** **

**SECURITIES AND EXCHANGE COMMISSION**

** **

**WASHINGTON,D.C. 20549 - 0001**

** **

** **

**FORM 10-Q**

** **

**(Mark One)**

** **

**ý**        QUARTERLY REPORT PURSUANT TO SECTION13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

** **

**FOR THEQUARTER ENDED SEPTEMBER 30, 2001**

** **

**or**

** **

**o**       TRANSITION REPORT PURSUANT TO SECTION13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

** **

**COMMISSIONFILE NUMBER 000-30271**

** **

****

**PEC SOLUTIONS, INC.**

** **

**(EXACT NAMEOF REGISTRANT AS SPECIFIED IN ITS CHARTER)**

** **

** **

| **DELAWARE**                         |   | **54-1339972**           |
|--------------------------------------|--------|--------------------------|
| **(State or  other jurisdiction of** |   | **(I.R.S.  Employer**    |
| **incorporation  or organization)**  |   | **Identification  No.)** |

** **

** **

| **12750  FAIR LAKES CIRCLE, FAIRFAX, VA**     |   | **22033**      |
|-----------------------------------------------|--------|----------------|
| **(Address  of principal executive offices)** |   | **(Zip Code)** |

** **

** **

**Registrant'stelephone number, including area code:**(703)679-4900

** **

** **

**     Indicate bycheck mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to the filingrequirements for the past 90 days. Yes**ý No o

** **

**     As of  November 12, 2001, 25,927,220 of theregistrant's Common Stock, par value $.01 per share, were outstanding.**

** **

**PECSOLUTIONS, INC.**

**QUARTERLYREPORT ON FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001**

** **

**TABLEOF CONTENTS**

** **

** **
|                                                                                                |   |
|-----------------------------------------------------------------------------------------------------|--------|
| **Item 1. Financial  Statements:**                                                                  |   |
| **Consolidated Balance Sheets  - September 30, 2001 and December 31, 2000**                         |   |
| **Consolidated Statements  of Income - Three and nine months ended September 30, 2001 and 2000**    |   |
| **Consolidated  Statements of Cash Flows -- Nine months ended September 30, 2001 and 2000**         |   |
| **Notes to  Consolidated Financial Statements**                                                     |   |
| **Item 2.  Management's Discussion and Analysis of Financial Condition and Results of  Operations** |   |
| **Item 3.  Qualitative and Quantitative Disclosure about Market Risk**                              |   |
| **PART II.  OTHER INFORMATION**                                                                     |   |
| **Items 1 -- 6**                                                                                    |   |
| **Signatures**                                                                                      |   |

** **

** **

** **

**PART I:FINANCIAL INFORMATION**

** **

**ITEM 1: FINANCIAL STATEMENTS**

** **

**PECSOLUTIONS, INC.**

**CONSOLIDATED BALANCE SHEETS**

**(DOLLARSIN THOUSANDS)**

** **

** **
|                                                                                                                                     |   | **AS OF**       |        | **AS OF**     |       |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------|-------------|---------------|------------|
|                                                                                                                                     |   | **SEPT.  30,**  |        | **DEC.  31,** |       |
|                                                                                                                                     |   | **2001**        |        | **2000**      |       |
|                                                                                                                                     |   | **(UNAUDITED)** |        |          |       |
| **ASSETS**                                                                                                                               |   |            | ** **  |          | ** ** |
| **Current  assets:**                                                                                                                     |   |            | ** **  |          | ** ** |
| **Cash and  cash equivalents**                                                                                                           |   | **$**           | **66,325**  | ** **    | **$**      | **14,655** | ** ** |
| **Short-term  investments**                                                                                                              |   | **17,499**      | ** **  | **21,017**    | ** ** |
| **Accounts  receivable, net**                                                                                                            |   | **28,730**      | ** **  | **15,764**    | ** ** |
| **Other  current assets**                                                                                                                |   | **1,590**       | ** **  | **1,491**     | ** ** |
| **Total  current assets**                                                                                                                |   | **114,144**     | ** **  | **52,927**    | ** ** |
|                                                                                                                                     |   |            | ** **  |          | ** ** |
| **Property  and equipment, net**                                                                                                         |   | **3,170**       | ** **  | **2,585**     | ** ** |
| **Goodwill,  net**                                                                                                                       |   | **2,824**       | ** **  | **3,365**     | ** ** |
| **Other  assets**                                                                                                                        |   | **4,533**       | ** **  | **2,523**     | ** ** |
| **Total  assets**                                                                                                                        |   | **$**           | **124,671** | ** **    | **$**      | **61,400** | ** ** |
|                                                                                                                                     |   |            | ** **  |          | ** ** |
| **LIABILITIES AND STOCKHOLDERS' EQUITY**                                                                                                 |   |            | ** **  |          | ** ** |
|                                                                                                                                     |   |            | ** **  |          | ** ** |
| **Current  liabilities:**                                                                                                                |   |            | ** **  |          | ** ** |
| **Accounts  payable and accrued expenses**                                                                                               |   | **$**           | **3,854**   | ** **    | **$**      | **2,150** | ** ** |
| **Advance  payments on contracts**                                                                                                       |   | **1,116**       | ** **  | **1,258**     | ** ** |
| **Retirement  plan contribution payable**                                                                                                |   | **851**         | ** **  | **2**         | ** ** |
| **Accrued  payroll**                                                                                                                     |   | **4,474**       | ** **  | **4,214**     | ** ** |
| **Accrued  vacation**                                                                                                                    |   | **1,697**       | ** **  | **1,183**     | ** ** |
| **Other  current liabilities**                                                                                                           |   | **1,087**       | ** **  | **938**       | ** ** |
| **Total  current liabilities**                                                                                                           |   | **13,079**      | ** **  | **9,745**     | ** ** |
|                                                                                                                                     |   |            | ** **  |          | ** ** |
| **Long-term  liabilities:**                                                                                                              |   |            | ** **  |          | ** ** |
| **Supplemental  retirement program liability**                                                                                           |   | **581**         | ** **  | **482**       | ** ** |
| **Deferred  rent payable**                                                                                                               |   | **806**         | ** **  | **459**       | ** ** |
| **Other  long-term liabilities**                                                                                                         |   | **5**           | ** **  | **14**        | ** ** |
| **Total  long-term liabilities**                                                                                                         |   | **1,392**       | ** **  | **955**       | ** ** |
| **Total  liabilities**                                                                                                                   |   | **14,471**      | ** **  | **10,700**    | ** ** |
| **Commitments  and contingencies**                                                                                                       |   |            | ** **  |          | ** ** |
|                                                                                                                                     |   |            | ** **  |          | ** ** |
| **Stockholders'  equity:**                                                                                                               |   |            | ** **  |          | ** ** |
| **Undesignated  capital stock, 10,000,000 shares authorized**                                                                            |   | **--**          | ** **  | **--**        | ** ** |
| **Common  stock, $0.01 par value, 75,000,000 shares authorized, 25,892,908 and  22,345,440 shares issued and outstanding, respectively** |   | **259**         |        | **223**       |       |
| **Additional  paid-in capital**                                                                                                          |   | **78,565**      | ** **  | **28,692**    | ** ** |
| **Retained  earnings**                                                                                                                   |   | **31,444**      | ** **  | **21,779**    | ** ** |
| **Accumulated  other comprehensive income (loss)**                                                                                       |   | **(68**         | **)**       | **6**         | ** ** |
| **Total  stockholders' equity**                                                                                                          |   | **110,200**     | ** **  | **50,700**    | ** ** |
| **Total  liabilities and stockholders' equity**                                                                                          |   | **$**           | **124,671** | ** **    | **$**      | **61,400** | ** ** |

** **

** **

**See notes toconsolidated financial statements.**

**PECSOLUTIONS, INC.**

**CONSOLIDATED STATEMENTS OFINCOME**

**(AMOUNTSIN THOUSANDS, EXCEPT PER SHARE DATA)**

** **

** **
|                                     |   | **THREE  MONTHS ENDED** |       | **NINE  MONTHS ENDED** |       |
|------------------------------------------|--------|-------------------------|------------|------------------------|------------|
|                                     |   | **SEPT.  30,**          |       | **SEPT.  30,**         |       | **SEPT.  30,** |   | **SEPT.  30,** |   |
|                                     |   | **2001**                |       | **2000**               |       | **2001** |   | **2000** |   |
|                                     |   | **(UNAUDITED)**         |       |
| **Revenues**                             |   | **$**                   | **28,833** | ** **             | **$**      | **17,695** | ** ** | **$** | **77,887** | ** ** | **$** | **49,892** | ** ** |
| **Operating  costs and expenses:**       |   |                    | ** ** |                   | ** ** |   | ** ** |   | ** ** |
| **Direct  costs**                        |   | **15,906**              | ** ** | **9,337**              | ** ** | **41,964** | ** ** | **27,267** | ** ** |
| **General  and administrative expenses** |   | **6,164**               | ** ** | **4,276**              | ** ** | **17,254** | ** ** | **12,857** | ** ** |
| **Sales and  marketing expenses**        |   | **1,087**               | ** ** | **935**                | ** ** | **3,119** | ** ** | **2,070** | ** ** |
| **Amortization  of goodwill**            |   | **180**                 | ** ** | **76**                 | ** ** | **541** | ** ** | **76** | ** ** |
| **Total  operating costs and expenses**  |   | **23,337**              | ** ** | **14,624**             | ** ** | **62,878** | ** ** | **42,270** | ** ** |
| **Operating  income**                    |   | **5,496**               | ** ** | **3,071**              | ** ** | **15,009** | ** ** | **7,622** | ** ** |
| **Other  income, net**                   |   | **816**                 | ** ** | **673**                | ** ** | **1,725** | ** ** | **1,261** | ** ** |
| **Income  before income taxes**          |   | **6,312**               | ** ** | **3,744**              | ** ** | **16,734** | ** ** | **8,883** | ** ** |
| **Provision  for income taxes**          |   | **2,600**               | ** ** | **1,475**              | ** ** | **6,894** | ** ** | **3,458** | ** ** |
| **Net income**                           |   | **$**                   | **3,712**  | ** **             | **$**      | **2,269** | ** ** | **$** | **9,840** | ** ** | **$** | **5,425** | ** ** |
| **Earnings  per share:**                 |   |                    | ** ** |                   | ** ** |   | ** ** |   | ** ** |
| **Basic**                                |   | **$**                   | **0.14**   | ** **             | **$**      | **0.10** | ** ** | **$** | **0.42** | ** ** | **$** | **0.26** | ** ** |
| **Diluted**                              |   | **$**                   | **0.13**   | ** **             | **$**      | **0.09** | ** ** | **$** | **0.36** | ** ** | **$** | **0.22** | ** ** |
| **Weighted  average shares used**        |   |                    | ** ** |                   | ** ** |   | ** ** |   | ** ** |
| **in  computing earnings per share:**    |   |                    | ** ** |                   | ** ** |   | ** ** |   | ** ** |
| **Basic**                                |   | **25,840**              | ** ** | **22,275**             | ** ** | **23,672** | ** ** | **20,711** | ** ** |
| **Diluted**                              |   | **29,610**              | ** ** | **25,285**             | ** ** | **27,277** | ** ** | **24,140** | ** ** |

** **

** **

**See notes toconsolidated financial statements.**

** **

**PECSOLUTIONS, INC.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(DOLLARSIN THOUSANDS)**

** **

** **
|                                                                                   |   | **NINE  MONTHS ENDING** |       |
|----------------------------------------------------------------------------------------|--------|-------------------------|------------|
|                                                                                   |   | **SEPT.  30,**          |       | **SEPT.  30,** |   |
|                                                                                   |   | **2001**                |       | **2000** |   |
|                                                                                   |   | **(UNAUDITED)**         |       |
| **Cash flows  from operating activities:**                                             |   |                    | ** ** |   | ** ** |
| **Net income**                                                                         |   | **$**                   | **9,840**  | ** ** | **$** | **5,425** | ** ** |
| **Adjustments  to reconcile net income to net cash provided by operating activities:** |   |                    |       |   |   |
| **Depreciation  and amortization**                                                     |   | **781**                 | ** ** | **504** | ** ** |
| **Amortization  of goodwill**                                                          |   | **541**                 | ** ** | **76** | ** ** |
| **Deferred  rent payable**                                                             |   | **347**                 | ** ** | **337** | ** ** |
| **Deferred  income taxes**                                                             |   | **(183**                | **)**      | **--** | ** ** |
| **Changes in  operating assets and liabilities:**                                      |   |                    | ** ** |   | ** ** |
| **Accounts  receivable, net**                                                          |   | **(12,966**             | **)**      | **(763** | **)** |
| **Other  current assets**                                                              |   | **(31**                 | **)**      | **(853** | **)** |
| **Other  assets**                                                                      |   | **(81**                 | **)**      | **(239** | **)** |
| **Accounts  payable and accrued expenses**                                             |   | **1,704**               | ** ** | **746** | ** ** |
| **Advance  payments on contracts**                                                     |   | **(142**                | **)**      | **(1,260** | **)** |
| **Retirement  plan contribution payable**                                              |   | **849**                 | ** ** | **757** | ** ** |
| **Accrued  payroll**                                                                   |   | **260**                 | ** ** | **(1,329** | **)** |
| **Accrued  vacation**                                                                  |   | **514**                 | ** ** | **267** | ** ** |
| **Other  current liabilities**                                                         |   | **1,028**               | ** ** | **573** | ** ** |
| **Supplemental  retirement program liability**                                         |   | **99**                  | ** ** | **158** | ** ** |
| **Other  long-term liabilities**                                                       |   | **(9**                  | **)**      | **--** | ** ** |
| **Net cash  provided by operating activities**                                         |   | **2,551**               | ** ** | **4,399** | ** ** |
| **Cash flows  from investing activities:**                                             |   |                    | ** ** |   | ** ** |
| **Purchases  of property and equipment**                                               |   | **(1,209**              | **)**      | **(1,283** | **)** |
| **Net sales  (purchases) of short-term investments**                                   |   | **3,513**               | ** ** | **(17,434** | **)** |
| **Investment  in affiliate**                                                           |   | **(1,500**              | **)**      | **--** | ** ** |
| **Purchase  of marketable securities**                                                 |   | **--**                  | ** ** | **(9,469** | **)** |
| **Purchase  of subsidiary, net of cash acquired**                                      |   | **--**                  | ** ** | **(1,855** | **)** |
| **Capitalized  software**                                                              |   | **(540**                | **)**      | **(32** | **)** |
| **Net cash  provided (used) by investing activities**                                  |   | **264**                 | ** ** | **(30,073** | **)** |
| **Cash flows  from financing activities:**                                             |   |                    | ** ** |   | ** ** |
| **Dividends  paid**                                                                    |   | **--**                  | ** ** | **(413** | **)** |
| **Proceeds  from issuance of common stock**                                            |   | **49,251**              | ** ** | **28,429** | ** ** |
| **Common  stock offering costs**                                                       |   | **(396**                | **)**      | **(883** | **)** |
| **Payments  on notes payable**                                                         |   | **--**                  | ** ** | **(2,146** | **)** |
| **Net cash  provided by financing activities**                                         |   | **48,855**              | ** ** | **24,987** | ** ** |
| **Net  increase (decrease) in cash**                                                   |   | **51,670**              | ** ** | **(687** | **)** |
| **Cash and  cash equivalents at beginning of period**                                  |   | **14,655**              | ** ** | **7,981** | ** ** |
| **Cash and  cash equivalents at end of period**                                        |   | **$**                   | **66,325** | ** ** | **$** | **7,294** | ** ** |
| **Income  taxes paid**                                                                 |   | **$**                   | **6,625**  | ** ** | **$** | **3,371** | ** ** |
| **Interest  paid**                                                                     |   | **$**                   | **3**      | ** ** | **$** | **143** | ** ** |

** **

** **

**See notes toconsolidated financial statements.**

** **

**PECSOLUTIONS, INC.**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**SEPTEMBER30, 2001**

**(UNAUDITED)**

**1. Financial Statements**

** **

**     Theaccompanying consolidated financial statements, except for the December 31,2000 balance sheet, are unaudited and have been prepared in accordance withaccounting standards generally accepted in the United States for interimfinancial information and the instructions to Form 10-Q and Article 10 ofRegulation S-X. Accordingly, certain information and footnote disclosuresnormally included in financial statements prepared in accordance withaccounting principles generally in the United States have been omitted. In theopinion of management, all adjustments, consisting of normally recurringaccruals, considered necessary for a fair presentation, have been included. Itis suggested that these condensed financial statements be read in conjunctionwith the Company's audited financial statements included in the annual reporton Form 10-K, as amended for the year ended December 31, 2000. The results ofoperations for the nine months ended September 30, 2001, are not necessarilyindicative of the operating results to be expected for the full year.**

** **

**2. Principles of Consolidation**

** **

**     The consolidated financial statements includeall majority-owned or controlled subsidiaries. All significant intercompanybalances and transactions have been eliminated.**

** **

**3. Initial Public Offering andFollow-On Offering**

** **

**     The Companycompleted an initial public offering of common stock during April 2000. TheCompany sold 3,000,000 shares of common stock generating $25.6 million inproceeds to the Company, net of offering expenses. The Company completed afollow-on offering of common stock during June 2001. On June 27, 2001, theCompany sold 3,000,000 shares of common stock, which closed on July 3, 2001.The Company generated $47.7 million in proceeds net of offering expenses.**

** **

**4. Accounts Receivable**

** **

**     Accountsreceivable consist of the following as of:**
|                                 |   | **SEPTEMBER  30, 2001**     |       | **DECEMBER  31, 2000** |       |
|--------------------------------------|--------|-----------------------------|------------|------------------------|------------|
|                                 |   | **(DOLLARS  IN THOUSANDS)** |       |
| **Billed  accounts receivable**      |   | **$**                       | **26,739** | ** **             | **$**      | **14,597** | ** ** |
| **Unbilled  accounts receivable**    |   | **3,285**                   | ** ** | **2,449**              | ** ** |
| **Progress  payments**               |   | **(1,116**                  | **)**      | **(1,104**             | **)**      |
|                                 |   | **28,908**                  |       | **15,942**             | ** ** |
| **Allowance  for doubtful accounts** |   | **(178**                    | **)**      | **(178**               | **)**      |
| **Accounts  receivable, net**        |   | **$**                       | **28,730** | ** **             | **$**      | **15,764** | ** ** |

** **

**     Unbilledaccounts receivable comprise recognized recoverable costs and accrued profitson contracts for which billings had not been presented to clients as of thebalance sheet date. Management anticipates the collection of these amountswithin 90 days of the balance sheet date. Payments to the Company on contractswith agencies and departments of the U.S. Government are subject to adjustmentupon audit by the U.S. Government. All years subsequent to 1997 are subject toU.S. Government audit. Management believes the effect of audit adjustments, ifany, on periods not yet audited, will not have a material effect on thefinancial statements.**

** **

**5. Acquisition**

** **

**     On August 28,2000, the Company acquired all of the outstanding capital stock of VikingTechnology, Inc. ("Viking") for $2 million cash plus the assumptionof debt in a business combination accounted for as a purchase. Viking is aprovider of integrated software and advanced technology solutions for state andlocal law enforcement, fire and emergency medical service agencies. The excessof purchase price over the fair value of the net assets was approximately $3.6million. At the time of the acquisition, Viking had 20 employees. Proformaresults of operations, had the acquisition occurred on January 1, 2000, wouldnot have been materially different than reported results for the three and ninemonths ended September 30, 2000.**

** **

**6. Net Income Per Share**

** **

**     Basic anddiluted earnings per share for the three months and nine months ended September30, 2001 and 2000 were determined as follows:**

** **
|                            |   | **THREE  MONTHS ENDED SEPTEMBER 30,  2000**               |       | **NINE  MONTHS ENDED SEPTEMBER 30,  2000** |           |
|---------------------------------|--------|-----------------------------------------------------------|------------|--------------------------------------------|----------------|
|                            |   | **(DOLLARS  IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)** |       |
|                            |   | **NET**                                                   |       | **NET**                                    |           |   |   | **NET** |   |   |   |   |   |
|                            |   | **INCOME**                                                |       | **SHARES**                                 |           | **PER  SHARE** |   | **INCOME** |   | **SHARES** |   | **PER  SHARE** |   |
| **Basic EPS**                   |   | **2,269**                                                 | ** ** | **22,274,991**                             | ** **     | **$** | **0.10** | ** ** | **$** | **5,425** | ** ** | **20,711,124** | ** ** | **$** | **0.26** | ** ** |
| **Effect of  dilutive options** |   | **--**                                                    | ** ** | **3,010,351**                              | ** **     | **(0.01** | **)** | **--** | ** ** | **3,428,451** | ** ** | **(0.04** | **)** |
| **Diluted  EPS**                |   | **$**                                                     | **2,269**  | ** **                                 | **25,285,342** | ** ** | **$** | **0.09** | ** ** | **$** | **5,425** | ** ** | **24,139,575** | ** ** | **$** | **0.22** | ** ** |
|                                 |        |                                                           |            |                                            |                |  |  |  |  |  |  |  |  |  |  |  |  |

** **
|                            |   | **THREE  MONTHS ENDED SEPTEMBER 30,  2001**               |       | **NINE  MONTHS ENDED SEPTEMBER 30,  2001** |           |
|---------------------------------|--------|-----------------------------------------------------------|------------|--------------------------------------------|----------------|
|                            |   | **(DOLLARS  IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)** |       |
|                            |   | **NET**                                                   |       |                                       |           |   |   | **NET** |   |   |   |   |   |
|                            |   | **INCOME**                                                |       | **SHARES**                                 |           | **PER  SHARE** |   | **INCOME** |   | **SHARES** |   | **PER  SHARE** |   |
| **Basic EPS**                   |   | **$**                                                     | **3,712**  | ** **                                 | **25,839,536** | ** ** | **$** | **0.14** | ** ** | **$** | **9,840** | ** ** | **23,672,101** | ** ** | **$** | **0.42** | ** ** |
| **Effect of  dilutive options** |   | **--**                                                    | ** ** | **3,770,255**                              | ** **     | **(0.01** | **)** | **--** | ** ** | **3,604,826** | ** ** | **(0.06** | **)** |
| **Diluted  EPS**                |   | **$**                                                     | **3,712**  | ** **                                 | **29,609,791** | ** ** | **$** | **0.13** | ** ** | **$** | **9,840** | ** ** | **27,276,927** | ** ** | **$** | **0.36** | ** ** |

** **

** **

**7.     Comprehensive Income(Loss)**

** **

**     Othercomprehensive loss, consisting of unrealized losses on securities, net oftaxes, were **($58,000) and($74,000) for the three and nine months ended September 30, 2001.  There were no unrealized gains or lossesrecorded for the three and nine months ended September 30, 2000.

** **

**ITEM 2.**MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS

**OF OPERATIONS**

** **

**OVERVIEW**

** **

**     PEC Solutionsis a professional services firm specializing in high-end solutions that helpgovernment organizations capitalize on the Internet and other advancedtechnologies. We migrate paper-intensive procedures to web-enabled processesusing eGovernment solutions that help our clients enhance their productivityand improve the services they offer to the public. As a total solutionsprovider, we address the full technology lifecycle, including formulatingtechnology strategies, creating business solutions, performing long-termoperational management and continuing enhancement of the solution.**

** **

**     We derive substantially all of our revenuesfrom fees for consulting services. We generate these fees from various types ofcontracts, including time and materials contracts, fixed-price contracts andcost-reimbursable contracts. During the three months and nine months endedSeptember 30, 2001, revenues from these contract types were approximately 66%,10% and 24%, and 73%, 13% and 14% respectively, of total revenues. We typicallyissue invoices monthly to manage outstanding accounts receivable balances. Werecognize revenues on time and materials contracts as the services areprovided. We recognize revenues on fixed-price contracts using the percentageof completion method as services are performed over the life of the contract,based on the costs we incur in relation to the total estimated costs. Werecognize and make provisions for any anticipated contract losses at the timewe know and can estimate them. Fixed-price contracts are attractive to clientsand, while subject to increased risks, provide opportunities for increasedmargins. We recognize revenues on cost-reimbursable contracts as services areprovided. These revenues are equal to the costs incurred in providing theseservices plus a proportionate amount of the fee earned. We have historically recoveredall of our costs on cost-reimbursable contracts, which means we have lower riskand our margins are lower on these contracts.**

** **

**     Our historicalrevenue growth is attributable to various factors, including an increase in thesize and number of projects for existing and new clients. Existing clients fromthe previous year generated approximately 64% and 71% of our revenues in thethree months and nine months ended September 30 2001, respectively. As ofSeptember 30, 2001, we had  871personnel.**

**     In the three months and nine months endedSeptember 30, 2001, we derived approximately 48% and 43% respectively, of ourrevenues through relationships with prime contractors, who contract directlywith the end-client and subcontract with us. In most of these engagements, weretain full responsibility for the end-client relationship and direct andmanage the activities of our contract staff.**

**    Our most significant expense is direct costs, which consist primarily ofproject personnel salaries and benefits, and direct expenses incurred tocomplete projects. Our direct costs as a percentage of revenues are alsorelated to the utilization rate of our consulting personnel. We manageutilization by frequently monitoring project requirements and timetables. Thenumber of consulting personnel assigned to a project will vary according to thesize, complexity, duration and demands of the project.**

**    General and administrative expenses consist primarily of costsassociated with our executive management, finance and administrative groups,human resources, unassigned consulting personnel, personnel training, occupancycosts, depreciation and amortization, travel and all other branch and corporatecosts.**

**    Sales and marketing expenses include the costs of sales and marketingpersonnel and costs associated with marketing and bidding on future projects.**

**    Other income consists primarily of interest income earned on our cash,cash equivalents and short-term investments.**

**Resultsof Operations**

**    The following table sets forth certain financial data as a percentage ofrevenues for the periods indicated.**
|                                          |   | **THREE  MONTHS ENDED**     |       | **NINE  MONTHS ENDED** |       |
|-----------------------------------------------|--------|-----------------------------|------------|------------------------|------------|
|                                          |   | **SEPTEMBER  30,**          |       | **SEPTEMBER  30,**     |       | **SEPTEMBER  30,** |   | **SEPTEMBER  30,** |   |
|                                          |   | **2001**                    |       | **2000**               |       | **2001** |   | **2000** |   |
|                                          |   | **(DOLLARS  IN THOUSANDS)** |       |
| **Statement  of Income:**                     |   |                        | ** ** |                   | ** ** |   | ** ** |   | ** ** |
| **Revenues**                                  |   | **$**                       | **28,833** | ** **             | **$**      | **17,695** | ** ** | **$** | **77,887** | ** ** | **$** | **49,892** | ** ** |
| **Direct  costs**                             |   | **15,906**                  | ** ** | **9,337**              | ** ** | **41,964** | ** ** | **27,267** | ** ** |
| **Gross  profit (a)**                         |   | **12,927**                  | ** ** | **8,358**              | ** ** | **35,923** | ** ** | **22,625** | ** ** |
| **Other  operating costs and expenses:**      |   |                        | ** ** |                   | ** ** |   | ** ** |   | ** ** |
| **General  and administrative expenses**      |   | **6,164**                   | ** ** | **4,276**              | ** ** | **17,254** | ** ** | **12,857** | ** ** |
| **Sales and  marketing expenses**             |   | **1,087**                   | ** ** | **935**                | ** ** | **3,119** | ** ** | **2,070** | ** ** |
| **Amortization  of goodwill**                 |   | **180**                     | ** ** | **76**                 | ** ** | **541** | ** ** | **76** | ** ** |
| **Total  other operating costs and expenses** |   | **7,431**                   | ** ** | **5,287**              | ** ** | **20,914** | ** ** | **15,003** | ** ** |
| **Operating  income**                         |   | **5,496**                   | ** ** | **3,071**              | ** ** | **15,009** | ** ** | **7,622** | ** ** |
| **Other  income, net**                        |   | **816**                     | ** ** | **673**                | ** ** | **1,725** | ** ** | **1,261** | ** ** |
| **1Income  before income taxes**              |   | **6,312**                   | ** ** | **3,744**              | ** ** | **16,734** | ** ** | **8,883** | ** ** |
| **Provision  for income taxes**               |   | **2,600**                   | ** ** | **1,475**              | ** ** | **6,894** | ** ** | **3,458** | ** ** |
| **Net income**                                |   | **$**                       | **3,712**  | ** **             | **$**      | **2,269** | ** ** | **$** | **9,840** | ** ** | **$** | **5,425** | ** ** |
| **As a  Percentage of Revenues:**             |   |                        | ** ** |                   | ** ** |   | ** ** |   | ** ** |
|                                          |   |                        | ** ** |                   | ** ** |   | ** ** |   | ** ** |
| **Revenues**                                  |   | **100.0**                   | **%**      | **100.0**              | **%**      | **100.0** | **%** | **100.0** | **%** |
| **Direct  costs**                             |   | **55.1**                    | ** ** | **52.8**               | ** ** | **53.9** | ** ** | **54.7** | ** ** |
| **Gross  profit (a)**                         |   | **44.9**                    | ** ** | **47.2**               | ** ** | **46.1** | ** ** | **45.3** | ** ** |
| **Other  operating costs and expenses:**      |   |                        | ** ** |                   | ** ** |   | ** ** |   | ** ** |
| **General and  administrative expenses**      |   | **21.4**                    | ** ** | **24.1**               | ** ** | **22.1** | ** ** | **25.8** | ** ** |
| **Sales and  marketing expenses**             |   | **3.8**                     | ** ** | **5.3**                | ** ** | **4.0** | ** ** | **4.1** | ** ** |
| **Amortization  of goodwill**                 |   | **0.6**                     | ** ** | **0.4**                | ** ** | **0.7** | ** ** | **0.1** | ** ** |
|                                          |   |                        | ** ** |                   | ** ** |   | ** ** |   | ** ** |
| **Total  other operating costs and expenses** |   | **25.8**                    | ** ** | **29.8**               | ** ** | **26.8** | ** ** | **30.0** | ** ** |
| **Operating  income**                         |   | **19.1**                    | ** ** | **17.4**               | ** ** | **19.3** | ** ** | **15.3** | ** ** |
| **Other  income, net**                        |   | **2.8**                     | ** ** | **3.8**                | ** ** | **2.2** | ** ** | **2.5** | ** ** |
| **Income  before income taxes**               |   | **21.9**                    | ** ** | **21.2**               | ** ** | **21.5** | ** ** | **17.8** | ** ** |
| **Provision  for income taxes**               |   | **9.0**                     | ** ** | **8.3**                | ** ** | **8.9** | ** ** | **6.9** | ** ** |
| **Net income**                                |   | **12.9**                    | **%**      | **12.9**               | **%**      | **12.6** | **%** | **10.9** | **%** |

----

**(a)  Gross profit representsrevenues less direct costs, which consist primarily of project personnelsalaries and benefits and direct expenses incurred to complete projects.**

**RESULTS OF OPERATIONS FOR THETHREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED WITH THE THREE MONTHS ENDEDSEPTEMBER 30, 2000**

** **

**     REVENUES. Forthe three months ended September 30, 2001, our total revenues increased by62.9%, or $11.1 million over the same period last year. The increase inrevenues primarily reflects an increase in the volume of services to existingclients and services to new clients. Services to new clients representapproximately 36% of revenues.**

** **

**     DIRECT COSTS.For the three months ended September 30, 2001, direct costs increased by 70.4%,or $6.6 million, over the same period last year. The increase was due primarilyto an increase in project personnel to 769 as of September 30, 2001 as comparedto 428 as of September 30, 2000. Direct costs increased as a percentage ofrevenues for the period ended September 30, 2001, to 55.1% as compared to 52.8%in the same period last year, due to normal fluctuations in labor and otherdirect costs and the mix of contract types during the applicable periods.**

** **

**     GROSS PROFIT.Gross profit increased by 54.7% to $12.9 million in the three months endedSeptember 30, 2001 from $8.4 million in the three months ended September 30,2000. Gross profit as a percentage of revenues decreased to 44.9% in the threemonths ended September 30, 2001 from 47.2% in the three months ended September30, 2000, as direct costs grew at a higher rate than revenues due to normalfluctuations in labor and other direct costs and the mix of contract typesduring the applicable periods .**

** **

**     GENERAL ANDADMINISTRATIVE EXPENSES. General and administrative expenses increased 44.2% to$6.2 million in the three months ended September 30, 2001 from $4.3 million inthe three months ended September 30, 2000. Facility costs increased in thecurrent quarter over last year due to the opening of new offices in Fairfax,Virginia, Norfolk, Virginia, San Antonio, TX and San Diego CA. Our totalgeneral and administrative headcount increased to 102 employees as of September30, 2001 compared to 74 employees as of September 30, 2000, consistent with ourplans.**

** **

**     SALES ANDMARKETING. Sales and marketing expenses increased 16.3% to $1.1 million in thethree months ended September 30, 2001 from $0.9 million in the three monthsended September 30, 2000. This increase was due to an increase in our marketingefforts.**

** **

**     AMORTIZATION OFGOODWILL. In the three months ended September 30, 2001, we incurred $180,000 ofamortization expense compared to $76,000 of amortization expense in the threemonths ended September 30, 2000 related to the $3.6 million of goodwill werecorded in connection with the August 2000 acquisition of Viking.**

** **

**     OPERATINGINCOME. Operating income increased 79.0% to $5.5 million in the three monthsended September 30, 2001 from $3.1 million in the three months ended September30, 2000. This increase was due primarily to revenue increasing at a fasterrate than cost.**

** **

**RESULTS OF OPERATIONS FOR THENINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED WITH THE NINE MONTHS ENDEDSEPTEMBER 30, 2000**

** **

**     REVENUES. Forthe nine months ended September 30, 2001, our total revenues increased by56.1%, or $28.0 million over the same period last year. The increase inrevenues primarily reflects an increase in the volume of services to existingclients and services to new clients. Services to new clients representapproximately 29% of revenues.**

** **

**     DIRECT COSTS.For the nine months ended September 30, 2001, direct costs increased by 53.9%,or $14.7 million, over the same period last year. The increase was dueprimarily to an increase in project personnel to 769 as of September 30, 2001as compared to 428 as of September 30, 2000. Direct costs decreased as apercentage of revenues for the period ended September 30, 2001, to 53.9% ascompared to 54.7% in the same period last year, due to normal fluctuations inlabor and other direct costs.**

** **

**     GROSS PROFIT.Gross profit increased by 58.8% to $35.9 million in the nine months endedSeptember 30, 2001 from $22.6 million in the nine months ended September 30,2000. Gross profit as a percentage of revenues increased to 46.1% in the ninemonths ended September 30, 2001 from 45.3% in the nine months ended September30, 2000, as direct costs grew at a slower rate than revenues due to normalfluctuations in labor and other direct costs.**

** **

**     GENERAL ANDADMINISTRATIVE EXPENSES. General and administrative expenses increased 34.2% to$17.3 million in the nine months ended September 30, 2001 from $12.9 million inthe nine months ended September 30, 2000. Facility costs increased in thecurrent period over last year due to the opening of new offices in Fairfax,Virginia, Norfolk, VA, San Antonio, TX and San Diego, CA. Our total general andadministrative headcount increased to 102 employees as of September 30, 2001compared to 74 employees as of September 30, 2000, consistent with our plans.**

** **

**     SALES ANDMARKETING. Sales and marketing expenses increased 50.7% to $3.1 million in thenine months ended September 30, 2001 from $2.1 million in the nine months endedSeptember 30, 2000. This increase was due to an increase in our marketingefforts.**

** **

**     AMORTIZATION OFGOODWILL. In the nine months ended September 30, 2001, we incurred $541,000 ofamortization expense compared to $76,000 of amortization expense for the ninemonths ended September 30, 2000 related to the $3.6 million of goodwill werecorded in connection with the August 2000 acquisition of Viking.**

** **

**     OPERATINGINCOME. Operating income increased 96.9% to $15.0 million in the nine monthsended September 30, 2001 from $7.6 million in the nine months ended September30, 2000. This increase was due primarily to revenue increasing at a fasterrate than cost.**

** **

**     Our revenuesand operating results may be subject to significant variation from quarter toquarter depending on a number of factors, including the progress of contracts,revenues earned on contracts, the number of billable days in a quarter, thetiming of the pass-through of other direct costs, the commencement andcompletion of contracts during any particular quarter, the schedule of thegovernment agencies for awarding contracts, the term of each contract that wehave been awarded and general economic conditions. Because a significantportion of our expenses, such as personnel and facilities costs, are fixed inthe short term, successful contract performance and variation in the volume of activityas well as in the number of contracts commenced or completed during any quartermay cause significant variations in operating results from quarter to quarter.**

** **

**     The federalgovernment's fiscal year ends September 30. If a budget for the next fiscalyear has not been approved by that date, our clients may have to suspendengagements that we are working on until a budget has been approved. Suchsuspensions may cause us to realize lower revenues in the fourth quarter of theyear. Further, a change in Presidential administrations and in seniorgovernment officials may affect the rate at which the federal governmentpurchases technology, although we have not seen an impact with the 2001 changein administration.**

** **

**     As a result ofthe factors above, period to period comparisons of our revenues and operatingresults may not be meaningful. You should not rely on these comparisons asindicators of future performance as no assurances can be given that quarterlyresults will not fluctuate, causing a material adverse effect on our operatingresults and financial condition.**

** **

** **   Liquidity and Capital Resources

** **

**     Prior to theIPO and follow-on offering, we funded our operations primarily through cashgenerated from operations and the sale of common stock to employees. Net cashprovided by operating activities was $2.6 million for the nine months endedSeptember 30, 2001. Cash provided by operating activities was primarily fromnet income, adjusted for working capital changes, which were principally increasesin accounts receivable.**

** **

**     Net cashprovided by investing activities was $0.3 million for the nine months endedSeptember 30, 2001. During the nine months ended September 30, 2001, wepurchased $1.2 million of property and equipment and incurred $0.5 million forcapitalized software development costs. We had $3.5 million of net sales ofshort-term investments and invested $1.5 million in an affiliated company,which is building our new office building in Fairfax, Virginia. We have a 48%interest in this company.**

** **

**     Net cashprovided by financing activities was $49.2 million from the sale of 3,000,000shares of common stock in a follow-on offering in June 2001 and the sale ofcommon stock to employees upon the exercise of their stock options for the ninemonths ended September 30, 2001. We paid $0.4 million of costs associated withthe June 2001 offering of common stock in the nine months ended September 30,2001.**

** **

**     Althoughdividends have been paid in prior years, including $0.4 million in the ninemonths ended September 30, 2000, which were accrued at December 31, 1999, weexpect to retain future earnings, if any, for use in the operation andexpansion of our business and do not anticipate paying any further cashdividends in the foreseeable future.**

** **

**     We believe thatour current cash position is adequate for our short-term and long-term workingcapital and capital expenditure needs.**

** **

**     We maintain a$6.0 million line of credit with Bank of America, bearing interest at the LIBORRate plus 250 basis points per annum, which expires on April 30, 2003. As ofSeptember 30, 2001, we had no borrowings outstanding under the line of credit.As of September 30, 2001, we had outstanding $3.09 million in letters of creditin lieu of rent deposits.**

** **

**     Under some of our fixed-price contracts, wereceive advance payments for work to be performed in future months. If we donot perform the work, the unearned portion of these advances will be returnedto our clients. At September 30, 2001, our accounts receivable turnover rate,net of advance payments on contracts, was approximately four times a year. Thisrate has decreased over the last eight quarters.**

** **

**Recent AccountingPronouncements**

** **

**     FinancialAccounting Standards No. 142, Goodwill and Other Intangible Assets (FAS 142)was issued July 20, 2001. FAS 142 provides guidance on the treatment ofgoodwill and other intangible assets, and is effective for fiscal yearsbeginning after December 15, 2001. Upon the adoption of FAS 142, goodwill andother intangible assets that have indefinite useful lives will not beamortized, but rather will be tested at least annually for impairment.  We will adopt FAS 142 effective January 1,2002, and discontinue quarterly amortization of goodwill of $180,000, relatedto the Viking acquisition.**

** **

**      In August2001, the Financial Accounting Standards Board (FASB) issued FAS 144,Accounting for the Impairment or Disposal of Long-Lived Assets.  FAS 144 provides guidance on the accountingfor the impairment or disposal of long-lived assets.  FAS 144 supercedes FAS 121 and applies to all long-lived assets(including discontinued operations) and consequently amends AccountingPrinciples Board Opinion No. 30 (APB 30), Reporting Results ofOperations-Reporting the Effects of Disposal of a Segment of a Business.  FAS 144 is effective for financialstatements issued for fiscal years after December 15, 2001 and, generally, itsprovisions are to be applied prospectively. The Company will adopt FAS 144 effective January 1, 2002 and does notexpect any financial impact.**

** **

**SPECIALNOTE REGARDING FORWARD LOOKING STATEMENTS**

** **

**     The mattersdiscussed in this Form 10-Q include forward-looking statements that involverisks or uncertainties. While forward-looking statements are sometimes presentedwith numerical specificity, they are based on various assumptions made bymanagement regarding future circumstances over many of which we have little orno control. Forward-looking statements may be identified by words including"anticipate," "believe," "estimate,""expect" and similar expressions. We caution readers thatforward-looking statements, including without limitation, those relating to ourfuture business prospects, revenues, working capital, liquidity, and income,are subject to certain risks and uncertainties that would cause actual resultsto differ materially from those indicated in the Forward-Looking Statements.Factors that could cause actual results to differ from Forward-LookingStatements include the concentration of our revenues from government clients,risks involved in contracting with the government, difficulties we may have inattracting, retaining and managing professional and administrative staff,fluctuations in quarterly results, risks related to acquisitions, risks relatedto competition and our ability to continue to win and perform efficiently oncontracts, and other risks and factors identified from time to time in ourreports filed with the SEC, including those identified under the sectionentitled "Risk Factors" in our Registration Statement on Form 10-K(SEC File No. 000-30271) as amended which hereby is incorporated by reference.Should one or more of these risks or uncertainties materialize, or shouldunderlying assumptions prove incorrect, actual results may vary materially fromthose anticipated, estimated or projected.**

** **

**ITEM 3**. QUALITATIVE AND QUANTITATIVEDISCLOSURE ABOUT MARKET RISK

** **

**     We invest ourcash in a variety of financial instruments, including U.S. Treasury and Agencyobligations, money market instruments of domestic and foreign issuersdenominated in U.S. dollars of commercial paper, bankers' acceptances,certificates of deposit, euro-dollar time deposits and variable rate issues,corporate note and bonds, asset-backed securities, repurchase agreements,municipal notes and bonds and auction rate preferred securities.**

** **

**     Investments inboth fixed and floating rate interest earning instruments carry a degree ofinterest rate risk. Fixed securities may have their fair market value adverselyimpacted because of a rise in interest rates, while floating rare securitiesmay produce less income than expected if interest rates fall. Due in part tothese factors, the Company's future investment income may fall short ofexpectations because of changes in interest rates or the Company may sufferlosses in principal if forced to sell securities which have seen a decline inmarket value because of changes in interest rates.**

** **

**     Our investmentsare made in accordance with an investment policy approved by the Board ofDirectors. Under this policy, no investment securities can have maturitiesexceeding one year and the average duration of the portfolio can not exceednine months.**

** **

**PART II**-- OTHER INFORMATION

** **

**ITEM 1. LEGAL PROCEEDINGS**

** **

**     None**

** **

**ITEM 2. CHANGES IN SECURITIESAND USE OF PROCEEDS**

** **

**     In April 2000,we commenced and completed a firm commitment underwritten initial publicoffering of 3,000,000 shares of our common stock at a price of $9.50 per share.The shares were registered with the Securities and Exchange Commission pursuantto a registration statement on Form S-1 (No. 333-95331), which was declaredeffective on April 19, 2000. The public offering was underwritten by asyndicate of underwriters led by Donaldson, Lufkin & Jenrette SecuritiesCorporation; Chase Securities Inc.; Legg Mason Wood Walker, Incorporated; andDLJDIRECT Inc. as their representatives. After deducting underwriting discountsand commissions of approximately $2 million and expenses of approximately $0.9million, we received net proceeds of $25.6 million.**

** **

**     The primarypurposes of this offering were to create a public market for our common stock,to improve the incentive mechanism for our professionals through stock options,to obtain additional equity capital and to facilitate future access to publicmarkets. We expect to use the net proceeds from this offering for generalcorporate purposes, including working capital. On August 28, 2000, we acquiredall of the outstanding capital stock of Viking for $2 million cash plus the assumptionof debt in a business combination accounted for as a purchase. Viking is aprovider of integrated software and advanced technology solutions for state andlocal law enforcement, fire and emergency medical service agencies. Managementwill have broad discretion in the allocation of the net proceeds. Fromtime-to-time, we may also use a portion of the net proceeds to acquirebusinesses, products and technologies that are complementary to ours. We do notcurrently have any agreements with respect to any such acquisitions. Pendingtheir use, the proceeds of this offering have been invested in short-term,investment grade, interest-bearing securities.**

** **

**ITEM 3. DEFAULTS UPON SENIORSECURITIES**

** **

**     None**

** **

**ITEM 4. SUBMISSION OF MATTERSTO VOTE OF SECURITY HOLDERS**

** **

**     None**

** **

**ITEM 5. OTHER INFORMATION**

** **

**     None**

** **

**ITEM 6 (A) EXHIBITS**

** **
| **EXHIBIT**  |   |                                                                                                       |
|--------------|--------|------------------------------------------------------------------------------------------------------------|
| **NUMBER**   |   | **EXHIBIT DESCRIPTION**                                                                                    |
| **3.1***     |   | **Certificate of Incorporation**                                                                           |
| **3.2***     |   | **By-Laws**                                                                                                |
| **10.1***    |   | **Office Lease Agreement between Building IV  Associates L.P. and the Registrant**                         |
| **10.2***    |   | **Amendment No. 1 to Office Lease Agreement  between Building IV Associates L.P. and the Registrant**      |
| **10.3***    |   | **Office Lease Agreement between Building V  Associates L.P. and the Registrant**                          |
| **10.4***    |   | **Employment Agreement between the Registrant  and David C. Karlgaard, dated January 1, 2000**             |
| **10.5***    |   | **Employment Agreement between the Registrant  and Paul G. Rice, dated January 1, 2000**                   |
| **10.6***    |   | **Employment Agreement between the Registrant  and Alan H. Harbitter, dated January 1, 2000**              |
| **10.7***    |   | **Employment Agreement between the Registrant  and Stuart R. Lloyd, dated December 31, 1998**              |
| **10.8***    |   | **2000 Stock Incentive Plan**                                                                              |
| **10.9***    |   | **1995 Nonqualified Stock Option**                                                                         |
| **10.10***   |   | **1987 Stock Option Agreement, as amended**                                                                |
| **10.11***   |   | **Nonqualified Executive Supplemental  Retirement Program Agreement dated December 1998**                  |
| **10.12***   |   | **2000 Employee Stock Option Plan**                                                                        |
| **10.13***   |   | **Amended and Restated Loan Agreement between  the Registrant and NationsBank, N.A.**                      |
| **10.14****  |   | **Amendment No. 2 to Office Lease Agreement  between Building IV Associates L.P. and PEC Solutions, Inc.** |
| **10.15****  |   | **Amendment No. 3 to Office Lease Agreement  between Building IV Associates L.P. and PEC Solutions, Inc.** |
| **10.16****  |   | **Office Lease Agreement between Building VI  L.C. and PEC Solutions, Inc.**                               |
| **10.17***** |   | **First Amendment to Lease Agreement between  Building VI L.C.  and PEC Solutions,  Inc.**            |
| **10.18***** |   | **Second Amendment to Lease Agreement between  Building VI L.C. and PEC Solutions, Inc.**                  |
| **10.19***** |   | **Operating Agreement between Building VI  Investment L.C. And PEC Solutions, Inc.**                       |
| **10.20***** |   | **First Amendment to Operating Agreement  between Building VI Investment L.C. and PEC Solutions, Inc.**    |
| **10.21***** |   | **Bank of America Financing and Security  Agreement**                                                      |
| **10.22***** |   | **Bank of America Promissory Note**                                                                        |
| **10.23***** |   | **Bank of America Revolving Note**                                                                         |
| **21.1****   |   | **Subsidiaries of PEC Solutions, Inc.**                                                                    |

----

***    Incorporatedherein by reference to the Company's Registration Statement on**

**     Form S-1, No.333-95331.**

** **

****   Incorporatedherein by reference to the Company's Annual Report on Form**

**     10K/A filed onApril 19, 2001.**

** **

*****  Incorporatedherein by reference to the Company's Quarterly Report on**

**     Form 10-Q forthe quarter period ended June 30, 2001, filed on August 13, 2001.**

** **

**     (b) Reports onForm 8-K**

** **

**     None.**

** **

** **

**SIGNATURES**

** **

** **

**     PURSUANT TO THEREQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULYCAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULYAUTHORIZED.**

** **

** **
|                        | **BY: /s/  STUART R. LLOYD**         |
|-----------------------------|--------------------------------------|
| **DATE: NOVEMBER 12, 2001** | **STUART R.  LLOYD**                 |
|                        | **CHIEF  FINANCIAL OFFICER, SENIOR** |
|                        | **VICE PRESIDENT  AND DIRECTOR**     |
|                        | **(PRINCIPAL  FINANCIAL AND**        |
|                        | **ACCOUNTING  OFFICER)**             |

** **

** **