Businesses in the United States are increasingly outsourcing non-core functions in order to reduce costs and improve service, quality, efficiency, productivity and convenience. Demand for outsourced employee administration services has grown significantly and is expected to continue growing over the next several years. According to Gartner Group Inc., a national research data provider, U.S. corporate spending on outsourced payroll processing and tax filing services was $7.2 billion in 2000 and is expected to grow to $16.7

billion by 2005, a five-year compound annual growth rate of 18.4%.

The market for payroll processing and related services can generally be divided into three segments based on the size of the business in terms of the number of employees.

It is believes that the industry's need for payroll tax and regulatory expertise, combined with the requirement of initial and ongoing investments in information systems, create a substantial barrier to entry in the industry. In recent years, payroll processing and employee administration services have increased in complexity due to continual changes in regulations and increasingly sophisticated employee benefit plans. In addition, payroll and employee administration systems must keep pace with rapidly evolving business

operations as clients increase in size, expand geographically and add new operations. Further, these systems must be flexible and scalable to enable integration with increasingly advanced computer systems as clients adopt new technologies. Developing the expertise and infrastructure needed to effectively compete in this industry on a national basis requires a substantial investment in time and money that presents significant obstacles to potential entrants.

The Company’s payroll processing and tax filing services include calculating and processing client checks and direct deposits,

generating standard management reports and providing code compliant tax services. What differentiates the Company from its national competitors' a la carte approach is its ability to offer its core services in bundled packages at competitive prices. As a part of its payroll processing and tax filing services, the Company receives employee earnings, tax and deduction information from the client, then apply federal, state and local payroll and tax regulations to calculate employee net pay. The Company then debits the client's account by an amount equal to net pay plus payroll taxes, its fees and any other deductions that the client elects. Finally, the Company pays the client's employees by check or direct deposit, remit taxes and file any applicable tax forms with the appropriate tax agency

and transfer various deductions to appropriate third parties. The Company offers its clients various reports, special delivery options and additional services, such as general ledger and deferred

compensation reports, and payroll reports reflecting the distribution of an employee's labor among jobs. The Company also offers interfaces to many accounting software products, time and attendance systems and qualified benefit plan administrators.

The Company provides its clients with access to a variety of ancillary products and services, either directly or through arrangements with third-party providers.

The Company offers and distributes its core products and services through several sales channels. The Company employs direct sales representatives to focus on the development of referral relationships with accountants, banks and other business-to-business networks and, in the event of a referral, to develop the client relationship. The Company recruits and hires sales representatives with business-to-business sales experience and prefer candidates with payroll experience. The Company’s 139 direct sales representatives operate out of local offices located generally in major metropolitan areas. Prior to its February 1998 management buy-out, the Company primarily relied on a network of associate offices for sales, marketing and client interaction. Since its management buy-out, the Company has repurchased the majority of the associate offices from their prior owners. The Company has contractual relationships with the 15 remaining associate offices located primarily in second and third-tier markets. The Company offers its products and services through a private label relationship with NEBS, a distributor of business supplies to small businesses. The Company has established a telecenter in Sarasota, Florida to assist it in offering its products and services to potential clients in markets not

serviced by one of its local offices. The Company’s web site provides additional access to its services for potential payroll clients nationwide.

Operating costs increased $6.1 million, or 50.4%, to $18.3 million for the nine-month period ended February 2002 from $12.1 million for the nine-month period ended February 2001.

Depreciation and amortization expense decreased $0.3 million, or 9.2%, to $3.0 million for the nine-month period ended February 2002 from $3.3 million for the nine-month period ended February 2001.

Interest expense decreased $2.5 million, or 58.1%, to $1.8 million for the nine-month period ended February 2002 from $4.2 million for the nine-month period ended February 2001.

Investment and other income decreased $0.2 million to less than $0.1 million for the nine-month period ended February 2002 from $0.2 million for the nine-month period ended February 2001.