You should read the following summary together with the more detailed business information and consolidated financial statements and related notes that appear elsewhere in this annual report and in the documents that we incorporate by reference into this annual report. This annual report may contain certain "forward-looking" information within the meaning of the Private Securities Litigation Reform Act of 1995. This information involves risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in "Risk Factors."

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, customer relationship 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 13% of our services revenues for the twelve months ended December 31, 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. Cost of revenues also includes the costs associated with subcontractors. Third-party software and hardware costs, reimbursable expenses and other unreimbursed project related expenses are also included in cost of revenues. 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. 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 vendors, most notably IBM, whose products we use to design and implement solutions for our clients. These relationships 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

The following table summarizes our results of operations as a percentage of total revenues:

Revenues:                                              2008           2007           2006
  Services revenues                                       89.6 %         87.8 %         85.6 %
  Software and hardware revenues                           4.6            6.5            9.0
  Reimbursable expenses                                    5.8            5.7            5.4
Total revenues                                           100.0          100.0          100.0
Cost of revenues (exclusive of depreciation and
amortization, shown separately below):
  Project personnel costs                                 56.6           52.6           52.3
  Software and hardware costs                              3.7            5.5            7.5
  Reimbursable expenses                                    5.7            5.7            5.4
  Other project related expenses                           2.2            1.5            1.3
Total cost of revenues                                    68.2           65.3           66.5
Services gross margin                                     34.4           38.4           37.4
Software and hardware gross margin                        19.4           15.9           16.1
Total gross margin                                        31.8           34.7           33.5
Selling, general and administrative                       20.4           19.2           20.1
Depreciation and intangibles amortization                  3.0            2.9            2.7
Impairment of intangibles                                  0.7            0.0            0.0
Income from operations                                     7.7           12.6           10.6
Interest income (expense), net                             0.2            0.1           (0.3 )
Other income (expense), net                               (0.4 )          0.0            0.1
Income before income taxes                                 7.5           12.7           10.5
Provision for income taxes                                 3.2            5.2            4.5
Net income                                                 4.3 %          7.5 %          6.0 %

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

  Revenues. Total revenues increased 6% to $231.5 million for the year ended
December 31, 2008 from $218.1 million for the year ended December 31, 2007.

                                                                                            Explanation for Increases/(Decreases) Over Prior Year
                                                   Financial Results                                               Period
                                                    (in thousands)                                             (in thousands)
                                For the Year    For the Year
                                    Ended           Ended           Total Increase/                                        Increase/ (Decrease)
                                December 31,    December 31,     (Decrease) Over Prior      Increase Attributable          Attributable to Base
                                    2008            2007              Year Period          to Acquired Companies*               Business**
Services Revenues                  $  207,480      $  191,395           $        16,085            $        29,611              $          (13,526 )
Software and Hardware Revenues         10,713          14,243                    (3,530 )                    1,871                          (5,401 )
Reimbursable Expenses                  13,295          12,510                       785                      1,372                            (587 )
Total Revenues                     $  231,488      $  218,148           $        13,340            $        32,854              $          (19,514 )

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

Services revenues increased 8% to $207.5 million for the year ended December 31, 2008 from $191.4 million for the year ended December 31, 2007. Services revenues attributable to our base business decreased $13.5 million while services revenues attributable to the companies acquired in 2007 increased $29.6 million, resulting in a net increase of $16.1 million. We experienced a slowdown in demand during the year related to the deterioration of the U.S. economy.

Software and hardware revenues decreased 25% to $10.7 million in 2008 from $14.2 million in 2007. Software and hardware revenues attributable to our base business decreased $5.4 million while software and hardware revenues attributable to acquired companies increased $1.9 million, resulting in a net decrease of $3.5 million. Reimbursable expenses increased 6% to $13.3 million in 2008 from $12.5 million in 2007 due to acquisitions and an increased number of projects requiring consultant travel. We do not realize any profit on reimbursable expenses.

Cost of revenues. Cost of revenues increased 11% to $158.0 million for the year ended December 31, 2008 from $142.5 million for the year ended December 31, 2007. Cost of revenues attributable to our base business decreased $7.9 million while cost of revenues attributable to the companies acquired in 2007 increased $23.4 million, resulting in a net increase of $15.5 million. The average number of professionals performing services, including subcontractors, increased to 1,165 for the year ended December 31, 2008 from 984 for the year ended December 31, 2007 primarily related to acquisitions and partially offset with head count reductions related to lower demand for services.

Costs associated with software and hardware sales decreased 28% to $8.6 million for year ended December 31, 2008 from $12.0 million for the year ended December 31, 2007 which directly relates to the decline in software and hardware revenues discussed above. Costs associated with software and hardware sales attributable to our base business decreased $4.9 million, while costs associated with software and hardware sales attributable to acquired companies increased $1.5 million, resulting in a net decrease of $3.4 million.

Gross Margin. Gross margin decreased 3% to $73.5 million for the year ended December 31, 2008 from $75.7 million for the year ended December 31, 2007. Gross margin as a percentage of revenues decreased to 31.8% for the year ended December 31, 2008 from 34.7% for the year ended December 31, 2007 due primarily to a decrease in services gross margin offset by an increase in margin from software and hardware. Services gross margin, excluding reimbursable expenses, decreased to 34.4% in 2008 from 38.4% in 2007 primarily as a result of 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 to 79% for the year ended December 31, 2008 from 81% for the year ended December 31, 2007. Average hourly billing rates decreased to $109 for 2008 from $118 for 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 hourly bill rate for 2008 excluding China, ePairs, and subcontractors was $116 compared to $119 for 2007. Software and hardware gross margin increased to 19.4% in 2008 from 15.9% in 2007 primarily as a result of increased sales of our higher margin internally developed software.

Selling, General and Administrative. Selling, general and administrative expenses increased 13% to $47.2 million for the year ended December 31, 2008 from $42.0 million for the year ended December 31, 2007 due primarily to fluctuations in expenses as detailed in the following table:

                                                     Increase / (Decrease)
      Selling, General, and Administrative Expense       (in millions)
      Stock compensation expense                     $                  1.7
      Office and technology-related costs                               1.5
      Salary expense                                                    1.4
      Sales related costs                                               1.0
      Bad debt expense                                                  0.8
      Customer dispute settlement                                       0.8
      Other                                                             0.6
      Bonus expense                                                    (2.6 )
      Net increase                                   $                  5.2

Selling, general and administrative expenses as a percentage of revenues increased slightly to 20% for the year ended December 31, 2008 from 19% for the year ended December 31, 2007, primarily driven by an increase in stock compensation expense, office and technology-related costs, and salary expense. Stock compensation expense increased primarily due to additional restricted stock awards granted in 2007 and 2008. Investments in our technology infrastructure and offshore resources, as well as increases in our facility costs, caused our office and technology-related costs to rise in 2008. The increase in salary expense was associated with development of our healthcare and communications industry verticals. These increases were offset by a decrease in bonus costs. Bonus costs decreased as a result of the Company not achieving the projected performance goals.

Depreciation. Depreciation expense increased 38% to $2.1 million during 2008 from $1.6 million during 2007. The increase in depreciation expense is due to both organic and acquisition-related additions of software programs, servers, and other computer equipment to enhance our technology infrastructure. Depreciation expense as a percentage of services revenue, excluding reimbursable expenses, was 1.0% and 0.8% for the years ended December 31, 2008 and 2007, respectively.

Amortization. Amortization increased 2% to $4.8 million for the year ended December 31, 2008 from $4.7 million for the year ended December 31, 2007. The increase in amortization expense reflects the acquisition of intangibles in 2007, as well as the amortization of capitalized costs associated with internal use software. The valuations and estimated useful lives of acquired identifiable intangible assets are outlined in Note 6, Goodwill and Intangible Assets, of our consolidated financial statements.

Impairment of Intangible Assets. During the fourth quarter of 2008, we determined that the continuous trading of our common stock below book value and a loss of a key customer were possible indicators of impairment to goodwill or long-lived assets as defined under Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets ("SFAS 142"), and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"), triggering the necessity of impairment tests as of December 31, 2008. As a result of the tests performed, we recorded a $1.6 million impairment primarily related to customer relationships we acquired from e tech solutions, Inc. ("E Tech"). The value of these relationships was affected primarily by the loss of a key customer acquired by E Tech, which caused cash flows from the asset group to be lower than originally projected.

Net Interest Income or Expense. We had interest income, net of interest expense, of $0.5 million for the year ended December 31, 2008 compared to interest income, net of interest expense, of $0.2 million during the year ended December 31, 2007. The increase in interest income in 2008 resulted from higher cash balances throughout 2008 compared to prior year and the receipt of interest payments in connection with a promissory note entered into with a customer in June 2008.

Other Expense. We expensed $0.9 million of previously capitalized deferred offering costs during the third quarter of 2008. 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.

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 to 42.2% for the year ended December 31, 2008 from 41.3% for the year ended December 31, 2007. The effective income tax rate increased primarily as a result of the decreased tax benefit of certain dispositions of incentive stock options by holders.

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

  Revenues. Total revenues increased 36% to $218.1 million for the year ended
December 31, 2007 from $160.9 million for the year ended December 31, 2006.

                                                                                           Explanation for Increases/(Decreases) Over Prior Year
                                                   Financial Results                                              Period
                                                    (in thousands)                                            (in thousands)
                                For the Year    For the Year
                                    Ended           Ended           Total Increase/                                      Increase/ (Decrease)
                                December 31,    December 31,     (Decrease) Over Prior     Increase Attributable         Attributable to Base
                                    2007            2006              Year Period          to Acquired Companies*             Business**
Services Revenues                  $  191,395      $  137,722           $        53,673           $        43,437              $          10,236
Software and Hardware Revenues         14,243          14,435                      (192 )                   1,570                         (1,762 )
Reimbursable Expenses                  12,510           8,769                     3,741                     2,578                          1,163
Total Revenues                     $  218,148      $  160,926           $        57,222           $        47,585              $           9,637

*Defined as companies acquired during 2006 and 2007. **Defined as businesses owned as of January 1, 2006.

Services revenues increased 39% to $191.4 million for the year ended December 31, 2007 from $137.7 million for the year ended December 31, 2006. Base business accounted for 19% of the increase in services revenues for the year ended December 31, 2007 compared to the year ended December 31, 2006. The remaining 81% of the increase is attributable to revenues generated from the companies acquired during 2006 and 2007.

Software revenues decreased 1% to $14.2 million in 2007 from $14.4 million in 2006. Software revenues attributable to our base business decreased $1.8 million while software revenues attributable to acquired companies increased $1.6 million, resulting in a net decrease of $192,000. Reimbursable expenses increased 43% to $12.5 million in 2007 from $8.8 million in 2006 due to acquisitions and an increased number of projects requiring consultant travel. We do not realize any profit on reimbursable expenses.

Cost of revenues. Cost of revenues increased 33% to $142.5 million for the year ended December 31, 2007 from $107.2 million for the year ended December 31, 2006. Base business accounted for 14% of the $35.3 million increase in cost of revenues for the year ended December 31, 2007 compared to the year ended December 31, 2006. The remaining increase in cost of revenues is attributable to the acquired companies. The average number of professionals performing services, including subcontractors, increased to 1,026 for the year ended December 31, 2007 from 686 for the year ended December 31, 2006.

Costs associated with software sales decreased 1% to $12.0 million for year ended December 31, 2007 from $12.1 million for the year ended December 31, 2006 due to an increase in sales of our higher margin internally developed software. Costs associated with software sales attributable to our base business decreased $1.4 million, while costs associated with software sales attributable to acquired companies increased $1.3 million, resulting in a net decrease of $0.1 million.

Gross Margin. Gross margin increased 41% to $75.7 million for the year ended December 31, 2007 from $53.8 million for the year ended December 31, 2006. Gross margin as a percentage of revenues increased to 34.7% for the year ended December 31, 2007 from 33.4% for the year ended December 31, 2006 due primarily to an increase in services gross margin offset by a slight decrease in margin from software. Services gross margin, excluding reimbursable expenses, increased to 38.4% in 2007 from 37.4% in 2006 primarily due to lower bonus as a percent of revenues and lower direct labor cost as a percent of revenues driven by improved billing rates. The average utilization rate of our professionals, excluding subcontractors, decreased slightly to 81% for the year ended December 31, 2007 from 83% for the year ended December 31, 2006. Average hourly billing rates were $118 for 2007 and $115 for 2006. Software gross margin decreased to 15.9% in 2007 from 16.1% in 2006 primarily as a result of fluctuations in vendor and competitive pricing based on market conditions at the time of the sales.

Selling, General and Administrative. Selling, general and administrative expenses increased 30% to $42.0 million for the year ended December 31, 2007 from $32.3 million for the year ended December 31, 2006 due primarily to fluctuations in expenses as detailed in the following table:

                                                      Increase / (Decrease)
      Selling, General, and Administrative Expense        (in millions)
      Sales related costs                            $                   3.4
      Stock compensation expense                                         2.5
      Salary expense                                                     1.9
      Bad debt expense                                                   0.8
      Office and technology-related costs                                1.6
      Recruiting and training-related costs                              0.8
      Other                                                              0.5
      Bonus expense                                                     (1.8 )
      Net increase                                   $                   9.7

Selling, general and administrative expenses as a percentage of revenues decreased to 19% for the year ended December 31, 2007 from 20% for the year ended December 31, 2006, primarily driven by lower bonus costs as a percent of revenue and the Company leveraging its infrastructure. Bonus costs, as a percentage of service revenues, excluding reimbursable expenses, decreased to 1.6% for the year ended December 31, 2007 compared to 3.5% for the year ended December 31, 2006 due to increasingly challenging growth and profitability targets in 2007. Stock compensation expense, as a percentage of services revenues, excluding reimbursed expenses, increased to 2.4% for the year ended . . .