Statements made in this Quarterly Report on Form 10-Q, including without limitation this Management's Discussion and Analysis of Financial Condition and Results of Operations, other than statements of historical information, are forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements may sometimes be identified by such words as "may," "will," "expect," "anticipate," "believe," "estimate" and "continue" or similar words. We believe that it is important to communicate our future expectations to investors. However, these forward-looking statements involve many risks and uncertainties. Our actual results could differ materially from those indicated in such forward-looking statements as a result of certain factors, including but not limited to, those set forth under Risk Factors in our Annual Report on Form 10-K previously filed with the SEC and elsewhere in this Quarterly Report on Form 10-Q. We are under no duty to update any of the forward-looking statements after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results.

The following discussion should be read along with the unaudited consolidated condensed financial statements and notes thereto included in Item 1 of this Quarterly Report as well as the audited consolidated financial statements and notes thereto.

Overview

We are an information technology consulting firm serving Forbes Global 2000 ("Global 2000") and other large enterprise companies with a primary focus on the United States. We help our clients gain competitive advantage by using Internet-based technologies to make their businesses more responsive to market opportunities and threats, strengthen relationships with their customers, suppliers and partners, improve productivity and reduce information technology costs. We design, build and deliver business-driven technology solutions using third party software products developed by our partners. Our solutions include custom applications, portals and collaboration, eCommerce, online customer management, enterprise content management, business intelligence, business integration, mobile technology, technology platform implementations and service oriented architectures. Our solutions enable clients to meet the changing demands of an increasingly global, Internet-driven and competitive marketplace.

Services Revenues

Services revenues are derived from professional services performed developing, implementing, integrating, automating and extending business processes, technology infrastructure and software applications. Most of our projects are performed on a time and materials basis, and a smaller amount of revenues is derived from projects performed on a fixed fee basis. Fixed fee engagements represented approximately 11% of our services revenues for the three months ended September 30, 2008 and 15% of our services revenues for the nine months ended September 30, 2008. For time and material projects, revenues are recognized and billed by multiplying the number of hours our professionals expend in the performance of the project by the established billing rates. For fixed fee projects, revenues are generally recognized using the proportionate performance method. Revenues on uncompleted projects are recognized on a contract-by-contract basis in the period in which the portion of the fixed fee is complete. Amounts invoiced to clients in excess of revenues recognized are classified as deferred revenues. On most projects, we are also reimbursed for out-of-pocket expenses such as airfare, lodging and meals. These reimbursements are included as a component of revenues. The aggregate amount of reimbursed expenses will fluctuate depending on the location of our customers, the total number of our projects that require travel, and whether our arrangements with our clients provide for the reimbursement of travel and other project related expenses.

Software and Hardware Revenues

Software and hardware revenues are derived from sales of third-party software and hardware. Revenues from sales of third-party software and hardware are generally recorded on a gross basis provided we act as a principal in the transaction. In the event we do not meet the requirements to be considered a principal in the transaction and act as an agent, the revenues are recorded on a net basis. Software and hardware revenues are expected to fluctuate from quarter-to-quarter depending on our customers' demand for these products.

If we enter into contracts for the sale of services and software or hardware, Company management evaluates whether the services are essential to the functionality of the software or hardware and whether the Company has objective fair value evidence for each deliverable in the transaction. If management concludes the services to be provided are not essential to the functionality of the software or hardware and can determine objective fair value evidence for each deliverable of the transaction, then we account for each deliverable in the transaction separately, based on the relevant revenue recognition policies. Generally, all deliverables of our multiple element arrangements meet these separation criteria.

Cost of revenues

Cost of revenues consists primarily of cash and non-cash compensation and benefits, including bonuses and non-cash compensation related to equity awards, associated with our technology professionals and subcontractors. Non-cash compensation includes stock compensation expenses arising from restricted stock, option grants to employees, and retirement savings plan contributions. Cost of revenues also includes third-party software and hardware costs, reimbursable expenses and other unreimbursed project related expenses. Project related expenses will fluctuate generally depending on outside factors including the cost and frequency of travel and the location of our customers. Cost of revenues does not include depreciation of assets used in the production of revenues which are primarily personal computers, servers and other information technology related equipment.

Gross Margins

Our gross margins for services are affected by the utilization rates of our professionals, defined as the percentage of our professionals' time billed to customers divided by the total available hours in the respective period, the salaries we pay our consulting professionals and the average billing rate we receive from our customers. If a project ends earlier than scheduled or we retain professionals in advance of receiving project assignments, or if demand for our services declines, our utilization rate will decline and adversely affect our gross margins. Subject to fluctuations resulting from our acquisitions, we expect these key metrics of our services business to remain relatively constant for the foreseeable future assuming there are no further declines in the demand for information technology software and services. Gross margin percentages of third party software and hardware sales are typically lower than gross margin percentages for services, and the mix of services and software and hardware for a particular period can significantly impact our total combined gross margin percentage for such period. In addition, gross margin for software and hardware sales can fluctuate due to pricing and other competitive pressures.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") consist of salaries, benefits, bonuses, non-cash compensation, office costs, recruiting, professional fees, sales and marketing activities, training, and other miscellaneous expenses. Non-cash compensation includes stock compensation expenses related to restricted stock, option grants to employees and non-employee directors, and retirement savings plan contributions. We work to minimize selling costs by focusing on repeat business with existing customers and by accessing sales leads generated by our software business partners, most notably IBM, whose products we use to design and implement solutions for our clients. These partnerships enable us to reduce our selling costs and sales cycle times and increase win rates through leveraging our partners' marketing efforts and endorsements.

Plans for Growth and Acquisitions

Our goal is to continue to build one of the leading independent information technology consulting firms in North America by expanding our relationships with existing and new clients, leveraging our operations to expand and continuing to make disciplined acquisitions. As demand for our services grows, we anticipate increasing the number of professionals in our 19 North American offices and adding new offices throughout the United States, both organically and through acquisitions. We also intend to continue to leverage our existing 'offshore' capabilities to support our growth and provide our clients flexible options for project delivery. In addition, we believe our track record for identifying acquisitions and our ability to integrate acquired businesses help us complete acquisitions efficiently and productively, while continuing to offer quality services to our clients, including new clients resulting from the acquisitions.

Consistent with our strategy of growth through disciplined acquisitions, we consummated nine acquisitions since January 1, 2005, including four in 2007. Given the current economic conditions, the Company has temporarily suspended making additional acquisitions pending improved visibility into the health of the economy.

Results of Operations

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

Revenues. Total revenues increased 10% to $58.3 million for the three months
ended September 30, 2008 from $53.1 million for the three months ended September
30, 2007.

                                                                                                            Explanation for Increases/(Decreases) Over Prior Year
                                                            Financial Results                                                       Period
                                                              (in thousands)                                                    (in thousands)
                                 For the Three Months    For the Three Months        Total Increase/                                       Increase/ (Decrease)
                                  Ended September 30,     Ended September 30,     (Decrease) Over Prior      Increase Attributable         Attributable to Base
                                         2008                    2007                  Year Period          to Acquired Companies*              Business**
Services Revenues                       $       52,510          $       48,387           $          4,123           $         6,860              $          (2,737 )
Software and Hardware Revenues                   2,290                   1,582                        708                       937                           (229 )
Reimbursable Expenses                            3,506                   3,115                        391                       565                           (174 )
Total Revenues                          $       58,306          $       53,084           $          5,222           $         8,362              $          (3,140 )

*Defined as companies acquired during 2007; no companies were acquired in 2008. **Defined as businesses owned as of January 1, 2007.

Services revenues increased 9% to $52.5 million for the three months ended September 30, 2008 from $48.4 million for the three months ended September 30, 2007. Services revenues attributable to our base business decreased $2.7 million while services revenues attributable to the companies acquired in 2007 increased $6.8 million, resulting in a net increase of $4.1 million.

Software and hardware revenues increased 45% to $2.3 million for the three months ended September 30, 2008 from $1.6 million for the three months ended September 30, 2007 due mainly to an increase in the volume of large software transactions. Software and hardware revenues attributable to our base business decreased $0.2 million while software and hardware revenues attributable to the companies acquired in 2007 increased $0.9 million, resulting in a net increase of $0.7 million. Reimbursable expenses increased 13% to $3.5 million for the three months ended September 30, 2008 from $3.1 million for the three months ended September 30, 2007. We do not realize any profit on reimbursable expenses.

Cost of Revenues. Cost of revenues increased 15% to $39.1 million for the three months ended September 30, 2008 from $34.0 million for the three months ended September 30, 2007. Cost of revenues attributable to our base business decreased $1.4 million while cost of revenues attributable to the companies acquired in 2007 increased $6.5 million, resulting in a net increase of $5.1 million. The average number of professionals performing services, including subcontractors, increased to 1,156 for the three months ended September 30, 2008 from 973 for the three months ended September 30, 2007.

Costs associated with software and hardware sales increased 69% to $1.9 million for the three months ended September 30, 2008 from $1.1 million for the three months ended September 30, 2007 which directly relates to the increase in software and hardware revenues as discussed above. Base business accounted for 9% of the increase in costs associated with software and hardware sales for the three months ended September 30, 2008 compared to the three months ended September 30, 2007. The remaining 91% of the increase in costs associated with software and hardware sales is attributable to acquired companies.

Gross Margin. Gross margin increased 0.7% to $19.2 million for the three months ended September 30, 2008 from $19.1 million for the three months ended September 30, 2007. Gross margin as a percentage of revenues decreased to 32.9% for the three months ended September 30, 2008 from 35.9% for the three months ended September 30, 2007 due to a decrease in services and software and hardware gross margin. Services gross margin, excluding reimbursable expenses, decreased to 35.8% for the three months ended September 30, 2008 from 38.5% for the three months ended September 30, 2007 primarily as a result of higher labor related costs associated with a soft revenue cycle and delays in the start dates of projects. The average utilization rate of our professionals, excluding subcontractors, decreased to 80% for the three months ended September 30, 2008 compared to 82% for the three months ended September 30, 2007. The Company's average bill rates decreased to $108 per hour for the three months ended September 30, 2008 compared to $115 per hour for the three months ended September 30, 2007, primarily due to lower rates associated with the acquisition of the China offshore business and the ePairs business in the second half of 2007. The average bill rate for the three months ended September 30, 2008 excluding China, ePairs, and subcontractors was $114 per hour compared to $120 per hour for the three months ended September 30, 2007. Software and hardware gross margin decreased to 15.5% for the three months ended September 30, 2008 from 27.5% for the three months ended September 30, 2007 due to a decrease in the number of software transactions with high margins related to the increasingly competitive economic conditions and software pricing.

Selling, General and Administrative. SG&A expenses increased 33% to $13.0 million for the three months ended September 30, 2008 from $9.8 million for the three months ended September 30, 2007 due primarily to fluctuations in expenses as detailed in the following table:

                                                  Increase /
                                                  (Decrease)
Selling, General, and Administrative Expense    (in thousands)
Bad debt expense                               $          1,875
Office and technology related costs                         495
Stock compensation expense                                  480
Other                                                       324
Salary expense                                              323
Sales related costs                                         234
Bonus expense                                              (513 )
Net increase                                   $          3,218

SG&A expenses, as a percentage of services revenues, excluding reimbursed expenses, increased to 24.8% for the three months ended September 30, 2008 from 20.3% for the three months ended September 30, 2007 due primarily to an increase in bad debt expense. Bad debt expense increased due primarily to a deterioration in the current economic environment. As a result of this current economic environment, certain customer's credit ratings, financial stability and payment history weakened during the quarter, which resulted in the Company increasing the expense associated with the allowance for doubtful accounts by approximately $1.5 million during the three months ended September 30, 2008.

Depreciation. Depreciation expense increased 44% to $0.5 million for the three months ended September 30, 2008 from $0.4 million for the three months ended September 30, 2007. The increase in depreciation expense is due to the addition of software programs, servers, and other computer equipment to enhance our technology infrastructure and support our growth, both organic and acquisition-related. Depreciation expense as a percentage of services revenue, excluding reimbursable expenses, was 1.0% and 0.8% for the three months ended September 30, 2008 and 2007, respectively.

Amortization. Amortization decreased 7% to $1.2 million for the three months ended September 30, 2008 from $1.3 million for the three months ended September 30, 2007. The decrease in amortization expense reflects the completion of the amortization of certain acquired intangible assets. The valuations of the Company's intangible assets subject to amortization and the estimated useful lives of acquired identifiable intangible assets are outlined in Note 8, Goodwill and Intangible Assets, of our Notes to Unaudited Condensed Consolidated Financial Statements.

Other Expense. During the third quarter 2008, we expensed $0.9 million of previously capitalized deferred offering costs. We no longer intend to use the current shelf registration statement associated with these costs for an equity offering. As required, we wrote off the deferred offering costs in the third quarter.

Provision for Income Taxes. We provide for federal, state and foreign income taxes at the applicable statutory rates adjusted for non-deductible expenses. Our effective tax rate increased slightly to 40.8% for the three months ended September 30, 2008 from 40.6% for the three months ended September 30, 2007.

Nine months ended September 30, 2008 compared to nine months ended September 30, 2007

Revenues. Total revenues increased 12% to $174.7 million for the nine months ended September 30, 2008 from $155.7 million for the nine months ended September 30, 2007.

                                                                                                       Explanation for Increases/(Decreases) Over Prior Year
                                                         Financial Results                                                    Period
                                                           (in thousands)                                                 (in thousands)
                                 For the Nine Months   For the Nine Months      Total Increase/                                       Increase/ (Decrease)
                                 Ended September 30,   Ended September 30,   (Decrease) Over Prior     Increase Attributable          Attributable to Base
                                        2008                  2007                Year Period         to Acquired Companies*               Business**
Services Revenues                      $     158,242         $     137,645           $       20,597           $        27,839              $           (7,242 )
Software and Hardware Revenues                 6,072                 9,469                   (3,397 )                   2,251                          (5,648 )
Reimbursable Expenses                         10,415                 8,614                    1,801                     1,458                             343
Total Revenues                         $     174,729         $     155,728           $       19,001           $        31,548              $          (12,547 )

*Defined as companies acquired during 2007; no companies were acquired in 2008. **Defined as businesses owned as of January 1, 2007.

Services revenues increased 15% to $158.2 million for the nine months ended September 30, 2008 from $137.6 million for the nine months ended September 30, 2007. Services revenues attributable to our base business decreased $7.2 million while services revenues attributable to the companies acquired in 2007 increased $27.8 million, resulting in a net increase of $20.6 million.

Software and hardware revenues decreased 36% to $6.1 million for the nine months ended September 30, 2008 from $9.5 million for the nine months ended September 30, 2007 due mainly to a decrease in the number of software sales and generally slower demand. Software and hardware revenues attributable to our base business decreased $5.6 million while software and hardware revenues attributable to the companies acquired in 2007 increased $2.2 million, resulting in a net decrease of $3.4 million. Reimbursable expenses increased 21% to $10.4 million for the nine months ended September 30, 2008 from $8.6 million for the nine months ended September 30, 2007. We do not realize any profit on reimbursable expenses.

Cost of Revenues. Cost of revenues increased 16% to $117.8 million for the nine months ended September 30, 2008 from $101.4 million for the nine months ended September 30, 2007. Cost of revenues attributable to our base business decreased $5.8 million while cost of revenues attributable to the companies acquired in 2007 increased $22.2 million, resulting in a net increase of $16.4 million. The increase in cost of revenues from acquired companies is mainly attributable to an increase in the average number of professionals performing services. The average number of professionals performing services, including subcontractors, increased to 1,164 for the nine months ended September 30, 2008 from 920 for the nine months ended September 30, 2007.

Costs associated with software and hardware sales decreased 35% to $5.1 million for the nine months ended September 30, 2008 from $7.9 million for the nine months ended September 30, 2007 in connection with decreased software and hardware revenue. Costs associated with software and hardware sales attributable to our base business decreased $4.6 million, while costs associated with software and hardware sales attributable to acquired companies increased $1.8 million, resulting in a net decrease of $2.8 million.

Gross Margin. Gross margin increased 5% to $56.9 million for the nine months ended September 30, 2008 from $54.3 million for the nine months ended September 30, 2007. Gross margin, as a percentage of revenues, decreased to 32.6% for the nine months ended September 30, 2008 from 34.9% for the nine months ended September 30, 2007, due to a decrease in services and software and hardware gross margin. Services gross margin, excluding reimbursable expenses, decreased to 35.3% for the nine months ended September 30, 2008 from 38.3% for the nine months ended September 30, 2007 primarily related to higher labor costs associated with a soft revenue cycle and delays in the start dates of projects. The average utilization rate of our professionals, excluding subcontractors, decreased slightly to 80% for the nine months ended September 30, 2008 compared to 82% for the nine months ended September 30, 2007. The Company's average bill rates decreased to $108 per hour for the nine months ended September 30, 2008 compared to $115 per hour for the nine months ended September 30, 2007, primarily due to lower rates associated with the acquisition of the China offshore business and the ePairs business in the second half of 2007. The average bill rate for the nine months ended September 30, 2008 excluding China, ePairs, and subcontractors was $116 per hour compared to $119 per hour for the nine months ended September 30, 2007. Software and hardware gross margin decreased to 15.5% for the nine months ended September 30, 2008 from 16.1% for the nine months ended September 30, 2007 due to a decrease in the number of software transactions with high margins related to the increasingly competitive economic conditions and software pricing.

Selling, General and Administrative. SG&A expenses increased 18% to $35.4 million for the nine months ended September 30, 2008 from $30.1 million for the nine months ended September 30, 2007 due primarily to fluctuations in expenses as detailed in the following table:

                                                  Increase /
                                                  (Decrease)
Selling, General, and Administrative Expense    (in thousands)
Bad debt expense                               $          1,749
Office and technology related costs                       1,422
Stock compensation expense                                1,402
Sales related costs                                       1,275
Salary expense                                            1,015
Other                                                       693
Bonus expense                                            (2,247 )
Net increase                                   $          5,309

SG&A expenses, as a percentage of service revenues, excluding reimbursable expenses, increased to 22.4% for the nine months ended September 30, 2008 from 21.8% for the nine months ended September 30, 2007 due to an increase in bad debt expense. Bad debt expense increased due primarily to a deterioration in the current economic environment. As a result of this current economic environment, certain customer's credit ratings, financial stability and payment history weakened during the quarter, which resulted in the Company increasing the expense associated with the allowance for doubtful accounts by approximately $1.5 million during the nine months ended September 30, 2008. The increase in bad debt expense was offset by a decrease in bonus costs. Bonus costs, as a percentage of service revenues, excluding reimbursable expenses, decreased to 0.2% for the nine months ended September 30, 2008 compared to 1.6% for the nine months ended September 30, 2007 due to challenging growth and profitability targets in 2008 and a slow down in the overall economy and IT services spending.

Depreciation. Depreciation expense increased 52% to $1.6 million for the nine months ended September 30, 2008 from $1.1 million for the nine months ended September 30, 2007. The increase in depreciation expense is due to the addition of software programs, servers, and other computer equipment to enhance our technology infrastructure and support our growth, both organic and acquisition-related. Depreciation expense as a percentage of services revenue, excluding reimbursable expenses, was 1.0% and 0.8% for the nine months ended September 30, 2008 and 2007, respectively.

Amortization. Amortization increased 17% to $3.6 million for the nine months . . .