================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934

For the fiscal year ended December 31, 2001

                                       OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

For the transition period from ________________ to ________________

Commission file number 0-23173

                         OAO TECHNOLOGY SOLUTIONS, INC.
             (Exact name of registrant as specified in its charter)

              Delaware                                          52-1973990
  (State or other jurisdiction of                            (I.R.S. Employer
   incorporation or organization)                           Identification No.)

     7500 Greenway Center Drive
             16th Floor
        Greenbelt, Maryland                                     20770
 (Address of principal executive offices)                    (Zip Code)

Registrant's telephone number, including area code (301) 486-0400

Securities registered pursuant to Section 12(b) of the Act:

Title of each class                                    Name of each exchange on
                                                       which registered
None.                                                  Not applicable.

Securities registered pursuant to Section 12 (g) of the Act:

                     Common Stock, par value $0.01 per share
                                (Title of class)

     Indicate  by check mark  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] No [_]

     Indicate by check mark 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 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. [_]

     The aggregate  market value of voting and non-voting  common equity held by
non-affiliates  of the  registrant  as of  March  15,  2002,  was  approximately
$21,141,000  based on the  closing  sale price of the Common  Stock on March 15,
2002, of $2.37 as reported by the NASDAQ National Market System.

     As of March 15, 2002, the registrant had outstanding  17,876,885  shares of
its Common Stock, par value $0.01 per share.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Proxy  Statement for the Annual Meeting of  Shareholders to
be held on May 17, 2002 are incorporated by reference in Part III, Items 10, 11,
12 and 13.

================================================================================


<PAGE>


                         OAO TECHNOLOGY SOLUTIONS, INC.

                               INDEX TO FORM 10-K

                      FOR THE YEAR ENDED DECEMBER 31, 2001

Item                                                                       Page
----                                                                       ----
                                     Part I

  1    Business........................................................      3

  2    Properties......................................................      8

  3    Legal Proceedings...............................................      9

  4    Submission of Matters to a Vote of Security Holders.............      9

                                     Part II

  5    Market for Registrant's Common Equity and
           Related Shareholder Matters.................................      9

  6    Selected Consolidated Financial Data............................     10

  7    Management's Discussion and Analysis of Financial Condition
           and Results of Operations...................................     11

  7a   Quantitative and Qualitative Disclosures about Market Risk......     20

  8    Financial Statements and Supplementary Data.....................     21

  9    Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure....................................     44

                                    Part III

 10    Directors and Executive Officers of the Registrant..............     44

 11    Executive Compensation..........................................     44

 12    Security Ownership of Certain Beneficial Owners and Management..     44

 13    Certain Relationships and Related Transactions..................     44

                                     Part IV

 14    Exhibits and Reports on Form 8-K................................     45


<PAGE>


                                     PART I

Item I. BUSINESS.

OAO Technology Solutions, Inc. ("OAOT" or the "Company") is a global provider of
information  technology services that address the enterprise-wide  challenges of
Fortune 1000 companies, mid-market organizations,  health benefit organizations,
and the public sector.

We began operations in 1993 as a division of OAO Corporation,  were incorporated
in March 1996 and spun off from OAO  Corporation  in April  1996.  We have grown
since inception,  with revenues increasing to $163.1 million in 2001, from $57.9
million in 1996. Our strategic  partners and customers  include IBM,  Compaq and
Computer  Sciences  Corporation  (CSC).  Revenues from the two largest strategic
customers  were $124.9  million and $135.5  million for the years ended December
31, 2001 and 2000, respectively.  The largest strategic customer (IBM) accounted
for  69.2%  and  76.0%,  and the  second  largest  strategic  customer  (Compaq)
accounted  for 7.4% and 12.8% of revenues for the years ended  December 31, 2001
and 2000, respectively.  We have diversified the types of services we provide to
our strategic  customers and expanded the number of strategic  customer business
units to whom we provide  services.  For the year ended  December 31,  1996,  we
earned 60.2% of our revenues from data center management  services provided to a
strategic customer. For the year ended December 31, 2001, we earned 20.8% of our
revenues from data center  management.  A decrease in revenues from or loss of a
strategic  customer  could  have a  material  adverse  effect  on our  business,
operating results, and financial condition. The early termination or non-renewal
of a strategic  customer's  contract by an end-user  customer  could also have a
material  adverse  effect  on our  business,  operating  results  and  financial
condition.

For the years ended December 31, 2001 and 2000, approximately 26% and 23% of our
revenues,  respectively, were derived from fixed-price contracts. Certain of our
fixed-price  contracts  require us to meet  pre-established  levels of  service,
while achieving  operating or managerial  efficiencies  during the course of the
engagements.  Profitability  is  generally  lower  during  the early term of the
engagements as we invest in assuring a smooth start-up and in attaining  certain
service levels prior to the  implementation of productivity  improvements.  Upon
completion of the initial  performance phase, we initiate  activities to attempt
to  increase   profitability  through  improved  management  practices  and  the
establishment of new technical and operational  methodologies.  The inability to
increase the profitability of a contract could have a material adverse effect on
our business, operating results and financial condition.

Engagements  that involve new services to existing  customers or services to new
customers  may also  result  in  lower  margins  during  the  early  term of the
engagement.  We have  historically  experienced  margin  improvements  after the
start-up phase of our engagements,  however, there can be no assurance of future
margin  improvements.  Further,  we must  realize  and  maintain  margins on our
long-term  contracts  to offset the effect of any  un-priced  increases in labor
cost associated with delivery of services under these  long-term  contracts.  In
addition,  operating  results can be affected by the level of our investments in
international  and other business  development  activities.  We believe that our
business is not seasonal.

We operate  two  business  segments:  Managed IT  Solutions  and  Healthcare  IT
Solutions.  In order to align our reporting with competitors in the industry and
to make our  segment  information  more  useful,  all of our IT service  related
operating segments have been consolidated into one reportable  segment,  Managed
IT Solutions.  All prior period segment information has been restated to reflect
this change. Our operating segments formerly reported as Enterprise Applications
and eBusiness  Solutions,  Managed IT Services,  and Professional  Services have
been  combined as a result of this change and are now  collectively  reported as
Managed IT Solutions. Healthcare IT Solutions remains unchanged.

Managed IT Solutions

Our Managed IT Solutions  segment has  expertise  and  experience in network and
systems design, integration,  and management of large-scale environments linking
multiple  technologies,  operating  systems,  protocols and geographic areas. We
manage enterprise systems and provide desktop management services, which include
on-site and remote network  systems  management.  These services are provided as
either part of an IT outsourcing team, with its strategic  customers,  to a wide
range of end users, or directly to middle market customers.  We plan to continue
to pursue relationships with strategic customers,  while marketing our solutions
directly to middle market  commercial  and public sector  customers.  We believe
that our ability to offer one source of


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<PAGE>


accountability   for  companies   seeking  a  full  range  of  application   and
infrastructure  outsourcing  solutions,  coupled with our commitment to quality,
differentiate  our services  and provide us with a  competitive  advantage.  Our
commitment  to quality is  evidenced  by our  Application  Solutions  division's
achievement of a SW-CMM  (Software  Capability  Maturity Model) process maturity
Level II. In  addition,  we  continue to actively  implement  quality  processes
throughout the Company in accordance with the Malcolm  Baldrige Quality Program.
We  believe  that we  provide  customers  the  flexibility,  responsiveness  and
cost-effectiveness  of a smaller firm, while offering the benefits that a larger
outsourcer  could  provide,  all at a cost that is lower than they could achieve
themselves.

Our service offerings in Managed IT Solutions are as follows:

Application Solutions

Our  Application   Solutions  service  offerings  include  Application  Support,
Application  Management  and  Application  Development/Integration.  Application
Solutions  are both a  stand-alone  service  and a vehicle to deliver  our other
services.   Application   Solutions  services  are  made  available  through  an
application/managed  service  provider  model or  outsourced  from the customer.
Application  Solutions provides  outsourcing for a complete set of services that
include  development/integration,  management,  and/or support of  applications.
Application  outsourcing  may  involve the  transfer  of people and  application
software to a remote application solution center.  Application  Solutions offers
both customized and pre-packaged  solutions.  Integration services are delivered
on a consulting and project basis under both  time-and-materials and fixed-price
arrangements,  while our application  management and software solutions are made
available through an application  support model or outsourced from the customer.
From our CustomerCare centers, primarily located in Toronto and Moncton, Canada,
our  Application  Support  services offer a single point of  accountability  for
application   software   including  help  requests  and  proactive   application
monitoring.  We have decided to exit the software  license  reseller  portion of
this practice and write-off our investment in third party software licenses.  We
will further focus on providing service solutions.

IT Infrastructure Solutions

Our IT  Infrastructure  Solutions  service offerings include Network and Desktop
Management  Services  (NDMS),  Data  Center  Management  (DCM) and  Professional
Staffing Services. NDMS and DCM provide network and systems design, integration,
and  management  of  large-scale  environments  linking  multiple  technologies,
operating systems,  protocols and geographic areas. IT Infrastructure  Solutions
manages  enterprise  systems and provides  desktop  management  services,  which
include  on-site and remote  network  systems  management.  These  services  are
provided,  generally under long-term fixed-price contracts, as either part of an
IT outsourcing team with its strategic customers to a wide range of end users or
directly to Fortune  1000 and middle  market  customers.  Professional  Staffing
Services   provides   information   technology   personnel,   primarily   on   a
time-and-materials basis, that are regularly utilized within engagements to meet
short  or  indefinite  term  requirements.  There  are also  instances  where an
engagement  has  started  on  a  time-and-materials   basis  and  evolved  to  a
fixed-price basis, as the requirements became sufficiently defined. Professional
Staffing  personnel  include,  but  are  not  limited  to,  computer  operators,
application and systems programmers, network architects,  designers, testers and
installers,  software/hardware testers, help desk consultants, project managers,
and technical  writers.  Professional  Staffing Services provides  personnel who
possess programming skills ranging from Oracle, SAP, C++, and COBOL/DB2,  to the
every  day  needs of  staffing  requirements  in the IT  industry.  Professional
Staffing Services has offices strategically located in the Northeast, Southeast,
Midwest  and West.  In October  2000,  we  expanded  our  Professional  Staffing
Services  business  to new  markets  in Atlanta  and  Boston.  Our  Professional
Staffing Services division has the ability to recruit professional and technical
staff locally and nationally. We believe that our Professional Staffing Services
division is  positioned  to provide  nationwide  support to customers and it has
continuously  demonstrated  this ability since its inception.  The  Professional
Staffing  Services  business  is  concentrated  within one  strategic  customer;
however,  we have  expanded our customer base in 2001 and will continue to focus
on expanding our customer base in the future.

Healthcare IT Solutions

On August 31, 2001,  we acquired the  EZ-CAP(R)  software  business of QuadraMed
Corporation.  The EZ-CAP  managed care  software  product is a leading  industry
solution for at-risk  healthcare  organizations,  and is currently  installed at
approximately  200  clients.  The  acquisition  facilitates  our entry  into the
provider  (physician-hospital)  segment  of the  healthcare  benefit  processing
software market. The EZ-CAP system


                                       4
<PAGE>


provides over fifteen  integrated  modules that include  internet  connectivity,
electronic  data  interchange,   eligibility,   enrollment,  claims  processing,
utilization management and reporting.

Our Healthcare IT Solutions  segment provides managed care software  application
solutions  under  software  license  agreements  via its MC400(TM) and EZ-CAP(R)
software  solutions,   which  are  sold  on  a  per  member,  per  month  (PMPM)
subscription  basis or for a one-time perpetual license fee. We plan to continue
efforts to market our  software  solutions  on a PMPM  subscription  basis.  The
pay-as-you-go  feature of the PMPM model is  attractive  to customers  concerned
with  managing  cash flow and broadens the target  market for our  products.  In
addition,  the PMPM model provides a more consistent and  predictable  cash flow
and  revenue  stream and could have a greater  contract  value than a  perpetual
license sale. This effort to market our products on a PMPM basis could result in
the  deferral of revenue,  profit and cash flow in our  Healthcare  IT Solutions
segment in the short term. Our MC400 software provides a comprehensive  solution
for  healthcare  organizations  (health  maintenance  organizations,   indemnity
insurance  plans,  physician  hospital   organizations,   independent  physician
organizations, third party administrators and self-insured employer plans, among
others).  The MC400 system is  web-enabled  and provides over thirty  integrated
modules that include claims processing, patient care management, electronic data
interchange,  eligibility,  enrollment, utilization, internet connectivity, data
warehousing, care management and web portals. We have over fifty MC400 installed
sites and offer a viable solution that is ready for the federal  requirements of
the Health  Insurance  Portability  and  Accountability  Act (HIPAA).  EZ-CAP is
currently  installed at approximately 200 clients nationwide and internationally
and provides  secure,  web-enabled  solutions.  The EZ-CAP system  provides over
fifteen integrated modules that include internet  connectivity,  electronic data
interchange,  eligibility, enrollment, claims processing, utilization management
and reporting.  We recently released EZ-CAP 4.0, which operates on Microsoft SQL
Server  enterprise  technology  and  permits  the use of a central  database  to
concurrently process information for multiple managed care companies.

In 2000,  Healthcare IT Solutions  acquired and began marketing and installing a
care management system (CMS) that enhances the MC400 product's capabilities.  We
also introduced three additional  major  enhancements.  The first is an internet
centric web enabled  system that allows  customers to connect to the system from
any computer  worldwide.  The second is our data warehouse and decision  support
system  that  allows  customers  to store and  report on  historical  data using
analytical  tools  and  reporting  analysis.  The third  enhancement  is our new
Communications system that allows our customers to process all forms of letters,
desk  top  publishing,  correspondence,  fax  and  email  correspondence  to any
recipient of the system. Global distribution automation and automatic processing
and scheduling of all  correspondence  enables our clients to reduce their costs
and save time. We are committed to investing the resources necessary to continue
to develop new modules for our  Healthcare  software  solutions in order to meet
the evolving needs of our customers and to address  changes in technology and in
the industry.

During  2001 and 2000,  Healthcare  IT  Solutions  won a number of new  customer
accounts  that we  believe  have  positioned  us well for the  future.  One such
customer account resulted from the sale of a software  solution that established
us as a provider of solutions to the third party administrator  market.  Another
system sale demonstrated that our healthcare software solution could accommodate
a  million-plus-member  healthcare plan. We also signed our first  international
distribution license agreement, which is expected to provide international sales
of MC400.  The acquisition of EZ-CAP gave us entry into the healthcare  provider
benefit processing market. We expect to derive  considerable  synergies from the
co-marketing of our MC400 and EZ-CAP solutions.  We intend to continue to target
these  markets  in 2002,  although  there  can be no  assurance  that we will be
successful in these markets.


                                       5
<PAGE>


Industry and Competition

We sell technology services and solutions  predominantly to technology companies
and their customers.  A significant portion of annual revenues,  85% in 2001 and
87% in 2000, is "recurring revenue" under long-term contracts and other annually
renewable  contracts  that  have  historically  been  renewed  year  to  year at
relatively  constant  levels  of  revenue.  We begin  2002  with  backlog  under
long-term  contracts of approximately $650 million,  of which approximately $567
million is not expected to be filled in 2002. Backlog is expected to be realized
over the next ten years.  However,  our long-term contracts generally have early
termination  provisions  that,  if  invoked  by  its  customers,  could  have  a
significant  adverse  impact on the our  revenue,  profitability,  cash flow and
backlog.  Further,  our business is subject to general  economic  conditions and
economic  conditions within the technology  industry,  which appear to have been
softening, especially with the decline of "dot.com" businesses.

Managed IT Solutions

The IT services  market is highly  competitive  and is served by numerous firms,
including  systems  consulting  and  integration  firms,  professional  services
companies,   application   software  firms,   staff   augmentation   firms,  the
professional  service  groups  of  computer  equipment   companies,   facilities
management and management  information  systems outsourcing  companies,  certain
"Big Five"  accounting  firms, and general  management  consulting  firms.  Many
participants in the IT services  market have  significantly  greater  financial,
technical  and  marketing  resources,  and generate  greater  revenues  than the
Company.  We believe that the principal  competitive  factors in the IT services
industry  include  responsiveness  to client  needs,  the  ability  to cause the
transition of the outsourced  services to occur on a prompt and seamless  basis,
quality  of  service,  employee  relations,  price,  management  capability  and
technical  expertise.  We believe we have the ability to successfully compete in
these   markets   because   of  our  core   competencies,   strategic   customer
relationships,  strategic alliances and product service agreements,  which allow
us to provide  customers  global,  enterprise-wide  integration  of  information
technology.  We believe  that our ability to offer one source of  accountability
for companies seeking a full range of application and infrastructure outsourcing
solutions,  coupled with our commitment to quality,  differentiate  our services
and  provide  us with a  competitive  advantage.  Our  commitment  to quality is
evidenced  by our  Application  Solutions  division's  achievement  of a  SW-CMM
(Software Capability Maturity Model) process maturity Level II. In addition,  we
continue to  actively  implement  quality  processes  throughout  the Company in
accordance with the Malcolm Baldrige Quality Program.

While  historically  the IT services  industry has generally  experienced  labor
shortages and wage inflation in excess of many other industries, our engagements
have not been materially affected. We price our services under these engagements
on the  basis of the  historical  cost of the  outsourced  function,  managerial
experience, and its assessment of evolving technical factors. We also enter into
professional services engagements requiring high-demand IT specialists for terms
ranging  up to 18  months,  usually on a  time-and-materials  basis.  As general
economic conditions have weakened in the past year, the trend in the IT industry
has shifted  from a shortage  of labor to a surplus of labor.  We are subject to
the same general industry pricing pressures,  required  efficiency  improvements
and  labor  pressures  inherent  in the IT  services  industry  when  performing
engagements.  As a result,  we have  experienced  and may continue to experience
pricing pressure,  especially from strategic customers.  We expect to be able to
partially  pass along any price  reductions to our  suppliers.  We are dependent
upon our ability to attract, hire and retain personnel who possess the technical
skills and experience necessary to meet the service requirements of our clients.
In pricing our services under shorter-term engagements, we evaluate the existing
labor market for IT specialists and the expected duration of the engagement.

The IT outsourcing industry is defined by several market segments, as predicated
by the strength and nature of customer demand.  These market segments  typically
include data center operations,  network operations,  client-server  operations,
applications management and desktop management. The use of outsourcing has grown
rapidly as corporations have increasingly  determined that it is advantageous to
focus on their core  competencies  and outsource  those  functions  that are not
central to their primary mission. There are significant drivers that support the
growth  expectations  for IT solutions  integrators.  These drivers  include the
increasing complexity of IT solutions and the many rapidly evolving technologies
required  to  fulfill  those  solutions.   Additionally,   many  companies  lack
sufficient  internal  IT  resources  to meet  this  demand  and are  outsourcing
internal IT departments. Finally, there is increasing industry consolidation and
the formation of strategic partnerships.


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<PAGE>


Many of the same factors fueling the rapid expansion of the outsourcing industry
are similarly impacting the professional IT staffing industry. As the demand for
technical  resources  continues  to expand,  corporations  increasingly  rely on
professional-specific   staffing   providers   as  a  source   for   skilled  IT
professionals.  Whether to meet temporary or long-term demands,  companies faced
with the difficulty of identifying,  attracting, and retaining competent, highly
skilled  IT  professionals  are  supplementing  their  internal  IT  staff  with
consultants obtained from professional-specific staffing companies.

HealthCare IT Solutions

The healthcare industry has experienced significant recent transition,  incurred
by  both  the  healthcare  provider/payor  and by  the  evolution  of  products,
services,  and fee arrangements made available by IT solution providers.  Health
care providers and payors of health benefits include: indemnity insurance plans,
physician  hospital  organizations,   independent  physician  organizations  and
self-insured employer plans, health maintenance organizations (HMO's), preferred
provider   organizations   (PPO's),   third  party  administrators  (TPA's)  and
governments.  Health care providers and payors have  experienced  consolidation,
forming  large health  organizations  and networks,  and have  incurred  greater
operating risks as the traditional fee-for-service  reimbursement model is being
replaced by alternative  payment models. To enhance  operating  efficiencies and
controls,  the healthcare  providers have  increased  demand for  comprehensive,
end-to-end IT systems and services.  These system solutions  operate on hardware
platforms  including  client/server  networks,  mainframes and personal computer
stations.  The federal government is in the process of defining and implementing
the  requirements of (HIPAA).  These proposed  regulations  appear extensive and
concern privacy and health record reporting standards,  among others. We believe
that these regulations could cause healthcare payors to purchase new IT systems,
which could be  beneficial to software  solutions  providers  like us.  However,
certain HIPAA  requirements have been delayed for one year in 2001 and there can
be no assurance that the proposed regulations will be implemented as expected or
that they will cause any increase in sales of our healthcare IT solutions.


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<PAGE>


Looking to the Future

Our overall  strategy is to  continue  growing  revenues  and  diversifying  our
customer base. We have invested,  and expect to continue to invest,  the profits
and  cashflows  generated  from our business to enhance our  marketing and sales
capabilities  to gain new  customers.  Our  strategy is to leverage our existing
customer  base,  as we  continue to market our IT  solutions  directly to middle
market  commercial and public sector  companies.  We will continue to pursue new
partnerships  with  strategic  customers  and  acquisitions,   which  will  open
additional markets and distribution channels. In addition, we are implementing a
marketing  strategy that is focused on cross-selling  our services as we seek to
become recognized as a quality focused, cost effective, full service provider of
IT outsourcing services.

We remain  committed  to  investing  the  resources  necessary  to  enhance  the
potential  of our  Healthcare  IT  Solutions  business.  We  believe  the growth
opportunities  remain strong in our  Healthcare  IT Solutions  segment given the
success of our MC400 system and the  opportunities  to help the industry  become
compliant with HIPAA  regulations.  In addition,  the  acquisition of EZ-CAP has
expanded  our  solutions  to  the  healthcare   provider   market  and  provides
cross-selling opportunities with our MC400 functionality.

Employees

As of December 31, 2001, the Company employed approximately 2,400 employees,  of
which 2,155 were full time.  Approximately 9% of these employees have managerial
responsibilities,  and over 70% have  technical  responsibilities.  The  Company
typically  utilizes the services of independent  contractors  only in short-term
engagements and certain international engagements. The Company believes that its
relationships with its employees are good.

Item 2.  PROPERTIES.

The Company's  headquarters  and principal  administrative,  sales and marketing
functions  are located in  approximately  25,150  square feet of leased space in
Greenbelt,  Maryland.  This lease expires in December  2003.  The Company leases
office space in twenty locations in twelve U.S. cities, as well as in Vancouver,
British  Columbia;   Toronto,   Ontario;  Calgary,  Alberta,  and  Moncton,  New
Brunswick,  and  Warwickshire,  United  Kingdom.  The Company  anticipates  that
additional  space will be required as business expands and believes that it will
be able to obtain suitable space as needed.


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<PAGE>


Item 3. LEGAL PROCEEDINGS.

The Company believes that there are no claims or actions against the Company the
ultimate  disposition  of which  would  have a  material  adverse  effect on the
Company's results of operations or financial position.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     None.

                                     PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

     Stock  Data:  The  Company's  Common  Stock,  par value  $0.01  per  share,
commenced  trading on the NASDAQ National Market tier of the NASDAQ Stock Market
on October 22, 1997,  under the symbol  "OAOT." As of December  31, 2001,  there
were 606 record  holders of the  Company's  Common  Stock  based on  information
provided by the Company's  transfer agent.  The following table sets forth,  for
the periods  indicated,  the high and low closing sale prices for the  Company's
Common Stock.

                                                          2001
                                                  --------------------
          Quarter                                     High         Low
          -------                                 --------------------
          First                                      $2.38       $1.13
          Second                                      2.23        0.91
          Third                                       1.75        0.87
          Fourth                                      3.00        0.88

                                                          2000
                                                  --------------------
          Quarter                                     High         Low
          -------                                 --------------------
          First                                      $9.94       $6.31
          Second                                      8.44        2.62
          Third                                       6.31        3.50
          Fourth                                      3.94        1.13

     The Company has not paid cash  dividends on its Common Stock to date. It is
the  present  policy of the  Company to retain  future  earnings  to finance the
growth and  development  of its  business,  and  therefore  the Company does not
anticipate paying cash dividends on its Common Stock in the foreseeable  future.
Furthermore,  certain financial covenants in the Company's bank credit agreement
restrict the Company's ability to pay cash dividends.


                                       9
<PAGE>


Item 6. SELECTED CONSOLIDATED FINANCIAL DATA.

The  selected  consolidated  financial  data set forth  below  should be read in
conjunction with  "Management's  Discussion and Analysis of Financial  Condition
and Results of  Operations"  and the  Consolidated  Financial  Statements of the
Company  and the  Notes  thereto  included  elsewhere  in this  Form  10-K.  The
following  Statement of Operations Data and Balance Sheet Data have been derived
from the  consolidated  financial  statements  of the  Company,  which have been
audited by Deloitte & Touche LLP, independent auditors.

<TABLE>
<CAPTION>
     (In thousands, except per share amounts)                        For the years ended December 31,
                                                          2001         2000        1999        1998         1997
                                                       -----------------------------------------------------------
<S>                                                    <C>          <C>         <C>         <C>          <C>
Statement of Operations Data:
Revenues                                               $ 163,100    $ 152,585   $ 150,162   $ 113,342    $  84,666
Direct costs                                             131,446      127,905     131,664      97,105       65,882
Write-down of prepaid software licenses                    5,085           --          --          --           --
Selling, general and administrative expenses              28,918       22,675      16,014      19,100       13,551
Write-down of impaired assets and other                    3,308           --          --          --           --
Restructuring charges                                         --           --          --       3,135           --
                                                       -----------------------------------------------------------
(Loss) income from operations                             (5,657)       2,005       2,484      (5,998)       5,233
Interest and other income (expense), net                     251        1,122         921         619         (453)
                                                       -----------------------------------------------------------
(Loss) income before income taxes                         (5,406)       3,127       3,405      (5,379)       4,780
(Benefit) provision for income taxes                      (1,893)       1,329       1,554      (1,881)       1,912
                                                       -----------------------------------------------------------
Net (loss) income                                      $  (3,513)   $   1,798   $   1,851   $  (3,498)   $   2,868
                                                       ===========================================================
Net (loss) income per common share:
    Basic                                              $   (0.19)   $    0.10   $    0.11   $   (0.21)   $    0.27
                                                       =========    =========   =========   =========    =========
    Diluted                                            $   (0.19)   $    0.10   $    0.11   $   (0.21)   $    0.26
                                                       =========    =========   =========   =========    =========

<CAPTION>
                                                                            As of December 31,
                                                          2001         2000        1999        1998         1997
                                                       -----------------------------------------------------------
<S>                                                    <C>          <C>         <C>         <C>          <C>
Balance Sheet Data:
Working capital                                        $  25,324    $  29,457   $  28,353   $  26,394    $  33,249
Total assets                                              74,557       69,577      61,355      51,118       50,342
Long-term debt                                             6,753           --          --          --           --
Capital lease obligations, including current portion       1,824        1,565         143         883        1,435
Shareholders' equity                                      38,405       43,242      39,622      35,448       38,066
</TABLE>


                                       10
<PAGE>


Item 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

The following  discussion and analysis is provided to increase the understanding
of,  and  should  be  read  in  conjunction  with,  the  Consolidated  Financial
Statements  and  Notes  thereto  found in Item 8 of this Form  10-K.  Historical
results  and  percentage  relationships  among any  amounts  in these  Financial
Statements are not necessarily indicative of trends in operating results for any
future period.

The  statements  that are not  historical  facts  contained  in this Form  10-K,
including this Management's  Discussion and Analysis of Financial  Condition and
Results of Operations and Notes to Consolidated Financial Statements, constitute
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation Reform Act of 1995. Such statements are based on currently  available
operating,  financial and  competitive  information,  and are subject to various
risks and  uncertainties.  Future  events and the Company's  actual  results may
differ   materially  from  the  results   reflected  in  these   forward-looking
statements.  Factors  that might cause such a  difference  include,  but are not
limited to: dependence on key strategic and end-user  customers,  the ability to
establish  new  strategic   customer   relationships,   risks   associated  with
fixed-price  contracts,  future  financial  results,  the ability to sustain and
manage  growth,  lower than expected  revenue  growth and pricing  pressure from
strategic and non-strategic customers,  success in achieving marketing and sales
goals and other business development initiatives, difficulties of investments in
infrastructure, uncertainties relating to the difficulties of transacting on the
Internet,  potential changes in the prevailing  technology away from outsourcing
IT  applications,  the failure of the Company to make necessary  enhancements or
developments to its existing  software  products,  possible deferral of revenue,
profit  and  cash  flow  from  any  increase  in  per-member   per-month  and/or
percentage-of-completion  basis  software  sales in relation  to total  software
sales,  inability to successfully  install healthcare  software sold on a timely
basis,  competition in the industry,  general  economic  conditions and level of
information  technology  service  spending,  the  possibility  that strategic or
end-user  customers  could invoke  early  termination  clauses  contained in the
Company's  long-term  contracts,  dependence  on key  personnel,  the ability to
attract,  hire and  retain  personnel  who  possess  the  technical  skills  and
experience  necessary  to meet the  service  requirements  of its  clients,  the
ability to successfully  integrate recent acquisitions,  the potential liability
with  respect  to  actions  taken  by  its  employees,   risks  associated  with
international  sales including exposure to fluctuations  between the U.S. dollar
and other  foreign  currencies,  and other  risks  described  herein  and in the
Company's other Securities and Exchange Commission filings.

Segments Overview

OAOT is a global  provider of information  technology  services that address the
enterprise-wide challenges of Fortune 1000 companies,  mid-market organizations,
health benefit  organizations,  and the public sector.  The Company operates two
business segments: Managed IT Solutions and Healthcare IT Solutions. In order to
align our  reporting  with  competitors  in the industry and to make our segment
information  more  useful to users,  all of the  Company's  IT  service  related
operating segments have been consolidated into one reportable  segment,  Managed
IT Solutions.  All prior period segment information has been restated to reflect
this change.  The Company's  business  segments  formerly reported as Enterprise
Applications  and eBusiness  Solutions,  Managed IT Services,  and  Professional
Services have been combined as a result of this change and are now  collectively
reported as Managed IT Solutions. Healthcare IT Solutions remains unchanged.


                                       11
<PAGE>


Managed IT Solutions
(Application Solutions and IT Infrastructure Solutions)

Application Solutions

The  Company's  Application  Solutions  service  offerings  include  Application
Support,   Application   Management  and  Application   Development/Integration.
Application  Solutions provides  outsourcing for a complete set of services that
include  development/integration,  management,  and/or support of  applications.
Application  outsourcing  may  involve the  transfer  of people and  application
software to OAOT and  possibly to a remote  application  solution  center.  OAOT
offers both  customized and  pre-packaged  solutions.  Integration  services are
delivered on a consulting  and project basis under both  time-and-materials  and
fixed-price   arrangements,   while  our  application  management  and  software
solutions are made available through an application  support model or outsourced
from the customer. The Company has decided to exit the software license reseller
portion of this practice and write-off its investment in Siebel prepaid Customer
Relationship  Management (CRM) software licenses. The Company will further focus
on providing service solutions.

IT Infrastructure Solutions

OAOT's IT Infrastructure Solutions service offerings include Network and Desktop
Management  Services  (NDMS),  Data  Center  Management  (DCM) and  Professional
Staffing Services. NDMS and DCM provide network and systems design, integration,
and  management  of  large-scale  environments  linking  multiple  technologies,
operating  systems,  protocols and  geographic  areas.  OAOT manages  enterprise
systems and provides  desktop  management  services,  which include  on-site and
remote network systems management.  These services are provided, generally under
long-term fixed-price  contracts,  as either part of an IT outsourcing team with
its strategic customers to a wide range of end users or directly to Fortune 1000
and middle  market  customers.  The Company's  strategic  partners and customers
include IBM,  Compaq and  Computer  Sciences  Corporation  (CSC).  In 2000,  the
Company's data center management  contract with a strategic customer was renewed
for ten years. Management believes that revenues from this contract may increase
over the term of the contract; however, there is no assurance that revenues from
this contract will  increase or continue at historic  revenue and  profitability
levels. Professional Staffing Services offers technology personnel, primarily on
a  time-and-materials  basis, that are regularly  utilized within engagements to
meet short or indefinite  term  requirements.  There are also instances where an
engagement  has  started  on  a  time-and-materials   basis  and  evolved  to  a
fixed-price  basis,  as  the  requirements  became  sufficiently   defined.  The
Professional  Staffing  Services  business is concentrated  within one strategic
customer;  however, the Company has expanded its customer base and will continue
to focus on expanding its customer base in the future.

Healthcare IT Solutions

The Healthcare IT Solutions  segment provides managed care software  application
solutions  under software  license  agreements via its MC400 and EZ-CAP software
solutions,  which are sold on a per member, per month (PMPM)  subscription basis
or for a one-time  perpetual  license  fee.  OAOT's  MC400  software  provides a
comprehensive  solution for healthcare benefit organizations (health maintenance
organizations,  indemnity  insurance plans,  physician  hospital  organizations,
independent  physician  organizations  and  self-insured  employer plans,  among
others).  The MC400 system is web-enabled  and provides over thirty modules that
include claims  processing,  patient care management,  eligibility,  enrollment,
utilization,  internet connectivity,  data warehousing,  care management and web
portals in one  integrated  system.  The Company has over fifty MC400  installed
sites and offers a viable solution that is ready for the federal requirements of
the Health  Insurance  Portability  and  Accountability  Act (HIPAA).  EZ-CAP is
currently   installed  at   approximately   200  clients  and  provides  secure,
web-enabled  modules for  authorizations,  premium billing,  capitation payment,
data reconciliation,  benefit  administration,  contract management,  and health
plan and member  eligibility  management.  The Company recently  released EZ-CAP
4.0,  which operates on Microsoft SQL Server  enterprise  technology and permits
the use of a central database to concurrently  process  information for multiple
managed care companies.

The Company  considers  revenue  recognition to be a critical  accounting policy
(see Note 1 to the Financial Statements included in Item 8 of this Form 10-K for
a full description of the Company's accounting policies). The Company recognizes
software  revenue under the  provisions of Statement of Position (SOP) No. 97-2,
"Software  Revenue  Recognition"  (as amended by SOP No. 98-4 and SOP No. 98-9).
Except as noted below,


                                       12
<PAGE>


software license fees are recognized as revenue upon the customer's execution of
a noncancelable  license  agreement and the Company's  delivery of the software,
provided that the fee is fixed and determinable, collectibility is probable, and
no customization  of the software is required.  If customization of the software
is required, revenues are recognized on the percentage-of-completion  basis over
the period  during which  customization  is performed  (generally  six to twelve
months). Revenues are recognized from PMPM software license arrangements monthly
over the term of the  arrangement.  As the healthcare  industry and the needs of
our  customers  become  more  complex,  the  number of license  sales  requiring
customization   could   increase  in  the  future.   The   resulting   shift  to
percentage-of-completion   accounting  could  defer  the  Company's  ability  to
recognize revenue and profit in our Healthcare IT Solutions segment in the short
term.

The Company plans to continue efforts to market its software solutions on a PMPM
subscription basis. The pay-as-you-go feature of the PMPM model is attractive to
customers  concerned  with managing cash flow and broadens the target market for
our  products.  In  addition,  the PMPM  model  provides a more  consistent  and
predictable cash flow and revenue stream and could have a greater contract value
than a perpetual  license  sale.  This  effort to market our  products on a PMPM
basis  could  result in the  deferral  of  revenue,  profit and cash flow in our
Healthcare IT Solutions segment in the short term.

General Overview

The Company has grown since its  inception,  with revenues  increasing to $163.1
million in 2001,  from  $57.9  million in 1996.  Revenues  from the two  largest
strategic  customers  were $124.9 million and $135.5 million for the years ended
December 31, 2001 and 2000,  respectively.  The largest strategic customer (IBM)
accounted  for  69.2% and  76.0%,  and the  second  largest  strategic  customer
(Compaq)  accounted for 7.4% and 12.8% of revenues for the years ended  December
31,  2001 and 2000,  respectively.  The  Company  has  diversified  the types of
services  provided  to its  strategic  customers  and  expanded  the  number  of
strategic  customer  business units to whom it provides  services.  For the year
ended  December  31, 1996,  OAOT earned  60.2% of its revenues  from data center
management services provided to strategic customers. For the year ended December
31, 2001, the Company earned 20.8% of its revenues from data center  management.
A  decrease  in  revenues  from or loss of a  strategic  customer  could  have a
material  adverse  effect on the  Company's  business,  operating  results,  and
financial  condition.  The  early  termination  or  non-renewal  of a  strategic
customer's  contract by an end-user  customer could also have a material adverse
effect on the Company's business, operating results, and financial condition.

For the years ended  December 31, 2001 and 2000,  approximately  26%, and 23% of
the Company's revenues,  respectively,  were derived from fixed-price contracts.
Certain of the  Company's  fixed-price  contracts  require  the  Company to meet
pre-established  levels of service,  while  achieving  operating  or  managerial
efficiencies  during the course of the  engagements.  Profitability is generally
lower  during  the early  term of the  engagements  as the  Company  invests  in
assuring a smooth start-up and in attaining  certain service levels prior to the
implementation  of  productivity  improvements.  Upon  completion of the initial
performance  phase,  the  Company  initiates  activities  to attempt to increase
profitability through improved management practices and the establishment of new
technical and operational methodologies.

Engagements  that involve new services to existing  customers or services to new
customers  may also  result  in  lower  margins  during  the  early  term of the
engagement.  The Company has historically  experienced margin improvements after
the start-up phase of its  engagements.  In addition,  operating  results can be
affected by the level of the Company's  investments in  international  and other
business development  activities.  The Company believes that its business is not
seasonal.

The Company sells technology services and solutions  predominantly to technology
companies.  A  significant  portion of annual  revenues,  85% in 2001 and 87% in
2000, is  "recurring  revenue"  under  long-term  contracts  and other  annually
renewable  contracts  that  have  historically  been  renewed  year  to  year at
relatively  constant  levels of revenue.  The Company  begins 2002 with  backlog
under long-term  contracts of approximately $650 million, of which approximately
$567  million is not  expected  to be filled in 2002.  Backlog is expected to be
realized over the next ten years.  However,  the Company's  long-term  contracts
generally have early termination provisions, which, if invoked by its customers,
could have a significant  adverse  impact on the Company's  profitability,  cash
flow and backlog. Further, the Company's business is subject to general economic
conditions and economic conditions within the technology industry,  which appear
to have been softening, especially with the decline of "dot.com" businesses.


                                       13
<PAGE>


While  historically  the IT services  industry has generally  experienced  labor
shortages and wage inflation in excess of many other  industries,  the Company's
engagements have not been materially  affected.  The Company prices its services
under these  engagements on the basis of the  historical  cost of the outsourced
function,  managerial  experience,  and its  assessment  of  evolving  technical
factors.  The  Company  also  enters  into  professional   services  engagements
requiring high-demand IT specialists for terms ranging up to 18 months,  usually
on a  time-and-materials  basis. As general economic conditions have weakened in
the past year, the trend in the IT industry has shifted from a shortage of labor
to a surplus of labor.  The  Company is  subject  to the same  general  industry
pricing pressures, required efficiency improvements and labor pressures inherent
in the IT  services  industry  when  performing  engagements.  As a result,  the
Company  has  experienced  and may  continue  to  experience  pricing  pressure,
especially from strategic customers. The Company expects to be able to partially
pass along any price reductions to its suppliers.  The Company is dependent upon
its  ability to attract,  hire and retain  personnel  who possess the  technical
skills and experience necessary to meet the service requirements of its clients.
In pricing its services under  shorter-term  engagements,  the Company evaluates
the existing  labor market for IT specialists  and the expected  duration of the
engagement.


                                       14
<PAGE>


Results of Operations

The following table sets forth, for the periods indicated,  selected  statements
of operations data as a percentage of revenues:

<TABLE>
<CAPTION>
                                                              For the years ended December 31,
     (in millions)                                        2001               2000              1999
                                                  ------------------------------------------------------
<S>                                               <C>         <C>     <C>        <C>    <C>        <C>
Revenues ......................................   $  163.1    100.0%  $  152.6   100.0% $  150.2   100.0%
Direct costs ..................................      131.4     80.6      127.9    83.8     131.7    87.7
Write-down of prepaid software licenses .......        5.1      3.1         --      --        --      --
Selling, general and administrative expenses ..       28.9     17.7       22.7    14.9      16.0    10.7
Write-down of impaired assets and other .......        3.4      2.1         --      --        --      --
                                                  ------------------------------------------------------
(Loss) income  from operations ................       (5.7)    (3.5)       2.0     1.3       2.5     1.7
Interest and other income, net ................        0.3      0.2        1.1     0.7       0.9     0.6
                                                  ------------------------------------------------------
(Loss) income before income taxes .............       (5.4)    (3.3)       3.1     2.0       3.4     2.3
(Benefit) provision for income taxes...........       (1.9)    (1.2)       1.3     0.9       1.5     1.0
                                                  ------------------------------------------------------
Net (loss) income .............................   $   (3.5)    (2.1)  $    1.8     1.2  $    1.9     1.3
                                                  ------------------------------------------------------
</TABLE>

Comparison  of the Year Ended  December 31, 2001 to the Year Ended  December 31,
2000

Revenues

For the year ended December 31, 2001,  revenues  increased $10.5 million or 6.9%
to $163.1  million from $152.6 million for the same period in 2000. The increase
in revenues  for year ended  December 31, 2001 was driven by both the Managed IT
Solutions and Healthcare IT Solutions segments.

Revenues from the Managed IT Solutions  segment increased $5.6 million to $144.5
million for the year ended  December  31, 2001 from $138.9  million for the same
period in 2000.  This  increase in revenues was due to increases in  Application
Solutions  revenues,  which  were  partially  offset  by  lower  revenues  in IT
Infrastructure Solutions.

Revenues from  Application  Solutions  increased $18.0 million or 78.0% to $41.1
million for the year ended  December 31, 2001  compared to $23.1 million for the
same period in 2000.  The  increase in revenues  was due  primarily to increased
activity  in the  Application  Support  and  Application  Management  businesses
attributable  to a full year of  activity  on a project  that  began in 2000 and
activity under a new contract in 2001. This activity  resulted in an increase in
billable headcount by 215 to a total of 500 in 2001. It is anticipated that this
business will  continue to have a favorable  impact with  headcount  expected to
increase  through  May  2002.  However,  new  contracts  will have to be won for
headcount to continue to increase.  These  increases  were  partially  offset by
decreases in  Application  Development/Integration  revenue as a result of fewer
active projects, particularly in software implementation services.

Revenues from IT Infrastructure Solutions decreased by $12.4 million or 10.7% to
$103.4  million for the year ended  December 31, 2001 compared to $115.8 million
for the same period in 2000.  This  decline is  primarily  due to  decreases  in
Network and Desktop  Management  services  and  Professional  Staffing  Services
revenues.  The decline in Network and Desktop  Management  services revenues was
due to  in-sourcing  of services by one customer,  and lower pricing and service
levels under its current  contract  requirements.  The decrease in  Professional
Staffing Services revenues is due to continued softness in staffing requisitions
from a  strategic  customer  and by the  decline in IT staff  requisitions  as a
result of the slow down in the technology  market.  This softness is expected to
continue into future periods.  Additionally,  the Professional Staffing Services
line has experienced and expects to continue to experience pricing pressure from
a  strategic  customer  due to an excess  supply of IT  professionals,  which is
expected to be partially passed through to the Company's suppliers.  The Company
is diversifying its customer base in its Managed IT Solutions segment,  which is
expected to partially  mitigate  reliance on strategic  customers  and diversify
services.

Revenues from the  Healthcare  IT Solutions  segment  increased  $4.9 million or
35.8% to $18.6  million for the year ended  December 31, 2001  compared to $13.7
million for the same  period in 2000.  The  increase  in revenue  was  primarily
attributable  to an increase in the number of MC400  perpetual  license sales in
2001 and the EZ-CAP acquisition.


                                       15
<PAGE>


Direct Costs

Direct  costs  increased  $8.6  million  to $136.5  million  for the year  ended
December 31, 2001 from $127.9  million in the same period in 2000.  Direct costs
were stable as a percentage of revenues at 84% for the years ended  December 31,
2001 and 2000.

The increase in direct  costs for the year ended  December 31, 2001 was affected
by the write-down of $5.1 million related to prepaid  software  licenses,  which
are  attributable  to the  Application  Solutions  division  of the  Managed  IT
Solutions segment.  Excluding the write-down of prepaid software  licenses,  the
ratio of direct costs to revenues  for the Company  improved to 81% for the year
ended  December  31,  2001  compared  to 84% for the same  period  in 2000.  The
improvement  in direct costs as a percent of revenue for the year ended December
31, 2001,  excluding the write-down,  is due to improvements in profitability in
the  Application  Solutions  division  of the Managed IT  Solutions  segment and
improvements in profitability in the Healthcare IT Solutions segment.

Excluding the write-down of $5.1 million related to prepaid  software  licenses,
the Managed IT Solutions  segment direct costs  increased $0.2 million to $119.1
million for the year ended  December 31, 2001 compared to $118.9 million for the
same period last year.  Direct costs were relatively  stable due to increases in
the Application Solutions division being offset by a decrease in direct costs in
the IT Infrastructure Solutions division. The increases in Application Solutions
direct costs reflect the overall  increase in business  activity in the segment.
Excluding the write-down of $5.1 million,  the  Application  Solutions  division
gross profit increased to $6.9 million for the year ended December 31, 2001 from
$1.8 million for the same period in 2000. The  improvement in  profitability  is
the result of a more favorable mix in billable to non-billable headcount, and an
overall  increase in  billable  headcount  (from 285 in December  2000 to 500 in
December 2001) in the Application Support and Application Management businesses.
The decrease in direct costs in IT Infrastructure Solutions reflects the overall
decrease in activity in the division as well as  improvements  in the management
of direct labor expenses and savings from the reduction of overhead personnel.

HealthCare  IT  Solutions'  direct  costs for the year ended  December  31, 2001
increased  $3.3 million to $12.3  million  compared to $9.0 million for the same
period in 2000.  HealthCare IT Solutions' gross profit increased to $6.2 million
for the year ended  December  31,  2001  compared  to $4.7  million for the same
period in 2000.  The  increase in direct costs was  primarily  the result of the
purchase of EZ-CAP in 2001.  Also affecting the increase in direct costs was the
expansion of the Healthcare IT Solutions  management  team and customer  support
services  personnel in the second half of 2001 to support  expected future sales
growth. Increased profitability is due to an increase in MC400 perpetual license
sales in 2001.

Selling, General and Administrative Expenses

For  the  years  ended  December  31,  2001  and  2000,  selling,   general  and
administrative  expenses  (SGA) were $28.9  million and $22.7 million or 18% and
15% of revenues, respectively. The increase in SGA is the result of increases in
both the Managed IT Solutions and Healthcare IT Solutions segments. The increase
in the Managed IT  Solutions  segment is  primarily  the result of growth in the
Application  Support and Application  Management  businesses.  In addition,  the
Professional Staffing Services business SGA increased, reflecting a full year of
results from an  acquisition  made late in 2000. In the  Healthcare IT Solutions
segment,  the increase is primarily a result of an increase in management  staff
to facilitate growth and the EZ-CAP acquisition.

Also affecting the increase in SGA, for the year ended December 31, 2001, was an
increase in bonus accrued under a management  incentive  plan and an increase in
bad  debt  expense.  Bad  debt  expense  increased  due to the  bankruptcy  of a
HealthCare  customer  and as a result  of  weakening  economic  conditions.  The
Company expects future selling, general and administrative expenses to grow less
rapidly as a percentage of revenues as expenses stabilize and revenues increase.


                                       16
<PAGE>


Write-down of Impaired Assets and Other

During 2001, the Company  incurred charges for the write-down of impaired assets
and other costs  totaling $3.3 million.  The charges  included the write-down of
goodwill  of $1.3  million,  the  write-down  of  certain  cost  basis and other
investments  of $1.0 million,  the write-down of  internal-use  software of $0.9
million,  and other of $0.1  million.  There were no such  write-downs  or other
charges in 2000.

In connection with an internal  business unit realignment in the last quarter of
2001, the Company performed an impairment analysis of certain 1998 acquisitions.
As a result of this analysis,  the Company wrote-off  approximately $1.3 million
of goodwill,  which represented the excess of the carrying value of these assets
as compared to the fair value of the assets as  determined  in  accordance  with
SFAS 121.

During  December  2000, the Company made an investment in an entity in which the
Company's Chief Executive  Officer is a member of the Board of Directors.  Based
on this entity's financial condition, the Company determined that its investment
in this entity was other-than-temporarily  impaired. Accordingly, the investment
of  approximately  $0.5  million and a note  receivable  of  approximately  $0.1
million  were   written-off   during  2001.   In  addition,   an  investment  of
approximately $0.4 million in a venture with a third party was written-off after
the third party failed to secure a significant contract.

During  2001,  the  Company  began   implementation  of  a  new  enterprise-wide
information  system.  Certain financial modules,  which were replaced by the new
system  in  2001,  were  taken  out  of  service  resulting  in a  write-off  of
approximately $0.9 million.

Interest and Other Income and Provision for Income Taxes

For the year ended December 31, 2001, net interest and other income decreased to
$0.3  million  from $1.1  million for the same period in 2000.  The  decrease is
primarily  due to lower  interest  rates on  invested  cash and an  increase  in
interest   expense  related  to  the  term  loan  used  to  finance  the  EZ-CAP
acquisition.  Due to the loss  before  taxes in 2001,  the Company had a benefit
from income  taxes of $1.9  million  compared to a provision  of $1.3 million in
2000.  The  Company's  effective  tax rate was 35.1% for the  benefit in 2001 as
compared to 42.5% for the  provision in 2000.  The lower  effective  tax rate in
2001  is  due to the  non-deductibility  of  certain  asset  impairment  charges
recorded in 2001.

Comparison  of the Year Ended  December 31, 2000 to the Year Ended  December 31,
1999

Revenues

The Company's  revenues increased $2.4 million or 1.6% to $152.6 million for the
year ended  December  31,  2000,  compared to $150.2  million for the year ended
December 31, 1999.  Revenue  increases for the year ended December 31, 2000 were
driven by an increase in the  Healthcare  IT Solutions  segment.  Revenue in the
Managed  IT  Solutions  segment  was  stable  as  increases  in the  Application
Solutions  division were offset by decreases in the IT Infrastructure  Solutions
division as compared to 1999.

Healthcare IT Solutions  revenues  increased  $3.1 million,  or 29.2%,  to $13.7
million for the year ended  December 31, 2000  compared to $10.6 million for the
year ended  December 31, 1999.  The increase in revenues was due primarily to an
increase in recurring  revenues from annual software  maintenance  fees and PMPM
subscription type license sales, which reflects the Company's decision to market
Healthcare IT Solutions' products under a subscription sales model. Revenue from
existing  PMPM  customers  increased  in 2000 from 1999 due to  increases in the
number of member  users  year-to-year,  and as a result of having a full year of
sales in 2000 related to PMPM contracts  signed  throughout 1999.  Further,  the
aggregate number of PMPM customers increased from 1999 to 2000.

Application  Solutions  revenues  increased  $14.7  million  or  176.6% to $23.1
million,  for the year ended  December 31, 2000 compared to $8.4 million for the
year ended  December 31, 1999.  This was due primarily to increased  activity in
the Application  Support and  Application  Management  businesses  compared with
1999. The number of billable personnel continued to increase on new and existing
contracts  throughout 2000,


                                       17
<PAGE>


compared to 1999 when the contracts had lower levels of activity. Similarly, the
consulting  practices  were in the  start-up  phase  during most of 1999 and had
lower revenues in that period.

IT  Infrastructure  Solutions  revenues  decreased by $15.4  million or 11.8% to
$115.9  million for the year ended  December 31, 2000 compared to $131.2 million
for the year ended December 31, 1999. The Data Center Management and Network and
Desktop Management  Services  businesses suffered decreases primarily due to the
renewal of a contract between a strategic customer and an end-user customer,  at
lower rates and reduced  personnel  to perform  services.  Further,  the Company
experienced  continued  pricing  and volume  decreases  from  another  strategic
customer. Additionally, a low-margin contract was not renewed in 2000, which had
contributed  revenues of approximately  $8.0 million throughout 1999. The volume
and pricing  decreases were partially  offset by projects from new customers and
the effect of the UK acquisition,  which occurred in the second quarter of 1999.
Decreases in revenue in the Professional  Staffing  Services business was due to
softness in staffing  requisitions from a strategic  customer,  which began with
the carry over effects of Y2K constraints and continued throughout most of 2000.

Direct Costs

The Company's  direct costs decreased $3.8 million or 2.9% to $127.9 million for
the year ended December 31, 2000,  compared to $131.7 million for the year ended
December 31, 1999.  Direct costs also  decreased as a percentage  of revenues to
84% for the year ended December 31, 2000 versus 88% for the same period in 1999.
The  decrease in direct  costs as a  percentage  of revenues  for the year ended
December 31, 2000 compared to the year ended  December 31, 1999 is due primarily
to improvements in  profitability in the Application  Solutions  division of the
Managed IT Solutions segment and the Healthcare IT Solutions segment.

In the Application Solutions division, gross profit increased by $6.0 million to
$1.8 million for the year ended  December  31, 2000 from $(4.2)  million for the
year ended December 31, 1999. The improvement in  profitability  was a result of
the  increased  levels of  business  in 2000  compared to most of 1999 when this
division was ramping up its activity.

In the Healthcare IT Solutions  segment,  gross profit increased by $2.2 million
to $4.7  million for the year ended  December 31, 2000 from $2.5 million for the
year ended December 31, 1999. The improvement in  profitability  was a result of
an increase in recurring revenues and perpetual use software license sales.

Selling, General and Administrative Expenses

Selling,  general  and  administrative  expenses  were $22.7  million  and $16.0
million for the years ended December 31, 2000 and 1999,  respectively.  Selling,
general and  administrative  expenses  increased as a percentage of revenues for
the year  ended  December  31,  2000 to 14.9%  compared  to 10.7% for year ended
December 31, 1999. The increases were a result of increased  sales and marketing
efforts  and the  continuation  of the  Company's  infrastructure  build-out  to
accommodate expected growth. During the third quarter of 2000, the Company began
to eliminate  unproductive  sales,  marketing and delivery staff, in addition to
reducing  corporate  overhead costs.  The results of the reductions  began to be
recognized  in the fourth  quarter of 2000 and will  continue  to be realized in
future periods. The reductions in costs realized by the workforce reductions and
other cost saving  measures  were  offset by an increase to reserves  associated
with amounts due from several customers affected by the economic downturn in the
later part of 2000.

Interest and Other Income and Provision for Income Taxes

Interest  income  decreased to $1.0 million for the year ended December 31, 2000
from  $1.1  million  for the year  ended  December  31,  1999.  Interest  income
decreased primarily due to a slightly lower amount of average invested cash. The
Company's effective tax rate was approximately 42.5% for the year ended December
31, 2000.  The  Company's  effective  tax rate was 45.6% in 1999.  The Company's
effective tax rate includes  income taxes in foreign  countries where the income
tax rate is higher than in the United States.  Differences between the effective
tax rates from 1999 to 2000 were a result of minor fluctuations in the amount of
permanent differences between book reporting and income tax reporting items, and
measures the Company took to minimize the effect of foreign taxes.


                                       18
<PAGE>


Liquidity and Capital Resources

Cash and cash  equivalents  were $9.1 million as of December  31,  2001,  versus
$11.8  million as of December 31, 2000.  Cash  provided by  operations  was $8.2
million for the year ended  December 31, 2001 compared with $4.5 million of cash
used in  operations in 2000.  The increase in cash  provided by  operations  was
primarily  due to an  increase  in  accrued  compensation  and  benefits  and an
increase in income from  operations  after giving  effect for  non-cash  charges
including  depreciation  and  amortization,  the write-down of prepaid  software
licenses,  the  write-down of impaired  assets and other,  and bad debt expense.
These  increases  in cash  flows were  partially  offset by an  increase  in net
accounts  receivable and deferred  income taxes.  Net accounts  receivable  were
impacted by reimbursable costs from a contract with a strategic customer in 2001
and HealthCare IT Solutions license sales late in 2001.

Cash used in investing activities was $11.5 million, which was primarily for the
purchase  of  EZ-CAP,  the  purchase  of  computers  and office  equipment  used
primarily in the Company's Application Solutions business,  and certain software
associated  with the  Healthcare IT Solutions  segment.  The Company's  business
operations will require additional capital expenditures as the Company continues
to grow its service offerings.

Financing  activities  provided cash of $0.9 million in 2001.  The proceeds of a
term note used to finance the EZ-CAP  acquisition  were offset by the payment of
the revolving credit agreement in the amount of $6.0 million,  the repurchase of
common stock under the Company's stock repurchase  program of $1.7 million,  and
payments under capital lease obligations totaling $0.8 million.

On August 29, 2001, the Company amended its credit agreement dated June 30, 1999
(the "Amendment"). The Amendment provides a $15 million revolving line of credit
("Revolver")  and a $9 million term loan facility.  The Revolver  provides for a
commitment  fee of 0.375% to 0.500% of the unused  balance  and  interest at the
prime rate or, at the Company's option,  at LIBOR plus a risk-adjusted  premium.
The Revolver  matures on September 30, 2003. Draws under the Revolver in cash or
letters of credit are limited to a formula driven  borrowing base  determined by
the levels of certain receivables,  as defined in the Amendment. The Amendment's
term loan  facility was drawn on in full to fund the EZ-CAP  acquisition.  There
was $8,550,000  outstanding  on the term loan at December 31, 2001,  which bears
interest at LIBOR plus a  risk-adjusted  premium,  totaling 3.9% at December 31,
2001.  The term loan facility  matures on September 30, 2006 and is due in sixty
equal monthly  principal  payments,  plus interest.  The Amendment also modified
certain required financial covenants. There were no borrowings outstanding under
the Revolver as of December 31, 2001.  There was  approximately  $1,000,000  and
$330,000 of letters of credit  outstanding under the Revolver as of December 31,
2001 and 2000, respectively.

The Company currently  anticipates that its existing cash balances,  bank credit
facilities,  or any cash generated from operations will be sufficient to satisfy
its operating cash needs for the foreseeable  future.  The Company has announced
an  acquisition  program as part of its  strategy  to  accelerate  revenues  and
earnings  growth.  The  Company  expects  to use bank  credit  to  leverage  the
Company's  financial position.  In addition,  the Company could consider seeking
additional  public or private  debt or equity  financing  to fund future  growth
opportunities.  No assurance can be given, however, that such additional debt or
equity  financing  will be available  to the Company or on terms and  conditions
acceptable to the Company.

Recent Accounting Pronouncements

Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standard No. 133 "Accounting for Derivative Instruments and Hedging Activities,"
as amended by Statement of Financial  Accounting  Standard No. 138,"  Accounting
for Certain  Derivative  Instruments and Certain Hedging  Activities."  SFAS No.
133, as amended,  establishes  accounting and reporting standards for derivative
instruments,   including  certain  derivative   instruments  embedded  in  other
contracts,  and for hedging  activities.  The  statement  requires that entities
recognize all  derivatives  as either assets or  liabilities in the statement of
financial  position and measure those  instruments at fair value.  The Company's
use of derivatives is currently limited to an interest rate swap on its floating
rate term loan.  There was no impact of  adopting  this  standard  on January 1,
2001, as the Company held no derivatives at that time.


                                       19
<PAGE>


In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations."
SFAS 141 requires the purchase  method of accounting  for business  combinations
initiated  after June 30, 2001 and eliminates the  pooling-of-interests  method.
The  Company  does not  believe  that  the  adoption  of SFAS  141  will  have a
significant impact on its financial statements.

In July 2001, the FASB also issued Statement of Financial  Accounting  Standards
No. 142 ("SFAS 142"). "Goodwill and Other Intangible Assets", which is effective
January 1, 2002. SFAS 142 requires,  among other things,  the  discontinuance of
goodwill  amortization.  In addition,  the Standard includes  provisions for the
reclassification  of  certain  existing  recognized   intangibles  as  goodwill,
reassessment   of  the  useful   lives  of  existing   recognized   intangibles,
reclassification  of certain intangibles out of previously reported goodwill and
the identification of reporting units for purposes of assessing potential future
impairments  of  goodwill.  SFAS 142 also  requires  the  Company to  complete a
transitional goodwill impairment test six months from the date of adoption.  The
Company is currently  assessing but has not yet  determined  the impact SFAS 142
will have on its financial position and results of operations.

In August 2001, the FASB issued Statement of Financial  Accounting Standards No.
144,  "Accounting  for the  Impairment or Disposal of Long-Lived  Assets" ("FASB
144"), which addresses financial  accounting and reporting for the impairment or
disposal of long-lived assets.  FASB 144 supersedes both FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" and the accounting  and reporting  provisions of APB Opinion No.
30, "Reporting the Results of Operation - Reporting the Effects of Disposal of a
Segment of a Business,  and  Extraordinary,  Unusual and Infrequently  Occurring
Events and  Transactions,"  for the  disposal  of a Segment  of a  Business  (as
previously  defined  in  that  opinion).  FASB  144  also  amends  ARB  No.  51,
"Consolidated  Financial Statements" to eliminate the exception to consolidation
for a subsidiary for which control is likely  temporary.  The provisions of FASB
144 are required to be applied with fiscal years  beginning  after  December 15,
2001.  The Company is currently  assessing but has not yet determined the impact
FASB 144 will have on its financial position and results of operations.

Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The  Company's  primary  market risk is foreign  currency  exposure and changing
interest rates. The Company conducts  business in foreign  countries,  primarily
Canada and the United Kingdom.  Foreign  currency  transaction  gains and losses
were not material to the Company's  results of operations during the three years
ended  December 31, 2001.  The Company  believes  its foreign  currency  risk is
related  primarily to the difference  between  amounts the Company  receives and
disburses in Canada in U.S. dollars from U.S. dollar denominated contracts.  The
Company's  foreign  currency risk will increase with the growth of its business.
The  Company's  interest  rate risk is related to the  variable  rate on amounts
outstanding  on the  Company's  credit  agreement.  Amounts  outstanding  on the
Company's  term  loan  bear  interest  at LIBOR  plus a  risk-adjusted  premium,
totaling 3.9% at December 31, 2001.

On  October  31,  2001 the  Company,  to  comply  with the  terms of its  credit
agreement,  entered into an interest rate swap agreement effectively  converting
the  interest  rate from  variable  to fixed on 63.33% of the  principal  amount
outstanding  on the term loan. The swap agreement is for a period of 4 years and
fixes  the  variable  portion  of the  interest  rate on the term  loan to 2.67%
through October 2002,  4.09% through October 2003,  5.22% through 2004 and 5.72%
through  2005.  As of December  31, 2001,  the notional  amount of the term loan
covered by the swap  agreement was  $5,600,000  and the market value of the swap
was a  liability  of  $3,124.  The  interest  rate  under  this swap  agreement,
including the risk-adjusted premium, was 4.67% at December 31, 2001.

Through  December  31, 2001,  the Company has not entered  into any  significant
foreign  currency  forward  exchange  contracts  or other  derivative  financial
instruments to hedge the effects of potential  adverse  fluctuations  in foreign
currency exchange rates or interest rates, other than described herein; however,
the Company  periodically  reviews its exposure to foreign currency and interest
rate risk and may take action to limit its exposure if deemed appropriate.


                                       20
<PAGE>


Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The Consolidated Financial Statements of OAO Technology Solutions, Inc. and
Subsidiaries are filed as part of this form 10-K.

Index to Financial Statements                                               Page
------------------------------                                              ----
Financial Statements:
     Independent Auditors' Report...........................................  22
     Consolidated Statements of Operations and Comprehensive Income for the
         years ended December 31, 2001, 2000, and 1999......................  23
     Consolidated Balance Sheets as of December 31, 2001 and 2000...........  24
     Consolidated Statements of Cash Flows for the years ended December 31,
           2001, 2000 and 1999..............................................  25
     Consolidated Statements of Shareholders' Equity for the years ended
           December 31, 2001, 2000 and 1999.................................  26
     Notes to Consolidated Financial Statements.............................  27

     Schedules  have  been  omitted  because  they  are  not  applicable  or the
information  required  to be set forth  therein  is  included  in the  financial
statements or the notes thereto.

                                       21
<PAGE>


                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareholders
of OAO Technology Solutions, Inc.:

We have audited the accompanying  consolidated  balance sheets of OAO Technology
Solutions,  Inc.  and  subsidiaries  as of December  31, 2001 and 2000,  and the
related  consolidated   statements  of  operations  and  comprehensive   income,
shareholders'  equity,  and cash flows for each of the three years in the period
ended December 31, 2001. These financial  statements are the  responsibility  of
the Company's  management.  Our  responsibility  is to express an opinion on the
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  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.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our  opinion,  such  financial  statements  present  fairly,  in all material
respects, the consolidated financial position of OAO Technology Solutions,  Inc.
and  subsidiaries  as of December  31,  2001 and 2000,  and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting  principles  generally accepted
in the United States of America.

/s/ Deloitte & Touche LLP

Deloitte & Touche LLP
McLean, VA
February 11, 2002


                                       22
<PAGE>


                         OAO TECHNOLOGY SOLUTIONS, INC.
         Consolidated Statements of Operations and Comprehensive Income
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                     For the years ended December 31,
                                                   -----------------------------------
                                                     2001         2000         1999
                                                   -----------------------------------
<S>                                                <C>          <C>          <C>
Revenues                                           $ 163,100    $ 152,585    $ 150,162
Direct costs                                         131,446      127,905      131,664
Write-down of prepaid software licenses (Note 6)       5,085           --           --
                                                   -----------------------------------
                                                      26,569       24,680       18,498
Selling, general and administrative expenses          28,918       22,675       16,014
Write-down of impaired assets and other (Note 8)       3,308           --           --
                                                   -----------------------------------
(Loss) income from operations                         (5,657)       2,005        2,484
Interest and other income (expense):
    Interest income                                      504        1,027        1,137
    Interest expense                                    (249)         (35)        (269)
    Other                                                 (4)         130           53
                                                   -----------------------------------
(Loss) income before income taxes                     (5,406)       3,127        3,405
(Benefit) provision for income taxes                  (1,893)       1,329        1,554
                                                   -----------------------------------
Net (loss) income                                     (3,513)       1,798        1,851
Other comprehensive (loss) income :
    Net change in fair value of cash flow hedge           (3)          --           --
    Foreign currency translation adjustment             (325)        (271)         186
                                                   -----------------------------------
Comprehensive (loss) income                        $  (3,841)   $   1,527    $   2,037
                                                   ===================================

Net (loss) income per common share:
    Basic                                          $   (0.19)   $    0.10    $    0.11
                                                   ===================================
    Diluted                                        $   (0.19)   $    0.10    $    0.11
                                                   ===================================

Weighted average number of shares outstanding:
      Basic                                           18,935       17,883       16,856
                                                   ===================================
      Diluted                                         18,935       18,484       17,362
                                                   ===================================
</TABLE>

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


                                       23
<PAGE>


                         OAO TECHNOLOGY SOLUTIONS, INC.
                           Consolidated Balance Sheets
               (in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                                                          As of December 31,
                                                                         --------------------
                                                                           2001       2000
                                                                         --------------------
<S>                                                                      <C>         <C>
ASSETS
Current assets:
    Cash and cash equivalents                                            $  9,060    $ 11,779
    Accounts receivable, net                                               36,602      31,813
    Note receivable, OAO Corporation                                        1,714       2,160
    Deferred income taxes                                                   4,040       1,093
    Income tax receivable                                                     358         754
    Other current assets                                                    1,305       6,959
                                                                         --------------------
      Total current assets                                                 53,079      54,558
Property and equipment, net                                                 5,220       5,778
Purchased and developed software for sale, net                              1,737       2,279
Deposits and other assets                                                   1,355       1,943
Deferred income taxes                                                         898         261
Intangible assets, net                                                     12,268       4,758
                                                                         --------------------
      Total assets                                                       $ 74,557    $ 69,577
                                                                         ====================

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Borrowings under revolving credit agreement                          $     --    $  6,000
    Term loan, current portion                                              1,800          --
    Accounts payable                                                        6,893       6,464
    Accrued expenses                                                        5,108       4,552
    Accrued compensation and benefits                                      10,513       5,993
    Income tax payable                                                        460         523
    Unearned revenue                                                        2,022         959
    Current portion of capital lease obligations                              959         610
                                                                         --------------------
      Total current liabilities                                            27,755      25,101

Capital lease obligations, net of current portion and other                 1,644       1,234
Term loan, net of current portion                                           6,753          --

Commitments and contingencies

Shareholders' equity:
    Preferred stock, par $.01 per share, 10,000,000 shares authorized;
      none issued and outstanding                                              --          --
    Common stock, par $.01 per share, 50,000,000 shares authorized;
      18,702,710 and 18,648,765 shares issued and outstanding
      as of December 31, 2001 and 2000, respectively                          187         186
    Additional paid-in capital                                             41,703      42,725
    Deferred compensation                                                      --         (25)
    Accumulated other comprehensive net loss                                 (848)       (520)
    Shareholder receivable                                                 (2,933)     (2,933)
    Retained earnings                                                         296       3,809
                                                                         --------------------
      Total shareholders' equity                                           38,405      43,242
                                                                         --------------------
      Total liabilities and shareholders' equity                         $ 74,557    $ 69,577
                                                                         ====================
</TABLE>

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


                                       24
<PAGE>


                         OAO TECHNOLOGY SOLUTIONS, INC.
                      Consolidated Statements of Cash Flows
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                For the years ended December 31,
                                                                                --------------------------------
                                                                                  2001        2000        1999
                                                                                --------------------------------
<S>                                                                             <C>         <C>         <C>
Cash Flows from Operating Activities:
    Net (loss) income                                                           $ (3,513)   $  1,798    $  1,851
    Adjustment to reconcile net (loss) income to net
      cash provided by (used in) operating activities:
        Depreciation and amortization                                              4,418       3,326       2,164
       Write-down of prepaid software licenses                                     5,085          --          --
       Write-down of impaired assets and other                                     3,308          --          --
        Bad debt expense                                                           2,153         755         474
        Tax benefit related to exercise of stock options                              --         346         101
        Deferred income taxes                                                     (3,584)       (323)          4
        Change in assets and liabilities:
          Accounts receivable                                                     (6,029)     (6,468)        115
          Income tax receivable                                                      396         180         403
          Other current assets                                                       666        (714)     (3,243)
          Deposits and other assets                                                 (241)       (696)        (76)
          Accounts payable                                                          (368)     (2,355)      2,274
          Accrued expenses                                                           556         640         (16)
          Accrued compensation and benefits                                        4,520      (1,460)      2,025
          Unearned revenue                                                           439         203         252
          Other long-term liabilities                                                500         279          --
          Income tax payable                                                         (63)        (52)        605
                                                                                --------------------------------
             Net cash provided by (used in) operating activities                   8,243      (4,541)      6,933
                                                                                --------------------------------

Cash Flows from Investing Activities:
    Purchase of businesses, net of cash acquired                                  (9,037)       (546)       (289)
    Expenditures for property and equipment                                       (2,302)     (3,479)     (1,707)
    Repayments of notes receivable                                                    --         360          --
    Capitalized software costs                                                      (194)     (1,097)     (1,682)
    Other assets                                                                      --      (1,000)         --
                                                                                --------------------------------
             Net cash used in investing activities                               (11,533)     (5,762)     (3,678)
                                                                                --------------------------------

Cash Flows from Financing Activities:
    Revolving credit agreement, net                                               (6,000)      6,000          --
    Proceeds from exercises of stock options and employee stock purchase plan        646       1,641       1,277
    Repurchase of common stock                                                    (1,667)         --          --
    Deferred financing costs                                                        (136)         --          --
    Repayments of capital lease obligations                                         (809)       (148)       (740)
    Proceeds from sale-leaseback                                                     312       1,584          --
    Proceeds from term loan                                                        9,000          --          --
    Repayments of term loan                                                         (450)         --          --
                                                                                --------------------------------
             Net cash provided by financing activities                               896       9,077         537
                                                                                --------------------------------
Effect of exchange rate changes on cash                                             (325)       (137)       (265)
                                                                                --------------------------------
Net (decrease) increase in cash and cash equivalents                              (2,719)     (1,363)      3,527
Cash and cash equivalents, beginning of year                                      11,779      13,142       9,615
                                                                                --------------------------------
Cash and cash equivalents, end of year                                          $  9,060    $ 11,779    $ 13,142
                                                                                ================================
</TABLE>

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


                                       25
<PAGE>


                         OAO TECHNOLOGY SOLUTIONS, INC.
                 Consolidated Statements of Shareholders' Equity
                                 (in thousands)

              For the years ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                                                  Accumulated
                                      Common Stock       Additional                  Other                               Total
                                  --------------------    Paid-in     Deferred   Comprehensive Shareholder  Retained  Shareholders'
                                   Shares      Amount     Capital   Compensation    Net Loss   Receivable   Earnings     Equity

<S>                                 <C>       <C>         <C>         <C>           <C>         <C>         <C>         <C>
Balance, January 1, 1999            16,694    $    167    $ 35,729    $   (173)     $   (435)   $     --    $    160    $ 35,448
                                  ----------------------------------------------------------------------------------------------
Net income                              --          --          --          --            --          --       1,851       1,851
Exercise of stock options              219           2         547          --            --          --          --         549
Tax benefit related to
    exercise of stock options           --          --         101          --            --          --          --         101
Amortization of
    deferred compensation               --          --          --          42            --          --          --          42
Shares issued for
    employee stock purchase plan       210           2         575          --            --          --          --         577
Shares issued for note receivable      750           8       2,925          --            --      (2,933)         --          --
Shares issued to vendor                228           2         816          --            --          --          --         818
Foreign currency
    translation adjustment              --          --          --          --           186          --          --         186
Refund of costs associated
    with sale of common stock           --          --          50          --            --          --          --          50
                                  ----------------------------------------------------------------------------------------------
Balance, December 31, 1999          18,101         181      40,743        (131)         (249)     (2,933)      2,011      39,622
                                  ----------------------------------------------------------------------------------------------
Net income                              --          --          --          --            --          --       1,798       1,798
Exercise of stock options              217           2         815          --            --          --          --         817
Tax benefit related to
    exercise of stock options           --          --         346          --            --          --          --         346
Amortization of
    deferred compensation               --          --          --         106            --          --          --         106
Shares issued for
    employee stock purchase plan       331           3         821          --            --          --          --         824
Foreign currency
    translation adjustment              --          --          --          --          (271)         --          --        (271)
                                  ----------------------------------------------------------------------------------------------
Balance, December 31, 2000          18,649         186      42,725         (25)         (520)     (2,933)      3,809      43,242
                                  ----------------------------------------------------------------------------------------------
Net loss                                --          --          --          --            --          --      (3,513)     (3,513)
Exercise of stock options                9           1          15          --            --          --          --          16
Amortization of
    deferred compensation               --          --          --          25            --          --          --          25
Shares issued for
    employee stock purchase plan       741           7         623          --            --          --          --         630
Repurchase of common stock            (696)         (7)     (1,660)         --            --          --          --      (1,667)
Change in fair value of
    cash flow hedge                     --          --          --          --            (7)         --          --          (7)
Cash flow hedge loss
    reclassified to earnings            --          --          --          --             4          --          --           4
Foreign currency
    translation adjustment              --          --          --          --          (325)         --          --        (325)
                                  ----------------------------------------------------------------------------------------------
Balance, December 31, 2001          18,703    $    187    $ 41,703    $     --      $   (848)   $ (2,933)   $    296    $ 38,405
                                  ----------------------------------------------------------------------------------------------
</TABLE>

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


                                       26
<PAGE>


                         OAO TECHNOLOGY SOLUTIONS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

1. Summary of Significant Accounting Policies

Description of the Company

OAO Technology Solutions, Inc. ("the Company" or "OAOT") is a global provider of
information  technology services that address the enterprise-wide  challenges of
Fortune 1000 companies, mid-market organizations,  health benefit organizations,
and the public sector. The Company began its operations in 1993 as a division of
OAO  Corporation,  was  incorporated  in  March  1996  and was spun off from OAO
Corporation in April 1996. The Company operates two business  segments:  Managed
IT Solutions and Healthcare IT Solutions.

Principles of Consolidation

The consolidated financial statements include the accounts of all majority owned
domestic and foreign  subsidiaries.  All other  investments  in  affiliates  are
carried at cost. All significant  inter-company  accounts and transactions  have
been eliminated.

Revenue Recognition

The Company  provides  services  under  various  contracts,  primarily  to large
commercial customers.  Revenue under fixed-price contracts is recorded under the
percentage-of-completion method based on costs incurred in relation to estimated
total costs.  Revenues  under  time-and-materials  contracts are recorded at the
contracted rates plus other direct costs as they are incurred.  Service revenues
are generally recognized ratably over the period of the related contract. Losses
on contracts, if any, are recognized as soon as they become known.

The Company  recognizes  software  revenue under the  provisions of Statement of
Position (SOP) No. 97-2,  "Software Revenue  Recognition" (as amended by SOP No.
98-4  and SOP No.  98-9).  Except  as noted  below,  software  license  fees are
recognized as revenue upon the customer's  execution of a noncancelable  license
agreement and the Company's  delivery of the software,  provided that the fee is
fixed and determinable,  collectibility is probable, and no customization of the
software is required. If customization of the software is required, revenues are
recognized  on the  percentage-of-completion  basis over the period during which
customization is performed (generally six to twelve months).

Revenues  are  recognized  from per member,  per month (PMPM)  software  license
arrangements  monthly over the term of the  arrangement.  Revenues from software
maintenance  contracts are recognized  ratably over the maintenance period based
upon their  vendor  specific  objective  evidence of fair value.  Revenues  from
consulting and training services are recognized on a time-and-materials basis as
services are performed.  Amounts received in advance of the delivery of software
or the  performance  of  services  are  classified  as  unearned  revenue on the
consolidated balance sheets.

Stock-Based Compensation

The  Company  follows  the  provisions  of  Statement  of  Financial  Accounting
Standards  (SFAS)  No.  123,  "Accounting  for  Stock-Based   Compensation."  As
permitted under this statement,  the Company  continues to follow the accounting
provisions of Accounting  Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to  Employees"  for the  recognition  and  measurement  of employee
stock-based compensation and, therefore,  provides only the disclosures required
under SFAS No. 123. Using the intrinsic method prescribed in APB Opinion No. 25,
compensation  costs are  measured  as the excess,  if any, of the quoted  market
price of the  Company's  stock at the date of grant over the amount an  employee
must pay to acquire the stock.

Income Taxes

The provision for income taxes includes federal,  state and foreign income taxes
currently  payable  plus the net  change  during  the year in the  deferred  tax
liability or asset.  The current or deferred tax consequences of all events that
have  been  recognized  in  the  financial  statements  are  measured  based  on
provisions  of  enacted  tax law to  determine  the  amount of taxes  payable or
refundable in future periods.


                                       27
<PAGE>


Foreign Currency Translation

The  assets  and  liabilities  of  the  Company's  foreign  subsidiaries,  whose
functional  currency  is other  than  the U.S.  dollar,  are  translated  at the
exchange  rates in effect on the balance sheet date, and income and expenses are
translated at the weighted average exchange rate during the period.  Translation
gains or losses at the  balance  sheet  dates are  included  as a  component  of
accumulated other comprehensive income or loss.

Cash and Cash Equivalents

The Company  considers all securities with a maturity of three months or less at
the date of purchase to be cash equivalents.  At December 31, 2001 and 2000, the
Company's  cash  equivalents  consisted of overnight  repurchase  agreements and
demand   deposits.   Cash  and  cash  equivalents  are  stated  at  cost,  which
approximates market value.

Property and Equipment

Property and equipment,  which  includes  capital  leases,  is recorded at cost.
Purchased or developed  internal-use  software is capitalized in accordance with
SOP 98-1,  "Accounting for the Costs of Computer Software  Developed or Obtained
for  Internal  Use."  Property  and  Equipment  and  internal  use  software are
depreciated using the straight-line  method over their estimated useful lives of
three to five years.  Leasehold  improvements  and capital  leases are amortized
over the  shorter of the term of the  related  lease or their  estimated  useful
lives.

Software Development Costs

Development  costs  incurred in the  research  and  development  of new software
products and enhancements to existing software products are expensed as incurred
until  technological  feasibility  has  been  established.  After  technological
feasibility is established, costs are capitalized in accordance with SFAS No. 86
"Accounting for the Costs of Computer Software to be Sold,  Leased, or Otherwise
Marketed." Software development costs are amortized at the greater of the amount
computed using either (a) the straight-line  method over the estimated  economic
life of the product, commencing with the date the product is first available for
general  release  or (b) the ratio that  current  gross  revenue  bears to total
current and anticipated future gross revenue.  Generally,  an economic life of 3
years is assigned to capitalized  software  development  costs.  Amortization of
such costs was $737,000,  $414,000 and $86,000 for the years ended  December 31,
2001, 2000 and 1999, respectively.

Intangible Assets

The Company's intangible assets consisted of the following as of December 31 (in
thousands):

                                                            2001        2000
                                                      ------------------------
Goodwill                                                 $ 10,005     $ 6,665
Less accumulated amortization                              (1,417)     (1,907)
                                                      ------------------------
    Goodwill, net                                           8,588       4,758
                                                      ------------------------
Software                                                    1,800          --
Customer list                                               2,100          --
Less accumulated amortization                                (220)         --
                                                      ------------------------
    Identifiable intangibles, net                           3,680          --
                                                      ------------------------
Intangible assets, net                                   $ 12,268     $ 4,758
                                                      ========================

Goodwill resulting from business purchases represents the excess of the purchase
price over the fair value of the net assets acquired. Goodwill is amortized on a
straight-line basis over estimated useful lives of seven to ten years.  Software
and customer list represent the  identifiable  intangibles  associated  with the
EZ-CAP  acquisition  (see Note 3). Software and customer list are amortized on a
straight-line  basis  over  their  estimated  useful  lives  of 5 and  7  years,
respectively.  Amortization expense was $836,000, $769,000, and $751,000 for the
years ended December 31, 2001, 2000 and 1999,  respectively.  In accordance with
Statement  of  Financial  Accounting  Standards  No.  142  "Goodwill  and  Other
Intangible Assets",  goodwill resulting from acquisitions  subsequent to July 1,
2001 was not  amortized.  In 2001,  the  Company  wrote-off  approximately  $1.3
million of goodwill, which represented the excess of the carrying value of these
assets as compared to the fair value of the assets as  determined  in accordance
with SFAS 121. See Note 8 for more information.


                                       28
<PAGE>


Evaluation of Long-lived Assets

In accordance  with SFAS No. 121,  "Accounting  for the Impairment of Long-lived
Assets and for  Long-Lived  Assets to be Disposed  of," ("SFAS 121") the Company
evaluates the potential  impairment of long-lived  assets,  including  goodwill,
based on the projection of undiscounted cash flows whenever events or changes in
circumstances  indicate  that the  carrying  amount of an asset may not be fully
recoverable.

Fair Value of Financial Instruments

The Company's  financial  instruments,  principally  cash and cash  equivalents,
accounts receivable, accounts payable, and accrued expenses are carried at cost,
which approximates fair value due to the short term nature of these instruments.
The Company's  note  receivable,  revolving  debt,  and term loan are carried at
cost,  which  approximates  fair value as these  instruments  bear  interest  at
variable  market  rates.  Considerable  judgement  is required to estimate  fair
value. Accordingly, the estimates provided are not necessarily indicative of the
amounts the Company could realize in a current market exchange.

Concentration of Risk

The Company has two strategic  customers  whose combined  revenues exceed 10% of
total revenue.  One strategic  customer  accounted for 69.2%, 76.0% and 75.7% of
total  revenues  for  the  years  ended  December  31,  2001,   2000  and  1999,
respectively.  The other strategic  customer accounted for 7.4%, 12.8% and 15.9%
of total  revenues  for the  years  ended  December  31,  2001,  2000 and  1999,
respectively.

Financial  instruments that potentially  subject the Company to concentration of
credit risk principally consist of accounts receivable and cash equivalents. The
Company's two largest strategic  customers accounted for approximately 30.2% and
16.8%,  respectively,  of accounts  receivable as of December 31, 2001 and 60.9%
and 9.5%,  respectively,  of accounts  receivable  as of December 31, 2000.  The
Company  did not have any other  customers  with  balances in excess of 10.0% of
accounts  receivable  as of  December  31, 2001 or 2000.  The  Company  performs
ongoing  credit  evaluations  of its  customers,  but generally does not require
collateral to support customer receivables.

The Company has investments in overnight repurchase agreements with a commercial
bank. As of December 31, 2001 and 2000,  the Company had invested  approximately
$7.3 million and $10.5  million in  overnight  repurchase  agreements  with this
bank.  The bank provides  underlying  collateral  consisting of U.S.  government
securities, which fully secures the carrying value of the repurchase agreements.
Because the transactions are entered into and settled daily, management believes
that the risk of market value impairment on a given day is nominal.

Recent Accounting Pronouncements

Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standard No. 133 "Accounting for Derivative Instruments and Hedging Activities,"
as amended by Statement of Financial  Accounting  Standard No. 138,"  Accounting
for Certain  Derivative  Instruments and Certain Hedging  Activities."  SFAS No.
133, as amended,  establishes  accounting and reporting standards for derivative
instruments,   including  certain  derivative   instruments  embedded  in  other
contracts,  and for hedging  activities.  The  statement  requires that entities
recognize all  derivatives  as either assets or  liabilities in the statement of
financial  position and measure those  instruments at fair value.  The Company's
use of derivatives is currently limited to an interest rate swap on its floating
rate term loan.  There was no impact of  adopting  this  standard  on January 1,
2001, as the Company held no derivatives at that time.

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations."
SFAS 141 requires the purchase  method of accounting  for business  combinations
initiated  after June 30, 2001 and eliminates the  pooling-of-interests  method.
The  Company  does not  believe  that  the  adoption  of SFAS  141  will  have a
significant impact on its financial statements.

In July 2001, the FASB also issued Statement of Financial  Accounting  Standards
No. 142 ("SFAS 142"). "Goodwill and Other Intangible Assets", which is effective
January 1, 2002. SFAS 142 requires,  among other things,  the  discontinuance of
goodwill  amortization.  In addition,  the Standard includes  provisions for the
reclassification  of  certain  existing  recognized   intangibles  as  goodwill,
reassessment   of  the  useful   lives  of  existing   recognized   intangibles,
reclassification  of certain intangibles out of previously reported goodwill and


                                       29
<PAGE>


the identification of reporting units for purposes of assessing potential future
impairments  of  goodwill.  SFAS 142 also  requires  the  Company to  complete a
transitional goodwill impairment test six months from the date of adoption.  The
Company is currently  assessing but has not yet  determined  the impact SFAS 142
will have on its financial position and results of operations.

In August 2001, the FASB issued Statement of Financial  Accounting Standards No.
144,  "Accounting  for the  Impairment or Disposal of Long-Lived  Assets" ("FASB
144"), which addresses financial  accounting and reporting for the impairment or
disposal of long-lived assets.  FASB 144 supersedes both FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" and the accounting  and reporting  provisions of APB Opinion No.
30, "Reporting the Results of Operation - Reporting the Effects of Disposal of a
Segment of a Business,  and  Extraordinary,  Unusual and Infrequently  Occurring
Events and  Transactions,"  for the  disposal  of a Segment  of a  Business  (as
previously  defined  in  that  opinion).  FASB  144  also  amends  ARB  No.  51,
"Consolidated  Financial Statements" to eliminate the exception to consolidation
for a subsidiary for which control is likely  temporary.  The provisions of FASB
144 are required to be applied with fiscal years  beginning  after  December 15,
2001.  The Company is currently  assessing but has not yet determined the impact
FASB 144 will have on its financial position and results of operations.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting  period.  Actual results could differ from those estimates.
Significant items subject to such estimates and assumptions include the carrying
amount of long-lived assets, the allowance for doubtful accounts receivable, the
valuation of financial instruments, and contingencies (see Note 16).

Reclassifications

Certain amounts  previously  reported in the consolidated  financial  statements
have been reclassified to conform to the current year presentation.

2. Supplemental Disclosure of Cash Flow Information

(in thousands)
<TABLE>
<CAPTION>
                                                              For the years ended December 31,
                                                                2001        2000        1999
                                                             -----------------------------------
<S>                                                             <C>          <C>        <C>
Cash paid during the year for:
    Interest                                                    $   216      $    68    $    52
    Income taxes                                                $ 1,468      $ 1,309    $ 1,494

Supplemental non-cash investing and financing activities:
    Property and equipment purchased under capital leases       $   756      $    --    $    --
    Fair value of stock issued for software licenses            $    --      $    --    $ 2,288
    Fair value of stock issued for note receivable              $    --      $    --    $ 2,933
</TABLE>

3. Acquisitions

The Company has made  several  acquisitions  to further its  strategic  business
objectives.  All  acquisitions  were accounted for under the purchase  method of
accounting.  The results of each of the acquired companies have been included in
the  operations of the Company from the effective date of the  acquisition.  The
Company's acquisitions are as follows:

EZ-CAP Acquisition

On August 31, 2001, the Company closed on the acquisition (the "Acquisition") of
EZ-CAP,  a  division  of  QuadraMed   Corporation   (QuadraMed).   The  purchase
consideration  was $9,000,000 cash and contingent  consideration  in the form of
additional  cash  payments  to the  seller not to exceed  $5,000,000  during the
18-month  period  subsequent to the closing date,  subject to achieving  certain
performance targets.


                                       30
<PAGE>


The assets  acquired and  liabilities  assumed as part of the  transaction  were
recorded at estimated  fair values.  The purchase price  allocation  resulted in
$3.9 million for identifiable  intangible assets including software and customer
list and the excess purchase price of $5.8 million over the fair value of assets
acquired was allocated to goodwill.

The following  unaudited  pro forma  financial  information  for the years ended
December 31, 2001 and 2000 assumes the Acquisition  occurred as of the beginning
of the respective  year, after giving effect to certain  adjustments,  including
interest expense and the amortization of intangible assets. The EZ-CAP financial
amounts  used to  prepare  the pro  forma  information  were  derived  from  the
historical books and records of QuadraMed and are not necessarily  indicative of
the operating results had the EZ-CAP division operated on a stand-alone basis.

This pro forma  information has been prepared for comparative  purposes only and
is not necessarily indicative of the results of operations that may occur in the
future or that would  have  occurred  if the  business  combination  had been in
effect on the dates indicated.

(in thousands, except per share amounts)            Years Ended
                                                    December 31,
                                             ---------------------------
                                                   2001          2000
                                             ---------------------------

     Revenues                                   $ 169,395     $ 161,445
     Net (loss) income                          $  (3,297)    $   1,749
     Basic (loss) income per share              $   (0.17)    $    0.10
     Diluted (loss) income per share            $   (0.17)    $    0.09

NetEffect Europe, Ltd. Acquisition

On August 31, 2001, the Company purchased the assets of NetEffect  Europe,  Ltd.
The  acquired  business,  located  in Slough,  England,  expands  the  Company's
information  technology  consulting  services  and  provides  additional  client
relations.  The purchase  resulted in goodwill of  approximately  $130,000.  The
purchase price included contingent  consideration in the form of additional cash
payments  to the seller not to exceed  $1,000,000  during  the  24-month  period
subsequent  to the  closing  date,  subject  to  achieving  certain  performance
targets.  This transaction was not material to the Company's  financial position
or  results  of  operations  and  is  excluded  from  the  pro  forma  financial
information presented above.

OAO/ICOR UK Ltd. Acquisition

On May 27, 1999,  the Company  acquired  the  remaining  50% of the  outstanding
capital stock of OAO/ICOR UK Ltd. not already owned by the Company.  The Company
paid  $688,000 for the  outstanding  capital  stock of the seller.  The purchase
resulted in goodwill of approximately  $501,000. The Company ceased applying the
equity method of accounting on the effective date of the acquisition.


                                       31
<PAGE>


4. Net (Loss) Income Per Common Share

     (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                           For the years ended December 31,
                                                             2001        2000       1999
                                                           -------------------------------
<S>                                                        <C>         <C>        <C>
Basic (loss) earnings per share:
      Net (loss) income                                    $ (3,513)   $  1,798   $  1,851
      Weighted average number of shares                      18,935      17,883     16,856
                                                           -------------------------------
      Basic (loss) earnings per share                      $  (0.19)   $   0.10   $   0.11
                                                           ===============================

Diluted (loss) earnings per share:
      Net (loss) income                                    $ (3,513)   $  1,798   $  1,851
      Weighted average number of shares and equivalents:
      Weighted average shares                                18,935      17,883     16,856
      Shares issuable upon exercise of stock options             --         601        506
                                                           -------------------------------
      Total weighted average shares and equivalents          18,935      18,484     17,362
                                                           -------------------------------
Diluted (loss) earnings per share:                         $  (0.19)   $   0.10   $   0.11
                                                           ===============================
</TABLE>

The dilutive  effect of shares  issuable upon exercise of stock options has been
excluded from the diluted  earnings  (loss) per share  computation  for the year
ended December 31, 2001 as inclusion of such shares would be anti-dilutive.

5. Accounts Receivable

As of December  31, the  components  of  accounts  receivable  consisted  of the
following (in thousands):

                                                              2001      2000
                                                            -------------------
Amounts billed                                              $ 28,635  $ 26,409
Amounts unbilled                                               9,543     7,049
Amounts unbilled pending receipt of  contractual documents
    authorizing billing                                            -        84
Allowance for doubtful accounts                               (1,576)   (1,729)
                                                            -------------------
      Total                                                 $ 36,602  $ 31,813
                                                            ===================

The allowance for doubtful  accounts activity for the years ended December 31 is
as follows (in thousands):

                                            2001       2000        1999
                                         --------------------------------
Balance at beginning of year              $ 1,729    $ 1,507     $ 1,669
Provision for losses charged to expense     2,153        755         474
Charge-offs, net of recoveries             (2,306)      (533)       (636)
                                         --------------------------------
Balance at end of year                    $ 1,576    $ 1,729     $ 1,507
                                         ================================

6. Other Current Assets

Other current assets included  software  licenses for resale of zero at December
31, 2001 and $5.1 million at December 31 2000. In connection  with a Value Added
Industry Remarketer agreement with Siebel Systems, Inc., on August 31, 1999, the
Company purchased  software licenses in the amount of $5.1 million for resale to
third  parties.  The software  licenses were purchased with cash of $2.8 million
and 228,800 shares of the Company's common stock.


                                       32
<PAGE>


During 2001, the Company  wrote-off $5.1 million  representing  all presently on
hand and future purchase  commitments to acquire Siebel software  licenses.  The
Company  filed suit against  Siebel for breach of the implied duty of good faith
and fair  dealing  under  these  agreements.  See  Note 16 for more  information
regarding this suit.

7. Property and Equipment

Property  and  equipment  consisted  of  the  following  as of  December  31 (in
thousands):

                                                      2001        2000
                                                   ---------------------
Furniture and equipment                             $ 6,853     $ 6,929
Leasehold improvements                                1,141         522
Internal-use software                                 2,805       2,877
                                                   ---------------------
                                                     10,799      10,328
Less accumulated depreciation and amortization       (5,579)     (4,550)
                                                   ---------------------
     Property and equipment, net                    $ 5,220     $ 5,778
                                                   =====================

The Company  leases  furniture and  equipment  that are accounted for as capital
leases.  Amounts  related to capital  leased  assets  included in  property  and
equipment  at  December  31,  2001 and  2000  are  furniture  and  equipment  of
$3,041,000  and  $2,103,000,   respectively  and  accumulated   amortization  of
$1,277,000 and $447,000, respectively.

8. Write-Down of Impaired Assets and Other

The following represents a detail of the write-down of impaired assets and other
for the year ended December 31, 2001 (in thousands):

Goodwill                                                             $ 1,272
Cost basis and other investments                                         990
Internal-use software                                                    896
Other                                                                    150
                                                                     --------
     Total write-down of impaired assets and other                   $ 3,308
                                                                     ========

In connection with an internal  business unit realignment in the last quarter of
2001, the Company performed an impairment analysis of certain 1998 acquisitions.
As a result of this analysis,  the Company wrote-off  approximately $1.3 million
of goodwill,  which represented the excess of the carrying value of these assets
as compared to the fair value of the assets as  determined  in  accordance  with
SFAS 121.

During  December  2000, the Company made an investment in an entity in which the
Company's Chief Executive  Officer is a member of the Board of Directors.  Based
on this entity's financial condition, the Company determined that its investment
in this entity was other-than-temporarily  impaired. Accordingly, the investment
of  approximately  $0.5  million and a note  receivable  of  approximately  $0.1
million  were   written-off   during  2001.   In  addition,   an  investment  of
approximately $0.4 million in a venture with a third party was written-off after
the third party failed to secure a significant contract.

During  2001,  the  Company  began   implementation  of  a  new  enterprise-wide
information  system.  Certain financial modules,  which were replaced by the new
system  in  2001,  were  taken  out  of  service  resulting  in a  write-off  of
approximately $0.9 million.


                                       33
<PAGE>


9. Credit Agreements

On August 29, 2001, the Company amended its credit agreement dated June 30, 1999
(the "Amendment"). The Amendment provides a $15 million revolving line of credit
("Revolver")  and a $9 million term loan facility.  The Revolver  provides for a
commitment  fee of 0.375% to 0.500% of the unused  balance  and  interest at the
prime rate or, at the Company's option,  at LIBOR plus a risk-adjusted  premium.
The Revolver  matures on September 30, 2003. Draws under the Revolver in cash or
letters of credit are limited to a formula driven  borrowing base  determined by
the levels of certain receivables,  as defined in the Amendment. The Amendment's
term loan facility was drawn on in full to fund the EZ-CAP acquisition (see Note
3).  There was  $8,550,000  outstanding  on the term loan at December  31, 2001,
which bears  interest at LIBOR plus a  risk-adjusted  premium,  totaling 3.9% at
December 31, 2001.  The term loan facility  matures on September 30, 2006 and is
due in sixty equal monthly principal payments, plus interest. The Amendment also
modified  certain  required  financial  covenants.   There  were  no  borrowings
outstanding  under the  Revolver  as of December  31, 2001 and $6.0  million was
outstanding  as of December 31, 2000 bearing  interest at a rate of 9.5 %. There
was approximately $1,000,000 and $330,000 of letters of credit outstanding under
the Revolver as of December 31, 2001 and 2000, respectively.

On October  31,  2001,  to comply with the terms of the  Amendment,  the Company
entered  into an  interest  rate  swap  agreement,  effectively  converting  the
interest  rate  from  variable  to  fixed  on  63.33%  of the  principal  amount
outstanding  on the term loan.  The swap  agreement is being  accounted for as a
cash flow hedge, in accordance with Statement of Financial  Accounting  Standard
No. 133,  "Accounting  for Certain  Derivative  Instruments  and Certain Hedging
Activities".  The  swap  agreement  is for a period  of 4 years  and  fixes  the
variable  portion of the interest rate on the term loan to 2.67% through October
2002,  4.09% through October 2003, 5.22% through 2004 and 5.72% through 2005. As
of December 31, 2001,  the notional  amount of the term loan covered by the swap
agreement was $5,600,000 and the fair value was a liability of $3,124.  The fair
value of the swap  agreement is reflected on the balance sheet in Term loan, net
of  current  portion.  Changes  in fair  value  of the  swap  are  reflected  as
adjustments to  shareholders'  equity through other  comprehensive  income.  The
interest rate under this swap agreement,  including the  risk-adjusted  premium,
was 4.67% at December 31, 2001.

10. Lease Commitments

The Company leases furniture and equipment under capital lease arrangements. The
Company also leases office space and office  equipment under  operating  leases.
The minimum  fixed,  non-cancelable  lease  payments  under the Company's  lease
commitments at December 31, 2001 are as follows (in thousands):

Future minimum lease payments:                        Capital      Operating
Year ended December 31:                               Leases         Leases
                                                    ------------------------
     2002                                             $ 1,055       $ 4,709
     2003                                                 455         4,468
     2004                                                 404         3,850
     2005                                                  63         3,243
     2006                                                   -         2,518
      Thereafter                                            -           245
                                                    ----------     ---------
                                                        1,977      $ 19,033
                                                                   =========
Less amount representing interest                        (153)
                                                    ----------
Present value of lease payments                         1,824
Current portion of capital lease obligations              959
                                                    ----------
Noncurrent portion of capital lease obligations       $   865
                                                    ==========

Capital lease obligations have effective  interest rates that range from 7.8% to
9.5% and have aggregate  monthly payments of approximately  $88,000 and $60,000,
at December 31, 2001 and 2000,  respectively.  A number of operating leases have
escalation  clauses for  increases  in real estate  taxes,  operating  costs and
inflation,  and various renewal  options for up to five years.  Rent expense for
the years ended December 31, 2001, 2000 and 1999 was  approximately  $3,638,000,
$2,076,000  and  $1,707,000,  respectively.  During the years ended December 31,
2001  and  2000,   the  Company   entered   into  capital   leases   related  to
sales-leaseback  transactions  for property and  equipment  with a book value of
approximately $312,000 and $1,584,000, respectively.


                                       34
<PAGE>


11. Income Taxes

The Company's  (benefit) provision for income taxes for the years ended December
31 consisted of the following (in thousands):

                                               2001       2000      1999
                                             ----------------------------
Current:
     Federal                                 $   910    $   150   $   615
     Foreign                                     353      1,115       605
     State                                       281         41       128
                                             ----------------------------
        Total current provision                1,544      1,306     1,348
Deferred:
     Federal                                  (2,829)        19       167
     State                                      (608)         4        39
                                             ----------------------------
        Total deferred (benefit) provision    (3,437)        23       206
                                             ----------------------------
Total (benefit) provision                    $(1,893)   $ 1,329   $ 1,554
                                             ============================

The (benefit)  provision  for income taxes  differs from the amount  computed by
applying the statutory federal income tax rate as follows:

                                              2001    2000    1999
                                             ---------------------
Expected statutory amount                    (34.0)%  34.0 %  34.0%
Nondeductible expense                          5.4     3.1     0.8
Foreign income taxes                          (1.9)    3.9     7.7
State income taxes, net of federal benefit    (4.6)    1.4     3.1
Other                                          --      0.1      --
                                             ---------------------
Effective rate                               (35.1)%  42.5%   45.6%
                                             =====================

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes  and  amounts  used  for  income  tax  purposes.  The  tax  effects  of
significant  temporary  differences  that  comprise  the deferred tax assets and
liabilities at December 31 are as follows (in thousands):

                                      2001      2000
                                    -----------------
Deferred tax assets:
     Bad debt                       $ 1,166   $   674
     Accrued employee benefits          341       212
     Goodwill                           568       261
     Charitable contributions            --        85
     Inventory basis difference       1,983        --
     Deferred compensation              195        --
     Depreciation                       330        --
     Other expense items                355       195
                                    -----------------
        Total deferred tax assets     4,938     1,427
Deferred tax liabilities                 --       (73)
                                    -----------------
        Net deferred tax assets     $ 4,938   $ 1,354
                                    =================

Deferred tax assets and liabilities are reflected on the Company's  consolidated
balance sheets at December 31 as follows (in thousands):

                                       2001     2000
                                      ---------------
Net current deferred tax assets       $4,040   $1,093
Net non-current deferred tax assets      898      261
                                      ---------------
       Net deferred tax assets        $4,938   $1,354
                                      ===============


                                       35
<PAGE>


12. Employee Benefit Plans

Employee Savings Plans

The Company sponsors defined  contribution  plans for its eligible  employees in
the United  States and Canada.  The U.S.  plan covers  substantially  all of the
Company's  U.S.  employees.  Participants  may  contribute to the plan an amount
between  1% and 15% of  their  total  annual  compensation.  The  Company  makes
matching  contributions of 20% of each participant's  contributions up to 10% of
annual compensation. The Canadian plan covers substantially all of the Company's
Canadian employees. Participants may contribute to the plan an amount between 1%
and  18%  of  their  total  annual  compensation.  The  Company  makes  matching
contributions  of 50% of each  participant's  contributions  up to 5% of  annual
compensation.  Company  matching  contributions  under all defined  contribution
savings plans amounted to approximately $782,000,  $839,000 and $764,000 for the
years ended December 31, 2001, 2000 and 1999, respectively.

Deferred Compensation Plan

Beginning in 2000, the Company established a non-qualified deferred compensation
plan for certain  executives and directors,  which provides the  opportunity for
participants to enter into agreements for the deferral of a specified percentage
of their  cash  compensation.  The  amount of  compensation  to be  deferred  is
determined by participant  elections,  subject to plan limitations.  The Company
may make discretionary  contributions,  which are subject to a vesting schedule.
The amount  distributed will be based on the amounts  deferred,  as increased or
decreased for deemed investment in mutual funds or other investments  designated
by the  participant  from choices offered by the Company.  Contributions  to the
plan are held in a "Rabbi Trust," the net assets of which are consolidated  into
the financial  statements of the Company.  Such investments consist primarily of
marketable equity securities,  classified as trading securities, which have been
included in deposits and other assets on the consolidated balance sheet at their
fair value of $779,000 and $279,000 at December 31, 2001 and 2000, respectively.
Unrealized  gains and  losses  on  investments  held in the  "Rabbi  Trust"  are
recognized  in net  income  of the  period in which  they  occur.  The  deferred
compensation obligation is included in capital lease obligations, net of current
portion and other on the consolidated balance sheets.  Changes in the fair value
of the deferred  compensation  obligation  are  recognized  in net income in the
period they occur.

13. Shareholders' Equity

Employee Stock Purchase Plan

The Company has a qualified  Employee  Stock  Purchase Plan (ESPP) under section
423 of the Internal  Revenue Code, with a total of 2,000,000 shares reserved for
issuance thereunder.  The ESPP enables substantially all employees in the United
States and Canada to subscribe to purchase shares of common stock on a quarterly
basis.  The purchase  price is determined as the lower of 85% of the fair market
value of the shares on the first day of the  quarter  or 85% of the fair  market
value of the shares on the last trade day of the quarter.  During 2001, 2000 and
1999, the Company issued 740,882, 331,125 and 210,021 shares,  respectively,  at
an average price per share of $0.89, $3.31 and $2.75.

Stock-Based Compensation

Under the 1996 Equity Compensation Plan, as amended, (the "Plan") the Company is
authorized  to  grant  stock  options  to  employees,  officers,  directors  and
consultants.  The Plan provides for the issuance of up to 6.6 million  shares of
common  stock for the  grant of  incentive  stock  options,  nonqualified  stock
options,  stock appreciation rights, and restricted stock awards up to a maximum
of 1.6  million  shares  of  common  stock  to an  individual  in any one  year.
Generally,  these grants vest ratably over a four or five year period and expire
six to ten years after the date of grant.  The exercise price of options granted
under  the  Plan is equal to the fair  market  value on the date of  grant.  The
Company  accounts for  employee  stock  options  under APB Opinion No. 25, under
which no compensation  cost has been  recognized.  Pursuant to SFAS No. 123, the
Company recognized  approximately $25,000,  $106,000 and $42,000 of compensation
expense on options  granted to  non-employees  for the years ended  December 31,
2001, 2000 and 1999, respectively.


                                       36
<PAGE>


A summary of the  Company's  stock  option  plan  activity  for the years  ended
December  31, 2001,  2000,  and 1999 is presented  below:

                                                                        Weighed
                                       Number of                        Average
                                        Option      Exercise Price      Exercise
                                        Shares        Per Share          Price
                                    --------------------------------------------
Outstanding, January 1, 1999           2,748,702     $2.00 -$8.50       $ 4.04
Granted                                1,178,115      2.00 - 5.19         4.72
Canceled                              (1,102,590)     2.00 - 8.50         4.83
Exercised                               (219,523)     2.00 - 8.50         2.51
--------------------------------------------------------------------------------
Outstanding, December 31, 1999         2,604,704     $2.00 -$8.50       $ 4.09
Granted                                2,056,150      1.35 - 8.27         6.21
Canceled                                (765,822)     2.00 - 8.50         5.47
Exercised                               (216,664)     2.00 - 8.50         3.77
--------------------------------------------------------------------------------
Outstanding December 31, 2000          3,678,368     $1.35 -$8.50       $ 5.01
Granted                                1,755,052      1.50 - 2.09         1.59
Canceled                                (606,794)     1.35 - 8.27         3.58
Exercised                                 (8,916)     1.35 - 2.09         1.83
--------------------------------------------------------------------------------
Outstanding December 31, 2001          4,817,710     $1.35 -$8.27       $ 3.91
                                    ============================================

The  following   summarizes   information  about  the  Company's  stock  options
outstanding at December 31, 2001:

                              Weighted
                               Average    Weighted                 Weighted
   Range of                   Remaining    Average                  Average
   Exercise     Number       Contractual  Exercise    Number       Exercise
    Prices    Outstanding  Life (in Years)  Price   Exercisable      Price
---------------------------------------------------------------------------
$ 1.35 -$1.65  1,883,000         3.89      $ 1.53      114,375      $ 1.35
  1.71 - 5.19  1,845,510         3.30        3.84    1,140,618        3.83
  5.63 - 8.27  1,089,200         4.45        8.16      330,607        8.00
---------------------------------------------------------------------------
$ 1.35 -$8.27  4,817,710         3.79      $ 3.91    1,585,600      $ 4.52
===========================================================================

As of December 31, 2001,  2000 and 1999,  options of  1,585,600,  1,037,474  and
906,953,  respectively,  were exercisable with a weighted average exercise price
of $4.52, $3.76 and $3.74, respectively. As of December 31, 2001, 2000 and 1999,
approximately  0.5 million,  1.5 million and 2.8 million  options were available
for grant, respectively.


                                       37
<PAGE>


The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option   pricing  model  with  the  following   weighted-average
assumptions for grants in 2001, 2000 and 1999: risk-free interest rates of 4.39,
5.94 and  5.50  percent,  respectively  and no  expected  dividend  yields.  The
expected  lives of 3 years for fiscal  2001 and 5 years for fiscal 2000 and 1999
were also assumed in the model. In 2001, 2000 and 1999, the expected  volatility
was 107%, 93% and 70%, respectively.  Using these assumptions, the fair value of
the  stock  options  granted  in 2001,  2000 and 1999 on a per  share,  weighted
average basis was $0.94, $4.63 and $2.94, respectively, which would be amortized
as compensation expense over the vesting period of the options.

Had  compensation  cost for these plans been recognized  under SFAS No. 123, the
Company's  net (loss)  income and (loss)  earnings  per share would have been as
follows  for the  years  ended  December  31 (in  thousands,  except  per  share
amounts):

                                                  2001        2000       1999
                                               --------------------------------
Consolidated net (loss) income:
    As reported                                $ (3,513)    $ 1,798    $ 1,851
    Pro forma                                    (5,952)     (1,009)       807
Basic net (loss) income per common share:
    As reported                                   (0.19)       0.10       0.11
    Pro forma                                     (0.31)      (0.06)      0.05
Diluted net (loss) income per common share:
    As reported                                   (0.19)       0.10       0.11
    Pro forma                                     (0.31)      (0.06)      0.05

Stock Repurchase Program

In 2001, the Company's  Board of Directors  authorized the repurchase of up to 2
million  shares of its common stock.  The shares may be  repurchased in the open
market or  through  negotiated  transactions.  The  timing  and number of shares
repurchased will be determined by management and depend on market conditions and
other factors. During 2001, 696,128 shares were repurchased under this program.

14. Segment and Geographic Information

The Company operates two business segments:  Managed IT Solutions and Healthcare
IT Solutions.  In order to align our reporting with  competitors in the industry
and to make our segment  information  more useful to users, all of the Company's
IT service related operating segments have been consolidated into one reportable
segment,  Managed IT Solutions.  All prior period segment  information  has been
restated to reflect  this  change.  The  Company's  business  segments  formerly
reported  as  Enterprise  Applications  and  eBusiness  Solutions,   Managed  IT
Services,  and  Professional  Services  have been  combined  as a result of this
change and are now collectively reported as Managed IT Solutions.  Healthcare IT
Solutions remains unchanged.

The Managed IT Solutions  segment provides  application  management,  enterprise
systems  management and desktop  management  services  encompassing  network and
systems design, software solutions,  integration,  and management of large-scale
data-center  environments,  which includes  on-site and remote  network  systems
management.  In addition,  we offer  information  technology  personnel that are
utilized to augment short or indefinite term engagement requirements.

The Healthcare IT Solutions segment provides  proprietary  software products and
business  solutions for  healthcare  organizations.  The division  provides full
service  solutions via its proprietary  MC400 software on a one-time  license or
PMPM basis and via its  EZ-CAP  software,  which is the  industry  standard  for
at-risk healthcare organizations.  This includes customer service,  installation
service, training and ongoing support.


                                       38
<PAGE>


The Company  evaluates the performance of each segment based on segment revenues
and gross profit.  Summary  information by segment as of and for the years ended
December 31 is as follows (in thousands):

                                   2001          2000           1999
                               ----------------------------------------
Managed IT Solutions
    Revenues                     $144,535     $ 138,919      $ 139,596
    Gross profit                   20,330        20,002         15,984
    Segment assets                 44,528        55,518         50,912
Healthcare IT Solutions
    Revenues                       18,565        13,666         10,566
    Gross profit                    6,239         4,678          2,514
    Segment assets                 23,019         9,791          5,958
Segment totals
    Revenues                     $163,100     $ 152,585      $ 150,162
    Gross profit                   26,569        24,680         18,498
    Segment assets                 67,547        65,309         56,870

The following table reconciles reportable gross profit and segment assets to the
Company's consolidated totals. Selling,  general and administrative expenses and
interest  and other  income and  expenses  are not  allocated  to  segments  (in
thousands):

As of and for the years ended December 31,
<TABLE>
<CAPTION>
                                                                 2001        2000       1999
                                                               -------------------------------
<S>                                                            <C>         <C>        <C>
Gross profit for reportable segments                           $ 26,569    $ 24,680   $ 18,498
    Selling, general and administrative expenses unallocated     32,226      22,675     16,014
                                                               -------------------------------
       Total consolidated (loss) income from operations          (5,657)      2,005      2,484
    Interest and other income, net                                  251       1,122        921
                                                               -------------------------------
       Total consolidated (loss) income before income taxes    $ (5,406)   $  3,127   $  3,405
                                                               ===============================

Total assets for reportable segments                           $ 67,547    $ 65,309   $ 56,870
    Note receivable, OAO Corporation                              1,714       2,160      2,520
    Income taxes unallocated                                      5,296       2,108      1,965
                                                               -------------------------------
       Total consolidated assets                               $ 74,557    $ 69,577   $ 61,355
                                                               ===============================
</TABLE>

The Company generated substantially all of its revenues in the United States and
Canada during the three years ended December 31, 2001. The following  represents
a summary of information by geographic area (in thousands):

                                      For the years ended December 31,
                                       2001         2000        1999
                                     ----------------------------------
Revenues:
     United States                   $ 109,172    $ 117,711   $ 131,261
     Canada                             46,097       29,019      16,029
     Other consolidated entities         7,831        5,855       2,872
                                     ----------------------------------
                                     $ 163,100    $ 152,585   $ 150,162
                                     ==================================
(Loss) income before income taxes:
     United States                   $  (7,690)   $   1,040   $   1,467
     Canada                              1,842        1,390       1,680
     Other consolidated entities           442          697         258
                                     ----------------------------------
                                     $  (5,406)   $   3,127   $   3,405
                                     ==================================
Identifiable assets:
     United States                   $  58,311    $  59,049   $  51,702
     Canada                             14,165        9,016       9,493
     Other consolidated entities         2,081        1,512         160
                                     ----------------------------------
                                     $  74,557    $  69,577   $  61,355
                                     ==================================


                                       39
<PAGE>


15. Related Party Transactions

OAO Corporation

The Company and OAO  Corporation  (OAO) were related parties during 2001 because
the Vice  Chairman of the Board of Directors  of the Company held a  substantial
ownership interest in OAO Corporation.  In December 2001, the Vice Chairman sold
his entire interest in OAO.

In support of the Terrapin  transaction,  the Vice Chairman agreed to consult to
the Company beginning in January 2002 to help it launch a new business. The Vice
Chairman is being paid a fee of $10,000 per month for his efforts, commencing on
January 1, 2002 pursuant to a Professional Services Agreement.  The Professional
Services  Agreement was approved by the Board of Directors in the fourth quarter
of 2001.  The  Agreement has a one-year  term and will  automatically  renew for
successive one-year terms in the absence of written notice from either party.

In May 1999, the Company loaned OAO approximately $2.5 million.  The demand note
required minimum  quarterly  principal  payments of $90,000 plus interest at the
prime rate plus 2.5%, and was secured by approximately 1.3 million shares of the
Company's common stock  beneficially  owned by the Vice Chairman of the Board of
Directors.  There was  approximately  $1.7 million and $2.2 million due from OAO
under this note as of December  31, 2001 and 2000,  respectively.  This note was
paid in full in January 2002.

During 2001,  2000 and 1999,  the Company served as a  subcontractor  on several
contracts  with OAO.  Revenues for the years ended  December 31, 2001,  2000 and
1999  under  these   contracts   totaled   $307,000,   $871,000  and   $949,000,
respectively.  The Company had $690,000 and $421,000 in receivables due from OAO
as of December 31, 2001 and 2000, respectively.

Other

The Company had an administrative  service agreement with Safeguard Scientifics,
Inc., which was terminated  effective April 1, 2000. The agreement  provided for
payment of an  administrative  fee, not to exceed $500,000 per year. The Company
expensed an  administrative  fee to  operations of $124,000 and $500,000 for the
years ended December 31, 2000 and 1999,  respectively,  in connection  with this
agreement.

On October 22, 2001, Terrapin Partners Subsidiary LLC ("Terrapin Partners"),  an
affiliate  of J.F.  Lehman & Company,  Inc.  ("JFL"),  acquired  all 5.7 million
shares of the Company's common stock held by Safeguard Scientifics, Inc. and two
of its affiliates ("Safeguard"). In addition, the Vice Chairman of the Company's
Board of Directors,  the President and Chief  Executive  Officer of the Company,
and the Senior  Vice  President  of Finance and Chief  Financial  Officer of the
Company  contributed  an aggregate of 1,369,458  shares of the Company's  common
stock to  Terrapin  Partners in  exchange  for a like number of common  units of
Terrapin  Partners'  parent,  Terrapin  Partners  Holding  Company LLC,  with an
initial  stated  value of $1.65 per unit.  John F.  Lehman,  the Chairman of the
Board of the Company,  is a founding member and the Chairman and Chief Executive
Officer of JFL.

On October 22, 2001,  the Vice Chairman of the Board of Directors of the Company
and majority owner of OAO entered into a Voting Agreement and Irrevocable  Proxy
with  Terrapin  Partners  pursuant to which the Vice  Chairman  with  respect to
1,826,400  shares of the Company's  common stock that he beneficially  owns, but
that are pledged to secure  obligations  (the "Pledged  Shares"),  (i) agreed to
vote the Pledged  Shares in accordance  with voting  instructions  received from
Terrapin  Partners,  (ii) granted Terrapin Partners an irrevocable proxy to vote
the Pledged Shares and (iii) agreed to contribute the Pledged Shares to Terrapin
Partners in exchange  for a like number of common  units with an initial  stated
value  of  $1.65  per  unit  upon  any or all of  the  Pledged  Shares  becoming
unencumbered.

In connection with the Terrapin Partners transactions, and as a condition to the
Board of Directors of the Company  approving those  transactions for purposes of
Section 203 of the Delaware  General  Corporation  Law,  the  Company,  Terrapin
Partners  and an  affiliate  of  JFL,  J.F.  Lehman  Equity  Investors  I,  L.P.
("JFLEI"),  entered into a Stockholders Agreement,  dated as of October 22, 2001
(the  "Stockholders  Agreement").  Pursuant to the Stockholders  Agreement,  the
parties thereto agreed that during the term of the Stockholders  Agreement,  the
Board of  Directors  of the Company  would  continue to maintain a committee  of
independent directors (the "Independent Committee") consisting of at least three
members of the board of  directors  that are neither  executive  officers of the
Company nor  affiliated  with  JFLEI,  Terrapin  Partners  or their  affiliates.
Additionally,


                                       40
<PAGE>


the Company agreed that during the term of the  Stockholders  Agreement it would
not  approve  any  "Material  Transaction"  without  the  consent  of at least a
majority of the members of the Independent  Committee.  A "Material Transaction"
is defined to mean (i) any transaction or series of related transactions between
the Company and Terrapin Partners, JFLEI or their affiliates (A) with a value in
excess of $375,000 in the aggregate or (B) which is reasonably  likely to have a
material  effect on the  Company's  business,  financial  condition,  results of
operations  or prospects  or (ii) any reverse  stock split by the Company of its
voting securities.

Further,  Terrapin Partners,  JFLEI and their affiliates agreed,  subject to the
exceptions contained in the following  paragraph,  not to (1) acquire any voting
securities or any rights to acquire voting  securities of the Company except the
8,925,214 shares over which Terrapin Partners acquired beneficial ownership upon
consummation of the transactions on October 22, 2001, (2) enter into any merger,
tender offer or similar transaction involving the Company or acquire any portion
of the  business  or assets of the  Company  unless  (A) all  holders  of voting
securities of the Company are treated equally in terms of the  consideration  to
be received by such  holders and (B) the  transaction  is not entered  into with
Terrapin  Partners,  JFLEI or their  affiliates  or any other  person  acting in
concert with Terrapin  Partners,  JFLEI or their affiliates,  (3) participate in
any  solicitation  of proxies for the  removal of any member of the  Independent
Committee or (4) take any action  challenging the validity or  enforceability of
the provisions described in item 1, 2 and 3 above.

Notwithstanding the foregoing, Terrapin Partners and its affiliates are entitled
to  purchase   voting   securities  of  the  Company  (1)  through   open-market
transactions  not to exceed 5% of the voting  securities  of the  Company in the
aggregate and (2) if (a) such purchase is made as a result of a transaction  (or
a series of transactions) in which Terrapin  Partners or its affiliates  acquire
or offer to acquire all of the outstanding voting securities of the Company, (b)
the consideration to be paid for the voting securities is deemed to be fair from
a financial  point of view in an opinion  issued by an  investment  banking firm
retained by the Independent Committee and (c) the transaction is approved by the
holders  of a majority  of the  outstanding  voting  securities  of the  Company
(excluding for the purposes of such  calculation any voting  securities owned by
Terrapin  Partners,  JFLEI or their  affiliates  or any other  person  acting in
concert with Terrapin Partners, JFLEI and their affiliates).

The Stockholders  Agreement terminates upon the earlier of (1) October 22, 2004,
(2) with  respect  to any  voting  securities  beneficially  owned  by  Terrapin
Partners,  upon the  transfer of such voting  securities  to a person other than
JFLEI or any Restricted  Transferee (as defined in the Stockholders  Agreement),
(3) the date on which Terrapin Partners,  together with JFLEI and any Restricted
Transferee,  shall cease to  beneficially  own voting  securities of the Company
representing at least 15% of the total voting power of the Company;  and (4) the
date  on  which  the  Company  files  a Form 15  with  the  Securities  Exchange
Commission,  the  filing of which was  approved  by at least a  majority  of the
members of the Independent Committee.

Effective October 22, 2001, the Company entered into a Management Agreement with
JFL that  provides  for  payment  of an  administrative  and  consulting  fee of
$375,000 per year, plus the reimbursement of reasonable  out-of-pocket expenses.
The  Company  incurred  $72,000  related  to this  agreement  during  2001.  The
Management  Agreement  has a two-year  term,  but will  automatically  renew for
successive  two-year terms in the absence of written notice from one party given
to the other at least  one year  prior to the  scheduled  termination  date.  In
addition, the Management Agreement automatically terminates upon the sale of all
or  substantially  all of the  capital  stock or  assets  of the  Company  to an
unaffiliated third party.

In addition,  in connection with Terrapin  Partners'  transactions,  the Company
paid legal and other administrative expenses on behalf of the Company,  Terrapin
Partners  and  certain  members  of  Terrapin  Partners  totaling  approximately
$281,000 in 2001. On July 14, 1999, the Chief  Executive  Officer of the Company
acquired 750,000 shares of common stock of the Company, $.01 par value, at $3.91
per share, in exchange for a $2.9 million full recourse note,  bearing  interest
of 5.82% due July 14, 2004.  The shares were pledged as collateral for the note,
which the Chief Executive  Officer has personally  guaranteed.  During 2001, the
note was amended to, among other  things,  (i) extend the maturity  date to July
14,  2008 and (ii)  provide  for the  substitution  of  collateral,  whereby the
750,000  shares of the  Company's  common  stock were  released to Mr.  Pratt in
exchange  for the pledge of 750,000  common units of Terrapin  Partners  Holding
Company LLC.

On  November  1, 2001,  the Chief  Executive  Officer  was  granted the right to
purchase up to 750,000 shares of the Company's  common stock at a price of $1.65
per share,  in exchange for a $1.2 million full recourse note. This right cannot
be exercised  prior to April 23, 2002.  This right is included in the  Company's
stock option disclosures (see Note 13.)


                                       41
<PAGE>


16. Contingencies

The Company from time to time is involved in various  litigation  arising in the
normal course of business.  In  management's  opinion,  the  Company's  ultimate
liability  or loss,  if any,  resulting  from  such  litigation  will not have a
material  adverse  effect  on  the  Company's  financial  position,  results  of
operations or cash flows.

In  September  2001,  the  Company  filed suit  against  Siebel  Software,  Inc.
("Siebel")  seeking  reimbursement  from Siebel for: i) certain unsold  software
which  OAOT  purchased  under a  License  Agreement  and  Value  Added  Industry
Remarketer  Agreement  (see Note 6), and ii) related  maintenance  and  training
fees.  The suit  alleges  Siebel's  breach of the implied duty of good faith and
lack of fair dealing  under these  agreements.  Prior to filing suit,  OAOT gave
Siebel  notice that Siebel was in material  default  under the  agreements,  and
terminated  both  agreements.  The  outcome of this claim  cannot be  reasonably
predicted at this time.


                                       42
<PAGE>


17. Quarterly Financial Data (Unaudited)

Set forth below is a summary of the  unaudited  quarterly  results of operations
for the years ended December 31, 2001 and 2000 (in  thousands,  except per share
amounts):

                                                2001 Quarters Ended
                                      March 31  June 30(1)  Sept. 30  Dec. 31(2)
                                      --------  --------    --------  --------
Revenues                              $ 39,515  $ 40,380    $ 40,331  $ 42,874
Gross profit                          $  6,514  $  2,555    $  8,097  $  9,403
Net income (loss)                     $    346  $ (3,271)   $    766  $ (1,354)
Net income (loss) per common share:
    Basic and diluted                 $   0.02  $  (0.18)   $   0.04  $  (0.07)

                                                2000 Quarters Ended
                                      March 31  June 30     Sept. 30  Dec. 31
                                      --------  --------    --------  --------
Revenues                              $ 38,545  $ 39,695    $ 36,674  $ 37,671
Gross profit                          $  5,350  $  7,326    $  5,770  $  6,234
Net income                            $    709  $    738    $    183  $    138
Net income per common share:
    Basic and diluted                 $   0.04  $   0.04    $   0.01  $   0.01

(1) Gross profit for the quarter ended June 30, 2001 includes the  write-down of
prepaid  software  licenses of approximately  $5.1 million,  see Note 6 for more
information.  In addition, net loss for the quarter ended June 30, 2001 includes
a write-down of an investment  totaling  approximately $0.4 million.  See Note 8
for more information.

(2) Net loss for the quarter ended  December 31, 2001 includes the write-down of
impaired assets and other costs of  approximately  $2.9 million.  See Note 8 for
more information.


                                       43
<PAGE>


Item  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE.

     None.

                                    PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The  information  required by this Item is incorporated by reference to the
sections of the  Registrant's  definitive Proxy Statement for the Annual Meeting
of  Shareholders  to be held on May 17, 2002 (the "Proxy  Statement"),  entitled
"Election of Directors --  Nominees,"  "Executive  Officers"  and "Common  Stock
Ownership of Principal  Shareholders  and Management -- Compliance  with Section
16(a)  Beneficial  Ownership  Reporting   Compliance,"  to  be  filed  with  the
Commission.

Item 11. EXECUTIVE COMPENSATION

     The  information  required by this Item is incorporated by reference to the
sections of the Proxy Statement  entitled "Election of Directors -- Compensation
of Directors" and "Executive  Compensation  and Other  Information," to be filed
with the Commission.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The  information  required by this Item is incorporated by reference to the
section of the Proxy  Statement  entitled  "Common Stock  Ownership of Principal
Shareholders and Management," to be filed with the Commission.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The  information  required by this Item is incorporated by reference to the
sections of the Proxy Statement entitled "Election of Directors -- Nominees" and
"Executive   Compensation  and  Other  Information  --  Compensation   Committee
Interlocks and Insider Participation," to be filed with the Commission.


                                       44
<PAGE>


                                     PART IV

Item 14. EXHIBITS AND REPORTS ON FORM 8-K.

(a) (1) Financial Statements

The  financial  statements  listed  in the  accompanying  Table of  Contents  to
Consolidated  financial  Statements  are  filed  as  part  of  this  Form  10-K,
commencing on page 21.

(a) (3) Exhibits

     The exhibits are listed in the index to Exhibits appearing below.

(b)  (1) On November 6, 2001, the Registrant  filed a Current Report on Form 8-K
     to report under Item 5 (Other  Events)  that on October 22, 2001,  Terrapin
     Partners  Subsidiary  LLC  acquired  all 5.7 million  shares of OAOT common
     stock held by Safeguard Scientifics, Inc. and two of its affiliates.

     (2) On November 9, 2001, the Registrant filed an Amendment No. 1 to Current
     Report on Form 8-K/A to file under Item 7 (Financial Statements,  Pro Forma
     Financial  Information  and Exhibits)  historical  financial  statements of
     EZ-CAP,  a  division  of  QuadraMed  Corporation,  and pro forma  financial
     information  reflecting the acquisition of EZ-CAP,  a division of QuadraMed
     Corporation.

(c)  Exhibits

       Exhibit                                                              Page
         No.                           Description                          No.
       -------------------------------------------------------------------------

       3.1     Amended and Restated Certificate of Incorporation of the Company,
               as amended. (2)

       3.2     Amended and Restated By-Laws of the Company. (2)

       10.1    Conformed  form of  Vendor  Agreement  between  the  Company  and
               Integrated Systems Solutions Corporation, as amended. (2)

       10.2    Basic Order Agreement between Digital  Equipment  Corporation and
               OAO Canada Limited/OAO Technology Solutions, Inc. (2) (4)

       10.3    Amended and Restated OAO Technology  Solutions,  Inc. 1996 Equity
               Compensation Plan. (2)

       10.4    Employment  Agreement  between  William R. Hill and the  Company,
               dated April 1, 1996. (2)

       10.5    Employment Agreement between Gregory Pratt and Company dated June
               1, 1998 (5)

       10.6    Employment   Agreement  between  Ron  Branch  and  Company  dated
               December 1, 1998 (7)

       10.7    Stock Purchase Agreement, dated July 24, 1998, among the Company,
               OAO Services, Inc., OAO Corporation and William Hill (3)

       10.8    Registration  Rights Agreement  between Gregory Pratt and Company
               dated November 1, 1998 (7)

       10.9    Agreement and Plan of Merger, dated as of November 1, 1998, among
               the  Company,  ETG  ....  Acquisition   Corporation,   Enterprise
               Technology   Group,  Inc.  and  the  shareholders  of  Enterprise
               Technology Group, Inc. (7)

       10.10   OAO Technology Solutions, Inc. Employee Stock Purchase Plan as of
               May 21, 1998 (6)


                                  45
<PAGE>


       10.11   Credit  Agreement dated June 30, 1999 by and among OAO Technology
               Solutions,  Inc.,  and  its  subsidiaries  and  Bank  of  America
               (formerly NationsBank, N.A.) (8)

       10.12   Amended and Restated OAO Technology  Solutions,  Inc.  Restricted
               Stock  Grant  Letter.  Date of grant : July 14,  1999  issued  to
               Gregory A. Pratt. (9)

       10.13   Amended and  Restated  Term Note dated July 14, 1999  between the
               Company and Gregory A. Pratt. (9)

       10.14   Amended and Restated Pledge Agreement dated July 14, 1999 between
               the Company and Gregory A. Pratt. (9)

       10.15   Amended and Restated OAO Technology  Solutions,  Inc. 1996 Equity
               Compensation Plan (10)

       10.16   Asset  Purchase  Agreement,  dated  August  16,  2001,  among the
               Company, QuadraMed Corporation and affiliates. (11)

       10.17   First  Amendment,  effective  August  29,  2001,  to  the  Credit
               Agreement  dated  June  30,  1999  by and  among  OAO  Technology
               Solutions,  Inc. and its subsidiaries  and Bank of America,  N.A.
               (successor in interest to NationsBank, N.A.) (14)

       10.18   First Amendment,  dated October 18, 2001, to Amended and Restated
               OAO Technology  Solutions,  Inc.  Restricted  Stock Grant Letter.
               Date of grant : July 14, 1999 issued to Gregory A. Pratt.(1)

       10.19   Second Amended and Restated Term Note dated July 14, 1999 between
               the Company and Gregory A. Pratt.(1)

       10.20   Second Amended and Restated  Pledge  Agreement  dated October 18,
               2001 between the Company and Gregory A. Pratt.(1)

       10.21   Employment  Agreement between Gregory Pratt and the Company dated
               December 1, 2001.(1)

       10.22   Professional  Services  Agreement  between  Cecil  Barker and the
               Company dated January 1, 2002.(1)

       10.23   Management  Agreement between J.F.Lehman & Company and OAOT dated
               January 1, 2002.(1)

       10.24   Employment  Agreement  between  Jeffrey Fox and the Company dated
               October 22, 2001.(1)

       10.25   Customer  Solutions  Agreement  between  International   Business
               Machines Corporation and OAOT dated December 29, 1998.(1)

       10.26   Stockholder  agreement  dated  October 22, 2001, by and among OAO
               Technology Solutions, Inc., Terrapin Partners Subsidiary LLC, and
               J.F. Lehman Equity Investors I, L.P.(1)

       21.1    Subsidiaries of the Registrant.  OAO HealthCare Solutions,  Inc.,
               OAO Services,  Inc., OAO Systems,  Inc., OAO Technology Solutions
               (Canada)  Inc.,  OAO  Technology   Solutions   Europe  B.V.,  OAO
               Technology  Solutions  de Mexico,  S.A. de C.V.,  OAO  Technology
               Solutions  UK  Limited,  OAO Health  Services  Processing,  Inc.,
               Canadian Resource  Management,  Ltd., Canadian Network Resources,
               Ltd., OAO Transition, LLC.

       23.1    Independent Auditors' Consent. (1)

       99.1    Press Release dated August 16, 2001. (11)

       99.2    Press Release dated October 23, 2001. (12)

       99.3    Financial   Statements  of  the  EZ-CAP   division  of  QuadraMed
               Corporation.  Balance  Sheets  as of June  30,  2001 and 2000 and
               December  31,  2000 and 1999 and  Statements  of Income  and Cash
               flows for the Six  Months  Ended  June 30,  2001 and 2000 and the
               Years Ended December 31, 2000 and 1999. (13)

       99.4    Pro forma combined condensed  financial  information with respect
               to  the   registrant   and  the  EZ-CAP   division  of  QuadraMed
               Corporation as of June 30, 2001 and for the six months ended June
               30, 2001 and the year ended December 31, 2000. (13)


                                  46
<PAGE>


(1)  Filed herewith.

(2)  Incorporated by reference to the Company's  Registration  Statement on Form
     S-1 (Registration No. 333-00796) declared effective on October 22, 1997.

(3)  Incorporated  by reference  to the  Company's  current  report on Form 8-K,
     filed on August 7, 1998.

(4)  Confidential  Treatment  Requested.  The  entire  agreement  has been filed
     separately with the Securities and Exchange Commission.

(5)  Incorporated  by reference to the Company's  Form 10Q,  filed on August 14,
     1998.

(6)  Incorporated  by reference to the  Company's  Form S-8,  filed on March 30,
     1999.

(7)  Incorporated  by reference to the Company's  Form 10-K,  filed on March 30,
     1999.

(8)  Incorporated  by reference to the Company's Form 10-Q,  filed on August 16,
     1999.

(9)  Incorporated by reference to the Company's Form 10-Q, filed on November 15,
     1999.

(10) Incorporated  by reference  to the  Company's  Form S-8,  filed on July 13,
     1999.

(11) Incorporated by reference to the Company's Form 8-K, filed on September 14,
     2001.

(12) Incorporated  by reference to the Company's  Form 8-K, filed on November 6,
     2001.

(13) Incorporated by reference to the Company's Form 8-K/A, filed on November 9,
     2001.

(14) Incorporated by reference to the Company's Form 10-Q, filed on November 14,
     2001.


                                       47
<PAGE>


                                   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.

                                        OAO Technology Solutions, Inc.

March 27, 2002                          By: /s/ Gregory A. Pratt
                                           ---------------------
                                        Gregory A. Pratt
                                        President and Chief Executive Officer

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

Signature                    Title                                Date
---------                    -----                                ----


  /s/  Gregory A. Pratt      President and Chief Executive
--------------------------   Officer, Director
     Gregory A. Pratt        (Principal Executive Officer)        March 27, 2002


 /s/   J. Jeffrey Fox        Senior Vice President of Finance     March 27, 2002
--------------------------   and Chief Financial Officer
J. Jeffrey Fox

/s/   John F. Lehman         Chairman of the Board of Directors   March 27, 2002
--------------------------
    John F. Lehman

  /s/ Cecile D. Barker       Vice Chairman of the Board of
--------------------------   Directors, Director                  March 27, 2002
    Cecile D. Barker

/s/Yvonne Brathwaite Burke   Director                             March 27, 2002
--------------------------
  Yvonne Brathwaite Burke

  /s/ Frank B. Foster, III   Director                             March 27, 2002
--------------------------
    Frank B. Foster, III

/s/   Richard B. Lieb        Director                             March 27, 2002
--------------------------
    Richard B. Lieb

/s/   Louis N. Mintz         Director                             March 27, 2002
--------------------------
    Louis N. Mintz


                                       48