Three Months Ended September 26, 2008 and September 28, 2007

Beginning with the quarter ended September 28, 2007, we changed our quarter end to the last Friday of the quarter from the last day of the calendar quarter. With the centralization of our businesses, we believe the last Friday of the quarter period reporting is more consistent with our operating cycle, as well as the reporting periods of our industry peers. This quarter is comparable to other quarters reported herein.

You should read the following discussion of our results of operations and financial condition in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q and with our Annual Report on Form 10-K for the fiscal year ended June 30, 2008. This discussion contains forward-looking statements that are based upon current expectations and assumptions that are subject to risks and uncertainties. By their nature, such forward-looking statements involve risks and uncertainties. We have attempted to identify such statements using words such as "may", "expects", "plans", "anticipates", "believes", "estimates", or other words of similar import. We caution the reader that there may be events in the future that management is not able to accurately predict or control which may cause actual results to differ materially from the expectations described in the forward-looking statements. The factors in the sections captioned "Critical Accounting Policies" and "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended June 30, 2008 and below in this Form 10-Q provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations described in the forward-looking statements.

OVERVIEW

We are an engineering, consulting, and construction management firm that provides integrated services to the environmental, energy and infrastructure markets. Our multidisciplinary project teams provide services to help our clients implement complex projects from initial concept to delivery and operation. A broad range of commercial, industrial, and government clients depend on us for customized and complete solutions to their toughest business challenges. We provide our services to commercial organizations and governmental agencies almost entirely in the United States of America.

We derive our revenue from fees for professional and technical services. As a service company, we are more labor-intensive than capital-intensive. Our revenue is driven by our ability to attract and retain qualified and productive employees, identify business opportunities, secure new and renew existing client contracts, provide outstanding service to our clients and execute projects successfully. Our income or loss from operations is derived from our ability to generate revenue and collect cash under our contracts in excess of our direct costs, subcontractor costs, other contract costs, and general and administrative ("G&A") expenses.

In the course of providing our services, we routinely subcontract services. Generally, these subcontractor costs are passed through to our clients and, in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") and consistent with industry practice, are included in gross revenue. Because subcontractor services can change significantly from project to project, changes in gross revenue may not be indicative of business trends. Accordingly, we also report net service revenue ("NSR"), which is gross revenue less the cost of subcontractor services and other direct reimbursable costs, and our discussion and analysis of financial condition and results of operations uses NSR as a point of reference.

Our cost of services ("COS") includes professional compensation and related benefits together with certain direct and indirect overhead costs such as rents, utilities and travel. Professional compensation represents the majority of these costs. Our G&A expenses are comprised primarily of our corporate headquarters costs related to corporate executive management, finance, accounting, administration and legal. These costs are generally unrelated to specific client projects and can vary as expenses are incurred to support corporate activities and initiatives.

Our revenue, expenses and operating results may fluctuate significantly from year to year as a result of numerous factors, including:

† Unanticipated changes in contract performance that may affect profitability, particularly with contracts that are fixed-price or have funding limits;

† Seasonality of the spending cycle of our public sector clients, notably state and local government entities, and the spending patterns of our commercial sector clients;

† Budget constraints experienced by our federal, state and local government clients;

†          Divestitures or discontinuance of operating units;

†          Employee hiring, utilization and turnover rates;

†          The number and significance of client contracts commenced and
completed during the period;

†          Creditworthiness and solvency of clients;

†          The ability of our clients to terminate contracts without penalties;

†          Delays incurred in connection with contracts;

†          The size, scope and payment terms of contracts;

†          Contract negotiations on change orders and collection of related
accounts receivable;

†          The timing of expenses incurred for corporate initiatives;

†          Competition;

†          Litigation;

†          Changes in accounting rules;

†          The credit markets and their effects on our customers; and

†          General economic or political conditions.

Critical Accounting Policies

Our financial statements have been prepared in accordance with U.S. GAAP. These principles require the use of estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes. Actual results could differ from these estimates and assumptions. We use our best judgment in the assumptions used to value these estimates which are based on current facts and circumstances, prior experience and other assumptions that are believed to be reasonable. Our accounting policies are described in Note 2 to the consolidated financial statements contained in Item 8 of the Annual Report on Form 10-K as of and for the year ended June 30, 2008.

Results of Operations

We generated net income of $1.1 million for the first quarter of fiscal 2009. We incurred significant net losses for the fiscal years ended June 30, 2008, 2007 and 2006. During the first quarter of fiscal 2009, we realized the benefits from the turnaround and restructuring efforts undertaken in prior fiscal years. Specifically, costs decreased as a percentage of NSR, primarily as a result of cost reductions related to the elimination of certain components of our business in the fourth quarter of fiscal 2008 as well as improved project performance and overhead cost control. We continue to take actions aimed at improving profitability and cash flows from operations. Specifically, we are enhancing controls over project acceptance, which we believe will reduce the level of contract losses; we are increasing the level of experience of our accounting personnel in order to improve internal controls and reduce compliance costs; and we continue to improve the timeliness of customer invoicing and enhance our collection efforts. We believe this will result in fewer write-offs of project revenue and in lower levels of bad debt expense and reduce our reliance on our revolving credit agreement. We also continue to improve project management, which we believe will improve project profitability. We believe that existing cash resources, cash forecasted to be generated from operations and availability under our credit facility are adequate to meet our requirements for the foreseeable future.

A summary assessment of the three primary markets for our services follows:

Energy: The utilities in the United States are in the process of a multi-year build-out of the electric transmission grid. Years of underinvestment coupled with an increasingly favorable regulatory environment has provided a good business opportunity for those serving this market. According to a Department of Energy study, $50 billion to $100 billion of

investment is needed to modernize the grid. These needs and increased returns on large investments in energy assets provide opportunities to sell services including: permitting, engineering and construction for the electric transmission system, and development of renewable energy projects. We are well established in the Northeast and are actively growing our presence in other geographic regions where demand for services is the highest.

Environmental: Market demand for environmental services remains active, driven by a combination of regulatory requirements, economic factors and renewed focus on sustainability and climate change. Regulatory focus on emissions of concern (e.g. mercury, small particulates) is increasing demand for air quality consulting and air measurement services. Climate change initiatives should sustain market growth for air and other services. Remediation services remain strong in spite of much lower demand in the real estate market, but regulatory requirements and previously funded multi-year capital projects will sustain the market in the next several years. Real estate developers and owners are also increasing their demand for building science services (e.g. mold, indoor air quality). Real estate redevelopment and investment project opportunities have fallen off due to economic conditions, and we have adjusted our marketing and service offerings accordingly.

Infrastructure: Demand for services is expected to be flat in fiscal 2009 due to general economic conditions and the lack of increased public funding. The long-term outlook should be stronger due to alternative funding mechanisms (e.g., private/public partnerships) and the continued need to upgrade, replace or repair aging transportation infrastructure.

The following table presents the dollar and percentage changes in certain items in the condensed consolidated statements of operations for the three months ended September 26, 2008 and September 28, 2007:

                                             Three Months Ended
                                      September 26,      September 28,             Change
(Dollars in thousands)                    2008               2007              $             %
Gross revenue                        $       114,993    $       123,654    $   (8,661 )       (7.0 )%
Less subcontractor costs and
other direct reimbursable charges             49,069             52,331        (3,262 )       (6.2 )
Net service revenue                           65,924             71,323        (5,399 )       (7.6 )
Interest income from contractual
arrangements                                     778              1,071          (293 )      (27.4 )
Insurance recoverables and other
income                                           289              1,528        (1,239 )      (81.1 )
Cost of services                              53,537             59,921        (6,384 )      (10.7 )
General and administrative
expenses                                       8,621              8,821          (200 )       (2.3 )
Provision for doubtful accounts                  800                810           (10 )       (1.2 )
Goodwill impairment charge                         -             76,678       (76,678 )     (100.0 )
Depreciation and amortization                  1,909              2,102          (193 )       (9.2 )
Operating income (loss)                        2,124            (74,410 )      76,534        102.9
Interest expense                                 887              1,023          (136 )      (13.3 )
Federal and state income tax
provision                                        182             12,237       (12,055 )      (98.5 )
Minority interest                                  -                 27           (27 )     (100.0 )
Equity in losses from
unconsolidated affiliates                          -                (12 )          12        100.0
Net income (loss)                              1,055            (87,655 )      88,710        101.2

The following table presents the percentage relationships of items in the condensed consolidated statements of operations to NSR:

                                                               Three Months Ended
                                                         September 26,    September 28,
                                                             2008             2007
Net service revenue                                              100.0 %          100.0 %

Interest income from contractual arrangements                      1.2              1.5
Insurance recoverables and other income                            0.4              2.1

Operating costs and expenses:
Cost of services                                                  81.2             84.0
General and administrative expenses                               13.1             12.4
Provision for doubtful accounts                                    1.2              1.1
Goodwill impairment charge                                           -            107.5
Depreciation and amortization                                      2.9              2.9
                                                                  98.4            207.9
Operating income (loss)                                            3.2           (104.3 )
Interest expense                                                   1.3              1.4
Income (loss) from operations before taxes, minority
interest and equity (losses) earnings                              1.9           (105.7 )
Federal and state income tax provision                             0.3             17.2
Minority interest                                                    -                -
Income (loss) from operations before equity in
(losses) earnings                                                  1.6           (122.9 )
Equity in losses from unconsolidated affiliates                      -                -
Net income (loss)                                                  1.6 %         (122.9 )%

Gross revenue decreased $8.7 million, or 7.0%, to $115.0 million for the three months ended September 26, 2008 from $123.7 million for the same period of the prior year. In the three months ended September 28, 2007 we received a change order for approximately $5.1 million for several outstanding claims related to a design-build infrastructure project on which we were a subcontractor. The remainder of the decrease was primarily related to our investment in the Rochester Power Delivery Joint Venture ("RPD JV"). In fiscal 2006, we formed the RPD JV with two other partners to design and construct a $100.0 million electrical transmission and distribution system for Rochester Gas and Electric. The project was nearing completion and therefore generated $3.5 million less revenue when compared to the same quarter last year.

NSR decreased $5.4 million, or 7.6%, to $65.9 million for the three months ended September 26, 2008 compared to $71.3 million for the same period of the prior year. The decrease was primarily attributable to the $5.1 million decrease in NSR due to the aforementioned design-build change order which was received in the first quarter of fiscal 2007. Current quarter NSR also showed the effect of personnel departures resulting from the restructuring plan that was implemented in the second half of fiscal 2008. This decrease was offset in large part by NSR from our Exit Strategy contracts.

Interest income from contractual arrangements decreased $0.3 million, or 27.4%, to $0.8 million for the three months ended September 26, 2008 from $1.1 million for the same period of the prior year primarily due to lower one-year constant maturity T-Bill rates in the three months ended September 28, 2007.

Insurance recoverables and other income decreased $1.2 million, or 81.1%, to $0.3 million for the three months ended September 26, 2008 from $1.5 million for the same period of the prior year. The decrease was due to a higher rate of exit strategy costs that were covered by insurance in the fiscal 2008 period compared to fiscal 2009.

COS decreased $6.4 million, or 10.7%, to $53.5 million for the three months ended September 26, 2008 from $59.9 million for the same period of the prior year. The decrease was attributable to a $1.3 million reduction in payroll due to headcount reductions, a $2.4 million decrease in bonus costs as a result of the implementation of our new "pay for

performance" bonus plan, a $1.0 million decrease in claims costs associated with our self insured medical benefits plan and a $0.6 million decrease in facility costs. Also contributing to the decrease were reductions in our contract loss provision as well as marketing and travel expenses. As a percentage of NSR, COS was 81.2% and 84.0% for the three months ended September 26, 2008 and September 28, 2007, respectively.

G&A expenses decreased $0.2 million, or 2.3%, to $8.6 million for the three months ended September 26, 2008 from $8.8 million for the same period of the prior year. The decrease was primarily attributable to a $0.6 reduction of corporate administration costs as we continued to centralize our administration functions. The decrease was partially offset by a $0.3 increase in litigation costs.

The provision for doubtful accounts decreased by 1.2% to $0.80 million for the three months ended September 26, 2008 from $0.81 million for the same period of the prior year. The decrease was primarily due to lower gross revenue.

Goodwill impairment charges decreased $76.7 million to $0 for the three months ended September 26, 2008. An impairment charge of $76.7 million was recorded in the three months ended September 28, 2007 to write down the carrying value of goodwill. Given the significant decline in our stock price coupled with a slower than anticipated operational turnaround, we assessed the recovery of goodwill as of September 28, 2007 through an analysis based on market capitalization, discounted cash flows and other factors and concluded that there was an impairment as of September 28, 2007. There was no such charge related to the quarter ended September 26, 2008.

Depreciation and amortization decreased $0.2 million, or 9.2%, to $1.9 million for the three months ended September 26, 2008 from $2.1 million for the same period of the prior year because in the fourth quarter of fiscal 2008, we consolidated or closed 14 offices and impaired certain assets associated with these offices.

Interest expense decreased $0.1 million, or 13.3%, to $0.9 million for the three months ended September 26, 2008 from $1.0 million for the same period of the prior year. The decrease was primarily due to a decrease in the average outstanding balance on our credit facility from $30.5 million in the first quarter of 2008 to $25.5 million in fiscal 2009 along with lower average quarterly interest rates being charged on the line of credit in fiscal 2009 of 8.47% versus 8.90% in fiscal 2008.

During the three months ended September 28, 2007, we determined that it was more likely than not that our deferred tax assets would not be realized as a result of insufficient expected future taxable income generated from pretax book income or reversals of existing temporary differences. Accordingly, a charge of $12.1 million was recorded in the quarter ended September 28, 2007 to offset the deferred tax assets as of June 30, 2007.

Impact of Inflation

Our operations have not been materially affected by inflation or changing prices because most contracts of a longer term are subject to adjustment or have been priced to cover anticipated increases in labor and other costs, and the remaining contracts are short term in nature.

Liquidity and Capital Resources

We primarily rely on cash from operations and financing activities, including borrowings under our revolving credit facility, to fund our operations. Our liquidity is assessed in terms of our overall ability to generate cash to fund our operating and investing activities and to reduce debt.

Cash flows used in operating activities were $2.2 million for the three months ended September 26, 2008. Uses of cash for the three months ended September 26, 2008 totaled $25.6 million and consisted primarily of the following: (1) an $18.5 million decrease in our deferred revenues, due primarily to work performed on existing Exit Strategy contracts; (2) a $2.4 million decrease in other accrued liabilities, primarily due to legal cases being settled and audit fees being paid; (3) a $2.2 million increase in prepaid expenses and other current assets, primarily due to fiscal 2009 insurance premiums being recorded during the first quarter; and (4) a $2.0 million decrease in accrued compensation and benefits, primarily due to less days of the payroll period accrued at September 26, 2008. Cash used during the three months ended September 26, 2008 was offset by sources of cash totaling $23.3 million consisting primarily of the following: (1) an

$11.8 million decrease in restricted investments due to work performed on Exit Strategy projects; (2) a $6.8 million increase in accounts payable due to tighter working capital management; and (3) a $3.5 million decrease in accounts receivable.

Accounts receivable include both billed receivables associated with invoices submitted for work performed and unbilled receivables (work in progress). The unbilled receivables are primarily related to work performed in the last month of the quarter. A common measure of the efficiency of the billing and collection process is typically evaluated as days sales outstanding ("DSO"), which we calculate by dividing current receivables by the most recent three-month average of daily gross revenue after adjusting for acquisitions. DSO, which measures the collections turnover of both billed and unbilled receivables, increased to 94 days at September 26, 2008 from 91 days at June 30, 2008. Our goal is to reduce DSO to less than 90 days.

Under Exit Strategy contracts, the majority of the contract price is deposited into a restricted account with an insurer. These proceeds, less any insurance premiums for a policy to cover potential cost overruns and other factors, are held by the insurer and used to pay us as work is performed. The arrangement with the insurer provides for deposited funds to earn interest at the one-year constant maturity T-Bill rate. If the deposited funds do not grow at the rate anticipated when the contract was executed, over time the deposit balance may be less than originally expected. However, an insurance policy provides coverage for cost increases from unknown or changed conditions up to a specified maximum amount significantly in excess of the estimated cost of remediation.

Investing activities used cash of approximately $0.3 million during the three months ended September 26, 2008. Cash used consisted primarily of $0.8 million for property and equipment additions which were offset by $0.4 million from restricted investments and $0.1 million from proceeds received from the sale of fixed assets.

During the three months ended September 26, 2008, financing activities used cash of $3.0 million to pay down the balance outstanding on our credit facility.

On July 17, 2006, the Company and substantially all of its subsidiaries, (the "Borrower"), entered into a secured credit agreement (the "Credit Agreement") and related security documentation with Wells Fargo Foothill, Inc., as the lead lender and administrative agent and Textron Financial Corporation as an additional lender. The Credit Agreement, as amended, provides the Borrower with a five-year senior revolving credit facility of up to $50.0 million based upon a borrowing base formula on accounts receivable. Amounts outstanding under the Credit Agreement bear interest at the greater of 7.75% and the prime rate plus a margin of 1.25% to 2.25%, or the greater of 5.0% and LIBOR plus a margin of 2.25% to 3.25%, based on average excess availability as defined under the Credit Agreement through November 28, 2007 and based on Trailing Twelve Month EBITDA commencing November 29, 2007. The Credit Agreement contains covenants which, among other things, required the Company to maintain a minimum Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") of $2.4 million, $5.7 million, $9.0 million and $7.9 million for the quarter, two quarter, three quarter and four quarter periods ended September 28, 2007, December 28, 2007, March 28, 2008 and June 30, 2008, respectively. The definition of EBITDA also provided an aggregate allowance for restructuring charges in the amount of $2.8 million in fiscal 2008. The Company failed to achieve the required levels of EBITDA for the years ended June 30, 2008 and 2007, however, the violations have been waived by the lenders as described below. The Company must maintain average monthly backlog of $190.0 million. Capital expenditures are limited to $10.1 million and $10.6 million for the fiscal years ended June 30, 2008 and 2009 and thereafter, respectively. The Borrower's obligations under the Credit Agreement are secured by a pledge of substantially all of the assets of the Borrower and guaranteed by substantially all of the Company's subsidiaries that are not borrowers. The Credit Agreement also contains cross-default provisions which become effective if the Company defaults on other indebtedness.

The Credit Agreement has been amended and all covenant violations have been waived. In general, the amendments have been to revise dates for delivery of financial statements, change definitions, and/or amend covenant requirements. The Credit Agreement was amended as of August 19, 2008 to waive a default with respect to the required minimum EBITDA covenant for the 12 month period ended June 30, 2008; amend that covenant for fiscal 2009 to require the Company to maintain minimum EBITDA of $2.1 million, $3.8 million, $7.6 million and $12.8 million for the quarter, two quarter, three quarter and four quarter periods ending on September 30, 2008, December 31, 2008, March 31, 2009 and June 30, 2009, respectively; amend the covenant in subsequent years to an amount to be determined by the lenders

based on Company projections but not less than $14.0 million annually; amend a definition in the borrowing base that effectively reduces the availability under the line from $50.0 million to $47.5 million; and amend certain definitions in the Credit Agreement. The definition of EBITDA also provides an aggregate allowance for restructuring charges in the amount of $1.5 million in fiscal 2009.

Based on our current operating plans, we believe that existing cash resources, cash forecasted to be generated from operations and availability under our credit facility are adequate to meet our requirements for the foreseeable future.

The recent and unprecedented disruption in the credit markets has had a . . .