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, 2000

                           Commission File No. 0-27042

                            ALPHANET SOLUTIONS, INC.
                            ------------------------
             (Exact Name of Registrant as Specified in Its Charter)


                New Jersey                              22-2554535
                ----------                              ----------
(State of Other Jurisdiction                (I.R.S. Employer Identification No.)
of Incorporation or Organization)


               7 Ridgedale Avenue, Cedar Knolls, New Jersey 07927
               --------------------------------------------------
           (Address of Principal Executive Office, including Zip Code)


                                 (973) 267-0088
                                 --------------
                         (Registrant's telephone number
                              including area code)


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

                                      None
                                      ----

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


                          Common Stock, $.01 par value
                          ----------------------------
                                (Title of Class)


<PAGE>


           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, 2001, 6,396,818 shares of Common Stock of the Company
were   outstanding.   The  aggregate  market  value  of  Common  Stock  held  by
non-affiliates on February 28, 2001, based on the last sales price on such date,
was approximately $5,994,000.


                       DOCUMENTS INCORPORATED BY REFERENCE


           The  following  documents  are  incorporated  by reference  into this
Annual  Report on Form  10-K:  Portions  of the  Registrant's  definitive  Proxy
Statement  for its 2001  Annual  Meeting of  Shareholders  are  incorporated  by
reference into Part III of this Report.




<PAGE>
<TABLE>
<CAPTION>
                               TABLE OF CONTENTS


                               Item                                                                                          Page
                               ----                                                                                          ----
<S>                  <C>       <C>                                                                                           <C>
PART I               1.        Business........................................................................................2

                     2.        Properties.....................................................................................14

                     3.        Legal Proceedings..............................................................................14

                     4.        Submission of Matters to a Vote of Security Holders............................................15

PART II              5.        Market for the Company's Common Equity
                               and Related Shareholder Matters................................................................16

                     6.        Selected Financial Data........................................................................16

                     7.        Management's Discussion and Analysis of
                               Financial Condition and Results of Operations..................................................19

                     7A.       Quantitative and Qualitative Disclosure About Market Risk......................................34

                     8.        Financial Statements and Supplementary Data....................................................34

                     9.        Changes in and Disagreements with Accountants
                               on Accounting and Financial Disclosure.........................................................34


PART III             10.       Directors and Executive Officers of the Company................................................35

                     11.       Executive Compensation.........................................................................35

                     12.       Security Ownership of Certain Beneficial
                               Owners and Management..........................................................................35

                     13.       Certain Relationships and Related Transactions.................................................35


PART IV              14.       Exhibits, Financial Statement Schedules
                               and Reports on Form 8-K........................................................................36

EXHIBIT INDEX.................................................................................................................37

FINANCIAL DATA AND SCHEDULES.................................................................................................F-1

SIGNATURES

</TABLE>
                                      -1-
<PAGE>


                                     PART I

Item 1.  BUSINESS.

General
-------

           AlphaNet Solutions,  Inc. ("AlphaNet  Solutions" or the "Company") is
an information  technology  ("IT")  professional  services firm  specializing in
network  design,  operation,  management,  and  security.  The Company  provides
services  in  information   security,   network   implementation,   professional
development,  project  management  and  Internet-related  matters.  Through  its
Enterprise Network Management  Division,  the Company also offers remote network
management,  call center support,  and managed security services.  The Company's
customers  are primarily  Fortune 1000 and other large and  mid-sized  companies
located in the New York-to-Philadelphia corridor.

           Major professional services customers include PSE&G, Mercedes-Benz of
North  America,  Summit  Bancorp/FleetBoston,  Goldman Sachs & Co., MTA New York
City  Transit,  an agency of the  Metropolitan  Transportation  Authority of the
State  of  New  York  (the  "MTA"),  Nabisco,   Matsushita  Electronic,   Lucent
Technologies, and Barnes & Noble.

            AlphaNet  Solutions has a 17-year history of responding  effectively
to  new   opportunities   in  the   fast-changing   IT  field.   Starting  as  a
product-focused  reseller of technology hardware, the Company has over the years
met the changing needs of its customers by  repositioning  itself from a systems
integrator to an IT professional services and networking infrastructure services
firm,  focused  on  meeting  the  escalating  high-technology  needs of  leading
organizations  in  virtually  every  industry,   including  financial  services,
manufacturing, telecommunications, and pharmaceuticals.

           The  Company  has  continued  to  refine  its  professional   service
offerings.    In   December    1999,   the   Company   exited   its   low-margin
telecommunications  business.  Although  the  Company  continues  to assist  its
clients in sourcing other  low-margin  computer  hardware and software  products
("IT products"),  its sales and marketing efforts are directed  primarily to its
higher-margin  professional service offerings. In 2000, the Company expanded its
ability to secure new service  offerings  through its  investment  in  nex-i.com
Inc., a provider of integrated networks in multi-tenanted office buildings,  the
acquisition  of  Omnitech  Corporate  Solutions,   Inc.,  a  provider  of  "thin
client"/server  based  technology  offerings  and  the  addition  of the  former
principals of Gogh, Inc. to expand its information security practice. In January
2001, the Company entered into a strategic alliance with ATX  Telecommunications
Services, Inc. to provide IT products and services to ATX and its clients.

           The Company  continues to assist its clients in sourcing IT products.
The Company is authorized by many leading manufacturers of IT products,  such as
3Com, Cisco Systems, Compaq,  Hewlett-Packard,  IBM, Intel, Lucent Technologies,
Microsoft,  NEC, Nortel  Networks,  Novell and Sun  Microsystems to resell their
products and provide  related  services.  Such  products  include  workstations,
servers, networking and communications equipment, enterprise computing products,
and application  software.  Through its established  vendor alliances with major
aggregators of computer hardware and software,  Ingram Micro,  Inc.  ("Ingram"),
and Tech Data Corporation ("Tech Data"), the Company provides its customers with

                                      -2-

<PAGE>

competitive  pricing  and  such  value-added   services  as  electronic  product
ordering, product configuration, testing, warehousing and delivery.

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

           "AlphaNet  Solutions,"  "eMobile  Solutions," "Weird Stuff Happens to
Laptops,"  and the  Company's  logo are marks of the  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 the
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 the  Company's  business,  the timing of the
development and  implementation  of the Company's new service  offerings and the
utilization  of such services by the Company's  customers,  and trends in future
operating  performance.   Such  forward-looking  statements  include  risks  and
uncertainties,  including,  but not  limited  to: (i) the  repositioning  of the
Company as an IT  professional  services  firm and all expected  and  unexpected
costs and events related to such  repositioning,  including,  among other things
(a) the substantial  variability of the Company's  quarterly  operating  results
caused by a variety  of  factors,  some of which are not  within  the  Company's
control,  (b)  intense  competition  from  other IT service  providers,  (c) the
short-term  nature of the  Company's  customers'  commitments,  (d)  patterns of
capital  spending by the Company's  customers,  (e) the timing,  size and mix of
product  and  service  orders  and  deliveries,  (f) the  timing and size of new
projects,  (g) pricing changes in response to various competitive  factors,  (h)
market factors affecting the availability of qualified technical personnel,  (i)
the timing and customer  acceptance  of new product and service  offerings,  (j)
changes in trends  affecting  outsourcing  of IT  services,  (k)  disruption  in
sources of supply, (l) changes in product,  personnel and other operating costs,
and (m)  industry  and general  economic  conditions;  (ii) changes in technical
personnel billing and utilization  rates;  (iii) the intense  competition in the
markets for the Company's  products and  services;  (iv) the ability to develop,
market,  provide,  and achieve market acceptance of new service offerings to new
and existing customers;  (v) the Company's ability to attract,  hire, train, and
retain qualified technical personnel; (vi) the Company's substantial reliance on
a  concentrated  number  of  key  customers;  (vii)  uncertainties  relating  to
potential  acquisitions,  if any,  made by the  Company,  such as the  Company's
ability to integrate acquired  operations and retain key customers and personnel
of the  acquired  business;  (viii)  the  Company's  reliance  on the  continued
services of key executive officers and salespersons; and (ix) material risks and
uncertainties  associated with the MTA Contract.  These risks and  uncertainties

                                      -3-

<PAGE>

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

           For  most  organizations  today,  IT  is no  longer  just  a  support
function, but an increasingly essential competitive tool. The need to distribute
and access data on a real-time basis within and between  organizations--and  the
rapid proliferation of Internet-based  technology--is  redefining the way people
and organizations "connect."

           Companies  continue to augment their  networks with a large  majority
replacing   these  networks  with  Web-based   infrastructures.   The  resulting
efficiencies   have  made  possible  the  creation  of  worldwide   channels  of
information  that  redefine  the  speed  with  which  people  communicate,  make
decisions, and conduct business. The design, operation, and maintenance of these
information   networks   have  become   increasingly   complex  tasks  for  many
organizations.  Typically, simply to get the network operational,  organizations
must conduct assessments and make decisions in several key areas:

o     Workstation platform, peripherals, and software applications.

o     Optimal network design.

o     Network security.

o     The level of network support required to assure  reliable,  cost-effective
      operation.

           The sheer  complexity of creating,  maintaining,  and  protecting the
networks  has  spurred  an  increasing  number  of  organizations  to rely on IT
professional  service  firms to help with every  aspect of their IT  operations,
freeing them to focus on their core businesses.

           The  Company  engages  its  clients  through   professional   service
contracts that typically reflect one of three primary forms:  project execution,
outsourcing or delegated  management,  or staff augmentation.  In all cases, the
Company applies the talent and project  management skills of the organization to
achieve the client's goals.

           The Company has proven adept at responding  effectively  to the needs
of this  evolving  marketplace  as it  continues  to focus on  high-end  network
infrastructure services. The Company is positioned to capitalize on the emerging
networking  opportunities by helping organizations respond to the needs of their
own changing markets.

                                      -4-

<PAGE>

Services
--------

           The  Company's  wide range of services  includes  Enterprise  Network
Management,  information security,  server based computing,  application and Web
site development,  helpdesk,  training, desktop services and project management.
In 2000,  services  accounted  for 51.3% of the Company's net sales and 78.1% of
its gross profit before special charges.

Professional Services

           The  Company's   consulting   professionals   provide  customers  the
necessary   IT   expertise   and   leading-edge   technology   on   a   24-hour,
seven-days-a-week basis.

           In addition,  the Company's  consultants partner and provide services
for many industry-leading  manufacturers' products,  including Microsoft, Cisco,
Intel, Novell, Sun Microsystems, Nortel Networks, and Compaq.


Enterprise Network Management Services

           As part of its overall  mission to offer  complete IT solutions,  the
Company's  Enterprise Network Services Center ("Center") provides remote network
monitoring, resolution management, performance reporting, desktop management and
system  administration  services through  dedicated  communication  links to its
customers' networks. As a single-point-of-contact  installation, the Center is a
central  component of the Company's total system  management and support service
offerings.  The Center is  operational  24 hours a day, seven days a week and is
staffed with highly trained and experienced network consultants.

           The Center offers  proactive  problem  resolution  by: (a) monitoring
components of a customer's network,  including file servers,  routers,  database
servers,  concentrators,   workstations  and  printers;  and  (b)  managing  the
customers'  networks to maximize their  efficiency and minimize system downtime,
promptly  notifying  customers  of  problems  as they occur and  remedying  such
problems. The customers are thereby free to focus on their core business,  while
the Company  monitors and manages the  day-to-day  operations of the  customers'
network.   The  Center   represents  the  Company's   continued   investment  in
leading-edge  technology and dedication to providing its customers with advanced
IT solutions.

           The Company provides  end-to-end network services to remote locations
from a single point in New Jersey.  The Center  allows the Company to market its
services to virtually any networked organization.  The Company believes that the
high  demand  for  technical  resources,  coupled  with an  increasing  need for
operational  efficiency and network  security,  will lead many  organizations to
utilize remote  network  service  options as a way to maximize labor  resources,
ensure greater network security, and realize cost savings.

                                      -5-

<PAGE>

Information Security Services

           Vulnerability  to  security   breaches  -  from  hackers  to  serious
corporate  saboteurs - grows in almost  direct  proportion  to the rate at which
companies  expand their  networks.  The Company  provides  information  security
solutions to help its  customers  protect  their  networks and  mission-critical
business  applications and resources.  Information  security  engineers  perform
security and risk assessments to identify exposures and the business impact of a
network intrusion or compromise. Information security engineers write and review
information security policies. The Company offers Information Security awareness
training and materials, including on-line Computer Based Training ("CBT"). Based
on the  client's  risk  tolerance,  information  security  engineers  design and
implement  secure  solutions  to address  vulnerabilities  and protect  mission-
critical  systems  and  information,  such  as  e-mail,   Internet/Intranet  and
e-commerce sites, customer data and intellectual property.

           The  Company  maintains   Certified   Information   Systems  Security
Professionals  ("CISSP's")  on staff.  CISSP's  are  recognized  throughout  the
security industry for the depth and breadth of their security expertise.

           The Company maintains strong  partnerships with information  security
vendors including Checkpoint Software, Nokia Internet Communications,  Netscreen
Technologies,  Inc.,  Cisco  Systems,  WatchGuard  Technologies,  Inc.,  and RSA
Security.

Internet Services

           The Company  provides  Internet-related  services,  including  secure
Internet access, training, and web site design, development and maintenance. The
Company  offers its customers web sites that are  independently  maintained on a
secure network  through the use of such security  technologies  as firewalls and
encryption devices. The Company provides the necessary consulting, hardware, and
software  installation  services so that its customers have direct access to the
Internet  while the Company  monitors  and  maintains  their web sites using the
Company's state-of-the-art remote network management system.

           Web site design,  development and maintenance  services  include user
interface design,  web site graphic design,  content  creation,  and management.
Through  customized  courses at its Learning Centers,  the Company also provides
training on Internet access and navigation.

eMobile SolutionsSM

           Recognizing  that the corporate  business  community is  increasingly
going  "mobile," the Company has re-focused the efforts of its existing  Product
Support  Center  ("PSC") into a business  offering  that focuses on the needs of
mobile users: eMobile SolutionsSM. The eMobile Solutions Business Unit leverages
the Internet to provide innovative  infrastructure  support services that enable
businesses to support  their growing  populations  of mobile  employees.  Target
markets  include  Fortune 1000  corporations  with a large  population of mobile
assets,  such as laptops or other portable computing  devices.  These assets are
often  deployed to a large group of mobile sales people for use in a sales force
automation  ("SFA")   environment,   but  they  may  also  be  used  as  desktop
replacements for a subset of their overall user population.

           By leveraging the Internet and the eMobile  Support  Center  ("eMSC")
facility, the Company provides fast and reliable system repairs, identical spare

                                      -6-

<PAGE>

unit replacements, configuration of hardware and software, data backup and asset
tracking.  These  services are also designed to leverage the Company's  existing
service  offerings,  so that  they can be  combined  into a  tightly  integrated
business solution.  These include help desk services,  network  monitoring,  and
web-based  training  services.  In  addition,  the  eMSC is  ideally  suited  to
facilitate an organization's  technology replacement and upgrade needs. From the
acquisition  and  deployment of new technology to the collection and disposal of
old technology,  the eMSC can provide a complete lifecycle  management  solution
for corporate mobile workforces.

Application Development

           As part of an enterprise  management  solution,  the Company provides
application  development  consulting  services primarily on a time and materials
basis.  These services include  customized  application  design and development,
enterprise resource planning, object-oriented and client/server development, and
database development services. The Company's Application Development Consultants
are highly  trained  professionals  with  extensive  experience  in  application
development  and project  management.  When developing  applications,  specific,
proven methodologies are implemented for successful and timely completion of all
projects. The consultants assist customers through all phases of the application
development   process,   from  gathering   business   requirements   to  writing
specifications to programming, testing and documenting.

           As  systems  migrate  from  traditional  client/server  models to the
highly scalable and  distributed  model of web-based  solutions,  many companies
require  technical   assistance  to  complete  the  transition.   The  Company's
Application  Development team helps  organizations  meet every challenge of this
transition,  from  accessing  information  in ERP data  warehouses  to  building
business-to-business applications or solving Intranet and enterprise application
development needs.

Professional Development Services

           The 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 the Company's own employees.  Many of the
courses  offered   provide   attendees  with  the  knowledge  to  earn  specific
professional certifications.

           The Company  offers  training in a variety of venues,  including  the
client's  facilities,   the  Company's  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.

                                      -7-

<PAGE>

           The  Professional  Development  organization  provides  an  ancillary
benefit to the Company by reducing  the  Company's  cost to train its  technical
workforce  while  providing  the Company with highly  skilled  consultants.  The
Company  believes  that its  Professional  Development  organization  provides a
strategic benefit in attracting technical talent to the Company.

Help Desk and Call Center Services

           The  Company's  Help Desk  offers two  distinct  services,  Help Desk
Support  and Help Desk  Consulting,  providing  advanced  technical  support and
comprehensive software application support to corporate end-users. The Help Desk
is staffed with experienced  network  consultants ("Help Desk Analysts") trained
in multiple software, hardware and networking products.

           Help Desk Support provides corporate end-users with telephone support
on software,  hardware and networking products.  Help Desk Support is capable of
providing  global  coverage  and its  breadth  of  services  includes  automatic
dispatching of on-site support,  flexible  staffing for coverage 24 hours a day,
seven days a week and advanced call reporting.

           The Company tracks and maintains Help Desk Support service calls with
a customized call management  system.  This system allows the Help Desk Analysts
to  provide  advanced  support  and  dispatch  on-site  services.  The Help Desk
Analysts  coordinate  with major vendor  support  systems on a regular basis and
have  access  to large  volumes  of  technical  information  and  documentation,
personnel and diagnostic techniques.

Workstation Support Services

           The Company's workstation support personnel ("Workstation  Analysts")
provide  customers  with a wide array of IT  services  for end users,  including
hardware and software installations,  system upgrades and enhancements, remedial
and preventive maintenance,  and management services. These support services are
available  24  hours a day,  seven-days-a-week,  depending  on the  needs of the
Company's   customers.   The  Workstation   Analysts  also  provide   customized
configuration  of software and hardware for workstations and servers and perform
asset deployment services to customer sites.

           The   Company's   Workstation   Analysts  are   authorized   by  many
industry-leading  manufacturers,  including Compaq, Dell, Hewlett-Packard,  IBM,
NEC and Toshiba, to perform both in- and out-of-warranty  maintenance  services.
The Company offers a warranty  upgrade  program to provide  faster  response and
repair times,  additional  hours of coverage,  warranty  extensions and warranty
administration  services for customers who desire broader service offerings than
those of the  manufacturer.  Many of the  Workstation  Analysts  employed by the
Company are "A+  Certified."  The A+  Certification  Program is sponsored by the
Microcomputer Industry Association and is recognized by leading manufacturers as
the industry-wide standard of professional  competency for Workstation Analysts.
The  Company's  Workstation  Analysts  service and support a wide  variety of IT
products, including microcomputers, printers and associated peripherals.

                                      -8-

<PAGE>

Products
--------

           As a service to its  clients,  the Company  offers IT  products  from
leading hardware  manufacturers and software  developers.  In 2000, 48.7% of the
Company's net sales and 21.9% of its gross profits before  special  charges were
generated  from product  sales.  Such products  include  workstations,  servers,
networking  and  communications  equipment,  enterprise  computing  products and
application  software.  Through its established vendor alliances with Ingram and
Tech Data,  major  aggregators  of computer  hardware and software,  the Company
provides its customers with competitive pricing and value-added services such as
electronic product ordering,  product  configuration,  testing,  warehousing and
delivery.   The  Company   offers   products  from   numerous   industry-leading
manufacturers  of computer  hardware,  software and  networking  equipment.  The
Company  obtains  products  from  these  manufacturers   primarily  through  its
relationships with Ingram and Tech Data. The Company's relationships with Ingram
and Tech Data allow the Company to minimize  inventory risk by ordering products
primarily on an as-needed  basis.  The Company believes that, in most instances,
the cost-plus purchases from Ingram and Tech Data are at prices lower than those
which  could  be  obtained  by  the  Company   independently  from  the  various
manufacturers and other vendors.  The Company utilizes  electronic  ordering and
pricing  systems  that  provide  real-time  status  checks  on the  aggregators'
extensive  inventories.  The Company maintains electronic data interchange links
to other  suppliers  as well,  enabling  its sales  team to  schedule  shipments
accurately,  arrange  for product  configuration  services  and  provide  online
pricing.

Sales and Marketing
-------------------

           The  Company  currently  focuses its sales and  marketing  efforts on
three target markets: (i) the Enterprise level-large Fortune 1000 companies with
complex networking needs; (ii) mid-market, medium-size customers that require IT
services, but lack the necessary resources to perform critical initiatives;  and
(iii) start-up  organizations,  or small companies  requiring unique  networking
capabilities  as they  continue to grow.  Sales and marketing  initiatives  were
conducted with 31 employees as of December 31, 2000.  The Company  believes that
its direct sales and support personnel provide effective account penetration and
management, enhanced communications and long-term relationship-building with its
existing  customers.  The  Company  focuses  its  sales  and  marketing  efforts
primarily in the New  York-to-Philadelphia  corridor. Given the concentration of
major  corporations  in this  region  and the  trend  toward  outsourcing  of IT
services,  the  Company  does not  currently  anticipate  the need to expand the
geographic scope of its sales and marketing efforts.

           Each   salesperson's   compensation   is,   in   whole  or  in  part,
commission-based.  Sales personnel  derive sales leads from individual  business
contacts,  leads  generated by the marketing  department's  efforts and customer
referrals from suppliers and vendors.

           The Company's  sales and marketing  focus  continues to be technology
driven, with its Network Consultants and Workstation Analysts participating with
its direct sales personnel as part of the Company's team approach to sales.  The
Company's  sales  personnel also  participate in training  programs  designed by
manufacturers  to  introduce  their  new and  upgraded  products,  as well as to
provide  industry  information  and sales  technique  instruction.  The  Company
believes that it maintains a competitive  advantage by continually educating its
sales  force on the  latest  technologies  and  through  the  increased  role of
high-level technical personnel in the sales process.

                                      -9-
<PAGE>

           The Company's  Marketing  Department is responsible  for developing a
strategic  plan that focuses on enhancing  the  Company's  brand  awareness  and
promoting its capabilities. The Company's tactical marketing efforts include the
creation  and  production  of  Company  literature,  executing  mail  and  event
campaigns,  website  enhancements  and building  strong  relationships  with key
vendor partners.

Customers
---------

           The Company's major customers  include many Fortune 1000 corporations
in a variety of industries. The Company's major customers include:


       PSE&G                                        Nabisco
       Mercedes-Benz of North America               Matsushita Electric Corp.
       Summit Bancorp/FleetBoston                   Innovex
       Goldman, Sachs & Co.                         Lucent Technologies
       MTA New York City Transit                    Barnes & Noble

           During 2000, Summit Bancorp and Goldman,  Sachs accounted for 17% and
13%,  respectively,  of the  Company's  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 the Company's net sales.  During the
fiscal year ended December 31, 1998, KPMG LLP accounted for 15% 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, 2000. Sales to the Company's top
ten customers totaled  approximately 73%, 65% and 66% of net sales for the years
ended December 31, 2000, December 31, 1999 and December 31, 1998,  respectively.
In December 1997, the Company entered into a four-year,  $20.4 million  contract
with the MTA ("MTA  Contract")  to  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 the Company.  All product  sales by the
Company are made on a purchase-order  basis. The Company normally ships products
within 30 days of receiving an order and, therefore, does not customarily have a
significant   backlog.   Almost  all  services  are  provided   through  written
commitments.  In December 1997, the Company entered into the MTA Contract, under
which the Company is the prime  contractor  responsible for project  management,
systems procurement and installation.

           A significant  reduction in orders from any of the Company's  largest
customers  could  have a material  adverse  effect on the  Company's  results of
operations.  There can be no assurance that the Company's largest customers will
continue to place orders with the Company, or that orders by such customers will
continue at their previous levels. The Company's service contracts generally are
terminable  upon  relatively  short notice.  There can be no assurance  that the
Company's  service  customers will continue to enter into service contracts with
the Company or that existing contracts will not be terminated.

                                      -10-

<PAGE>

Suppliers
---------

           The  Company  relies 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.  The Company  primarily
utilizes  Ingram and Tech Data,  major  aggregators  of  computer  hardware  and
software,  to procure the majority of its products for resale to its  customers.
As the Company  expands its  business  into the  high-end,  specialized  product
market,  purchases from companies such as Cisco Systems and Microsoft Select are
increasing.

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

           The Company purchases  computer products from Ingram and Tech Data on
a cost-plus basis. The Company's  relationship  with Ingram was initiated by the
Company in late 1994 to help assure  availability and competitive pricing to the
Company's   customers.   The  Company's  purchases  from  Ingram  accounted  for
approximately  49%,  57%, and 47% of the Company's  total  product  purchases in
2000, 1999, and 1998,  respectively.  Such purchases totaled approximately $19.2
million,  $41.9 million and $48.4 million during such  respective  periods.  The
agreement  with Ingram may be  terminated  with or without cause by either party
upon 30 days prior written notice.  The Company  initiated its relationship with
Tech Data in 1998.  During 2000, 1999 and 1998, the Company  purchased from Tech
Data  approximately 22%, 10% and 5%,  respectively,  of all product purchased by
the Company.  These purchases totaled  approximately $8.8 million,  $7.5 million
and $5.3 million during such  respective  periods.  The agreement with Tech Data
may be  terminated  with or  without  cause by either  party  upon 30 days prior
written notice.  The Company's  agreements with Ingram and Tech Data provide for
discounted  pricing and rebates  provided  that the  Company  meets  agreed-upon
purchase level targets.  In 2000,  the Company  ceased  purchasing  product from
Pinacor, Inc., an affiliate of MicroAge, Inc.

           In addition to its agreements  with Ingram and Tech Data, the Company
maintains standard authorized  dealership  agreements directly with many leading
manufacturers  of  computer  hardware  and  software.  Under  the terms of these
agreements,  the  Company  is  authorized  to resell  to end  users and  provide
warranty service on the products of such manufacturers.  The Company's status as
an authorized reseller  facilitates the operation of the Company's business.  In
general, the agreements do not require minimum purchases and include termination
provisions ranging from immediate  termination to termination upon 90 days prior
written notice.  Many of such agreements are based upon the Company's  continued
relationships with authorized aggregators.  The Company, however, generally does
not purchase  products  directly  from these  manufacturers  because the Company
believes that Ingram and Tech Data provide it with several advantages, including
competitive pricing, limited inventory risk, ready product availability, product
quality  assurance,  access to the  various  vendors  which may be required on a
particular project, electronic product ordering, product configuration,  testing
and warehousing.  The Company has not entered into any long-term  contracts with
its suppliers,  electing to purchase computers, computer systems, components and
parts on a purchase  order basis.  As a result,  there can be no assurance  that
such products will be available as required by the Company at prices or on terms
acceptable to the Company.

                                      -11-

<PAGE>

Competition
-----------

           The markets for the  Company's  products and  services are  intensely
competitive.  The Company believes that the principal competitive factors in the
market for IT products and services include price, customer service,  breadth of
product and service offerings,  technical expertise, the availability of skilled
technical  personnel,  adherence to industry standards,  financial stability and
reputation.  The Company's competitors include specialty consulting and other IT
service providers,  established  computer product  manufacturers  (some of which
supply products to the Company), distributors,  aggregators,  computer resellers
(many of which are able to purchase  products at prices lower than the Company),
and systems integrators. Many of the Company's current and potential competitors
have longer operating histories and financial,  sales, marketing,  technical and
other resources  substantially  greater than those of the Company.  As a result,
the  Company's  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 the
Company's  markets by forming  strategic  alliances  with other  competitors  or
customers  of the  Company,  offer new or improved  products and services to the
Company's  customers,  or increase their efforts to gain and retain market share
through competitive  pricing.  As the market for IT products has matured,  price
competition  has  intensified  and is  likely  to  continue  to do so.  This has
resulted in continued  industry-wide downward pricing pressure.  Competition for
quality  technical  personnel remains strong,  resulting in increased  personnel
costs  for many IT  service  providers.  Such  competition  in IT  products  and
services has adversely  affected,  and likely will continue to adversely affect,
the Company's  gross  profits,  margins and results of  operations.  The Company
believes  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 the Company will be able to continue to compete  successfully with existing
or new competitors.

           The  Company  believes  that it  competes  effectively  by  providing
state-of-the-art  network design,  management,  operations and security services
and a wider range of  high-quality  IT  professional  services to its  corporate
customers.  The Company  also  believes  that it  distinguishes  itself from its
competition on the basis of its technical expertise, competitive pricing, vendor
alliances,  relationships  with Ingram and Tech Data,  direct sales strategy and
customer-service orientation.  Based on the level of its recurring business with
many of its large customers,  the Company believes that it compares favorably to
many of its competitors  with respect to the principal  competitive  factors set
forth above.

Employees
---------

           As  of  December  31,  2000,  the  Company   employed  475  full-time
employees,  of whom 371 were technical  personnel,  31 were engaged in sales and
marketing, and 73 were engaged in finance,  administration and management. As of
December  31, 1999,  the Company  employed 579  full-time  employees.  The total
number of  technical  personnel  declined  from 450 in 1999 to 371 in 2000.  The
Company   implemented   a   reduction-in-force    in   January   2000   due   to
lower-than-expected demand for technical services from certain clients.

                                      -12-

<PAGE>

           None of the  Company's  employees  are  represented  by a  collective
bargaining  agreement.  Substantially  all employees  have executed an invention
assignment and confidentiality agreement. In addition, the Company requires that
all new  employees  execute such  agreement as a condition  of  employment.  The
Company believes that it has been successful in attracting and retaining skilled
and experienced personnel. There is strong competition for experienced sales and
marketing personnel and qualified technical professionals. The Company considers
its relations with its employees to be good.

           The  Company's  success  depends in part on its  ability to  attract,
hire, train and retain qualified  managerial,  technical and sales and marketing
personnel,  particularly for high-end network  services.  Competition with other
service  providers and internal  corporate MIS  departments  for such  personnel
remains strong. There can be no assurance that the Company will be successful in
attracting and retaining the technical personnel necessary to conduct and expand
its operations successfully.  The Company's ability to implement its strategy to
expand and broaden the  services  component  of its  business and its results of
operations  could be materially  adversely  affected if it is unable to attract,
hire, train and retain qualified technical personnel.

                                      -13-

<PAGE>


ITEM 2. PROPERTIES.

           The Company currently leases or subleases all of its facilities.  The
Company  leases  its  headquarters  in  Cedar  Knolls,   New  Jersey,   totaling
approximately  38,000 square feet of office space.  An additional  16,000 square
feet was subleased to the Company in 1998 pursuant to a sublease agreement which
expired in September  2000 and was not  renewed.  The current  lease  expires in
September 2003 and contains renewal options for two additional  five-year terms.
In 1998 the Company entered into a lease for approximately  4,700 square feet of
space at a facility  adjacent  to the  Company's  headquarters,  which space the
Company  has  subsequently  sublet.  The  Company  also  leases  a  facility  in
Parsippany,  New Jersey,  which totals 5,253 square feet,  which the Company has
sublet pursuant to a sublease agreement expiring in May 2001. The Company leases
office space for a Learning  Center in Iselin,  New Jersey,  consisting of 6,710
square feet, as well as its 15,000-square-foot eMobile Support Center located in
East Hanover,  New Jersey. The Company leases approximately 5,410 square feet of
office   space   in   King  of   Prussia,   Pennsylvania   for   the   Company's
Philadelphia-area  sales office.  The Company believes its  headquarters,  sales
offices,  Learning Center and eMobile Support Center are adequate to support its
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 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 $893,330.  In
its counterclaim, Polo alleges, among other things, that it sustained damages of
$4.7 million as a result of alleged  breach of contract,  breach of warranty and
negligence by the Company in "failing to maintain  accurate shipping records and
documentation." Discovery to date has been limited, and no evidence has yet been
proffered in support of these allegations.  In October 2000, the Company secured
a commitment from its insurance carrier,  subject to a reservation of rights, to
defend  against  the  counterclaim.  The  Company  believes  it has  meritorious
defenses to the  counterclaim  and intends to vigorously  pursue recovery of all
amounts owing to the Company by Polo.

            In  connection  with the  Company's  ongoing  disputes  with the MTA
concerning a contract  entered into with the MTA in December  1997,  the Company
filed certain legal proceedings as further discussed in Item 7 of this Report at
pp. 21-23.

      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.

                                      -14-

<PAGE>

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, 2000.

                                      -15-

<PAGE>

                                     PART II


ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

      The Company's  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.


<TABLE>
<CAPTION>

QUARTER ENDED                                 2000                                  1999
-------------                                 ----                                  ----
                                    High                 Low              High                 Low
                                    ----                 ---              ----                 ---
<S>                                <C>               <C>                 <C>                 <C>
March 31 (1st qtr.)                $11 3/4           $4 1/4              $6 3/4              $3 7/32

June 30 (2nd qtr.)                   6 9/16           3 5/8               5 1/2               2 29/32

September 30 (3rd qtr.)              5                2 3/8               5                   4 1/16

December 31 (4th qtr.)               4 1/4            1 3/8               5 5/8               3 1/8

</TABLE>

           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, 2001,  the closing sale price for the Common Stock on
the Nasdaq  National  Market was $1 5/8 per share.  As of February 28, 2001, 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,  the Company has not paid any  dividends.
The Company presently has no plans to pay dividends in the foreseeable future.

ITEM 6. SELECTED FINANCIAL DATA.

           The selected  consolidated  financial data  presented  below has been
derived from the consolidated  financial statements of the Company as audited by
PricewaterhouseCoopers LLP, independent accountants. Consolidated balance sheets
at  December  31,  2000 and  1999 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, 2000 and notes thereto  appear  elsewhere
in this Report.  The selected  financial  data  presented  below at December 31,
1998,  1997 and 1996 and for the years ended December 31, 1998 and 1997 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, the  Company's
consolidated financial statements, related notes and other financial information
included elsewhere in this Annual Report on Form 10-K.

                                      -16-

<PAGE>

<TABLE>
<CAPTION>

                                                                         Year Ended December 31,
   -----------------------------------------------------------------------------------------------------------------------
                                                            2000          1999          1998       1997(6)       1996(7)
                                                            ----          ----          ----       -------       -------
                                                                  (in thousands, except per share data)
   <S>                                                 <C>           <C>           <C>          <C>            <C>
   Statement of Operations Data:
   Net sales:
      Product...................................       $  43,967       $83,298     $ 116,908      $147,602     $  99,468
      Services and support......................          46,373        53,265        54,628        43,790        20,137
                                                       ---------       -------     ---------      --------     ---------
                                                          90,340       136,563       171,536       191,392       119,605
                                                       ---------       -------     ---------      --------     ---------
      Product...................................          40,212        75,409       103,522       130,314        88,218
      Services and support......................          32,992        35,493        37,058        29,013        12,915
       Other charges (1)........................           4,851             -             -             -             -
                                                       ---------       -------     ---------      --------     ---------
                                                          78,055       110,902       140,580       159,327       101,133
                                                       ---------       -------     ---------      --------     ---------
      Gross profit:
      Product...................................           3,755         7,889        13,386        17,288        11,250
      Services and support......................          13,381        17,772        17,570        14,777         7,222
       Other charges (1)........................          (4,851)            -             -             -             -
                                                       ---------       -------     ---------      --------     ---------
                                                          12,285        25,661        30,956        32,065        18,472
                                                       ---------       -------     ---------      --------     ---------
   Operating expenses:
      Selling, general & administrative (2).....          23,969        24,743        27,505        22,761        12,747
       (Recovery) write-off of capitalized
        asset (3)...............................               -          (139)        2,476             -             -
                                                       ---------       -------     ---------      --------     ---------
                                                          23,969        24,604        29,981        22,761        12,747
                                                       ---------       -------     ---------      --------     ---------
   Operating income (loss)......................         (11,684)        1,057           975         9,304         5,725
   nex-i.com loss (4)...........................          (2,249)            -             -             -             -
   Other income (expense), net (5)..............           1,465           879           359            61           129
                                                       ---------       -------     ---------      --------     ---------
   Income before income taxes...................         (12,468)        1,936         1,334         9,365         5,854
   Provision for income taxes...................             474           794           623         3,844         1,970
   Net income (loss)............................       $ (12,942)      $ 1,142     $     711      $  5,521     $   3,884
                                                       =========       =======     =========      ========     =========

   Earnings (loss) per share - Basic............       $   (2.04)      $  0.18     $    0.11      $   0.97     $    0.83
                                                       =========       =======     =========      ========     =========
   Weighted average shares outstanding..........           6,353         6,253         6,272         5,719         4,690
                                                       =========       =======     =========      ========     =========
   Earnings (loss) per share - Diluted..........       $   (2.04)      $  0.18     $    0.11      $   0.93     $    0.82
                                                       =========       =======     =========      ========     =========

   Weighted average shares outstanding..........           6,353         6,265         6,331         5,905         4,737
                                                       =========       =======     =========      ========     =========

</TABLE>

<TABLE>
<CAPTION>

                                                                           As of December 31,
   -----------------------------------------------------------------------------------------------------------------------
                                                            2000         1999           1998           1997         1996
                                                            ----         ----           ----           ----         ----
                                                                             (in thousands)
   <S>                                                  <C>          <C>           <C>              <C>          <C>
   Balance Sheet Data:
      Working capital...........................        $26,303      $37,841        $35,375         $33,123      $14,407
      Total assets..............................         41,825       56,021         61,894          72,541       43,647
       Long term debt and capital lease
   obligations,                                               8           31             49               -           41
         less current portion...................
      Shareholders' equity......................         31,756       43,834         42,536          41,722       18,921

</TABLE>

                                       17

<PAGE>

(1)   In the second quarter of 2000,  the Company  recorded  special  charges of
      $4.9  million  which  included a $4.4  million  charge  for the  Company's
      estimated cost to complete the MTA Contract,  and $0.5 million  associated
      with unrecoverable vendor charges.

(2)   In Fiscal 2000, the Company  incurred  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  the  Company's  telecom
      business,  which was divested  during the year.  For the third  quarter of
      1999,  the  Company  recorded  a  provision  for  uncollectable   accounts
      receivable of $1.5 million.

(3)   Reflects  a  one-time  write-off  in  1998  of  capitalized  software  and
      consulting fees associated with the Company's termination of an integrated
      accounting  software  program and  implementation  thereof.  In 1999,  the
      Company was able to recover $139,000 of such costs.

(4)   In January  2000,  the Company  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 in connection with such investment. The Company's 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  the  Company  did not
      participate.  The  Company  has  taken a charge  in 2000 for $2.2  million
      related to its  investment in nex-i.com.  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 a series of preferred  securities of Eureka in
      exchange for its equity  securities  of nex-i.com  and loaned  $382,098 to
      Eureka and committed to invest an additional  $382,098 in Eureka,  subject
      to certain conditions.

(5)   In the third  quarter of 2000,  the  Company  recorded a gain of  $370,000
      relating to the settlement of litigation.

(6)   On August 1, 1997,  the Company  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 2 of Notes to
      Consolidated Financial Statements.

(7)   On July 24, 1996, the Company  acquired certain assets of Lior, Inc., in a
      business  combination  accounted for under the purchase  method,  for $1.1
      million,  including  acquisition  costs,  financed  with a portion  of the
      proceeds  from the  Company's  initial  public  offering.  The  operations
      related to the acquired  assets of Lior are  included in the  accompanying
      consolidated financial statements subsequent to July 24, 1996.

                                       18

<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

General
-------

           Founded in 1984,  the  Company is an IT  professional  services  firm
specializing in network design, operation,  management,  and security,  offering
related  products  and  services to Fortune  1000 and other large and  mid-sized
companies  located  primarily  in the New  York-to-Philadelphia  corridor.  As a
result of the Company's shift in focus to the professional  services market, the
Company  derived 49% of its revenue  from  assisting  its clients in sourcing IT
products,  down from approximately 85% of total revenue in 1995. During the same
period,  the  percentage  of revenue  related to  services  has  increased  from
approximately 15% in 1995 to approximately 51% in 2000. The Company  anticipates
that this trend will continue in 2001.

          Except for the MTA Contract  entered into in December 1997,  there are
no ongoing  written  commitments  by  customers  to purchase  products  from the
Company 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 2000 and 1999,  the  Company's  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 the Company's customers.  In addition,  the Company's gross profits,
margins and results of operations could be adversely affected by a disruption in
the Company's sources of product supply.

         The Company offers enterprise network management, information security,
Internet-related,  eMobile  Solutions,  applications  development,  professional
development,  help desk, and workstation support services.  Services and support
revenue is  recognized  as such  services are  performed.  Most of the Company's
services are billed on a  time-and-materials  basis. The Company's  professional
development  and services are fee-based on a per-course  basis.  Generally,  the
Company's  service  arrangements  with its  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 the Company's business is
personnel  costs  which  consist  of  salaries,   benefits  and  payroll-related
expenses.  Thus, the financial  performance of the Company's service business is
based  primarily upon billing margins  (billable  hourly rates less the costs to
the Company of such service  personnel on an hourly basis) and utilization rates
(billable  hours  divided by paid  hours).  The future  success of the  services
component of the  Company's  business will depend in large part upon its ability
to  maintain  high  utilization  rates  at  profitable   billing  margins.   The
competition  for  quality  technical  personnel  remains  strong,  resulting  in
increased personnel costs for the Company.

      In 2000, the Company faced reduced manpower requirements due to completion
of Y2K projects and reduced  staffing  requirements at certain client  accounts,
resulting  in a  reduction  of 31  positions.  Adjustments  to the  size  of the
Company's  workforce  may  continue to be  necessary in order for the Company to
realize maximum  operating  efficiency while continuing to meet the needs of its
clients.

      The Company may receive  manufacturer  rebates  resulting  from  equipment
sales. In addition,  the Company  receives volume discounts and other incentives
from  certain of its  suppliers.

                                       19

<PAGE>

Except for products in transit or products  awaiting  configuration at a Company
facility,  the Company generally does not maintain large inventory balances. The
Company's  primary  vendors have announced or instituted  changes in their price
protection  and inventory  management  programs as a direct result of changes in
such policies by manufacturers. Specifically, they have announced that they will
(i) limit price protection to that provided by the manufacturer,  generally less
than 30 days, rather than the unlimited  protection  previously  available;  and
(ii) restrict product  returns,  other than defective  returns,  to a percentage
(the percentage  varies  depending on the vendor and when the return is made) of
product  purchased,  during a defined period, at the lower of the invoiced price
or the current price,  subject to the specific  manufacturer's  requirements and
restrictions. At the present time, the Company does not believe these changes in
the vendor  policies  will have a material  impact on its  business.  Other than
changes in such price  protection  and return  policies,  the Company is unaware
that any of its  suppliers  or  manufacturers  have changed or intend to further
change  these  programs.  There  can be no  assurances  that any  such  rebates,
discounts or incentives will continue at historical  levels,  if at all. Further
adverse  modification,  restriction  or reduction in such programs  could have a
material  adverse  effect  on  the  Company's  financial  position,  results  of
operations, and cash flows.

      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.  Consulting and other  services and support  revenue is recognized
when the applicable  services are rendered.  The Company  recognizes  revenue on
service  contracts on a prorated basis over the life of the contracts.  Revenues
under the  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.

      The Company's  cost of sales  includes  primarily,  in the case of product
sales, the cost to the Company of products acquired for resale,  and in the case
of services  and support  revenue,  salaries  and related  expenses for billable
technical  personnel.  The Company's 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  increased  from  32.2%  for 1998,  to 33.4%  for 1999,  and
decreased to 28.9% for 2000. The Company  believes that its ability to provide a
broad range of technical services, coupled with its long-term relationships with
large  customers,  provides the Company with the  potential to grow the services
component of its business.  However, in the near term, the Company believes that
product  sales  will  continue  to  generate  a  significant  percentage  of the
Company's gross profit.

                                       20

<PAGE>

      The Company's 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  the  Company's
control,  have  contributed and may in the future  contribute to fluctuations in
operating results. These factors include: the short-term nature of the Company's
customers' commitments;  patterns of capital spending by customers;  the timing,
size, and mix of product and service orders and deliveries;  the timing and size
of new projects;  pricing  changes in response to various  competitive  factors;
market factors  affecting the  availability  of qualified  technical  personnel;
timing and customer acceptance of new product and service offerings;  changes in
trends  affecting  outsourcing of IT services;  disruption in sources of supply;
changes in product,  personnel,  and other  operating  costs;  and  industry and
general economic  conditions.  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.  The Company  believes,
therefore,  that past operating results and period-to-period  comparisons should
not be relied upon as an indication of future operating performance.

      The Company's operating results have been and will continue to be impacted
by changes in technical  personnel  billing and utilization  rates.  Many of the
Company's  costs,  particularly  costs  associated  with  services  and  support
revenue,  such as  administrative  support  personnel and facilities  costs, are
primarily fixed costs. The Company's overall expense levels are based in part on
expectations of future revenues.

      In December  1997,  the Company  entered into a four-year,  $20.4  million
contract  with the MTA to  furnish  and  install  local and  wide-area  computer
network components including network and telecommunications  hardware,  software
and cabling  throughout  the MTA's over 200 locations.  The aggregate  amount of
this contract was  subsequently  increased to $20.6 million.  The Company is the
prime  contractor  on this project and is  responsible  for project  management,
systems  procurement,  and  installation.  The  work is  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. While the Company is 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 the Company has no control, and which
is generally adjusted in June of each year and may be so adjusted in the future.

      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.

                                       21

<PAGE>

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.  The Company  intends to
seek  clarification  of the Department's  letter.  There can be no assurance the
Company will be successful, either in whole or in part, in its efforts.

      Historically,   the  Company  had  estimated   that  project  costs  would
approximate project revenues and, accordingly, had recognized no gross profit on
the contract. 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.  This charge represents the Company's

                                       22

<PAGE>

current estimated loss on the MTA project. For the years ended December 31, 2000
and 1999,  revenues  recorded in  connection  with the MTA Contract  amounted to
approximately $5.3 million and $3.5 million, respectively.

                                       23

<PAGE>

Results of Operations
---------------------

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

<TABLE>
<CAPTION>

                                                                                                                  Percentage
                                                                 Percentage of Net Sales                           Increase
                                                                 Year Ended December 31,                          (Decrease)
                                                         -----------------------------------------      ----------------------------
                                                                                                                2000            1999
                                                                                                                Over            Over
                                                               2000          1999          1998                 1999            1998
                                                               ----          ----          ----                 ----            ----
<S>                                                           <C>           <C>          <C>               <C>                <C>
Net sales:
      Product .........................................        48.7          61.0          68.2               (47.2)          (28.7)
      Services and support.............................        51.3          39.0          31.8               (12.9)           (2.5)
                                                              -----         -----         -----            --------          ------
                                                              100.0         100.0         100.0               (33.8)          (20.4)
Cost of sales..........................................        86.4          81.2          82.0               (29.6)          (21.1)
                                                              -----         -----         -----            --------          ------
Gross profit...........................................        13.6          18.8          18.0               (52.1)          (17.1)
                                                              -----         -----         -----            --------          ------
Operating expenses:
      Selling, general & administrative:...............        26.5          18.1          16.0                (3.1)          (10.0)
        (Recovery) write-off of capitalized asset......         0.0          (0.1)          1.4                   -               -
                                                              -----         -----         -----
                                                               26.5          18.0          17.4                (2.6)          (17.9)
                                                              -----         -----         -----            --------          ------
Operating income.......................................       (12.9)          0.8           0.6            (1,205.4)            8.4
                                                              -----         -----         -----            --------          ------
Other income (expense), net............................        (0.9)          0.6           0.2              (189.2)          144.8
                                                              -----         -----         -----            --------          ------
Income before income taxes.............................       (13.8)          1.4           0.8              (744.0)           45.1
Provision for income taxes ............................         0.5           0.6           0.4               (40.3)           27.4
                                                              -----         -----         -----            --------          ------
Net income.............................................       (14.3)          0.8           0.4            (1,233.3)           60.6
                                                              =====         =====         =====            ========          ======
Gross profit (as a percentage of related net sales):
      Product..........................................         8.5           9.5          11.5               (52.4)          (41.1)
      Services and support.............................        28.9          33.4          32.2               (24.7)            1.1

</TABLE>

<PAGE>

      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. The Company has continued to
focus on its strategy of  repositioning  the 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  performed  by the  Company in prior  years such as
desktop  support  services,  configuration  and  installation  were performed to
support  product sales.  As product sales  declined,  a portion of the Company's
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.  The Company's
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.

                                       24

<PAGE>

      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 the
Company's  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,  the Company  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 the Company's telecom
business,  divested  during the year.  In 1999,  the Company  recorded a special
charge for uncollectable accounts receivable of $1.5 million.

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

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

Comparison of Years Ended December 31, 1999 and 1998

      Net sales:  Net sales  decreased by 20.4%,  or $34.9 million,  from $171.5
million in 1998 to $136.6 million in 1999.  Product sales decreased by 28.7%, or
$33.6  million,  from  $116.9  million in 1998 to $83.3  million  in 1999.  This
decline  in  product  sales  was  primarily  attributable  to two  predominantly
low-margin  product accounts,  partially offset by increased business with other
customers,  as well as lower average selling prices due to increased competition
and other product  pricing  pressures.  This trend has been  accelerated  by the
ability  of  customers  to  purchase  directly  from  certain  manufacturers  at
discounted  prices.  Services and support  revenue  decreased  by 2.5%,  or $1.3
million, from $54.6 million in 1998 to $53.3 million in 1999.

      Many of the  services  performed  by the  Company  in prior  years such as
desktop  support  services,  configuration  and  installation  were performed to
support product sales. As the overall product  business  declines,  this type of
service revenue also declines. The Company is now focusing on providing services

                                       25

<PAGE>

and support that are independent of product sales such as security, training and
network operations support.

      Gross  profit:  The  Company's  gross  profit  declined by 17.1%,  or $5.3
million,  from $31.0 million in 1998 to $25.7 million in 1999. This reduction in
gross profit is primarily due to the reduction in product  sales;  however,  the
increased  gross profit  percentage  is due to the change in mix of revenue from
the lower margin product sales in 1998 to the higher-margin services and support
revenues  in 1999.  Gross  profit  from  services  and  support in 1999 of $17.8
million  increased  1.1%,  or  $202,000,  from  $17.6  million  in  1998,  while
increasing as a percentage of service and support  revenue from 32.2% in 1998 to
33.4% in 1999.

      Selling,  general  and  administrative  expenses:   Selling,  general  and
administrative  expenses  in 1999 of  $24.7  million  decreased  10.0%,  or $2.8
million,  from  $27.5  million  in  1998.  This  decrease  is  primarily  due to
reductions  in operating  expenses of  approximately  $3.9  million  relating to
reduced payroll costs, facilities, and telecommunications costs and $1.1 million
due to fourth  quarter  adjustments  related  to  vacation  and other  accruals,
partially offset by approximately $2.0 million of bad debt provisions in 1999.

      (Recovery) write-off of capitalized asset: In 1998, the Company recorded a
charge of $2.5 million to reflect a one-time  write-off of capitalized  software
and  implementation  costs  associated  with the  Company's  termination  of the
implementation  of an  integrated  accounting  software  program.  In 1999,  the
Company was able to recover $139,000 of such costs.

      Other Income:  Other Income in 1999 of $302,000 was  primarily  related to
legal  settlements  received  of  approximately  $200,000  and gains on sales of
marketable securities of approximately $92,000.

      Interest income,  net: Interest income,  net in 1999 of $577,000 increased
by $337,000 from $240,000 in 1998. This increase  primarily relates to increased
cash balances maintained throughout 1999 as compared to the prior year.

      Provision  for income  taxes:  The  provision for income taxes in 1999 was
$794,000. Income taxes were provided for at a 41.0% effective tax rate for 1999.
In 1998,  the provision  for income taxes was  $623,000,  which was based upon a
46.7% effective tax rate.

Risk Factors:
-------------

           The Company is  focusing  significant  efforts on  evolving  its core
business  from a company  relying  mainly on sales of product to a  professional
services  firm  focusing  primarily  on  network  design  and  management.   The
implementation  of this  strategy has resulted in reduced  product sales and the
pursuit  of  higher-margin  services  revenue.  There is no  assurance  that the
Company will be successful in effectuating this transition.

           Recruitment of personnel in the IT industry remains competitive.  The
Company's  success  depends  upon its  ability to recruit  and retain  qualified
management,  business  development  and  technical  personnel.  There  can be no
assurance  that the Company will be successful in attracting  and retaining such

                                       26

<PAGE>

personnel  in the  future.  Failure  to  attract  and  retain  highly  qualified
personnel could have a material adverse effect on the Company.

           The Company's  Common Stock is quoted on the Nasdaq  National  Market
System,  and there has been  substantial  volatility  in the market price of the
Company's  Common Stock.  The trading  price of the  Company's  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 the Company's 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:
-------------------------------------

           ("FAS No. 133"),  "Accounting for Derivative  Instruments and Hedging
Activities,"  is effective for fiscal years  beginning after June 15, 2000. SFAS
No. 133 addresses the accounting for derivative  instruments,  including certain
derivative instruments embedded in other contracts, and hedging activities.  The
Statement  standardizes  the accounting for derivative  instruments by requiring
that an entity  recognize  those items as assets or liabilities in the statement
of financial  position and measure them at fair value. The Company is evaluating
the Statement's  provisions to determine the effect on its financial statements.
In  addition,  the  impact  of FAS No.  133 will  depend  on the terms of future
transactions.

           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 SAB 101 did not have a material effect on the
Company's results of operations.

           In March  2000,  the  Financial  Accounting  Standards  Board  issued
Interpretation  Number 44 "Accounting  for Certain  Transaction  Involving Stock
Compensation."  This  interpretation  provides changes and  clarification to the
Accounting of Employee Stock  Compensation.  The issuance of this interpretation
did not affect the Company's results of operations.

Liquidity and Capital Resources:
--------------------------------

           Cash and cash  equivalents  at  December  31,  2000 of $17.2  million
increased by 4.1%,  or $0.7  million,  from $16.5  million at December 31, 1999.
Working capital, which is the excess of current assets over current liabilities,
at December 31, 2000 was $26.3  million as compared to $37.8 million at December
31, 1999 representing a decrease of $11.5 million,  or 30.5%. The improvement in
the  Company's  accounts  receivable   performance  during  2000  increased  the
Company's  cash and  cash  equivalents.  The  decline  in  working  capital  was
primarily a result of the Company's losses for the year.

                                       27

<PAGE>

           Since its inception,  the Company has funded its operations primarily
from cash generated by operations,  as well as with funds from borrowings  under
the Company's  credit  facilities and the net proceeds from the Company's public
offerings.  Cash provided by operations  for the fiscal year ended  December 31,
2000 was $4.1  million.  As measured  in day sales  outstanding,  the  Company's
accounts receivable days outstanding decreased from 69 days at December 31, 1999
to 65 days at December 31, 2000.

           Capital expenditures of $1.1 million,  $1.6 million, and $4.0 million
during the years ended  December 31, 2000,  1999, and 1998,  respectively,  were
primarily  for  the  purchase  of  computer   equipment  and  upgraded  software
implementations.  The Company  anticipates  additional  capital  expenditures to
expand  the   services   component   of  its   business   and  enhance  its  MIS
infrastructure.

           On June 30,  1997,  the Company and First  Union  National  Bank (the
"Bank")  executed a Loan and Security  Agreement  whereby the Bank  expanded the
Company's  credit facility to enable the Company 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,  the
Company was permitted to borrow, subject to certain post-closing  conditions and
covenants by the Company,  (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  subordinated
its position to certain other lenders pursuant to intercreditor  agreements.  On
September  30,  1998,  the  Company  and the Bank  executed a Loan and  Security
Agreement  whereby  the Bank  extended  the  Company's  credit  facility  for an
additional  year through  September  30, 1999.  Effective  October 1, 1999,  the
Company and the Bank extended the Company's credit facility on substantially the
same terms and  conditions  for an interim  period  ending  December  31,  1999.
Effective  January 1, 2000,  the Company  and the Bank  extended  the  Company's
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 the Company on an  uncollateralized  basis.  Under this credit facility,
the Company was 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 was not renewed.

           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.  The Company did not repurchase any outstanding  shares of stock in 2000.
As of December 31, 2000, a total of 150,600 shares of the Company's 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.

                                       28

<PAGE>

           The  Company's  Employee  Stock  Purchase  Plan was  approved  by the
Company's  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. In 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.  The Company has
issued an aggregate of 164,127  shares since the inception of the Employee Stock
Purchase Plan at an average price of $4.89 per share,  receiving  total proceeds
of $803,000.

           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
$382,098 to Eureka in exchange for a convertible promissory note. The note bears
interest  at the rate of 8% per  annum,  which  may be paid by Eureka in cash on
March 31, 2001 (the  "Maturity  Date") or may be 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. The Company
also committed to invest an additional $382,098 in Eureka, if certain conditions
are  met.  In  consideration  of the  Company's  investment  in  Eureka,  Eureka
committed to purchase a minimum of $145,621 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.

           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,

                                       29

<PAGE>

without other interest  holders,  to have the Company's equity interest included
in certain other  registrations under such Act.

           The  Company   purchases  certain  inventory  and  equipment  through
financing   arrangements   with  Finova  Capital   Corporation  and  IBM  Credit
Corporation.   At  December  31,  2000,  there  were  outstanding   balances  of
approximately  $1.0 million for Finova  Capital  Corporation  and  approximately
$525,000 for IBM Credit Corporation under such  arrangements.  Obligations under
such financing  arrangements  are  collateralized  by  substantially  all of the
assets of the Company.

           The Company believes that its available funds, together with existing
and anticipated credit  facilities,  will be adequate to satisfy its current and
planned operations for at least the next twelve months.

           In the audit of the year-ended December 31, 1999, which was completed
in March 2000, the Company and its independent  auditors identified  significant
deficiencies in the design and operation of its internal control structure.  The
Company's  independent  auditors  determined such  deficiencies were "reportable
conditions."  The Company has  implemented and is in the process of implementing
additional policies, procedures and controls to address these deficiencies.

                                       30

<PAGE>

               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, 2000.  This  information  is derived from
unaudited  consolidated financial statements of the Company that include, in the
opinion of the Company,  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 the  audited  Consolidated  Financial
Statements of the Company and notes thereto  appearing  elsewhere in this Annual
Report on Form 10-K.


                      [This space left blank intentionally]

                                       31

<PAGE>

<TABLE>
<CAPTION>

                                            ----------------------------------------------------------------------------------------
                                                                                  Quarter Ended
                                            ----------------------------------------------------------------------------------------
Statement of Income Data:                                             (in thousands, except per share data)
                                            Mar. 31,    June 30,   Sept. 30,   Dec. 31,    Mar. 31,   June 30,   Sept. 30,  Dec. 31,
                                              1999        1999        1999       1999        2000       2000        2000     2000
                                            ----------- --------  ----------  ---------   ---------   ---------  ---------  -------
<S>                                           <C>         <C>          <C>       <C>         <C>       <C>        <C>       <C>
Net sales:
   Product..............................      $18,692     $19,566      $25,817   $19,223     $12,209   $ 13,540    $10,194  $8,024
   Services and support.................       11,436      12,567       14,420    14,842      11,020     12,138     11,650  11,565
                                              -------     -------      -------   -------     -------   --------     ------  ------
                                               30,128      32,133       40,237    34,065      23,229     25,678     21,844  19,589
                                              -------     -------      -------   -------     -------   --------     ------  ------
Cost of sales:
   Product (1)..........................       16,609      17,519       23,234    18,047      11,338     12,573      9,093   7,208
   Services and support.................        8,138       8,585        9,278     9,492       8,241      8,669      8,102   7,980
    Other charges (2)...................            -           -            -         -           -      4,851          -       -
                                              -------     -------      -------   -------     -------   --------     ------  ------
                                               24,747      26,104       32,512    27,539      19,579     26,093     17,195  15,188
                                              -------     -------      -------   -------     -------   --------     ------  ------
Gross profit:
   Product (1)..........................        2,083       2,047        2,583     1,176         871        967      1,101     816
   Services and support.................        3,298       3,982        5,142     5,350       2,779      3,469      3,548   3,585
    Other charges (2)...................            -           -            -         -           -     (4,851)         -       -
                                              -------     -------      -------   -------     -------   --------     ------   ------
                                                5,381       6,029        7,725     6,526       3,650       (415)     4,649   4,401
                                              -------     -------      -------   -------     -------   --------      -----   -----
Operating expenses:
   Selling, general and administrative (3).     6,232       6,005        7,186     5,320       5,892      7,456      5,737   4,884
  (Recovery) write-off of capitalized
   asset (4)............................            -           -         (139)        -           -          -          -       -
                                              -------     -------      -------   -------     -------   --------     ------   ------
                                                6,232       6,005        7,047     5,320       5,892      7,456      5,737   4,884
                                              -------     -------      -------   -------     -------   --------     ------   ------
Operating income (loss).................         (851)         24          678     1,206      (2,242)    (7,871)    (1,088)   (483)
Other income (expense), net (5).........          249         155          209       266         265        288        633     279
Nex-i.com loss (6)......................            -           -            -         -        (335)    (1,272)      (642)      -
                                              -------     -------      -------   -------     -------   --------     ------   ------
Income (loss) before income taxes.......         (602)        179          887     1,472      (2,312)    (8,855)    (1,097)   (204)
Provision (benefit) for income taxes (7).        (250)         74          364       606        (959)     1,433          -       -
                                              -------     -------      -------   -------     -------   --------    -------  -------
Net income (loss).......................      $  (352)    $   105         $523      $866     $(1,353)  $(10,288)   $(1,097) $ (204)
                                              =======     =======      =======   =======     =======   ========    =======  =======
Net income (loss) per share (diluted)...      $ (0.06)    $  0.02      $  0.08   $  0.14     $ (0.21)  $  (1.62)   $ (0.17) $(0.03)
                                              =======     =======      =======   =======     =======   ========    =======  ========
As a Percentage of Net Sales:
Net sales:
   Product..............................         62.0%       60.9%        64.2%     56.4%       52.6%      52.7%      46.7%   41.0%
   Services and support.................         38.0%       39.1%        35.8%     43.6%       47.4%      47.3%      53.3%   59.0%
                                              -------      ------       ------    ------      -------   --------    -------  -------
                                                100.0%      100.0%       100.0%    100.0%      100.0%     100.0%     100.0%  100.0%
Cost of sales...........................         82.1%       81.2%        80.8%     80.8%       84.3%     101.6%      78.7%   77.5%
                                              -------      ------       ------    ------      -------   --------    -------  -------
Gross profit............................         17.9%       18.8%        19.2%     19.2%       15.7%      (1.6)%     21.3%   22.5%
                                              -------      ------       ------    ------      -------   --------    -------- -------
Operating expenses:
   Selling, general and administrative (3).      20.7%       18.7%        17.8%     15.6%       25.3%      29.1%      26.3%   24.9%
(Recovery)write-off of capitalized asset (4)        -           -         (0.3)%       -           -          -          -       -
                                              -------      ------       ------    ------      -------   --------    -------- -------
                                                 20.7%       18.7%        17.5%     15.6%       25.3%      29.1%      26.3%   24.9%
                                              -------      ------       ------    ------      -------   --------    -------- -------
Operating income (loss).................         (2.8)%       0.1%         1.7%      3.5%       (9.6)%    (30.7)%     (5.0)%  (2.4)%
Other income (expense), net.............          0.8%        0.5%         0.5%      0.8%       (0.3)%     (3.8)%        0%    1.4%
                                              -------      ------       ------    ------      -------   --------    -------- -------
Income before income taxes..............         (2.0)%       0.6%         2.2%      4.3%       (9.9)%    (34.5)%     (5.0)%  (1.0)%
Provision for income taxes..............         (0.8)%       0.2%         0.9%      1.8%        4.1%      (5.6)%        0%      0%
                                              -------      ------       ------    ------      -------   --------    -------- -------
Net income..............................         (1.2)%       0.3%         1.3%      2.5%       (5.8)%    (40.1)%     (5.0)%  (1.0)%
                                              =======     =======      =======   =======     ========  ========    =======   =======
Gross profit (as a percentage of
related net sales):
   Product (1)..........................         11.1%       10.5%        10.0%      6.1%         7.1%       7.1%     10.8%   10.2%
   Services and support.................         28.8%       31.7%        35.7%     36.0%        25.2%      28.6%     30.5%   31.0%

</TABLE>

                                       32

<PAGE>

(1)   The  quarters  ended  December 31, 1999 and 1998  reflect  adjustments  to
      reduce inventories by $455,000 and $450,000, respectively.

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

(3)   During the quarters ended March 31, 2000, June 30, 2000, and September 30,
      2000,  the Company  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, the company
      recorded additional bad debt expenses of $750,000.

(4)   Reflects a one-time (recovery)  write-off in 1998 of capitalized  software
      and  consulting  fees  associated  with the  Company's  termination  of an
      integrated  accounting  software program and  implementation  thereof.  In
      1999, the Company was able to recover $139,000 of such costs.

(5)   In the quarter ended September 30, 2000, the Company  recognized a gain of
      $370,000 associated with the settlement of litigation.

(6)   In each of the quarters ended March 31, 2000,  June 30, 2000 and September
      30, 2000,  the Company  recorded its share of losses in its  investment in
      nex-i.Com, Inc., totaling $2,249,000.

(7)   In each of the  quarters  ended  June 30,  2000,  September  30,  2000 and
      December 31, 2000, the Company recorded an income tax valuation  allowance
      of $5,453,000.

                                       33

<PAGE>

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 19-33 for selected unaudited quarterly financial
data.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

      Not applicable.

                                       34

<PAGE>


                                    PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.

           The information  called for by this Item 10 relating to the Company's
directors  and  executive  officers,  which will be included  under the headings
"Election of Directors"  and  "Executive  Officers" in the Company's  definitive
proxy statement for the 2000 Annual Meeting of Shareholders,  to be filed within
120 days after the end of the Company's  fiscal year, is incorporated  herein by
reference to such proxy statement.


ITEM 11.   EXECUTIVE COMPENSATION.

           The  information  called for by this Item 11,  which will be included
under the heading  "Executive  Compensation"  in the Company's  definitive proxy
statement for the 2000 Annual  Meeting of  Shareholders,  to be filed within 120
days after the end of the  Company's  fiscal  year,  is  incorporated  herein by
reference to such proxy statement.


ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

           The  information  called for by this Item 12,  which will be included
under  the  heading  "Security   Ownership  of  Certain  Beneficial  Owners  and
Management"  in the  Company's  definitive  proxy  statement for the 2000 Annual
Meeting  of  Shareholders,  to be filed  within  120 days  after  the end of the
Company's  fiscal  year,  is  incorporated  herein by  reference  to such  proxy
statement.


ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

           The  information  called for by this Item 13,  which will be included
under the  heading  "Certain  Relationships  and  Related  Transactions"  in the
Company's   definitive   proxy   statement  for  the  2000  Annual   Meeting  of
Shareholders,  to be filed within 120 days after the end of the Company's fiscal
year, is incorporated herein by reference to such proxy statement.

                                       35

<PAGE>


                                     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 36-40.

(b)                  Reports on Form 8-K.

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

                                       36

<PAGE>


                                  EXHIBIT INDEX

Exhibit              Description of
   No.               Exhibit
------               --------------

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.

                                       37

<PAGE>


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 34th
                     Street Associates, and the Company of a lease dated
                     December 23, 1996 by and between 460 West 34th Street
                     Associates and The Lande Group, Inc.

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.

                                       38

<PAGE>

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.

10.36                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.

                                       39

<PAGE>

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.

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.

                                      40

<PAGE>

<TABLE>
<CAPTION>


                            ALPHANET SOLUTIONS, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                                                                          Page
                                                                                                                          ----
<S>                                                                                                                          <C>
Report of Independent Accountants.......................................................................................     F-2

Consolidated balance sheets as of December 31, 2000 and 1999............................................................     F-3

Consolidated statements of operations for the years ended December 31, 2000, 1999, and 1998.............................     F-4

Consolidated statements of changes in shareholders' equity for the years ended December 31, 2000,
1999 and 1998...........................................................................................................     F-5

Consolidated statements of cash flows for the years ended December 31, 2000, 1999 and 1998 .............................     F-6

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

</TABLE>

                                      F-1

<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS

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



In our opinion, the accompanying consolidated financial statements listed in the
accompanying  index appearing under Item 14(a)(1) on page 36 present fairly,  in
all material respects,  the financial position of AlphaNet  Solutions,  Inc. and
its  wholly-owned  subsidiary at December 31, 2000 and 1999,  and the results of
their  operations and their cash flows for each of the three years in the period
ended  December 31, 2000, 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 36  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 22, 2001


                                      F-2

<PAGE>

<TABLE>
<CAPTION>

                            ALPHANET SOLUTIONS, INC.
                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)
                                                                                                      December 31,
                                                                                                --------------------------
                                                                                                    2000            1999
                                                                                                    ----            ----
                                        ASSETS
<S>                                                                                              <C>             <C>
Current assets:
      Cash and cash equivalents.......................................................           $17,164         $16,485
      Accounts receivable, less allowance for doubtful accounts of
             $3,923 and $3,289 at December 31, 2000 and 1999, respectively............            16,340          26,700
      Inventory.......................................................................               858           2,533
      Income taxes....................................................................             1,576           1,889
      Prepaid expenses and other current assets.......................................               426           1,234
        Costs in excess of billings...................................................                 -             481
                                                                                                 -------         -------
            Total current assets......................................................            36,364          49,322

Property and equipment, net...........................................................             3,235           4,459
Goodwill, net........................................................................              2,134           2,109
Other assets   .......................................................................                92             131
                                                                                                 -------         -------
            Total assets..............................................................           $41,825         $56,021
                                                                                                 =======         =======

                         LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
      Current portion of capital lease obligations....................................           $    23         $    20
      Accounts payable................................................................             4,405           7,473
      Accrued expenses................................................................             3,540           3,988
      Accrued contract loss...........................................................             2,093               -
                                                                                                 -------         -------
            Total current liabilities.................................................            10,061          11,481

Advance from principal shareholder....................................................                 -             675
Capital lease obligations.............................................................                 8              31
                                                                                                 -------         -------
            Total liabilities.........................................................            10,069          12,187
                                                                                                 -------         -------
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,
         6,536,209 and 6,423,399 shares issued and outstanding  at
         December  31, 2000 and 1999, respectively....................................                65              64
      Additional paid-in capital......................................................            35,013          34,150
      (Accumulated Deficit) Retained earnings.........................................            (2,602)         10,340
          Treasury stock-- at cost; 150,600 shares at December 31, 2000
          and  1999, respectively.....................................................              (720)           (720)
                                                                                                 -------         -------
            Total  shareholders' equity................................................           31,756          43,834
                                                                                                 -------         -------
Total liabilities and shareholders' equity.............................................          $41,825         $56,021
                                                                                                 =======         =======
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-3

<PAGE>

<TABLE>
<CAPTION>

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

                                                                                          Year Ended December 31,
                                                                                 --------------------------------------------
                                                                                     2000             1999             1998
                                                                                     ----             ----             ----
<S>                                                                              <C>              <C>              <C>
Net sales:
      Product                                                                    $43,967         $ 83,298         $ 116,908
      Services and support.............................................           46,373           53,265            54,628
                                                                                 --------         --------         --------
                                                                                  90,340          136,563           171,536
                                                                                 --------         --------         --------
Cost of sales:
      Product                                                                     40,212           75,409           103,522
      Services and support.............................................           32,992           35,493            37,058
        Other charges..................................................            4,851                -                 -
                                                                                 --------         --------         --------
                                                                                  78,055          110,902           140,580
                                                                                 --------         --------         --------
               Gross profit............................................           12,285           25,661            30,956
                                                                                 --------         --------         --------
Operating expenses:
      Selling, general and administrative..............................           23,969           24,743            27,505
        (Recovery) write-off of capitalized asset......................                -             (139)            2,476
                                                                                 --------         --------         --------
                                                                                  23,969           24,604            29,981
                                                                                 --------         --------         --------

Operating  (loss) income...............................................          (11,684)           1,057               975

Other income and expenses:
      Interest income, net.............................................            1,075              577               240
      Nex-i.com........................................................           (2,249)               -                 -
      Other income.....................................................              390              302               119
                                                                                 --------         --------         --------
                                                                                    (784)             879               359
(Loss) Income before income taxes......................................          (12,468)           1,936             1,334

Provision for income taxes.............................................              474              794               623
                                                                                 --------         --------         --------
Net (loss) income......................................................         ($12,942)          $1,142             $ 711
                                                                                 ========         ========         ========
Net (loss) income per share:

     Basic.............................................................           ($2.04)          $ 0.18            $ 0.11
                                                                                 --------         --------         --------
     Diluted....                                                                  ($2.04)          $ 0.18            $ 0.11
                                                                                 --------         --------         --------
Shares used to compute net income (loss) per share:

     Basic.............................................................            6,353             6,253            6,272
                                                                                 --------         --------         --------
     Diluted...........................................................            6,353             6,265            6,331
                                                                                 --------         --------         --------

</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-4

<PAGE>


<TABLE>
<CAPTION>

                            ALPHANET SOLUTIONS, INC.

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                 (in thousands)

                                          Common    Common  Treasury  Treasury    Paid-In   Retained Earnings
                                          Shares    Stock    Shares     Stock     Capital    (Accumulated        Total
                                                                                               Deficit)
                                          --------  ------- -------- ---------  ---------- --------------------------------
  <S>                                      <C>       <C>     <C>       <C>       <C>            <C>              <C>
  Balance at December 31, 1997...........  6,257     $ 63       -         -      $ 33,172       $ 8,487          $ 41,722

        Exercise of stock options........     28        -       -         -           261             -               261
        Employee stock purchases.........     81        -       -         -           509             -               509
        Purchase treasury stock..........      -        -    (137)     (667)           -              -              (667)
        Net income.......................      -        -       -         -            -            711               711
                                           -----     ----    ----      ----      --------       -------          --------

  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 of 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
        Warrant Issuance.................      -        -       -         -           416             -               416
        Net loss.........................      -        -       -         -             -       (12,942)          (12,942)
                                           -----     ----    ----      ----      --------       -------          --------
  Balance at December 31, 2000...........  6,536     $ 65    (151)    ($720)     $ 35,013       ($2,602)         $ 31,756
                                           =====     ====    ====      ====      ========       =======          ========

</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-5

<PAGE>

<TABLE>
<CAPTION>

                            ALPHANET SOLUTIONS, INC.

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (in thousands)
                                                                                                    Year Ended December 31,
                                                                                             ---------------------------------------
                                                                                                2000           1999           1998
                                                                                                ----           ----           ----
<S>                                                                                        <C>               <C>             <C>
Cash flows from operating activities:
   Net (loss)  income.................................................................      ($12,942)        $ 1,142       $   711
   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.................................................         2,518           2,666         2,662
        Deferred income taxes.........................................................           313            (128)         (110)
        Loss on disposal of capital asset.............................................             -             149             -
        Provision for accounts receivable.............................................           923           1,989           414
        Provision for inventory.......................................................            32             300           399
       (Recovery) write-off of capitalized asset......................................             -            (139)        2,476
      Increase (decrease) from changes in:
         Accounts receivable.........................................................          9,437           4,368        16,917
         Inventories.................................................................          1,643             672         1,037
         Prepaid expenses and other current assets...................................            808           1,075         1,289
         Other assets................................................................             40             (22)          324
         Accounts payable............................................................         (3,068)         (3,460)       (6,849)
         Accrued expenses............................................................           (448)         (2,742)       (5,449)
         Billing in excess of costs..................................................         (1,826)         (1,296)          815
                                                                                            --------         -------       -------
      Net cash provided by operating activities......................................          4,079           4,574        14,636
                                                                                            --------         -------       -------
Cash flows from investing activities:
   Property and equipment expenditures...............................................         (1,091)         (1,618)       (3,999)
   Acquisition of businesses.........................................................           (250)              -             -
    Proceeds from sale of equipment..................................................             22              11             -
    Investment in Nex-i.com..........................................................         (1,834)              -             -
                                                                                            --------         -------       -------
      Net cash used in investing activities..........................................         (3,153)         (1,607)       (3,999)
                                                                                            --------         -------       -------
Cash flows from financing activities:
   Repayment of capital lease obligations............................................            (20)            (15)          (52)
    Repayment of Shareholder Advance.................................................           (675)              -             -
   Net proceeds from sales of common stock...........................................            117             177           509
   Exercise of stock options.........................................................            331              32           261
   Purchase of treasury stock........................................................              -             (53)         (667)
                                                                                            --------         -------       -------
      Net cash  (used in) provided by financing activities...........................           (247)            141            51
                                                                                            --------         -------       -------
Net increase in cash and cash equivalents............................................            679           3,108        10,688
Cash and cash equivalents, beginning of period.......................................         16,485          13,377         2,689
                                                                                            --------         -------       -------
Cash and cash equivalents, end of period.............................................       $ 17,164         $16,485       $13,377
                                                                                            ========         =======       =======
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>


                            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  specializing in network design,  operation,
management,  and security.  Through its Enterprise Network Management  Division,
the Company also offers remote  network  management,  call center  support,  and
managed security  services.  The Company's  customers are primarily Fortune 1000
and other large and mid-sized companies located in the New  York-to-Philadelphia
corridor.

      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,  2000 and 1999.  As of December  31, 2000 and 1999,  there were no
amounts outstanding under the Company's credit facility.

   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

<PAGE>

      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.  Consulting and other  services and support  revenue is recognized
when the applicable  services are rendered.  The Company  recognizes  revenue on
service  contracts on a prorated basis over the life of the contracts.  Revenues
under the  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 SAB 101 did not have a material effect on the Company's
results of operations.

                                      F-8

<PAGE>

      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.

  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 deferral
tax assets,  and the  amortization  period 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 MTA 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.

      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.

                                      F-9

<PAGE>

      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.  The Company  intends to
seek  clarification  of the Department's  letter.  There can be no assurance the
Company will be successful, either in whole or in part, in its efforts.

      Historically,   the  Company  had  estimated   that  project  costs  would
approximate project revenues and, accordingly, had recognized no gross profit on
the contract. 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.  This charge represents the Company's
current estimated loss on the MTA project. For the years ended December 31, 2000
and 1999,  revenues  recorded in  connection  with the MTA Contract  amounted to
approximately $5.3 million and $3.5 million, respectively.

   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.

                                      F-10

<PAGE>

   Reclassifications:

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

   Retirement Plan:

         The Company adopted a 401(k) retirement plan in 1991.  Employees of the
Company who have attained the age of 21 are eligible to participate in the plan.
Employees  can elect to  contribute up to 15% of their gross salary to the plan.
The Company may make  discretionary  matching cash contributions up to 2% of the
salary  of the  participating  individual  employee.  Participants  vest  in the
Company's  contributions  to the plan over a six-year period based upon years of
service.   Participants  are  fully  vested  at  all  times  in  their  employee
contributions to the plan. The Company's  matching  contributions were $304,000,
$377,000 and $446,000 to this plan in 2000, 1999 and 1998, respectively.

   Concentrations of Credit Risk:

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

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

           At December 31, 2000,  approximately  58.4% 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.

                                      F-11

<PAGE>


2. Business Combination

      In June 2000, the Company  acquired  certain assets of Omnitech  Corporate
Solutions,  Inc.  ("Omnitech")  for  $250,000  in cash.  The  asset  acquisition
included all of  Omnitech's  then-existing  information  technology  and network
infrastructure  services  business,   including  certain  of  Omnitech's  client
contracts   and   customer   list.    Omnitech   was   a   provider   of   "thin
client"/server-based   technology   solutions.   The  Omnitech  acquisition  was
accounted for as a business purchase combination and resulted in goodwill valued
at $250,000,  which is being  amortized  over three  years.  The  operations  of
Omnitech  have  been  included  in the  Company's  operations  from  the date of
acquisition.   Pro  forma  financial  data  has  not  been  presented,  as  this
acquisition is not material.

      As of December 31, 2000 and 1999,  the Company had goodwill of  $2,134,000
and $2,109,000 related to three acquisitions  accounted for as purchase business
combinations. The assigned goodwill lives range from 3-15 years. Amortization of
intangible  assets for the years ended  December  31, 2000,  1999,  and 1998 was
approximately $225,000, 176,000, and $170,000, respectively.

3.  Inventory

      Inventory consists of the following:

<TABLE>
<CAPTION>

                                                                                ---------------------------
                                                                                      December 31,
                                                                                     (in thousands)
                                                                                ---------------------------
                                                                                    2000             1999
                                                                                    ----             ----
      <S>                                                                         <C>              <C>
      Inventory-finished products...............................................  $1,145           $2,833

      Less:  Reserve for obsolescence...........................................     287              300
                                                                                  ------           ------
                                                                                  $  858           $2,533
                                                                                  ======           ======

</TABLE>

4. Property and Equipment, net

      Property and equipment, net, consists of the following:

<TABLE>
<CAPTION>

                                                                                ---------------------------
                                                                                      December 31,
                                                                                     (in thousands)
                                                                                ---------------------------
                                                                                    2000             1999
                                                                                    ----             ----
      <S>                                                                        <C>              <C>
      Furniture, fixtures and equipment......................................... $11,493          $10,582
      Transportation equipment..................................................     286              286
      Leasehold improvements....................................................   1,146              992
                                                                                 -------          -------
                                                                                  12,925           11,860
      Less-- Accumulated depreciation and amortization..........................   9,690            7,401
                                                                                 -------          -------
                                                                                 $ 3,235          $ 4,459
                                                                                 =======          =======

</TABLE>

      Depreciation  expense and  amortization of leasehold  improvements for the
years ended December 31, 2000, 1999 and 1998 were, $2,293,000,  $2,490,000,  and
$2,492,000, respectively.

                                      F-12

<PAGE>



5. Accrued Expenses

      Accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                                                                --------------------------
                                                                                      December 31,
                                                                                     (in thousands)
                                                                                --------------------------
                                                                                   2000             1999
                                                                                   ----             ----
      <S>                                                                        <C>              <C>
      Accrued payroll and vacation costs........................................ $1,103           $1,970
      Deferred revenue..........................................................  2,093            1,438
      Sales taxes...............................................................    154              300
      Other.....................................................................    190              280
                                                                                 ------           ------
                                                                                 $3,540           $3,988

</TABLE>

                                      F-13

<PAGE>


6.  Debt and Capital Lease Obligations

   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.


7. Stock Ownership and Compensation Plans

      At December 31, 2000, the Company had two stock-based  compensation plans.
The Company  applies APB 25 and related  interpretations  in accounting  for its
plans.  During 2000, 1999 and 1998, 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:

<TABLE>
<CAPTION>

                                                                                       2000        1999        1998
                                                                                       ----        ----        ----
                                                                              (in thousands, except per share amounts)
<S>                                                                              <C>               <C>
Net income
      As reported.....................................................            ($12,942)        $1,142     $ 711
      Pro forma ......................................................            ($13,363)           789       223
Net income per share:
      As reported:....................................................
           Basic......................................................              ($2.04)        $ 0.18     $0.11
             Diluted..................................................              ($2.04)        $ 0.18     $0.11
        Pro forma:
             Basic....................................................              ($2.10)        $ 0.13     $0.04
             Diluted..................................................              ($2.10)        $ 0.13     $0.04

</TABLE>

      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
2000, 1999, and 1998: dividend yield of 0%; expected volatility of approximately
95%  for  2000  and  67%  for  1999  and  1998;  risk  free  interest  rates  of
approximately 6%; and an expected holding period of six years.

                                      F-14

<PAGE>

   1995 Stock Plan:

      On August 25, 1995, the Company's 1995 Stock Plan (the "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 Plan The options  expire ten years after the
date of grant.  Some of the options issued under the 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 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  Plan and the 1995
Non-Employee  Director  Stock Option Plan as of and for the years ended December
31, 2000, 1999, and 1998 is presented below:

                                      F-15

<PAGE>

<TABLE>
<CAPTION>


                                                                                 Year Ended December 31,

                                                              2000                      1999                        1998
                                                    -----------------------    ------------------------    ------------------------
                                                                   Weighted                   Weighted                    Weighted
                                                                   Average                    Average                     Average
                                                        Shares     Exercise         Shares    Exercise      Shares        Exercise
                                                         (000)     Price            (000)     Price          (000)        Price
                                                         -----     -----            -----     -----          -----        -----
<S>                                                       <C>        <C>            <C>          <C>            <C>         <C>
Outstanding at beginning of year.................          856       $4.37           542         $5.15            670       $10.58
Granted..........................................          244        4.40           542          4.18             63         6.72
Exercised........................................          (79)       4.20            (7)         4.25            (28)        9.32
Forfeited........................................         (380)       4.34          (221)         4.25           (163)        4.27
                                                           ---        ----           ---          ----            ---        -----
Outstanding at end of year.......................          641        4.18           856          4.37            542         5.15
                                                           ===        ====           ===          ====            ===         ====
Options exercisable at end of year...............          352        4.22           289          4.75            213         5.04
                                                           ===        ====           ===          ====            ===         ====

</TABLE>

<TABLE>
<CAPTION>

                                                Options Outstanding                               Options Exercisable
                                  -----------------------------------------------------      ---------------------------------------
           Range of                  Number             Average             Weighted           Number         Weighted
           Exercise               Outstanding          Remaining            Average          Exercisable       Average
            Prices                at 12/31/00       Contractual Life     Exercise Price      at 12/31/00    Exercise Price
            ------                -----------       ----------------     --------------      -----------    --------------
      <S>                            <C>                     <C>              <C>              <C>              <C>
               $2.00                   4,500                 9.8              $ 2.00            1,125           $ 2.00
       $3.13 - $4.62                 582,080                 8.0              $ 4.06           327,505          $ 4.14
       $5.31 - $6.50                  54,500                 9.3              $ 5.66            23,000          $ 5.54

</TABLE>

      The weighted-average  fair value of options granted during 2000, 1999, and
1998 was $3.05, $2.37 and $4.26, 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-16

<PAGE>


8.    Commitments and Contingencies

      The Company  occupies eight facilities under operating leases which expire
at various  dates  through April 2003 and call for annual base rentals plus real
estate taxes.  The future  minimum  payments under  non-cancelable  leases as of
December 31, 2000 are as follows:

<TABLE>
<CAPTION>

                                                                                     Net
                                          Lease              Sublease               Lease
                                       Obligations            Rentals            Obligations
                                                           (in thousands)
<S>                                      <C>                     <C>                <C>
2001.........................            $  927                  $ 90               $  837
2002.........................               739                    60                  679
2003.........................               359                     -                  359
                                         ------                  ----               ------
                                         $2,025                  $150               $1,875
                                         ======                  ====               ======

</TABLE>

      Rent expense,  including  real estate taxes,  for the years ended December
31, 2000, 1999, and 1998 was $898,000, $1,027,000, and $1,178,000, 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,  2000,  1999,  and 1998  were
$1,540,000, $2,543,000, and $7,407,000,  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 $893,330.  In
its counterclaim, Polo alleges, among other things, that it sustained damages of
$4.7 million as a result of alleged  breach of contract,  breach of warranty and
negligence by the Company in "failing to maintain  accurate shipping records and
documentation." Discovery to date has been limited, and no evidence has yet been
proffered in support of these allegations.  In October 2000, the Company secured
a commitment from its insurance carrier,  subject to a reservation of rights, to
defend  against  the  counterclaim.  The  Company  believes  it has  meritorious
defenses to the  counterclaim  and intends to vigorously  pursue recovery of all
amounts owing to the Company by Polo.

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

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

                                      F-17

<PAGE>

9.  Supplementary Cash Flow Information

      Following  is a summary of  supplementary  cash flow  information  for the
years ended December 31, 2000, 1999 and 1998:

<TABLE>
<CAPTION>

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

Cash Payments:                                                                           2000          1999         1998
                                                                                  ------------   -----------   -----------
<S>                                                                                      <C>           <C>         <C>
 Interest paid...........................................................                $ 10          $ 24        $   77
 Income taxes paid.......................................................                 425           273         2,678
 Non-cash investing and financing activities:
 Equipment acquired under capital lease..................................                   -            17            74
   Warrants issued in connection with the Company's investment in nex-
    i.com................................................................                 416             -             -

</TABLE>

                                      F-18

<PAGE>


10.  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 2000, 1999
and 1998 are as follows:

<TABLE>
<CAPTION>

                                                                            Year Ended December 31,
                                                                                (in thousands)
                                                              -----------------------------------------------------
                                                                      2000                 1999              1998
                                                              --------------    -----------------   ---------------
      <S>                                                         <C>                     <C>              <C>
      Current:
            Federal........................................       ($2,220)                $684              $547
            State and local................................          (457)                 238               186
                                                                     ----                  ---               ---
                                                                   (2,677)                 922               733
      Deferred:
            Federal........................................        (1,886)                 (95)              (82)
            State and local................................          (416)                 (33)              (28)
                                                                     ----                  ---               ---
                                                                   (2,302)                (128)             (110)
                Valuation allowance........................         5,453                    -                 -
                                                                    -----                 ----              ----
                                                                     $474                 $794              $623

</TABLE>

      A reconciliation of the Federal statutory rate to the Company's  effective
tax rate for 2000, 1999 and 1998 is as follows:

<TABLE>
<CAPTION>
                                                                                            Year Ended December 31,
                                                                                   ----------------------------------------------

                                                                                           2000            1999            1998
                                                                                   --------------   -------------   -------------
<S>                                                                                     <C>               <C>             <C>
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%            7.8%
  Valuation allowance.......................................................             43.7                -               -
Other, net..................................................................              1.1                -             4.9
                                                                                          ----            ----            ----
Effective tax rate..........................................................              3.8%            41.0%           46.7%
                                                                                          ====            ====            ====
</TABLE>

      The tax effects of  temporary  differences  that give rise to  significant
portions of the net deferred tax asset balance at December 31, 2000 and 1999 are
as follows:

<TABLE>
<CAPTION>

                                                                                      Year Ended December 31,
                                                                                       2000               1999
                                                                                     --------           --------
 <S>                                                                                 <C>                <C>
 Accounts receivable allowances................................................      $1,608             $1,349
 Inventory reserves............................................................         118                123
 Accrual for compensated absences..............................................         200                287
 Accumulated depreciation and amortization.....................................          58                 99
 Other.........................................................................         192                 31
 nex-i.com losses..............................................................         922                  -
 MTA reserve...................................................................       1,254                  -
 Net tax operating losses......................................................       2,677                  -
                                                                                     ------             -------
 Total deferred tax assets.....................................................       7,029              1,889
 Valuation Allowance...........................................................      (5,453)                 -
                                                                                     ------             ------
                                                                                     $1,576             $1,889
                                                                                     ======             ======
</TABLE>
                                      F-19

<PAGE>
           For the year ended  December  31,  2000,  the  Company  recognized  a
valuation allowance of $5,453,000  resulting in a net deferred tax asset balance
of  $1,576,000.  The  Company's net deferred tax asset balance is expected to be
recovered through the carryback of current year tax loss to prior years in which
it paid federal income taxes.  The tax net operating  losses can be carried back
two years and forward twenty years with State net operating losses that begin to
expire in seven  years.  The  nex-i.com  losses  are  subject  to  capital  loss
limitation  and will expire in five years upon  recognition  of the loss for tax
purposes.  Additionally,  should  the  Company  undergo an  ownership  change as
defined in Section 382 of the  Internal  Revenue  Code,  the  Company's  tax net
operating loss  carryforwards  generated  prior to the ownership  change will be
subject to an annual  limitation  which could reduce or defer the utilization of
these losses.


11. 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.

<TABLE>
<CAPTION>


                        COMPUTATION OF EARNINGS PER SHARE
                    (in thousands, except per share amounts)

                                                                                             For the Years Ended December 31,
                                                                                            2000           1999          1998
                                                                                            ----           ----          ----
         <S>                                                                           <C>                 <C>           <C>
         Net income                                                                    $(12,942)           $1,142        $ 711
                                                                                       =========           ======        =====
         Basic:
            Weighted average number of shares outstanding...................              6,353             6,253        6,272
                                                                                       =========           ======        ======
            Net income per share............................................           $  (2.04)           $ 0.18        $0.11
                                                                                       =========           ======        ======
         Diluted:
            Weighted average number of shares outstanding...................              6,353             6,253        6,272
            Dilutive effects of stock options                                                 -                12           59
                                                                                       ---------           ------        ------
            Weighted average number of common and common
                equivalent shares outstanding...............................              6,353             6,265        6,331
                                                                                       =========           =======       ======
            Net income per share............................................           $  (2.04)           $ 0.18       $ 0.11
                                                                                       =========           =======       =======

</TABLE>

                                      F-20

<PAGE>


12.    EMPLOYEE STOCK PURCHASE PLAN

       On December 31, 1997, the Company adopted an Employee Stock Purchase Plan
(the  "Plan") for  employees of the Company and its  subsidiaries.  The Plan was
approved by the Company's  shareholders at its 1998 Annual Meeting. The 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
Plan.

      In general,  the 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 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 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,  2000,  1999 and 1998,  employees
purchased 33,548, 49,691 shares and 80,888 shares, respectively,  under the Plan
for  aggregate  proceeds  of  approximately  $117,000,  $177,000  and  $509,000,
respectively.

13. 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, 2000 and 1999, 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.

                                      F-21

<PAGE>

14. SIGNIFICANT CUSTOMERS AND VENDORS

           During  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.
During the fiscal year ended  December 31, 1998,  KPMG LLP  accounted for 15% 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, 2000,  1999,  and
1998.

           The Company purchases the majority of its products primarily from two
aggregators of computer  hardware,  software and  peripherals.  During 2000, the
Company  acquired  approximately  49%,  and 22% 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.

15.  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, 2000,  no warrants  issued to Fallen Angel have
been exercised.

                                      F-22

<PAGE>

           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 of 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-23

<PAGE>


16. 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 Delware 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
$382,098 to Eureka in exchange for a convertible promissory note. The note bears
interest  at the rate of 8% per  annum,  which  may be paid 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  $382,098 in Eureka, if certain conditions are
met. In consideration of the Company's investment in Eureka, Eureka committed to
purchase a minimum of $145,621 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.

           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-24

<PAGE>

<TABLE>
<CAPTION>

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                  Years Ended December 31, 2000, 1999 and 1998

                                                               Balance at         Provision -        Deductions -        Balance of
                                                               Beginning of       Charged to           Accounts            End of
                                                                  Year              Income           Written off            Year
                                                               ------------    --------------       --------------        -------
    <S>                                             <C>         <C>                 <C>             <C>              <C>
    Allowance for doubtful accounts:
                                                    2000        $ 3,289              $  923             $  289            $ 3,923
                                                    1999          1,300               1,989                  -              3,289
                                                    1998          1,255                 414                369              1,300

    Inventory Reserve:
                                                    2000         $  300              $   32             $   45             $  287
                                                    1999          1,029                 300              1,029                300
                                                    1998            630                 399                  -              1,029

</TABLE>

                                      F-25

<PAGE>

                                   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.




                                          By: STAN GANG
                                          ______________________________________
                                          Stan Gang, Chairman of the Board and
                                          Chief Executive Officer (Principal
                                          Executive Officer)

                                          March 22, 2001


           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.

<TABLE>
<CAPTION>

Signature                                 Title                                              Date
---------                                 -----                                              ----
<S>                                       <C>                                                <C>
/s/Stan Gang                              Chairman of the Board and                          March 22, 2001
________________________                  Chief Executive Officer
Stan Gang                                 (Principal Executive Officer)

/s/William S. Medve                       Executive Vice President, Treasurer
________________________                  and Chief Financial Officer                        March 22, 2001
William S. Medve                          (Principal Financial and
                                          Accounting Officer)

/s/Michael Gang                           Director                                           March 22, 2001
________________________
Michael Gang

/s/Ira Cohen                              Director                                           March 22, 2001
________________________
Ira Cohen

/s/Thomas F. Dorazio                      Director                                           March 22, 2001
_________________________
Thomas F. Dorazio

</TABLE>

                                      F-26