##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

(Mark One)

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|(X Box) |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934    
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|        |  | For the Fiscal Year Ended March 31, 2002 OR                                              
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|        |  |                                                                                          
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|(Box)   |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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|        |  |                                                                                          
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|        |  | For the transition period from  
to .                                                    

Commission File Number: 000-24193

ATLANTIC DATA SERVICES, INC.

(Exact Name of Registrant as Specified in its Charter)


|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|MASSACHUSETTS                                                  |  | 04-2696393                             
|                                                              
|                                                              
|                                                              
|                                                              
|(State or Other Jurisdiction of
Incorporation or Organization) |  | (I.R.S. Employer
Identification Number)

One Batterymarch Park, Quincy, Massachusetts  02169
(Address of Principal Executive Offices)  (Zip Code)

(617) 770  3333
(Registrants Telephone Number, Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act:   None.

Securities Registered Pursuant to Section 12(g) of the Act:   Common Stock, $.01 par value
(Title of Class)

Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes  (X Box)      No  
(Box)

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  (Box)

The aggregate market value of the voting stock held by non-affiliates of the
Company was approximately $10,557,975 on June 3, 2002 based on the last
reported sale price of the Companys Common Stock on the Nasdaq National Market
on June 3, 2002 of $2.39 per share. There were 13,039,123 shares of Common
Stock issued and outstanding as of June 3, 2002.

DOCUMENTS INCORPORATED BY REFERENCE The Registrant intends to file a
definitive proxy statement pursuant to Regulation 14A within 120 days of the
end of the fiscal year ended March 31, 2002. Portions of such proxy statement
are incorporated by reference into Part III of this report.





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TABLE OF CONTENTS



|                                                 |                                                                                                 |  |  |  |  |  |  | 
|------------------------------------------------ | ----------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                          
|                                                 | ITEM 1:   BUSINESS                                                                             
|                                                 | ITEM 2:   PROPERTIES                                                                           
|                                                 | ITEM 3:   LEGAL PROCEEDINGS                                                                    
|                                                 | ITEM 4:   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|PART II                                         
|                                                 | ITEM 5:   MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS            
|                                                 | ITEM 6:   SELECTED FINANCIAL DATA                                                              
|FORWARD LOOKING STATEMENTS                      
|                                                 | ITEM 7:   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                 | ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|                                                 | ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|                                                 | ITEM 9:   CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES   
|PART III                                        
|                                                 | ITEM 10:   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                  
|                                                 | ITEM 11:   EXECUTIVE COMPENSATION                                                              
|                                                 | ITEM 12:   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|                                                 | ITEM 13:   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|PART IV                                         
|                                                 | ITEM 14:   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                    
|SIGNATURES                                      
|EXHIBIT INDEX                                   
|Ex-21.01  Subsidiaries                          
|Ex-23.01  Consent of PricewaterhouseCoopers  LLP



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ATLANTIC DATA SERVICES, INC.

ANNUAL REPORT ON FORM 10-K
FOR THIS FISCAL YEAR ENDED MARCH 31, 2002

FORWARD LOOKING STATEMENTS

This Report includes forward-looking statements, which are made pursuant to the
safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.
You can identify these forward-looking statements when you see us using words
such as expect, anticipate, believe, intend, may, predict, and
other similar expressions. These forward-looking statements cover, among other
items: events, conditions and financial trends that may affect the Companys
future plans of operation, business strategy, growth of operations and
financial position, including statements regarding revenue and earnings or loss
per share projections, concentration of revenues among a limited number of
customers, expected capital expenditures for fiscal 2003 and sufficiency of
cash to meet working capital and capital expenditure requirements for 2003.
Any forward-looking statements are not guarantees of future performance and are
necessarily subject to a number of risks and uncertainties, some of which are
beyond our control. Because of these risks and uncertainties, the
forward-looking events discussed in this Report might not transpire.




PART I




ITEM 1:   BUSINESS



|A. |  | General
|-- |  | -------

Atlantic Data Services, Inc. (We or ADS), provides information technology
(IT) strategy consulting and systems integration services to the financial
services industry. We offer rapid, cost-effective IT solutions to the business
challenges faced by financial services companies through our in-depth financial
services experience, technological expertise and project management skills.
Our service offerings are organized around four practice areas: Customer
Relationship Management (CRM), Conversions and Consolidations, IT Strategy and
Consulting, and e-Business. We were incorporated in Massachusetts on March 25,
1980.

The business challenges created by deregulation and consolidation, coupled with
the need to maintain existing systems and incorporate new technologies, have
forced banks to turn to third party IT providers for assistance in developing
IT solutions to meet their changing needs. Because of the critical importance
of their IT systems, many banks seek to engage IT service providers who have
in-depth knowledge of their systems and business processes and who can assume
responsibility for project management and delivery. IT service providers
working with banks must possess extensive experience in the financial services
industry and be fluent in both traditional legacy systems and newer
technologies. However, there is a shortage of professionals who have this
combination of skills. While many banks are concluding that using outside
specialists enables them to develop better IT solutions in less time and to
reduce implementation risks, most IT consulting firms do not have the
specialized knowledge of the financial services industry necessary to assist
banks in rapidly and cost-effectively meeting their business challenges.

We enable our customers to leverage their existing IT systems and personnel to
compete more effectively, to rapidly assimilate changing technologies and to
meet their evolving business needs in a timely and cost-effective manner. We
work closely with our customers management and IT personnel from the
diagnostic and strategic planning stages through project completion. Our IT
professionals have extensive experience in the diverse technical environments,
legacy hardware platforms, programming languages, and software used by banks,
as well as newer technologies, including client/server
applications and the Internet. In addition, we have developed proprietary
tools and methodologies designed to reduce the risks inherent in complex
systems implementations. We work closely with our

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customers to determine the
appropriate resources and staffing to assign to their projects and deploy our
staff from throughout the United States to meet a customers needs.

Practice Areas

We offer and deliver our services through four practice areas that address the
major areas of interest and activity of our customers. These four practice
areas are:

CRM. We understand that a key success factor for financial services
organizations is the acquisition, servicing and growth of profitable customer
relationships. Our goal is to help our clients become more customer-focused so
they can maintain and grow market share in the competitive financial services
marketplace. Our approach is to assist our clients by delivering a practical
plan for transforming the enterprise, which supports their customer-oriented
business strategy. Then as each initiative is launched, our requirements
documentation services can assist in the translation of business needs into
formal requirements for the project team  assuring the solution delivers
business results. As an independent services firm, our team of experts can
also assist in the acquisition of best of breed tools and solutions. At ADS we
also recognize that high-performance customer information is the foundation of
any CRM program. Our customer information teams can provide everything from
diagnostic services to complete systems integration to assure this valuable
asset supports our customers CRM program. Our approach with every engagement
is to focus on business objectives, and return-on-investment, delivering value
at every step.

Conversions and Consolidations.The financial services industry has undergone
tremendous change, reorganization and growth. We have been a leading solution
provider in hundreds of conversions, consolidations and migrations, deploying
the financial services expertise necessary to contribute to our customers
successes. As a core competency, we have provided the requisite project
management skills to help our customers tackle the business and technological
challenges before them, and in the end to exceed the goals of their original
strategic objectives. The financial industry experience resident in our
consulting staff enables us to provide our clients with both the business
insight and operational expertise to guarantee successful business
integrations.

IT Strategy and Consulting. Firms in every segment of financial services are
facing unprecedented pressure to innovate and change. In the face of
competition from new and traditional rivals, financial institutions must
simultaneously develop or acquire new products and services, improve the level
of personalized service provided to customers, and significantly improve
operating efficiency. We provide the operational insight and major project
discipline to complete these strategic initiatives successfully. We leverage
our industry knowledge and technology expertise to help clients identify,
design and implement business solutions that produce measurable improvements.
Not only are new capabilities implemented, but operational performance
efficiencies are also achieved resulting in a clients improved bottom line.

e-Business. ADS defines e-Business as the transformation of key business
processes using Internet technologies. We believe that successful e-Business
is all about operational efficiency, return on investment, and execution. We
bring over twenty years of in-depth banking, project management, and systems
integration experience to assist clients in realizing their e-Business
potential. The banking and system integration experience enables us to
identify innovative opportunities to achieve operational efficiency through
e-Business; our project management expertise ensures execution within fiscal
and scheduling constraints; the combination of efficiency and execution results
in return on investment. Our services fall into three main categories:
strategy, design, and implementation. Combining our technology and financial
industry expertise, we work with our customers to create systems that build
virtual bridges between buyers, suppliers, customers, and financial
institutions for swift and reliable transactions.

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|B. |  | Customers
|-- |  | ---------

Our customers consist primarily of banks and other financial services companies
located in the United States and Canada. The following is a list of
representative customers during fiscal 2002:



|AAL Bank and Trust Co., FSB                     |  | IntraNet, Inc., a TSA Company
|----------------------------------------------- |  | -----------------------------
|ABN AMRO Information Technology Service Company |  | National City Corporation    
|Citizens Financial Corporation                  |  | SunTrust Service Corporation 
|FleetBoston Financial Corporation               |  | The BISYS Group, Inc.        
|General Motors Acceptance Corporation RFC       |  | Zions Bancorporation         

We have derived and expect to continue to derive a significant portion of our
revenues from a relatively limited number of customers. For example, our five
largest customers in fiscal 2002, FleetBoston Financial Corporation, Citizens
Financial Corporation, Zions Bancorporation, IntraNet, Inc., a TSA Company and
National City Corporation accounted for approximately 24.7%, 23.8%, 21.6%, 7.3%
and 4.1%, respectively of revenues. In fiscal 2001, FleetBoston Financial
Corporation, Citizens Banking Corporation (MI), Brokat Financial Systems, NBT
Bancorp and Corillian Corporation, accounted for approximately 27.2%, 12.5%,
9.2%, 8.3% and 8.2%, respectively, of revenues. Because a significant portion
of our revenues are derived from services related to deregulation and
consolidation activities in the financial services industry, changes in the
regulatory environment or a reduction in consolidation activity have in the
past, and may in the future, have a material adverse effect on our business,
financial condition and results of operations. In addition, the loss of a
major customer or termination of a major project as a result of an acquisition
of a customer by an organization to which the Company does not currently
provide services could have a material adverse effect on our business,
financial condition and results of operations.

Although our largest customers have varied from period to period, we anticipate
that our results of operations will continue to significantly depend upon
revenues from a small number of customers. We cannot assure you that our major
customers will continue to purchase our services at current levels, if at all,
or that we will be able to replace revenues from such customers with revenues
from other customers. The loss of, or a significant reduction in revenues
from, any of our major customers could materially adversely affect our
business, financial condition and results of operations.



|C. |  | Sales and Marketing
|-- |  | -------------------

We market and sell our services directly through our professional sales and
marketing staff and senior management operating principally from our offices in
Quincy, Massachusetts. As of March 31, 2002, we had 12 persons engaged in
sales and marketing activities.

Our senior business development representatives are assigned to a limited
number of customers to foster an in-depth understanding of each customers
individual needs and build a long-term customer relationship. We attempt to
develop customer relationships through a carefully coordinated effort between
our sales and professional services staff. Initial sales calls are made at the
customers senior management level and followed up by detailed presentations
targeted to their specific needs.

We employ a variety of business development and marketing techniques to
communicate directly with current and prospective customers, including targeted
print and direct mail advertisements, participation in financial services
industry trade shows and conferences, and our web site. In addition, we
maintain relationships with key industry research groups such as Meridien
Research, Inc., American Bankers Association, and the Bank Administration
Institute.

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As part of our sales and marketing strategy, we intend, from time to time, to
partner with other IT consulting firms, including in some instances our
competitors, and to explore relationships with certain third party software
providers to the financial services market.



|D. |  | Employees
|-- |  | ---------

As of March 31, 2002, we had 105 full time employees, of which 73 were project
personnel, 20 employees were in finance and administration and 12 were in sales
and marketing. None of our employees are subject to a collective bargaining
agreement. We believe relations with our employees are good.



|E. |  | Intellectual Property Rights
|-- |  | ----------------------------

Our success is dependent upon certain proprietary methodologies and software
tools, including our Engagement Management Methodology and Conversion
Productivity Tool that we use in providing services to customers. Our business
also includes developing custom software for various customers. Ownership of
such software is generally assigned to the customer, and we retain no right,
title or interest in it.

We rely on a combination of trade secret, nondisclosure and other contractual
arrangements and copyright and trademark laws to protect our proprietary
rights. We currently hold no patents or registered copyrights. We generally
enter into confidentiality agreements with our outside consultants, customers
and potential customers and limit access to and distribution of our proprietary
information. While we do not usually enter into confidentiality agreements
with our employees, such employees are generally required to sign
confidentiality agreements in connection with specific customer engagements.
There is no assurance that these steps will be adequate to deter
misappropriation of our proprietary information or of our customers or that we
will be able to detect unauthorized use of, and take appropriate steps to
enforce, our intellectual property rights.

In the future, litigation may be necessary to enforce and protect our trade
secrets, copyrights and other intellectual property or proprietary rights. We
may also be subject to litigation to defend against claimed infringement or to
determine the scope and validity of the intellectual property or proprietary
rights of others. Although we are not aware that our services, trademarks or
other proprietary rights infringe upon the proprietary rights of others, there
is no assurance that third parties will not assert infringement claims against
us and that such claims will not result in a material adverse effect on our
business, financial condition and results of operations. Any litigation
concerning our use of technology could result in substantial cost to us in
defending such actions and divert our attention from operations, either of
which could have a material adverse effect on our business, financial condition
or results of operations.



|F. |  | Competition
|-- |  | -----------

The IT and systems integration market, especially in the financial services
industry, includes a large number of competitors and is subject to rapid
technological and market changes. We compete for customer projects and
experienced personnel with a number of companies having significantly greater
financial, technical and marketing resources and revenues. Many of these
competitors also have greater name recognition in the financial services
industry. Our competitors operate in a variety of market segments, including
systems consulting and integration, application software, professional services
(such as computer equipment companies like International Business Machines
Corporation), multinational accounting firms, and general management consulting
firms (such as Accenture, Computer Sciences Corporation and Electronic Data
Systems Corporation). In addition, the custom software development market is
highly fragmented with numerous firms, many of which focus on their respective
local markets. We also face competition from internal IT departments of our
customers.

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We expect to experience increasing competition from companies offering
established integration services and new service offerings and technologies.
In addition, current and potential competitors may make strategic acquisitions
or establish cooperative relationships among themselves or with others thereby
increasing their ability to expand or increase their service offerings to
address the needs of our existing or prospective customers. Accordingly, it is
possible that new competitors or alliances among current and new competitors
may emerge and rapidly gain significant market share. Increased competition
could result in lower utilization rates, billing rate reductions, fewer
customer engagements, reduced gross margins, and loss of market share for us,
any of which could materially adversely affect our business, financial
condition and results of operations.

We believe the principal competitive factors in our market are knowledge of the
financial services industry, responsiveness to customer needs, quality of
service, project management capability, technical expertise and price. We
believe we compete favorably in most of these areas and excel in the depth of
industry knowledge and experience we bring to our financial services customers.
We believe our ability to compete also depends in part on factors outside of
our control, including the ability of our competitors to attract, motivate and
retain project managers and other personnel.

To be successful in the future, we must respond promptly and effectively to
customer demands, technological changes and competitors innovations. Our
competitors may be able to respond more quickly to new and emerging
technologies and changes in service offerings to prospective customers. There
is no assurance that we will be able to compete successfully with existing or
new competitors or that competition will not have a material adverse effect on
our business, financial condition and results of operations.



|G. |  | Acquisition/Disposition of Assets
|-- |  | ---------------------------------

On June 29, 2001, we acquired substantially all of the assets of Cool Springs
Associates, Inc. d/b/a EarningsInsights (EI), including $412,000 of fixed
assets, pursuant to an asset purchase agreement by and among us, EI and certain
stockholders of EI (the Asset Purchase Agreement). The purchase price for
the acquisition consisted of a $2 million cash payment and the issuance by us
of a warrant to purchase 300,000 shares of our common stock at an exercise
price of $5.08 per share. We paid the cash portion of the consideration for
the acquired assets from our working capital.

On March 29, 2002, we announced our decision to discontinue the operations of
EI because its offering had not met expectations and its operations had a
negative impact on our earnings. The disposition of the operations of EI
represents the disposal of a business segment under Accounting Principals Board
Opinion (APB) No. 30. Accordingly, the results of this operation have been
classified as discontinued and interim quarterly periods have been restated.




ITEM 2:   PROPERTIES

Our headquarters and administrative, sales and marketing operations are in
Quincy, Massachusetts in a leased facility consisting of approximately 27,000
square feet. We have the right of first refusal to lease any additional space
becoming available in part of the premises. Our lease term runs through March
31, 2005.




ITEM 3:   LEGAL PROCEEDINGS

We are not a party to any litigation that we believe could have a material
adverse effect on our business, financial condition and results of operations.

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ITEM 4:   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of our security holders during the fourth
quarter of the year ended March 31, 2002.




PART II




ITEM 5:   MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Price Range of Common Stock

The Companys stock is currently included on The Nasdaq National Market
(Nasdaq) under the symbol ADSC. The following table sets forth, on a per
share basis for the periods shown, the high and low sales price of our common
stock as reported on Nasdaq. Such information reflects inter-dealer prices,
without retail markup, markdown or commission and may not represent actual
transactions.

|                  |                                          |  |      |        |     |  |   |        | 
|----------------- | ---------------------------------------- |  | ---- | ------ | --- |  | - | ------ | 
|                  |                                          |  | High |        | Low
|                  |                                          |  |      |        |    
|                  |                                          |  |      |        |     |  |   |       
|                 
|                 
|                 
|                 
|Fiscal Year 2002: |                                          |  |      |        |     |  |   |       
|                 
|                 
|                 
|                 
|                  | First Quarter (April 1  June 30, 2001)  |  | $    | 2.8400 |     |  | $ | 2.0000 | 
|                  | Second Quarter (July 1  Sept. 30, 2001) |  |      | 2.7200 |     |  |   | 2.0100 | 
|                  | Third Quarter (Oct. 1  Dec. 31, 2001)   |  |      | 2.1000 |     |  |   | 1.6000 | 
|                  | Fourth Quarter (Jan. 1  March 31, 2002) |  |      | 2.4000 |     |  |   | 1.7700 | 
|                 
|                 
|                 
|                 
|                 
|                 
|                 
|                 
|Fiscal Year 2001: |                                          |  |      |        |     |  |   |       
|                 
|                 
|                 
|                 
|                  | First Quarter (April 1  June 30, 2000)  |  | $    | 9.2500 |     |  | $ | 3.2500 | 
|                  | Second Quarter (July 1  Sept. 30, 2000) |  |      | 5.8750 |     |  |   | 3.5625 | 
|                  | Third Quarter (Oct. 1  Dec. 31, 2000)   |  |      | 4.1875 |     |  |   | 1.3750 | 
|                  | Fourth Quarter (Jan. 1  March 31, 2001) |  |      | 3.5625 |     |  |   | 1.6875 | 

On June 3, 2002, the last reported sale price of the common stock on Nasdaq was
$2.39 per share. As of June 3, 2002, there were approximately 128 stockholders
of record.

Dividend Policy

We do not intend to pay cash dividends in the foreseeable future. The payment
of any future dividends will be at the discretion of our Board of Directors and
will depend upon, among other things, future earnings, operations, capital
requirements of the Company, business conditions and contractual restrictions
on payment of dividends, if any.

Equity Compensation Plan Information

|                                                       |  |                            |           |                      |  |                     |      |  |  |  |           | 
|------------------------------------------------------ |  | -------------------------- | --------- | -------------------- |  | ------------------- | ---- |  |  |  | --------- | 
|                                                       |  | Number of securities to be |           | Weighted average     |  | Number of          
|                                                       |  | issued upon exercise of    |           | exercise price of    |  | securities         
|                                                       |  | outstanding options,       |           | outstanding options, |  | remaining available
|Plan Category                                          |  | warrants and rights        |           | warrants and rights  |  | for future issuance
|                                                       |  |                            |           |                      |  |                    
|Equity compensation plans
approved by security holders |  |                            | 1,658,169 |                      |  | $                   | 4.34 |  |  |  | 1,531,581 | 
|                                                       |  |                            |           |                      |  |                     |      |  |  |  |           | 
|Total                                                  |  |                            | 1,658,169 |                      |  | $                   | 4.34 |  |  |  | 1,531,581 | 
|                                                       |  |                            |           |                      |  |                     |      |  |  |  |           | 

There were no equity compensation plans not approved by security holders.

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ITEM 6:  SELECTED FINANCIAL DATA

The selected financial data presented below as of and for the fiscal years
ended March 31, 2002, 2001, 2000, 1999 and 1998 have been derived from our
audited consolidated financial statements. This data should be read in
conjunction with Managements Discussion and Analysis of Financial Condition
and Results of Operations, our Consolidated Financial Statements and related
notes thereto, and other financial information appearing elsewhere in this Form
10-K. All amounts are in thousands except per share data.

|                                                             |                                          |                       |        |                      |       |      |        |        |   |      |        |        |   |  |        |        |      |  |       |        |      | 
|------------------------------------------------------------ | ---------------------------------------- | --------------------- | ------ | -------------------- | ----- | ---- | ------ | ------ | - | ---- | ------ | ------ | - |  | ------ | ------ | ---- |  | ----- | ------ | ---- | 
|                                                             |                                          |                       |        | Year Ended March 31,
|                                                             |                                          |                       |        |                     
|                                                             |                                          |                       |        | 2002                 |       | 2001 |        | 2000   |   | 1999 |        | 1998  
|                                                             |                                          |                       |        |                      |       |      |        |        |   |      |        |       
|Consolidated Statements of Operations
Data:                  |                                          |                       |        |                      |       |      |        |        |   |      |        |        |   |  |        |        |      |  |       |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Total revenue                            |                       | $      | 20,419               |       |      | $      | 34,135 |   |      | $      | 35,186 |   |  | $      | 66,763 |      |  | $     | 42,830 |     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Gross margin                             |                       |        | 6,882                |       |      |        | 10,245 |   |      |        | 8,979  |   |  |        | 25,680 |      |  |       | 18,607 |     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Income (loss) from operations            |                       |        | (2,709               | )     |      |        | (1,868 | ) |      |        | (1,694 | ) |  |        | 12,362 |      |  |       | 8,303  |     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Income (loss) from continuing
operations |                       |        | (3,394               | )     |      |        | 26     |   |      |        | 19     |   |  |        | 7,759  |      |  |       | 4,898  |     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Net income (loss)                        |                       |        | (6,121               | )     |      |        | 26     |   |      |        | 19     |   |  |        | 7,759  |      |  |       | 4,898  |     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Basic earnings (loss) per share:         |                       |        |                      |       |      |        |        |   |      |        |        |   |  |        |        |      |  |       |        |     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                          | Continuing operations |        |                      | (0.26 | )    |        |        |  |      |        |        |  |  |        |        | 0.62 |  |       |        | 0.49 | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                          | Net income (loss)     |        |                      | (0.47 | )    |        |        |  |      |        |        |  |  |        |        | 0.60 |  |       |        | 0.49 | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Diluted earnings (loss) per share:       |                       |        |                      |       |      |        |        |   |      |        |        |   |  |        |        |      |  |       |        |     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                          | Continuing operations |        |                      | (0.26 | )    |        |        |  |      |        |        |  |  |        |        | 0.62 |  |       |        | 0.49 | 
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                          | Net income (loss)     |        |                      | (0.47 | )    |        |        |  |      |        |        |  |  |        |        | 0.60 |  |       |        | 0.49 | 
|                                                            
|                                                            
|                                                            
|                                                            
|Shares used in computing earnings
(loss) per share (basic)   |                                          |                       | 13,028 |                      |       |      | 12,998 |        |   |      | 12,925 |        |   |  | 12,468 |        |      |  | 9,952 |       
|                                                            
|                                                            
|                                                            
|                                                            
|Shares used in computing earnings
(loss) per share (diluted) |                                          |                       | 13,028 |                      |       |      | 13,213 |        |   |      | 13,254 |        |   |  | 12,855 |        |      |  | 9,952 |       
|                                                             |                                          |                       |        |                      |       |      |        |        |   |      |        |        |   |  |        |        |      |  |       |       

|                                  |                            |  |                      |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|--------------------------------- | -------------------------- |  | -------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                  |                            |  | Year Ended March 31,
|                                  |                            |  |                     
|                                  |                            |  | 2002                 |        | 2001 |  | 2000 |        | 1999 |  | 1998
|                                  |                            |  |                      |        |      |  |      |        |      |  |     
|Consolidated Balance Sheets Data: |                            |  |                      |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |       
|                                 
|                                 
|                                 
|                                 
|                                  | Cash and cash equivalents  |  | $                    | 15,457 |      |  | $    | 36,655 |      |  | $    | 38,347 |  |  | $ | 37,326 |  |  | $ | 3,401  | 
|                                 
|                                 
|                                 
|                                 
|                                  | Short-term investments     |  |                      | 16,601 |      |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       | 
|                                 
|                                 
|                                 
|                                 
|                                  | Working capital            |  |                      | 35,219 |      |  |      | 37,000 |      |  |      | 39,670 |  |  |   | 39,077 |  |  |   | 7,480  | 
|                                 
|                                 
|                                 
|                                 
|                                  | Total assets               |  |                      | 38,762 |      |  |      | 44,617 |      |  |      | 46,115 |  |  |   | 46,883 |  |  |   | 14,485 | 
|                                 
|                                 
|                                 
|                                 
|                                  | Total stockholders equity |  |                      | 35,709 |      |  |      | 41,165 |      |  |      | 40,976 |  |  |   | 40,745 |  |  |   | 8,683  | 
|                                 
|                                 
|                                 
|                                 
|                                  | Cash dividends paid        |  |                      |       |      |  |      |       |      |  |      |       |  |  |   |       |  |  |   | 3,000  | 
|                                  |                            |  |                      |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |       

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FORWARD LOOKING STATEMENTS

This Report release includes forward-looking statements, which are made
pursuant to the safe-harbor provisions of the Private Securities Litigation
Reform Act of 1995. You can identify these forward-looking statements when you
see us using words such as expect, anticipate, believe, intend, may,
predict, and other similar expressions. These forward-looking statements
cover, among other items: events, conditions and financial trends that may
affect the Companys future plans of operation, business strategy, growth of
operations and financial position, including statements regarding revenue and
earnings or loss per share projections, concentration of revenues among a
limited number of customers, expected capital expenditures for fiscal 2003 and
sufficiency of cash to meet working capital and capital expenditure
requirements for 2003. Any forward-looking statements are not guarantees of
future performance and are necessarily subject to a number of risks and
uncertainties, some of which are beyond our control. Because of these risks
and uncertainties, the forward-looking events discussed in this Report might
not transpire.




ITEM 7:
  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
                  OPERATIONS

Overview

ADS provides information technology (IT) strategy consulting and systems
integration services to the financial services industry. We offer rapid,
cost-effective IT solutions to the business challenges faced by financial
services companies through our in-depth financial services experience,
technological expertise and project management skills. Our service offerings
are organized around four practice areas: Customer Relationship Management
(CRM), Conversions and Consolidations, IT Strategy and Consulting, and
e-Business.

Our revenues are derived primarily from professional fees billed to customers
on a time and materials basis or, in certain instances, on a fixed price basis.
Included in revenues are reimbursable contract-related travel and
entertainment expenses, which are separately billed to customers.
Substantially all of our contracts, other than fixed price contracts, are
terminable by the customer following limited notice and without significant
penalty to the customer. Revenues from fixed price contracts represented
approximately 2.2% and 7.3% of our revenues for the fiscal years ended March
31, 2002 and 2001, respectively.

We have derived, and expect to continue to derive, a significant portion of our
revenues from a relatively limited number of customers. Revenues from our five
largest customers in fiscal 2002, 2001 and 2000 were 81.5%, 65.4% and 56.5%,
respectively, as a percentage of revenues. In the near and intermediate term,
we expect that this heavy concentration of revenues will continue. In fiscal
2002, FleetBoston Financial Corporation, Citizens Financial Corporation, Zions
Bancorporation, IntraNet, Inc., a TSA Company and National City Corporation
accounted for approximately 24.7%, 23.8%, 21.6%, 7.3% and 4.1%, respectively,
of revenues. In fiscal 2001, FleetBoston Financial Corporation, Citizens
Banking Corporation (MI), Brokat Financial Systems, NBT Bancorp and Corillian
Corporation accounted for approximately 27.2%, 12.5%, 9.2%, 8.3% and 8.2%,
respectively, of revenues. In fiscal 2000, FleetBoston Financial Corporation,
Citizens Banking Corporation (MI), First Security Information Technology, Inc.,
UST Data Services, Inc. and Corillian Corporation accounted for approximately
25.5%, 11.3%, 8.5%, 5.7% and 5.5%, respectively, of revenues. Because a
significant portion of our revenues are derived from services related to
deregulation and consolidation activities in the financial services industry,
changes in the regulatory environment or a reduction in consolidation activity
have in the past, and could in the future, have a material adverse effect on
our business, financial condition and results of operations. In addition, the
loss of a major customer or termination of a major project as a result of an
acquisition of a customer by an organization to which the Company does not
currently
provide services, or for any other reason, could have a material adverse effect
on our business, revenues and profitability.

9



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Cost of revenues consists primarily of salaries and employee benefits for
personnel dedicated to customer assignments, fees paid to subcontractors for
work performed in connection with customer assignments, and reimbursable
contract-related travel and entertainment expenses incurred in connection with
the delivery of our services. Customer project margins and personnel
utilization percentages are the most significant variables in determining our
income from continuing operations. We manage our personnel utilization rates
by monitoring personnel needs and generally adjust personnel levels based on
specific project requirements. The number of staff assigned to particular
projects may vary widely depending on the size, duration, and degree of
completion and complexity of each engagement. Delays in project completion and
in implementation may result in periods when personnel are not assigned to
active projects and, accordingly, result in lower average utilization rates
during such periods, which could have a materially adverse effect on our
operating results. In addition, we must maintain appropriate numbers of senior
professionals both to oversee existing engagements and for business development
activities.

Sales and marketing expenses consist primarily of salaries, employee benefits,
travel expenses and promotional costs. General and administrative expenses
consist primarily of expenses associated with our management, finance and
administrative groups, including recruiting, training, depreciation and
amortization, and occupancy costs.

Acquisition/Disposition of Assets

On June 29, 2001, we acquired substantially all of the assets of Cool Springs
Associates, Inc. d/b/a EarningsInsights (EI), including $412,000 of fixed
assets, pursuant to an asset purchase agreement by and among us, EI and certain
stockholders of EI (the Asset Purchase Agreement). The purchase price for
the acquisition consisted of a $2 million cash payment and the issuance by us
of a warrant to purchase 300,000 shares of our common stock at an exercise
price of $5.08 per share. We paid the cash portion of the consideration for
the acquired assets from our working capital.

On March 29, 2002, we announced our decision to discontinue the operations of
EI because its offering had not met expectations and its operations had a
negative impact on our earnings. The disposition of the operations of EI
represents the disposal of a business segment under Accounting Principles Board
Opinion (APB) No. 30. Accordingly, the results of this operation have been
classified as discontinued and interim quarterly periods have been restated.

First Quarter Outlook

For the first quarter of fiscal 2003, we anticipate that revenue will be in the
$6.0 to $6.4 million range with net income of $0.00 to $0.02 per share.

10



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##### Table of Contents



Results of Operations

The following table sets forth, for the periods indicated, certain financial
data as a percentage of revenues:

|                                                                                     |                                                                                            |                          |       |                      |      |      |       |      |      |  |       |      |      | 
|------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------ | ------------------------ | ----- | -------------------- | ---- | ---- | ----- | ---- | ---- |  | ----- | ---- | ---- | 
|                                                                                     |                                                                                            |                          |       | Year Ended March 31,
|                                                                                     |                                                                                            |                          |       |                     
|                                                                                     |                                                                                            |                          |       | 2002                 |      | 2001 |       | 2000
|                                                                                     |                                                                                            |                          |       |                      |      |      |       |     
|Revenues                                                                             |                                                                                            |                          | 100.0 | %                    |      |      | 100.0 | %    |      |  | 100.0 | %   
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Cost of revenues                                                                     |                                                                                            |                          | 66.3  |                      |      |      | 70.0  |      |      |  | 74.5  |     
|                                                                                     |                                                                                            |                          |       |                      |      |      |       |      |      |  |       |     
|Gross profit                                                                         |                                                                                            |                          | 33.7  |                      |      |      | 30.0  |      |      |  | 25.5  |     
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Operating expenses:                                                                  |                                                                                            |                          |       |                      |      |      |       |      |      |  |       |     
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Sales and marketing                                                                        |                          |       | 16.1                 |      |      |       | 14.2 |      |  |       | 9.2  |     
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | General and administrative                                                                 |                          |       | 26.4                 |      |      |       | 20.3 |      |  |       | 21.1 |     
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Restructuring expense                                                                      |                          |       | 4.5                  |      |      |       | 1.0  |      |  |       |     |     
|                                                                                     |                                                                                            |                          |       |                      |      |      |       |      |      |  |       |     
|                                                                                     |                                                                                            | Total operating expenses |       |                      | 47.0 |      |       |      | 35.5 |  |       |      | 30.3 | 
|                                                                                     |                                                                                            |                          |       |                      |      |      |       |      |      |  |       |     
|Loss from operations                                                                 |                                                                                            |                          | (13.3 | )                    |      |      | (5.5  | )    |      |  | (4.8  | )   
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Interest income, net                                                                 |                                                                                            |                          | 5.1   |                      |      |      | 6.3   |      |      |  | 5.2   |     
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Write-down of investment                                                             |                                                                                            |                          | 14.7  |                      |      |      |      |      |      |  |      |     
|                                                                                     |                                                                                            |                          |       |                      |      |      |       |      |      |  |       |     
|Income (loss) from continuing operations before
provision (benefit) for income taxes |                                                                                            |                          | (22.9 | )                    |      |      | 0.8   |      |      |  | 0.4   |     
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Provision (benefit) for income taxes                                                 |                                                                                            |                          | (6.2  | )                    |      |      | 0.7   |      |      |  | 0.3   |     
|                                                                                     |                                                                                            |                          |       |                      |      |      |       |      |      |  |       |     
|Income (loss) from continuing operations                                             |                                                                                            |                          | (16.7 | )                    |      |      | 0.1   |      |      |  | 0.1   |     
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Discontinued operations:                                                             |                                                                                            |                          |       |                      |      |      |       |      |      |  |       |     
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Loss from operations of discontinued business
(less applicable income tax benefit of 2.0%) |                          |       | 3.9                  |      |      |       |     |      |  |       |     |     
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                     | Loss on disposal of business (less applicable
income tax benefit of 3.6%)                  |                          |       | 9.4                  |      |      |       |     |      |  |       |     |     
|                                                                                     |                                                                                            |                          |       |                      |      |      |       |      |      |  |       |     
|Net income (loss)                                                                    |                                                                                            |                          | (30.0 | )%                   |      |      | 0.1   | %    |      |  | 0.1   | %   
|                                                                                     |                                                                                            |                          |       |                      |      |      |       |      |      |  |       |     

Variability of Operating Results

Variations in our revenues and operating results have occurred from quarter to
quarter, and on an annual basis, and may continue to occur as a result of a
number of factors. Quarterly revenues and operating results can depend on:



| |  | the number, size and scope of customer projects commenced and completed during a quarter,                                                                                            
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | changes in employee utilization rates,                                                                                                                                               
| 
| |  | changes in average billing rates,                                                                                                                                                    
| 
| |  | the number of working days in a quarter,                                                                                                                                             
| 
| |  | the timing of introduction of new service offerings, both by us and our competitors,                                                                                                 
| 
| |  | changes in pricing, both by us and our competitors,                                                                                                                                  
| 
| |  | loss of a significant customer,                                                                                                                                                      
| 
| |  | increased competition from our competitors,                                                                                                                                          
| 
| |  | loss of key personnel,                                                                                                                                                               
| 
| |  | other factors that adversely impact the financial services industry,                                                                                                                 
| 
| |  | general economic conditions,                                                                                                                                                         
| 
| |  | potential acquisitions and our ability to successfully integrate the acquired business or technologies into our existing
business and operations, and                                
| 
| |  | our ability to develop and introduce new service offerings, improve existing service offerings and develop and maintain the
skills necessary to keep pace with changing technologies.

The timing of revenues is difficult to forecast because our sales cycle is
relatively long, ranging from one to six months for new projects with existing
customers and
three to six months for new customers, and

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may depend on factors
such as the size and scope of projects or other factors that adversely impact
the financial services industry and general economic conditions. In addition,
the relatively long length of our sales cycle may negatively impact the
operating results for any particular quarter as a result of increased sales and
marketing expenses without associated increases in revenues in the particular
quarter. Furthermore, many of our projects are, and may be in the future,
terminable without customer penalty. An unanticipated termination of a major
project or loss of a major customer could require us to maintain or terminate
underutilized employees, resulting in a higher than expected number of
unassigned persons or higher than expected severance expenses.

Year Ended March 31, 2002 Compared to Year Ended March 31, 2001

Revenues

Revenues decreased 40.2% for the year ended March 31, 2002 compared to the year
ended March 31, 2001, to $20.4 million from $34.1 million. This decrease was
predominately due to a 46.6% decrease in volume of services delivered to
customers due to the continued IT spending freeze, offset in part by a 14.9%
increase in the average billing rate from $121 per hour for fiscal 2001 to $139
per hour for fiscal 2002.

Cost of Revenues

Cost of revenues decreased 43.3% to $13.5 million in fiscal 2002 compared to
$23.9 million in fiscal 2001, representing 66.3% and 70.0% of revenues,
respectively. The dollar decrease in cost of revenues was primarily due to a
decrease in the average number of billable personnel from 150 for fiscal 2001
to 90 for fiscal 2002. The decrease in cost of revenues as a percentage of
revenues is due to the increase in the average billing rate.

Sales and Marketing

Sales and marketing expenses decreased 32.4% to $3.3 million in fiscal 2002
compared to $4.9 million in fiscal 2001, representing 16.1% and 14.2% of
revenues, respectively. The overall dollar decrease resulted primarily from a
decrease in our sales and marketing group from an average of 21 employees for
fiscal 2001 to an average of 16 employees for fiscal 2002. The increase in
sales and marketing expense as a percentage of revenues is due to the
significant reduction in revenue from the prior year.

General and Administrative

General and administrative expenses decreased 22.2% to $5.4 million in fiscal
2002 compared to $6.9 million in fiscal 2001, representing 26.4% and 20.3% of
revenues, respectively. The dollar decrease is primarily due to a decrease in
compensation expenses as a result of a reduction in the average number of
general and administrative personnel from 28 employees for fiscal 2001 to 21
for fiscal 2002. The percentage change is primarily due to the significant
reduction in revenue from the prior year.

Restructuring Expense

In April of fiscal 2002, we reduced our headcount by 35 employees, resulting in
a pre-tax restructuring expense of $925,000. In January of fiscal 2001, we
also reduced our headcount by 28 employees resulting in a pre-tax restructuring
expense of $337,000.

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Write-Down of Investment

On September 8, 2000, we made a $3 million preferred stock investment,
representing a minority interest in S2 Systems, Inc., a software solutions
provider in the banking and diversified financial services markets. This
investment was stated at cost. During the quarter ended September 30, 2001, we
determined that our investment was permanently impaired and it was written-down
to zero.

Interest Income, Net

Interest income, net decreased $1.1 million to $1.0 million in fiscal 2002
compared to $2.1 million for fiscal 2001. This decrease was principally due to
interest rate decreases and lower cash balances. Interest expense is
immaterial.

Provision (Benefit) for Income Taxes

The provision (benefit) for income taxes decreased $1.5 million to a $(1.3)
million tax benefit in fiscal 2002 compared to a $250,000 provision in fiscal
2001. The benefit was a result of the recent passage of the Economic Stimulus
Act which allows a company to carry-back losses for five years to recover taxes
previously paid. This tax benefit was initiated in Q4 2002 and is net of a
provision for taxes in Q1 2002 of $.4 million which was to establish a
valuation allowance for deferred taxes. Management established the valuation
allowance because it is more likely than not that the deferred tax asset will
not be realizable in the near future.

Discontinued Operations

On March 29, 2002, we announced our decision to discontinue the operations of
EI. Consequently, we incurred a charge of $1.9 million, net of income tax
benefit, relating to the write-off of EI assets and an accrual for estimated
losses during the phase-out period.

The disposition of the EI operation represents the disposal of a business
segment under APB No. 30. Accordingly, results of this operation have been
classified as discontinued, and interim quarterly periods have been restated.
For the fiscal year ended March 31, 2002, EI incurred a $797,000 loss, net of
income tax benefit.

Year Ended March 31, 2001 Compared to Year Ended March 31, 2000

Revenues

Revenues decreased 3.0% for the year ended March 31, 2001 compared to the year
ended March 31, 2000, to $34.1 million from $35.2 million. This decrease was
due to an approximate 11.0% decrease in the number of billable hours for fiscal
year 2001 versus fiscal year 2000, offset by an approximate 8.0% increase in
the average billing rate from $112 per hour for fiscal 2000 to $121 per hour
for fiscal 2001.

Cost of Revenues

Cost of revenues decreased 8.8% to $23.9 million in fiscal 2001 compared to
$26.2 million in fiscal 2000, representing 70.0% and 74.5% of revenues,
respectively. The dollar decrease in cost of revenues was primarily due to a
decrease in the average number of billable personnel from 189 for fiscal 2000
to 150 for fiscal 2001. The decrease in cost of revenues as a percentage of
revenues is due to the aforementioned increase in the average billing rate and
a 12.3% increase in the average utilization rate from 66.7% for fiscal 2000 to
74.9% for fiscal 2001.

13



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Sales and Marketing

Sales and marketing expenses increased 50.2% to $4.9 million in fiscal 2001
compared to $3.2 million in fiscal 2000, representing 14.2% and 9.2% of
revenues, respectively. The overall dollar increase was primarily due to an
increase in the average number of sales and marketing personnel from 15 for
fiscal 2000 to 21 for fiscal 2001, increased travel related expenses, and
increased investments in marketing initiatives.

General and Administrative

General and administrative expenses decreased 7.0% to $6.9 million in fiscal
2001 compared to $7.4 million in fiscal 2000, representing 20.3% and 21.1% of
revenues, respectively. The dollar decrease is primarily due to a decrease in
recruiting efforts for new employees and a decrease in the average number of
general and administrative personnel from 30 employees for fiscal 2000 to 28
for fiscal 2001.

Restructuring Expense

In January of fiscal 2001, we reduced our headcount by 28 employees, resulting
in a pre-tax restructuring expense of $337,000.

Interest Income, Net

Interest income, net increased $322,000 to $2.1 million in fiscal 2001 compared
to $1.8 million for fiscal 2000. This increase was primarily due to the
increase in interest rates. Interest expense is immaterial.

Provision for Income Taxes

The provision for income taxes increased $141,000 to $250,000 in fiscal 2001
compared to $109,000 in fiscal 2000, resulting in effective tax rates of 91.0%
and 85.2%, respectively. Our tax rate may vary from period to period based on
our expansion into areas with varying state and local statutory income tax
rates. The increase in the effective tax rate percentage, and the fact that
the effective rates are so much higher than the statutory rates, is primarily
due to permanent differences relating to meals and entertainment expenses.

Liquidity and Capital Resources

We have no long-term debt and continue to operate primarily debt-free. Working
capital decreased to $35.2 million at March 31, 2002 compared to $37.0 million
at March 31, 2001. This decrease was primarily due to a decrease in cash and
cash equivalents due to the EI acquisition. Our days sales in accounts
receivable at March 31, 2002 was 49 compared to 47 days at March 31, 2001.
While we believe that the risk with respect to collection of accounts
receivable is minimized by the creditworthiness of our customers, primarily
banks and other financial institutions, and our credit and collection policies,
there can be no assurance that we will not encounter collection problems in the
future. We attempt to further minimize this risk by performing ongoing credit
valuations of our customers and maintaining an allowance for potential credit
losses. We believe that our allowance for doubtful accounts and collection
policies are adequate.

On September 8, 2000, we made a $3 million preferred stock investment,
representing a minority interest, in S2 Systems, Inc., a software solution
provider in the banking and diversified financial services markets. During the
quarter ended September 30, 2001, we determined that our investment was
permanently impaired and it was written-down to zero.

On June 29, 2001, we acquired substantially all of the assets of Cool Springs
Associates, Inc. d/b/a EI, including $412,000 of fixed assets, pursuant to an
asset purchase agreement by and among us, EI and

14



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certain stockholders of EI
(the Asset Purchase Agreement). The purchase price for the acquisition
consisted of a $2 million cash payment and the issuance by us of a warrant to
purchase 300,000 shares of our common stock at an exercise price of $5.08 per
share. We paid the cash portion of the consideration for the acquired assets
from our working capital.

On March 29, 2002, we announced our decision to discontinue the operations of
EI because its offering had not met expectations and its operations had a
negative impact on our earnings. The disposition of the operations of EI
represents the disposal of a business segment under APB No. 30. Accordingly,
the results of this operation have been classified as discontinued and interim
quarterly periods have been restated.

Capital expenditures for continuing operations were approximately $15,000 for
the fiscal year 2002, exclusive of the aforementioned expenditure for EI fixed
assets, and $246,000 for fiscal year 2001. The expenditures were used
primarily for computer and other equipment, software and, to a lesser extent,
leasehold improvements. For fiscal 2003, capital expenditures are expected to
be approximately $200,000, and will be used primarily for computers and other
equipment.

We expect that existing cash and cash equivalent balances, together with cash
provided from operations, will be sufficient to meet our working capital and
capital expenditure requirements for at least the next twelve months.

To date, inflation has not had a material impact on our financial results.

We lease our facilities and other equipment under operating leases. Rent
expense recognized under these leases during the fiscal years ended March 31,
2002, 2001 and 2000 totaled approximately $627,000, $639,000 and $546,000,
respectively. Future minimum lease payments due under noncancelable operating
leases are as follows:

|                             |      |   |                  |     | 
|---------------------------- | ---- | - | ---------------- | --- | 
|                             |      |   | Required Minimum
|                             |      |   | Payments        
|                             |      |   |                 
|                             |      |   | (in thousands)  
|Year ending March 31:        |      |   |                  |    
|                            
|                            
|                            
|                            
|                             | 2003 |   | $                | 721 | 
|                            
|                            
|                            
|                            
|                             | 2004 |   |                  | 718 | 
|                            
|                            
|                            
|                            
|                             | 2005 |   |                  | 741 | 
|                             |      |   |                  |     | 
|Total minimum lease payments |      | $ | 2,180            |    
|                             |      |   |                  |     | 

There were no capital leases outstanding as of March 31, 2002.

New Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141, Business Combinations
(SFAS 141) and No. 142, Goodwill and Other Intangible Assets (SFAS 142).

SFAS 141 requires that all business combinations be accounted for under the
purchase method and that certain acquired intangible assets in a business
combination be recognized as assets apart from goodwill. SFAS 141 is effective
for all business combinations initiated after June 30, 2001 and for all
business combinations accounted for by the purchase method which were initiated
before but completed after June 30, 2001.

SFAS 142 requires that ratable amortization of goodwill be replaced with
periodic testing of the goodwill for impairment and that intangible assets
other than goodwill be amortized over their estimated useful lives. The
provisions of SFAS 142 will be effective for fiscal years beginning after
December 15, 2001.

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##### Table of Contents



However, early adoption of SFAS 142 will be permitted for
companies with a fiscal year beginning after March 15, 2001, provided their
first quarter financial statements have not been previously issued. We have
early adopted SFAS 142 as of April 1, 2001. Since we had no goodwill or other
intangible assets at the date of adoption there is no effect on prior period
financial results.

In August 2001, the FASB issued Statement of Financial Accounting Standards No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS
144), which is effective January 1, 2002. SFAS 144 supersedes SFAS 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of, and the accounting and reporting provisions relating to the
disposal of a segment of a business described in APB No. 30. We do not expect
the adoption of SFAS 144 will have a material impact on our financial
statements.

Critical Accounting Policies

We believe the following represents our critical accounting policies:

Revenue Recognition

We derived 98% of our revenue from consulting services under time and material
billing arrangements in fiscal year 2002. Under these arrangements, revenue is
recognized as the services are provided. We also derive revenue on fixed price
contracts. Revenue on fixed price contracts is recognized using the percentage
of completion method of accounting and is adjusted monthly for the cumulative
impact of any revision in estimates. We determine the percentage of completion
of our contracts by comparing costs incurred to date to total estimated costs.

Income Taxes

We recognize deferred tax assets and liabilities for the expected consequences
of temporary differences between the financial statement basis and tax basis of
our assets and liabilities. A deferred tax valuation allowance is established
if, in managements opinion, it is more likely than not that all or a portion
of our deferred tax assets will not be realized.

At March 31, 2002, a full valuation allowance has been provided for our
deferred tax assets. If we achieve sustained profitability, some or all of
this valuation allowance would be reversed to income.

Accounts Receivable

We perform ongoing credit evaluations of our customers and adjust credit limits
based upon payment history and the customers current credit worthiness, as
determined by our review of their current credit information. We continuously
monitor collections and payments from our customers and maintain a provision
for estimated credit losses based upon our historical experience and any
specific customer collection issues that we have identified. While such credit
losses have historically been within our expectations and the provisions
established, we cannot guarantee that we will continue to experience the same
credit loss rates that we have in the past. Since our accounts receivable are
concentrated in a relatively few number of customers, a significant change in
the liquidity or financial position of any one of these customers could have a
material adverse impact on the collectibility of our accounts receivables and
our future operating results.

16



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##### Table of Contents



Valuation of Long-Lived Assets

We periodically evaluate long-lived assets for potential impairment under SFAS
121 and, in fiscal year 2003 under SFAS 144, we will perform these evaluations
whenever events or changes in circumstances suggest that the carrying value of
an asset or group of assets is not recoverable. Indicators of potential
impairment include:



| |  | a significant change in the manner in which an asset is used;
|- |  | -------------------------------------------------------------
| 
| |  | a significant decrease in the market value of an asset; and  
| 
| |  | a significant adverse change in our business or our industry.

If we believe an indicator of potential impairment exists, we test to determine
whether the impairment recognition criteria of SFAS 121 and SFAS 144, going
forward, have been met. In evaluating long-lived assets for potential
impairment, we make several significant estimates and judgments, including:



| |  | estimating future cash flows associated with the asset or group of assets; and
|- |  | ------------------------------------------------------------------------------
| 
| |  | determining an appropriate discount rate to use in the analysis.              

Use of different estimates and judgments could yield materially different
results in our analysis, and could result in significant different asset
impairment charges.

Marketable Securities

We invest in marketable securities as part of our strategy to invest excess
cash and achieve income therefrom. On a quarterly basis we review the fair
market value of these marketable securities in comparison to historical cost.

If the fair market value of a marketable security is less than our carrying
value, we consider all available evidence in assessing when and if the value of
the investment can be expected to recover to at least its historical cost.
This evidence would include:



| |  | a lack of any substantial company-specific adverse events causing declines in value; and
|- |  | ----------------------------------------------------------------------------------------
| 
| |  | overall financial condition and liquidity of the issuer of the securities.              

If our review indicates that the decline in value is other than temporary, we
write-down our investment to the then current market value and record an
impairment charge in our statements of operations. The determination of
whether an unrealized loss is other than temporary requires significant
judgment, and can have a material impact on our reported results.




ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from changes in interest rates due to investments
in instruments made for non-trading purposes. The interest rate risk relates
primarily to our portfolio of short-term investment grade securities. As of
March 31, 2002 we did not, nor do we intend to, use derivative financial
instruments for speculative trading purposes.

The majority of our sales are denominated in U.S. dollars and take place in
North America.

We believe that interest rate risk and foreign currency exchange rate risks are
both immaterial to the Company.

17



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##### Table of Contents






ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

|                                                                                                   |                                                 |  |      |    | 
|-------------------------------------------------------------------------------------------------- | ----------------------------------------------- |  | ---- | -- | 
|                                                                                                   |                                                 |  | Page
|                                                                                                   |                                                 |  |     
|Report of Independent Accountants  PricewaterhouseCoopers LLP                                     |                                                 |  | 19   |   
|                                                                                                  
|Consolidated Balance Sheets as of March 31, 2002 and 2001                                          |                                                 |  | 20   |   
|                                                                                                  
|Consolidated Statements of Operations for the Years Ended March 31, 2002, 2001 and 2000            |                                                 |  | 21   |   
|                                                                                                  
|Consolidated Statements of Stockholders Equity for the Years Ended March 31, 2002, 2001,
and 2000 |                                                 |  | 22   |   
|                                                                                                  
|Consolidated Statements of Cash Flows for the Years Ended March 31, 2002, 2001 and
2000            |                                                 |  | 23   |   
|                                                                                                  
|Notes to Consolidated Financial Statements                                                         |                                                 |  | 24   |   
|                                                                                                  
|Schedule:                                                                                          |                                                 |  |      |   
|                                                                                                  
|                                                                                                   | Schedule II  Valuation and Qualifying Accounts |  |      | 36 | 

18



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##### Table of Contents



REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Atlantic Data Services, Inc:

In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Atlantic Data Services, Inc. and its subsidiary (the Company) at
March 31, 2002 and 2001, and the results of their operations and their cash
flows for each of the three years in the period ended March 31, 2002 in
conformity with accounting principles generally accepted in the United States
of America. In addition, in our opinion, the financial statement schedule
listed in the accompanying index presents fairly in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and the
financial statement schedule are the responsibility of the Companys
management; our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.



PricewaterhouseCoopers LLP

Boston, Massachusetts
April 26, 2002

19



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##### Table of Contents



ATLANTIC DATA SERVICES, INC.
Consolidated Balance Sheets
(in thousands, except share data)

|                                           |                                                                                                                                                                                                             |                            |        |           |        |           |        |        |        | 
|------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------ | --------- | ------ | --------- | ------ | ------ | ------ | 
|                                           |                                                                                                                                                                                                             |                            |        | March 31, |        | March 31,
|                                           |                                                                                                                                                                                                             |                            |        | 2002      |        | 2001     
|                                           |                                                                                                                                                                                                             |                            |        |           |        |          
|Assets                                     |                                                                                                                                                                                                             |                            |        |          
|                                          
|                                          
|                                          
|                                          
|Current assets:                            |                                                                                                                                                                                                             |                            |        |           |        |           |        |       
|                                          
|                                          
|                                          
|                                          
|                                           | Cash and cash equivalents                                                                                                                                                                                   |                            | $      | 15,457    |        |           | $      | 36,655 |       
|                                          
|                                          
|                                          
|                                          
|                                           | Short-term investments                                                                                                                                                                                      |                            |        | 16,601    |        |           |        |       |       
|                                          
|                                          
|                                          
|                                          
|                                           | Accounts receivable, net of allowance for doubtful accounts
of $375 at March 31, 2002 and 2001                                                                                                              |                            |        | 3,170     |        |           |        | 3,090  |       
|                                          
|                                          
|                                          
|                                          
|                                           | Tax receivable                                                                                                                                                                                              |                            |        | 2,784     |        |           |        |       |       
|                                          
|                                          
|                                          
|                                          
|                                           | Prepaid expenses                                                                                                                                                                                            |                            |        | 260       |        |           |        | 243    |       
|                                          
|                                          
|                                          
|                                          
|                                           | Deferred taxes                                                                                                                                                                                              |                            |        |          |        |           |        | 464    |       
|                                           |                                                                                                                                                                                                             |                            |        |           |        |          
|                                           |                                                                                                                                                                                                             | Total current assets       |        |           | 38,272 |           |        |        | 40,452 | 
|                                           |                                                                                                                                                                                                             |                            |        |           |        |          
|Long-term investment                       |                                                                                                                                                                                                             |                            |       |           |        |           | 3,000  |       
|                                          
|                                          
|                                          
|                                          
|Property and equipment, net                |                                                                                                                                                                                                             |                            | 308    |           |        |           | 629    |       
|                                          
|                                          
|                                          
|                                          
|Other assets                               |                                                                                                                                                                                                             |                            | 182    |           |        |           | 536    |       
|                                           |                                                                                                                                                                                                             |                            |        |           |        |          
|Total assets                               |                                                                                                                                                                                                             | $                          | 38,762 |           |        | $         | 44,617 |       
|                                           |                                                                                                                                                                                                             |                            |        |           |        |          
|Liabilities and Stockholders Equity       |                                                                                                                                                                                                             |                            |        |          
|                                          
|                                          
|                                          
|                                          
|Current liabilities:                       |                                                                                                                                                                                                             |                            |        |           |        |           |        |       
|                                          
|                                          
|                                          
|                                          
|                                           | Accounts payable                                                                                                                                                                                            |                            | $      | 455       |        |           | $      | 538    |       
|                                          
|                                          
|                                          
|                                          
|                                           | Accrued expenses and other liabilities                                                                                                                                                                      |                            |        | 2,055     |        |           |        | 2,828  |       
|                                          
|                                          
|                                          
|                                          
|                                           | Deferred revenue                                                                                                                                                                                            |                            |        | 531       |        |           |        | 4      |       
|                                          
|                                          
|                                          
|                                          
|                                           | Billings in excess of costs and estimated earnings                                                                                                                                                          |                            |        | 12        |        |           |        | 82     |       
|                                           |                                                                                                                                                                                                             |                            |        |           |        |          
|                                           |                                                                                                                                                                                                             | Total current liabilities  |        |           | 3,053  |           |        |        | 3,452  | 
|                                           |                                                                                                                                                                                                             |                            |        |           |        |          
|Commitments                                |                                                                                                                                                                                                             |                            |        |           |        |           |        |       
|                                          
|                                          
|                                          
|                                          
|Stockholders equity:                      |                                                                                                                                                                                                             |                            |        |           |        |           |        |       
|                                          
|                                          
|                                          
|                                          
|                                           | Preferred stock, $.01 par value, 1,000,000 authorized, no shares
issued or outstanding                                                                                                                      |                            |        |          |        |           |        |       |       
|                                          
|                                          
|                                          
|                                          
|                                           | Common stock, $.01 par value, 60,000,000 shares authorized,
13,151,123 shares issued and 13,039,123 outstanding at
March 31, 2002 and 13,135,126 shares issued and 13,023,126
outstanding at March 31, 2001 |                            |        | 131       |        |           |        | 131    |       
|                                          
|                                          
|                                          
|                                          
|                                           | Additional paid-in capital                                                                                                                                                                                  |                            |        | 27,565    |        |           |        | 26,900 |       
|                                          
|                                          
|                                          
|                                          
|                                           | Retained earnings                                                                                                                                                                                           |                            |        | 8,038     |        |           |        | 14,159 |       
|                                          
|                                          
|                                          
|                                          
|                                           | Treasury stock (112,000 shares carried at cost)                                                                                                                                                             |                            |        | (25       | )      |           |        | (25    | )     
|                                           |                                                                                                                                                                                                             |                            |        |           |        |          
|                                           |                                                                                                                                                                                                             | Total stockholders equity |        |           | 35,709 |           |        |        | 41,165 | 
|                                           |                                                                                                                                                                                                             |                            |        |           |        |          
|Total liabilities and stockholders equity |                                                                                                                                                                                                             | $                          | 38,762 |           |        | $         | 44,617 |       
|                                           |                                                                                                                                                                                                             |                            |        |           |        |          

The accompanying notes are an integral part of these consolidated financial statements.

20



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ATLANTIC DATA SERVICES, INC.
Consolidated Statements of Operations
(in thousands, except per share data)

|                                                                           |                                                                                            |   |                          |       |            |        |            |       |            |        |        |       |   |        | 
|-------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | - | ------------------------ | ----- | ---------- | ------ | ---------- | ----- | ---------- | ------ | ------ | ----- | - | ------ | 
|                                                                           |                                                                                            |   |                          |       | Year Ended |        | Year Ended |       | Year Ended
|                                                                           |                                                                                            |   |                          |       | March 31,  |        | March 31,  |       | March 31, 
|                                                                           |                                                                                            |   |                          |       | 2002       |        | 2001       |       | 2000      
|                                                                           |                                                                                            |   |                          |       |            |        |            |       |           
|Revenues                                                                   |                                                                                            | $ | 20,419                   |       |            | $      | 34,135     |       |            | $      | 35,186 |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Cost of revenues                                                           |                                                                                            |   | 13,537                   |       |            |        | 23,890     |       |            |        | 26,207 |      
|                                                                           |                                                                                            |   |                          |       |            |        |            |       |            |        |        |      
|Gross profit                                                               |                                                                                            |   | 6,882                    |       |            |        | 10,245     |       |            |        | 8,979  |      
|                                                                           |                                                                                            |   |                          |       |            |        |            |       |            |        |        |      
|Operating expenses:                                                        |                                                                                            |   |                          |       |            |        |            |       |            |        |        |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Sales and marketing                                                                        |   |                          | 3,284 |            |        |            | 4,856 |            |        |        | 3,232 |  
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | General and administrative                                                                 |   |                          | 5,382 |            |        |            | 6,920 |            |        |        | 7,441 |  
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Restructuring expense                                                                      |   |                          | 925   |            |        |            | 337   |            |        |        |      |  
|                                                                           |                                                                                            |   |                          |       |            |        |            |       |            |        |        |      
|                                                                           |                                                                                            |   | Total operating expenses |       |            | 9,591  |            |       |            | 12,113 |        |       |   | 10,673 | 
|                                                                           |                                                                                            |   |                          |       |            |        |            |       |            |        |        |      
|Loss from operations                                                       |                                                                                            |   | (2,709                   | )     |            |        | (1,868     | )     |            |        | (1,694 | )    
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Interest income, net                                                       |                                                                                            |   | 1,041                    |       |            |        | 2,144      |       |            |        | 1,822  |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Write-down of investment                                                   |                                                                                            |   | 3,000                    |       |            |        |           |       |            |        |       |      
|                                                                           |                                                                                            |   |                          |       |            |        |            |       |            |        |        |      
|Income (loss) from continuing operations
before provision for income taxes |                                                                                            |   | (4,668                   | )     |            |        | 276        |       |            |        | 128    |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Provision (benefit) for income taxes                                       |                                                                                            |   | (1,274                   | )     |            |        | 250        |       |            |        | 109    |      
|                                                                           |                                                                                            |   |                          |       |            |        |            |       |            |        |        |      
|Income (loss) from continuing operations                                   |                                                                                            |   | (3,394                   | )     |            |        | 26         |       |            |        | 19     |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Discontinued operations:                                                   |                                                                                            |   |                          |       |            |        |            |       |            |        |        |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Loss from operations of discontinued
business (less applicable income tax
benefit of $410) |   |                          | 797   |            |        |            |      |            |        |        |      |  
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Loss on disposal of business (less applicable
income tax benefit of $735)                  |   |                          | 1,930 |            |        |            |      |            |        |        |      |  
|                                                                           |                                                                                            |   |                          |       |            |        |            |       |            |        |        |      
|                                                                           |                                                                                            |   | Net income (loss)        |       | $          | (6,121 | )          |       | $          | 26     |        |       | $ | 19     | 
|                                                                           |                                                                                            |   |                          |       |            |        |            |       |            |        |        |      
|                                                                           |                                                                                            |   |                          |       |            |        |            |       |            |        |        |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Earnings (loss) per share from continuing
operations:                      |                                                                                            |   |                          |       |            |        |            |       |            |        |        |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Basic                                                                                      |   | $                        | (0.26 | )          |        | $          | 0.00  |            |        | $      | 0.00  |  
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Diluted                                                                                    |   | $                        | (0.26 | )          |        | $          | 0.00  |            |        | $      | 0.00  |  
|                                                                           |                                                                                            |   |                          |       |            |        |            |       |            |        |        |      
|Earnings (loss) per share from discontinued
operations:                    |                                                                                            |   |                          |       |            |        |            |       |            |        |        |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Basic                                                                                      |   | $                        | (0.21 | )          |        |            |      |            |        |        |      |  
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Diluted                                                                                    |   | $                        | (0.21 | )          |        |            |      |            |        |        |      |  
|                                                                           |                                                                                            |   |                          |       |            |        |            |       |            |        |        |      
|Earnings (loss) per share from net income:                                 |                                                                                            |   |                          |       |            |        |            |       |            |        |        |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Basic                                                                                      |   | $                        | (0.47 | )          |        | $          | 0.00  |            |        | $      | 0.00  |  
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Diluted                                                                                    |   | $                        | (0.47 | )          |        | $          | 0.00  |            |        | $      | 0.00  |  
|                                                                           |                                                                                            |   |                          |       |            |        |            |       |            |        |        |      
|Shares used in computing earnings (loss) per
share (basic)                 |                                                                                            |   | 13,028                   |       |            |        | 12,998     |       |            |        | 12,925 |      
|                                                                           |                                                                                            |   |                          |       |            |        |            |       |            |        |        |      
|Shares used in computing earnings (loss) per
share (diluted)               |                                                                                            |   | 13,028                   |       |            |        | 13,213     |       |            |        | 13,254 |      
|                                                                           |                                                                                            |   |                          |       |            |        |            |       |            |        |        |      

The accompanying notes are an integral part of these consolidated financial
statements.

21



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##### Table of Contents



ATLANTIC DATA SERVICES, INC.
Consolidated Statements of Stockholders Equity
(in thousands, except share data)

|                          |                                                   |  |              |        |            |   |          |   |          |   |                |     |        |   |        |        |   |  |         |   |  |   |     |   |  |   |        |        |  
|------------------------- | ------------------------------------------------- |  | ------------ | ------ | ---------- | - | -------- | - | -------- | - | -------------- | --- | ------ | - | ------ | ------ | - |  | ------- | - |  | - | --- | - |  | - | ------ | ------ | -
|                          |                                                   |  | Common Stock |        | Additional |   |          |   |          |   | Treasury Stock |     |        |   |       
|                          |                                                   |  |              |        | Paid-In    |   | Retained |   |          |   |                |     |       
|                          |                                                   |  | Shares       |        | Amount     |   | Capital  |   | Earnings |   | Shares         |     | Amount |   | Total  |       
|                          |                                                   |  |              |        |            |   |          |   |          |   |                |     |        |   |        |       
|Balance at March 31, 1999 |                                                   |  | 13,018,391   |        |            | $ | 130      |   |          | $ | 26,526         |     |        | $ | 14,114 |        |   |  | 112,000 |   |  | $ | (25 | ) |  | $ | 40,745 |       
|                         
|                         
|                         
|                         
|                          | Shares issued under stock
option plans            |  |              | 69,208 |            |   |          | 1 |          |   |                | 210 |        |   |        |       |   |  |         |  |  |   |     |  |  |   |        | 211    |  
|                         
|                         
|                         
|                         
|                          | Income tax benefit from
exercise of stock options |  |              |       |            |   |          |  |          |   |                | 1   |        |   |        |       |   |  |         |  |  |   |     |  |  |   |        | 1      |  
|                         
|                         
|                         
|                         
|                          | Net income                                        |  |              |       |            |   |          |  |          |   |                |    |        |   |        | 19     |   |  |         |  |  |   |     |  |  |   |        | 19     |  
|                          |                                                   |  |              |        |            |   |          |   |          |   |                |     |        |   |        |        |   |  |         |   |  |   |     |   |  |   |        |       
|Balance at March 31, 2000 |                                                   |  | 13,087,599   |        |            |   | 131      |   |          |   | 26,737         |     |        |   | 14,133 |        |   |  | 112,000 |   |  |   | (25 | ) |  |   | 40,976 |       
|                         
|                         
|                         
|                         
|                          | Shares issued under stock
option plans            |  |              | 47,527 |            |   |          |  |          |   |                | 163 |        |   |        |       |   |  |         |  |  |   |     |  |  |   |        | 163    |  
|                         
|                         
|                         
|                         
|                          | Net income                                        |  |              |       |            |   |          |  |          |   |                |    |        |   |        | 26     |   |  |         |  |  |   |     |  |  |   |        | 26     |  
|                          |                                                   |  |              |        |            |   |          |   |          |   |                |     |        |   |        |        |   |  |         |   |  |   |     |   |  |   |        |       
|Balance at March 31, 2001 |                                                   |  | 13,135,126   |        |            |   | 131      |   |          |   | 26,900         |     |        |   | 14,159 |        |   |  | 112,000 |   |  |   | (25 | ) |  |   | 41,165 |       
|                         
|                         
|                         
|                         
|                          | Shares issued under stock
option plans            |  |              | 15,997 |            |   |          |  |          |   |                | 28  |        |   |        |       |   |  |         |  |  |   |     |  |  |   |        | 28     |  
|                         
|                         
|                         
|                         
|                          | Warrant issued                                    |  |              |       |            |   |          |  |          |   |                | 637 |        |   |        |       |   |  |         |  |  |   |     |  |  |   |        | 637    |  
|                         
|                         
|                         
|                         
|                          | Net loss                                          |  |              |       |            |   |          |  |          |   |                |    |        |   |        | (6,121 | ) |  |         |  |  |   |     |  |  |   |        | (6,121 | )
|                          |                                                   |  |              |        |            |   |          |   |          |   |                |     |        |   |        |        |   |  |         |   |  |   |     |   |  |   |        |       
|Balance at March 31, 2002 |                                                   |  | 13,151,123   |        |            | $ | 131      |   |          | $ | 27,565         |     |        | $ | 8,038  |        |   |  | 112,000 |   |  | $ | (25 | ) |  | $ | 35,709 |       
|                          |                                                   |  |              |        |            |   |          |   |          |   |                |     |        |   |        |        |   |  |         |   |  |   |     |   |  |   |        |       

The accompanying notes are an integral part of these consolidated financial
statements.

22



---



##### Table of Contents



ATLANTIC DATA SERVICES, INC.
Consolidated Statements of Cash Flows
(in thousands)

|                                                                                                   |                                                                                  |                                                                 |         |                      |        |      |        |      |        |   |        |      |       |  
|-------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | --------------------------------------------------------------- | ------- | -------------------- | ------ | ---- | ------ | ---- | ------ | - | ------ | ---- | ----- | -
|                                                                                                   |                                                                                  |                                                                 |         | Year Ended March 31,
|                                                                                                   |                                                                                  |                                                                 |         |                     
|                                                                                                   |                                                                                  |                                                                 |         | 2002                 |        | 2001 |        | 2000
|                                                                                                   |                                                                                  |                                                                 |         |                      |        |      |        |     
|Cash flows from operating activities:                                                              |                                                                                  |                                                                 |         |                      |        |      |        |      |        |   |        |     
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Net income (loss)                                                                                  |                                                                                  | $                                                               | (6,121  | )                    |        | $    | 26     |      |        | $ | 19     |     
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities: |                                                                                  |                                                                 |         |                      |        |      |        |      |        |   |        |     
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Depreciation and amortization                                                    |                                                                 |         | 395                  |        |      |        | 536  |        |   |        | 676  |      
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Write-down of investment                                                         |                                                                 |         | 3,000                |        |      |        |     |        |   |        |     |      
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Discontinued operations                                                          |                                                                 |         | 2,727                |        |      |        |     |        |   |        |     |      
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Deferred taxes                                                                   |                                                                 |         | 464                  |        |      |        | 381  |        |   |        | (106 | )    
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Tax benefit from exercise of stock options                                       |                                                                 |         |                     |        |      |        |     |        |   |        | 1    |      
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Change in assets and liabilities (net of effect of acquisition and
disposition): |                                                                 |         |                      |        |      |        |      |        |   |        |      |      
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   |                                                                                  | Accounts receivable                                             |         |                      | (80    | )    |        |      | 2,424  |   |        |      | 1,523 |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   |                                                                                  | Tax receivable                                                  |         |                      | (1,638 | )    |        |      |       |   |        |      |      |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   |                                                                                  | Prepaid expenses and other assets                               |         |                      | 405    |      |        |      | (289   | ) |        |      | (55   | )
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   |                                                                                  | Accounts payable                                                |         |                      | (88    | )    |        |      | (219   | ) |        |      | (436  | )
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   |                                                                                  | Accrued expenses and other liabilities                          |         |                      | (1,037 | )    |        |      | (1,169 | ) |        |      | (518  | )
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   |                                                                                  | Deferred revenue                                                |         |                      | 527    |      |        |      | 4      |   |        |      |      |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   |                                                                                  | Billings in excess of costs and estimated earnings on
contracts |         |                      | (70    | )    |        |      | 40     |   |        |      | 42    |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   |                                                                                  | Federal and state income taxes                                  |         |                      |       |      |        |      | (343   | ) |        |      | (74   | )
|                                                                                                   |                                                                                  |                                                                 |         |                      |        |      |        |      |        |   |        |     
|Net cash provided by (used in) operating activities of continuing
operations                       |                                                                                  |                                                                 | (1,516  | )                    |        |      | 1,391  |      |        |   | 1,072  |     
|                                                                                                   |                                                                                  |                                                                 |         |                      |        |      |        |      |        |   |        |     
|Cash flows from investing activities:                                                              |                                                                                  |                                                                 |         |                      |        |      |        |      |        |   |        |     
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Purchase of short-term investments                                                                 |                                                                                  |                                                                 | (22,162 | )                    |        |      |       |      |        |   |       |     
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Sale of short-term investments                                                                     |                                                                                  |                                                                 | 1,300   |                      |        |      |       |      |        |   |       |     
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Maturity of short-term investments                                                                 |                                                                                  |                                                                 | 4,200   |                      |        |      |       |      |        |   |       |     
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Long-term investment                                                                               |                                                                                  |                                                                 |        |                      |        |      | (3,000 | )    |        |   |       |     
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Purchase of property and equipment                                                                 |                                                                                  |                                                                 | (15     | )                    |        |      | (246   | )    |        |   | (249   | )   
|                                                                                                   |                                                                                  |                                                                 |         |                      |        |      |        |      |        |   |        |     
|Net cash used in investing activities of continuing operations                                     |                                                                                  |                                                                 | (16,677 | )                    |        |      | (3,246 | )    |        |   | (249   | )   
|                                                                                                   |                                                                                  |                                                                 |         |                      |        |      |        |      |        |   |        |     
|Cash flows from financing activities:                                                              |                                                                                  |                                                                 |         |                      |        |      |        |      |        |   |        |     
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Principal payments under capital lease obligation                                                  |                                                                                  |                                                                 |        |                      |        |      |       |      |        |   | (13    | )   
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Proceeds from exercise of stock options under stock option plans                                   |                                                                                  |                                                                 | 28      |                      |        |      | 163    |      |        |   | 211    |     
|                                                                                                   |                                                                                  |                                                                 |         |                      |        |      |        |      |        |   |        |     
|Net cash provided by financing activities of continuing operations                                 |                                                                                  |                                                                 | 28      |                      |        |      | 163    |      |        |   | 198    |     
|                                                                                                   |                                                                                  |                                                                 |         |                      |        |      |        |      |        |   |        |     
|Net cash used in continuing operations                                                             |                                                                                  |                                                                 | (18,165 | )                    |        |      | (1,692 | )    |        |   | 1,021  |     
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Net cash used in discontinued operations                                                           |                                                                                  |                                                                 | (3,033  | )                    |        |      |       |      |        |   |       |     
|                                                                                                   |                                                                                  |                                                                 |         |                      |        |      |        |      |        |   |        |     
|Net increase (decrease) in cash and cash equivalents                                               |                                                                                  |                                                                 | (21,198 | )                    |        |      | (1,692 | )    |        |   | 1,021  |     
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Cash and cash equivalents, beginning of year                                                       |                                                                                  |                                                                 | 36,655  |                      |        |      | 38,347 |      |        |   | 37,326 |     
|                                                                                                   |                                                                                  |                                                                 |         |                      |        |      |        |      |        |   |        |     
|Cash and cash equivalents, end of year                                                             |                                                                                  | $                                                               | 15,457  |                      |        | $    | 36,655 |      |        | $ | 38,347 |     
|                                                                                                   |                                                                                  |                                                                 |         |                      |        |      |        |      |        |   |        |     
|Supplemental disclosure of cash flow information:                                                  |                                                                                  |                                                                 |         |                      |        |      |        |      |        |   |        |     
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Cash paid during the year for taxes                                              |                                                                 | $       | 46                   |        |      | $      | 759  |        |   | $      | 853  |      
|                                                                                                   |                                                                                  |                                                                 |         |                      |        |      |        |      |        |   |        |     
|Supplemental disclosure of non-cash investing activities:                                          |                                                                                  |                                                                 |         |                      |        |      |        |      |        |   |        |     
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Acquisition of assets with warrant                                               |                                                                 | $       | 637                  |        |      | $      |     |        |   | $      |     |      
|                                                                                                   |                                                                                  |                                                                 |         |                      |        |      |        |      |        |   |        |     

The accompanying notes are an integral part of these consolidated financial
statements.

23



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##### Table of Contents



ATLANTIC DATA SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002



|1. |  | DESCRIPTION OF BUSINESS
|-- |  | -----------------------

Atlantic Data Services, Inc. (ADS or the Company), provides information
technology (IT) strategy consulting and systems integration services to
customers exclusively in the financial services industry, primarily banks. The
Company offers IT solutions to the business challenges faced by financial
services companies through its in-depth financial services experience,
technological expertise and project management skills. The Companys service
offerings are organized around four practice areas: Customer Relationship
Management (CRM), Conversions and Consolidations, IT Strategy and Consulting,
and e-Business.



|2. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- |  | ------------------------------------------

Principles of Consolidation

The consolidated financial statements include the accounts of Atlantic Data
Services, Inc. and its wholly owned subsidiary, ADS Securities Corp.
(collectively the Company). All intercompany accounts and transactions have
been eliminated in consolidation.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original
maturity date of three months or less to be cash equivalents.

At March 31, 2002 and 2001, cash equivalents were comprised of money market
funds, commercial paper, CDs, municipal bonds and corporate debt totaling
approximately $14,878,000 and $31,993,000, respectively, and repurchase
agreements totaling approximately $288,000 and $4,268,000, respectively. At
March 31, 2002 and 2001, cash equivalents are classified as available-for-sale
and recorded at fair value. These investments are subject to minimal credit
and market risk.

Short-Term Investments

Short-term investments consist primarily of high-grade commercial paper,
municipal bonds and corporate debt with original maturities at the date of
purchase greater than three months and less than twelve months. All short-term
investments have been classified as held to maturity and are carried at
amortized cost, which approximates fair value, due to the short period of time
to maturity.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk
consist primarily of cash equivalents, short-term investments and accounts
receivable. The risk with respect to cash equivalents and short-term
investments is minimized by the Companys policies in which investments have
relatively short maturities and are only placed with highly rated issuers. A
significant portion of the Companys revenues and accounts receivable are
derived from services provided to banks and other financial institutions. The
risk with respect to accounts receivable is minimized by the creditworthiness
of the Companys customers and the Companys credit and collection policies.
The Company performs ongoing credit evaluations of its customers, generally
does not require collateral, and maintains allowances for potential credit
losses which, when realized, have been within the range of managements
expectations.

24



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##### Table of Contents



Revenue Recognition

The Company primarily derives its revenue from consulting services under time
and material billing arrangements. Under these arrangements, revenue is
recognized as the services are provided. Deferred revenue pertains to time and
material billing arrangements and represents cash collected in advance of the
performance of services.

Revenue on fixed price contracts is recognized using the percentage of
completion method of accounting and is adjusted monthly for the cumulative
impact of any revision in estimates. The Company determines the percentage of
completion of its contracts by comparing costs incurred to date to total
estimated costs. Contract costs include all direct labor and expenses related
to the contract performance. Losses, if any, are provided for in the period in
which the loss is determined. Billings in excess of costs and estimated
earnings, represents billings in excess of revenues recognized.

Included in revenues for the years ended March 31, 2002, 2001 and 2000 are
reimbursable contract-related travel and entertainment expenses of $2,986,000,
$5,777,000 and $5,517,000, respectively, which are separately billed to
customers.

Accounts Receivable

The Company performs ongoing credit evaluations of its customers and adjusts
credit limits based upon payment history and the customers current credit
worthiness, as determined by its review of its current credit information. The
Company continuously monitors collections and payments from its customers and
maintains a provision for estimated credit losses based upon its historical
experience and any specific customer collection issues that have been
identified. While such credit losses have historically been within the
Companys expectations and the provisions established, the Company cannot
guarantee that it will continue to experience the same credit loss rates that
it has in the past. Since the Companys accounts receivable are concentrated
in a relatively few number of customers, a significant change in the liquidity
or financial position of any one of these customers could have a material
adverse impact on the collectibility of its accounts receivables and future
operating results.

Property and Equipment

Property and equipment are stated at cost, less depreciation. Depreciation
expense is recognized using the straight-line method over the estimated useful
lives of the related assets. When assets are sold or retired, the related
costs and accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in operations.

Leases

Leases are recorded as capital or operating leases. Any lease where
substantially all of the benefits and risks related to the ownership of the
leased asset are transferred to the lessee, as defined by Statement of
Financial Accounting Standards (SFAS) No. 13, Accounting for Leases, is
accounted for as if the asset was acquired and as if the obligation were
assumed as of the date of the lease. All other leases are recorded as
operating leases, whereby the related costs are charged to income on a
straight-line basis over the lesser of the lease term or the useful life of the
lease.

25



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##### Table of Contents



Stock-Based Compensation

The Company accounts for stock options granted to employees in accordance with
Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock
Issued to Employees and related interpretations, and applies the disclosure
only provisions of SFAS No. 123, Accounting for Stock-Based Compensation (see
Note 7).

Segment Information

The Company follows SFAS No. 131, Disclosure about Segments of an Enterprise
and Related Information. SFAS No. 131 prescribes the use of the management
approach whereby the Companys reportable segments are established based on the
internal reporting that is used by management for making operating decisions
and assessing performance. Also required by SFAS No. 131 are disclosures about
products and services, geographic areas and major customers (see Note 12).

Earnings per Common Share

The Company follows SFAS No. 128, Earnings per Share. SFAS No. 128 requires
the presentation of two amounts, basic earnings (loss) per share and diluted
earnings (loss) per share. Basic earnings (loss) per share is calculated by
dividing income (loss) from continuing operations, discontinued operations and
net income (loss) by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings (loss) per share is computed
using the weighted average number of common stock outstanding during the
period, plus the dilutive effect of common stock equivalents.

Income Taxes

The Company recognizes deferred tax assets and liabilities for the expected
consequences of temporary differences between the financial statement basis and
tax basis of the Companys assets and liabilities. A deferred tax valuation
allowance is established if, in managements opinion, it is more likely than
not that all or a portion of the Companys deferred tax assets will not be
realized.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.

New Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141, Business Combinations
(SFAS 141) and No. 142, Goodwill and Other Intangible Assets (SFAS 142).

SFAS 141 requires that all business combinations be accounted for under the
purchase method and that certain acquired intangible assets in a business
combination be recognized as assets apart from goodwill. SFAS 141 is effective
for all business combinations initiated after June 30, 2001 and for all
business combinations accounted for by the purchase method which were initiated
before but completed after June 30, 2001.

SFAS 142 requires that ratable amortization of goodwill be replaced with
periodic testing of the goodwill for impairment and that intangible assets
other than goodwill be amortized over their estimated useful lives. The
provisions of SFAS 142 will be effective for fiscal years beginning after
December 15, 2001. However, early adoption of SFAS 142 will be permitted for
companies with a fiscal year beginning after March 15, 2001,
provided their first quarter financial statements have not been previously
issued. The Company has early

26



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##### Table of Contents



adopted SFAS 142 as of April 1, 2001. Since the
Company had no goodwill or other intangible assets at the date of adoption
there is no effect on prior period financial results.

In August 2001, the FASB issued Statement of Financial Accounting Standards No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS
144), which is effective January 1, 2002. SFAS 144 supersedes SFAS 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of, and the accounting and reporting provisions relating to the
disposal of a segment of a business described in APB No. 30. The Company does
not expect that the adoption of SFAS 144 will have a material impact on its
financial statements.



|3. |  | PROPERTY AND EQUIPMENT
|-- |  | ----------------------

Property and equipment consists of the following:

|                                          |  |             |      |           |     |                |        |   |     |   |        |  
|----------------------------------------- |  | ----------- | ---- | --------- | --- | -------------- | ------ | - | --- | - | ------ | -
|                                          |  | Useful Life |      | March 31, |     | March 31,     
|                                          |  | in Years    |      | 2002      |     | 2001          
|                                          |  |             |      |           |     |               
|                                          |  |             |      |           |     | (in thousands)
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|Computer equipment and software           |  |             | 3-5  |           |     | $              | 2,124  |   |     | $ | 2,165  |  
|                                         
|                                         
|                                         
|                                         
|Office furniture and equipment            |  |             | 5-7  |           |     |                | 669    |   |     |   | 667    |  
|                                         
|                                         
|                                         
|                                         
|Leasehold improvements                    |  | Lease Term  |      |           | 509 |                |        |   | 509 |  
|                                         
|                                         
|                                         
|                                         
|Building                                  |  |             | 31.5 |           |     |                | 183    |   |     |   | 183    |  
|                                          |  |             |      |           |     |                |        |   |     |   |        |  
|                                          |  |             |      |           |     |                | 3,485  |   |     |   | 3,524  |  
|                                         
|                                         
|                                         
|                                         
|Accumulated depreciation and amortization |  |             |      |           |     |                | (3,177 | ) |     |   | (2,895 | )
|                                          |  |             |      |           |     |                |        |   |     |   |        |  
|                                          |  |             |      |           |     | $              | 308    |   |     | $ | 629    |  
|                                          |  |             |      |           |     |                |        |   |     |   |        |  

Depreciation and amortization expense relating to fixed assets was $334, $536
and $676 for the years ended March 31, 2002, 2001 and 2000, respectively, of
which $0, $22 and $13, respectively, related to amortization of office
furniture and equipment held under capital leases. Accumulated amortization of
office furniture and equipment held under capital leases was approximately
$122, $122 and $100 at March 31, 2002, 2001 and 2000, respectively.



|4. |  | ACCRUED EXPENSES AND OTHER LIABILITIES
|-- |  | --------------------------------------

Accrued expenses and other liabilities consist of the following:

|                     |  |                |       |           |  |   |       | 
|-------------------- |  | -------------- | ----- | --------- |  | - | ----- | 
|                     |  | March 31,      |       | March 31,
|                     |  | 2002           |       | 2001     
|                     |  |                |       |          
|                     |  | (in thousands)
|Accrued payroll      |  | $              | 652   |           |  | $ | 1,500 | 
|                    
|                    
|                    
|                    
|Accrued medical      |  |                | 294   |           |  |   | 395   | 
|                    
|                    
|                    
|                    
|Compensated absences |  |                | 134   |           |  |   | 196   | 
|                    
|                    
|                    
|                    
|Other                |  |                | 975   |           |  |   | 737   | 
|                     |  |                |       |           |  |   |       | 
|                     |  | $              | 2,055 |           |  | $ | 2,828 | 
|                     |  |                |       |           |  |   |       | 

27



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##### Table of Contents



5.     INCOME TAXES

Significant components of the provision (benefit) for income taxes are
presented below:

|          |         |   |                |        |           |   |           |     |   |   |     |     |  
|--------- | ------- | - | -------------- | ------ | --------- | - | --------- | --- | - | - | --- | --- | -
|          |         |   | March 31,      |        | March 31, |   | March 31,
|          |         |   | 2002           |        | 2001      |   | 2000     
|          |         |   |                |        |           |   |          
|          |         |   | (in thousands)
|Current:  |         |   |                |        |           |   |           |     |   |   |     |    
|         
|         
|         
|         
|          | Federal |   | $              | (1,638 | )         |   | $         | (37 | ) |   | $   | 112 |  
|         
|         
|         
|         
|          | State   |   |                |       |           |   |           | 106 |   |   |     | 24  |  
|         
|         
|         
|         
|Deferred: |         |   |                |        |           |   |           |     |   |   |     |    
|         
|         
|         
|         
|          | Federal |   |                | 148    |           |   |           | 250 |   |   |     | (22 | )
|         
|         
|         
|         
|          | State   |   |                | 216    |           |   |           | (69 | ) |   |     | (5  | )
|          |         |   |                |        |           |   |           |     |   |   |     |    
|          |         | $ | (1,274         | )      |           | $ | 250       |     |   | $ | 109 |    
|          |         |   |                |        |           |   |           |     |   |   |     |    

The reconciliation of the consolidated effective tax rate of the Company for
the years ended March 31, 2002, 2001 and 2000 is as follows:

|                                    |                 |   |                |        |      |   |      |     |  |   |     |     | 
|----------------------------------- | --------------- | - | -------------- | ------ | ---- | - | ---- | --- |  | - | --- | --- | 
|                                    |                 |   | 2002           |        | 2001 |   | 2000
|                                    |                 |   |                |        |      |   |     
|                                    |                 |   | (in thousands)
|Pretax income                       |                 | $ | (4,668         | )      |      | $ | 276  |     |  | $ | 128 |    
|                                    |                 |   |                |        |      |   |      |     |  |   |     |    
|Statutory income tax rate           |                 | $ | (1,587         | )      |      | $ | 96   |     |  | $ | 44  |    
|                                   
|                                   
|                                   
|                                   
|State taxes, net of federal benefit |                 |   | (481           | )      |      |   | 24   |     |  |   | 12  |    
|                                   
|                                   
|                                   
|                                   
|Permanent differences               |                 |   | 35             |        |      |   | 134  |     |  |   | 151 |    
|                                   
|                                   
|                                   
|                                   
|Net valuation allowance             |                 |   | 762            |        |      |   |     |     |  |   |    |    
|                                   
|                                   
|                                   
|                                   
|Other                               |                 |   | (3             | )      |      |   | (4   | )   |  |   | (98 | )  
|                                    |                 |   |                |        |      |   |      |     |  |   |     |    
|                                    | Total provision |   | $              | (1,274 | )    |   | $    | 250 |  |   | $   | 109 | 
|                                    |                 |   |                |        |      |   |      |     |  |   |     |    

The Companys deferred tax assets are comprised of the following:

|                                |  |                |        |           |  |   |     | 
|------------------------------- |  | -------------- | ------ | --------- |  | - | --- | 
|                                |  | March 31,      |        | March 31,
|                                |  | 2002           |        | 2001     
|                                |  |                |        |          
|                                |  | (in thousands)
|Allowance for doubtful accounts |  | $              | 151    |           |  | $ | 151 | 
|                               
|                               
|                               
|                               
|Compensated absence accrual     |  |                | 54     |           |  |   | 79  | 
|                               
|                               
|                               
|                               
|Depreciation                    |  |                | 254    |           |  |   | 245 | 
|                               
|                               
|                               
|                               
|Net operating loss carryforward |  |                | 808    |           |  |   | 130 | 
|                               
|                               
|                               
|                               
|Other accruals                  |  |                | 340    |           |  |   | 257 | 
|                               
|                               
|                               
|                               
|Valuation allowance             |  |                | (1,607 | )         |  |   |    | 
|                                |  |                |        |           |  |   |     | 
|                                |  | $              |       |           |  | $ | 862 | 
|                                |  |                |        |           |  |   |     | 

Management has evaluated the positive and negative evidence bearing upon the
realizability of its deferred tax assets and has established a full valuation
allowance for such assets, which are comprised principally of net operating
loss carryforwards and various accruals. Management has evaluated that it is
more likely than not that the deferred tax asset will not be realizable in the
future; management reevaluates the positive and negative evidence periodically.

28



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##### Table of Contents



6.     STOCKHOLDERS EQUITY

On June 29, 2001, the Company acquired substantially all the assets of Cool
Springs Associates, Inc. d/b/a EarningsInsights (EI) pursuant to an asset
purchase agreement by and among us, EI and certain stockholders of EI (the
Asset Purchase Agreement). The purchase price for the acquisition consisted
of a $2 million cash payment and the issuance by us of a warrant to purchase
300,000 shares of common stock at an exercise price of $5.08 per share.

The warrant was issued on June 29, 2001 and will expire seven years therefrom.
The warrant may be exercised in whole or in part during the seven-year exercise
period. The warrant was valued as of the issuance date at $637,000 based on
the Black-Scholes Option Pricing Model from publicly available sources of
information.

7.     STOCK OPTION PLANS

Key Person Stock Plan

In March 1985, the Board of Directors approved the Companys Key Person Stock
Plan (the Key Person Plan) and authorized that 560,000 shares of common stock
be reserved for issuance under such plan. Under the terms of the Key Person
Plan, the Company is authorized to sell shares at the then fair market value of
common stock to officers and other key employees of and consultants to the
Company. To date, 394,800 have been issued under the Key Person Plan, of which
an aggregate 112,000 shares were repurchased by the Company and are held in
treasury at March 31, 2002 and 2001. No common stock was issued pursuant to
this plan during the years ended March 31, 2002, 2001 and 2000. At March 31,
2002, 165,200 shares of common stock were available for future issuance;
however, the Company does not intend to issue additional shares under the Key
Person Plan.

Incentive Stock Option Plan

On January 26, 1993, the Board of Directors approved the Companys 1992
Incentive Stock Option Plan (the 1992 Plan). Under the terms of the 1992
Plan, the Company is authorized to grant incentive stock options to purchase
shares of common stock to officers and other employees of and consultants to
the Company. The aggregate number of shares of common stock which may be
issued pursuant to the 1992 Plan is 812,000. Vesting is determined by the
Board of Directors. All options issued were issued to employees and vested
immediately upon issuance. At March 31, 2002, no options were available for
future grant under the 1992 Plan.

1997 Stock Plan

In October 1997, the Board of Directors approved the Companys 1997 Stock Plan
(the Plan), and authorized that 500,000 shares of common stock be reserved
for issuance under such plan. Under the terms of the Plan, the Company is
authorized to grant incentive stock options and non-qualified stock options, as
well as awards and direct purchases of common stock to employees, consultants,
directors and officers of the Company. In March 1998, the Board of Directors
voted to amend the Stock Plan to provide, among other things, that the number
of shares reserved for issuance under the Stock Plan be increased from 500,000
shares of common stock to 1,500,000 shares of common stock. In March 1999, the
Board of Directors voted to increase the authorized number of shares for
issuance under the Plan to 3,000,000, which vote was ratified and approved by
the Companys shareholders at the July 28, 1999 Annual Meeting of Shareholders.

1998 Employee Stock Purchase Plan

The 1998 Employee Stock Purchase Plan (the 1998 Plan) provides for the grant
of rights to eligible employees on a semi-annual basis to purchase shares of
the Companys common stock. The 1998 Plan allows eligible employees to
purchase up to 500 shares at the lessor of (1) 85% of the average market price
of the common stock on the first business day of the Payment Period or (2) 85%
of the average market price of the common stock on
the last business day of the Payment Period. The participant can contribute up
to 10% of total compensation to the 1998 Plan.

29



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##### Table of Contents



Stock Option Activity

The option activity for the years ended March 31, 2002, 2001 and 2000 was as
follows:

|                                                               |           |   |           |            |          |   |          |      |          |   |           |           |          |   |      |      |  |   |           |          |   |   |      |      | 
|-------------------------------------------------------------- | --------- | - | --------- | ---------- | -------- | - | -------- | ---- | -------- | - | --------- | --------- | -------- | - | ---- | ---- |  | - | --------- | -------- | - | - | ---- | ---- | 
|                                                               |           |   | 2002      |            | 2001     |   | 2000    
|                                                               |           |   |           |            |          |   |         
|                                                               |           |   |           |            |          |   | Weighted |      |          |   |           |           | Weighted |   |      |      |  |   | Weighted 
|                                                               |           |   | Number    |            | Average  |   | Number   |      | Average  |   | Number    |           | Average 
|                                                               |           |   | of        |            | Exercise |   | of       |      | Exercise |   | of        |           | Exercise
|                                                               |           |   | Shares    |            | Price    |   | Shares   |      | Price    |   | Shares    |           | Price   
|                                                               |           |   |           |            |          |   |          |      |          |   |           |           |         
|Outstanding options at
beginning of year                       |           |   | 2,257,000 |            |          | $ | 5.08     |      |          |   | 1,990,625 |           |          | $ | 5.64 |      |  |   | 1,908,125 |          |   | $ | 6.23 |     
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Granted   |   |           | 422,000    |          |   |          | 2.09 |          |   |           | 1,019,000 |          |   |      | 4.28 |  |   |           | 590,000  |   |   |      | 4.34 | 
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Exercised |   |           |           |          |   |          |     |          |   |           | (26,000   | )        |   |      | 4.97 |  |   |           |         |   |   |      |     | 
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Cancelled |   |           | (1,020,831 | )        |   |          | 5.05 |          |   |           | (726,625  | )        |   |      | 5.39 |  |   |           | (507,500 | ) |   |      | 6.34 | 
|                                                               |           |   |           |            |          |   |          |      |          |   |           |           |          |   |      |      |  |   |           |          |   |   |      |     
|Outstanding options at
end of year                             |           |   | 1,658,169 |            |          |   | 4.34     |      |          |   | 2,257,000 |           |          |   | 5.08 |      |  |   | 1,990,625 |          |   |   | 5.64 |     
|                                                               |           |   |           |            |          |   |          |      |          |   |           |           |          |   |      |      |  |   |           |          |   |   |      |     
|Exercisable at end of
year                                     |           |   | 1,094,196 |            |          |   | 4.87     |      |          |   | 1,085,625 |           |          |   | 5.47 |      |  |   | 846,377   |          |   |   | 5.43 |     
|                                                               |           |   |           |            |          |   |          |      |          |   |           |           |          |   |      |      |  |   |           |          |   |   |      |     
|Available for future
grant at end of year                      |           |   | 1,531,581 |            |          |   |         |      |          |   | 932,750   |           |          |   |     |      |  |   | 1,043,500 |          |   |   |     |     
|                                                               |           |   |           |            |          |   |          |      |          |   |           |           |          |   |      |      |  |   |           |          |   |   |      |     
|Weighted average fair
value of options
granted during
the year |           | $ | 1.44      |            |          |   |          |      |          | $ | 3.77      |           |          |   |      |      |  | $ | 3.19      |          |   |   |      |     
|                                                               |           |   |           |            |          |   |          |      |          |   |           |           |          |   |      |      |  |   |           |          |   |   |      |     

30



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##### Table of Contents



The following table summarizes stock options outstanding at March 31, 2002:

|               |       |             |           |                     |         |                     |      |             |      |          |      |       |      |  |           |          |         |   |      |       |      | 
|-------------- | ----- | ----------- | --------- | ------------------- | ------- | ------------------- | ---- | ----------- | ---- | -------- | ---- | ----- | ---- |  | --------- | -------- | ------- | - | ---- | ----- | ---- | 
|               |       |             |           | Options Outstanding |         | Options Exercisable
|               |       |             |           |                     |         |                    
|               |       |             |           |                     |         |                     |      | Weighted    |      |          |      |       |      |  |           |          |         |   |      |      
|               |       |             |           |                     |         |                     |      | Average     |      | Weighted |      |       |      |  |           | Weighted
|               |       |             |           |                     |         |                     |      | Remaining   |      | Average  |      |       |      |  |           | Average 
|Range of       |       | Number      |           | Contractual         |         | Exercise            |      | Number      |      | Exercise
|Exercise Price |       | Outstanding |           | Life                |         | Price               |      | Exercisable |      | Price   
|               |       |             |           |                     |         |                     |      |             |      |         
|               | $     | 0.91        |           |                     | 277,000 |                     |      |             | 3.44 |          |      | $     | 0.91 |  |           |          | 277,000 |   |      | $     | 0.91 | 
|              
|              
|              
|              
|               |       | 1.74        |           |                     | 146,000 |                     |      |             | 9.74 |          |      |       | 1.74 |  |           |          | 1,334   |   |      |       | 1.74 | 
|              
|              
|              
|              
|               |       | 1.80        |           |                     | 66,000  |                     |      |             | 9.56 |          |      |       | 1.80 |  |           |          |        |   |      |       |     | 
|              
|              
|              
|              
|               |       | 2.01        |           |                     | 20,000  |                     |      |             | 9.39 |          |      |       | 2.01 |  |           |          | 20,000  |   |      |       | 2.01 | 
|              
|              
|              
|              
|               |       | 2.20        |           |                     | 2,000   |                     |      |             | 9.41 |          |      |       | 2.20 |  |           |          |        |   |      |       |     | 
|              
|              
|              
|              
|               |       | 2.38        |           |                     | 45,000  |                     |      |             | 8.68 |          |      |       | 2.38 |  |           |          |        |   |      |       |     | 
|              
|              
|              
|              
|               |       | 2.48        |           |                     | 58,000  |                     |      |             | 9.33 |          |      |       | 2.48 |  |           |          |        |   |      |       |     | 
|              
|              
|              
|              
|               |       | 3.63        |           |                     | 30,000  |                     |      |             | 8.18 |          |      |       | 3.63 |  |           |          |        |   |      |       |     | 
|              
|              
|              
|              
|               |       | 3.88        |           |                     | 12,000  |                     |      |             | 7.67 |          |      |       | 3.88 |  |           |          | 8,000   |   |      |       | 3.88 | 
|              
|              
|              
|              
|               |       | 4.13        |           |                     | 30,000  |                     |      |             | 7.57 |          |      |       | 4.13 |  |           |          | 20,000  |   |      |       | 4.13 | 
|              
|              
|              
|              
|               |       | 4.25        |           |                     | 60,000  |                     |      |             | 5.78 |          |      |       | 4.25 |  |           |          | 60,000  |   |      |       | 4.25 | 
|              
|              
|              
|              
|               |       | 4.69        |           |                     | 167,669 |                     |      |             | 8.42 |          |      |       | 4.69 |  |           |          | 59,028  |   |      |       | 4.69 | 
|              
|              
|              
|              
|               |       | 5.05        |           |                     | 45,000  |                     |      |             | 8.30 |          |      |       | 5.05 |  |           |          |        |   |      |       |     | 
|              
|              
|              
|              
|               |       | 5.06        |           |                     | 425,000 |                     |      |             | 6.94 |          |      |       | 5.06 |  |           |          | 425,000 |   |      |       | 5.06 | 
|              
|              
|              
|              
|               |       | 5.25        |           |                     | 60,000  |                     |      |             | 8.09 |          |      |       | 5.25 |  |           |          | 20,000  |   |      |       | 5.25 | 
|              
|              
|              
|              
|               |       | 7.13        |           |                     | 8,000   |                     |      |             | 7.91 |          |      |       | 7.13 |  |           |          | 5,334   |   |      |       | 7.13 | 
|              
|              
|              
|              
|               |       | 9.00        |           |                     | 127,750 |                     |      |             | 5.87 |          |      |       | 9.00 |  |           |          | 127,750 |   |      |       | 9.00 | 
|              
|              
|              
|              
|               | 13.00 |             |           | 46,750              |         |                     |      | 6.14        |      |          |      | 13.00 |      |  |           | 46,750   |         |   |      | 13.00 |     
|              
|              
|              
|              
|               | 13.44 |             |           | 24,000              |         |                     |      | 6.16        |      |          |      | 13.44 |      |  |           | 18,000   |         |   |      | 13.44 |     
|              
|              
|              
|              
|               | 15.00 |             |           | 8,000               |         |                     |      | 6.42        |      |          |      | 15.00 |      |  |           | 6,000    |         |   |      | 15.00 |     
|               |       |             |           |                     |         |                     |      |             |      |          |      |       |      |  |           |          |         |   |      |      
|$0.91  $15.00 |       |             | 1,658,169 |                     |         |                     | 6.98 |             |      | $        | 4.34 |       |      |  | 1,094,196 |          |         | $ | 4.87 |      
|               |       |             |           |                     |         |                     |      |             |      |          |      |       |      |  |           |          |         |   |      |      

Pro forma information regarding net income (loss) and earnings (loss) per share
is required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
statement. The fair value for employee options granted during fiscal 2002,
2001 and 2000 was estimated at the date of grant using a Black-Scholes
option-pricing model with the following assumptions:

|                        |  |                    |  |            |  |           |  | 
|----------------------- |  | ------------------ |  | ---------- |  | --------- |  | 
|                        |  | For the Year Ended
|                        |  |                   
|                        |  | March 31,          |  | March 31,  |  | March 31,
|                        |  | 2002               |  | 2001       |  | 2000     
|                        |  |                    |  |            |  |          
|Risk free interest rate |  | 3.6  4.7%         |  | 4.7  6.6% |  | 5.6%     
|                       
|                       
|                       
|                       
|Volatility              |  | 75%                |  | 118%       |  | 80%      
|                       
|                       
|                       
|                       
|Dividend yield          |  |                   |  |           |  |         
|                       
|                       
|                       
|                       
|Expected life in years  |  | 4 years            |  | 4 years    |  | 4 years  

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options vesting period, which includes actual
accelerated vesting entitlements during the year.

31



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The Companys pro forma information follows (in thousands, except for per share
data):

|                                   |  |                    |        |           |  |           |        |   |  |   |        |  
|---------------------------------- |  | ------------------ | ------ | --------- |  | --------- | ------ | - |  | - | ------ | -
|                                   |  | For the Year Ended
|                                   |  |                   
|                                   |  | March 31,          |        | March 31, |  | March 31,
|                                   |  | 2002               |        | 2001      |  | 2000     
|                                   |  |                    |        |           |  |          
|Pro forma net loss                 |  | $                  | (6,305 | )         |  | $         | (3,812 | ) |  | $ | (2,032 | )
|                                   |  |                    |        |           |  |           |        |   |  |   |        |  
|Pro forma loss per share (basic)   |  | $                  | (0.48  | )         |  | $         | (0.29  | ) |  | $ | (0.16  | )
|                                   |  |                    |        |           |  |           |        |   |  |   |        |  
|Pro forma loss per share (diluted) |  | $                  | (0.48  | )         |  | $         | (0.29  | ) |  | $ | (0.16  | )
|                                   |  |                    |        |           |  |           |        |   |  |   |        |  

The effect on net loss and loss per share may not be indicative of the effects
in future years as options vest over several years and the Company continues to
grant stock options to new employees.

8.     EARNINGS PER SHARE

The following table sets forth per share earnings (loss) for the year ended
March 31, 2002 and 2001:

|                                                                                                       |                                                                                                              |                        |   |                    |   |           |   |            |         | 
|------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------ | ---------------------- | - | ------------------ | - | --------- | - | ---------- | ------- | 
|                                                                                                       |                                                                                                              |                        |   | For the Year Ended
|                                                                                                       |                                                                                                              |                        |   |                   
|                                                                                                       |                                                                                                              |                        |   | March 31,          |   | March 31,
|                                                                                                       |                                                                                                              |                        |   | 2002               |   | 2001     
|                                                                                                       |                                                                                                              |                        |   |                    |   |          
|Numerator for earnings (loss) per common share and earnings (loss)
per common share assuming dilution: |                                                                                                              |                        |   |                    |   |           |   |           
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                       | Loss from continuing operations                                                                              |                        | $ | (3,394,319         | ) |           | $ |           |        
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                       | Loss from discontinued operations                                                                            |                        |   | (2,726,998         | ) |           |   |           |        
|                                                                                                       |                                                                                                              |                        |   |                    |   |           |   |            |        
|                                                                                                       | Net income (loss)                                                                                            |                        |   | (6,121,317         | ) |           |   | 25,511     |        
|                                                                                                       |                                                                                                              |                        |   |                    |   |           |   |            |        
|Denominator:                                                                                           |                                                                                                              |                        |   |                    |   |           |   |           
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                       | Denominator for basic earnings (loss) per share  weighted
average shares                                    |                        |   | 13,027,949         |   |           |   | 12,997,765 |        
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                       | Effect of dilutive securities:                                                                               |                        |   |                    |   |           |   |            |        
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                       |                                                                                                              | Employee stock options |   |                    |  |           |   |            | 215,003 | 
|                                                                                                       |                                                                                                              |                        |   |                    |   |           |   |            |        
|                                                                                                       | Denominator for diluted earnings (loss) per share  adjusted
weighted average shares and assumed conversions |                        |   | 13,027,949         |   |           |   | 13,212,768 |        
|                                                                                                       |                                                                                                              |                        |   |                    |   |           |   |            |        
|Basic earnings (loss) per share:                                                                       |                                                                                                              |                        |   |                    |   |           |   |           
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                       | Continuing operations                                                                                        |                        | $ | (0.26              | ) |           | $ | 0.00       |        
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                       | Discontinued operations                                                                                      |                        |   | (0.21              | ) |           |   |           |        
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                       | Net income (loss)                                                                                            |                        |   | (0.47              | ) |           |   | 0.00       |        
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                       |                                                                                                              |                        |   |                    |   |           |   |           
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|Diluted earnings (loss) per share:                                                                     |                                                                                                              |                        |   |                    |   |           |   |           
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                       | Continuing operations                                                                                        |                        | $ | (0.26              | ) |           | $ | 0.00       |        
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                       | Discontinued operations                                                                                      |                        |   | (0.21              | ) |           |   |           |        
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                       | Net income (loss)                                                                                            |                        |   | (0.47              | ) |           |   | 0.00       |        

In addition, as of March 31, 2002 and 2001, there were options outstanding to
purchase 1,147,169 and 1,782,000 shares, respectively, that are potentially
anti-dilutive.



|9. |  | RESTRUCTURING
|-- |  | -------------

The Company had two restructuring plan initiatives during fiscal 2001 and 2002
to better align costs with the then current market conditions. Pursuant to the
plans, 28 employees were terminated during fiscal 2001 and 35 were terminated
during fiscal 2002. Restructuring expenses were principally for severance pay
and health insurance benefits for terminated employees. Employees from all
departments of the Company were terminated.
All restructuring expenses are separately stated in the Consolidated Statements
of Operations as part of Operating expenses.

32



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##### Table of Contents



The Companys restructuring costs are as follows (in thousands except for
employee termination information):

|                                                           |                                            |   |                    |      |           |   |      |      |  
|---------------------------------------------------------- | ------------------------------------------ | - | ------------------ | ---- | --------- | - | ---- | ---- | -
|                                                           |                                            |   | For the Year Ended
|                                                           |                                            |   |                   
|                                                           |                                            |   | March 31,          |      | March 31,
|                                                           |                                            |   | 2002               |      | 2001     
|                                                           |                                            |   |                    |      |          
|Accrued liability at beginning of year                     |                                            | $ | 50                 |      |           | $ |     |     
|                                                           |                                            |   |                    |      |           |   |      |     
|Charges and other liabilities accrued:                     |                                            |   |                    |      |           |   |      |     
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Severance and other employee-related costs |   |                    | 835  |           |   |      | 337  |  
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Other related costs                        |   |                    | 90   |           |   |      |     |  
|                                                           |                                            |   |                    |      |           |   |      |     
|                                                           |                                            |   | 925                |      |           |   | 337  |     
|                                                           |                                            |   |                    |      |           |   |      |     
|Costs incurred:                                            |                                            |   |                    |      |           |   |      |     
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Severance and other employee-related costs |   |                    | (853 | )         |   |      | (287 | )
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Other related costs                        |   |                    | (79  | )         |   |      |     |  
|                                                           |                                            |   |                    |      |           |   |      |     
|                                                           |                                            |   | (932               | )    |           |   | (287 | )   
|                                                           |                                            |   |                    |      |           |   |      |     
|Accrued liability at end of year                           |                                            | $ | 43                 |      |           | $ | 50   |     
|                                                           |                                            |   |                    |      |           |   |      |     
|Cash expenditures                                          |                                            | $ | 853                |      |           | $ | 287  |     
|                                                          
|                                                          
|                                                          
|                                                          
|Number of employee terminations due to
restructuring plans |                                            |   | 35                 |      |           |   | 28   |     
|                                                           |                                            |   |                    |      |           |   |      |     



|10. |  | MAJOR CUSTOMERS
|--- |  | ---------------

The nature of the Companys services results in the Company deriving
significant amounts of revenue from certain customers in a particular year.
For the year ended March 31, 2002, three customers accounted for 24.7%, 23.8%
and 21.6% of the Companys revenues. At March 31, 2002, these customers
accounted for 5.8%, 64.3% and 20.9% of accounts receivable. For the year ended
March 31, 2001, two customers accounted for 27.2% and 12.5% of the Companys
revenues. At March 31, 2001, these customers accounted for 35.1% and 0.2% of
accounts receivable. For the year ended March 31, 2000, two customers
accounted for 25.5% and 11.3% of the Companys revenue. At March 31, 2000,
these customers accounted for 24.0% and 10.5% of accounts receivable.



|11. |  | EMPLOYEE RETIREMENT PLAN
|--- |  | ------------------------

The Company maintains a defined contribution retirement plan under Section
401(k) of the Internal Revenue Code for eligible employees (the 401(k) Plan).
The 401(k) Plan is funded by employee contributions of up to 100% of gross
compensation, not to exceed IRS limits, and by discretionary Company
contributions. In accordance with the provisions of the 401(k) Plan, employees
may make tax-deferred contributions and the Company, at its discretion, may
match 50% of employee contributions up to 5% of their earnings. The Company
may also elect to make additional contributions to the plan. Company
contributions vest over five years of employment. Company contributions
amounted to $239,471, $357,998 and $391,067 for the years ended March 31, 2002,
2001 and 2000, respectively.



|12. |  | SEGMENT INFORMATION
|--- |  | -------------------

The Company operates in a single business segment, which offers similar
products and services. The Companys products are similar in nature, providing
information technology strategy consulting and systems integration services to
customers primarily in the financial services industry, with a primary focus on
banks. The Company considered the business of EI as a separate but immaterial
segment (see Note 15).

33



---



##### Table of Contents





|13. |  | LONG-TERM INVESTMENT
|--- |  | --------------------

On September 8, 2000, the Company made a $3 million preferred stock investment,
representing a minority interest, in S2 Systems, Inc., a software solution
provider in the banking and diversified financial services markets. This
investment was stated at cost. During the quarter ended September 30, 2001,
the Company determined that its investment was permanently impaired and it was
written-down to zero.



|14. |  | COMMITMENTS
|--- |  | -----------

The Company leases its facilities and other equipment under operating leases.
Rent expense recognized under these leases during the fiscal years ended March
31, 2002, 2001 and 2000 totaled approximately $627,000, $639,000 and $546,000,
respectively. Future minimum lease payments due under noncancelable operating
leases are as follows:

|                             |      |   |                  |     | 
|---------------------------- | ---- | - | ---------------- | --- | 
|                             |      |   | Required Minimum
|                             |      |   | Payments        
|                             |      |   |                 
|                             |      |   | (in thousands)  
|Year ending March 31:        |      |   |                  |    
|                            
|                            
|                            
|                            
|                             | 2003 |   | $                | 721 | 
|                            
|                            
|                            
|                            
|                             | 2004 |   |                  | 718 | 
|                            
|                            
|                            
|                            
|                             | 2005 |   |                  | 741 | 
|                             |      |   |                  |     | 
|Total minimum lease payments |      | $ | 2,180            |    
|                             |      |   |                  |     | 

There were no capital leases outstanding as of March 31, 2002.



|15. |  | BUSINESS COMBINATIONS/DISPOSITION
|--- |  | ---------------------------------

On June 29, 2001, the Company acquired substantially all of the assets
(including the intangibles and goodwill) of Cool Springs Associates, Inc. d/b/a
EI for $2,000,000 in cash and a warrant to purchase 300,000 shares of the
Companys common stock, valued at approximately $637,000. EI, headquartered in
Nashville, Tennessee, was a private company that implemented customer
profitability methodologies exclusively licensed to it by First Manhattan
Consulting Group, Inc. and incorporated these methodologies into an application
service provider-delivered CRM profitability model offered primarily to
mid-tier financial institutions and small banks.

The Company agreed to pay to EI an additional cash payment within 75 days after
the end of each twelve-month period ending June 29, 2002, June 29, 2003 and
June 29, 2004 equal to 50% of the net income (as defined in the Asset Purchase
Agreement dated June 29, 2001 by and among the Company, EI and certain
stockholders of EI) recognized by the Company that would be attributable to the
operation of the former business of EI by the Company. Such cash payments
would not exceed (i) $100,000 for the period ending on June 29, 2002, (ii)
$200,000 for the period ending June 29, 2003 and (iii) $300,000 for the period
ending on June 29, 2004. The Company will not make any additional cash
payments due to the discontinuance of the operations of EI.

The acquisition was accounted for under the purchase method and, accordingly,
the purchase price was allocated to assets acquired and liabilities assumed
based on their estimated fair value at June 29, 2001, as follows (in
thousands):

|                              |       |   |       |       | 
|----------------------------- | ----- | - | ----- | ----- | 
|Property, plant and equipment |       | $ | 412   |      
|                             
|                             
|                             
|                             
|Other assets                  |       |   | 9     |      
|                             
|                             
|                             
|                             
|Intangibles                   |       |   | 1,100 |      
|                             
|                             
|                             
|                             
|Goodwill                      |       |   | 1,291 |      
|                              |       |   |       |      
|                              | Total |   | $     | 2,812 | 
|                              |       |   |       |      

34



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##### Table of Contents



The purchase price was comprised of the following (in thousands):

|                      |       |   |       |       | 
|--------------------- | ----- | - | ----- | ----- | 
|Cash                  |       | $ | 2,000 |      
|                     
|                     
|                     
|                     
|Fair value of warrant |       |   | 637   |      
|                     
|                     
|                     
|                     
|Assumed liabilities   |       |   | 25    |      
|                     
|                     
|                     
|                     
|Transaction costs     |       |   | 150   |      
|                      |       |   |       |      
|                      | Total |   | $     | 2,812 | 
|                      |       |   |       |      

The unaudited pro forma consolidated information for the year ended March 31,
2002 and 2001, determined as if the EarningsInsights acquisition had occurred
on April 1 of each period would have resulted in the following (in thousands,
except per share data):

|                                  |  |                |        |                |  |             |        |           |  |   |        |   |  |   |        |  
|--------------------------------- |  | -------------- | ------ | -------------- |  | ----------- | ------ | --------- |  | - | ------ | - |  | - | ------ | -
|                                  |  | March 31, 2002 |        | March 31, 2001
|                                  |  | (Unaudited)    |        | (Unaudited)   
|                                  |  |                |        |               
|                                  |  | As Reported    |        | Pro Forma      |  | As Reported |        | Pro Forma
|                                  |  |                |        |                |  |             |        |          
|Revenues                          |  | $              | 20,419 |                |  | $           | 20,509 |           |  | $ | 34,135 |   |  | $ | 34,215 |  
|                                 
|                                 
|                                 
|                                 
|Loss from operations              |  |                | (2,709 | )              |  |             | (4,299 | )         |  |   | (1,868 | ) |  |   | (4,118 | )
|                                 
|                                 
|                                 
|                                 
|Net income (loss)                 |  |                | (6,121 | )              |  |             | (6,425 | )         |  |   | 26     |   |  |   | (1,303 | )
|                                 
|                                 
|                                 
|                                 
|                                  |  |                |        |                |  |             |        |           |  |   |        |   |  |   |        |  
|                                 
|                                 
|                                 
|                                 
|Basic earnings (loss) per share   |  | $              | (0.47  | )              |  | $           | (0.49  | )         |  | $ | 0.00   |   |  | $ | (0.10  | )
|                                 
|                                 
|                                 
|                                 
|Diluted earnings (loss) per share |  |                | (0.47  | )              |  |             | (0.49  | )         |  |   | 0.00   |   |  |   | (0.10  | )

The unaudited pro forma information is presented for illustrative purposes only
and is not necessarily indicative of results of operations in future periods or
results that would have been achieved had the Company and the acquired company
been combined during the specified periods.

On March 29, 2002, the Company announced its decision to discontinue the
operations of EI. Consequently, the Company incurred a charge of $1.9 million,
net of income tax benefit, relating to the write-off of EI long-lived assets
and an accrual for estimated losses during the phase-out period. The
disposition of the EI operation represents the disposal of a business segment
under APB No. 30. Accordingly, results of this operation have been classified
as discontinued, and interim quarterly periods have been restated. For the
fiscal year ended March 31, 2002, EI incurred a $797,000 loss, net of income
tax benefit.

The closing of EI resulted in the termination of four employees. Revenue
relating to the discontinued business was $90,000 during fiscal 2002. All
long-lived assets were written-off except for various computer equipment, which
was appraised and written down to its estimated net realizable value. The
Company expects to liquidate or utilize these assets in its existing business
within six months. The Company will not make any additional cash payments as
defined in the Asset Purchase Agreement dated June 29, 2001 due to the
discontinuance of the operations of EI.

35



---



##### Table of Contents





|16. |  | SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
|--- |  | ---------------------------------------------

The following table presents unaudited quarterly financial information for the
years ended March 31, 2002 and 2001 (in thousands, except per share data):

|                                         |                       |   |                        |       |               |   |              |       |           |   |       |       |   |   |       |      | 
|---------------------------------------- | --------------------- | - | ---------------------- | ----- | ------------- | - | ------------ | ----- | --------- | - | ----- | ----- | - | - | ----- | ---- | 
|                                         |                       |   | For the Quarters Ended
|                                         |                       |   |                       
|                                         |                       |   | June 30,               |       | September 30, |   | December 31, |       | March 31,
|                                         |                       |   | 2001                   |       | 2001          |   | 2001         |       | 2002     
|                                         |                       |   |                        |       |               |   |              |       |          
|Revenue                                  |                       | $ | 4,554                  |       |               | $ | 5,150        |       |           | $ | 4,934 |       |   | $ | 5,781 |     
|                                        
|                                        
|                                        
|                                        
|Gross margin                             |                       |   | 797                    |       |               |   | 1,726        |       |           |   | 1,843 |       |   |   | 2,516 |     
|                                        
|                                        
|                                        
|                                        
|Income (loss) from operations            |                       |   | (2,709                 | )     |               |   | (445         | )     |           |   | 29    |       |   |   | 416   |     
|                                        
|                                        
|                                        
|                                        
|Income (loss) from continuing
operations |                       |   | (2,723                 | )     |               |   | (3,146       | )     |           |   | 227   |       |   |   | 2,248 |     
|                                        
|                                        
|                                        
|                                        
|Net income (loss)                        |                       |   | (2,723                 | )     |               |   | (3,643       | )     |           |   | (165  | )     |   |   | 410   |     
|                                        
|                                        
|                                        
|                                        
|Basic earnings (loss) per
share:         |                       |   |                        |       |               |   |              |       |           |   |       |       |   |   |       |     
|                                        
|                                        
|                                        
|                                        
|                                         | Continuing operations |   | $                      | (0.21 | )             |   | $            | (0.24 | )         |   | $     | 0.02  |   |   | $     | 0.17 | 
|                                        
|                                        
|                                        
|                                        
|                                         | Net income (loss)     |   |                        | (0.21 | )             |   |              | (0.28 | )         |   |       | (0.01 | ) |   |       | 0.03 | 
|                                        
|                                        
|                                        
|                                        
|Diluted earnings (loss) per
share:       |                       |   |                        |       |               |   |              |       |           |   |       |       |   |   |       |     
|                                        
|                                        
|                                        
|                                        
|                                         | Continuing operations |   |                        | (0.21 | )             |   |              | (0.24 | )         |   |       | 0.02  |   |   |       | 0.17 | 
|                                        
|                                        
|                                        
|                                        
|                                         | Net income (loss)     |   |                        | (0.21 | )             |   |              | (0.28 | )         |   |       | (0.01 | ) |   |       | 0.03 | 

|                                  |  |                        |       |               |  |              |        |           |  |   |       |   |  |   |        |  
|--------------------------------- |  | ---------------------- | ----- | ------------- |  | ------------ | ------ | --------- |  | - | ----- | - |  | - | ------ | -
|                                  |  | For the Quarters Ended
|                                  |  |                       
|                                  |  | June 30,               |       | September 30, |  | December 31, |        | March 31,
|                                  |  | 2000                   |       | 2000          |  | 2000         |        | 2001     
|                                  |  |                        |       |               |  |              |        |          
|Revenue                           |  | $                      | 9,527 |               |  | $            | 10,467 |           |  | $ | 8,223 |   |  | $ | 5,918  |  
|                                 
|                                 
|                                 
|                                 
|Gross margin                      |  |                        | 2,835 |               |  |              | 3,684  |           |  |   | 2,618 |   |  |   | 1,108  |  
|                                 
|                                 
|                                 
|                                 
|Income (loss) from operations     |  |                        | 4     |               |  |              | 594    |           |  |   | (307  | ) |  |   | (2,159 | )
|                                 
|                                 
|                                 
|                                 
|Net income (loss)                 |  |                        | 290   |               |  |              | 621    |           |  |   | 112   |   |  |   | (997   | )
|                                 
|                                 
|                                 
|                                 
|Basic earnings (loss) per
share   |  | $                      | 0.02  |               |  | $            | 0.05   |           |  | $ | 0.01  |   |  | $ | (0.08  | )
|                                 
|                                 
|                                 
|                                 
|Diluted earnings (loss) per
share |  | $                      | 0.02  |               |  | $            | 0.05   |           |  | $ | 0.01  |   |  | $ | (0.08  | )

SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS

The following schedule depicts the allowance for doubtful accounts for the
years ended March 31, 2000, 2001 and 2002 (in thousands):

|                          |  |            |     |            |  |            |     |            |  |            |     |  |  |   |     | 
|------------------------- |  | ---------- | --- | ---------- |  | ---------- | --- | ---------- |  | ---------- | --- |  |  | - | --- | 
|                          |  |            |     |            |  |            |     |            |  | Charged to |     |  |  |  
|                          |  | Balance at |     | Charged to |  | Other      |     | Balance at
|Allowance                 |  | Beginning  |     | Cost and   |  | Accounts  |     | End of    
|for Doubtful Accounts     |  | of Period  |     | Expenses   |  | Write-Offs |     | Period    
|                          |  |            |     |            |  |            |     |           
|Year Ended March 31, 2000 |  | $          | 725 |            |  | $          | (75 | )          |  | $          |    |  |  | $ | 650 | 
|                         
|                         
|                         
|                         
|Year Ended March 31, 2001 |  |            | 650 |            |  |            | 7   |            |  |            | 282 |  |  |   | 375 | 
|                         
|                         
|                         
|                         
|Year Ended March 31, 2002 |  |            | 375 |            |  |            | (46 | )          |  |            | 46  |  |  |   | 375 | 

36



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ITEM 9:   CHANGES AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                  DISCLOSURES

None.

37



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##### Table of Contents






PART III




ITEM 10:   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information under the Sections Election of Directors, Occupations of
Directors and Executive Officers, and 16(a) Beneficial Ownership Reporting
Compliance, of the Registrants Proxy Statement for the Annual Meeting of
Stockholders to be held on July 25, 2002, to be filed with the Commission not
later than 120 days after the close of the Companys fiscal year ended March
31, 2002, is hereby incorporated by reference.




ITEM 11:   EXECUTIVE COMPENSATION

The information under the Sections Compensation and Other Information
Concerning Directors and Officers and Stock Performance Graph of the
Registrants Proxy Statement for the Annual Meeting of Stockholders to be held
on July 25, 2002, to be filed with the Commission not later than 120 days after
the close of the Companys fiscal year ended March 31, 2002, is hereby
incorporated by reference.




ITEM 12:   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information under the Section Securities Ownership of Certain Beneficial
Owners and Management of the Registrants Proxy Statement for the Annual
Meeting of Stockholders to be held on July 25, 2002, to be filed with the
Commission not later than 120 days after the close of the Companys fiscal year
ended March 31, 2002, is hereby incorporated by reference.




ITEM 13:   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information under the Sections Compensation and Other Information
Concerning Directors and Officers and Certain Relationships and Related
Transactions of the Registrants Proxy Statement for the Annual Meeting of
Stockholders to be held on July 25, 2002, to be filed with the Commission not
later than 120 days after the close of the Companys fiscal year ended March
31, 2002, is hereby incorporated by reference.




PART IV




ITEM 14:   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K



|(a) |  | The following documents are filed as part of this Annual Report on Form 10-K:
|--- |  | -----------------------------------------------------------------------------



| | 1. |  | Consolidated Financial Statements See Index to Consolidated
Financial Statements at Item 8 and incorporated herein by reference.                                                                                                                                                                                                                                                            
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Financial Statement Schedules Schedule II, Valuation and
Qualifying Accounts, is listed in the Index to Consolidated Financial
Statements, is included on page 38 and is filed as part of this
report. All other schedules to the consolidated financial statements
are omitted, as the required information is either inapplicable or
presented in the financial statements or related notes.
|
| | 3. |  | List of Exhibits The Exhibits which are filed with this Report
or which are incorporated by reference herein are set forth in the
Exhibit Index, which appears immediately preceding the Exhibits.                                                                                                                                                                                            



|(b) |  | Reports on Form 8-K There were no reports on Form 8-K filed by the
Company during the fourth quarter of fiscal year ended March 31, 2002.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------

38



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##### Table of Contents





|(c) |  | Exhibits The Exhibits which are filed with this Report or which are
incorporated by reference herein are set forth in the Exhibit index, which
appears immediately preceding the Exhibits.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(d) |  | Financial Statement Schedule The Company hereby files as part of this
Form 10-K the consolidated financial statement schedule listed in Item
14(a)(2) above, which is attached hereto.    

39



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|                             |  |                                                   |  |              
|---------------------------- |  | ------------------------------------------------- |  | -------------
|ATLANTIC DATA SERVICES, INC. |  | Date                                             
|                            
|                            
|                            
|                            
|                             |  |                                                   |  |              
|                            
|                            
|                            
|                            
|By:                          |  | /s/ Robert W. Howe                                |  | June 25, 2002
|                             |  |                                                   |  |              
|                             |  | Chairman of the Board and
Chief Executive Officer |  |              

We, the undersigned officers and directors of Atlantic Data Services, Inc.,
hereby severally constitute and appoint Robert W. Howe and Paul K. McGrath, and
each of them singly, our true and lawful attorneys, with full power to them and
each of them singly, to sign for us in our names in the capacities to do all
things in our names and on our behalf in such capacities to enable Atlantic
Data Services, Inc. to comply with the provisions of the Securities Exchange
Act of 1934 and all requirements of the Securities Exchange Commission.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

|                                                 |  |                                                                                                |  |              
|------------------------------------------------ |  | ---------------------------------------------------------------------------------------------- |  | -------------
|Signature                                        |  | Title                                                                                          |  | Date         
|                                                 |  |                                                                                                |  |              
|/s/ Robert W. Howe

(Robert W. Howe)             |  | Chairman of the Board and Chief
Executive Officer (Principal Executive
Officer)                |  | June 25, 2002
|                                                 |  |                                                                                                |  |              
|/s/ William H. Gallagher

(William H. Gallagher) |  | President, Chief Operating Officer
and Director                                                |  | June 25, 2002
|                                                 |  |                                                                                                |  |              
|/s/ Paul K. McGrath

(Paul K. McGrath)           |  | Senior Vice President and Chief
Financial Officer (Principal Financial
and Accounting Officer) |  | June 25, 2002
|                                                 |  |                                                                                                |  |              
|/s/ Richard D. Driscoll

(Richard D. Driscoll)   |  | Director                                                                                       |  | June 25, 2002
|                                                 |  |                                                                                                |  |              
|/s/ David C. Hodgson

(David C. Hodgson)         |  | Director                                                                                       |  | June 25, 2002
|                                                 |  |                                                                                                |  |              
|/s/ Lee M. Kennedy

(Lee M. Kennedy)             |  | Director                                                                                       |  | June 25, 2002
|                                                 |  |                                                                                                |  |              
|/s/ George F. Raymond

(George F. Raymond)       |  | Director                                                                                       |  | June 25, 2002

40



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##### Table of Contents






EXHIBIT INDEX

|       |  |                                                                                                                                                                                                                                                                                           
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|No.    |  | Description                                                                                                                                                                                                                                                                               
|       |  |                                                                                                                                                                                                                                                                                           
|       |  |                                                                                                                                                                                                                                                                                           
|2.01   |  | Asset Purchase Agreement dated June 29, 2001 between the Company,
Cool Springs Associates, Inc. d/b/a EarningsInsights, and certain
stockholders of EarningsInsights (Incorporated by reference to
Companys Form 8-K filed July 12, 2001 (File No. 000-24193))                           
|      
|      
|      
|      
|       |  |                                                                                                                                                                                                                                                                                           
|      
|      
|      
|      
|2.02   |  | Amendment No. 1 to the Asset Purchase Agreement dated June 29, 2001
between the Company, Cool Springs Associates, Inc. d/b/a
EarningsInsights, and certain stockholders of EarningsInsights
(Incorporated by reference to Companys Form 8-K/A filed August 10,
2001 (File No. 000-24193))
|      
|      
|      
|      
|       |  |                                                                                                                                                                                                                                                                                           
|      
|      
|      
|      
|3.01   |  | Second Amended and Restated Articles of Organization of the Company
(Incorporated by reference to the Companys Registration Statement
on Form S-1 filed March 26, 1998 (File No. 333-48703))                                                                                             
|      
|      
|      
|      
|       |  |                                                                                                                                                                                                                                                                                           
|      
|      
|      
|      
|3.02   |  | Second Amended and Restated By-Laws of the Company (Incorporated by
reference to the Companys Registration Statement on Form S-1 filed
March 26, 1998 (File No. 333-48703))                                                                                                              
|      
|      
|      
|      
|       |  |                                                                                                                                                                                                                                                                                           
|      
|      
|      
|      
|4.01   |  | Specimen Certificate for Shares of the Companys Common Stock
(Incorporated by reference to the Companys Registration Statement
on Form S-1 filed March 26, 1998 (File No. 333-48703))                                                                                                   
|      
|      
|      
|      
|       |  |                                                                                                                                                                                                                                                                                           
|      
|      
|      
|      
|10.01 |  | Key Person Stock Plan (Incorporated by reference to the Companys
Registration Statement on Form S-1 filed March 26, 1998 (File No.
333-48703))                                                                                                                                           
|      
|      
|      
|      
|       |  |                                                                                                                                                                                                                                                                                           
|      
|      
|      
|      
|10.02 |  | Amended and Restated 1992 Incentive Stock Option Plan (Incorporated
by reference to the Companys Registration Statement on Form S-1
filed March 26, 1998 (File No. 333-48703))                                                                                                           
|      
|      
|      
|      
|       |  |                                                                                                                                                                                                                                                                                           
|      
|      
|      
|      
|10.03 |  | Form of Incentive Stock Option Agreement for Shares Issued Under
the Amended and Restated 1992 Incentive Stock Option Plan
(Incorporated by reference to the Companys Registration Statement
on Form S-1 filed March 26, 1998 (File No. 333-48703))                                      
|      
|      
|      
|      
|       |  |                                                                                                                                                                                                                                                                                           
|      
|      
|      
|      
|10.04 |  | Amended and Restated 1997 Stock Plan (Incorporated by reference to
the Companys Registration Statement on Form S-1 filed March 26,
1998 (File No. 333-48703))                                                                                                                            
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|10.05 |  | Amended and Restated 1997 Stock Plan, as amended (Incorporated by
reference to the Companys Registration Statement on
Form S-8 filed
September 13, 1999 (File No. 333-86997))                                                                                                            
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|10.06 |  | Form of Incentive Stock Option Agreement under the Amended and
Restated 1997 Stock Plan (Incorporated by reference to the
Companys Registration Statement on Form S-1 filed March 26, 1998
(File No. 333-48703))                                                                         
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|       |  |                                                                                                                                                                                                                                                                                           
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|10.07 |  | Form of Non-Qualified Stock Option Agreement under the Amended and
Restated 1997 Stock Plan (Incorporated by reference to the
Companys Registration Statement on Form S-1 filed March 26, 1998
(File No. 333-48703))                                                                     
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|10.08 |  | 1998 Employee Stock Purchase Plan (Incorporated by reference to the
Companys Registration Statement on Form S-1 filed March 26, 1998
(File No. 333-48703))                                                                                                                               
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|10.09 |  | Employment Agreement between the Company and Robert W. Howe dated
March 25, 1998 (Incorporated by reference to the Companys
Registration Statement on Form S-1 filed March 26, 1998 (File No.
333-48703))                                                                                
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|       |  |                                                                                                                                                                                                                                                                                           
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|10.10 |  | Employment Agreement between the Company and William H. Gallagher
dated March 25, 1998 (Incorporated by reference to the Companys
Registration Statement on Form S-1 filed March 26, 1998 (File No.
333-48703))                                                                          
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|       |  |                                                                                                                                                                                                                                                                                           
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|10.11 |  | Employment Agreement between the Company and Paul K. McGrath dated
March 25, 1998 (Incorporated by reference to the Companys
Registration Statement on Form S-1 filed March 26, 1998 (File No.
333-48703))                                                                               
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|       |  |                                                                                                                                                                                                                                                                                           
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|10.12 |  | Employment Agreement between the Company and Peter A. Cahill dated
March 25, 1998 (Incorporated by reference to the Companys
Registration Statement on Form S-1 filed March 26, 1998 (File No.
333-48703))                                                                               

41



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##### Table of Contents



|       |  |                                                                                                                                                                                                                                                                          
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|No.    |  | Description                                                                                                                                                                                                                                                              
|       |  |                                                                                                                                                                                                                                                                          
|       |  |                                                                                                                                                                                                                                                                          
|10.13 |  | Employment Agreement between the Company and Erik C.
Golz dated March 26, 2001 (Incorporated by reference
to the Companys Annual Report on Form 10-K filed
June 25, 2001) (File No. 000-24193))                                                                         
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|       |  |                                                                                                                                                                                                                                                                          
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|10.14  |  | Registration Rights Agreement dated March 25, 1998
by and among the Company and Certain Stockholders
(Incorporated by reference to the Companys
Registration Statement on Form S-1 filed March 26,
1998 (File No. 333-48703))                                           
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|       |  |                                                                                                                                                                                                                                                                          
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|10.15  |  | Lease Agreement between the Company and National
Fire Protection Association dated April 1, 1995, as
amended July 31, 1998 and January 15, 1997
(Incorporated by reference to the Companys
Registration Statement on Form S-1 filed March 26,
1998 (File No. 333-48703))
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|       |  |                                                                                                                                                                                                                                                                          
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|10.16  |  | Third Amendment  Lease Agreement between the
Company and National Fire Protection Association
dated October 15, 1998 (Incorporated by reference
to the Companys Annual Report on Form 10-K filed June
25, 1999 (File No. 000-24193))                                   
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|       |  |                                                                                                                                                                                                                                                                          
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|10.17  |  | Fourth Amendment  Lease Agreement between the
Company and National Fire Protection Association
dated May 1, 1999 (Incorporated by reference to the
Companys Annual Report on Form 10-K filed June 25,
1999 (File No. 000-24193))                                       
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|       |  |                                                                                                                                                                                                                                                                          
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|10.18  |  | Agreement for Exercise of Option between the Company
and National Fire Protection Association dated
November 23, 1999 (Incorporated by reference to the
Companys Annual Report on Form 10-K filed June 21,
2000 (File No. 000-24193))                                   
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|       |  |                                                                                                                                                                                                                                                                          
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|21.01* |  | Subsidiaries of the Company                                                                                                                                                                                                                                              
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|       |  |                                                                                                                                                                                                                                                                          
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|23.01* |  | Consent of PricewaterhouseCoopers LLP                                                                                                                                                                                                                                    
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|       |  |                                                                                                                                                                                                                                                                          
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|24.01* |  | Power of Attorney (included on Signature Page hereto)                                                                                                                                                                                                                    



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|*Filed herewith                                                                
|-------------------------------------------------------------------------------
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Indicates management contract or a compensatory plan, contract or arrangement.

42