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, 1999

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
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(Address of Principal Executive Office, including Zip Code)

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

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

None

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

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

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

Yes X No
------------ ------------

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

At February 29, 2000, 6,313,130 shares of Common Stock of the Company
were outstanding. The aggregate market value of Common Stock held by
non-affiliates on February 29, 2000, based on the last sales price on such date,
was approximately $31,095,000.

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 2000 Annual Meeting of Shareholders are incorporated by
reference into Part III of this Report.

TABLE OF CONTENTS

Item
Page

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
Results of Operations and Financial Condition................18

7A. Quantitative and Qualitative Disclosure About Market Risk....32

8. Financial Statements and Supplementary Data..................32

9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......................32

PART III 10. Directors and Executive Officers of the Company..............33

11. Executive Compensation.......................................33

12. Security Ownership of Certain Beneficial
Owners and Management........................................33

13. Certain Relationships and Related Transactions...............33

PART IV 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K......................................34

EXHIBIT INDEX................................................................35

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

SIGNATURES

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. 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 Bank, Goldman Sachs & Co., Nabisco, Innovex, Matsushita
Electronic, UGO Networks, Inc., Mobius Management and New York City Transit, an
agency of the Metropolitan Transportation Authority of the State of New York
(the "MTA").

AlphaNet Solutions has a 15-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 transforming itself from a systems
integrator to the Company it is today: 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's continued expansion of its capabilities in the
high-end, networking infrastructure professional services sector was evidenced
by two recent key events:

o The purchase of a 30% preferred stock interest in nex-i.com inc.
nex-i.com is a Princeton, New Jersey-based network services provider that
installs fully integrated networks in multi-tenanted office buildings,
so-called "Smart Buildings." As of January 2000, nex-i.com's services were
used in seven buildings in New Jersey and metropolitan Philadelphia,
representing over 1.5 million square feet of office space. Another 43
buildings, representing an additional 5.5 million square feet of office
space, are under contract and being added to nex-i.com's network. The
Company's investment in nex-i.com enables the Company to expand its
presence and penetration within the small to mid-sized business sector by
offering a wide range of network management, information security, network
implementation, and Internet-related services to nex-i.com's customers.

o The divestiture of the Company's telecommunications business. Effective
December 31, 1999, the Company divested its telecommunications business
consistent with the Company's migration strategy from the low-margin
product-provider niche to the high-end IT network infrastructure
consulting services field.

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"), Pinacor, Inc., an affiliate of MicroAge, Inc.
("Pinacor"), and Tech Data Corporation ("Tech Data"), the Company provides its
customers with competitive pricing and such value-added services as electronic
product ordering, product configuration, testing, warehousing and delivery.

AlphaNet Solutions 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 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," 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 the anticipated growth in the IT markets, the continuation of the
trends favoring outsourcing of management information systems ("MIS") functions
by large and mid-sized companies, the anticipated growth and higher margins in
the services and support component of our business, the timing of the
development and implementation of AlphaNet Solutions' new service offerings and
the utilization of such services by our customers, and trends in future
operating performance, are forward-looking statements within the meaning of The
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements include risks and uncertainties, including, but not limited to: (i)
the substantial variability of our quarterly operating results caused by a
variety of factors, some of which are not within our control, including (a) the
short-term nature of our customers' commitments, (b) patterns of capital
spending by our customers, (c) the timing, size and mix of product and service
orders and deliveries, (d) the timing and size of new projects, (e) pricing
changes in response to various competitive factors, (f) market factors affecting
the availability of qualified technical personnel, (g) the timing and customer
acceptance of new product and service offerings, (h) changes in trends affecting
outsourcing of IT services, (i) disruption in sources of supply, (j) changes in
product, personnel and other operating costs, and (k) industry and general
economic conditions; (ii) changes in technical personnel billing and utilization
rates which are likely to be adversely affected during periods of rapid and
concentrated hiring; (iii) the intense competition in the markets for our
products and services; (iv) our ability to effectively manage our growth which
will require us to continue developing and improving our operational, financial
and other internal systems; (v) the ability to develop, market, provide, and
achieve market acceptance of new service offerings to new and existing
customers; (vi) our ability to attract, hire, train, and retain qualified

technical personnel in an increasingly competitive market; (vii) our substantial
reliance on a concentrated number of key customers; (viii) uncertainties
relating to potential acquisitions, if any, made by AlphaNet Solutions, such as
our ability to integrate acquired operations and to retain key customers and
personnel of the acquired business; and (ix) our reliance on the continued
services of key executive officers and salespersons. The possibility that the
currently installed computer systems, software products or other business
systems of our distributors, manufacturers or customers, working either alone or
in conjunction with other software or systems, will not accept input of, store,
manipulate and output dates in the year 2000 or thereafter without error or
interruption. Such risks and uncertainties may cause our actual results to
differ materially from the results discussed in the forward-looking statements
contained in this Annual Report.

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."

Wide Area Network (WAN) and Local Area Network (LAN) connections are
being augmented--and in an increasing number of cases, replaced--by 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, to simply 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.

With the demand for IT professionals dramatically exceeding supply--a
market condition expected to continue--AlphaNet Solutions is well-positioned for
growth. We engage our 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, AlphaNet Solutions
applies the talent and project management skills of the organization to achieve
the client's goals.

AlphaNet Solutions has proven adept at responding effectively to the
needs of this evolving marketplace. As it transforms to a high-end network
infrastructure services company, AlphaNet Solutions is becoming uniquely
positioned to capitalize on the emerging networking opportunities by helping
organizations respond to the needs of their own changing markets.

Services

AlphaNet Solutions' wide range of services includes remote network
management, information security services, Internet-related services, network
consulting, workstation support, application development, help desk, and
professional development services. In 1999, services accounted for 39% of the
Company's net sales and 69% of its gross profit.

Professional Services

The Company's Professional Services organization provides customers
with a wide array of IT services on a 24-hour, seven-days-a-week basis. Services
include:

o Network and systems design
o Local and Wide Area Network implementation, installation and administration
o Complete project management services
o Technical staffing for strategic IT projects
o LAN/WAN performance analyses and messaging systems
o System migration and upgrade services
o New technology feasibility studies and impact analyses
o End-user support services and system requirement analyses

The Professional Services Division also provides advanced network
support services for many industry-leading manufacturers' products including
Microsoft, Cisco, Intel, Novell, Sun Microsystems, Nortel Networks, and Compaq.

As many large and mid-sized corporations continue to outsource
portions of their MIS requirements, the Company will continue to expand its
services to companies in its target markets.

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 monitoring
components of a customer's network, including file servers, routers, database
servers, concentrators, workstations and printers; and 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 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.

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 will 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 WatchGuard Technologies, Inc., Cisco Systems, Checkpoint
Software, 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 AlphaNet Solutions 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 going "mobile,"
the Company has re-focused the efforts of its existing Product Support Center
(PSC) into a new 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 population 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, AlphaNet Solutions provides fast and reliable system repairs,
identical spare unit replacements, configuration of hardware and software, data
backup and asset tracking. These services are also designed to leverage existing
AlphaNet Solutions service offerings that 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 life cycle
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

AlphaNet Solutions is authorized and certified by Microsoft, Novell,
Lotus, Citrix, HyCurve 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 purchased as
web-delivered courses or self-study books.

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 AlphaNet Solutions.

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.

Products

AlphaNet Solutions resells IT products from leading hardware
manufacturers and software developers. In 1999, 61.0% of the Company's net sales
and 31.0% of its gross profits 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, Pinacor and Tech Data, major aggregators of
computer hardware and software, AlphaNet Solutions provides its customers with
competitive pricing and value-added services such as electronic product
ordering, product configuration, testing, warehousing and delivery. The Company
resells 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, Pinacor and
Tech Data. The Company's relationships with Ingram, Pinacor and Tech Data allow
it 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, Pinacor and Tech Data are at prices lower than those which could be
obtained 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
major corporations in its target markets through its sales and marketing
departments consisting of 45 employees as of December 31, 1999. 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. To date, the Company has
focused its sales and marketing efforts on Fortune 1000 and other large and
mid-sized companies located 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.

During 1999, the Company initiated a reorganization of its sales
force to focus its solutions offerings to key business sectors: Banking,
Healthcare, Insurance, Chemicals, Internet, Investment and Commercial Banking,
Manufacturing, Pharmaceuticals, Telecommunications, Transportation, and
Utilities. The Company has identified several target clients within each of
these sectors and focuses principal attention on cultivating new and additional
business from these clients. In addition, the Company has initiated intensive
efforts to market its remote network management services to middle-market and
smaller companies that lack or do not wish to invest in the IT infrastructure
and personnel otherwise required to maintain their networks.

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.

The Company's marketing department is responsible for coordinating
the various sales and technical personnel that may be required in soliciting a
particular project. The Company's marketing efforts include the creation and
production of Company brochures, direct mail programs, new business marketing
strategies and sales presentation materials for prospects.

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 Innovex
Summit Bank Matsushita Electric
Goldman, Sachs & Co. UGO Networks, Inc.
Credit Suisse First Boston Mobius Management

During 1999, PSE&G and Mercedes-Benz of North America accounted for
13% and 12%, respectively, of the Company's net sales. During the fiscal year
ended December 31, 1998, KPMG LLP accounted for approximately 15% of the
Company's net sales. During the fiscal year ended December 31, 1997, Nabisco and
KPMG LLP accounted for 16% and 15%, respectively, of the Company's net sales. No
other customer accounted for more than 10% of the Company's net sales during the
three years ended December 31, 1999. Sales to the Company's top ten customers
totaled approximately 65%, 66% and 69% of net sales for the years ended December
31, 1999, December 31, 1998 and December 31, 1997, respectively. In December
1997, the Company entered into a four-year, $20.4 million contract ("MTA
Contract") with the MTA 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."

In general, 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. In addition, 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.

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, Pinacor and Tech Data, major aggregators of computer hardware
and software, to procure the majority of its products for resale to its
customers.

The Company has purchased products on a cost-plus basis from Pinacor
since the Company's inception in 1984. In July 1994, the Company renewed its
agreement with Pinacor. Under such agreement, the Company is required to
purchase a minimum of $100,000 of products from Pinacor per quarter. During
1999, 1998 and 1997, the Company purchased from Pinacor approximately 22%, 29%
and 36%, respectively, of the products sold by the Company. Such purchases
totaled approximately $16.5 million, $30.1 million, and $47.0 million during
such respective periods. The Pinacor agreement may be terminated by the Company
with or without cause upon 90 days prior written notice and may be terminated by
Pinacor under limited circumstances upon 90 days prior written notice. The
Company also 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 57%, 47% and 50% of the Company's total product purchases in 1999,
1998 and 1997, respectively. Such purchases totaled approximately $41.9 million,
$48.4 million and $65.1 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 1999 and 1998, the Company purchased from Tech Data approximately
10% and 5%, respectively, of the products sold by the Company. These purchases
totaled approximately $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, Pinacor and Tech Data provide for discounted pricing and rebates
provided that the Company meets agreed-upon purchase level targets. The balance
of the Company's purchased products were obtained from multiple sources, none of
which accounted for 10% or more of the products sold by the Company.

In addition to its agreements with Ingram, Pinacor 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, Pinacor 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.

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
services 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 has continued to intensify, 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 networking design and management services and a wider range of
high-quality IT professional services to the MIS departments and end users of
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, Pinacor 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, 1999, the Company employed 579 full-time
employees, of whom 450 were technical personnel (consisting of 260 Network
Consultants, 162 Workstation Analysts, 13 Communications Technicians and 15
Instructors), 45 were engaged in sales and marketing, and 84 were engaged in
finance, administration and management. The total number of technical personnel
declined from 483 in 1998 to 450 in 1999. The Company implemented a
reduction-in-force in June 1998 due to lower-than-expected demand for technical
services from certain clients. In January 1999, the Company implemented a second
reduction, eliminating 42 positions consisting principally of persons supporting
products.

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 increasing competition for experienced sales
and marketing personnel and 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 is
intense, as many of its larger competitors are aggressively hiring technical
personnel on a large scale. 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.

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 54,000 square feet of office space, of which 16,000 square feet
was subleased to the Company in 1998 pursuant to a sublease agreement expiring
in September 2000. Of this 16,000 square feet, almost 13,000 square feet was
sublet by the Company commencing June 1999, which sublease expires in September
2000. The Company is currently negotiating for the direct lease from the
landlord of the remaining 3,000 square feet through September 2003. The lease
for the balance of the 54,000 square feet expires in September 2003 and contains
renewal options for two additional five-year terms. During 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, 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 leased approximately
19,000 square feet of office space in Manhattan for its New York City area sales
office and Learning Center. In October 1999, the Company entered into an
agreement with the landlord of this space for early termination of its
occupancy. The Company subsequently leased two smaller "shared office"
facilities in New York City. The Company believes its headquarters, sales
offices, Learning Center and eMobile Support Center are adequate to support its
current level of operations. See Note 7 of Notes to Consolidated Financial
Statements.

Item 3. Legal Proceedings.

On February 13, 1996, the Company, as plaintiff, filed a complaint
and jury demand in the Superior Court of New Jersey Chancery Division, Morris
County, against two former employees of the Company and their current employer
(together, the "Defendants"). The complaint asserted a civil action for damages,
a temporary restraining order and preliminary and permanent injunctive relief
against the Defendants and alleged theft of services, theft of Company property,
theft of corporate opportunity, and unauthorized use of Company credit cards by
the Defendants. The Company sought restitution from certain of the Defendants
and additional compensatory damages from another Defendant. The Defendants
asserted certain counterclaims against the Company and certain of its present
and former directors. In January 1998, the parties consented to the suspension
of discovery proceedings pending mediation of all claims. In August 1999, the
parties entered into a settlement in principle, subject to the execution of
mutually acceptable settlement agreements and releases, and the court issued an
Order of Disposition. Pursuant to the terms of the Order of Disposition, the
Defendants agreed to pay the Company approximately $370,000 in consideration of
a full release of all claims by the Company against the Defendants. (With
respect to this matter, the Company previously received approximately $183,000
from an insurance carrier.) The Defendants also agreed to drop their
counterclaims against the Company and its directors. Subsequent to the issuance
of the Order of Disposition, the parties were unable to agree upon the terms of
a definitive settlement agreement, precipitating the need for further mediation
of the litigation, which is ongoing. In connection with this litigation, the
Company's Chairman and principal shareholder agreed in connection with the
Company's 1996 initial public offering 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 the Defendants. The Chairman paid $675,000 of
his personal funds to the Company in furtherance of this agreement. Pursuant to
an amendment to the indemnification agreement adopted by the Company's Board of
Directors in February 2000, upon collection by the Company of the aforementioned
settlement proceeds, the Company will reimburse the Chairman for the $675,000
which he previously advanced to the Company.

On June 30, 1998, Bruce Flitcroft ("Flitcroft"), the Company's former
Corporate Vice President, Technology Services, filed suit in the Superior Court
of New Jersey, Morris County, against the Company and the Chairman of the
Company alleging, among other things, breach by the Company of Flitcroft's
employment agreement and failure to pay an alleged bonus arising from the
Company's 1990 acquisition of Datar IDS Corp. and/or pay, pursuant to an alleged
oral promise, an alleged one million-dollar severance payment in lieu of such
bonus. On July 16, 1998, without knowledge of the suit filed by Flitcroft, the
Company filed suit against Flitcroft and Alliant Technologies, Inc. ("Alliant"),
a company believed to be owned and/or operated by Flitcroft, alleging, among
other things, breach of contract and conspiracy to usurp corporate assets and
opportunities. The Court directed arbitration of the claims, which commenced in
March 1999. The Company obtained insurance coverage for some of the claims in
dispute. The Company's Board of Directors authorized the Company to defend the
Chairman of the Company and approved his indemnification by the Company. In
August 1999, the parties settled all of their claims against one another.

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.

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, 1999.

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.

Quarter ended
1999 1998
High Low High Low
---- --- ---- ---

March 31 (1st qtr.) $6 3/4 $3 7/32 $14 5/8 $11 1/2

June 30 (2nd qtr.) 5 1/2 2 29/32 14 3/8 9 1/2

September 30 (3rd qtr.) 5 4 1/16 11 3/8 4 3/8

December 31 (4th qtr.) 5 5/8 3 1/8 5 7/8 2 7/8

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 29, 2000, the closing sale price for the Common Stock on
the Nasdaq National Market was $8.625 per share. As of February 29, 2000, the
approximate number of holders of record of the Common Stock was 295 and the
approximate number of beneficial holders of the Common Stock was 3,900.

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, 1999 and 1998 and the related consolidated statements of income,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1999 and notes thereto appear elsewhere in this
Annual Report on Form 10-K. The selected financial data presented below at
December 31, 1997, 1996 and 1995 and for the years ended December 31, 1997 and
1996 has been derived from audited financial statements which are not included
in this Annual Report on Form 10-K.

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.

Year Ended December 31,
-----------------------------------------------------------------------------------------------------------------------
1999 1998 1997(1) 1996(2) 1995
(in thousands, except per share data)

Statement of Income Data:
Net sales:
Product................................... $ 83,298 $ 116,908 $147,602 $ 99,468 $ 62,516
Services and support...................... 53,265 54,628 43,790 20,137 11,500
-------- --------- -------- -------- --------
136,563 171,536 191,392 119,605 74,016
-------- --------- -------- -------- --------
Cost of sales:
Product................................... 75,409 103,522 130,314 88,218 54,579
Services and support...................... 35,493 37,058 29,013 12,915 6,869
-------- --------- -------- -------- --------
110,902 140,580 159,327 101,133 61,448
-------- --------- -------- -------- --------
Product................................... 7,889 13,386 17,288 11,250 7,937
Services and support...................... 17,772 17,570 14,777 7,222 4,631
-------- --------- -------- -------- --------
25,661 30,956 32,065 18,472 12,568
-------- --------- -------- -------- --------
Operating expenses:
Selling, general & administrative......... 24,743 27,505 22,761 12,747 8,393
(Recovery) write-off of capitalized asset(3) (139) 2,476 - - -
-------- --------- -------- -------- --------
24,604 29,981 22,761 12,747 8,393
-------- --------- -------- -------- --------
Operating income............................. 1,057 975 9,304 5,725 4,175
Other income (expense), net.................. 879 359 61 129 (86)
-------- --------- -------- -------- --------
Income before income taxes................... 1,936 1,334 9,365 5,854 4,089
Provision for income taxes(4)................ 794 623 3,844 1,970 124
-------- --------- -------- -------- --------
Net income................................... $ 1,142 $711 $ 5,521 $ 3,884 $ 3,965
======== ========= ======== ======== ========

Earnings per share - Basic................... $ 0.18 $ 0.11 $ 0.97 $ 0.83 $ 1.17
======== ========= ======== ======== ========
Weighted average shares outstanding.......... 6,253 6,272 5,719 4,690 3,400
======== ========= ======== ======== ========
Earnings per share - Diluted................. $ 0.18 $ 0.11 $ 0.93 $ 0.82 $ 1.17
======== ========= ======== ======== ========
Weighted average shares outstanding.......... 6,265 6,331 5,905 4,737 3,400
======== ========= ======== ======== ========

As of December 31,
-----------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands)
Balance Sheet Data:
Working capital........................... $37,841 $35,375 $33,123 $14,407 $ 5,033
Total assets.............................. 56,021 61,894 72,541 43,647 18,770
Long term debt and capital lease obligations,
less current portion................... 31 49 - 41 590
Shareholders' equity...................... 43,834 42,536 41,722 18,921 6,574
-----------------------------------------------------------------------------------------------------------------------

(1) 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.

(2) 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.

(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) Prior to March 19, 1996, the Company had elected to be treated as an S
Corporation for federal and, in certain cases, state income tax purposes.
Therefore, prior to such date, the Company recorded no provision for
federal income taxes and recorded a reduced provision for state income
taxes.

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

General

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. The Company was formed in
1984 as an authorized reseller of computer hardware and software products, and
since 1990, has been developing and offering related IT services. To date, a
majority of the Company's net sales continue to be derived from IT product
sales. However, as a result of the Company's decision to de-emphasize low-end
product sales and focus on the high-end professional services market, the
percentage of the Company's revenue from product sales has declined sharply from
approximately 85% of total revenue in 1995 to approximately 61% of total revenue
in 1999, while the percentage of revenue related to services has increased
during the same period from approximately 15% in 1995 to approximately 39% in
1999. The Company anticipates that this trend will continue in 2000.

The Company has entered into distribution agreements with Ingram, Pinacor
and Tech Data, three of the nation's largest aggregators, to acquire most of its
IT products for resale. The Company's relationship with Pinacor commenced in
1984 and, as customer demand for IT products grew, the Company initiated its
relationship with Ingram in 1994. The Company initiated its relationship with
Tech Data in 1998. The distribution agreements with Pinacor, 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. During 1999, the Company acquired approximately 57%, 22% and
10% of its products for resale from Ingram, Pinacor and Tech Data, respectively.

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 1999 and 1998, 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 has continued to intensify resulting
in increased personnel costs for the Company and many other IT service
providers. This intense competition has caused the Company's billing margins to
be lower than they might otherwise have been.

The Company implemented a reduction-in-force in June 1998 due to
lower-than-expected demand for the Company's services from certain clients. In
January 1999, the Company implemented a second reduction, eliminating 42
positions, consisting principally of persons supporting product sales which, as
noted earlier, the Company is de-emphasizing. Adjustments to the size of the
Company's workforce will continue as necessary in order for the Company 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. 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'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 decreased from 33.7% for 1997, to 32.2% for 1998, and then
increased to 33.4% for 1999. The previous decline in gross margins was
attributable to increased competition, lower utilization rates, the impact of
the MTA Contract, and services and support revenue increasing at a slower rate
than related personnel and recruiting costs. Also, declines in product and
services support sales resulted in lower utilization rates and margins. In
response to these trends, the Company emphasized its higher margin, value-added
services and support offerings, including network integration, applications
development and Internet-related offerings. As a result of the focus on higher
margin services, the gross margins earned in 1999 increased to 33.4%.

The Company believes that its ability to provide a broad range of
technical services, coupled with its traditional strength in satisfying its
customers' IT product requirements and its long-term relationships with large
customers, positions the Company to continue growing the services component of
its business. As such, the Company anticipates that an increasing percentage of
its gross profits in the future will be derived from the services and support
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. The Company believes that, as a single-source provider
of IT products, services and support, it is able to earn margins higher than it
would earn if it sold products only.

The Company's net sales, gross profit, operating income and net income 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 expense levels are based in part on
expectations of future revenues. Technical personnel utilization rates have been
and are expected to continue to be adversely affected during periods of rapid
and concentrated hiring. Depending upon the availability of qualified technical
personnel, during periods of rapid growth, the Company has utilized, and in the
future is likely to utilize, contract personnel, which adversely affects gross
margins. If the Company continues to successfully expand its service offerings,
periods of variability in utilization may continue to occur. In addition, the
Company is likely to incur greater technical training costs during such periods.

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. 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 would 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. 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 a further written submission with the
DRO on March 23, 2000. It is not yet known when or how the DRO will rule on the
Company's appeal. Under the terms of the MTA Contract, the Company is entitled
to appeal any adverse determination of the DRO to the trial-level court in the
State of New York. The Company believes that its request for equitable
adjustment constitutes a valid claim under the MTA Contract. There can be no
assurance the MTA will approve, either in whole or in part, any equitable
adjustment in the contract amount or terms requested by the Company. However, as
a result of changes in work rules and operating procedures, increased
cooperation from MTA personnel, realization of increased operating efficiencies,
improvements in project management and potential outsourcing of certain future
cabling work, the Company currently estimates that aggregate costs will
approximate contract revenues, excluding any equitable adjustment which may be
approved by the MTA. Consequently, the Company is recording revenues under the
MTA Contract equal to costs incurred. For the years ended December 31, 1999 and
1998, revenues recorded in connection with the MTA Contract amounted to
approximately $3.5 million and $6.0 million, respectively, and no profit has
been recognized.

Year 2000 Readiness Disclosure

Historically, certain computer programs have been written using two
digits rather than four to define the applicable year, which could result in
such programs recognizing a date using "00" as the year 1900 rather than the
year 2000. This, in turn, could result in major system failures or
miscalculations, and is generally referred to herein as the "Year 2000 Problem."
Computer systems that are represented by manufacturers as being able to deal
correctly with dates after 1999 are referred to as "Year 2000-Compliant."

Over the past several years, based upon its business needs, the Company
has purchased and installed hardware and software that are represented by the
manufacturers to be Year 2000-Compliant. In July 1999, the Company replaced its
former integrated accounting system, which was not Year 2000-Compliant, with
Platinum SQL Software, which is Year 2000-Compliant. Based upon the
representations of the manufacturers of hardware and software used by the
Company, and the provider of the Platinum SQL Software, the Company believes
that all of its internal business systems, including its computer systems, are
Year 2000-Compliant.

The Company resells IT products of leading hardware manufacturers and
software developers. As a result, the Company has no control over the
developments of such third parties' computer systems, software products or other
business systems developed by such third parties. Consequently, there can be no
assurance that the computer systems, software products or other business systems
sold by the Company are Year 2000 Compliant. The Company, as a reseller, may be
liable for Non-Year 2000 Compliant product it resells. However, to date, the
Company has not received any claims with respect to Year 2000 compliance. Given
the Company's role in the distribution of such products, the Company is not able
to accurately determine the extent, if any, of such potential liability.

The total cost of the Company's Year 2000 compliance has been funded
through operating cash flows. The costs incurred to date to purchase and install
Platinum SQL were approximately $1.2 million. Excluding costs associated with
Platinum SQL and the write-off of the capitalized software and consulting fees
during 1999, the Company expended approximately $2.0 million in 1998 and 1999 on
hardware and software upgrades for its Year 2000 compliance. The Company does
not currently anticipate that it will incur any additional material expenditures
for such Year 2000 compliance. These costs do not include any costs associated
with any third party being Non-Year 2000 Compliant, nor do such costs include
internal personnel costs (primarily salaries and benefits), which the Company
does not separately track and do not include any contingency plan costs.

Statements included in this Year 2000 Readiness Disclosure are
forward-looking statements within the meaning of The Private Securities
Litigation Reform Act of 1995. Such forward-looking statements include risks and
uncertainties, including but not limited to the possibility that the currently
installed computer systems, software products or other business systems of the
Company or its distributors, manufacturers or customers, working either alone or
in conjunction with other software or systems, will not accept input of, store,
manipulate and/or output dates in the year 2000 or thereafter without error or
interruption. Such risks and uncertainties may cause the Company's actual
results to differ materially from the results discussed in this Report.

Results of Operations

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

Percentage
Percentage of Net Sales Increase
Year Ended December 31, (Decrease)
------------------------------------- -------------------------------

1999 1998
Over Over
1999 1998 1997(1) 1998 1997
---- ---- ------- ---- ----

Net sales:
Product ......................................... 61.0 68.2 77.1 (28.7) (20.8)
Services and support............................. 39.0 31.8 22.9 (2.5) 24.7
----- ----- -----
100.0 100.0 100.0 (20.4) (10.4)
Cost of sales.......................................... 81.2 82.0 83.2 (21.1) (11.8)
----- ----- -----
Gross profit........................................... 18.8 18.0 16.8 (17.1) (3.5)
----- ----- -----
Operating expenses:
Selling, general & administrative:............... 18.1 16.0 11.9 (10.0) 20.8
(Recovery) write-off of capitalized asset (2) . (0.1) 1.4 - - 100.0
----- ----- -----
18.0 17.4 11.9 (17.9) 31.7
----- ----- -----
Operating income....................................... 0.8 0.6 4.9 8.4 (89.5)
----- ----- -----
Other income (expense), net............................ 0.6 0.2 0.0 144.8 488.5
----- ----- -----
Income before income taxes............................. 1.4 0.8 4.9 45.1 (85.8)
Provision for income taxes ............................ 0.6 0.4 2.0 27.4 (83.8)
----- ----- -----
Net income............................................. 0.8 0.4 2.9 60.6 (87.1)
===== ===== =====
Gross profit (as a percentage of related net sales):
Product.......................................... 9.5 11.5 11.7 (41.1) (22.6)
Services and support............................. 33.4 32.2 33.7 1.1 18.9

(2) 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.

Comparison of Years Ended December 31, 1999 and 1998

Net Sales: Net sales in 1999 of $136.6 million decreased 20.4% or $34.9
million, from net sales of $171.5 million in 1998. The Company has continued to
focus on the strategy of transitioning AlphaNet Solutions from primarily a
reseller of product to a professional services company. As a result of this
transition, revenue from sales of products as a percentage of overall revenues
has continued to decline, from 68.2% in 1998 to 61.0% in 1999, while services
and support revenues as a percentage of overall revenues has increased from
31.8% in 1998 to 39.0% in 1999. Services and support revenue in 1999 of $53.3
million decreased 2.5%, or $1.3 million, from $54.6 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 the
product sales. As the overall product business declines, this type of service
revenue also declines. The Company is now focusing on providing services and
support that are independent of product sales such as security, training, and
network operations support. Product sales in 1999 of $83.3 million decreased

28.7%, or $33.6 million, from $116.9 million in the prior year. The decline in
product sales is primarily due to substantially reduced business from 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 product pricing pressures. This trend has been
accelerated by the ability of customers to purchase directly from certain
manufacturers at discounted prices and the Company's decision not to focus its
resources on the pursuit of low-margin product business. Revenue under the MTA
Contract (consisting of both product and services) amounted to approximately
$3.5 million and $6.0 million for the years ended December 31, 1999 and 1998,
respectively.

Gross profit: Gross profit in 1999 of $25.7 million decreased 17.1%, or
$5.3 million, from gross profit of $31.0 million in 1998, while increasing as a
percentage of revenues from 18.0% in 1998 to 18.8% 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 the mix of revenues
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 services and support revenues from 32.2% in 1998
to 33.4% in 1999. Gross profit from product sales in 1999 of $7.9 million
decreased 41.1%, or $5.5 million, from $13.4 million in 1998, while declining as
a percentage of product sales from 11.5% in 1998 to 9.5% in 1999. This decline
in the gross profit percentage is primarily due to continued downward pricing
pressure on product sales. Product margins for the years ended December 31, 1999
and 1998 also reflect adjustments to reduce inventories by $455,000 and
$450,000, respectively. Revenues under the MTA Contract are being recognized to
the extent of costs incurred, therefore negatively affecting the Company's
overall gross profit percentage.

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 primarily relates 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.

Comparison of Years Ended December 31, 1998 and 1997

Net sales. Net sales decreased by 10.4% or $19.9 million, from $191.4
million in 1997 to $171.5 million in 1998. Product sales decreased by 20.8%, or
$30.7 million, from $147.6 million in 1997 to $116.9 million in 1998. This
decline in product sales was primarily attributable to increased competition,
reduced unit volume and lower average selling prices. This trend has been
accelerated by the ability of customers to purchase directly from certain
manufacturers at discounted prices. Services and support revenue increased by
24.7%, or $10.8 million, from $43.8 million in 1997 to $54.6 million in 1998.
This increase was primarily attributable to increased demand for the Company's
services and support offerings, particularly its network consulting services,
and an increase in the number and size of customer projects. Notwithstanding the
year-to-year increase in services and support revenue, the Company experienced a
decline in such revenue in the fourth quarter of 1998 as compared to the fourth
quarter of 1997. This decline was primarily attributable to decreased demand
from certain customers. In response, the Company is emphasizing its higher
margin, value-added services and support offerings, including, among other
services, network integration, applications development and internet-related
offerings. In 1998, sales to KPMG LLP accounted for approximately 15% of the
Company's net sales. There can be no assurance that such customer will continue
to place orders with the Company or engage the Company to perform services and
support at existing levels.

Gross profit. The Company's gross profit declined by 3.5%, or $1.1
million, from $32.1 million in 1997 to $31.0 million in 1998. The Company's
overall gross profit margin increased from 16.8% of net sales in 1997 to 18.0%
in 1998 primarily due to the improved sales mix resulting from higher services
and support revenue. Gross profit margin attributable to product sales decreased
from 11.7% in 1997 to 11.5% in 1998 due to downward pricing pressure on
products. The Company is addressing this trend by increasing its emphasis on
comprehensive, higher-margin solution-based offerings. Gross profit margin
attributable to services and support revenue decreased from 33.7% of services
and support revenue in 1997 to 32.2% in 1998. This decrease was attributable
primarily to lower utilization of billable personnel, the effect of the MTA
Contract, several long-term staffing contracts, which typically yield lower
gross margins than projects, and services and support revenue increasing at a
slower rate than related personnel and recruiting costs.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 20.8% or $4.7 million from $22.8 million in
1997 to $27.5 million in 1998. This increase was primarily attributable to
increased general and administrative personnel and related costs, training
costs, professional fees, depreciation and amortization charges, additional
leased facilities and related costs, communication costs and insurance premiums.

(Recovery) write-off of capitalized asset. In connection with the
one-time write-off of capitalized software and consulting fees associated with
the Company's termination of implementation of an integrated accounting software
program, the Company recorded a charge of $2.5 million.

Risk Factors:

AlphaNet Solutions 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 is highly 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
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:

SFAS 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 SFAS 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. Based upon information currently available, SAB 101 is not expected
to have a significant impact on the Company's financial position or results of
operations.

Liquidity and Capital Resources:

Cash and cash equivalents at December 31, 1999 of $16.5 million
increased by 23.2% or $3.1 million from $13.4 million at December 31, 1998.
Working capital, which is the excess of current assets over current liabilities,
at December 31, 1999 was $37.8 million as compared to $35.4 million at December
31, 1998 representing an increase of $2.4 million or 7.0%. The increase in the
Company's cash and cash equivalents and working capital is primarily the result
of the Company's earnings for the year and the Company's improvement in accounts
receivable performance.

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. The Company's cash provided by operations from the fiscal year ended
December 31, 1999 was $4.6 million which consisted primarily of a decrease in
accounts receivable of $6.4 million, primarily attributable to the decrease in
net sales and the improvement in days sales outstanding. As measured in day
sales outstanding, the Company's accounts receivable decreased from 78 days at
December 31, 1998 to 69 days at December 31, 1999. The Company's cash provided
by operations for the fiscal year ended December 31, 1998 was $14.6 million.
Accounts receivable decreased by $17.3 million during 1998, primarily
attributable to the decrease in net sales and the timing of collection of
accounts receivable. However, the Company's cash used in operations from the
fiscal year ended December 31, 1997 was $11.9 million which consisted primarily
of an increase in accounts receivable from increased sales. During fiscal year
1999, accounts payable and accrued expenses decreased by $6.2 million due
principally to the decrease in the Company's product sales and fourth quarter
adjustments to vacation and other accruals.

Capital expenditures of $1.6 million, $4.0 million and $3.8 million
during the years ended December 31, 1999, 1998, and 1997, respectively, were
primarily for the purchase of computer equipment and upgraded software
implementations. The Company anticipates additional capital expenditures to
continue the expansion of the services component of its business and for the
enhancement of 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 includes a $2.5 million sublimit for letters of credit
and a $5.0 million sublimit for acquisition advances. Under the facility, the
Company may 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
are 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. 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 has provided $2 million of the $15 million
credit line to the Company on an uncollateralized basis. Under this credit
facility, the Company is required to maintain a minimum fixed charge coverage
ratio, and a total liabilities to net worth ratio. At December 31, 1999, no
amounts were outstanding under the credit facility.

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, 1999, 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.

On June 18, 1997, the Company completed a secondary public offering
of 2,000,000 shares of its Common Stock at an offering price of $16.50 per
share. Of the 2,000,000 shares offered, 1,150,000 shares were issued and sold by
the Company and 850,000 shares were sold by Stan Gang, the Company's Chairman
and The Gang Annuity Trust. The Company received $15.51 per share, before
offering expenses, yielding net proceeds of approximately $17,200,000.

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. The Company has issued an aggregate of 130,579 shares since the inception
of the Employee Stock Purchase Plan at an average price of $5.25 per share,
receiving total proceeds of $685,000.

In January 2000, the Company acquired a 30% preferred stock equity
interest in nex-i.com Inc. for approximately $1.8 million in cash.

The Company purchases certain inventory and equipment through
financing arrangements with Finova Capital Corporation and IBM Credit
Corporation. At December 31, 1999, there were outstanding balances of
approximately $2.0 million for Finova Capital Corporation and approximately
$500,000 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 12 months.

In 1997 and 1998, the Company was notified by the taxing authorities
of several jurisdictions concerning the Company's failure to meet certain
reporting and compliance requirements of such jurisdictions with respect to the
Company's tax obligations. During 1998, the Company implemented aggressive
actions to resolve any tax reporting and compliance delinquencies by properly
reporting and paying its obligations. The Company has recorded an amount for any
unpaid taxes, interest and/or penalties. The Company believes that the
resolution of these matters will not have a material impact on the Company's
financial position, results of operations, or cash flows.

The Company and its independent auditors have identified significant
deficiencies in the design and operation of its internal control structure. The
Company's independent auditors have determined such deficiencies are "reportable
conditions." The Company has implemented and is in the process of implementing
additional policies, procedures and controls to correct these deficiencies. The
Company does not believe that such deficiencies have had a material effect on
the Company's reported financial results. However, there can be no assurance
that such deficiencies will not have a material adverse effect on the Company's
ability to record, process, summarize and/or report its financial information.

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, 1999. 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]

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,
1998 1998 1998 1998 1999 1999 1999 1999
-------------------------------------------------------------------------------------------

Net sales:
Product.............................. $31,297 $29,823 $ 30,388 $25,400 $18,692 $ 19,566 $ 25,817 $ 19,223
Services and support................. 14,194 15,099 13,212 12,123 11,436 12,567 14,420 14,842
-------- --------- --------- -------- -------- -------- -------- --------
45,491 44,922 43,600 37,523 30,128 32,133 40,237 34,065
-------- --------- --------- -------- -------- -------- -------- --------
Cost of sales:
Product (2).......................... 27,377 26,300 26,669 23,176 16,609 17,519 23,234 18,047
Services and support................. 9,395 10,424 8,661 8,578 8,138 8,585 9,278 9,492
-------- --------- --------- -------- -------- -------- -------- --------
36,772 36,724 35,330 31,754 24,747 26,104 32,512 27,539
-------- --------- --------- -------- -------- -------- -------- --------
Gross profit:
Product (2).......................... 3,920 3,523 3,719 2,224 2,083 2,047 2,583 1,176
Services and support................. 4,799 4,675 4,551 3,545 3,298 3,982 5,142 5,350
-------- --------- --------- -------- -------- -------- -------- --------
8,719 8,198 8,270 5,769 5,381 6,029 7,725 6,526
-------- --------- --------- -------- -------- -------- -------- --------
Operating expenses:
Selling, general and administrative (3). 6,562 7,036 7,199 6,708 6,232 6,005 7,186 5,320
(Recovery)write-off of capitalized asset (1) - - 2,476 - - - (139) -
-------- --------- --------- -------- -------- -------- -------- --------
6,562 7,036 9,675 6,708 6,232 6,005 7,047 5,320
-------- --------- --------- -------- -------- -------- -------- --------
Operating income (loss)................. 2,157 1,162 (1,405) (939) (851) 24 678 1,206
Other income (expense), net............. 73 129 81 76 249 155 209 266
-------- --------- --------- -------- -------- -------- -------- --------
Income (loss) before income taxes....... 2,230 1,291 (1,324) (863) (602) 179 887 1,472
Provision (benefit) for income taxes.... 914 529 (543) (277) (250) 74 364 606
-------- --------- --------- -------- -------- -------- -------- --------
Net income (loss)....................... $ 1,316 $ 762 $ (781) $ (586) $ (352) $ 105 $ 523 $ 866
======== ========= ========= ======== ======== ======== ======== ========
Net income (loss) per share (diluted)... $ 0.21 $ 0.12 $ (0.12) $ (0.09) $ (0.06) $ 0.02 $ 0.08 $ 0.14
======== ========= ========= ======== ======== ======== ======== ========
As a Percentage of Net Sales:
Net sales:
Product.............................. 68.8% 66.4% 69.7% 67.7% 62.0% 60.9% 64.2% 56.4%
Services and support................. 31.2% 33.6% 30.3% 32.3% 38.0% 39.1% 35.8% 43.6%
-------- -------- -------- -------- -------- -------- -------- --------
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........................... 80.8% 81.8% 81.0% 84.6% 82.1% 81.2% 80.8% 80.8%
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit............................ 19.2% 18.2% 19.0% 15.4% 17.9% 18.8% 19.2% 19.2%
-------- -------- -------- -------- -------- -------- -------- --------
Operating expenses:
Selling, general and administrative (3). 14.4% 15.7% 16.5% 17.9% 20.7% 18.7% 17.8% 15.6%

(Recovery)write-off of capitalized asset (1) - - 5.7% - - - (0.3)% -
-------- -------- -------- -------- -------- -------- -------- --------
14.4% 15.7% 22.2% 17.9% 20.7% 18.7% 17.5% 15.6%
-------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss)................. 4.7% 2.6% (3.2)% (2.5)% (2.8)% 0.1% 1.7% 3.5%
Other income (expense), net............. 0.2% 0.3% 0.2% 0.2% 0.8% 0.5% 0.5% 0.8%
-------- -------- -------- -------- -------- -------- -------- --------
Income before income taxes.............. 4.9% 2.9% (3.0)% (2.3)% (2.0)% 0.6% 2.2% 4.3%
Provision for income taxes.............. 2.0% 1.2% (1.2)% (0.7)% (0.8)% 0.2% 0.9% 1.8%
-------- -------- -------- -------- -------- -------- -------- --------
Net income.............................. 2.9% 1.7% (1.8)% (1.6)% (1.2)% 0.3% 1.3% 2.5%
======== ======== ======== ======== ======== ======== ======== ========
Gross profit (as a percentage of
related net sales):
Product (2).......................... 12.5% 11.8% 12.2% 8.8% 11.1% 10.5% 10.0% 6.1%
Services and support................. 33.8% 31.0% 34.4% 29.2% 28.8% 31.7% 35.7% 36.0%

(1) 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.

(2) The quarters ended December 31, 1999 and 1998 reflect adjustments to
reduce inventories by $455,000 and $450,000, respectively. (3) During the
quarter ended September 30, 1999, the Company recorded additional bad debt
expense of approximately $1.5 million. During the quarter ended December
31, 1999, the Company adjusted approximately $1.1 million of vacation and
other accruals as a reduction of selling, general and administrative
expense.

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 32-33 for selected unaudited quarterly financial
data.

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

Not applicable.

PART III

Item 10. Directors and Executive Officers of the Company.

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.

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 37-40.

(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.

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.

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 AlphaNet Solutions,
Inc.

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 AlphaNet Solutions, Inc.

10.23*** Revolving Note dated September 30, 1998 by and between
First Union National Bank and AlphaNet Solutions, Inc.

10.24**** Sublease, American International Recovery, Inc. to AlphaNet
Solutions, Inc.

10.25***** Employee Stock Purchase Plan.

10.26@ Sub-Sublease Agreement dated as of May 25, 1999 by and
between AlphaNet Solutions, Inc. and Datajump, Inc.

10.27@ Form of Change of Control Agreements entered into as of
June 8, 1999 with certain executive officers of AlphaNet
Solutions, Inc.

10.28= Second Amendment to and Reaffirmation of Loan Documents
dated as of September 28, 1999 by and between First Union
National Bank and AlphaNet Solutions, Inc.

10.29= Revolving Note dated as of September 28, 1999 by and
between First Union National Bank and AlphaNet Solutions,
Inc.

10.30 Third Amendment to and Reaffirmation of Loan Documents
dated as of January 1, 2000 by and between First Union
National Bank and AlphaNet Solutions, Inc.

10.31 Revolving Note A dated as of January 1, 2000 by and between
First Union National Bank and AlphaNet Solutions, Inc.

10.32 Revolving Note B dated as of January 1, 2000 by and between
First Union National Bank and AlphaNet Solutions, Inc.

10.33 Securities Purchase Agreement dated as of January 14, 2000
by and among AlphaNet Solutions, Inc., 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 AlphaNet Solutions, Inc., 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
AlphaNet Solutions, Inc., Fallen Angel Equity Fund LP, John
L. Steffens, nex-i.com Inc. and Ira A. Baseman.

21+ Subsidiaries of the Company.

23 Consent of PricewaterhouseCoopers LLP.

27 Financial Data Schedule.
- ---------

* 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-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, 1996 filed with the Commission on March 27, 1997.

All other exhibits are filed herewith.

ALPHANET SOLUTIONS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

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

Consolidated balance sheets as of December 31, 1999 and 1998............................................................ F-3

Consolidated statements of income for the years ended December 31, 1999, 1998, and 1997................................. F-4

Consolidated statements of changes in shareholders' equity for the years ended December 31, 1999,
1998 and 1997........................................................................................................... F-5

Consolidated statements of cash flows for the years ended December 31, 1999, 1998 and 1997 ............................. F-6

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

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the consolidated financial statements listed in the accompanying
index appearing under Item 14(a)(1) on page 34 present fairly, in all material
respects, the financial position of AlphaNet Solutions, Inc. and its Subsidiary
at December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
In addition, in our opinion, the financial statement schedule listed in the
accompanying index appearing under Item 14(a)(2) on page 34 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, 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 the opinion expressed
above.

PricewaterhouseCoopers LLP
Florham Park, NJ

March 21, 2000
F-2

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

December 31,
--------------------------
1999 1998
---- ----
ASSETS

Current assets:
Cash and cash equivalents....................................................... $16,485 $13,377
Accounts receivable, less allowance for doubtful accounts of
$3,289 and $1,300 at December 31, 1999 and 1998, respectively............ 26,700 33,057
Inventory....................................................................... 2,533 3,505
Deferred income taxes .......................................................... 1,889 1,761
Prepaid expenses and other current assets....................................... 1,234 2,309
Costs in excess of billings..................................................... 481 -
------- -------
Total current assets...................................................... 49,322 54,009

Property and equipment, net........................................................... 4,459 5,491
Other assets ....................................................................... 2,240 2,394
------- -------
Total assets.............................................................. $56,021 $61,894
======= =======

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Current portion of capital lease obligations.................................... $ 20 $ 17
Accounts payable................................................................ 7,473 11,072
Accrued expenses................................................................ 3,988 6,730
Billings in excess of costs..................................................... - 815
------- -------
Total current liabilities................................................. 11,481 18,634

Advance from principal shareholder.................................................... 675 675
Capital lease obligations............................................................. 31 49
------- -------
Total liabilities......................................................... 12,187 19,358
------- -------
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,
6,423,399 and 6,366,228 shares issued and outstanding at
December 31, 1999 and December 31, 1998, respectively....................... 64 63
Additional paid-in capital...................................................... 34,150 33,942
Retained earnings............................................................... 10,340 9,198
Treasury stock-- at cost; 150,600 shares and 136,800 shares at
December 31, 1999 and 1998, respectively.................................... (720) (667)
------- -------
Total shareholders' equity................................................ 43,834 42,536
------- -------
Total liabilities and shareholders' equity............................................. $56,021 $61,894
======= =======

See accompanying notes to consolidated financial statements.

F-3

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

Year Ended December 31,
--------------------------------------------
1999 1998 1997
---- ---- ----

Net sales:
Product $ 83,298 $116,908 $147,602
Services and support............................................. 53,265 54,628 43,790
-------- -------- --------
136,563 171,536 191,392
-------- -------- --------
Cost of sales:
Product 75,409 103,522 130,314
Services and support............................................. 35,493 37,058 29,013
-------- -------- --------
110,902 140,580 159,327
-------- -------- --------
Gross profit............................................ 25,661 30,956 32,065
-------- -------- --------
Operating expenses:
Selling, general and administrative.............................. 24,743 27,505 22,761
(Recovery) write-off of capitalized asset........................ (139) 2,476 -
-------- -------- --------
24,604 29,981 22,761

Operating income....................................................... 1,057 975 9,304

Other income:
Interest income, net............................................. 577 240 61
Other income..................................................... 302 119 -
-------- -------- --------
879 359 61
-------- -------- --------
Income before income taxes............................................. 1,936 1,334 9,365

Provision for income taxes............................................. 794 623 3,844
-------- -------- --------
Net income $ 1,142 $ 711 $ 5,521
======== ======== ========
Net income per share:

Basic............................................................. $ 0.18 $ 0.11 $ 0.97
-------- -------- --------
Diluted........................................................... $ 0.18 $ 0.11 $ 0.93
-------- -------- --------
Shares used to compute net income per share:

Basic............................................................. 6,253 6,272 5,719
-------- -------- --------
Diluted........................................................... 6,265 6,331 5,905
-------- -------- --------

See accompanying notes to consolidated financial statements.

F-4

ALPHANET SOLUTIONS, INC.

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

Common Common Treasury Treasury Paid-In Retained
Shares Stock Shares Stock Capital Earnings Total
-------- --------- ------------- -------------- -------------- ---------- ------------

Balance at December 31, 1996........... 5,103 $ 51 - - $ 15,904 $ 2,966 $ 18,921

Sales of common stock............ 1,150 12 - - 17,200 - 17,212
Exercise of stock options........ 4 - - - 68 - 68
Net income....................... - - - - 5,521
- 5,521
----- ---- -------- -------- --------
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 of 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
===== ==== ===== ====== ======== ======== ========

See accompanying notes to consolidated financial statements.

F-5

ALPHANET SOLUTIONS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Year Ended December 31,
--------------------------------------
1999 1998 1997
---- ---- ----

Cash flows from operating activities:
Net income.......................................................................... $ 1,142 $ 711 $ 5,521
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization.................................................... 2,666 2,662 1,671
Deferred income taxes............................................................ (128) (110) (1,206)
Loss on disposal of capital asset.............................................. 149 - -
Provision for accounts receivable.............................................. 1,989 414 992
Provision for inventory........................................................ 300 399 400
(Recovery) write-off of capitalized asset........................................ (139) 2,476 -
Increase (decrease) from changes in:
Accounts receivable........................................................... 4,368 16,917 (18,970)
Inventories................................................................... 672 1,037 (365)
Prepaid expenses and other current assets..................................... 1,075 1,289 (1,652)
Other assets.................................................................. (22) 324 302
Accounts payable.............................................................. (3,460) (6,849) (4,392)
Accrued expenses.............................................................. (2,742) (5,449) 5,820
Billing in excess of costs.................................................... (1,296) 815 -
------- ------- --------
Net cash provided by (used in) operating activities.............................. 4,574 14,636 (11,879)
------- ------- --------
Cash flows from investing activities:
Property and equipment expenditures................................................. (1,618) (3,999) (3,842)
Acquisition of businesses........................................................... - - (380)
Proceeds from sale of equipment 11
------- ------- --------
Net cash used in investing activities............................................ (1,607) (3,999) (4,222)
------- ------- --------
Cash flows from financing activities:
Repayment of capital lease obligations.............................................. (15) (52) (100)
Net proceeds from sales of common stock............................................. 177 509 17,212
Exercise of stock options........................................................... 32 261 68
Purchase of treasury stock.......................................................... (53) (667) -
------- ------- --------
Net cash provided by financing activities........................................ 141 51 17,180
------- ------- --------
Net increase in cash and cash equivalents.............................................. 3,108 10,688 1,079
Cash and cash equivalents, beginning of period......................................... 13,377 2,689 1,610
------- ------- --------
Cash and cash equivalents, end of period............................................... $16,485 $13,377 $ 2,689
======= ======= ========

See accompanying notes to consolidated financial statements.

F-6

ALPHANET SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies:

Nature of Business:

AlphaNet Solutions, Inc. ("AlphaNet Solutions" or 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 AlphaNet
Solutions, Inc. 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, 1999 and 1998. As of December 31, 1998 and 1998, 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

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 the products are shipped and
title passes. 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. Currently, total contract costs are estimated
to be equal to the total contract revenue and, accordingly, revenues are
recognized to the extent of costs incurred. 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 4) 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 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.

F-8

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.

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 a further written submission with the DRO on March
23, 2000. It is not yet known when or how the DRO will rule on the Company's
appeal. Under the terms of the MTA Contract, the Company is entitled to appeal
any adverse determination of the DRO to the trial-level court in the State of
New York. The Company believes that its request for equitable adjustment
constitutes a valid claim under the MTA Contract. There can be no assurance the
MTA will approve, either in whole or in part, any equitable adjustment in the
contract amount or terms requested by the Company. However, as a result of
changes in work rules and operating procedures, increased cooperation from MTA
personnel, realization of increased operating efficiencies, improvements in
project management and potential outsourcing of certain future cabling work, the
Company currently estimates that aggregate costs will approximate contract
revenues, excluding any equitable adjustment which may be approved by the MTA.
Consequently, the Company is recording revenues under the MTA Contract equal to
costs incurred. For the years ended December 31, 1999 and 1998, revenues
recorded in connection with the MTA Contract amounted to approximately $3.5
million and $6.0 million, respectively, and no profit has been recognized. As of
December 31, 1999, costs in excess of billings under the MTA Contract amounted
to approximately $481,000. As of December 31, 1998, billings in excess of costs
under the MTA Contract amounted to approximately $815,000.

F-9

Income Taxes:

The Company accounts for income taxes under the asset and liability
method. Under the asset and liability method, deferred tax assets and
liabilities are recognized based upon differences arising from the carrying
amounts of the Company's assets and liabilities for tax and financial reporting
purposes using enacted tax rates in effect for the year in which the differences
are expected to reverse. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period when the change in tax
rates is enacted.

Reclassifications:

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

Retirement Plan:

The Company adopted a 401(k) retirement plan in 1991. Employees of the
Company who have attained the age of 21 are eligible to participate in the plan.
Employees can elect to contribute up to 15% of their gross salary to the plan.
The Company may make discretionary matching cash contributions up to 2% of the
salary of the participating individual employee. Participants vest in the
Company's contributions to the plan over a six-year period based upon years of
service. Participants are fully vested at all times in their employee
contributions to the plan. The Company's matching contributions were $377,000,
$446,000 and $277,000 to this plan in 1999, 1998 and 1997, 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, 1999, approximately 71% of the Company's accounts
receivable were due from its top 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, the provision of IT
technology solutions for its clients. To provide these solutions, the Company
provides consulting services and, if necessary, products.

F-11

2. Business Combination

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 located
in New York City. The Company acquired certain assets and liabilities of Lande
for approximately $1.8 million, subsequently reduced by the return of $250,000
held in escrow. In connection with this acquisition, the Company recognized
goodwill in the amount of $1,537,000, which is being amortized over a 15 year
period.

Amortization of intangible assets for the years ended December 31, 1999,
1998, and 1997 was approximately $176,000, $170,000
and $101,700, respectively.

3. Inventory

Inventory consist of the following:

---------------------------
December 31,
(in thousands)
---------------------------
1999 1998
---- ----

Inventory..................................................... $2,833 $4,534

Less: Reserve for obsolescence............................... 300 1,029
------ ------
$2,533 $3,505
====== ======

4. Property and Equipment, net

Property and equipment, net, consists of the following:

---------------------------
December 31,
(in thousands)
---------------------------
1999 1998
---- ----
Furniture, fixtures and equipment............................. $10,582 $ 9,035
Transportation equipment...................................... 286 157
Leasehold improvements........................................ 992 912
Construction in progress...................................... - 397
11,860 10,501
Less-- Accumulated depreciation and amortization.............. 7,401 5,010
------- --------
$ 4,459 $ 5,491
======= ========

Depreciation expense and amortization of leasehold improvements for the
years ended December 31, 1999, 1998 and 1997 were, $2,490,000, $2,492,000 and
$1,570,000, respectively.

5. Accrued Expenses

Accrued expenses consist of the following:

--------------------------
December 31,
(in thousands)
--------------------------
1999 1998
---- ----

Accrued payroll and vacation costs....................... $1,970 $2,498
Deferred revenue.......................................... 1,438 1,888
Sales taxes............................................... 300 986
Other..................................................... 280 1,358
------ ------
$3,988 $6,730
====== ======

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 includes a
$2.5 million sublimit for letters of credit and a $5.0 million sublimit for
acquisition advances. Under the Facility, the Company may 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 are 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 has 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 require 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.

7. Stock Ownership and Compensation Plans

At December 31, 1999, the Company had two stock-based compensation plans.
The Company applies APB 25 and related interpretations in accounting for its
plans. During 1999, 1998 and 1997, 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:

1999 1998 1997
---- ---- ----
(in thousands, except per share amounts)

Net income
As reported.......................................... $1,142 $ 711 $5,521
Pro forma ........................................... 789 223 4,843
Net income per share:
As reported:.........................................
Basic........................................... $ 0.18 $0.11 $ 0.97
Diluted......................................... $ 0.18 $0.11 $ 0.93
Pro forma:
Basic........................................... $ 0.13 $0.04 $ 0.85
Diluted......................................... $ 0.13 $0.04 $ 0.82

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
1999, 1998 and 1997: dividend yield of 0%; expected volatility of approximately
67%; risk free interest rates of approximately 6%; and an expected holding
period of six years.

F-13

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. Of the 1,000,000 shares, 250,000 shares
were approved for issuance as non-qualified options by the Company's Board of
Directors in June 1999. Such issuance will be submitted for ratification by the
Company's shareholders at the Company's 2000 Annual Meeting. If such issuance is
ratified by the Company's shareholders, such 250,000 shares will become
available for issuance as incentive stock options. As of December 31, 1999, the
Company has granted options for 106,355 shares in excess of those currently
available to be granted as incentive stock options under the Plan. These shares
could result in a non-cash compensation charge in the year ended December 31,
2000. 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, 1999, 1998 and 1997 is presented below:

F-14

Year Ended December 31,

1999 1998 1997
--------------------------- ------------------------ ---------------------

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

Outstanding at beginning of year................. 542 $5.15 670 $10.58 539 $ 9.44
Granted.......................................... 542 4.18 63 6.72 203 14.05
Exercised........................................ (7) 4.25 (28) 9.32 (5) 9.00
Forfeited........................................ (221) 4.25 (163) 4.27 (67) 11.90
----- ---- ---
Outstanding at end of year....................... 856 4.37 542 5.15 670 10.58
===== ==== ===
Options exercisable at end of year............... 289 4.75 213 5.04 143 9.36
===== ==== ===

Options Outstanding Options Exercisable
----------------------------------------------------------------- -----------------------------------
Range of Exercise Number Average Remaining Weighted Average Number Weighted Average
Prices Outstanding at Contractual Life Exercise Price Exercisable Exercise Price
12/31/99 at 12/31/99

$ 3.81-4.44 832,355 8.44 $ 4.19 265,193 $ 4.19
$ 10.50-11.38 24,000 6.28 10.94 24,000 10.94
------- -------
856,355 289,193
======= =======

The weighted-average fair value of options granted during 1999, 1998 and
1997 was $2.37, $4.26 and $9.35, respectively. Effective December 15, 1998, all
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-15

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, 1999 are as follows:

Net
Lease Sublease Lease
Obligations Rentals Obligations
----------- ------- -----------
(in thousands)

2000.......................................... $1,229 $278 $ 951
2001.......................................... 922 90 832
2002.......................................... 736 60 676
2003.......................................... 359 0 359
------ ---- -------
$3,246 $428 $2,818
====== ==== =======

Rent expense, including real estate taxes, for the years ended December
31, 1999, 1998 and 1997 was $1,027,000, $1,178,000 and $922,000, respectively.

The Company has obtained financing terms from IBM Credit Corporation and
Finova Capital Corporation for the purchase of inventory. In exchange for these
terms, and subject to the intercreditor agreements with the Company's Bank, the
payables are collateralized by substantially all the assets of the Company. The
balances included in accounts payable at December 31, 1999, 1998 and 1997 were
$2,543,000, $7,407,000 and $15,981,000, respectively.

On February 13, 1996, the Company, as plaintiff, filed a complaint and
jury demand in the Superior Court of New Jersey Chancery Division, Morris
County, against two former employees of the Company and their current employer
(together, the "Defendants"). The complaint asserts a civil action for damages,
a temporary restraining order and preliminary and permanent injunctive relief
against the Defendants and alleges theft of services, theft of Company property,
theft of corporate opportunity, and unauthorized use of Company credit cards by
the Defendants. The Company sought restitution from certain of the Defendants
and additional compensatory damages from another Defendant. The Defendants
asserted certain counterclaims against the Company and certain of its present
and former directors. In January 1998, the parties consented to the suspension
of discovery proceedings pending mediation of all claims. In August 1999, the
parties entered into a settlement in principle, subject to the execution of
mutually acceptable settlement agreements and releases, and the court issued an
Order of Disposition. Pursuant to the terms of the Order of Disposition, the
Defendants agreed to pay the Company approximately $370,000 in consideration of
a full release of all claims by the Company against the Defendants. (With
respect to this matter, the Company previously received approximately $183,000
from an insurance carrier.) The Defendants also agreed to drop their
counterclaims against the Company and its directors. Subsequent to the issuance
of the Order of Disposition, the parties were unable to agree upon the terms of
a definitive settlement agreement, precipitating the need for further mediation
of the litigation, which is ongoing. In connection with this litigation, the
Company's Chairman and principal shareholder agreed in connection with the
Company's 1996 initial public offering 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 the Defendants. The Chairman advanced
$675,000 to the Company in furtherance of this agreement. Pursuant to an
amendment to the indemnification agreement adopted by the Company's Board of
Directors in February 2000, upon collection by the Company of the aforementioned
settlement proceeds, the Company will reimburse the Company's Chairman for the
$675,000 which he previously advanced to the Company.

F-16

On June 30, 1998, Bruce Flitcroft ("Flitcroft"), the Company's former
Corporate Vice President, Technology Services, filed suit in the Superior Court
of New Jersey, Morris County, against the Company and the Company's Chairman
alleging, among other things, breach by the Company of Flitcroft's employment
agreement and failure to pay an alleged bonus arising from the Company's 1990
acquisition of Datar IDS Corp. and/or pay, pursuant to an alleged oral promise,
an alleged one million-dollar severance payment in lieu of such bonus. On July
16, 1998, without knowledge of the suit filed by Flitcroft, the Company filed
suit against Flitcroft and Alliant Technologies, Inc. ("Alliant"), a company
believed to be owned and/or operated by Flitcroft, alleging, among other things,
breach of contract and conspiracy to usurp corporate assets and opportunities.
The Court directed arbitration of the claims commencing in March 1999. The
Company obtained insurance coverage for some of the claims in dispute. The
Company's Board of Directors authorized the Company to defend its Chairman and
approved his indemnification by the Company. In August 1999, the parties settled
all of their claims against one another.

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

9. Supplementary Cash Flow Information

Following is a summary of supplementary cash flow information for the
years ended December 31, 1999, 1998 and 1997:

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

1999 1998 1997
------------ ----------- -----------

Interest paid.............................................................. $ 24 $ 77 $ 159
Income taxes paid.......................................................... 273 2,678 3,917
Non-cash investing and financing activities:
Equipment acquired under capital lease.................................. 17 74 -

F-17

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 for income taxes for 1999, 1998 and 1997
are as follows:

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

1999 1998 1997
-------------- ----------------- ---------------

Current:
Federal........................ $684 $547 $ 3,692
State and local................ 238 186 1,358
----- ---- -------
922 733 5,050
----- ---- -------
Deferred:
Federal........................ (95) (82) (841)
State and local................ (33) (28) (365)
----- ---- -------
(128) (110) (1,206)
----- ---- -------
$794 $623 $ 3,844
===== ==== =======

A reconciliation of the Federal statutory rate to the Company's effective
tax rate for 1999, 1998 and 1997 is as follows:

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

1999 1998 1997
-------------- ------------- -------------

Taxes at statutory rate......................................... 34.0% 34.0% 34.0%
State and local income taxes, net of federal tax benefit........ 7.0% 7.8% 6.7%
Other, net...................................................... - 4.9% 0.3%
---- ----- -----
Effective tax rate.............................................. 41.0% 46.7% 41.0%
==== ===== =====

The tax effects of temporary differences that give rise to significant
portions of the net deferred tax asset balance at December 31, 1999 and 1998 are
as follows:

Year Ended December
31,

1999 1998
---------------- ---------------

Accounts receivable allowances...................................... $1,349 $ 540
Inventory reserves.................................................. 123 428
Accrual for compensated absences.................................... 287 520
Accumulated depreciation and amortization........................... 99 (11)
Other accruals...................................................... 31 284
------ ------
$1,889 $1,761
====== ======

F-18

11. Earnings Per Share

In February 1997, the Financial Accounting Standards Board issued
Statement No. 128 "Earnings per Share" ("SFAS No. 128") which 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.

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

For the Years Ended December 31,
1999 1998 1997
---- ---- ----

Net income..................................................................... $ 1,142 $ 711 $ 5,521
======= ====== =======
Basic:

Weighted average number of shares outstanding................................ 6,253 6,272 5,719
======= ====== =======
Net income per share ........................................................ $ 0.18 $ 0.11 $ 0.97
======= ====== =======
Diluted:
Weighted average number of shares outstanding............................... 6,253 6,272 5,719

Dilutive effects of stock options........................................... 12 59 186
------- ------ -------

Weighted average number of common and common
equivalent shares outstanding.............................................. 6,265 6,331 5,905
======= ====== =========
Net income per share........................................................ $ 0.18 $ 0.11 $ 0.93
======= ====== ========

F-19

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, 1999 and 1998, employees purchased
49,691 shares and 80,888 shares, respectively, under the Plan for aggregate
proceeds of approximately $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, 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-20

14. Significant Customers and Vendors

During 1999, PSE&G and Mercedes-Benz of North America accounted for
approximately 13% and 12% of the Company's net sales, respectively. During the
fiscal year ended December 31, 1998, KPMG LLP accounted for approximately 15% of
the Company's net sales. During the fiscal year ended December 31, 1997, Nabisco
and KPMG LLP accounted for 16% and 15% of the Company's net sales, respectively.
No other customer accounted for more than 10% of the Company's net sales during
the three years ended December 31, 1999, 1998 and 1997.

The Company purchases the majority of its products primarily from two
aggregators of computer hardware, software and peripherals. During 1999, the
Company acquired approximately 57%, 22%, and 10% of its products for resale from
Ingram, Pinacor 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 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"). The Chairman advanced
$675,000 of his personal funds 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 collection by the Company of
the anticipated settlement proceeds from the Company's litigation against the
Defendants, the Company will reimburse the Chairman for the $675,000 previously
advanced.

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 up to an aggregate
of 200,000 shares of the Company's common stock. 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 approximately 10% of
the Company's outstanding common stock. The Company currently intends to submit
the Warrant for shareholder approval at the Company's 2000 Annual Meeting.

F-21

16. Subsequent Event

In January 2000, the Company acquired a 30% preferred stock equity
interest in nex-i.com Inc. for approximately $1.8 million in cash.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1999, 1998 and 1997

Balance at Provision - Deductions - Balance of End
Beginning of Year Charged to Income Accounts Written of Year
off

Allowance for doubtful accounts:
1999 $ 1,300 $ 1,989 $ - $ 3,289
1998 1,255 414 369 1,300
1997 263 992 - 1,255

Inventory Reserve:
1999 $ 1,029 $ 300 $ 1,029 $ 300
1998 630 399 - 1,029
1997 230 400 - 630

F-23

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: /s/ Donald A. Deieso
------------------------
Donald A. Deieso, President and Chief
Executive Officer (Principal Executive
Officer)

March 30, 2000
--------------

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

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

/s/Stan Gang Chairman of the Board March 30, 2000
- ------------------------------------
Stan Gang

/s/Donald A. Deieso President and Chief Executive
- ------------------------------------ Officer (Principal Executive March 30, 2000
Officer)

/s/David M. Gordon Vice President, Treasurer
- ------------------------------------- and Chief Financial Officer March 30, 2000
David M. Gordon (Principal Financial and
Accounting Officer

/s/Michael Gang Director March 30, 2000
- -------------------------------------
Michael Gang

/s/Ira Cohen Director March 30, 2000
- -------------------------------------
Ira Cohen

/s/Thomas F. Dorazio Director March 30, 2000
- -------------------------------------
Thomas F. Dorazio

F-24