As the population of the United States continues to grow, cities, counties and local agencies face the increased challenges of building the infrastructure and providing the services required by their growing constituencies. These entities increasingly are turning to privatization as a way to supplement their in-house ability to deliver services. Much of the western United States, particularly in California, is characterized by strong county governments that oversee large tracts of land. Beginning in the 1960\\\'s, cities and towns in California began to contract for governmental services, such as police and fire, from the counties in which they were located. Over time, this form of outsourcing extended to private companies, which provided ready access to expertise, without the corresponding financial commitment to the hiring of permanent staff. Today the privatization of services is particularly well established in California and the western United States, where hundreds of communities currently utilize contract services.

Public agencies face an increasing burden to raise the necessary funding to build, improve and maintain infrastructure and to provide services to their local communities. While tax revenues are a primary source of funding, in California there are property tax and spending limits that curtail the generation of these funds. Alternatives include the issuance of tax-exempt securities; the formation of special financing districts to assess property owners on a parcel basis for infrastructure and public improvements, such as assessment districts and community facilities districts (known as Mello-Roos in California); the implementation of development impact fee programs that require developers to bear the cost of the impact of development on local infrastructure; user fee programs that pass costs along to the actual users of services; optimization of utility rates; and special taxes enacted by voters for specific purposes.

For fiscal year 2006, under the Department of Homeland Security Grant Program, or HSGP, the federal government will provide $1.7 billion to the states, which in turn will disburse these funds to local law enforcement and other agencies. The federal Department of Homeland Security, or DHS, has designated 46 metropolitan areas throughout the country to receive almost half of the HSGP funds through a program called the DHS Urban Area Security Initiative, or UASI.

The Company provides a wide range of engineering services to the public sector. The Company specializes in providing engineering services tailored to the unique needs of municipalities. City Engineering can range from staffing an entire engineering department to carrying out specific projects within a municipality, such as developing a pavement management program or reviewing engineering plans on behalf of a city. The Company’s building and safety services can range from managing and staffing an entire municipal building department to providing specific outsourced services such as plan review and field inspections. Other aspects of this discipline include performing accessibility compliance and providing disaster recovery teams, energy compliance evaluations, permit processing and issuance, seismic retrofitting programs and structural plan review.

The Company has developed construction and program management systems specifically devoted to its public sector clients. The Company provides inspection services, along with full construction management and support, depending on the client\\\'s needs and the scope of the specific project. The Company’s traffic engineering services involve serving as the contract city traffic engineer in communities, as well as performing design and traffic planning projects for its clients. These services and projects include parking management studies, intersection analyses and improvements, traffic impact reports, and traffic signal and control systems.

The Company acquired its public finance consulting business in 1999 to supplement the services it offers to its public sector clients. In general, the Company supplies expertise and support for the various financing techniques employed by public agencies to finance their operations and infrastructure. The Company also supports the mandated reporting and other requirements associated with these financings. The Company does not provide underwriting or financial advisory services for municipal securities.

The Company provides homeland security and public safety consulting services to cities, counties and related municipal service agencies such as utility and water companies, as well as school districts, port and transportation authorities, tribal governments and large business enterprises with a need for homeland security related services. The Company designs customized training courses for all aspects of disaster, unusual occurrence and emergency responses. In this regard, the Company has developed and owns several training courses that meet or exceed the requirements for the federal National Incident Management System, or NIMS, training.

Direct costs of contract revenues were $7.1 million in the fiscal three months ended March 31, 2006, representing an increase of $0.5 million, or 7.6%, from $6.6 million in the fiscal three months ended April 1, 2005.

General and administrative expenses increased by $1.1 million, or 12.8%, to $9.7 million in the fiscal three months ended March 31, 2006 from $8.6 million in the fiscal three months ended April 1, 2005.

Operating income was $1.0 million for the fiscal three months ended March 31, 2006 as compared to $0.9 million for the fiscal three months ended April 1, 2005.

Other expense, net increased by $50,000, or 78.1%, to $114,000 in the fiscal three months ended March 31, 2006 from $64,000 in the fiscal three months ended April 1, 2005.