The U.S. market for post-secondary education is a large, growing market. Based on estimates by the U.S. Department of Education, National Center for Education Statistics, or NCES, revenue for post-secondary degree-granting educational institutions exceeded $260 billion in the 2000 – 2001 academic year. According to the NCES, post-secondary students enrolled as of the Fall of 2001 were 15.9 million and are expected to grow to 17.4 million by 2009. It is believed the forecasted growth in post-secondary enrollment is a result of a number of factors, including the expected increase in annual high school graduates from 2.9 million in 2001 to 3.3 million by 2009 (based on estimates by the NCES), the significant and measurable personal income premium that is attributable to post-secondary education and an increase in demand by employers for professional and skilled workers.

According to Eduventures, an education consulting and research firm, many traditional, non-profit post-secondary education providers have been unable to meet the increasing demand for post-secondary education as a result of, among other factors, a lack of funding and physical constraints on their ability to admit additional students. Alternatively, many for-profit institutions have been designed to meet this growing demand and are becoming an increasingly popular alternative for working adults. According to Eduventures, the revenue growth rate in fully-online education exceeded the revenue growth rate in the for-profit segment of the post-secondary market from 2001 to 2003. It is believed that the higher growth in demand for fully-online education is largely attributable to the flexibility and convenience that it offers to both working adults and traditional students. Additionally, in March 2004, Eduventures projected that the number of students enrolled in fully-online programs at Title IV eligible, degree-granting institutions would be approximately 915,000 as of December 31, 2004, and would grow to approximately 1,600,000 by December 31, 2007. Eduventures also projected that annual revenues generated from students enrolled in fully-online programs at Title IV eligible, degree-granting institutions would be $5.1 billion in 2004 and would increase to $10.4 billion in 2007.

To meet course requirements, learners typically need to access the online courseroom two to five times each week. However, there is no set class schedule, so learners can attend each class as it fits their weekly schedule. The Company’s online format provides a digital record of learner interactions for the course instructor to assess learners’ level of engagement and demonstration of required competencies.

The only exception to the Company’s online format is for doctoral and certain master’s degree candidates pursuing professional licenses who participate in periodic in-residence colloquia (or seminars), supervised practicum and internships as a complement to their courses. The colloquia typically last one week and are required, on average, once per year for learners in applicable programs, while the supervised practicum and internships vary in length based on the program in which the learner is enrolled.

The Company designs its curricula by first defining competencies that each learner needs to develop at the course and program level. The Company consults with subject matter experts and professional associations in the relevant field of study to ensure that it is addressing the appropriate competencies.

Each program is regularly subjected to program reviews by accrediting bodies, state regulatory authorities and external experts to assure relevance and attainment of specified outcomes. The Company provides learners with a variety of services designed to support their academic studies. These services include new learner orientation, technical support, academic advising, research services (particularly for doctoral degree candidates), writing services and other online tutoring. The Company provides learners with the ability to access a variety of administrative services both telephonically and via the Internet. The Company provides learners with complete online access to the University Library. The library, provided through a contractual relationship with the Sheridan Libraries at Johns Hopkins University, supplies learners with full-text articles, electronic books, reference assistants and hard copy materials via inter-library loans.

Instructional costs and services expenses for the year ended December 31, 2004, were $57.5 million, representing an increase of $15.1 million, or 35.6%, as compared to instructional costs and services expenses of $42.4 million for the year ended December 31, 2003.

Selling and promotional expenses for the year ended December 31, 2004, were $34.0 million, representing an increase of $12.8 million, or 60.6%, as compared to selling and promotional expenses of $21.2 million for the year ended December 31, 2003.

Other income, net increased by $0.3 million, or 69.6%, to $0.7 million for the year ended December 31, 2004, from $0.4 million for the year ended December 31, 2003.

Net income was $18.8 million for the year ended December 31, 2004, compared to net income of $4.4 million for the year ended December 31, 2003, an increase of $14.4 million.