The U.S. market for security officer services can be divided into two primary categories: proprietary services and contract services. In proprietary arrangements, users of the services employ, schedule and manage their own security officers. By contrast, contract services are provided by independent security officer services companies to end-users that outsource these services pursuant to contracts. Demand for security officer services is dependent upon a number of factors, including demographic trends, general economic variables such as GDP growth, unemployment rates, consumer spending levels, perceived and actual crime rates, government legislation and technology. According to the Freedonia Group, demand for contract security officer services in the United States is expected to grow from $11.7 billion in 2001 to $15.5 billion in 2006.

Increased outsourcing of security officer services is expected to drive a significant portion of the overall growth in the contract security officer market. It is believed independent contract security officer companies can generally offer services at a lower cost than comparable in-house proprietary services by better managing the risks associated with workers’ compensation and third party liability, achieving benefits of scale in administrative functions, recruiting and training and more efficiently leveraging security officer management.

The quality of security officer services provided by contract security officer companies can vary widely. Many contract security officer companies seek to compete on price alone and therefore often hire the least expensive labor possible. According to the Freedonia Group, median wages for security guards in 2000 were $8.45 per hour. This commodity business model is often deployed in areas such as parking lots. It is believed many customers appreciate quality services and are willing to pay a premium to achieve greater competence.

The Company operations are divided into 13 geographic regions, each of which is managed by a vice president/general manager who is responsible for developing and executing regional business plans based on the demand, needs and competition in their respective regional markets. While each regional business plan is based on the Company’s overall corporate strategy, its regional general managers evaluate and recommend programs and initiatives designed to build success in their regional markets. The primary mission of the general manager, in all respects, is to follow through on the Company’s focus on customer service to ensure that client expectations are being met. Each regional general manager is both responsible and accountable for achieving the goals contained in that regional manager’s regional business plan.

The Company employs 52 district managers operating out of 44 district offices, each of whom is responsible for the day-to-day management of the account managers, site supervisors and security officers in a district. Reporting to the general manager for the region, each district manager supervises account managers, payroll and billing, customer relations and the recruiting and training of security officers for the district. The Company invests significantly in its district office management personnel, training them on management techniques and developing them to assume leadership roles. The Company has designed its district office management structure to enable deliver quality, responsive resources for day-to-day support and for contingency situations that may arise. At the district office level, the Company employs support personnel to ensure that its security officers located at a facility within the district are well-trained and have quality support as well as backup from other sites when needed.

The Company provides each customer account with an account manager who handles one or several accounts. Typically, the services of the Company’s account managers located on-site are billed directly to its customers. The Company’s account managers are management-level personnel, generally with previous experience as site supervisors, who are responsible for all aspects of security officer development and performance at the facility or, in the case of roving account managers, facilities for which they are responsible. The Company’s account managers focus on the on-site needs of both its customers and its security officers. These managers are typically rewarded through incentive-based compensation based on their performance in key functional areas, such as bonuses based on gross profits and training quotas. This model also enables the Company to reduce the overhead costs for its security officers as its account managers address billing, payroll, scheduling and training issues on-site.

Cost of revenues increased by $27.6 million, or 15.4%, to $207.0 million for the six months ended June 30, 2002 from $179.4 million for the six months ended June 30, 2001.

Operating income increased by $6.7 million to $10.1 million for the six months ended June 30, 2002 from $3.4 million for the six months ended June 30, 2001.

Income before discontinued operations increased by $12.0 million to $3.0 million for the six months ended June 30, 2002 from a loss of $9.0 million for the six months ended June 30, 2001.

Net income increased by $12.2 million to $3.0 million for the six months ended June 30, 2002 from a loss of $9.2 million for the six months ended June 30, 2001.