COMMAND SYSTEMS INC, 10-K, 1999-03-31

COMMAND SYSTEMS INC
10-K, 1999-03-31
COMPUTER PROGRAMMING SERVICES

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS
13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)

[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998

[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period of to

Commission File No. 0-23797

COMMAND SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware 06-1527672
(State of Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)

Pondview Corporate Center, 06032
76 Batterson Park Road, (Zip Code)
Farmington, CT
(Address of Principal Executive
Offices)

(860) 409-2000
(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 or 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. [_]

The aggregate market value of the voting stock (Common Stock, $.01 par
value) held by non-affiliates of the registrant on March 15, 1999 was
$6,986,250 based on the closing sales price of the Common Stock on such date.

The aggregate number of Registrant's shares outstanding on March 15, 1999
was 7,656,750 of Common Stock, $.01 par value.

DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Definitive Proxy Statement to be filed

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COMMAND SYSTEMS, INC.

1998 Form 10-K

Table of Contents

<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Part I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 22
Item 3. Legal Proceedings........................................... 22
Item 4. Submission of Matters to a Vote of Security Holders......... 23
Part II
Market for Registrant's Common Equity and Related
Item 5. Stockholder Matters......................................... 23
Item 6. Selected Consolidated Financial Data........................ 24
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 25
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.. 35
Item 8. Financial Statements and Supplementary Data................. 35
Item 9. Disagreements on Accounting and Financial Disclosure........ 36
Part III
Item 10. Directors and Executive Officers of Registrant.............. 36
Item 11. Executive Compensation...................................... 36
Security Ownership of Certain Beneficial Owners and
Item 12. Management.................................................. 36
Item 13. Certain Relationships and Related Transactions.............. 36
Part IV
Exhibits, Consolidated Financial Statement Schedules and
Item 14. Reports on Form 8-K......................................... 36
Item 15. Signature Page.............................................. 39
Item 16. Auditor's Report Data.......................................
Item 17. Financial Schedule..........................................
</TABLE>
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Item I. BUSINESS.

We provide a wide range of information technology solutions and services to
financial services organizations to support their evolving business needs. We
utilize leading technologies to offer our customers a comprehensive range of
information technology services, including technology and education services.
In 1996 through a joint venture with Phoenix Home Life Mutual Insurance
Company, we created an offshore technology resource center in Bangalore, India.
The facility, which we now wholly-own, is intended to provide us with:

. improved access to skilled information technology professionals,

. cost advantages and

. the ability to provide flexible coverage for our outsourcing services
customers.

As of December 31, 1998, we employed 334 full-time information technology
professionals in our four U.S. offices and the offshore technology resource
center. We develop and maintain long-term relationships with our customers. In
1998, we provided services to over 100 customers and for each of 1998 and 1997
over 60% of our revenue was derived from existing customers from the previous
year. Our customers are typically large financial services organizations,
especially leading insurance companies, such as:

. The Hartford Financial Services Group, Inc.,

. MassMutual,

. Phoenix Home Life Mutual Insurance Company,

. New York Life Insurance Company,

. Aetna and

. G.E. Capital.

The following table sets forth the revenue percentages by line of business.

Services as a Percentage of Total Revenue

<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Staff Augmentation................................... 57% 59% 86%
Year 2000............................................ 27% 21% 0%
Software and Hardware................................ 10% 12% 11%
Other................................................ 6% 8% 3%
--- --- ---
Total Revenue...................................... 100% 100% 100%
=== === ===
</TABLE>

Industry Overview

Intense competition, globalization, rapid technological innovation and
deregulation are accelerating the rate of change in business today. This is
particularly so for organizations in such data and technology intensive
industries as the insurance, banking, brokerage and other financial services
industries. Financial services organizations face increasing pressures to:

. improve product and service quality,

. reduce costs,

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. improve operating efficiencies and

. strengthen customer relationships.

These organizations are changing and adapting their business processes in
order to achieve these objectives and therefore require systems and personnel
that are flexible and capable of rapid change. Accordingly, a financial
services organization's ability to successfully integrate, and deploy advanced
information technology systems, and applications in a timely, and cost-
effective manner has become critical to its success in today's rapidly changing
business environment. In addition, many financial services organizations have
begun to view information technology solutions as strategic tools that can be
used to gain competitive advantages such as:

. reducing the time to market products,

. providing an expanded mix of value-added client services,

. reducing the cost of development and maintenance of systems and

. providing timely access to information.

At the same time, rapid technological advances have accelerated the pace of
transition from mainframe to client/server architectures and from the
utilization of many interdepartmental systems to enterprise-wide integrated
systems. These advances have also increased the use of network and
internet/intranet communications systems. In addition, such advances have
accelerated the convergence of the foregoing technologies. Although
technological advances offer the promise of faster, more functional and more
flexible information technology systems and applications, the implementation of
business solutions utilizing these new technologies present major challenges to
organizations and their information technology departments. Evaluating,
developing and integrating these solutions requires a large number of highly
skilled individuals trained in many diverse technologies and architectures.
However, there is a shortage of these individuals. Consequently, many
organizations either will not have sufficient staffing or adequate expertise to
satisfy their needs. Moreover, many companies have made a strategic decision
to:

. focus on their core competencies,

. minimize their fixed costs and

. reduce their work forces.

This reallocation of resources has prevented many companies from investing
in large information technology staffs.

Businesses are finding it increasingly difficult and expensive to maintain
in-house the management capabilities and technical expertise necessary to
successfully integrate and use advanced information technology systems and
applications in a timely and cost-effective manner. As a result, many
organizations are increasingly turning to third-party service providers, like
Command, to help them:

. evaluate, develop, implement and support new information technology
systems and applications and

. maintain existing legacy systems and applications.

Information technology services are particularly essential to the financial
services industry, whose business is highly dependent on effective data
processing management and analysis. Third-party implementation of such services
in a timely and cost-effective manner requires not only technical expertise,
but also highly developed project management skills and prior experience with
the customers' systems. Also, because of needs specific to their industry,
financial services organizations frequently seek information technology service
providers with financial industry experience.

Financial services organizations are particularly sensitive to, and need to
address, the Year 2000 problem because it would prevent or inhibit the proper
calculation of critical data. Ultimately, if not corrected, the Year

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2000 problem may lead to an interruption or discontinuation of service. Solving
a Year 2000 problem is a highly time-intensive and labor-intensive project,
typically requiring:

. identification and analysis of programs that are or may be affected,

. analysis of up to millions of lines of code and millions of items of
data,

. renovation of affected code and

. testing.

As organizations continue to maintain legacy systems, migrate from mainframe
to client/server architectures, implement other emerging information
technologies and address the Year 2000 problem, we expect the demand for
information technology professionals will continue to rise and the shortage of
these professionals is expected to become more severe. Meanwhile, financial
services organizations continue to be challenged by the rising costs of
applications development and maintenance and the large and growing backlog of
applications development projects. For these reasons, financial services
organizations are increasingly turning to outside information technology
service providers.

By outsourcing information technology services, companies are able to:

. focus on their core business,

. access specialized technical skills,

. implement information technology solutions more rapidly,

. benefit from flexible staffing and

. reduce the cost of recruiting and training.

The Command Systems Solution

We provide information technology services and solutions to financial
services organizations by integrating and deploying new information technology
to support evolving business processes in an efficient and cost-effective
manner. The following are key attributes of our solution:

Broad Range of Information Technology Services. We provide our customers
with a single source for a broad range of information technology services
including:

. information technology staff augmentation,

. Year 2000 compliance services,

. project-based applications development and implementation,

. network design and deployment,

. internet/intranet application development and

. systems maintenance.

We provide our services in a wide variety of computing environments,
including client/server and legacy-based platforms. In addition, we utilize
leading technologies such as object-oriented development, database management
systems and various internet/intranet networking technologies.

Strategic Focus on Financial Services Industry. By focusing on the financial
services industry since 1985, and particularly on the needs of large insurance
companies, we have developed expertise in a large vertical market dominated by
large organizations with extensive information technology needs. We seek to
leverage our expertise in the financial services industry to increase our
customer base and to increase our business from existing customers. By hiring
personnel with experience in the financial services industry, we

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have been able to establish new relationships with customers in this industry
as well as maintain or strengthen existing relationships.

Offshore Technology Resource Center. In 1996, we established the offshore
technology resource center in Bangalore, India. We believe that our offshore
technology resource center offers customers certain advantages, including
access to a large pool of information technology professionals and lower
development costs.

Complete Range of Year 2000 Compliance Services. Our services include a
comprehensive approach to the Year 2000 problem that:

. identifies and analyzes programs that are or may be affected,

. analyzes millions of lines of code and millions of items of data,

. renovates affected code to make it Year 2000 compliant and

. conducts multi-level testing.

We believe that our Command2000 conversion methodology results in cost-
effective and timely conversion solutions for our customers.

Expertise in Key and Emerging Technologies. We hire highly skilled personnel
who are experienced with key technologies, such as client/server development
and design and network integration, and emerging technologies, such as data
warehousing and object-oriented analysis and design. Additionally, our
information technology professionals receive initial and ongoing training in a
variety of technology platforms. We assist customers in understanding the
latest information technology developments and guide them through the
implementation of the information technology solutions best suited to their
needs.

Business Strategy

Our objective is to become the preferred provider of information technology
services to an expanding base of customers. Our strategies to achieve this
objective include the following:

Cross-Sell Services to Existing Customers. Our relationships with our
customers provide us with an opportunity to market additional services and
solutions to such customers. We seek to maximize our customer retention rate
and secure additional engagements by providing high-quality responsive
services.

Leverage Expertise in Insurance Market. We will seek to leverage our
expertise within the insurance industry into a larger, more diverse customer
base within the broader financial services market, especially as deregulation
encourages the creation of full-service financial services organizations. The
insurance, banking and other financial services industries, are generally
dominated by large companies, with extensive information technology needs. We
will seek to leverage our industry-specific expertise and our existing accounts
into a larger number of customers in these information technology intensive
markets. As we expand our customer base, we intend to open additional regional
sales offices in the U.S. to enable us to sell to and support existing and new
customers in expanded geographic areas and industries. To achieve these goals,
we may seek strategic acquisitions of organizations that complement or enhance
our core skills.

Migration to Higher Margin Services. We seek to derive a greater percentage
of our revenue from higher margin services. To support this goal, we have
reorganized and increased our sales force to focus on the delivery of complete
projects and solutions to our clients. We believe that projects, which we
manage, if obtained, will carry higher margins and will better enable us to
become a full-service technology solutions provider to our customers.

Utilize Offshore Technology Resource Center. We believe that our offshore
infrastructure improves our access to information technology professionals,
reduces the costs to our clients associated with information

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technology services and enables us to provide better support to our customers.
This facility utilizes state-of-the-art technology and is connected via a
secure point to point link to our headquarters, branch offices and customer
sites. The staff at the offshore technology resource center had grown to 176
employees as of December 31, 1998.

Continued Development of Long-Term Relationships with Customers. We continue
to develop preferred provider relationships with our customers. Our on-site
personnel are integrated into the operations of our customers' information
technology departments. In addition, we make significant investments in
technology enhancements to support the strategic technical direction of our
customers. We also use several methods to obtain continuous customer feedback,
including customer satisfaction surveys, consultant performance surveys and
regularly scheduled meetings with senior management of each customer. A
significant portion of the compensation of our senior executives, sales
executives and senior project managers is directly linked to customer
satisfaction and the delivery of high quality, timely information technology
services at or below budget. We believe that these initiatives foster long-term
customer satisfaction as evidenced by the fact that for each of the fiscal
years ended December 31, 1998, 1997 and 1996 existing customers from the
previous fiscal year generated over 60% of our revenue.

Attract, Train and Retain Highly Skilled Information Technology
Professionals. Our future success depends to a significant extent on our
ability to attract, train, motivate and retain highly skilled information
technology professionals, particularly project managers, software engineers and
other technology leaders. To achieve this objective, we maintain programs and
personnel to identify and hire the best available information technology
professionals. We conduct training of our information technology professionals
in both legacy systems and emerging technologies to enhance our methodologies.
In order to attract, maintain and retain our employees, we focus on our
corporate culture, incentive programs, compensation and benefits and provide a
career and education management program to create an individualized structured
career growth plan for our employees. We also have access to a large pool of
information technology professionals through our state-of-the-art Bangalore
facility.

Services

We are a solutions provider, using leading technologies to offer our
customers a comprehensive range of information technology services, including
technology and education services. These services may be provided individually
or as a combination of service offerings to provide complete solutions. We have
adopted an integrated approach to providing solutions to our customers. Each of
our service offerings is led by a technology leader, supported by a team of
dedicated information technology consultants with focused expertise in the
technologies specific to such service offering. Our dedicated teams of service
providers work closely with each other, with our customers and with a wide
variety of technology vendors. In this manner, we aim to ensure the
availability of leading-edge technologies and capabilities, cost-efficient and
timely delivery of services and the development of solutions for specific
business needs and objectives. We believe that our integrated approach to
designing, developing and implementing our service offerings promotes long-term
customer satisfaction and a more complete understanding of customer
requirements. We offer services primarily in the following areas:

. information technology staff augmentation,

. Year 2000 compliance services and

. application development, maintenance and networking services.

Following is a more detailed description of these and other services that we
provide.

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Technology Services

We solve business problems by building technical solutions for customers
utilizing our business and technology expertise. Our organization enables
focused attention to customer requirements and is based on the following
services:

Command Systems Solutions Description

CommandSTAFF--Information technology . Design
staff augmentation services to . Data modeling
provide customers with highly . Analysis
skilled information technology . Programming
professionals. Services are provided . Development
over a wide range of technologies . Testing
from client/server and/or . Networking
traditional technology developers to . Implementation
help desk support to supplement . Help Desk
information technology requirements . Maintenance
on demand and as needed. Information
technology professionals are
carefully selected and technically
qualified to match areas of
expertise with specific customer
requirements.

Command Systems Solutions Description

Command2000--Year 2000 compliance We provide the following six-step
services. Provides expertise to methodology to analyze, renovate and
cost-effectively assess business test millions of lines of code and
requirements and develop quality millions of items of data:
solutions. In so doing, we use a
combination of on-site project
management staff and programming
support from our offshore technology
resource center in Bangalore, India.

. Management Awareness--Advise
corporate executives of the
nature and scope of the Year 2000
problem.
. Inventory Analysis--Provide a
comprehensive survey, data
collection and analysis of the
scope of the Year 2000 problem by
application, line of business or
enterprise.
. Portfolio Assessment--Perform an
in-depth assessment of all of the
data fields and data processing
routines. Source code is analyzed
and computer program interaction
is documented.
. Change Strategy--Determine the
conversion schedule and logistics
by focusing on the relationships
of computer system components.
. Application Renovation--Deliver
on-site project management and
analysis at the customer
facility, combined with the
renovation of affected code.
. Testing--Provide unit testing and
parallel testing comparisons back
to the predetermined baseline of
each application system.

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Additional Technology Services

Command Systems Solutions Description

. Requirements definition and
CommandPRO--Project-based vision
application development and . General analysis
implementation services. These . Prototype sizing and
include turnkey application systems functionality assessment
development, migration and/or . Detail analysis
integration of client/server systems . Platform and tool selection
through all phases of the . Data modeling and interface
development life cycle from design development
through production implementation. . Development and implementation
scheduling

We develop application systems . Prototype development
utilizing leading technology tools . Prototype deployment to selected
provided by vendors such as: users

. Full architectural and platform
.Microsoft development
.Powersoft . Total application system
.Oracle development
.Rational . Enterprise testing
.Lotus/IBM . Implementation
.Cognos

CommandNET--Integrated network . Workstation Migration--Deploys
services to design and deploy consistent enterprise user
networks, including related hardware workstations.
and software systems to: . Messaging--Provides better
communications and reduces cost
of management.

.Reduce network complexity
.Improve deployment speed . Network Systems Engineering--
.Standardize platforms Designs and deploys LAN/WAN
.Integrate messaging software and hardware.
.Manage software assets . Enterprise Software Management--
.Reduce help desk support Designs and deploys software
.Improve enterprise network efficiency management solutions.
.Reduce cost of ownership

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Additional Technology Services

Command Systems Solutions Description

CommandWEB--Internet/intranet . Web-enabling legacy application
application development services. development
Provides web-based application and . Web page design
communication solutions to improve . Graphics and multimedia
internal and external communications . Security protection
and services. . Internet application development

CommandWEB incorporates the use of
leading technologies such as: Java,
HTML, PERL, and leading web servers
from Microsoft, Oracle and Sun
Microsystems.

CommandOO-Object-oriented . Incorporate the use of business
development services to speed the objects within the application
development of new software design.
applications and reduce ongoing . Establish a repeatable process for
software maintenance expenses by the project life cycle.
providing and using leading object- . Develop and utilize enterprise-wide
oriented tools, methodologies and object repository.
expertise.

CommandSOURCE---Provides and manages Outsource and/or insource ongoing
long-term maintenance of application customer application maintenance and
systems by utilizing a range of enhancement needs across client/server
technology toolsets. We provide and mainframe computer environments,
carefully selected and qualified onsite at customer locations, offsite
resources that are fully integrated at our domestic offices and/or at our
into the customer's information offshore technology resource center.
technology environment.

In addition to the foregoing services, we, to a limited extent, provide
educational services to our customer's information technology staff as required
for application systems' development.

Customers

We focus our sales efforts on Fortune 500 companies in the financial
services industries and middle market companies in the insurance, banking and
brokerage industries with significant information technology budgets and
recurring software development needs. During 1998, we provided services to over
100 customers. We seek to maximize our customer retention rate and secure
additional engagements by:

. providing quality services and customer responsiveness,
. leveraging our expertise within the insurance industry into a larger,
more diverse customer base within the broader financial services market
and
. cross-selling additional services to existing customers.

Typical development projects for insurance companies include applications
systems for:

. claims processing . agency management . coordination of
. pensions . premium and loss benefits and
. compensation reporting subrogation
. underwriting and . annual statement . accounting
benefits . actuarial systems

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Typical development projects for other financial services organizations
include applications systems for:

. mutual fund . fund tracking, . human resources
analysis stock transfer . customer
. cash . accounting information
distribution . annual statement
. portfolio
accounting

Organizations in these industries are highly information-dependent and use
information systems to gain a competitive advantage.

The following table sets forth our largest customers by revenue:

Largest Customers By Revenue

<TABLE>
<CAPTION>
For the year ended Percent of
December 31, 1998 Total Revenue
- ------------------ -------------
<S> <C>
MONY Group (Formerly
Mutual Life Insurance
Company of New York)... 15.4%
New York Life Insurance
Company................ 10.2%
<CAPTION>
For the year ended
December 31, 1997
- ------------------
<S> <C>
The Hartford Financial
Services Group, Inc.... 13.1%
New York Life Insurance
Company................ 13.0%
Phoenix Home Life Mutual
Insurance Company...... 10.3%
<CAPTION>
For the year ended
December 31, 1996
- ------------------
<S> <C>
The Hartford Financial
Services Group, Inc.... 13.6%
New York Life Insurance
Company................ 12.6%
</TABLE>

In December 1998, one of our significant customers decided to discontinue
using outside staff augmentation services. Consequently, we will suffer a
significant loss of revenue from this customer. Due to such decline in revenue
and our relatively fixed costs as well as continued pressure on our gross
margins, our business will be materially and adversely affected unless and
until we increase revenue from other sources or lower our costs.

Organizations to which we provided services during the year ended December
31, 1998 include among others:

. Aetna . New York Life . The Hartford
. Fleet Services Insurance Financial Services
. G.E. Capital Company Group, Inc.
. General Reinsurance . Otis Eastern . MONY Group (formerly
. J.P. Morgan Service Mutual Life
. Liberty Mutual Group . Phoenix Home Insurance Company of
. MassMutual Life Mutual New York)
Insurance . TransAmerica Leasing
Company . United Parcel
Service

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Sales and Marketing

We market our services through a direct sales force located throughout our
offices in Farmington and Stamford, Connecticut, Natick, Massachusetts and New
York, New York, as well as senior executives from corporate headquarters. We
sell to customers utilizing a sales team approach in which each team is led by
a senior sales executive and supported by one or more junior sales executives,
recruiters and technology leaders. The members of the team combine their
efforts to present a comprehensive solution proposal to each customer.

In order to develop an in-depth understanding of each customer's individual
needs and to form strong customer relationships, sales executives are assigned
to a limited number of customers that generally does not exceed twelve. These
executives are responsible for providing highly responsive service and ensuring
that the customers' objectives are achieved. Commissions based upon the gross
profit generated from each business transaction constitute a substantial
portion of the total compensation for each sales executive.

We focus our marketing efforts on financial services organizations with
substantial information technology budgets and recurring information technology
staffing and services needs. Marketing programs include direct mail campaigns,
seminars, conferences, trade shows and other activities intended to generate
and maintain an interest in our services. In addition, we have organized our
staff into areas of technology expertise and have branded such areas to promote
market awareness and differentiation.

Our services require a substantial financial commitment by customers and,
therefore, typically involve a long sales cycle. Once a lead is generated, we
endeavor to understand quickly the potential customer's business needs and
objectives in order to develop the appropriate solution and bid accordingly.
Our technology leaders are involved throughout the sales cycle to ensure mutual
understanding of customer goals, including time to completion, and
technological requirements. Sales cycles for complex business solutions
projects typically range from one to six months from the time we initially meet
with a prospective customer until the customer decides whether to authorize
commencement of an engagement.

As of December 31, 1998, we had 22 persons engaged in sales and marketing
full-time. In addition to our sales and marketing force, we also use an outside
public relations firm that coordinates all corporate communications, including
the scheduling of press conferences to promote our services and delivery
methodologies.

Human Resources

As of December 31, 1998, we employed 19 full-time personnel dedicated to
recruiting information technology professionals and managing our human
resources. We actively recruit in the United States and India. Recruiting
methods include advertisement on television, on the radio, in leading
newspapers, in trade magazines, on our web site and through participation in
career fairs. We also participate in on-campus recruiting for recent college
graduates and have hired employees from various schools with degrees in
computer science and management information systems. In addition, we have
established an employee referral plan, which actively involves employees in
referring individuals and screening candidates for new positions. We also
utilize stock options as part of our recruitment and retention strategy.

Our strategy for employee retention includes:

. career planning,
. thorough initial and ongoing training,
. allocation of assignments in accordance with employee skills and career
objectives and
. a comprehensive benefits package, including incentive-based compensation
and tuition reimbursement.

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As part of our retention efforts, we seek to minimize turnover by
emphasizing:

. competitive salaries,
. employee stock options,
. deferred compensation and
. contractual limitations effective upon termination of employment.

All our information technology professionals receive ongoing training on a
variety of technology platforms. We provide on site training to employees to
assist them in making the transition from legacy to client/server skills by
providing cross-platform training in new technologies. In addition to
comprehensive technical training, we provide extensive training in software
quality implementation processes.

Our information technology professionals typically have Bachelor's or
Master's degrees in computer science or another technical discipline, and as of
December 31, 1998, the average U.S.-based professional, including newly hired
personnel, had over 10 years of relevant work experience. As of December 31,
1998, we had 408 employees comprised of 334 salaried information technology
professionals, 22 sales and marketing personnel, 19 recruiting and human
resources personnel and 33 general and administrative personnel. As of December
31, 1998, we also utilized 69 independent contractors to supplement our
information technology workforce.

We have substantially increased the number of our skilled technical and
management personnel at our Bangalore facility and may be required to increase
the number of our skilled technical, marketing and management personnel in the
United States. However, we believe that there is a shortage of, and significant
competition for, information technology professionals and that our future
success is highly dependent upon our ability to attract, train, motivate and
retain skilled information technology consultants with the advanced technical
skills necessary to perform the services offered by us.

Competition to hire these professionals has caused their wages to rise,
which increases our costs and costs in the industry. In the past, we have had a
turnover rate of information technology professionals that is higher than the
industry average. This can occur again in the future. In addition, many of our
consulting contracts allow a customer to hire away our information technology
professionals who are providing consulting services to the customer, for a fee
payable to us. Our ability to maintain existing contracts and obtain new
business depends, in large part, on our ability to hire and retain qualified
personnel. If we cannot hire enough qualified personnel, it will be difficult
to manage and complete existing projects and to bid for new projects. Such a
problem can materially and adversely affect our business, financial condition
and results of operations. We may not succeed in attracting and retaining
qualified employees.

Our employees are not represented by any labor unions. We consider our
relations with our employees to be good.

Our Competition

The information technology services market is highly competitive and
fragmented, and numerous international, national, regional and local firms
serve the market. Many of our competitors have significantly greater financial,
technical and marketing resources and generate greater revenue. In addition, a
significant and increasing number of companies have recently announced that
they offer Year 2000 services or automated Year 2000 software products. We may
lose existing customers to our competitors.

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Our primary competitors include other information technology service
providers, along with participants from a variety of market segments,
including:

. ""Big Five" accounting firms . service groups of computer equipment
. applications software firms companies
. general management consulting firms. programming companies
. temporary staffing firms . in-house information technology
. implementation firms departments

We believe the principal competitive factors in the information technology
service industry include:

. range of services offered . industry expertise
. technical expertise . responsiveness to customer needs
. speed in delivering solutions . quality of service and perceived
value

Intellectual Property Rights

In order to protect our ownership rights in our various intellectual
properties, we rely upon a combination of:

. copyright and trade secret laws and
. non-disclosure and other contractual arrangements.

We presently hold no patents or registered copyrights. Although we believe
that our intellectual property rights do not infringe on the intellectual
property rights of others, we cannot be sure of this and we may be sued in the
future. If this situation arises, we may lose and may have to attempt to settle
with third parties by trying to obtain a license for an infringed intellectual
property, which might not be available at commercially reasonable terms.

Our ability to enforce our intellectual property rights in India may depend
on India law. India is a member of the Berne Convention, an international
treaty. As a member of the Berne Convention, the Government of India has agreed
to extend copyright protection under its domestic laws to foreign works,
including works created or produced in the United States. We believe that laws,
rules, regulations and treaties in effect in the United States and India are
adequate to protect us from unauthorized use of our intellectual property.

We cannot assure you, however, that:

. the steps taken by us to protect our rights will be adequate to deter
theft of our intellectual property,
. we will be able to detect unauthorized use and take appropriate steps to
enforce our rights or
. the laws of India or the United States will remain the same and, in
particular, that the laws of India will not change in ways that affect
us negatively.

Additionally, we may in the future license certain technologies to our
customers. We cannot be certain that we will be able to:

. successfully license these technologies,
. protect them from infringement and
. prevent lawsuits against us relating to our licensing efforts.

We expect that the risk of such lawsuits will increase if more of our
competitors are able to successfully obtain patents for software products and
processes. See "Risk Factors--We Have Limited Protection For and May Be Sued
Over Our Use of Intellectual Property."

12
<PAGE>

More About Command

We incorporated in Delaware on July 1,1997. Prior to that time, we conducted
our business as Command Systems Incorporated, a corporation organized under the
laws of the State of Connecticut on April 2, 1985, which was merged into
Command Systems, Inc. in December 1997. In 1996, we established two
subsidiaries:

. Command International Holdings, LLC, a corporation organized under the
laws of Mauritius and
. Command International Software Pvt., an India unlimited liability
company.

We wholly own Command International Holdings, LLC, which in turn wholly owns
our India subsidiary. Our Bangalore facility and its employees are operated
through our India subsidiary. Our executive offices are located at 76 Batterson
Park Road, Farmington, Connecticut, 06032 and our telephone number is (860)
409-2000.

13
<PAGE>

RISK FACTORS

Please remember to be cautious in reading forward-looking statements.

Important Factors Regarding Forward-Looking Statements

In addition to other information in this Annual Report on Form 10-K and in
the documents we are incorporating by reference, the following risk factors
should be carefully considered in evaluating Command and our business because
such factors currently have a significant impact or may have a significant
impact on our business, operating results or financial condition. This Form 10-
K contains forward-looking statements that have been made pursuant to the
provisions of the Private Securities Litigation Reform Act of 1995. Actual
results could differ materially from those projected in the forward-looking
statements as a result of the risk factors set forth below and elsewhere in
this form.

We May Fail To Obtain More Profitable Service Contracts After Increasing Our
Cost Structure.

A core element of our growth strategy is to derive an increasing percentage
of our revenue from higher margin services, as opposed to lower margin staff
augmentation projects. During 1998, we built up our infrastructure of
personnel, facilities and equipment and other resources to meet anticipated
growth in the demand for Year 2000 conversions and other higher margin
services. As a result of our increased cost structure, if we fail to increase
revenue from higher margin services, our business, financial condition and
results of operations would be materially adversely affected.

The sales and marketing methods for obtaining completed projects and
solutions contracts is different than those for our historical businesses and
involves longer bidding processes. In addition, in performing complete projects
and solutions, we assume greater responsibility in coordinating and completing
larger, more complex projects. Consequently, we may not be successful in
obtaining contracts for delivery of more profitable or higher margin services
or complete any projects and solutions obtained. For the years ended December
31, 1998, and 1997 Year 2000 and other complete projects and solutions
accounted for 33% and 29%, respectively, of our total revenue. In the three
month periods ended June 30, 1998 and September 30, 1998, Year 2000 and other
complete projects and solutions accounted for a decreasing percentage of our
total revenue. In the three month period ended December 31, 1998 revenue from
Year 2000 and other complete projects and solutions was slightly higher than
the three month period ended September 30, 1998 and the year ended December 31,
1997. Revenue from higher margin services may continue to decrease as a
percentage of our revenue for future periods.

Our Quarterly Financial Results Vary and May Be Adversely Affected Because of
our Project-Intensive Business and Certain Relatively Fixed Costs

Our operations and related revenue and operating results historically have
varied substantially from quarter to quarter, and we expect these variations to
continue. If our operating results for a future quarter differ from the
expectations of public market analysts and investors, the price of our common
stock could be adversely affected. The fluctuations in our operating results
occur to a large degree because we obtain a large portion of our revenue from
large projects and because certain of our costs are difficult to control.

Examples of what could happen:

. A major project may be terminated unexpectedly.

. A customer may decide not to pursue a new project or proceed to a
succeeding stage of a current project.

. We may complete several major customer projects during a previous
quarter.

If any of these events occur, we would have less revenue than expected in
the affected quarter. In addition, adjusting certain of our costs in the event
of unexpected shortfalls in revenue is difficult. For example, a high

14
<PAGE>

percentage of our selling, general and administrative expense, particularly
salary, is relatively fixed in advance of any particular quarter. In addition,
hiring and employment practices and applicable law in India make it difficult
for us to effect reductions in staffing at our Bangalore, India facility. As a
result, we are unable to quickly adjust these costs in the event that our
revenues are unexpectedly lower in any quarter. Unanticipated reductions in the
number of projects we perform during any quarter would materially and adversely
affect our results of operations. During 1998, we experienced low rates of
employee utilization at our Bangalore facility. This trend continued in the
first quarter of 1999. Our future success will depend on our ability to manage
our projects and personnel in a manner that allocates our human resources at
profitable billing rates and assumes our employees are performing quality work.
Please see "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations."

We May Not Manage Our Growth Effectively

Our business has grown significantly in size and complexity over the past
several years. In addition, we began operations in Bangalore, India in December
1996. This growth has placed and will continue to place significant demands on
our management and administrative, technical and other operational resources.
Certain members of our senior management team have been with us for less than
one year and our senior management has little experience in managing publicly-
traded companies. If we do not manage our growth effectively, it could have a
material adverse effect on the quality of our services and projects and our
financial condition and results of operations. See "--Our Quarterly Financial
Results Vary and May Be Adversely Affected Because of Our Project-Intensive
Business and Certain Relatively Fixed Costs" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations."

We Are Being Sued By Some Of Our Stockholders

Of the 3,105,000 shares sold in our initial public offering, 2,760,000
shares were properly registered, but the remaining 345,000 were not registered.
Persons who purchased unregistered shares in our initial public offering have
rescission rights under the Securities Act of 1933. If the purchaser has not
sold the shares, the right to rescind means he or she can sue to exchange the
unregistered shares for an amount equal to what he or she paid for the shares,
plus interest. If the purchaser no longer owns the unregistered shares, and
sold them at a loss, he or she may sue for damages. We are being sued by
stockholders in connection with our initial public offering. The stockholders
suing us in their consolidated lawsuit seek rescission of the sales of all the
shares in the initial public offering and unspecified damages, including
rescissionary damages, interest, costs and fees. Please see "Item 3. Legal
Proceedings" and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."

We Rely On Significant Customers Without Long-Term Contracts

We have derived a significant portion of our revenue from a limited number
of large corporate customers. Moreover, our industry has shifted away from the
use of long-term contracts, which might otherwise provide steady work at a time
of decreasing demand for our services. If a significant customer decides to
terminate or reduce the use of our services, our business, financial condition
and results of operations would be materially and adversely affected. For
example, one of our significant customers recently decided to discontinue using
outside staff augmentation services. Consequently, we will suffer a significant
loss of revenue from this customer. Due to such a decline in revenue and our
relatively fixed costs, our business will be materially and adversely affected
unless and until we increase revenue from other sources or lower our costs.

You should consider the following factors in evaluating this risk:

. One of our largest customers is Phoenix Home Life Mutual Insurance
Company, which owns 7.6% of our outstanding common stock. In addition,
one of Phoenix officers, John J. C. Herndon, is a director of Command.
Loss of this strategic relationship could adversely and materially
affect our reputation, our client relationships in the financial service
industry and our financial condition and results of operations.

15
<PAGE>

. Since many of our projects are critical to the operations of our
customers' businesses, expectations can run high. If we do not meet a
customer's expectations, the customer could cancel or decide not to
renew a contract with us. This could damage our reputation and adversely
affect our ability to attract new business.

See "--Customers."

Rapidly Diminishing Demand For Year 2000 Services

Year 2000 projects currently constitute most of our higher margin services.
A core element of our growth strategy is to use the business relationships, and
knowledge of our customers' computer systems obtained in providing our Year
2000 services, to generate additional information technology projects for these
customers. If we are unable to effectively market and deliver a large volume of
additional Year 2000 conversion services, in the near future, our ability to
obtain other contracts to deliver higher margin services would be adversely
impacted. As a result, our business, financial condition and results of
operations would be materially and adversely affected.

As the demand for Year 2000 services decreases, our revenues are likely to
decrease. The extent of this decrease will depend on:

. how much of our revenue is attributable to Year 2000 compliance services
at such time, and

. our ability to offset this decrease by increasing revenue from other
services.

The revenue we receive from each Year 2000 conversion project has declined
as a result of new automated software tools, which enable us to complete Year
2000 conversions using fewer man-hours. Consequently, we will need to obtain a
greater number of contracts for Year 2000 conversion services in order to
increase the share of our revenue obtained from Year 2000 conversion contracts.
If we fail to obtain such greater number of Year 2000 conversion contracts, it
would adversely affect our employee utilization.

In evaluating this risk you should also consider:

. We realized no revenue from Year 2000 services in 1996, and 27% and 21%
of our revenue from Year 2000 services during the years ended December
31, 1998 and 1997, respectively. While the annual percentage from Year
2000 services increased, the quarterly percentage has been decreasing
for each of the quarters of 1998. As of December 31, 1998, we have
completed work on fifteen contracts for Year 2000 conversion projects.

. After expressing certain concerns relating to our performance under a
Year 2000 solutions contract, one of our largest customers ended the
contract in early 1998.

. In 1998 we performed an assessment phase of a Year 2000 conversion
project for one of our other large customers. Following the assessment,
we failed to obtain a contract for the complete Year 2000 conversion
project.

. One of our large Year 2000 contracts was completed as scheduled during
the fourth quarter of 1998.

. Since we are allocating significant resources to solve our customers'
Year 2000 problems, our ability to continue to deliver other information
technology services could be adversely affected.

See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview" and "--Services."

We May Lose Business to Many Competitors

16
<PAGE>

customers to our competitors, which might materially and adversely affect our
revenues. In addition, a significant and increasing number of companies offer
Year 2000 services or automated Year 2000 software products. Our business and
revenues would be hurt if a competitor introduces automated software processes
or tools that would enable companies to perform their own Year 2000 services
more effectively.

We believe that our ability to compete also depends in part on a number of
factors outside our control, including:

. our competitors' ability to hire and retain technical employees,

. the price at which others offer comparable services and

. the extent of our competitors' responsiveness to customer needs.

Please see "--Our Competition" for a discussion of who our competitors are
and the principal competitive factors in our industry.

We Depend on Our Bangalore, India Facility and Doing Business in India May be
Risky

Communications

We depend on our Bangalore, India facility to provide us with the labor
capacity and lower cost advantages to operate our business. To make it work, we
must maintain communications between our domestic offices, the offices of our
United States customers and the Bangalore facility. A loss in our ability to
transmit voice or data, particularly through point to point communication links
to India, could materially and adversely affect our business, financial
condition and results of operations.

Economic and Political Risks in India

In the past, India has experienced significant inflation, low growth in
gross domestic product and shortages of foreign exchange. India has also
experienced civil unrest and terrorism. In the past, the country has been
involved in conflict with neighboring countries. We may be adversely affected
by changes in inflation, interest rates, taxation, social stability or other
political, economic or diplomatic developments in or affecting India in the
future. We believe that as a result of the detonation of nuclear devices in
India in May 1998, there may be some adverse economic repercussions caused by
the institution of sanctions or other similar actions. Although the U.S.
government has decided to lift some sanctions, other sanctions remain. Such
actions could have a material adverse effect on our business, financial
condition or results of operations.

The Government of India has exercised and continues to exercise significant
influence over many aspects of India's economy. The Government of India's
actions concerning the economy could have a material adverse effect on private
sector entities, including our business. To encourage foreign investment in
specified sectors of its economy, including the software development industry,
India's government has provided significant tax incentives and relaxed certain
regulatory restrictions in recent years. Some of these benefits which affect us
include, among others:

. tax holidays,

. liberalized import and export duties and

. preferential rules on foreign investment and repatriation.

If any of these benefits are eliminated or diminished, it could have a
material adverse effect on our business, financial condition and results of
operations.

17
<PAGE>

We Depend on Continued Authorization to Resell

Our future success in both product sales and service and support offerings
depends largely on our continued status as an approved reseller of products and
our continued authorization as a service provider. If we lose one or more of
such authorizations, the loss could have a material adverse effect on our
business, financial condition and results of operations. Without these sales
and service authorizations, we would be unable to provide the range of products
and services we currently offer, including warranty services. Consequently, our
future success depends in part on our continued status as an authorized re-
marketer of computer products. We cannot be sure that we will maintain our
status as an approved reseller and service provider.

We Depend on Hiring and Retaining Foreign Nationals, Subjecting Us to Visa
Limits and Changes in Immigration Laws

During 1998 we employed a number of foreign nationals in the United States,
each of whom obtained the required visas. During 1999, we intend to employ
additional qualified foreign nationals in the United States. We may incur
additional unexpected labor costs in complying with existing United States
immigration laws, or as a result of changes in such laws. For example, there is
a limit on the number of new petitions for certain visas that the Immigration
and Naturalization Service may approve in any year. In years in which this
limit is reached, we may be unable to obtain certain visas necessary to bring
critical foreign employees to the United States. Any restrictions or
limitations on our hiring practices could have a material adverse effect on our
business, financial condition and results of operations. We believe that our
success, in part, may result from our ability to attract and retain people with
technical and project management skills from other countries due to the
shortage of similarly qualified people in the United States.

We are Still Developing Our Internal Controls

We only recently implemented an accounting system capable of generating
information and reports necessary to appropriately manage a public company. We
are developing and implementing a system of internal controls and are
developing an appropriate administrative infrastructure. If we fail to develop
and maintain an effective internal control structure, it could have a material
adverse effect on our business, financial condition and results of operations.

We Do Business in International Markets Which Exposes Us to Currency
Fluctuations and Other Problems Administering Foreign Operations

For the year ended December 31, 1998 and 1997 revenue derived from
operations in India accounted for approximately 10% of our revenue, all of
which related to services we performed for our customers located in the United
States. An increasing percentage of our revenue in the future may be from
operations in India or from providing services outside the United States. As a
result, we are subject to a number of risks, including, among other things:

. we may have difficulties administering our global business and managing
foreign operations,

. we may incur losses as a result of currency fluctuations,

. we may be restricted in repatriating our earnings to the United States,

. we may be subject to export requirements and restrictions and

. we may be subject to multiple and possibly overlapping tax structures.

18
<PAGE>

Any of these factors could have a material adverse effect on our business,
financial condition and results of operations. Any earnings that we generate in
countries other than the United States may be permanently invested in these
countries or may be subject to considerable taxation if we repatriate those
earnings to the United States.

We presently incur a significant amount of our costs in local currency in
India. In contrast, we presently generate most of our revenue in U.S. Dollars.
Accordingly, currency fluctuations-the translation of foreign currencies into
U.S. Dollars-could adversely affect our business, financial condition and
results of operations. Historically, we have not hedged any meaningful portion
of our foreign exchange transactions.

We are Potentially Liable to Customers for Year 2000 Work and Other Projects

We perform many projects that are critical to the operations of our
customers' businesses and provide benefits that may be difficult to quantify.
If a customer's system fails, it could result in a claim for substantial
damages against us, regardless of our responsibility for such failure. In
addition, if we fail to complete a project on time, particularly a Year 2000
conversion contract, customers may sue us for substantial damages.

We generally attempt to limit our liability for damages arising from errors,
mistakes or omissions in rendering our information technology services in our
contracts. These contract provisions may not effectively shield us from
liability for damages. We maintain general liability insurance coverage,
including coverage for errors or omissions in the amount of $5.0 million.
However, we cannot be certain that:

. insurance coverage will continue to be available on reasonable terms,

. such coverage will be available in sufficient amounts to cover one or
more large lawsuits or

. the insurer will not disclaim coverage as to any future lawsuit.

Our business, financial condition and results of operations could be
adversely affected if any of the following occurred:

. one or more successful large lawsuits against us exceeds our insurance
coverage or

. changes are made in our insurance policies, including premium increases,
larger deductibles or coinsurance requirements.

Our Strategy of Expansion Could Adversely Affect Our Business

In keeping with our strategy of leveraging our expertise in the insurance
industry, we may expand our operations through the acquisition of additional
businesses. To date, we have made no material acquisition of an unaffiliated
company. We may not be able to identify, acquire or profitably manage
additional businesses. In addition, if we acquire an additional business, we
may not succeed in integrating the acquired business without substantial
expenses, delays or other operational or financial problems. Further,
acquisitions may involve a number of special risks, including:

. diversion of management's attention,

. failure to retain key acquired personnel,

. unanticipated events or circumstances,

. legal liabilities and

. amortization of acquired intangible assets.

Some or all of these factors could materially and adversely affect our
business, financial condition and results of operations. If acquired customers
are dissatisfied or the acquired business underperforms, either instance could
materially and adversely impact our reputation. Moreover, any acquired business
may not

19
<PAGE>

achieve anticipated revenue and earnings. If we fail to manage our acquisition
strategy successfully, it could materially and adversely affect our business,
financial condition and results of operations. In addition, we may issue
additional shares of our common stock to acquire such additional businesses,
which may reduce the percentage ownership of existing stockholders. See "--
Business Strategy."

We may open new offices in attractive markets with its own personnel, which
may fail and lose money. All of our branch offices were originally start-up
operations. Not all branch offices have been successful. For example, our
branch office in Minneapolis, Minnesota closed primarily as a result of a
shortage of qualified local information technology professionals. We may not be
able to establish what will ultimately be successful branch operations. See "--
Business Strategy."

We Depend on Key Executives

Our success will largely depend upon the continued availability and services
of key executive officers, particularly Edward G. Caputo, our President and
Chief Executive Officer. In addition, Mr. Caputo is instrumental to most of our
customer relationships relating to the delivery of more profitable, complete
project and solution services. If we lose Mr. Caputo or other key executives,
it could have an adverse effect on our customer relationships in this area.
Accordingly, losing Mr. Caputo or other key executives would have a material
adverse effect on our business, financial condition and results of operations.
We maintain key person life insurance on Mr. Caputo in the amount of $10.0
million. This amount of insurance, however, may not be sufficient to offset our
loss of Mr. Caputo's services.

Our Principal Stockholder Controls Us and Can Influence Many Key Decisions

Mr. Caputo beneficially owns approximately 51.9% of the outstanding shares
of our common stock. Accordingly, Mr. Caputo can control the election of
members of the board of directors. Mr. Caputo can also control any decision
whether:

. to merge or sell our assets,

. to change our charter and by-laws and

. to take other actions requiring the vote or consent or our stockholders.

In addition, Mr. Caputo's voting power may delay or prevent a future merger
or change in control. He may also impede or prevent transactions in which
stockholders might otherwise receive a premium for their shares over current
market prices.

We Have Broad Discretion as to Use of Proceeds

We did not allocate for a specific purpose a substantial portion of the net
proceeds, which we received from the initial public offering. Accordingly, our
management has broad discretion with respect to spending the proceeds from the
initial public offering. You must rely on our management to use the proceeds
wisely and not wastefully, with limited information concerning the specific
working capital requirements and general corporate purposes to which the funds
will ultimately be applied.

We Have Limited Protection For and May Be Sued Over Our Use of Intellectual
Property

As an information technology service provider, we are dependent on using our
own intellectual property and the intellectual property of others to provide
our services. In doing so, we run the risk that our intellectual property may
be inadequately protected from infringement. We also may be sued with claims of
unauthorized use of our own intellectual property and/or third party
intellectual property. Moreover, since we do business in India, we are also
subject to a changes, to the status of our rights under India's law and may be
subject to India's jurisdiction on some matters. Any lawsuits, regardless of
outcome, could greatly divert our focus on our

20
<PAGE>

business and would be costly. Thus, any intellectual property lawsuits would
have a material adverse effect on our business, financial condition and results
of operations. For a more detailed discussion, please see "--Intellectual
Property Rights."

Our Common Stock Price is Subject to Significant Market Volatility

Prior to the initial public offering there was no public market for our
common stock. We cannot assure you that an active trading market will be
sustained. Market prices for securities of information technology service
companies similar to Command are highly volatile. The market price of our
common stock has been adversely affected in response to:

. variations in quarterly operating results and

. our failure to achieve earnings estimates of securities analysts.

The market price of the common stock may experience further volatility in
the future. See "--Additional Shares Eligible for Sale May Adversely Affect Our
Market Price and Impair Capital Raising."

Difficulties in Acquiring Control of Our Company Under Our Charter and Delaware
Law May Discourage Future Transactions Generating Significant Stockholder Value

Anyone seeking to acquire control of Command may encounter difficulties
because of anti-takeover provisions in our charter and under Delaware law.
These provisions are intended to encourage any person interested in acquiring
us to negotiate with and obtain the approval of our board of directors in
connection with the transaction. These provisions could have the effect of
delaying, deterring or preventing a merger or change in control. Some of these
provisions may also discourage a future acquisition of Command even if
stockholders would receive an attractive value for their shares and even if a
substantial number, or even if a majority, of our stockholders might believe
the transaction to be in their best interest. As a result, stockholders who
desire to participate in such a transaction may not have the opportunity to do
so.

Additional Shares Eligible for Sale May Adversely Affect Our Market Price and
Impair Capital Raising

An increase in the amounts of our common stock trading in the public market
could adversely affect the market price of the common stock and impair our
ability to raise capital through an equity offering. The 3,105,000 shares sold
in our initial public offering are freely tradable without restriction by
persons other than people who qualify as our "affiliates." However, additional
shares are or will be publicly tradable as follows:

. assuming no outstanding options have been exercised, about 3,972,500
shares were subject to lock-up agreements which expired on September 9,
1998 are now available for public sale, subject to Rule 144 or Rule 701
of the Securities Act.

. 579,250 shares are eligible for public sale over a period of less than
one year, subject to Rule 144; the holders of these shares have Form S-3
or piggyback registration rights. If they exercise their rights, these
shares could be immediately available for public sale, subject to an
effective registration statement.

. we intend to register 427,500 shares of common stock underlying the 1997
Employee, Director and Consultant Stock Plan; and 56,500 shares of
common stock underlying options which were issued in exchange for units
which had been initially granted under our Shadow Stock Plan.

Any sales of shares made under Rule 144, by other exemptions from
registration, or by exercising the registration rights, may have an adverse
effect on the market price for the common stock and could impair our ability to
raise capital through an offering of equity securities.

21
<PAGE>

Item 2. PROPERTIES.

Command Systems, Inc. leases approximately 15,065 square feet of office
space in Farmington, Connecticut which is used by our senior management,
administrative personnel, human resources and sales and marketing functions.
This lease expires on March 31, 2003. We also lease facilities in Stamford,
Connecticut, Natick, Massachusetts, and New York, New York.

In addition, we lease approximately 23,450 square feet of office space in
downtown Bangalore, India for our offshore technology resource center. We have
sublet approximately 4,200 square feet effective February 1, 1999 and another
2,100 square feet effective March 1, 1999, each for a period of one year. This
lease expires on September 15, 2000 and is renewable at our option for a two-
year period.

We believe that these facilities, together with additional space to be
obtained at our headquarters in Farmington, Connecticut will be adequate for
our presently anticipated future needs.

Item 3. LEGAL PROCEEDINGS.

The plaintiffs seek rescission of all the sales of the shares in the initial
public offering and unspecified damages, including rescissionary damages,
interest, costs and fees. Such stockholder litigation, if concluded in favor of
the plaintiffs, could have a material adverse effect on our business, financial
condition and results of operations. On December 7, 1998, we and the other
defendants entered into a memorandum of understanding to settle the dispute
with the plaintiffs, but a memorandum of understanding is not a definitive
settlement agreement. A definitive settlement agreement resulting from the
memorandum will also require court approval. By the terms of the memorandum,
the parties have agreed in principle to a total payment from Command to the
plaintiffs of $5.75 million in cash plus accrued interest, minus approved
attorney's fees and related expenses. The $5.75 million will accumulate
interest as of the date of the preliminary court approval of a definitive
settlement agreement entered into among the parties based on the memorandum,
but will not be payable until the court approves the settlement and such
approval is final. In addition, we may be responsible for certain legal fees
and related expenses incurred in connection with the litigation. We recognized
a one-time charge to operations in the fourth quarter of 1998 in the amount of
$1,800,000 for our cost of the settlement and related expenses. There can be no
assurance, however, that a definitive settlement agreement will be reached, or
that it will be approved by the court.

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<PAGE>

Of the $5.75 million to be deposited in a settlement fund by Command, we
will be reimbursed for all but $1.65 million. This reimbursement will come in
part from Command's insurance carrier and the rest pursuant to the
indemnification agreement with our former counsel in the initial public
offering. In addition, we may be responsible for certain legal fees and related
expenses incurred in connection with the litigation. We cannot be certain,
however, that a definitive agreement will be reached, or that if it is reached,
that the court will approve it.

In the definitive settlement agreement, the members of the class represented
by plaintiffs will give up their right to assert individual claims against
Command or its underwriters, based on their purchase of our common stock in the
initial public offering and in the open market during the period from March 12,
1998 through April 29, 1998. In return for this concession, class members will
be entitled to share pro rata in the $5.75 million cash settlement fund, plus
interest, minus approved attorneys' fees and related expenses, upon the court's
final approval of the settlement. Any class member can decide not to
participate in the settlement, and choose to pursue his or her individual claim
against Command or the other defendants, by filling out and returning an "opt-
out" form which will be mailed to all class members following the court's
preliminary approval of the settlement.

The memorandum of understanding provides for a pro rata distribution of the
cash settlement fund, plus interest, minus approved attorneys' fees and related
expenses, to purchasers of Command common stock in the period from March 12
through April 29, 1998, inclusive. Without knowing the number of claimants and
the amount of attorneys' fees and expenses to be approved by the court, we
cannot estimate the net amount actually payable on a per share basis.

If the court decides not to approve the settlement, the stockholder
litigation will continue. If concluded in favor of the plaintiffs, such
litigation could have a material adverse effect on our business, financial
condition and results of operation.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock has been trading on the Nasdaq National Market under the
symbol CMND since our initial public offering on March 12, 1998. The following
table sets forth the closing high and low sale prices for our common stock for
each quarter of 1998.

<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
First Quarter from (March 12, 1998)..................... $14 3/4 $13
Second Quarter.......................................... 18 3/4 4
Third Quarter........................................... 5 11/16 2 7/8
Fourth Quarter.......................................... 3 11/16 2 7/8
</TABLE>

As of March 29, 1999, there were approximately 16 holders of record of our
common stock.

We have never declared or paid any dividends on our common stock. We were,
however, obligated to pay a 10% dividend on our Series A and Series B
redeemable convertible preferred stock. We paid these accrued and unpaid
dividends with a portion of the net proceeds from the initial public offering
upon the conversion of the preferred stock. We do not anticipate paying any
other cash dividends in the foreseeable future and intend

23
<PAGE>

to retain any earnings to fund future growth and the operation of our business.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."

Item 6. SELECTED CONSOLIDATED FINANCIAL DATA.

The following selected consolidated financial data as of December 31, 1998,
1997, 1996, 1995 and 1994 and for the years then ended are derived from and are
qualified by reference to our audited consolidated financial statements and the
notes thereto. The audited consolidated financial statements include all
adjustments, consisting only of normal recurring accruals, which we consider
necessary for a fair presentation of the financial position and the results of
operations. Historical results are not necessarily indicative of result to be
expected in the future. The data should be read in conjunction with our
consolidated financial statements, including the notes thereto appearing
elsewhere in this report, "Item 7. Management's Discussion and Analysis for
Financial Condition and Results of Operations," and other financial information
included herein.

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- ------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue........................... $35,215 $25,057 $17,069 $12,436 $9,272
Cost of revenue................... 24,528 16,973 12,494 9,108 6,890
------- ------- ------- ------- ------
Gross profit...................... 10,687 8,084 4,575 3,328 2,382
Selling, general and
administrative expense........... 11,926 7,255 5,172 3,013 2,102
Litigation expense................ 1,800 -- -- -- --
------- ------- ------- ------- ------
(Loss) income from operations..... (3,039) 829 (597) 315 280
Other income (expense), net....... 954 (277) (75) (50) (55)
------- ------- ------- ------- ------
(Loss) income before income taxes
and minority interest............ (2,085) 552 (672) 265 225
Income tax benefit (provision).... 318 (498) 8 (44) (32)
------- ------- ------- ------- ------
(Loss) income before minority
interest......................... (1,767) (46) (664) 221 193
Minority interest in net (income)
loss............................. -- (451) 241 -- --
------- ------- ------- ------- ------
Net loss.......................... (1,767) (497) (423) 221 193
Preferred stock dividends and
accretion........................ (260) (80) -- -- --
------- ------- ------- ------- ------
Loss applicable to common
stockholders..................... $(2,027) $ (577) $ (423) $ 221 $ 193
======= ======= ======= ======= ======
Basic and diluted loss per common
share............................ $ (0.29)
=======
Pro forma results of operations:
Adjustments to U.S. federal income
tax provision assuming C
Corporation status............... $ 633
Net income, as adjusted........... 136
Preferred stock dividends and
accretion........................ (80)
-------
Income applicable to common
stockholders..................... $ 56
=======
Pro forma basic earnings per
common share..................... $ 0.01
=======
Shares used in per share
calculation:
Basic............................. 7,018 4,275
Diluted........................... 7,018 4,275
</TABLE>

24
<PAGE>

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1998 1997 1996 1995 1994
------- ------ ----- ----- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.................. $16,170 $ 392 $ 444 $ 223 $ 83
Working capital (deficit).................. 21,172 460 (99) 85 86
Total Assets............................... 35,648 14,425 4,816 2,294 1,188
Short-term debt............................ -- 1,414 1,452 949 436
Long-term debt............................. -- -- 1,145 -- --
Series A redeemable convertible preferred
stock..................................... -- 2,223 -- -- --
Series B redeemable convertible preferred
stock..................................... -- 8,000 -- -- --
Stockholders' equity (deficit)............. 30,455 (722) (58) 365 142
</TABLE>

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

The following discussion and analysis should be read in conjunction with
"Item 6.--Selected Financial Data" and our consolidated financial statements,
including the notes thereto, appearing elsewhere in this report.

Overview

We are an information technology service company providing a wide range of
computer consulting services to our customers. Historically, we have derived
the majority of our revenue from our traditional staff augmentation services
and software and hardware solutions. We introduced Year 2000 compliance
services in December 1996. As a result of the significant demand for such
services, a significant percentage of our revenue during the year ended
December 31, 1998 and 1997 was derived from Year 2000 compliance services. Year
2000 compliance services, as well as other complete project and solution
services, typically provide higher margins than our staff augmentation and
software and hardware solutions. Moreover, as indicated below, we have decided
to de-emphasize our hardware solutions services.

The following table sets forth the revenue percentages by line of business.

Percentage of Total Revenue

<TABLE>
<CAPTION>
Three Three Three Three
Months Months Months Months Year Year Year
Ended Ended Ended Ended Ended Ended Ended
Dec. 31, Sept. 30, Jun. 30, Mar. 31, Dec. 31, Dec. 31, Dec. 31,
1998 1998 1998 1998 1998 1997 1996
-------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Staff Augmentation...... 62% 62% 52% 51% 57% 59% 86%
Year 2000............... 22% 25% 28% 31% 27% 21% 0%
Software and Hardware... 8% 9% 14% 12% 10% 12% 11%
Other................... 8% 4% 6% 6% 6% 8% 3%
---- ---- ---- ---- ---- ---- ----
Total Revenue......... 100% 100% 100% 100% 100% 100% 100%
==== ==== ==== ==== ==== ==== ====
</TABLE>

As indicated above, revenue from Year 2000 projects decreased as a
percentage of our revenue in each of the quarters in 1998. There can be no
assurance that revenue from Year 2000 projects will not decrease as a
percentage of our revenue for future periods. We have decided to de-emphasize
our hardware solutions services due to the fact that they carry low margins
and, therefore, hardware solutions may constitute a decreasing percentage of
our revenue.

The results of operations during 1998 were adversely affected primarily due
to costs associated with our increase in sales and project management
personnel, which were not accompanied by expected growth in

25
<PAGE>

complete projects and solutions business. In addition, we experienced a lower
than expected gross margin reflecting low rates of employee utilization in the
offshore technology resource center, a less profitable mix of business and
reduced margins from Year 2000 and other project business. Gross profit as a
percentage of revenue may be affected as we continue to strive to shift an
increasing percentage of our business from staff augmentation to a project
orientation. Following certain concerns expressed relating to our performance
under a Year 2000 compliance services contract for one of our largest customers
in early 1998, the customer terminated the contract.

As a result of diminishing demand for Year 2000 services and the impact of
the recent decision by one of our significant customers to discontinue using
outside staff augmentation services, we expect to experience a decline in our
revenue in the first quarter of 1999. In addition, one of our large Year 2000
contracts was completed as scheduled during the fourth quarter of 1998. Due to
such decline in revenue and our relatively fixed costs, as well as continued
pressure on our gross margins, our business will be materially and adversely
affected unless and until we increase revenue from other sources or lower our
costs.

Over 90% of our service revenue is billed on a time and materials basis.
Revenue from services provided on a time and materials basis is recognized in
the period that services are provided. The balance of our service revenue is
derived from services provided on a fixed-price basis. Such revenue is
recognized using the percentage-of-completion method. We bear the risk of cost
overruns and inflation with respect to our fixed-price projects. When entering
into such contracts, we strive to mitigate the attendant risks by subdividing
such projects into smaller, more manageable phases with fixed price and time
frames. See "Item 1. Business--Risk Factors--Our Quarterly Financial Results
Vary and May Be Adversely Affected Because of Our Project--Intensive Business
and Certain Relatively Fixed Costs."

In the mid-1990s, several conferences and market pronouncements increased
worldwide awareness of the Year 2000 problem, which prevents existing
applications from properly interpreting dates after 1999. We began providing
Year 2000 compliance services in December 1996 through our workforce both in
the U.S. and at the software development facility in Bangalore, India in
response to the needs and demands of our customers. See "Item 1. Business--Risk
Factors--Rapidly Diminishing for Year 2000 services," "--We Depend on Our
Bangalore, India Facility and Doing Business in India is Risky" and "Item 1.
Business--Industry Overview."

Personnel and rent expenses represent a significant percentage of our
operating expenses and are relatively fixed in advance of any particular
quarter. In particular, due to hiring and employment practices and applicable
law in India, it has been difficult to affect appropriate reductions of staff
at our Bangalore, India facility in response to revenue shortfalls. Senior
management seeks to manage our personnel utilization rates by carefully
monitoring our needs and basing most personnel increases on specific project
requirements. To the extent revenue does not increase at a rate commensurate
with these additional expenses, our results of operations could be materially
and adversely affected.

During 1996, we entered into an agreement with Phoenix Home Life Mutual
Insurance Company to organize Command International Software Pvt. in Bangalore,
India, an offshore technology resource center. Initially, we and Phoenix
maintained a 51% and 49% interest, respectively, in Command International
Software Pvt.. On December 31, 1997, Phoenix, acting through a wholly-owned
subsidiary, exchanged its 49% interest for shares of our Series B redeemable
convertible preferred stock. Phoenix converted these shares of preferred stock
into 659,250 shares of common stock upon consummation of the initial public
offering. Accordingly, we currently own 100% of the Bangalore facility.

As a result of the acquisition of the minority interest in the Bangalore
facility, we recorded goodwill of approximately $6.8 million which will be
amortized over a period of 15 years commencing January 1, 1998.

We believe that as a result of the detonation of nuclear devices in India in
May 1998, there may be some adverse economic repercussions caused by the
institution of sanctions or other similar actions, the effects of which are
unknown to management at this time. Although the U.S. government has decided to
lift some

26
<PAGE>

sanctions, other sanctions remain. No assurance can be given that such actions
will not have a material adverse effect on our business, financial condition or
results of operations.

Income Tax Matters

From our inception through August 23, 1997, we had elected to be taxed under
the S Corporation provisions of the Internal Revenue Code of 1986, as amended.
An S Corporation generally is not subject to income tax at the corporate level,
with certain exceptions under state income tax laws. This election was
terminated in conjunction with our formation as a Delaware holding corporation
and the issuance of our Series A redeemable convertible preferred stock.

In connection with the termination of our S Corporation status, we were
required by the Internal Revenue Code to change our method of accounting for
tax reporting purposes from the cash method to the accrual method. This change
resulted in a one-time charge to earnings of $693,000, which was recorded in
the three month period ended September 30, 1997. This was the result of
differences of approximately $2.0 million in the tax treatment of some of our
assets and liabilities under the cash and accrual methods of accounting and is
reflected through an increase in current and deferred income tax liabilities.

The offshore technology resource center in Bangalore, India is eligible for
certain favorable tax treatment provided under India law including:

. an exemption from payment of corporate income taxes for a period of five
consecutive years in the first eight years of operation or,

. an exemption from income taxes on the profits derived from sources
outside India, known as an export exemption.

The export exemption remains available after expiration of the tax holiday.
As a result of the availability of these exemptions, we have not recorded
deferred income taxes applicable to the undistributed earnings of the offshore
technology resource center, which aggregated approximately $1,439,000 and
$429,000, as of December 31, 1998 and 1997, respectively. We consider these
earnings to be permanently invested in India and do not anticipate repatriating
any of these earnings to the U.S. If any earnings of our subsidiary, Command
International Software Pvt., are repatriated to the U.S. in the future, we will
be required to record a provision for income taxes on such amounts and, upon
repatriation of the funds, pay U.S. taxes thereon.

Results of Operations

The following table sets forth certain operating data as a percentage of
revenue for the periods indicated.

<TABLE>
<CAPTION>
Year Ended
December 31,
---------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Revenue............................................... 100.0% 100.0% 100.0%
Cost of revenue....................................... 69.7 67.7 73.2
----- ----- -----
Gross profit.......................................... 30.3 32.3 26.8
Selling, general and administrative expense........... 33.8 29.0 30.3
Litigation expense.................................... 5.1 -- --
----- ----- -----
(Loss) income from operations......................... (8.6) 3.3 (3.5)
Other income (expense), net........................... 2.7 (1.1) (0.5)
----- ----- -----
(Loss) income before income taxes and minority
interest............................................. (5.9) 2.2 (4.0)
Income tax benefit (provision)........................ 0.9 (2.4) --
----- ----- -----
(Loss) before minority interest....................... (5.0) (0.2) (4.0)
Minority interest..................................... -- (1.8) 1.4
----- ----- -----
Net loss.............................................. (5.0) (2.0) (2.6)
Preferred stock dividends and accretion............... (0.7) (0.3) --
----- ----- -----
Loss applicable to common stockholders................ (5.7)% (2.3)% (2.6)%
===== ===== =====
</TABLE>

27
<PAGE>

Year Ended December 31, 1998 Compared With Year Ended December 31, 1997

Revenue. Revenue for the year ended December 31, 1998 increased by 41.0% to
$35,215,000 from $25,057,000 for the year ended December 31, 1997. This
resulted primarily from an increase in revenue generated from Year 2000
compliance services. As compared to the year ended December 31, 1997, revenue
from Year 2000 projects and other services for the year ended December 31, 1998
increased as a percentage of our revenue. However, revenue from Year 2000
projects and other services for the three months ended December 31, 1998
decreased as a percentage of our revenue as compared to the three month periods
ended March 31, 1998 and June 30, 1998, and was slightly higher than the three
months ended September 30, 1998. There can be no assurance that revenue from
Year 2000 and other services will not continue to decrease as a percentage of
our revenue for future periods. We have decided to de-emphasize our hardware
solutions services due to the fact that they carry low margins and, therefore,
hardware solutions may constitute a decreasing percentage of our revenue. As a
result of diminishing demand for Year 2000 services and the impact of the
recent decision of one of our significant customers to discontinue using
outside staff augmentation services, we expect to experience a decline in our
revenue in the first quarter of 1999. In addition, we completed one of our
large Year 2000 contracts during the fourth quarter 1998.

Gross Profit. Cost of revenue consists primarily of salaries and employee
benefits for personnel as well as the cost of hardware and software purchased
for resale to customers. Gross profit for the year ended December 31, 1998
increased by 32.2% to $10,687,000 from $8,084,000 for the year ended December
31, 1997. Gross profit as a percentage of revenue decreased to 30.3% for the
year ended December 31, 1998 from 32.3% for the year ended December 31, 1997.
This decrease resulted primarily from low rates of employee utilization in
India, a less profitable mix of business and reduced margins for Year 2000,
other project and staff augmentation business.

Selling, General and Administrative Expense. Selling, general and
administrative expense consists primarily of salaries and employee benefits for
selling and administrative personnel as well as travel, telecommunications and
occupancy costs for our U.S. and India operations. These expenses are
relatively fixed in advance of any particular quarter. To the extent revenue
does not increase at a rate commensurate with these expenses, our results of
operations could be materially and adversely affected. Selling, general and
administrative expense, net of amortization of goodwill, for the year ended
December 31, 1998 increased by 82.9% to $13,269,000 from $7,255,000 for the
year ended December 31, 1997, and included a one-time charge to operations of
$1,800,000, relating to the proposed settlement of stockholder litigation and
related costs. In addition, the increase was also attributable to additional
sales and project management personnel, which were added in anticipation of
growth in complete projects and solutions business which, did not materialize
to the extent expected.

Amortization of goodwill for the year ended December 31, 1998 was $456,000,
relating to our purchase of the 49% minority interest in our Bangalore facility
from PHL Global Holding Co. on December 31, 1997. We accounted for this
transaction as a purchase and recognized the $6,845,000 excess of the purchase
price over the fair value of the assets acquired and liabilities assumed as
goodwill that will be amortized over fifteen years.

(Loss) Income From Operations. Operations for the year ended December 31,
1998 lost $3,039,000 compared to income of $829,000 for the year ended December
31, 1997. Loss from operations as a percentage of revenue was (8.6)% for the
year ended December 31, 1998 as compared to income of 3.3% for the year ended
December 31, 1997. Absent the recognition of the one-time settlement and
litigation expenses, we would have reported at $1,239,000 loss from operation
for the year ended December 31, 1998.

Other Income (Expense), Net. Other income, net, was $954,000 for the year
ended December 31, 1998 compared to other expense net of $277,000 for the year
ended December 31, 1997. The other income was primarily attributable to
interest earned from investments in commercial paper, cash equivalent
instruments and marketable securities from the net proceeds of our initial
public offering during the year ended December 31,

28
<PAGE>

1998. Interest expense in 1997 was a result of bank borrowings required to
provide us with working capital and accrued interest expense associated with
subordinated notes issued to Phoenix Home Life Mutual Insurance Company. In
addition, during 1998, we recognized an $87,000 foreign currency exchange gain
in connection with our U.S. Dollar-denominated cash and receivable balances of
the offshore technology resource center in Bangalore, India.

Income Tax (Provision) Benefit. The income tax benefit for the year ended
December 31, 1998 was $318,000, as a result of the utilization of deferred tax
credits. We compute our income tax provision on a quarterly basis and provide
for deferred income taxes based upon the difference between the financial
statement and tax basis of assets and liabilities. A valuation allowance is
provided when necessary to reduce the deferred tax asset to the amount expected
to be realized.

From our inception through August 23, 1997, we had elected to be taxed under
the S Corporation provisions of the Internal Revenue Code of 1986, as amended.
An S Corporation generally is not subject to income tax at the corporate level
with certain exceptions under state income tax laws. This election was
terminated in conjunction with our formation as a Delaware holding corporation
and the issuance of our Series A redeemable convertible preferred stock.

In connection with the termination of our S Corporation status, we were
required by the Internal Revenue code to change our method of accounting for
tax reporting purposes from the cash method to the accrual method. This change
resulted in a one-time charge to earnings in the year ended December 31, 1997
of $693,000 resulting from differences of approximately $2.0 million in the tax
treatment of certain of our assets and liabilities under the cash and accrual
methods of accounting and is reflected through an increase in current and
deferred income tax liabilities.

Preferred Stock Dividends and Accretions. Preferred stock dividends and
accretion was $260,000 in 1998 and $80,000 in 1997.

(Loss) Income Applicable to Common Stockholders. As a result of the
foregoing, loss applicable to common stockholders was $2,027,000 for the year
ended December 31, 1998 as compared to net income of $56,000 on a pro-forma
basis for the year ended December 31, 1997. Therefore, basic and diluted loss
per share were $0.29 for the year ended December 31, 1998 as compared to pro-
forma earnings of $0.01 for the year ended December 31, 1997. Pro-forma
earnings give rise to the effect of the change in corporate tax status. Absent
the recognition of the one-time settlement and litigation expense, the net loss
for the year ended December 31, 1998 would have been $91,000 or $0.01 per
share. The weighted average number of shares outstanding used in the
calculation of basic and diluted earnings per share increased over the
comparable period as a result of shares issued in conjunction with our March
12, 1998 initial public offering.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

Revenue. Revenue during the year ended December 31, 1997 increased by 46.8%
to $25,057,000 from $17,069,000 during the year ended December 31, 1996. This
increase resulted primarily from an increase in demand for our traditional
information technology consulting services and the introduction of Year 2000
solutions services in December 1996.

Gross Profit. Gross profit during the year ended December 31, 1997 increased
by 76.7% to $8,084,000 from $4,575,000 during the year ended December 31, 1996.
Gross profit as a percentage of revenue increased to 32.3% during the year
ended December 31, 1997 from 26.8% during the year ended December 31, 1996.
This increase resulted primarily from the introduction of our Year 2000
solution services which were performed primarily from our offshore technology
resource center in Bangalore, India and which carried higher margins than our
information technology services performed in the United States.

Selling , General and Administrative Expense. Selling, general and
administrative expense during the year ended December 31, 1997 increased by
40.3% to $7,255,000 from $5,172,000 during the year ended

29
<PAGE>

December 31, 1996. Selling, general and administrative expense as a percentage
of revenue decreased to 29.0% during the year ended December 31, 1997 from
30.3% during the year ended December 31, 1996. The decrease resulted primarily
from increased revenue from our offshore facilities.

Income (Loss) from Operations. Income from operations during the year ended
December 31, 1997 was $829,000 compared to a loss of ($597,000) during the year
ended December 31, 1996. Income from operations as a percentage of revenue was
3.3% during the year ended December 31, 1997 as compared to a loss of (3.5)%
during the year ended December 31, 1996,.

Other Income (Expense), net. Other expense during the year ended December
31, 1997 increased to $277,000 from $75,000 during the year ended December 31,
1996. The increase resulted primarily from an increase in our borrowing to
support the expansion of our offshore technology resource center.

Income Tax (Provision) Benefit. Income tax provision during the year ended
December 31, 1997 increased to $(598,000) from a benefit of $8,000 during the
year ended December 31, 1996. This increase was a result of our change from S
Corporation status to C Corporation status. Pursuant to this change, we
incurred a one-time charge in the amount of $693,000 because of the related
requirement to change from the cash method of accounting to the accrual method
of accounting.

Minority Interest in Net (Income) Loss. Minority interest in net (income)
loss was ($451,000) during the year ended December 31, 1997 as compared to
income of $245,000 during the year ended December 31, 1996.

Preferred stock dividends and accretion. Preferred stock dividends and
accretion for the year ended December 31, 1997 were $80,000.

Quarterly Results of Operations

The table below set forth certain quarterly operating information for each
of the eight quarters ending December 31, 1998 both in Dollars and as
percentage of revenue. This information was derived from our audited
consolidated financial statements, which in the opinion of management:

. were prepared on the same basis as our consolidated financial
statements, including the notes thereto, appearing elsewhere in this
Form 10-K.

. includes all adjustments, consisting of normal recurring accruals,
which management consider necessary for fair presentation of the
information for the periods presented.

30
<PAGE>

The financial data given below should be read in conjunction with the
consolidated financial statements, including the notes thereto, appearing
elsewhere in this Form 10-K. Results for any fiscal quarter are not necessarily
indicative of the results for the full year or any future quarter.

<TABLE>
<CAPTION>
Dec. 31, Sept. 30, June 30, Mar. 31 Dec. 31, Sept. 30, June 30, Mar. 31
1998 1998 1998 1998 1997 1997 1997 1997
-------- --------- -------- ------- -------- --------- -------- -------
(in thousands)
Results of Operations:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $ 9,663 $8,921 $8,697 $7,934 $7,316 $6,861 $5,736 $5,144
Cost of revenue......... 7,138 6,331 5,949 5,110 4,760 4,380 3,987 3,846
------- ------ ------ ------ ------ ------ ------ ------
Gross profit............ 2,525 2,590 2,748 2,824 2,556 2,481 1,749 1,298
Selling, general and
administrative
expense................ 3,240 3,163 3,251 2,272 1,971 2,079 1,731 1,474
Litigation expense...... 1,800 -- -- -- -- -- -- --
------- ------ ------ ------ ------ ------ ------ ------
(Loss) income from
operations............. (2,515) (573) (503) 552 585 402 18 (176)
Other income (expense),
net.................... 254 319 375 6 (36) (73) (130) (38)
------- ------ ------ ------ ------ ------ ------ ------
(Loss) income before
income taxes and
minority interest...... (2,261) (254) (128) 558 549 329 (112) (214)
Income tax benefit
(provision)............ 203 66 153 (104) 74 (672) -- --
------- ------ ------ ------ ------ ------ ------ ------
(Loss) income before
minority interest...... (2,057) (188) 25 454 623 (343) (112) (214)
Minority interest....... -- -- -- (267) (160) 33 (57)
------- ------ ------ ------ ------ ------ ------ ------
Net (loss) income....... (2,057) (188) 25 454 356 (503) (79) (271)
Preferred stock
dividends and
accretion.............. -- -- (260) (57) (23) -- --
------- ------ ------ ------ ------ ------ ------ ------
(Loss) income applicable
to common
stockholders........... $(2,057) $ (188) $ 25 $ 194 $ 299 $ (526) $ (79) $ (271)
======= ====== ====== ====== ====== ====== ====== ======
<CAPTION>
As a Percentage of Total
Revenue:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue......... 73.9 71.0 68.4 64.4 65.1 63.8 69.5 74.8
------- ------ ------ ------ ------ ------ ------ ------
Gross profit............ 26.1 29.0 31.6 35.6 34.9 36.2 30.5 25.2
Selling, general and
administrative
expense................ 33.5 35.4 37.4 28.6 26.9 30.3 30.2 28.6
Litigation expense...... 18.6 -- -- -- -- -- -- --
------- ------ ------ ------ ------ ------ ------ ------
(Loss) income from
operations............. (26.0) (6.4) (5.8) 7.0 8.0 5.9 0.3 (3.4)
Other income (expense),
net.................... 2.6 3.6 4.3 0.1 (0.5) (1.1) (2.3) (0.7)
------- ------ ------ ------ ------ ------ ------ ------
(Loss) income before
income taxes and
minority interest...... (23.4) (2.8) (1.5) 7.1 7.5 4.8 (2.0) (4.1)
Income tax benefit
(provision)............ 2.1 0.7 1.8 (1.3) 1.0 (9.7) -- --
------- ------ ------ ------ ------ ------ ------ ------
(Loss) income before
minority interest...... (21.3) (2.1) 0.3 5.8 8.5 (5.0) (2.0) (4.1)
Minority interest....... -- -- -- -- (3.6) (2.3) 0.6 (1.1)
------- ------ ------ ------ ------ ------ ------ ------
Net (loss) income....... (21.3) (2.1) 0.3 5.8 4.9 (7.3) (1.4) (5.2)
Preferred stock
dividends and
accretion.............. -- -- -- (3.3) (0.8) (0.3) -- --
------- ------ ------ ------ ------ ------ ------ ------
(Loss) income applicable
to common
stockholders........... (21.3%) (2.1%) 0.3% 2.5% 4.1% (7.6%) (1.4%) (5.2%)
======= ====== ====== ====== ====== ====== ====== ======
</TABLE>

Our operations and related revenue and operating results historically have
varied substantially from quarter to quarter and we expect these variations to
continue. These fluctuations in our operating results occur to a large degree
because we obtain a large portion of our revenue from large projects and
because certain of our costs are relatively fixed.

Factors causing these variations include:

. number, timing and scope of our projects,

. contractual terms of our projects,

. delays incurred in performing our projects,

. difficulty in accurately estimating resources and time frames for
completing our projects,

31
<PAGE>

. patterns of capital spending by customers,

. information technology outsourcing trends,

. pricing changes in response to various competitive factors,

. new service introductions by our competitors,

. level of market acceptance of our service and product offerings,

. our ability to staff our assignments with qualified personnel and

. general economic conditions.

A high percentage of selling, general and administrative expenses,
particularly salary, are fixed in advance of any particular quarter. As a
result, unanticipated variations in the number and timing of our projects
during a particular quarter may cause a significant variations in the operating
results in that quarter. The following situations could require us to continue
to pay for underutilized personnel and, therefore, materially and adversely
affect our financial condition and results of operations:

. A major project may be terminated unexpectedly.

. A customer may decide not to pursue a new project or proceed to a
succeeding stage of a current project.

. We may complete several major customer projects during a previous
quarter.

Specifically, hiring and employment practices and applicable law in India
make it difficult for us to effect reductions in staffing at our Bangalore,
India facility. The results of operations in the second, third and fourth
quarter were adversely affected primarily due to costs associated with our
increase in a sales and project management personnel which were not accompanied
by expected growth in complete projects and solution business. In addition, we
experienced:

. A lower than expected gross margin reflecting lower rates of employee
utilization in the Bangalore, India facility,

. A less profitable mix of business and

. Reduced margins from Year 2000 and other project business.

Demand for our services generally is lower during the fourth quarter due to
reduced activities during the holiday season and fewer working days for those
customers which, curtail operations during such period. We expect such seasonal
variations to continue. See "Item 1. Business Risk Factors--Our Quarterly
Financial Results Vary and May Be Adversely Affected Because of Our Project-
Intensive Business and Relatively Fixed Costs."

Liquidity and Capital Resources

We have financed our operations and capital expenditures primarily with:

. internally generated cash flows,

. borrowings under our line of credit facilities,

. proceeds from the issuance of subordinated notes to the Phoenix Home
Life Mutual Insurance Company and

. proceeds from the issuance of common stock in our initial public
offering.

Our operating activities used $1,635,000 for the year ended December 31,
1998 compared to $290,000 for the year December 31, 1997. The use of cash was
primarily due to the operating loss we recorded.

32
<PAGE>

We used cash of $1,174,000 for capital expenditures during the year ended
December 31, 1998 primarily to support planned sales growth in the Farmington
facility. We spent $1,498,000 during the year ended December 31, 1997, which
was primarily related to the offshore technology resource center.

Our financing activities provided $ 21,527,000 for the year ended December
31, 1998 and $1,180,000 for the same period in 1997. In March 1998, we issued
and sold 2,200,000 shares of $0.01 par value common stock for $12.00 per share
in our initial public offering. Of the 2,200,000 shares we sold 100,000 shares
were not registered. In addition, 245,000 shares sold by selling stockholders
in the public offering in March 1998 were not covered by a registration
statement. We filed a registration statement covering the 345,000 unregistered
shares. This registration statement was declared effective by the Securities
and Exchange Commission on February 5, 1999. Persons who purchased unregistered
shares in our initial public offering have rescission rights under the
Securities Act of 1933. If the purchaser has not sold the shares, the right to
rescind means he or she can sue to exchange the unregistered shares for an
amount equal to what he or she paid for the shares, plus interest. If the
purchaser no longer owns the unregistered shares, and sold them at a loss, he
or she may sue for damages. The maximum rescission liability for the 100,000
unregistered shares which we sold would be $1,200,000 (100,000 shares at $12
per share) plus interest. We have not recognized a liability based on the
rescission of the 100,000 unregistered shares since, as noted above, only
someone who is still holding the same share he or she bought in the initial
public offering has a right of rescission. Since the large trading volume
subsequent to our initial public offering suggests a substantial turnover in
share ownership and for each individual purchaser, we are unable to identify
which shares were registered and which were not, we believe it is not probable
that we will be required to effect an actual rescission, instead of paying
rescissionary damages

We and certain stockholders who sold shares in the initial public offering
have entered into an indemnification agreement with our former counsel in the
initial public offering, which would hold Command and those stockholders
harmless for damages which might result from any claims as a consequence of the
aforementioned circumstances. In view of the indemnification agreement, and in
light of assurances we have received concerning the professional indemnity
insurance maintained by such counsel, we do not believe that any claims
relating to the foregoing will have a material adverse effect on our financial
condition. We are also being sued by stockholders in connection with the
initial public offering. The stockholders suing us in their consolidated
lawsuit seek rescission of the sales of all the shares in the initial public
offering and unspecified damages, including rescissionary damages, interest,
costs and fees. If the lawsuit is concluded in favor of the stockholders suing
us, our business, financial condition and results of operations may be
materially and adversely affected. We and the other defendants have entered
into a memorandum of understanding to settle the dispute with the stockholders
suing us, but a memorandum of understanding is not a definitive settlement
agreement. A definitive settlement agreement resulting from the memorandum will
also require court approval. We cannot be certain that a definitive settlement
agreement will be reached, or that, if it is reached, that the court will
approve it. See "--Item 3. Legal Proceedings."

From the sale of the 2,200,000 shares in the initial public offering, the
Company received net proceeds of $24,552,000 after underwriters' discounts and
before other offering expenses in the amount of $1,341,000. Simultaneously with
the initial public offering, all the holders of Series A and B redeemable
convertible preferred stock exchanged their 200 shares for 1,181,750 shares of
common stock. Dividends accrued during the period and previously unamortized
offering expenses have been recognized as a reduction to net income. We paid
preferred stock dividends of $298,000 from the proceeds.

For the year ended December 31, 1997, cash was generated under our bank
credit facilities, and the issuance of subordinated notes to the Phoenix Home
Life Mutual Insurance Company.

As of December 31, 1998, we had $16,170,000 in cash and cash equalivants and
$21,172,000 of working capital. In October 1998, we entered into a new
revolving line of credit which limits borrowings to $4.0 million, for our U.S.
operations. As of December 31, 1998 no amounts were outstanding under such
credit facility. Borrowings under this bank line of credit are secured by
substantially all of our tangible and intangible personal property and are
utilized primarily to fund our working capital requirements. We are required to

33
<PAGE>

maintain a minimum of the following: total net worth of five times credit
facility, debt service coverage ratio of 3:1; interest coverage of 3:1; and a
current ratio of 2:1. In June 1998, Command International Software Pvt., our
wholly owned Indian subsidiary, entered into a funded and non funded credit
facility. The funded facility provides for borrowings up to 90% of our export
receivables subject to a maximum of Rs. 7.5 MM (approximately $175,000) based
upon monthly export credit billing and an overdraft facility of Rs. 0.5 MM
(approximately $12,000). The export billing facility is at a base FEDAI rate of
9%; the overdraft facility is at an interest rate of 17.85%. The non funded
facility provides for a letter of credit line in the amount of Rs. .3 MM and a
guarantee letter of credit line in the amount of Rs. .3MM (approximately
$7,000). Corresponding deposits equal to 15%-25% are required for utilized
facilities. The letter of credit facility is 1.8% per annum, the guarantee
letter of credit facility charge is at a commission rate of 1%. These credit
facilities are secured primarily by accounts receivable and a lien on the fixed
assets of the Command International Software Pvt.. As of December 31, 1998
there was no outstanding amounts under these facilities.

In the past, we have been in default of our covenants and have had to obtain
waivers. While we do not anticipate utilizing this credit facility in the near
future, if we do borrow under the line, we may be required to seek additional
amendments or waivers. Although we anticipate that we would be able to obtain
such amendments or waivers, there can be no assurance that we would be able to
do so.

We believe that the net proceeds from the initial public offering, together
with other available funds, and the cash flow expected to be generated from
operations, will be adequate to satisfy our current and planned operations over
the next 12 months.

Legal Proceedings

See "Item 3. Legal Proceedings."

Inflation

Our most significant costs are the salaries and related benefits for our
consultants and other professionals. Competition in India and the U.S. for
information technology professionals with the advanced technological skills
necessary to perform our service offerings have caused wages to increase at a
rate greater than the general rate of inflation. As with other information
technology service providers, we must adequately anticipate wage increases.
Further, India has in the past experienced significant inflation. Historically,
our wage costs in India have been significantly lower than our wage costs in
the U.S. for comparably skilled employees, although wage costs in India are
presently increasing at a faster rate than in the U.S. We may not be able to
recover cost increases through increases in the prices that we charge for our
services in the U.S.

Impact of the Year 2000 Issue

The Year 2000 issue refers to potential problems with computer systems or
any equipment with computer chips or software that use dates where the date has
been stored as just two digits (e.g., 97 for 1997). On January 1, 2000, any
clock or date recording mechanism incorporating date sensitive software which
uses only two digits to represent the year may recognize a date using 00 as the
Year 1900 rather than the Year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar business activities.

We have completed an assessment of our information systems to determine the
extent to which our existing systems correctly define the Year 2000. Those
systems found not to be compliant have been upgraded by the vendors of those
systems except for certain purchased software packages which are expected to be
upgraded and brought into compliance by their vendors before the Year 2000. The
majority of the upgrades were implemented via standard maintenance contracts,
without costs. As of this date, a nominal amount has been expended. The
remaining upgrades are expected to be implemented for minimal cost. Based on
such review we do not currently believe that we have material exposure to the
Year 2000 problem with respect to our own information systems. With respect to
be information systems of third parties who are our major vendors, we will be
seeking to obtain Year 2000 compliance certifications for those systems that
relate to our

34
<PAGE>

business. These third parties may include major hardware and software vendors,
as well as financial services providers. Most of our major vendors have made
public statements indicating that they intend to cause their products and
services to be Year 2000 compliant on a timely basis. Based on the foregoing,
we have not to date developed contingency plans for the failure by our major
vendors to provide Year 2000 compliant products and services. The Year 2000
problem could affect the information systems of our major vendors as they
relate to our business. Although we believe that the information systems of our
major vendors as they relate to our business are Year 2000 compliant, we cannot
be sure that the advent of the Year 2000 will not affect our major vendors'
information systems. If a major vendor's information system fails or
malfunctions significantly due to the Year 2000 problem it could materially and
adversely affect us.

Recent Accounting Pronouncements

In 1998, we adopted SFAS No. 130, "Reporting Comprehensive Income."
Comprehensive income is defined as the change in equity of a company during a
period from transactions and other events and circumstances, excluding
transactions resulting from investments by owners and distributions to owners.
The primary difference between our net income and our comprehensive income is
due to foreign currency translation adjustments. We are showing comprehensive
income in our consolidated statement of comprehensive loss.

In 1998, we adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," and replaces the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of a
company's reportable segments. SFAS No. 131 also requires disclosures about
products and services, geographic areas, and major customers. The adoption of
SFAS No. 131 did not affect results of our operations or financial position or
the segments we reported in 1998. (See note 12 of the notes to our consolidated
financial statements appearing elsewhere in this report.)

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Foreign Currency Risk

Approximately, 10% of our sales consists of work performed by employees at
our Bangalore, India facility. As a result, our financial results could be
significantly affected by factors such as changes in foreign currency exchange
rates or weak economic conditions in the foreign markets where we employ our
workforce. Our currency exposure is concentrated in the Indian Rupee.

We do not hedge overseas sales demoniated in foreign currencies or
translation exposures. We do not enter into financial instruments for
speculation or trading purposes. See "Item 1. Risk Factors--We Do Business in
International Markets Which Exposes Us to Currency Fluctuations and Other
Problems Administering Foreign Operations."

We utilize bank loans and other debt instruments throughout our operations.
To mitigate foreign currency risk, such debt is usually denominated in the
underlying local currency.

Interest Rate Risk

Our interest income and expense are most sensitive to changes in the general
level of U.S. interest rates. In this regard, charges in these interest rates
primarily affect the interest we earn on cash and cash equivalents and short
term investments.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The information concerning this Item, see "Item 14. Exhibits, Consolidated
Financial Statement Schedule, and Reports on Form 8-K."

35
<PAGE>

Item 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not applicable.

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.

The information required by this item is incorporated by reference from the
information under the captions "Election of Directors" and "Executive Officers"
in our proxy statement to be filed in connection with our annual meeting of
stockholders.

Item 11. EXECUTIVE COMPENSATION.

The information required by this item is incorporated by reference from the
information under the caption "Compensation of Executive Officers and
Directors" contained in our proxy statement to be filed in connection with our
annual meeting of stockholders.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference from the
information under the caption "Beneficial Ownership of Common Stock" contained
in our proxy statement to be filed in connection with our annual meeting of
stockholders.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference from the
information under the caption "Certain Transactions" in our proxy statement to
be filed in connection with our annual meeting of stockholders.

PART IV

Item 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.

<TABLE>
<CAPTION>
<C> <C> <S>
The response to this portion of Item 14. is submitted as a
(a) (1)&(2) separate section of this report.
(b) Reports on Form 8-K:
None
(c) Exhibits
*1.1 Form of Underwriting Agreement.
Amended and Restated Certificate of Incorporation of the
*3.1 Registrant
*3.2 Certificate of Amendment to Registrant's Amended and Restated
Certificate of Incorporation filed on February 5, 1998.
*3.3 By-Laws of the Registrant.
*4.1 Specimen Certificate for shares of the Company's Common Stock.
*10.1 1997 Employee, Director and Consultant Stock Plan.
*10.2 Registration Rights Agreement dated August 26, 1997 between
Registrant and Phoenix Home Life Mutual Insurance Company.
*10.3 Registration Rights Agreement dated December 31, 1997 between
Registrant and PHL Global Holding Co.
</TABLE>

36
<PAGE>

<TABLE>
<C> <C> <S>
*10.4 Co-Sale Agreement dated August 26, 1997 between Registrant,
Edward G. Caputo and Phoenix Home Life Mutual Insurance Company.
*10.5 Amendment No. 1, dated December 31, 1997 to Co-Sale Agreement
between Registrant, Edward G. Caputo and Phoenix Home Life
Mutual Insurance Company.
*10.6 Co-Sale Agreement dated December 31, 1997 between Registrant,
Edward G. Caputo and PHL Global Holding Co.
Employment Contract dated January 1, 1998 between Registrant and
*10.7 Edward G. Caputo.
Assumption Agreement dated December 1997 by and between
*10.8 Registrant and People's Bank.
Loan Agreement by and between Command International Software
*10.9 Pvt. and Deutsche Bank.
Employment Agreement dated January 1, 1998 between Registrant
*10.10 and Stephen L. Willcox.
**10.11 Indemnification Agreement, by and among Mintz, Levin, Cohn,
Ferris, Glovsky and Popeo, P.C. and Registrant, Phoenix Home
Life Mutual Insurance Company, PHL Global Holding Co. and Edward
G. Caputo.
*10.12 Employment Agreement, dated as of December 1, 1997 by and
between Registrant and Glenn M. King.
*10.13 Loan/and Security Agreement dated October 29, 1998 by and
between Registrant and People's Bank.
*10.14 Memorandum of Understanding dated December 7, 1998, by and among
Registrant, Edward G.Caputo, Robert B. Dixon, John J.C. Herndon,
James M. Oates, Joseph D. Sargent, Stephen L. Willcox and a
certain class of plaintiffs.
*21.1 Subsidiaries of the Company.
27.1 Financial Data Schedule.
</TABLE>
- --------
* Incorporated by reference from registration statement on Form S-1,
Registration No. 33-53877
** Incorporated by reference from the Registrant's Quarterly Report on Form 10-
Q/A for the three months ended March 31, 1998
(d) Financial Statement Schedule--The response to this portion of Item 14 is
submitted as a separate section of this report.

37
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Amended and Restated Certificate of Incorporation of the Registrant
*3.2 Certificate of Amendment to Registrant's Amended and Restated
Certificate of Incorporation filed on February 5, 1998.
*3.3 By-Laws of the Registrant.
*4.1 Specimen Certificate for shares of the Company's Common Stock.
*10.1 1997 Employee, Director and Consultant Stock Plan.
*10.2 Registration Rights Agreement dated August 26, 1997 between
Registrant and Phoenix Home Life Mutual Insurance Company.
*10.3 Registration Rights Agreement dated December 31, 1997 between
Registrant and PHL Global Holding Co.
*10.4 Co-Sale Agreement dated August 26, 1997 between Registrant, Edward
G. Caputo and Phoenix Home Life Mutual Insurance Company.
*10.5 Amendment No. 1, dated December 31, 1997 to Co-Sale Agreement
between Registrant, Edward G. Caputo and Phoenix Home Life Mutual
Insurance Company.
*10.6 Co-Sale Agreement dated December 31, 1997 between Registrant, Edward
G. Caputo and PHL Global Holding Co.
*10.7 Employment Contract dated January 1, 1998 between Registrant and
Edward G. Caputo.
*10.8 Assumption Agreement dated December 1997 by and between Registrant
and People's Bank.
*10.9 Loan Agreement by and between Command International Software Pvt.
and Deutsche Bank.
*10.10 Employment Agreement dated January 1, 1998 between Registrant and
Stephen L. Willcox.
**10.11 Indemnification Agreement, by and among Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C. and Registrant, Phoenix Home Life Mutual
Insurance Company, PHL Global Holding Co. and Edward G. Caputo.
*10.12 Employment Agreement, dated as of December 1, 1997 by and between
Registrant and Glenn M. King.
*10.13 Loan/and Security Agreement dated October 29, 1998 by and between
Registrant and People's Bank.
*10.14 Memorandum of Understanding dated December 7, 1998, by and among
Registrant, Edward G. Caputo, Robert B. Dixon, John J.C. Herndon,
James M. Oates, Joseph D. Sargent, Stephen L. Willcox and a certain
class of plaintiffs.
*21.1 Subsidiaries of the Company.
27.1 Financial Data Schedule.
</TABLE>
- --------
* Incorporated by reference from Registration Statement on Form S-1,
Registration No. 333-53877.
** Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q/A for the three months ended March 31, 1998

38
<PAGE>

SIGNATURES

Pursuant to the requirements of section 13 or 15(d) of the Securities Act of
1933, the Registrant has duly caused this report to be signed on it's behalf by
the undersigned, thereunto duly authorized, in the City of Hartford, State of
Connecticut, on March 31, 1999.

COMMAND SYSTEMS, INC.

By: /s/ Edward G. Caputo
-----------------------------------
Edward G. Caputo
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and Post-Effective Amendment to Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ Edward G. Caputo President, Chief Executive March 31, 1999
____________________________________ Officer and Chairman of the
Edward G. Caputo Board (Principal Executive
Officer)

/s/ Stephen L. Wilcox Executive Vice President, March 31, 1999
____________________________________ Chief Operating Officer,
Stephen L. Willcox Acting Chief Financial
Officer, Secretary and
Director (Principal
Financial Officer)
/s/ Robert B. Dixon Vice President of Finance March 31, 1999
____________________________________ and Treasurer (Principal
Robert B. Dixon Accounting Officer)

/s/ John J. C. Herndon Director March 31, 1999
____________________________________
John J. C. Herndon

/s/ James M. Oates Director March 31, 1999
____________________________________
James M. Oates

/s/ Joseph D. Sargent Director
___________________________________
Joseph D. Sargent March 31, 1999
</TABLE>

39
<PAGE>

Annual Report on Form 10-K

Item 8--Financial Statements

Item 14(a) (1) and (2)--List of Financial Statements
and Financial Statement Schedule

Item 14(d)--Financial Statement Schedule

Year Ended December 31, 1998

Command Systems, Inc.

Farmington, Connecticut
<PAGE>

COMMAND SYSTEMS, INC.

List of Financial Statements and Financial Statement Schedule

The report of Ernst & Young LLP, independent auditors, dated February 16,
1999, and the following consolidated financial statements of Command Systems,
Inc. are included in Item 8:

Consolidated Balance Sheets--December 31, 1998 and 1997

Consolidated Statements of Operations--Years ended December 31, 1998, 1997
and 1996

Consolidated Statements of Comprehensive Loss--Years ended December 31,
1998, 1997 and 1996

Consolidated Statements of Stockholders' Equity (Deficit)--Years ended
December 31, 1998, 1997 and 1996

Consolidated Statements of Cash Flows--Years ended December 31, 1998, 1997
and 1996

Notes to Consolidated Financial Statements--December 31, 1998

The following consolidated financial statement schedule of Command Systems,
Inc. is included in Item 14(d):

Schedule II--Valuation and Qualifying Accounts

All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.

F-1
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Command Systems, Inc.

We have audited the accompanying consolidated balance sheets of Command
Systems, Inc. as of December 31, 1998 and 1997, and the related consolidated
statements of operations, comprehensive loss, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended December 31,
1998. Our audits also included the financial statement schedule listed in the
Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Command Systems, Inc. at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.

Hartford, Connecticut
February 16, 1999

/s/ Ernst & Young LLP

F-2
<PAGE>

COMMAND SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................... $16,169,749 $ 391,687
Marketable securities............................... 2,824,417 --
Accounts receivable, net of allowance for doubtful
accounts of $341,942 and $259,893 in 1998 and
1997............................................... 6,433,864 4,203,241
Prepaid expenses and other assets................... 571,285 406,974
Income taxes recoverable............................ 364,892 --
----------- -----------
Total current assets.............................. 26,364,207 5,001,902
Equipment and improvements:
Furniture and equipment............................. 2,857,215 2,007,254
Leasehold improvements.............................. 995,030 852,476
----------- -----------
3,852,245 2,859,730
Less accumulated depreciation and amortization...... (1,569,489) (825,562)
----------- -----------
Net equipment and improvements....................... 2,282,756 2,034,168
Other assets:
Goodwill, net of accumulated amortization of
$456,356 and $0 in 1998 and 1997................... 6,388,982 6,845,338
Deposits............................................ 459,705 428,005
Other non-current assets............................ 152,041 115,674
----------- -----------
$35,647,691 $14,425,087
=========== ===========
<CAPTION>
December 31
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable and accrued expenses............... $ 2,505,343 $ 2,218,540
Accrued stockholder litigation and related
expenses........................................... 1,800,000 --
Line of credit...................................... -- 857,535
Bank loan........................................... -- 556,952
Accrued payroll and related costs................... 754,292 610,933
Deferred revenue.................................... 132,710 219,544
Income taxes payable................................ -- 78,535
----------- -----------
Total current liabilities......................... 5,192,345 4,542,039
Deferred income taxes................................ -- 381,987
----------- -----------
Total liabilities.................................... 5,192,345 4,924,026
Preferred stock, 5,000,000 shares authorized, $0.01
par value:
Series A redeemable convertible preferred stock,
100 shares authorized,
issued and outstanding............................. -- 2,223,475
Series B redeemable convertible preferred stock,
100 shares authorized,
issued and outstanding............................. -- 8,000,000
Stockholders' equity (deficit):
Common stock, 25,000,000 shares authorized, $0.01
par value; 7,656,750 and 4,275,000 shares issued
and outstanding in 1998 and 1997................... 34,818 1,000
Additional paid in capital.......................... 33,400,480 --
Accumulated deficit................................. (2,664,069) (636,509)
Accumulated other comprehensive loss................ (315,883) (86,905)
----------- -----------
Total stockholders' equity (deficit).............. 30,455,346 (722,414)
----------- -----------
Total liabilities and stockholders' equity
(deficit)........................................ $35,647,691 $14,425,087
=========== ===========
</TABLE>

See accompanying notes.

F-3
<PAGE>

COMMAND SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenue................................. $35,214,586 $25,057,039 $17,069,417
Cost of revenue......................... 24,527,627 16,972,812 12,494,448
----------- ----------- -----------
Gross profit............................ 10,686,959 8,084,227 4,574,969
Selling, general and administrative
expense................................ 11,925,572 7,254,992 5,171,912
Stockholder litigation and related
expenses............................... 1,800,000 -- --
----------- ----------- -----------
Operating (loss) income................. (3,038,613) 829,235 (596,943)
Other income (expense):
Other income.......................... 86,975 -- 42,786
Interest income....................... 907,328 32,911 14,138
Interest expense...................... (40,536) (309,657) (132,482)
----------- ----------- -----------
953,767 (276,746) (75,558)
----------- ----------- -----------
(Loss) income before income taxes and
minority
interest............................... (2,084,846) 552,489 (672,501)
Income tax benefit (provision).......... 317,589 (597,751) 8,056
----------- ----------- -----------
(1,767,257) (45,262) (664,445)
Minority interest....................... -- (451,431) 241,439
Net loss................................ (1,767,257) (496,693) (423,006)
Preferred stock dividends and
accretion.............................. (260,303) (80,351) --
----------- ----------- -----------
Loss applicable to common stockholders.. $(2,027,560) $ (577,044) $ (423,006)
===========
Basic and diluted loss per share
applicable to common stockholders...... $ (0.29)
===========
Pro forma results of operations:
Adjustments to U.S. federal income tax
provision assuming C corporation
status............................... $ 633,000 $ --
----------- -----------
Net income (loss), as adjusted........ 136,307 (423,006)
Preferred stock dividends and
accretion............................ (80,351) --
----------- -----------
Income (loss) applicable to common
stockholders......................... $ 55,956 $ (423,006)
=========== ===========
Pro forma earnings (loss) per common
share:
Basic earnings (loss) per share
applicable to common stockholders.... $ 0.01 $ (0.10)
=========== ===========
Diluted earnings (loss) per share
applicable to common stockholders.... $ 0.01 $ (0.10)
=========== ===========
</TABLE>

See accompanying notes.

F-4
<PAGE>

COMMAND SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

<TABLE>
<CAPTION>
Year ended December 31
------------------------------------
1998 1997 1996
------------ ---------- ----------
<S> <C> <C> <C>
Net loss................................ $ (1,767,257) $ (496,693) $ (423,006)
Foreign currency translation
adjustment............................. (228,978) (86,905) --
------------ ---------- ----------
Comprehensive loss...................... $ (1,996,235) $ (583,598) $ (423,006)
============ ========== ==========
</TABLE>

See accompanying notes.

F-5
<PAGE>

COMMAND SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Retained Other
------------------ Paid in Earnings Comprehensive
Shares Amount Capital (Deficit) Loss Total
--------- -------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... 4,725,000 $ 1,000 $ -- $ 363,541 $ -- $ 364,541
Net loss............... -- -- -- (423,006) -- (423,006)
--------- -------- ------------ ------------ ---------- ------------
Balance at December 31,
1996................... 4,275,000 1,000 -- (59,465) -- (58,465)
Net loss............... -- -- -- (496,693) -- (496,693)
Preferred stock
dividends and
accretion............. -- -- -- (80,351) -- (80,351)
Foreign currency
translation
adjustment............ -- -- -- -- (86,905) (86,905)
--------- -------- ------------ ------------ ---------- ------------
Balance at December 31,
1997................... 4,275,000 1,000 -- (636,509) (86,905) (722,414)
Net loss............... -- -- -- (1,767,257) -- (1,767,257)
Issuance of common
stock, net 2,200,000 22,000 23,188,822 -- -- 23,210,822
Conversion of preferred
stock................. 1,181,750 11,818 10,211,658 -- -- 10,223,476
Preferred stock
dividends and
accretion............. -- -- -- (260,303) -- (260,303)
Foreign currency
translation
adjustment............ -- -- -- -- (228,978) (228,978)
--------- -------- ------------ ------------ ---------- ------------
Balance at December 31,
1998................... 7,656,750 $ 34,818 $ 33,400,480 $ (2,644,069) $ (315,883) $ 30,455,346
========= ======== ============ ============ ========== ============
</TABLE>

See accompanying notes.

F-6
<PAGE>

COMMAND SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year ended December 31
------------------------------------
1998 1997 1996
------------ ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss................................ $ (1,767,257) $ (496,693) $ (423,006)
Adjustments to reconcile net loss to net
cash (used) provided by operating
activities:
Depreciation and amortization......... 1,277,727 428,777 136,796
Bad debt expense...................... 82,049 235,395 24,500
Deferred income taxes................. (694,838) 257,868 (15,948)
Minority interest..................... -- 451,431 (241,439)
Accrued interest capitalized.......... -- 132,674 38,370
Other................................. -- -- 4,773
Changes in operating assets and
liabilities:
Accounts receivable................. (2,312,672) (2,063,572) (637,497)
Prepaid expenses and other assets... (158,312) 61,166 (386,286)
Deposits and other noncurrent
assets............................. (131,163) (34,639) (489,258)
Accounts payable and accrued
expenses........................... 2,090,583 937,482 691,485
Accrued payroll and related costs... 143,359 234,628 74,760
Deferred revenue.................... (86,834) 69,110 150,434
Income taxes payable................ (78,137) 76,835
------------ ---------- ----------
Net cash (used in) provided by operating
activities............................. (1,635,495) 290,462 (1,072,316)
Cash flows from investing activities
Purchases of equipment and
improvements........................... (1,174,339) (1,497,783) (954,602)
Sales of available-for-sale securities.. 10,950,000
Purchases of available-for-sale
securities............................. (13,774,417) -- --
------------ ---------- ----------
Net cash used in investing activities... (3,998,755) (1,497,783) (954,602)
</TABLE>

F-7
<PAGE>

COMMAND SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Cash flows from financing activities
(Payments) borrowings under revolving line
of credit agreement...................... $ (857,535) $ (521,355) $ 503,390
Proceeds from bank loan................... -- 806,952 --
Principal payments of bank loan........... (528,425) (250,000) --
Minority investment in affiliate.......... -- 391,098 637,000
Proceeds from notes payable............... -- 869,630 1,107,093
Payment of loan payable to officer........ -- (73,224) --
Preferred stock issuance costs............ -- (43,013) --
Payment of preferred stock dividend....... (297,641) -- --
Issuance of common stock.................. 24,552,000 -- --
Cost of issuance of common stock.......... (1,341,178) -- --
----------- ---------- ----------
Net cash provided by financing
activities............................... 21,527,221 1,180,088 2,247,483
Effect of exchange rate changes on cash... (114,909) (24,585) --
----------- ---------- ----------
Increase (decrease) in cash............... 15,778,062 (51,818) 220,565
Cash, beginning of year................... 391,687 443,505 222,940
----------- ---------- ----------
Cash, end of year......................... $16,169,749 $ 391,687 $ 443,505
=========== ========== ==========
Cash paid for
Interest.................................. $ 40,421 $ 193,202 $ 104,482
Income taxes.............................. 460,017 271,130 3,581
Non-cash financing activities
Preferred stock exchanged for notes
payable.................................. $ -- $2,186,137 $ --
Preferred stock issued for purchase of
minority interest........................ -- 8,000,000 --
</TABLE>

See accompanying notes.

F-8
<PAGE>

COMMAND SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1998

1. Organization

Command Systems, Inc. (the "Company") is an information technology company
which provides a wide range of computer consulting services primarily to large
financial services organizations.

Through December 31, 1997, the Company held a 51% interest in Command
International Software Pvt. ("CIS"), an India unlimited liability company, with
the remaining 49% interest held by Phoenix Home Life Mutual Insurance Co.
("Phoenix"). On December 31, 1997, the Company purchased Phoenix's holdings
(see Note 7).

2. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
the Company and its wholly and majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.

Concentration of Credit Risk

The Company markets its services primarily to the financial services
industry. The Company performs periodic credit evaluations of a customer's
financial condition and generally does not require collateral. Credit losses
have been within management's expectations.

Revenue Recognition

Revenue on time-and-materials contracts is recognized as the services are
performed. Revenue on fixed-price contracts is recognized using the percentage
of completion method based on the labor costs incurred to total estimated labor
costs for the contract. Under this method revenue on such contracts is
recognized concurrently with cost incurred thereon. The Company bears the risk
of cost overruns and inflation with respect to its fixed-price projects. If
estimates indicate a probable ultimate loss on a fixed price contract,
provision is made at that date for the entire estimated loss.

Revenues from product sales are recognized upon shipment.

Billings in excess of revenue earned are classified as deferred revenue.

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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Equipment and Improvements

Equipment and improvements are stated at cost. Depreciation on equipment is
calculated on a straight-line basis over the estimated useful lives of the
assets. Leasehold improvements are amortized on a straight-line
basis over the shorter of the lease term or estimated useful life of the
assets.

F-9
<PAGE>

COMMAND SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

2. Summary of Significant Accounting Policies--(continued)

Income Taxes

The Company utilizes the asset and liability method of accounting for income
taxes. Under this method, deferred income taxes are recorded to reflect the tax
consequences of future years differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. A valuation allowance is
provided against the future benefit of deferred tax assets if it is determined
that it is more likely than not that the future tax benefits associated with
the deferred tax asset will not be realized (see Note 6). Prior to August 1997,
the Company had elected to be taxed as an S Corporation in accordance with the
provisions of the Internal Revenue Code. As an S Corporation, the taxable
income of the Company is reportable on the individual stockholder's federal tax
return. In conjunction with the formation of the Company as a Delaware holding
corporation (see Note 3) and the issuance of its Series A convertible preferred
stock, the S Corporation election was terminated and the Company became subject
to U.S. federal income taxes in 1997.

Impairment of Long-Lived Assets

Long-lived assets, including goodwill, are reviewed for impairment and
written down to fair value whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. At December 31,
1998, no such impairment existed. The Company measures the potential impairment
of long-lived assets, including goodwill, by the undiscounted value of expected
operating cash flow in relation to the assets to which it applies.

Advertising Costs

Advertising costs are expensed as incurred and are included in selling,
general and administrative expense. Advertising costs were $300,000, $141,000
and $184,000 in 1998, 1997 and 1996, respectively.

Fair Value of Financial Instruments

The carrying amounts reported in the balance sheet for cash and cash
equivalents, accounts receivable, accounts payable, and other accrued
liabilities approximate fair value due to the short maturity of these items.
The fair value of marketable securities is based on quoted market prices for
those or similar investments. The carrying value of the notes payable
approximate fair value based on the Company's borrowing rate for similar
financing arrangements. Amounts due under the line of credit approximate fair
value because the interest rates vary with market interest rates.

Stock-Based Compensation

During 1997, the Company adopted Financial Accounting Statement (FAS) No.
123, "Accounting for Stock-Based Compensation." This statement defines a fair
value based method of accounting for employee stock compensation plans.
However, it also allows an entity to continue to measure compensation cost for
those plans in accordance with Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees." Under APB No. 25, compensation
cost is the excess, if any, of the market price of the stock at the grant date
over the amount the employee must pay to acquire the stock. The Company has
elected to continue to account for awards granted under its Shadow Stock
Incentive Plan and the Command Systems, Inc. 1997 Employee, Directors and
Consultant Stock Option Plan under APB No. 25.

Cash Equivalents

Highly liquid investments purchased with a maturity of three months or less
are considered cash equivalents.

F-10
<PAGE>

COMMAND SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

2. Summary of Significant Accounting Policies--(continued)

Goodwill

Goodwill is being amortized using the straight-line method over fifteen
years.

Foreign Currency Translation

The financial statements of the Company's foreign subsidiaries which have a
functional currency other than the U.S. dollar reflect the translation of
assets and liabilities into U.S. dollars at current exchange rates with income
and expense accounts being translated at average rates of exchange prevailing
during the period. The resulting adjustments are recognized as a separate
component of stockholders' equity--"Accumulated other comprehensive loss-
currency translation." Foreign currency transaction gains and losses, which are
not material, are recognized in net income (loss) when incurred.

Earnings Per Share

In 1997, the Company adopted FAS No. 128, "Earnings Per Share." All earnings
per share amounts for all periods have been presented to conform with this
Statement.

Pro forma earnings per common share reflect adjustments in the U.S. federal
income tax provision assuming C corporation status and the realization of net
operating losses for all periods presented.

Marketable Securities

Marketable securities are classified as available-for-sale and are available
to support current operations or to take advantage of other investment
opportunities. Unrealized gains and losses, net of tax, are included in other
comprehensive income. Realized gains and losses are included in interest income
(expense). The cost of securities sold is based on the specific identification
method.

3. Stockholders Equity

On July 1, 1997 Command Systems, Inc., a Delaware corporation, was
established and exchanged 4,275,000 shares of its common stock for the 100
shares of issued and outstanding common stock of the Company held by its sole
stockholder and became the ultimate holding company for the Command group of
companies. The Company was authorized to issue 10,650,000 shares of $0.01 par
value common stock and 1,000 shares of $0.01 par value preferred stock. This
transaction was accounted for at historical cost in a manner similar to a
pooling of interests. The number of common shares authorized, issued and
outstanding have been restated for all periods to reflect this capitalization.
Effective December 31, 1997 the Company was authorized to issue up to
25,000,000 shares of its common stock and 5,000,000 shares of preferred stock.
The consolidated financial statements have been adjusted to reflect this
change.

The Company made its initial public offering on March 12, 1998, pursuant to
an effective registration statement covering 2,400,000 shares of $0.01 par
value common stock plus an additional 360,000 shares for an over-allotment
option granted to the underwriters. Shortly before the effective date, the size
of the offering was increased by 300,000 shares plus an additional 45,000
shares to increase the over-allotment option. The additional 345,000 shares
were sold by the Company (100,000 shares) and selling stockholders (245,000
shares) at the public offering price of $12.00 per share. While the increase in
size of the offering was reflected in the final prospectus, a registration
statement pursuant to Rule 462(b) of the Securities Act of 1993 covering the
additional 345,000 shares was not filed with the Commission.

Of the 3,105,000 shares sold in the initial public offering, 2,760,000
shares were properly registered, but the remaining 345,000 shares were not
registered. Persons who purchased unregistered shares in the initial

F-11
<PAGE>

COMMAND SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

3. Stockholders' Equity--(continued)

public offering have rescission rights under the Securities Act of 1933. If the
purchaser has not sold the shares, the right to rescind means he or she can sue
to exchange the unregistered shares for an amount equal to what he or she paid
for the shares, plus interest. If the purchaser no longer owns the unregistered
shares, and sold them at a loss, he or she may sue for damages. The maximum
rescission liability for the 100,000 unregistered shares which the Company sold
would be $1,200,000 (100,000 shares at $12 per share) plus interest. The
Company has not recognized a liability based on the rescission of the 100,000
unregistered shares since, as noted above, only someone who is still holding
the same shares he or she bought in the initial public offering has a right of
rescission. The large trading volume subsequent to the initial public offering
suggests a substantial turnover in share ownership and for each individual
purchaser, the Company is unable to identify which shares were registered and
which were not; the Company believes it is not probable that it will be
required to effect an actual rescission instead of paying rescissionary
damages.

As indicated previously, stockholders who purchased unregistered shares in
the offering may recover damages if they sold such securities at a loss. The
Company and the selling stockholders in the initial public offering have
entered into an agreement with the Company's former securities counsel which
served as the Company's counsel in the initial public offering which would hold
the Company and the selling stockholders harmless for damages which might
result from any claims as a consequence of the aforementioned circumstances. In
view of such hold harmless agreement, and in light of assurances the Company
has received concerning the professional indemnity insurance maintained by such
counsel, the Company does not believe that any claims relating to the foregoing
will have a material adverse effect on its financial condition.

In addition, the plaintiffs in the purported consolidated class action seek
rescission of the sales of the shares in the initial public offering and
unspecified damages, including rescissionary damages, interest, costs and fees.
Such stockholder litigation, if concluded in favor the plaintiffs, could have a
material adverse effect on the Company's business, financial condition and
results of operations. However, the Company and the individual defendants have
entered into a memorandum of understanding to settle the dispute with the
plaintiffs in the purported consolidated class action. Any definitive agreement
resulting from such memorandum will require court approval. No assurance can be
given that a definitive settlement agreement will be reached, or that, if
reached, it will be approved. See Note 13-Legal Proceedings.

On August 26, 1997, the Company issued 100 shares of its Series A redeemable
convertible preferred stock to Phoenix. The Series A redeemable convertible
preferred stock had a liquidation preference of $2,186,137 and had a dividend
requirement of 10% per annum which accrued on a cumulative basis. Accrued and
unpaid dividends amounted to $75,474 at December 31, 1997. These shares were
convertible at any time into 522,500 shares of the Company's common stock and
were redeemable by Phoenix after July 31, 1999.

On December 31, 1997, the Company issued 100 shares of Series B redeemable
convertible preferred stock to Phoenix. The Series B redeemable convertible
preferred stock had a liquidation preference of $8,000,000 and had a dividend
requirement of 10% per annum which accrued on a cumulative basis. These shares
were convertible at any time into 659,250 shares of the Company's common stock.

Simultaneously with the initial public offering, Phoenix exchanged its 200
shares of Series A and B redeemable convertible preferred stock for 1,181,750
shares of common stock. Dividends accrued during the period and previously
unamortized offering expenses have been recognized as a reduction to net
income. The Company paid preferred stock dividends of $298,000 from the initial
public offering proceeds.

4. Marketable Securities

The Company invests in only high quality, short-term investments. There were
no significant differences between cost and fair value at December 31, 1998.
There were no gross realized gains and losses on available-

F-12
<PAGE>

COMMAND SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

4. Marketable Securities--(continued)

for-sale securities in 1998. The Company views its available-for-sale portfolio
as available for use in its current operations; therefore, all marketable
securities have been classified as current assets. The fair value of marketable
securities at December 31, 1998 consists of:

<TABLE>
<S> <C>
U.S. Corporate debt securities, due within one year......... $ 1,003,289
Mortgage-backed securities, due after one year through three
years...................................................... 1,821,128
-----------
$ 2,824,417
===========
</TABLE>

Because of the short-term nature of the investments, expected maturities and
contractual maturities are normally the same.

5. Debt

In October 1998, the Company entered into a revolving line of credit
agreement which limits borrowing to a maximum of $4,000,000; no amount related
thereto is outstanding at December 31, 1998. The agreement expires on October
15, 1999 and bears interest at the Bank Rate, as defined, or the London
Interbank Offered Rate ("LIBOR") plus 1.75%. Under the terms of the revolving
line of credit agreement, the Company is required, among other things, to
maintain certain financial ratios and minimum levels of net worth. Borrowings
under the line of credit agreement are secured by all the Company's business
assets, except for the assets of CIS. At December 31, 1997 the Company had
borrowings of $857,535 under its then outstanding line of credit, secured by
the Company's accounts receivable. Interest charged on such loan was at the
bank's prime rate of interest plus 0.5% which equaled 9% at December 31, 1997.

On July 1, 1996, the Company and its wholly-owned subsidiary Command
International Holdings ("CIH") entered into a note purchase agreement (the
"Agreement") with Phoenix under which the Company could issue up to $3 million
aggregate principal amount of its 15% Subordinated Secured Series Notes (the "C
Notes"), accrued and capitalized interest on such notes and its Zero Coupon
Receivables-Based Subordinated Secured Series Notes (the "Z Notes"). Also,
under this Agreement, CIH was authorized to issue up to $3 million aggregate
principal amount of its 15% Guaranteed Senior Secured Series Notes (the "M
Notes") and accrued capitalized interest on such notes. The payment obligations
of the Company in respect to the C Notes and the Z Notes ranked junior and
subordinate in right of payment to the senior indebtedness of the Company under
the M Notes.

On August 26, 1997, the Company entered into an agreement with Phoenix
whereby the Company issued to Phoenix 100 shares of its Series A convertible
preferred stock in exchange for the aggregate outstanding indebtedness of
$2,186,137 of the C, Z, and M Notes, including accrued capitalized interest of
$171,044.

In June 1998, Command International Software Pvt., our wholly owned Indian
subsidiary, entered into a funded and non funded credit facility. The funded
facility provides for borrowings up to 90% of the Company's export receivables
subject to a maximum of Rs. 7.5 MM (approximately $175,000), based upon monthly
export billing, and an overdraft facility of Rs. .5 MM (approximately $2,000).
The export billing facility is at a base FEDAI rate of 9%; the overdraft
facility is at an interest rate of 17.85%. The non funded facility provides for
a letter of credit line in the amount of Rs. .3 MM and a guarantee letter of
credit line in the amount of Rs. .3 MM (approximately $7,000). Corresponding
deposits of 15% to 25% are required for utilized facilities. The letter of
credit facility charge is 1.8% per annum; the guarantee letter of credit
facility is at a commission rate of 1%. These credit facilities are secured
primarily by accounts receivable and a lien on the fixed assets of the Company.
As of December 31, 1998 there was no outstanding amounts under these
facilities.

At December 31, 1997, CIS had notes outstanding of $556,952 under a
borrowing denominated in Indian rupees. Balances were due within six months
with interest rates varying from 10.65% to 16.07%.

F-13
<PAGE>

COMMAND SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

6. Income Taxes

Components of the income tax benefit (provision) for income taxes follow:

<TABLE>
<CAPTION>
Year ended December 31
----------------------------
1998 1997 1996
-------- --------- -------
<S> <C> <C> <C>
Federal:
Current...................................... $ 66,440 $(334,871) $ --
Deferred..................................... 305,991 (293,078) --
-------- --------- -------
Total federal.............................. 372,431 (627,949) --
State:
Current...................................... (78,814) (5,012) (5,270)
Deferred..................................... 23,972 35,210 13,326
-------- --------- -------
Total state................................ 54,842 30,198 8,056
-------- --------- -------
Total benefit (provision).................. $317,589 $(597,751) $ 8,056
======== ========= =======
</TABLE>

With the issuance of the Series A redeemable convertible preferred stock in
1997, the Company's ability to be taxed as an S Corporation automatically
terminated and the ability to report on the cash basis of accounting ceased.
The Company recognized additional taxable income in 1997 as a result and
incurred a liability of approximately $693,000 in 1997.

The effective income tax rate differed from the federal statutory rate for
the following reasons:

<TABLE>
<CAPTION>
Year ended
December 31
-------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Federal statutory rate................................ 34.0% 34.0% 34.0%
State income taxes, net of federal benefit............ 3.6 (5.5) (1.2)
No federal income tax benefit (provision) for S
Corporation period income (loss)..................... -- 15.9 (9.6)
Tax effect of conversion from S Corporation to C
Corporation, related primarily to accounting method
change............................................... -- 125.5 --
Foreign profits and losses not subject to tax......... 7.8 (56.7) (24.4)
Other................................................. (2.0) (5.0) --
Valuation allowance................................... (28.2) -- --
----- ----- -----
Effective income tax rate............................. 15.2% 108.2% (1.2)%
===== ===== =====
</TABLE>

F-14
<PAGE>

COMMAND SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

6. Income Taxes--(continued)

Significant components of the Company's deferred income tax assets and
(liabilities) are as follows:

<TABLE>
<CAPTION>
December 31
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Deferred tax assets:
State net operating loss carryforwards............... $ 42,510 $ 36,639
Allowance for doubtful accounts...................... 41,231 125,272
Stockholder litigation accrual....................... 680,701 --
Accrued warranty, legal and other.................... 276,847 136,714
Accrued wages........................................ -- 84,341
---------- ----------
1,041,289 382,966
Deferred tax liabilities:
Tax effect of conversion from S Corporation to C
Corporation, related primarily to accounting method
change.............................................. (444,745) (693,031)
Equipment and improvements........................... (9,365) (19,898)
---------- ----------
(454,110) (712,929)
---------- ----------
Net deferred income tax asset (liability).............. 587,179 (329,963)
Less valuation allowance............................... 587,179 --
---------- ----------
Net deferred income tax (liability).................... $ -- $ (329,963)
========== ==========
</TABLE>

The Company has net operating loss ("NOL") carryforwards for state tax
purposes of approximately $618,000 as of December 31, 1998 which expire through
2008. The valuation allowance was established during 1998.

The financial statements reflect no foreign income tax provision under
Indian tax laws. CIS is not currently subject to a corporate tax since it earns
all of its income from export activities. This exemption is for a period of
five consecutive years during an eight year period which began in 1996. CIH is
also eligible for certain tax exemptions under the laws of Mauritius. As a
result of such exemptions, no deferred tax asset or liability is recognized.
During 1998, 1997 and 1996, income (loss) of the Company's foreign subsidiaries
before minority interest was $476,748, $921,287 and ($492,732), respectively.

7. Related Party Transactions

During 1996, the Company entered into an agreement with Phoenix to establish
a joint venture in India which would provide software services on a
subcontracting basis to the Company. Under the terms of the agreement, the
Company owned a 51 percent interest. Phoenix invested $391,098 in this venture
during 1997.

On December 31, 1997, Phoenix exchanged its 49% interest for 100 shares of
the Company's Series B redeemable convertible preferred stock valued at
$8,000,000. The Company recorded this as a purchase and recognized the excess
of the purchase price $6,845,338 over the fair value of the assets acquired and
liabilities assumed as goodwill.

The Company provides various information technology services to Phoenix;
revenues related thereto were $2,165,000, $2,600,000 and $1,300,000 for 1998,
1997 and 1996, respectively. At December 31, 1998 and 1997, included in prepaid
expenses and other assets are receivables from Phoenix approximating $263,000
and $4,000, respectively; included in accounts payable and accrued expenses are
payables to Phoenix approximating $12,000 and $248,000, respectively.

F-15
<PAGE>

COMMAND SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

8. Stock Options

The Company maintained a Shadow Stock Incentive Plan (the Shadow Plan) for
certain key employees, whereby awards, expressed in units, were earned only
upon the occurrence of certain events. The Shadow Plan provided for earned
benefits to be paid either in cash or in the form of common stock of the
Company. The Company accounted for this Shadow Plan as a stock appreciation
right and, therefore, accrued amounts based on a formula value defined in the
Shadow Plan which reflected the benefits to be earned. There was no
compensation expense recognized under the Shadow Plan for the years ended
December 31, 1997 and 1996. In March 1997 the Company issued options to
purchase 61,500 shares of its common stock, the number of units outstanding
under the Shadow Plan, exercisable at a price of $4.00 per share (the fair
market value as determined by the Board of Directors of such stock at the date
of grant) to certain persons who, upon such issuance, relinquished their rights
under the Company's Shadow Plan.

In August 1997, the Company created the Command Systems, Inc. 1997 Employee,
Director and Consultant Stock Option Plan (the "Option Plan"). The Company
reserved 427,500 shares of its common stock for issuance under the Option Plan.
Options granted under the Plan generally have a five year term and generally
vest in increments of 20% on the anniversary of the date of grant.

Changes in stock options follow:

<TABLE>
<CAPTION>
1998 1997
----------------- ----------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding, beginning of year............... 150,550 $6.96 -- --
Granted...................................... 94,175 7.80 150,550 $6.96
Exercised.................................... -- -- -- --
Forfeited.................................... (38,500) 7.57 -- --
------- ----- ------- -----
Outstanding, end of year..................... 206,225 $7.22 150,550 $6.96
======= ===== ======= =====
Exercisable, end of year..................... 74,670 $5.81 45,550 $4.27
======= ===== ======= =====
</TABLE>

Options outstanding at December 31, 1998 had exercise prices as follows:
56,500 options at $4.00, 110,350 options at $9.00, 17,500 options at $12.00 and
21,875 options at $2.81. The weighted average remaining contractual life of
these options is 4 years.

If compensation costs for the Company's stock-based compensation plans had
been determined based on the fair value at the grant dates for 1998 and 1997
consistent with the method prescribed by FAS No. 123, the Company's net loss
applicable to common stockholders and loss per share would have been adjusted
to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
Net loss applicable to common stockholders
As reported ...................................... $(2,027,560) $(577,044)
Pro forma......................................... (2,195,404) (605,523)
Basic and diluted loss per share
As reported....................................... $ (0.29) $ (0.13)
Pro forma......................................... $ (0.31) $ (0.13)
</TABLE>

F-16
<PAGE>

COMMAND SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

8. Stock Options--(continued)

The fair value of each stock option grant was estimated using a Black-
Scholes option valuation model with the following weighted-average
assumptions:

<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Risk free interest rate.......................................... 6% 6%
Expected volatility.............................................. 68.5% 40.4%
Expected option life............................................. 5 5
Dividend yield................................................... 0% 0%
</TABLE>

The risk-free interest rate is based on short-term treasury bill rates. For
purposes of pro forma disclosures, the estimated fair value of the options is
amortized to expense over the options' vesting period.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.

9. Leases

The Company has non-cancelable long-term operating leases for various
office facilities and equipment.

Rent expense under operating leases was $618,425, $543,700 and $251,597 in
1998, 1997 and 1996, respectively.

Future minimum lease payments for these non-cancelable operating leases at
December 31, 1998 are as follows:

The Company is required to maintain security deposits for office space
rented in Bangalore, India; amounts related thereto were $408,235 and $413,807
at December 31, 1998 and 1997, respectively.

10. Benefit Plans

The Company has established a 401(k) Retirement Savings Plan (the "401(k)
Plan"). All employees of the Company's domestic operations are eligible to
participate in the 401(k) Plan after completing six months of service and
attaining age twenty and one-half. Employees are allowed to contribute between
1% and 15% of their annual compensation up to the maximum contribution
allowable each year under IRS regulations. The Company contributed $38,000 and
$27,000 to the 401(k) Plan during 1998 and 1997, respectively. No such
contributions were made in 1996.

F-17
<PAGE>

COMMAND SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

11. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings
per share:

<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Numerator:
Net loss............................. $(1,767,257) $ (496,693) $ (423,006)
Preferred stock dividends and
accretion........................... (260,303) (80,351) --
----------- ---------- ----------
Numerator for basic and diluted loss
per share--loss applicable to common
stockholders........................ (2,027,560) (577,044) (423,006)
Denominator:
Weighted-average shares
outstanding for basic and diluted
loss per share...................... 7,017,937 4,275,000 4,275,000
----------- ---------- ----------
Basic and diluted loss per share
applicable to common stockholders... $ (0.29) $ (0.13) $ (0.10)
=========== ========== ==========
</TABLE>

Options to purchase 206,225 and 150,550 shares of the Company's common stock
and 223,233 and 1,181,750 shares of the Company's common stock issuable upon
the conversion of the Series A and B redeemable convertible preferred stock in
1998 and 1997, respectively, were not included in the computation of diluted
earnings per share because the effect of their inclusion would be antidilutive.

12. Reportable Segments

The Company operates in one industry segment--providing a wide range of
computer consulting services to large financial services organizations
primarily in North America. The Company operates in two geographic areas; the
United States and India. Prior to 1996, the Company only operated in the United
States. The accounting policies of each geographic area are substantially the
same as those described in Note 2.

<TABLE>
<CAPTION>
United
States India Elimination Consolidated
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
1998
Revenue.................... $35,214,586 $3,942,217 $(3,942,217) $35,214,586
Operating (loss) income.... (3,863,899) 825,286 -- (3,038,613)
Identifiable assets........ 31,004,269 4,643,422 -- 35,647,691
1997
Revenue.................... $25,057,039 $2,870,150 $(2,870,150) $25,057,039
Operating (loss) income.... (99,974) 929,209 -- 829,235
Identifiable assets........ 12,173,801 2,251,286 -- 14,425,087
1996
Revenue.................... $17,069,417 $ -- $ -- $17,069,417
Operating (loss) income.... (82,194) (514,749) -- (596,943)
Identifiable assets........ 3,434,094 1,382,171 -- 4,816,265
</TABLE>

For the years ended December 31, 1998, two customers accounted for
approximately 15% and 10% of revenue. For the year ended December 31, 1997,
three customers accounted for approximately 13%, 13% and 10% of revenue. For
the year ended December 31, 1996, two customers accounted for approximately 14%
and 13% of revenue.

F-18
<PAGE>

COMMAND SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

12. Reportable Segments--(continued)

The following table sets forth the revenue percentages by line of business:

<TABLE>
<CAPTION>
Year ended December 31
----------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Staff augmentation............................... 57% 59% 86%
Year 2000........................................ 27% 21% --
Software and hardware............................ 10% 12% 11%
Other............................................ 6% 8% 3%
------- ------- -------
Total............................................ 100% 100% 100%
======= ======= =======
</TABLE>

13. Legal Proceedings

On or about May 6, 1998, plaintiffs Don M. Doney, Jr. and Madelyn J. McCabe
filed a lawsuit in the United States District Court for the Southern District
of New York. The lawsuit was filed against the Company, certain of its officers
and directors (Edward G. Caputo, Stephen L. Willcox, Robert B. Dixon, John J.C.
Herndon, James M. Oates and Joseph D. Sargent) and the managing underwriters of
the initial public offering (Cowen & Company and Volpe Brown Whelan & Company,
LLC). On or about June 22, 1998, the same plaintiffs amended their complaint in
the lawsuit they had filed with the United States District Court for the
Southern District of New York. On or about May 8, 1998, another plaintiff,
Chaile B. Steinberg, filed a new lawsuit against the same defendants in the
same court. On or about June 26, 1998, a plaintiff named Michael Makinien filed
a lawsuit in the same court against the same defendants. Each of the plaintiffs
purports to represent a class consisting of purchasers of common stock pursuant
to the initial public offering. These lawsuits were consolidated into one
lawsuit by order of the United States District Court for the Southern District
of New York. Consequently, the plaintiffs filed a consolidated complaint named
In Re Command Systems, Inc. Securities Litigation on September 30, 1998,
seeking to represent a class of purchasers of common stock from March 12, 1998,
the date of the initial public offering, through April 29, 1998. The
consolidated complaint alleges that the defendants violated the Securities Act
of 1933 in that the Company failed properly to register 345,000 shares of
common stock that were sold in the initial public offering, and consequently
the defendants sold unregistered securities to the public, and the prospectus
for the initial public offering contained untrue statements of material fact
and omitted to state other facts necessary to make the statements made in the
prospectus not misleading with respect to the unregistered shares, the
Company's business strategy and other matters. The plaintiffs seek rescission
of the sales of all the shares in the initial public offering and unspecified
damages, including rescissionary damages, interest, costs and fees. Such
stockholder litigation, if concluded in favor of the plaintiffs, could have a
material adverse effect on the Company's business, financial condition and
results of operations. On December 7, 1998, the Company and the other
defendants entered into a memorandum of understanding to settle the dispute,
but a memorandum of understanding is not a definitive settlement agreement. A
definitive settlement agreement resulting from the memorandum will also require
court approval. By the terms of the memorandum, the parties have agreed in
principle to a total payment from the Company to the plaintiffs of $5.75
million in cash plus accrued interest, minus approved attorneys' fees and
related expenses. The $5.75 million will accumulate interest as of the date of
the preliminary court approval of a definitive settlement agreement entered
into among the parties based on the memorandum, but will not be payable until
the court approves the settlement and such approval is final. In addition, the
Company may be responsible for certain legal fees and related expenses incurred
in connection with the litigation. The Company recognized a charge to
operations of $1.8 million in the fourth quarter of 1998 for its costs of the
settlement and related expenses. There can be no assurance, however, that a
definitive settlement agreement will be reached, or that if reached, it will be
approved by the court.

Of the $5.75 million to be deposited in a settlement fund by the Company,
the Company will be reimbursed for all but $1.65 million. This reimbursement
will come in part from the Company's insurance

F-19
<PAGE>

COMMAND SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

carrier and the rest pursuant to the indemnification agreement with the
Company's former counsel in the initial public offering. In addition, the
Company may be responsible for certain legal fees and related expenses

13. Legal Proceedings--(continued)

incurred in connection with the litigation. The Company cannot be certain,
however, that a definitive agreement will be reached, or that if it is reached,
that the court will approve it.

In the definitive settlement agreement, the members of the class represented
by plaintiffs will give up their right to assert individual claims against the
Company or its underwriters, based on their purchase of the Company's common
stock in the initial public offering and in the open market during the period
from March 12, 1998 through April 29, 1998. In return for this concession,
class members will be entitled to share pro rata in the $5.75 million cash
settlement fund, plus interest, minus approved attorneys' fees and related
expenses, upon the court's final approval of the settlement. Any class member
can decide not to participate in the settlement, and choose to pursue his or
her individual claim against the Company or the other defendants, by filling
out and returning an "opt-out" form which will be mailed to all class members
following the court's preliminary approval of the settlement.

The memorandum of understanding provides for a pro rata distribution of the
cash settlement fund, plus interest, minus approved attorneys' fees and related
expenses, to purchasers of the Company's common stock
in the period from March 12 through April 29, 1998, inclusive. Without knowing
the number of claimants and the amount of attorneys' fees and expenses to be
approved by the court, the Company cannot estimate the net amount actually
payable on a per share basis.

If the court decides not to approve the settlement, the stockholder
litigation will continue. If concluded in favor of the plaintiffs, such
litigation could have a material adverse effect on the Company's business,
financial condition and results of operation.

The Company is, from time to time, subject to various legal actions and
proceedings relating to various matters incidental to its business. While the
outcome of such matters cannot be predicted with certainty, in the opinion of
management, after reviewing such matters and consulting with the Company's
counsel and considering any applicable insurance or indemnifications, any
liability which may ultimately be incurred is not expected to materially affect
the consolidated financial position, cash flows or results of operations of the
Company.

14. Risks and Uncertainties of Doing Business

Many of the Company's engagements involve projects that are critical to the
operations of its customers' businesses and provide benefits that may be
difficult to quantify. Any failure in a customer's system could result in a
claim for substantial damages against the Company, regardless of the Company's
responsibility for such failure. In addition, the Company's failure to complete
a project in the contractually prescribed time period, particularly a Year 2000
solutions services contract, may result in a claim for substantial damages
against the Company. Although the Company attempts to limit contractually its
liability for damages arising from errors, mistakes or omissions in rendering
its information technology services, there can be no assurance that the
limitations of liability set forth in its services contracts will be
enforceable in all instances or would otherwise protect the Company from
liability for damages. Although the Company maintains general liability
insurance coverage, including coverage for errors or omissions in the amount of
$5.0 million, there can be no assurance that such coverage will continue to be
available on reasonable terms or will be available in sufficient amounts to
cover one or more large claims, or that the insurer will not disclaim coverage
as to any future claim. The successful assertion of one or more large claims
against the Company that exceed available insurance coverage, or changes in the
Company's insurance policies, including premium increases or the imposition of
large deductible or co-insurance requirements, could adversely affect the
Company's business, financial condition and results of operations.

F-20
<PAGE>

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
COMMAND SYSTEMS, INC.

Years Ended December 31, 1998, 1997, 1996

<TABLE>
<CAPTION>
Charged
Balance at Charged to to Other Balance at
Beginning of Costs and Accounts End of
Description Period Expenses Describe Deductions Period
- ------------------------ ------------ ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1998
Deducted from asset
accounts:
Allowance for doubtful
accounts receivable.. $259,893 $ 82,049 $-- $ -- $341,942

Year ended December 31,
1997
Deducted from asset
accounts:
Allowance for doubtful
accounts receivable.. $ 24,500 $357,582 $-- $(122,189) $259,893

Year ended December 31,
1996
Deducted from asset
accounts:
Allowance for doubtful
accounts receivable.. $ -- $ 24,500 $-- $ -- $ 24,500
</TABLE>

S-1

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 16,169,749 391,687
<SECURITIES> 2,824,417 0
<RECEIVABLES> 6,775,806 4,463,134
<ALLOWANCES> 341,942 259,893
<INVENTORY> 0 0
<CURRENT-ASSETS> 26,364,207 5,001,902
<PP&E> 3,852,245 2,859,730
<DEPRECIATION> 1,569,489 825,562
<TOTAL-ASSETS> 35,647,691 14,425,087
<CURRENT-LIABILITIES> 5,192,345 4,542,039
<BONDS> 0 0
0 0
0 10,223,475
<COMMON> 34,818 1,000
<OTHER-SE> 30,420,528 (723,414)
<TOTAL-LIABILITY-AND-EQUITY> 35,647,691 14,425,087
<SALES> 35,214,586 25,057,039
<TOTAL-REVENUES> 35,214,586 25,057,039
<CGS> 24,527,627 16,972,812
<TOTAL-COSTS> 24,527,627 16,972,812
<OTHER-EXPENSES> 13,725,572 7,254,992
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (40,536) (309,657)
<INCOME-PRETAX> (2,084,846) 552,489
<INCOME-TAX> 317,589 (597,751)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,767,257) (496,693)
<EPS-PRIMARY> .29 .01
<EPS-DILUTED> .29 .01

</TABLE>