as a provider of Help Desk services
previously provided by the Company to one of its customers. The Company received a
one-time payment, net of expenses, of $417,000, and has been recorded as other income in
the accompanying consolidated financial statements.

The
Company purchases the majority of its products primarily from two aggregators of computer
hardware, software and peripherals. During 2001, the Company acquired approximately 53%
and 9% 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.

## 16.  Related Party Transactions

In
connection with the Companys 1996 initial public offering, the Companys
Chairman, CEO and principal shareholder agreed to indemnify the Company for any and all
losses which the Company sustained, up to $1,000,000, arising from or relating to the
alleged wrongful conduct of certain former employees of the Company and their current
employer (the Defendants). Mr. Gang advanced $675,000 to the Company in
furtherance of this agreement. Pursuant to an amendment to his indemnification agreement
adopted by the Companys Board of Directors in February 2000, upon consummation of
the settlement of the Companys litigation against the Defendants on August 10,
2000, the Company reimbursed Mr.Gang for the $675,000 he previously advanced to the
Company.

In May
1999, the Companys Board of Directors authorized, subject to mutually satisfactory
terms and conditions, the issuance to Fallen Angel Capital LLC (Fallen Angel)
of a warrant (the Warrant) to purchase an aggregate of 200,000 shares of the
Companys common stock at a purchase price of $5.00 per share for a one-year period
commencing May 19, 2000, the date shareholder approval was obtained. The fair value of
the warrant was estimated on the date of shareholder approval using the Black-Scholes
option pricing model using the following assumptions: dividend yield 0%, expected
volatility 90.75%, risk free interest rate 6.5%, with an expected holding period of 1
year. A member of the Companys Board of Directors is a principal of Fallen Angel.
The Warrant was issued in consideration for investment banking advisory services rendered
by Fallen Angel in connection with the Companys preferred stock investment in
nex-i.com Inc., in which an affiliate of Fallen Angel, Fallen Angel Equity Fund L.P.,
also participated. Fallen Angel Equity Fund L. P. currently owns more than 10% of the
Companys outstanding common stock. At the Companys Annual Meeting of
Shareholders held on May 19, 2000, the Companys shareholders approved the issuance
of these warrants to Fallen Angel. The warrants, with an estimated fair value of
$416,000, were accounted for as a cost of the Companys preferred stock investment.
As of December 31, 2001, no warrants issued to Fallen Angel have been exercised.

---

In
October 2000, the Companys Board of Directors authorized the execution of an
engagement letter with Fallen Angel, pursuant to which Fallen Angel was engaged on an
exclusive basis as a financial advisor to assist the Companys management and Board
of Directors in examining strategic alternatives to maximize shareholder value. The
engagement, which may be terminated by either party on thirty daysprior notice,
provides for the payment of a successfee to Fallen Angel based on the
aggregate consideration paid in any transaction. The engagement letter also contains
customary expense reimbursement and indemnification provisions. A member of the Companys
Board of Directors is a principal of Fallen Angel. To date, no transactions have been
consummated pursuant to this engagement.

F-24

---

## 17.  Investment
in Nex-i.com

In
January 2000, the Company invested $1.8 million in exchange for 3,101,000 shares of
Series A Convertible Participating Preferred Stock in a private internet start-upnex-i.com
Inc. (nex-i.com). The investment represented approximately 30% of nex-i.com
equity on an as converted basis. The Company has recorded its share of losses
to the extent of its investment based upon its preferred stock funding interest. On July
27, 2000, nex-i.com received $12,100,000 in a Series B Convertible Participating
Preferred Stock financing, (the Series B Financing), in which the Company did
not participate. Following the July financing, the Companys investment in nex-i.com
represented approximately 15% of nex-i.com equity on an  as converted basis. In
connection with the Series B Financing, and in consideration of the Companys
release of nex-i.com from certain commercial commitments to the Company made at the time
of the Series A financing, the Company received up to 100,000 warrants to purchase shares
of nex-i.com Series B Convertible Participating Preferred Stock at an exercise price
ranging from $1.50 to $1.85 per share. 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 the Company received several classes
of preferred stock in Eureka in exchange for the Companys Series A Convertible
Participating Preferred Stock in nex-i.com. Coincident to and as a condition of the
merger, the Company was required to lend $382,000 to Eureka in exchange for a convertible
promissory note. The note bore interest at the rate of 8% per annum and was to be repaid
by Eureka in cash on March 31, 2001 (the Maturity Date) or may be converted
into shares of Eureka preferred stock on the Maturity Date, at the discretion of the
holders of 51% of the aggregate outstanding principal of all similar notes. The Company
also committed to invest an additional $382,000 in Eureka, if certain conditions were met.
These conditions were not met and the Company wrote off the $382,000 investment in the fourth quarter of
2001, after Eurekas principal operations were affected by the events of September 11th,
2001. In consideration of the Companys investment in Eureka, Eureka committed to
purchase a minimum of $146,000 of the Companys network monitoring, cabling, field
engineering and other services during the first twelve months following the closing of
the merger and a minimum of $182,100 of such services during the second twelve months
following the closing. Eureka also committed to use good faith efforts to ultimately
purchase a minimum of $500,000 of the Companys services during the twenty-four
month period following the closing. Eureka has failed to meet these commitments.

The
Companys interests in Eureka are subject to two agreements among Eureka and its
shareholders. The rights and restrictions set forth in the two agreements are not deemed
by the Company to be material. The restrictions include a limitation on transfer of the
Companys equity interest in Eureka in certain circumstances and the requirement to
sell the equity interest when a transfer is approved by a vote of the interest holders.
In addition, the Company, upon the agreement of a substantial amount of other interest
holders, has the right to demand that the Companys equity interest be registered
under the Securities Act of 1933, and the right, without other interest holders, to have
the Companys equity interest included in certain other registrations under such
Act.

F-25

---

# SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS

# Years Ended December 31, 2001,
 2000 and 1999

`Balance at      Provision -     Deductions -   Balance of End
                                                    Beginning of      Charged to       Accounts         of Year
                                                        Year            Income        Written off
                                                    -------------    -------------   -------------  --------------
    Allowance for doubtful accounts:
                                            2001          $ 3,923           $  173        $  3,474            $ 622
                                            2000            3,289              923             289            3,923
                                            1999            1,300            1,989               -            3,289

    Inventory Reserve:
                                            2001           $  287           $   70         $   229           $  128
                                            2000              300               32              45              287
                                            1999            1,029              300           1,029              300`

F-26

---

# SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) 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.Executive Committee of the
Board of Directors
(Principal Executive Officer)
| |  | ---------------------------------------------------------------------------------------------------

| |  | By: IRA COHEN   Ira Cohen
| |  | ---------------------------------------

| |  | By: THOMAS F. DORAZIO   Thomas F. Dorazio
| |  | -------------------------------------------------------

| |  | By: DOREEN A. WRIGHT   Doreen A. Wright
| |  | -----------------------------------------------------

March 25, 2002

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.

|Signature |  | Title | Date
|--------- |  | ----- | ----

|/s/ | STAN GANG
 | Stan GangChairman of the Board | March 25, 2002
|--- | -------------------- | ------------------------------ | --------------

|/s/ | WILLIAM S. MEDVE
 | William S. MedveExecutive Vice President,
 Treasurer and Chief Financial Officer
(Principal Financial and 
Accounting Officer) | March 25, 2002
|--- | --------------------------- | ------------------------------------------------------------------------------------------------------------------------------ | --------------

|/s/ | MICHAEL GANG
 | Michael GangDirector | March 25, 2002
|--- | ----------------------- | -------------------- | --------------

|/s/ | IRA COHEN
 | Ira CohenDirector | March 25, 2002
|--- | -------------------- | ----------------- | --------------

F-27

---

|/s/ | THOMAS F. DORAZIO
 | Thomas F. DorazioDirector | March 25, 2002
|--- | ---------------------------- | ------------------------- | --------------

|/s/ | DOREEN A. WRIGHT
 | Doreen A. WrightDirector | March 25, 2002
|--- | --------------------------- | ------------------------ | --------------

F-28