According to the U.S. Department of Education, as of Spring 2001, there were approximately 4,100 of these institutions with aggregate annual operating budgets of over $270 billion. Colleges and universities face a number of challenges, including managing rising enrollments, budgetary constraints, outdated technology and administrative systems, rising demand for technology-enhanced education and increased competition for students.

In 2001, post-secondary institutions in the U.S. served approximately 15 million degree-seeking students. The U.S. Department of Education estimates that by 2010 post-secondary enrollments will increase to approximately 17 million degree-seeking students. It is expected that enrollments will also rise as more working adults and other non-traditional students elect to continue their educations to obtain additional skills training or specialized certifications to increase their earning potential. The increasing student population will continue to strain the physical, faculty and financial resources of many institutions, particularly mid-sized institutions and community colleges.

Post-secondary institutions compete with one another to attract students. A growing number of for-profit, post-secondary education providers has further intensified competition among schools for students. When deciding which school to attend, students increasingly consider, among other factors, the breadth of curricula offered, an institution's technology resources and its ability to provide high quality technology-enhanced educational experiences and programs that accommodate student lifestyles and time constraints. Institutions that fail to respond to these market demands face a competitive disadvantage in attracting students. Competition for students is particularly strong at mid-sized institutions and community colleges in large, metropolitan areas. According to the U.S. Department of Education, there are approximately 1,390 institutions with estimated aggregate annual budgets of $82 billion in this market segment.

The Company’s technology management solutions include design and maintenance of campus network infrastructures, as well as emerging technologies such as smart classrooms and wireless environments; full service project management and operations support that ensures efficiency, reliability and security; implementation and integration of systems and applications across multiple academic and administrative platforms; application management and support services that utilize remote monitoring technologies combined with on-site staff to provide reliable access to critical applications, such as network infrastructure, e-mail and administrative systems; centralized on-site and remote help desk operations designed to meet the workflow and user needs of individual clients; and web design and support services that create and maintain functional and compelling web sites for faculty, students and alumni while incorporating strong institutional branding.

The Company’s learning technology solutions include instructional and development services to help clients develop courses that are educationally sound, interactive and focused on meeting the needs of different types of students; faculty and student support services that use the Company’s centralized call center, which features sophisticated tracking and response mechanisms to coordinate an extensive, nationwide group of support personnel; infrastructure and network support services leveraging the Company’s high-performance network to provide reliable access to critical learning applications; and enterprise application integration services that provide access to its technical experts to perform technical consulting, project management and application development for complex student information systems, ERP planning, portal and course management applications.

The Company’s curriculum solutions include curriculum design and program services, including content developed by its clients or obtained through its content development alliances; enrollment management services, including student recruitment initiatives designed to directly and more aggressively sell and market the educational programs offered by the Company’s clients; and market research and assessment that provides the Company’s clients with a competitive advantage in anticipating market trends.

Cost of services increased 44.1% from $20.1 million for the six months ended June 30, 2001 to $28.9 million for the six months ended June 30, 2002.

Selling, general and administrative expenses increased 48.0% from $8.1 million in the six months ended June 30, 2001 to $11.9 million in the six months ended June 30, 2002.

Depreciation and amortization was $0.3 million in the six months ended June 30, 2001 and $0.9 million in the six months ended June 30, 2002.

As a percentage of revenue, operating income decreased from 13.3% in the six months ended June 30, 2001 to 9.6% in the six months ended June 30, 2002.