The following discussion should be read in conjunction with our consolidated financial statements and accompanying notes for the three and nine months ended September 30, 2008 as well as our consolidated financial statements and accompanying notes and management's discussion and analysis of financial condition and results of operations included in our Form 10-K for the year ended December 31, 2007.

Overview of our business

We provide government sponsored social services directly and through not-for-profit social services organizations whose operations we manage, and we arrange for and manage non-emergency transportation services. As a result of and in response to the large and growing population of eligible beneficiaries of government sponsored social services and non-emergency transportation services, increasing pressure on governments to control costs and increasing acceptance of privatized social services, we have grown both organically and by consummating strategic acquisitions.

As part of our growth strategy we have expanded our in-home counseling, school based services and workforce development service offerings, and entered into Canada and the non-emergency transportation management services market through acquisitions which were completed in 2007. Our goal is to be the primary provider of choice to the social services industry. Focusing on our core competencies in the delivery of home and community based counseling, foster care and not-for-profit managed services while adding other supporting social services such as non-emergency transportation management services to our service offerings, we believe we are well positioned to offer the highest quality of service to our clients and provide a viable alternative to state and local governments' current service delivery systems. As of September 30, 2008, we provided social services directly and through the entities we manage to over 74,000 clients, and had approximately 6.3 million individuals eligible to receive services under our non-emergency transportation services contracts. We provided services to these clients from 425 locations in 43 states, the District of Columbia and British Columbia, Canada.

Despite our growth, recent trends in the economy have negatively impacted our financial condition and results of operations. Among these trends are margin compression issues related to our non-emergency transportation services caused by higher utilization in a few of our markets and higher fuel prices. In addition, we continue to face challenges in Canada where British Columbia has enforced revenue caps and has provided notice of termination of one of six provincial contracts. Further, we recorded an impairment charge against goodwill and certain of our intangible assets as of September 30, 2008, based on a preliminary assessment, due to the significant and sustained decline in the market price of our common stock, uncertainty in the state payer environment, and the impact of related budgetary decisions on the financial results of our operations for the three months ended September 30, 2008.

Our working capital requirements are primarily funded by cash from operations and borrowings from our credit facility with CIT Capital Securities LLC, or CIT, which provides funding for general corporate purposes and acquisitions.

Critical accounting estimates

In preparing our financial statements in accordance with accounting principles generally accepted in the United States, we are required to make estimates and judgments that affect the amounts reflected in our financial statements. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances. However, actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies are those policies most important to the portrayal of our financial condition and results of operations. These policies require our most difficult, subjective or complex judgments, often employing the use of estimates about the effect of matters inherently uncertain. Our most critical accounting policies pertain to revenue recognition, accounts receivable and allowance for doubtful accounts, accounting for business combinations, goodwill and other intangible assets, purchased transportation costs, accounting for management agreement relationships, loss reserves for certain reinsurance and self-funded insurance programs, stock-based compensation, and foreign currency translation.

As of September 30, 2008, except as discussed below, there has been no change in our accounting policies or the underlying assumptions or estimates made by us to fairly present our financial position, results of operations and cash flows for the periods covered by this report.

Derivative instruments and hedging activities

We hold an interest rate swap for the purpose of hedging interest rate risks. The type of risk we hedge relates to the variability of future earnings and cash flows caused by movements in interest rates applied to our floating rate long-term debt. We documented our risk management strategy and hedge effectiveness at the inception of the hedge and will continue to assess its effectiveness during the term of the hedge. We have designated the interest rate swap as a cash flow hedge under Statement of Financial Accounting Standards, or SFAS, No. 133, "Accounting for Derivative Instruments and Hedging Activities", or SFAS 133.

Derivatives that have been designated and qualify as cash flow hedging instruments are reported at fair value. The fair value of our interest rate swap is determined through the use of models that consider various assumptions as well as other relevant market data, which are inputs that include quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. The gain or loss on the effective portion of the hedge (i.e. change in fair value) is initially reported as a component of other comprehensive income. The remaining gain or loss of the ineffective portion of the hedge, if any, is recognized currently in earnings.

Accounting for business combinations, goodwill and other intangible assets

When we consummate an acquisition we separately value all acquired identifiable intangible assets apart from goodwill in accordance with SFAS No. 141, "Business Combinations". At September 30, 2008, our goodwill balance was $151.3 million, which represents the purchase price in excess of the net amount assigned to assets acquired and liabilities assumed by us in connection with previous acquisitions, adjusted for changes in foreign currency exchange rates and an impairment charge. We analyze the carrying value of goodwill at the end of each fiscal year and between annual valuations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. Such circumstances could include, but are not limited to: (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. When determining whether goodwill is impaired, we compare the fair value of the reporting unit to which the goodwill is assigned to the reporting unit's carrying value, including goodwill. If the carrying value of a reporting unit exceeds its fair value, then the amount of the impairment loss is measured. The impairment loss would be calculated by comparing the implied fair value of reporting unit goodwill to its carrying value. In calculating the implied fair value of the reporting unit goodwill, the fair value of the reporting unit is allocated to all of the other assets and liabilities of that unit based on their fair values. The excess of the fair value of a reporting unit over the amount assigned to its other identifiable assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the carrying value of goodwill exceeds its implied fair value. Our evaluation of goodwill completed as of December 31, 2007 resulted in no impairment losses.

In consideration of the current market conditions in which we operate and the decline in our overall market capitalization resulting from decreases in the market price of our common stock, we evaluated whether events, referred to as triggering events, had occurred during the three months ended September 30, 2008 that would require us to perform an interim period goodwill impairment test in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets", or SFAS
142. During the three months ended September 30, 2008, we experienced a significant and sustained decline in market capitalization. In addition, uncertainty in the state payer environment as well as the impact of related budgetary decisions contributed to a decrease in our financial results of operations for the three months ended September 30, 2008. We determined that these factors were indicators that an interim goodwill impairment test was required under SFAS 142. As a result, we estimated the fair value of the goodwill we acquired in connection with our acquisitions based on a market-based valuation at September 30, 2008. We determined that goodwill related to our December 2007 acquisition of Charter LCI Corporation (including its operating subsidiary LogistiCare, Inc., collectively referred to as LogistiCare) and certain of the entities that comprise our Social Services operating segment was impaired and recorded a non-cash charge of approximately $96.0 million and $34.0 million for the three months ended September 30, 2008 for our non-emergency transportation services and social services operating segments, respectively, based on a preliminary assessment. We recorded this impairment charge based on a preliminary assessment because we did not have sufficient time to complete all of the required valuation analyses prior to the date of the filing of this report. We will perform our annual goodwill impairment analysis for the year ending December 31, 2008, which could result in an adjustment to the estimated impairment charge.

In addition to the goodwill impairment charge, we also recorded a non-cash charge of approximately $11 million for the three months ended September 30, 2008 to reduce the carrying value of customer relationships acquired in connection with our acquisition of LogistiCare based on their revised estimated fair values. Our analysis to determine the amount of this impairment charge was based upon a projected discounted cash flow basis. We anticipate finalizing our intangible asset impairment analysis in the fourth quarter of 2008.

The non-cash charges for goodwill and intangible asset impairments did not impact our cash balance, debt covenant compliance or ongoing financial performance.

Changes in assumptions or circumstances could result in an additional impairment in the period in which the change occurs and in future years. Factors which could cause impairment include, but are not limited to, long-term negative trends in our market capitalization, further increases in utilization and fuel costs with no offsetting payer rate increases related to our non-emergency transportation operating segment and inability to remain in compliance with our debt covenants and to repay our debt.

For further discussion of our critical accounting policies see management's discussion and analysis of financial condition and results of operations contained in our Form 10-K for the year ended December 31, 2007.

Acquisitions

Since December 31, 2007, we completed the following acquisitions:

On September 30, 2008, we acquired substantially all of the assets in Illinois and Indiana of Camelot Community Care, Inc., or CCC. CCC is a Florida not-for-profit tax exempt corporation with operations in Florida, Illinois, Indiana, Ohio and Texas that provides home and community based services, foster care and other social services. The purchase price of approximately $5.4 million consisted of cash in the amount of approximately $431,000 with the remaining $5.0 million credited against the purchase price for all of CCC's indebtedness to us for management services we rendered to CCC under several management services agreements. In October 2008, we made a final determination of the indebtedness owed to us for management services rendered by us to CCC which resulted in an amount that was less than the amount provided for in the purchase agreement. As a result the cash portion of the purchase price was increased by approximately $142,000 and the credit for indebtedness to us for management services rendered by us to CCC was decreased by the same amount.

Historically, we have provided various management services to CCC for a fee under separate management services agreements for each state in which CCC operated. In connection with our acquisition of the assets of CCC's Illinois and Indiana operations, we consolidated the remaining management services agreements with CCC (i.e., Florida, Ohio and Texas) into one administrative service agreement under which we will provide a more narrow range of services to CCC as compared to the services historically provided by us.

This acquisition expands our home and community based services and foster care services into Illinois and further expands our presence in Indiana. The cash portion of the purchase price was funded by cash from operations.

Effective September 30, 2008, we acquired all of the equity interest in AmericanWork, Inc., or AW, a community based mental health provider operating in 23 Georgia locations. AW provides, among other things, independent living services and training in support of individuals with mental illness, outpatient individual and group behavioral health services, and community based vocational and peer supported vocational and employment services. The total purchase price consisted of cash in the amount of approximately $3.5 million, with $3.0 million paid by us at closing on October 14, 2008 and the balance held by us for one year to secure potential indemnity obligations. This acquisition enhances our community based social services offering, expands our presence in Georgia, and further positions us for growth. The purchase price was funded from our operating cash.

We continue to selectively identify and pursue attractive acquisition opportunities. There are no assurances, however, that we will complete acquisitions in the future or that any completed acquisitions will prove profitable for us.

Results of operations

Segment reporting. Our operations are organized and reviewed by our chief operating decision maker along our service lines in two reportable segments (i.e., Social Services and Non-Emergency Transportation Services, or NET Services). We operate these reportable segments as separate divisions and differentiate the segments based on the nature of the services they offer. The following describes each of our segments.

Social Services

Social Services includes government sponsored social services that we have historically offered. Primary services in this segment include home and community based counseling, foster care and not-for-profit management services. Our operating entities within Social Services provide social services to a common customer group, principally individuals and families. All of our operating entities within Social Services follow similar operating procedures and methods in managing their operations and each operating entity works within a similar regulatory environment, primarily under Medicaid regulations. We manage our operating activities within Social Services by actual to budget comparisons within each operating entity rather than by comparison between entities.

Our actual operating contribution margins by operating entity within Social Services range from approximately 2% to 16%. We believe that the long term operating contribution margins of our operating entities that comprise Social Services will approximate 15% as the respective entities' markets mature, we cross sell our services within markets, and standardize our operating model among entities including recent acquisitions. We also believe that our targeted contribution margin of approximately 15% is allowable by our state and local governmental payers over the long term.

Our chief operating decision maker regularly reviews financial and non-financial information for each individual entity within Social Services. While financial performance in comparison to budget is evaluated on an entity-by-entity basis, our operating entities comprising Social Services are aggregated into one reporting segment for financial reporting purposes because we believe that the operating entities exhibit similar long term financial performance. In addition, our revenues, costs and contribution margins are not significantly affected by allocating more or less resources to individual operating entities within Social Services because the economic characteristics of our business are substantially dependent upon market demographics that are beyond our control which affect the amount and type of services in demand as well as our cost structure (e.g., payroll) and contract rates with payers. In conjunction with the financial performance trends, we believe the similar qualitative characteristics of the operating entities we aggregate within Social Services and budgetary constraints of our payers in each market provide a foundation to conclude that the entities that we aggregate within Social Services have similar economic characteristics. Thus, we believe the economic characteristics of our operating entities within Social Services meet the criteria for aggregation into a single reporting segment under SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information.

NET Services

NET Services includes managing the delivery of non-emergency transportation services. We operate NET Services as a separate division with operational management and service offerings distinct from our Social Services operating segment.

The following table sets forth the percentage of consolidated total revenues represented by items in our consolidated statements of operations for the periods presented:

                                                   Three months ended           Nine months ended
                                                     September 30,                September 30,
                                                   2007          2008           2007          2008
Revenues:
Home and community based services                    81.2 %        35.7 %         82.2 %        37.2 %
Foster care services                                 11.0           4.5            9.9           4.3
Management fees                                       7.8           3.3            7.9           3.1
Non-emergency transportation services                  -           56.5             -           55.4

Total revenues                                      100.0         100.0          100.0         100.0
Operating expenses:
Client service expense                               79.0          35.7           77.6          35.7
Cost of non-emergency transportation services          -           54.6             -           51.5
General and administrative expense                   10.7           6.1           11.7           6.2
Asset impairment charge                                -           84.4             -           27.5
Depreciation and amortization                         1.8           1.9            1.7           1.9

Total operating expenses                             91.5         182.7           91.0         122.8

Operating income (loss)                               8.5         (82.7 )          9.0         (22.8 )
Non-operating expense (income):
Interest expense (income), net                        0.2           2.8           (0.1 )         2.7

Income (loss) before income taxes                     8.3         (85.5 )          9.1         (25.5 )
Provision (benefit) for income taxes                  3.3          (1.2 )          3.7           0.5

Net income (loss)                                     5.0 %       (84.3 )%         5.4 %       (26.0 )%

Three months ended September 30, 2008 compared to three months ended September 30, 2007

Revenues



                                                 Three Months Ended
                                                   September 30,           Percent
                                                2007           2008        change
    Home and community based services       $ 51,761,072   $  59,654,117      15.2 %
    Foster care services                       7,022,351       7,493,743       6.7 %
    Management fees                            4,951,094       5,537,021      11.8 %
    Non-emergency transportation services             -       94,312,157

    Total revenues                          $ 63,734,517   $ 166,997,038     162.0 %

Home and community based services. The acquisition of WCG International Ltd., or WCG, in August 2007, and Family & Children's Services, Inc., or FCS, in October 2007, added, on an aggregate basis, approximately $2.1 million to home and community based services revenue for the three months ended September 30, 2008 as compared to the three months ended September 30, 2007.

Excluding the acquisitions of WCG and FCS our home and community based services provided additional revenue of approximately $5.8 million for the three months ended September 30, 2008, as compared to the same prior year period due to client volume increases in new and existing locations, and rate increases for services we provided. Generally, increases in rates for services we provide are based on the cost of living index.

Foster care services. Our cross-selling and recruiting efforts resulted in an increase in foster care services revenue of approximately $471,000 for the three months ended September 30, 2008 as compared to the same three month period one year ago. We are increasing our efforts to recruit additional foster care homes in many of our markets which we expect will increase our foster care service offerings.

Management fees. Revenue for entities we manage but do not consolidate for financial reporting purposes (managed entity revenue) increased to $61.6 million for the three months ended September 30, 2008 as compared to $54.4 million for the three months ended September 30, 2007. The effect of business growth of the not-for-profit entities we managed added approximately $586,000 in additional management fees revenue for the three months ended September 30, 2008 as compared to the same prior year period.

Despite the increase in our home and community based services and foster care services revenues for the current three month period as compared to the same prior year period, British Columbia has taken steps to strictly enforce contractually imposed revenue caps on a per client basis and has provided notice of termination of one of its six provincial contracts with WCG. We are disputing these actions subject to contractually mandated mediation and arbitration; however, we are taking steps that are designed to help mitigate the effects of the reduced revenue.

Non-emergency transportation services. We generated all of our non-emergency transportation services revenue for the three months ended September 30, 2008 through our NET Services operating segment as a result of the acquisition of LogistiCare, in December 2007. A significant portion of this revenue is generated under capitated contracts where we assume the responsibility of meeting the transportation needs of a specific geographic population. Due to the fixed revenue stream and variable expense base structure of our NET Services operating segment, expenses related to this segment vary with seasonal fluctuations in demand for our non-emergency transportation services and, as a result, such expenses fluctuate on a quarterly basis. We expect our operating results will fluctuate in relation to seasonal demand for our non-emergency transportation services.

Budgetary issues of certain state government agencies that fund our non-emergency transportation services have resulted in delays in some contract implementations and awards to provide non-emergency transportation services. In addition, as the economy has worsened, our NET Services operating segment has experienced a higher level of utilization which has resulted in higher costs to deliver transportation services. Additionally, higher fuel prices have also contributed to higher costs to deliver transportation services. Without offsetting rate increases from our payers these higher costs have resulted in lower operating margins. While these negative

trends provide a basis from which we can renegotiate rates with our payers for our services, these negotiations are uncertain, often protracted and can extend over quarters and often fiscal year ends. As a result, and due to the lack of visibility in state budgets, there may not be opportunities to mitigate the effects of these trends on the operating results of our NET Services operating segment until such time that rate increases are enacted.

Operating expenses

Client service expense. Client service expense included the following for the three months ended September 30, 2007 and 2008:

                                            Three months ended
                                               September 30,          Percent
                                            2007           2008       change
         Payroll and related costs      $ 35,890,270   $ 42,306,846      17.9 %
         Purchased services                7,232,168      8,616,810      19.1 %
         Other operating expenses          7,028,849      8,343,765      18.7 %
         Stock-based compensation            160,199        272,644      70.2 %

         Total client service expense   $ 50,311,486   $ 59,540,065      18.3 %

Payroll and related costs. Our payroll and related costs increased for the three months ended September 30, 2008, as compared to the same three month period one year ago, as we added new direct care providers, administrative staff and other employees to support our growth. In addition, we added over 100 new employees in connection with the acquisitions of WCG and FCS which resulted in an increase in payroll and related costs of approximately $1.8 million in the aggregate for the three months ended September 30, 2008 as compared to the same prior year period. As a percentage of revenue, excluding NET Services revenue, payroll and related costs increased from 56.0% for the three months ended September 30, 2007 to 58.2% for the three months ended September 30, 2008 due to a seasonal fluctuation in our Social Services revenues as well as the impact of revenue cap enforcement related to our Canadian operations. Due to lower client demand for our home and community based services during the summer months our revenues related to these services decrease; however, our payroll and related costs do not vary significantly during this period.

Purchased services. Since acquiring WCG in August 2007, we subcontract with a network of providers for the provision of a portion of the workforce development . . .