Results of Operations

General Overview

Our business consists of our principal operating subsidiary, General Physics, a global training, engineering, technical services and consulting company that seeks to improve the effectiveness of organizations by providing training, management consulting, e-Learning solutions, engineering and technical services and products that are customized to meet the specific needs of clients. Clients include Fortune 500 companies and manufacturing, process and energy companies and other commercial and governmental customers. We believe we are a global leader in performance improvement, with over four decades of experience in providing solutions to optimize workforce performance.

As of June 30, 2009, we operated through four reportable business segments:
(i) Manufacturing & Business Process Outsourcing ("BPO"), (ii) Process & Government, (iii) Energy, and (iv) Sandy Training & Marketing ("Sandy"). We are organized by operating group, primarily based upon the markets served by each group and the services performed. Each operating group consists of strategic business units ("SBUs") and business units ("BUs") which are focused on providing specific products and services to certain classes of customers or within targeted markets. Across operating groups, SBUs and BUs, we integrate similar service lines, technology, information, work products, client management and other resources. Communications and market research, accounting, finance, legal, human resources, information systems and other administrative services are organized at the corporate level. Business development and sales resources are aligned with operating groups to support existing customer accounts and new customer development. Two of our reportable business segments, Manufacturing & BPO and Process & Government, represent an aggregation of certain operating groups in accordance with the aggregation criteria in SFAS No. 131, while our Energy and Sandy groups each represent one operating segment pursuant to SFAS No. 131. We review our reportable business segments on a continual basis and could change our reportable business segments from time to time in the event of organizational changes.

Further information regarding each business segment is discussed below.

Manufacturing & BPO. Our Manufacturing & BPO segment delivers training, curriculum design and development, staff augmentation, e-Learning services, system hosting, integration and help desk support, training business process outsourcing, and consulting and technical services primarily to large companies in the electronics and semiconductors, steel, healthcare, financial and other industries as well as to government agencies. Our October 2007 acquisition of Via Training, LLC ("Via") has expanded our delivery capabilities and diversified our core client base in the software, electronics and semiconductors and retail markets. Our ability to deliver a wide range of training services allows us to take over the entire learning function for the client, including their training personnel.

Process & Government. Our Process & Government segment has over four decades of experience providing consulting, engineering, technical and training services, including emergency preparedness, safety and regulatory compliance, chemical demilitarization and environmental services primarily to federal and state government agencies, large government contractors, and petroleum and chemical refining companies. This segment also provides design and construction of alternative fuel stations, including LNG fueling and hydrogen stations.

Energy. Our Energy segment provides engineering services, products and training primarily to electric power utilities. Our proprietary EtaPROTM Performance Monitoring and Optimization System provides a suite of

performance solutions for power generation plants and is installed at over 600 power generating units in over 25 countries. In addition, this segment provides web-based training through our GPiLearnTM portal to over 25,000 power plant personnel in the U.S. and in over 30 countries. Our March 2008 acquisition of PCS strengthened and expanded our service offering to clients in the power generation industry.

Sandy Training & Marketing. Acquired in January 2007, Sandy is a provider of custom product sales training and has been a leader in serving manufacturing customers in the U.S. automotive industry for over 30 years. Sandy provides custom product sales training designed to better educate customer sales forces with respect to new product features and designs, in effect rapidly increasing the sales force knowledge base and enabling them to address detailed customer queries. Furthermore, Sandy provides customer relationship marketing (CRM) products including brand loyalty publications and other related products. Sandy develops personalized publications for automotive and non-automotive clients which establish a link between the manufacturer/dealer and each customer. In addition, Sandy produces brand specific portfolios that are installed in the gloveboxes of new cars and trucks at the time of vehicle assembly. This segment also provides technical training services to automotive customers.

Share Repurchase Program

Since January 2006, our Board of Directors has authorized a total of $23 million of repurchases of our common stock from time to time in the open market, subject to prevailing business and market conditions and other factors. During the years ended December 31, 2008, 2007 and 2006, we repurchased approximately 1,091,000, 678,500 and 420,000 shares, respectively, of our common stock in the open market for a total cost of approximately $8.8 million, $6.5 million and $3.1 million, respectively. During the three and six months ended June 30, 2009, we repurchased approximately 109,000 and 405,000 shares, respectively, of our common stock in the open market for a total cost of approximately $0.5 million and $1.3 million, respectively. As of June 30, 2009, there was approximately $3.2 million available for future repurchases under the buyback program. There is no expiration date for the repurchase program.

Operating Highlights

Three Months ended June 30, 2009 Compared to the Three Months ended June 30, 2008

For the three months ended June 30, 2009, we had a loss before income tax expense of $6.4 million compared to income before income tax expense of $5.1 million for the three months ended June 30, 2008. The decrease was primarily due to a goodwill and intangible asset impairment loss of $10.2 million recognized during the second quarter of 2009 and a decrease in operating income of $1.4 million, the components of which are discussed below. Net loss was $6.6 million, or $(0.42) per diluted share, for the three months ended June 30, 2009, compared to net income of $3.0 million, or $0.18 per diluted share, for the three months ended June 30, 2008.

Revenue



                               Three months ended
                                    June 30,
(Dollars in thousands)          2009         2008

Manufacturing & BPO          $    21,930   $ 32,373
Process & Government              14,909     13,661
Energy                             5,800      5,425
Sandy Training & Marketing        11,118     20,567
                             $    53,757   $ 72,026

Manufacturing & BPO revenue decreased $10.4 million or 32.3% during the second quarter of 2009 compared to the second quarter of 2008. The decrease in revenue is due to the following:

† $4.4 million net decrease in revenue from BPO customers primarily due to a slowdown in spending by several customers resulting in an overall decline in the number of training courses run and some training courses running below full capacity;

† $2.6 million decrease in U.S. dollar revenue recognized from our operations in the United Kingdom, which consists of a $1.3 million decrease in revenue due to the unfavorable effect of currency exchange rates and a net revenue decrease of $1.9 million primarily due to a decrease in volume with training outsourcing customers, offset by an increase in revenue of $0.6 million due to expansion of government funded training programs in the UK;

† $1.4 million reduction in process and maintenance reliability training services provided primarily to steel industry clients;

† $0.9 million reduction in services for a pharmaceutical industry client; and

† $1.1 million of other net decreases primarily due to a reduction in technical training services provided to various clients.

As noted above, the changes in foreign currency exchange rates negatively impacted our U.S. dollar revenue recognized during the second quarter of 2009 when compared with the second quarter of 2008, and we expect that the significant changes in rates which occurred primarily during the second half of 2008 could continue to negatively impact our 2009 quarterly revenue when compared to 2008. In addition, we anticipate that the

slowdown in customer spending in this segment which resulted in reduced revenue discussed above will continue to negatively impact our 2009 revenue in future quarters when compared to 2008 results. We incurred a goodwill and intangible asset impairment loss of $10.2 million during the second quarter of 2009 in our Manufacturing & BPO segment. See the Critical Accounting Policies and Estimates section below for further discussion regarding the factors leading to the impairment loss and the valuation methodologies and assumptions used in the goodwill impairment test. If we continue to experience declines in revenue and gross profit, we could incur further goodwill and other intangible asset impairment charges in the future.

Process & Government revenue increased $1.2 million or 9.1% during the second quarter of 2009 compared to the second quarter of 2008. The increase in revenue is primarily due to a $2.4 million increase relating to construction projects for liquefied natural gas (LNG) fueling station facilities related to recent new contract awards. This increase in revenue was offset by a $0.6 million reduction in process, maintenance and reliability training services provided primarily to a petrochemical industry client and a $0.6 million net decrease in revenue primarily due to a reduced volume of chemical demilitarization training services.

Energy group revenue increased $0.4 million or 6.9% during the second quarter of 2009 compared to the second quarter of 2008. The increase is primarily due to new EtaPROTM software sales during the second quarter of 2009.

Sandy Training & Marketing revenue decreased $9.4 million or 45.9% during the second quarter of 2009 compared to the second quarter of 2008 due to a reduction in spending by automotive customers. The $9.4 million revenue decrease consisted of the following:

† $3.3 million net decrease in revenue from product sales and other training programs for various automotive customers primarily due to a reduction in the number of trainers required, and a reduction in related in-dealership training programs;

† $2.2 million net decrease in revenue related to new vehicle launch programs and related training services provided in 2008 which did not recur in 2009;

† $2.7 million decrease in publications revenue primarily due to a delay in the shipment of a publication until third quarter of 2009 compared to the similar 2008 publication being shipped during the second quarter of 2008, as well as a reduction in the volume of other publications (we experience quarterly fluctuations in revenue and income related to Sandy's publications business, since revenue and cost on publication contracts are recognized in the period in which the publications ship, based on the output method of performance. Shipments occur at various times throughout the year and the volume of publications shipped could fluctuate from quarter to quarter. Publications revenue in the Sandy Training & Marketing segment totaled $0.9 million during the second quarter of 2009 compared to $3.6 million during the second quarter of 2008);

† $0.6 million decrease in glovebox portfolios sales due to lower vehicle production volumes; and

† $0.6 million decrease in technical training services provided to automotive customers due to a reduction in plant spending.

As noted above, revenue in the Sandy segment declined during the second quarter of 2009 compared to the second quarter of 2008, primarily as a result of the weakened condition of the automotive industry and reduced spending by these customers. We expect this trend will continue to negatively impact our 2009 quarterly revenue when compared to 2008 results.

Gross Profit



                                         Three months ended
                                              June 30,
                                    2009                   2008
(Dollars in thousands)                 % Revenue              % Revenue
Manufacturing & BPO          $ 3,369        15.4 % $  4,787        14.8 %
Process & Government           2,294        15.4 %    2,279        16.7 %
Energy                         1,650        28.4 %    1,360        25.1 %
Sandy Training & Marketing     1,422        12.8 %    2,396        11.6 %
                             $ 8,735        16.2 % $ 10,822        15.0 %

Manufacturing & BPO gross profit of $3.4 million or 15.4% of revenue for the second quarter of 2009 decreased by $1.4 million or 29.6% when compared to gross profit of $4.8 million or 14.8% of revenue for the second quarter of 2008. The decrease in gross profit dollars is primarily attributable to the revenue decreases discussed above. Gross profit as a percentage of revenue increased in this segment during the second quarter of 2009 compared to the second quarter of 2008, primarily due to measures taken to align costs with decreased revenue streams.

Process & Government gross profit was $2.3 million or 15.4% of revenue for the second quarter of 2009 compared to gross profit of $2.3 million or 16.7% of revenue for the second quarter of 2008. Despite the increase in revenue in this segment, gross profit as a percentage of revenue decreased primarily due to lower margins on certain homeland security / first responder contracts during the second quarter of 2009 compared to the second quarter of 2008.

Energy group gross profit of $1.7 million or 28.4% of revenue for the second quarter of 2009 increased by $0.3 million or 21.3% when compared to gross profit of $1.4 million or 25.1% of revenue for the second quarter of 2008. The increase in gross profit is due to the increased revenue from software sales during the second quarter of 2009 as discussed above.

Sandy Training and Marketing gross profit of $1.4 million or 12.8% of revenue for the second quarter of 2009 decreased by $1.0 million or 40.7% when compared to gross profit of $2.4 million or 11.6% of revenue for the second quarter of 2008. The decrease in gross profit dollars is primarily due to the revenue decreases discussed above. Gross profit as a percentage of revenue increased in this segment during the second quarter of 2009 compared to the second quarter of 2008, primarily due to a reduction in personnel and other cost reduction initiatives.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $0.7 million or 12.6% from $5.7 million for the second quarter of 2008 to $5.0 million for the second quarter of 2009. The decrease is primarily attributable to $0.4 million of deferred financing costs related to a terminated equity offering in the second quarter of 2008 which did not recur in 2009 and decreases in various corporate expenses due to reduced overall spending in the second quarter of 2009 compared to the second quarter of 2008.

Goodwill and Intangible Asset Impairment Loss

We incurred a goodwill and intangible asset impairment loss of $10.2 million during the second quarter of 2009 related to our Manufacturing reporting unit within the Manufacturing & BPO segment. See the Critical

Accounting Policies and Estimates section below for further discussion regarding the factors leading to the impairment loss and the valuation methodologies and assumptions used in the goodwill impairment test. If we continue to experience declines in revenue and gross profit, we could incur further goodwill and other intangible asset impairment charges in the future.

Interest Expense

Interest expense decreased from $0.2 million for the second quarter of 2008 to $0.1 million for the second quarter of 2009. The decrease is primarily due to the repayment of long-term debt obligations in the second and third quarters of 2008.

Other Income

Other income decreased $0.2 million from $0.3 million for the second quarter of 2008 to $0.1 million for the second quarter of 2009. The decrease is primarily due to a $0.1 million gain on the early extinguishment of debt during the second quarter of 2008 and a foreign currency exchange loss during the second quarter of 2009.

Income Tax Expense

Income tax expense was $0.2 million for the second quarter of 2009 compared to $2.1 million for the second quarter of 2008. The decrease is due to a decrease in income before income tax expense for the second quarter of 2009 compared to the second quarter of 2008. We recognized a $1.5 million income tax benefit related to the $10.2 million goodwill and intangible asset impairment loss incurred during the quarter for the portion of goodwill which was deductible for tax purposes. Excluding the impact of the impairment loss, the effective income tax rate was 45.7% and 41.4% for the three months ended June 30, 2009 and 2008, respectively. The increase in the effective income tax rate is primarily due to the decrease in income before income taxes and an increase in tax expense in the second quarter of 2009 compared to the second quarter of 2008 related to disregarded foreign entities for tax purposes. Income tax expense for the quarterly periods is based on an estimated annual effective tax rate which includes the federal and state statutory rates, permanent differences, and other items that may have an impact on income tax expense.

Six Months ended June 30, 2009 Compared to the Six Months ended June 30, 2008

For the six months ended June 30, 2009, we had a loss before income tax expense of $3.9 million compared to income before income tax expense of $10.0 million for the six months ended June 30, 2008. The decrease was primarily due to a goodwill and intangible asset impairment loss of $10.2 million recognized during the second quarter of 2009 and a decrease in operating income of $3.9 million, the components of which are discussed below. Net loss was $5.2 million, or $(0.32) per diluted share, for the six months ended June 30, 2009, compared to net income of $5.8 million, or $0.35 per diluted share, for the six months ended June 30, 2008.

Revenue



                               Six months ended
                                   June 30,
(Dollars in thousands)         2009        2008

Manufacturing & BPO          $  43,877   $  61,494
Process & Government            27,966      28,581
Energy                          11,549       9,935
Sandy Training & Marketing      23,956      38,935
                             $ 107,348   $ 138,945

Manufacturing & BPO revenue decreased $17.6 million or 28.6% during the six months ended June 30, 2009 compared to the same period in 2008. The decrease in revenue is due to the following:

† $7.0 million net decrease in revenue from BPO customers primarily due to a slowdown in spending by several customers resulting in an overall decline in the number of training courses run and some training courses running below full capacity;

† $5.0 million decrease in U.S. dollar revenue recognized from our operations in the United Kingdom, which consists of a $2.8 million decrease in revenue due to the unfavorable effect of currency exchange rates and a net revenue decrease of $3.6 million primarily due to a decrease in volume with training outsourcing customers, offset by an increase in revenue of $1.4 million due to expansion of government funded training programs in the UK;

† $2.1 million reduction in process and maintenance reliability training services provided primarily to steel industry clients;

† $2.1 million reduction in services for a pharmaceutical industry client; and

† $1.4 million of other net decreases primarily due to a reduction in technical training services provided to various clients.

As noted above, the changes in foreign currency exchange rates negatively impacted our U.S. dollar revenue recognized during 2009 when compared with 2008, and we expect that the significant changes in rates which occurred primarily during the second half of 2008 could continue to negatively impact our 2009 revenue when compared to 2008. In addition, we anticipate that the slow down in customer spending in this segment which

resulted in reduced revenue discussed above will continue to negatively impact our 2009 revenue in future quarters when compared to 2008 results.

Process & Government revenue decreased $0.6 million or 2.2% during the six months ended June 30, 2009 compared to the same period in 2008. The decrease in revenue is due to the following:

† $1.8 million reduction in process, maintenance and reliability training services provided primarily to a petrochemical industry client; and

† $1.9 million net decrease in revenue primarily related to certain homeland security / first responder training contracts and a reduced volume of chemical demilitarization training services; offset by

† $3.1 million net increase relating to construction projects for liquefied natural gas (LNG) fueling station facilities related to recent new contract awards.

Energy group revenue increased $1.6 million or 16.2% during the six months ended June 30, 2009 compared to the same period in 2008. The increase is primarily due to increased EtaPROTM software sales during 2009 compared to 2008, new workforce development training contracts for power generation customers and increased web-based training course sales. In addition, $0.7 million of the revenue increase is due to PCS being included for a full first quarter in 2009 as the acquisition was completed on March 1, 2008.

Sandy Training & Marketing revenue decreased $15.0 million or 38.5% during the six months ended June 30, 2009 compared to the same period in 2008. The $15.0 million revenue decrease consisted of the following:

† $5.4 million net decrease in revenue from product sales and other training programs for various automotive customers primarily due to a reduction in the number of trainers required, and a reduction in related in-dealership training programs;

† $3.6 million net decrease in revenue related to new vehicle launch programs and related training services provided in 2008 which did not recur in 2009;

† $3.7 million decrease in publications revenue primarily due to a delay in the shipment of a publication until the third quarter of 2009 compared to the similar 2008 publication being shipped during the second quarter of 2008, as well as a reduction in the volume of other publications (We experience quarterly fluctuations in revenue and income related to Sandy's publications business, since revenue and cost on publication contracts are recognized in the period in which the publications ship, based on the output method of performance. Shipments occur at various times throughout the year and the volume of publications shipped could fluctuate from quarter to quarter. Publications revenue in the Sandy Training & Marketing segment totaled $0.9 million during the second quarter of 2009 compared to $3.6 million during the second quarter of 2008.);

† $1.4 million decrease in glovebox portfolios sales due to lower vehicle production volumes; and

† $0.9 million decrease in technical training services provided to automotive customers due to a reduction in plant spending.

As noted above, revenue in the Sandy segment declined during 2009 compared to 2008, primarily as a result of the weakened condition of the automotive industry and reduced spending by these customers. We expect this trend will continue to negatively impact our 2009 revenue when compared to 2008 results.

Gross Profit



                                          Six months ended
                                              June 30,
                                     2009                   2008
(Dollars in thousands)                  % Revenue              % Revenue
Manufacturing & BPO          $  6,028        13.7 % $  8,740        14.2 %
Process & Government            4,043        14.5 %    5,141        18.0 %
Energy                          2,959        25.6 %    2,595        26.1 %
Sandy Training & Marketing      3,194        13.3 %    4,623        11.9 %
                             $ 16,224        15.1 % $ 21,099        15.2 %

Manufacturing & BPO gross profit of $6.0 million or 13.7% of revenue for the six months ended June 30, 2009 decreased by $2.7 million or 31.0% when compared to gross profit of $8.7 million or 14.2% of revenue for the same period in 2008. The decrease in gross profit is primarily attributable to the revenue decreases discussed above.

Process & Government gross profit of $4.0 million or 14.5% of revenue for the six months ended June 30, 2009 decreased by $1.1 million or 21.4% when compared to gross profit of $5.1 million or 18.0% of revenue for the same period in 2008. The decrease in gross profit dollars is primarily attributable to the revenue decreases in this segment as discussed above. Gross profit as a percentage of revenue decreased in this segment primarily due to a reduction in services provided to a petrochemical industry client during 2009 which had higher margins in 2008 and lower margins on certain homeland security / first responder contracts during 2009 compared to 2008, as well as revenue growth in this segment being derived from lower margin LNG services.

Energy group gross profit of $3.0 million or 25.6% of revenue for the six months ended June 30, 2009 increased by $0.4 million or 14.0% when compared to gross profit of $2.6 million or 26.1% of revenue for the same period in 2008. The increase in gross profit is due to the increased revenue discussed above.

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