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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

(Mark One)

|    |  |                                                 
|--- |  | ------------------------------------------------
|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
|    |  | OF THE SECURITIES EXCHANGE ACT OF 1934          

For the quarterly period ended June 30, 2003

OR

|      |  |                                                  
|----- |  | -------------------------------------------------
|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
|      |  | OF THE SECURITIES EXCHANGE ACT OF 1934           

For the transition period from    to

Commission File Number 0-25995

NEXTERA ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)


|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 95-4700410                             
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification Number)

1 Cambridge Center, 7th Floor, Cambridge, Massachusetts 02142
(Address of principal executive office, including zip code)

(617) 715-0200
(Registrants telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X] No [   ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Exchange Act).

Yes [   ] No [X]

As of July 31, 2003 there were 30,025,441 shares of $.001 par value Class
A Common Stock outstanding and 3,844,200 shares of $.001 par value Class B
Common Stock outstanding.



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TABLE OF CONTENTS



|                                 |                                                                                               |                                                                |  |  |  |  |  | 
|-------------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------------------------- |  |  |  |  |  | 
|PART I  - FINANCIAL INFORMATION
|                                 | Item 1. Financial Statements                                                                 
|                                 |                                                                                               | Condensed Consolidated Balance Sheets                         
|                                 |                                                                                               | Condensed Consolidated Statements of Operations               
|                                 |                                                                                               | Condensed Consolidated Statements of Operations               
|                                 |                                                                                               | Condensed Consolidated Statements of Cash Flows               
|                                 |                                                                                               | NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                                 | Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                 | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                 | Item 4. Controls and Procedures                                                              
|PART II  OTHER INFORMATION     
|                                 | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                                 | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                      
|EXHIBIT 31                      
|EXHIBIT 32                      



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NEXTERA ENTERPRISES, INC.
Quarterly Report on Form 10-Q
for the Quarter Ended June 30, 2003

INDEX

|                                                            |                                                                                               |                                                                                                   |    |          |    | 
|----------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------- | -- | -------- | -- | 
|                                                            |                                                                                               |                                                                                                   |    | Page No.
|                                                            |                                                                                               |                                                                                                   |    |         
|PART I. FINANCIAL INFORMATION                               |                                                                                               |                                                                                                   |    |         
|                                                            | Item 1. Financial Statements                                                                  |                                                                                                   |    |          |   
|                                                            |                                                                                               | Condensed Consolidated Balance Sheets as of June 30, 2003
and December 31, 2002                   |    |          | 3  | 
|                                                            |                                                                                               | Condensed Consolidated Statements of Operations for the
Three Months Ended June 30, 2003 and 2002 |    |          | 4  | 
|                                                            |                                                                                               | Condensed Consolidated Statements of Operations for the
Six Months Ended June 30, 2003 and 2002   |    |          | 5  | 
|                                                            |                                                                                               | Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2003 and 2002   |    |          | 6  | 
|                                                            |                                                                                               | Notes to Condensed Consolidated Financial Statements                                              |    |          | 7  | 
|                                                            | Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations |                                                                                                   |    | 13       |   
|                                                            | Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                                   |    | 26       |   
|                                                            | Item 4. Controls and Procedures                                                               |                                                                                                   |    | 26       |   
|PART II. OTHER INFORMATION                                  |                                                                                               |                                                                                                   |    |         
|Item 4. Submission of Matters to a Vote of Security Holders |                                                                                               |                                                                                                   | 27 |         
|Item 6. Exhibits and Reports on Form 8-K                    |                                                                                               |                                                                                                   | 28 |         
|                                                            |                                                                                               | Signatures                                                                                        |    |          | 28 | 

2



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PART I  FINANCIAL INFORMATION




Item 1. Financial Statements




Nextera Enterprises, Inc.
Condensed Consolidated Balance Sheets
(Dollar amounts in thousands, except per share data)

|                                                         |                                                                                                                                                                                                                        |   |               |          |                   |   |         |          |  
|-------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------- | -------- | ----------------- | - | ------- | -------- | -
|                                                         |                                                                                                                                                                                                                        |   | June 30, 2003 |          | December 31, 2002
|                                                         |                                                                                                                                                                                                                        |   |               |          |                  
|                                                         |                                                                                                                                                                                                                        |   | (unaudited)   |          |                   |   |        
|Assets                                                   |                                                                                                                                                                                                                        |   |               |          |                   |   |         |         
|Current assets:                                          |                                                                                                                                                                                                                        |   |               |          |                   |   |         |         
|                                                         | Cash and cash equivalents                                                                                                                                                                                              |   | $             | 1,428    |                   |   | $       | 1,606    |  
|                                                         | Restricted cash                                                                                                                                                                                                        |   |               | 569      |                   |   |         | 2,650    |  
|                                                         | Accounts receivable, net of allowance for doubtful accounts of
$2,305 and $2,306 at June 30, 2003 and December 31, 2002,
respectively                                                                                  |   |               | 21,745   |                   |   |         | 20,344   |  
|                                                         | Prepaid expenses and other current assets                                                                                                                                                                              |   |               | 979      |                   |   |         | 1,076    |  
|                                                         |                                                                                                                                                                                                                        |   |               |          |                   |   |         |         
|Total current assets                                     |                                                                                                                                                                                                                        |   | 24,721        |          |                   |   | 25,676  |         
|Property and equipment, net                              |                                                                                                                                                                                                                        |   | 2,103         |          |                   |   | 2,316   |         
|Goodwill                                                 |                                                                                                                                                                                                                        |   | 77,504        |          |                   |   | 77,504  |         
|Other assets                                             |                                                                                                                                                                                                                        |   | 1,935         |          |                   |   | 1,722   |         
|                                                         |                                                                                                                                                                                                                        |   |               |          |                   |   |         |         
|Total assets                                             |                                                                                                                                                                                                                        | $ | 106,263       |          |                   | $ | 107,218 |         
|                                                         |                                                                                                                                                                                                                        |   |               |          |                   |   |         |         
|Liabilities and Stockholders Equity                     |                                                                                                                                                                                                                        |   |               |          |                   |   |         |         
|Current liabilities:                                     |                                                                                                                                                                                                                        |   |               |          |                   |   |         |         
|                                                         | Accounts payable and accrued expenses                                                                                                                                                                                  |   | $             | 13,154   |                   |   | $       | 14,019   |  
|                                                         | Accrued restructuring costs, current portion                                                                                                                                                                           |   |               | 982      |                   |   |         | 1,037    |  
|                                                         | Senior credit facility                                                                                                                                                                                                 |   |               | 4,735    |                   |   |         | 4,735    |  
|                                                         | Current portion of long-term debt and capital lease obligations                                                                                                                                                        |   |               | 461      |                   |   |         | 689      |  
|                                                         |                                                                                                                                                                                                                        |   |               |          |                   |   |         |         
|Total current liabilities                                |                                                                                                                                                                                                                        |   | 19,332        |          |                   |   | 20,480  |         
|Long-term debt and capital lease obligations             |                                                                                                                                                                                                                        |   | 700           |          |                   |   | 783     |         
|Senior credit facility                                   |                                                                                                                                                                                                                        |   | 25,645        |          |                   |   | 22,465  |         
|Debentures due to affiliates, including accrued interest |                                                                                                                                                                                                                        |   | 50,266        |          |                   |   | 47,748  |         
|Accrued restructuring costs, net of current portion      |                                                                                                                                                                                                                        |   |              |          |                   |   | 427     |         
|Other long-term liabilities                              |                                                                                                                                                                                                                        |   | 3,257         |          |                   |   | 3,408   |         
|Commitments and contingencies                            |                                                                                                                                                                                                                        |   |              |          |                   |   |        |         
|Stockholders equity:                                    |                                                                                                                                                                                                                        |   |               |          |                   |   |         |         
|                                                         | Preferred Stock, $0.001 par value, 10,000,000 shares
authorized, 600,000 authorized shares designated Series A,
41,070 and 39,630 Series A issued and outstanding at June 30,
2003 and December 31, 2002, respectively |   |               | 4,107    |                   |   |         | 3,963    |  
|                                                         | Class A Common Stock, $0.001 par value, 95,000,000 shares
authorized, 30,025,441 and 31,911,266 shares issued and
outstanding at June 30, 2003 and December 31, 2002,
respectively                                     |   |               | 30       |                   |   |         | 32       |  
|                                                         | Class B Common Stock, $0.001 par value, 4,300,000 shares
authorized, 3,844,200 shares issued and outstanding at June
30, 2003 and December 31, 2002                                                                    |   |               | 4        |                   |   |         | 4        |  
|                                                         | Additional paid-in capital                                                                                                                                                                                             |   |               | 161,480  |                   |   |         | 161,055  |  
|                                                         | Retained
earnings (accumulated deficit)                                                                                                                                                                                |   |               | (158,334 | )                 |   |         | (152,932 | )
|                                                         | Accumulated other comprehensive income (loss)                                                                                                                                                                          |   |               | (224     | )                 |   |         | (215     | )
|                                                         |                                                                                                                                                                                                                        |   |               |          |                   |   |         |         
|Total stockholders equity                               |                                                                                                                                                                                                                        |   | 7,063         |          |                   |   | 11,907  |         
|                                                         |                                                                                                                                                                                                                        |   |               |          |                   |   |         |         
|Total liabilities and stockholders equity               |                                                                                                                                                                                                                        | $ | 106,263       |          |                   | $ | 107,218 |         
|                                                         |                                                                                                                                                                                                                        |   |               |          |                   |   |         |         

See Notes to Condensed Consolidated Financial Statements

3



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Nextera Enterprises, Inc.
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share amounts; unaudited)

|                                                    |  |                            |        |      |  |   |        |  
|--------------------------------------------------- |  | -------------------------- | ------ | ---- |  | - | ------ | -
|                                                    |  | Three Months Ended June 30
|                                                    |  |                           
|                                                    |  | 2003                       |        | 2002
|                                                    |  |                            |        |     
|Net revenues                                        |  | $                          | 16,816 |      |  | $ | 18,166 |  
|Cost of revenues                                    |  |                            | 10,964 |      |  |   | 11,122 |  
|                                                    |  |                            |        |      |  |   |        |  
|Gross profit                                        |  |                            | 5,852  |      |  |   | 7,044  |  
|Selling, general and administrative expenses        |  |                            | 4,117  |      |  |   | 3,820  |  
|Amortization expense                                |  |                            | 1,941  |      |  |   |       |  
|Special charges (credit)                            |  |                            |       |      |  |   | (740   | )
|                                                    |  |                            |        |      |  |   |        |  
|Income (loss) from operations                       |  |                            | (206   | )    |  |   | 3,964  |  
|Interest expense, net                               |  |                            | (2,064 | )    |  |   | (1,554 | )
|Other expense                                       |  |                            | (48    | )    |  |   |       |  
|                                                    |  |                            |        |      |  |   |        |  
|Income (loss) before income taxes                   |  |                            | (2,318 | )    |  |   | 2,410  |  
|Provision for income taxes                          |  |                            | 21     |      |  |   | 50     |  
|                                                    |  |                            |        |      |  |   |        |  
|Net income (loss)                                   |  |                            | (2,339 | )    |  |   | 2,360  |  
|Preferred stock dividends                           |  |                            | (70    | )    |  |   | (407   | )
|                                                    |  |                            |        |      |  |   |        |  
|Net income (loss) applicable to common stockholders |  | $                          | (2,409 | )    |  | $ | 1,953  |  
|                                                    |  |                            |        |      |  |   |        |  
|Net income (loss) per common share, basic           |  | $                          | (0.07  | )    |  | $ | 0.05   |  
|                                                    |  |                            |        |      |  |   |        |  
|Net income (loss) per common share, diluted         |  | $                          | (0.07  | )    |  | $ | 0.04   |  
|                                                    |  |                            |        |      |  |   |        |  
|Weighted average common shares outstanding, basic   |  |                            | 33,870 |      |  |   | 35,756 |  
|                                                    |  |                            |        |      |  |   |        |  
|Weighted average common shares outstanding, diluted |  |                            | 33,870 |      |  |   | 64,777 |  
|                                                    |  |                            |        |      |  |   |        |  

See Notes to Condensed Consolidated Financial Statements

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Nextera Enterprises, Inc.
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share amounts; unaudited)

|                                                    |  |                          |        |      |  |   |        |  
|--------------------------------------------------- |  | ------------------------ | ------ | ---- |  | - | ------ | -
|                                                    |  | Six Months Ended June 30
|                                                    |  |                         
|                                                    |  | 2003                     |        | 2002
|                                                    |  |                          |        |     
|Net revenues                                        |  | $                        | 35,573 |      |  | $ | 39,015 |  
|Cost of revenues                                    |  |                          | 22,843 |      |  |   | 23,577 |  
|                                                    |  |                          |        |      |  |   |        |  
|Gross profit                                        |  |                          | 12,730 |      |  |   | 15,438 |  
|Selling, general and administrative expenses        |  |                          | 8,145  |      |  |   | 8,997  |  
|Amortization expense                                |  |                          | 3,882  |      |  |   |       |  
|Special charges (credit)                            |  |                          | 1,921  |      |  |   | (740   | )
|                                                    |  |                          |        |      |  |   |        |  
|Income (loss) from operations                       |  |                          | (1,218 | )    |  |   | 7,181  |  
|Interest expense, net                               |  |                          | (4,075 | )    |  |   | (2,993 | )
|Other expense                                       |  |                          | (48    | )    |  |   |       |  
|                                                    |  |                          |        |      |  |   |        |  
|Income (loss) before income taxes                   |  |                          | (5,341 | )    |  |   | 4,188  |  
|Provision for income taxes                          |  |                          | 61     |      |  |   | 100    |  
|                                                    |  |                          |        |      |  |   |        |  
|Net income (loss)                                   |  |                          | (5,402 | )    |  |   | 4,088  |  
|Preferred stock dividends                           |  |                          | (144   | )    |  |   | (802   | )
|                                                    |  |                          |        |      |  |   |        |  
|Net income (loss) applicable to common stockholders |  | $                        | (5,546 | )    |  | $ | 3,286  |  
|                                                    |  |                          |        |      |  |   |        |  
|Net income (loss) per common share, basic           |  | $                        | (0.16  | )    |  | $ | 0.09   |  
|                                                    |  |                          |        |      |  |   |        |  
|Net income (loss) per common share, diluted         |  | $                        | (0.16  | )    |  | $ | 0.06   |  
|                                                    |  |                          |        |      |  |   |        |  
|Weighted average common shares outstanding, basic   |  |                          | 33,954 |      |  |   | 35,705 |  
|                                                    |  |                          |        |      |  |   |        |  
|Weighted average common shares outstanding, diluted |  |                          | 33,954 |      |  |   | 64,486 |  
|                                                    |  |                          |        |      |  |   |        |  

See Notes to Condensed Consolidated Financial Statements

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Nextera Enterprises, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollar amounts in thousands, unaudited)

|                                                                                     |                                             |                                       |        |                          |        |      |         |        |        |  
|------------------------------------------------------------------------------------ | ------------------------------------------- | ------------------------------------- | ------ | ------------------------ | ------ | ---- | ------- | ------ | ------ | -
|                                                                                     |                                             |                                       |        | Six Months Ended June 30
|                                                                                     |                                             |                                       |        |                         
|                                                                                     |                                             |                                       |        | 2003                     |        | 2002
|                                                                                     |                                             |                                       |        |                          |        |     
|Operating activities                                                                 |                                             |                                       |        |                          |        |      |         |       
|Net income (loss)                                                                    |                                             | $                                     | (5,402 | )                        |        | $    | 4,088   |       
|Adjustments to reconcile net income (loss) to net cash
used in operating activities: |                                             |                                       |        |                          |        |      |         |       
|                                                                                     | Depreciation and amortization               |                                       |        | 4,491                    |        |      |         | 930    |       
|                                                                                     | Provision for doubtful accounts             |                                       |        | 591                      |        |      |         | 1,392  |       
|                                                                                     | Non-cash
compensation charges               |                                       |        | 1,134                    |        |      |         | 27     |       
|                                                                                     | Non-cash interest Paid in Kind              |                                       |        | 2,518                    |        |      |         | 1,164  |       
|                                                                                     | Other                                       |                                       |        | 48                       |        |      |         |       |       
|                                                                                     | Change in operating assets and liabilities: |                                       |        |                          |        |      |         |        |       
|                                                                                     |                                             | Accounts receivable                   |        |                          | (1,992 | )    |         |        | (3,136 | )
|                                                                                     |                                             | Prepaid expenses and other assets     |        |                          | (5,114 | )    |         |        | 361    |  
|                                                                                     |                                             | Accounts payable and accrued expenses |        |                          | (865   | )    |         |        | (8,522 | )
|                                                                                     |                                             | Restructuring costs                   |        |                          | (158   | )    |         |        | (2,082 | )
|                                                                                     |                                             | Other                                 |        |                          | 74     |      |         |        | 1,824  |  
|                                                                                     |                                             |                                       |        |                          |        |      |         |       
|Net cash used in operating activities                                                |                                             |                                       | (4,675 | )                        |        |      | (3,954  | )     
|Investing activities                                                                 |                                             |                                       |        |                          |        |      |         |       
|Purchase of property and equipment                                                   |                                             |                                       | (444   | )                        |        |      | (482    | )     
|Proceeds from sale of business                                                       |                                             |                                       |       |                          |        |      | 14,720  |       
|Changes in restricted cash                                                           |                                             |                                       | 2,081  |                          |        |      | (372    | )     
|                                                                                     |                                             |                                       |        |                          |        |      |         |       
|Net cash provided by investing activities                                            |                                             |                                       | 1,637  |                          |        |      | 13,866  |       
|Financing activities                                                                 |                                             |                                       |        |                          |        |      |         |       
|Borrowings (repayments) under Senior Credit Facility                                 |                                             |                                       | 3,180  |                          |        |      | (9,800  | )     
|Repayments of long-term debt and capital lease obligations                           |                                             |                                       | (311   | )                        |        |      | (2,369  | )     
|                                                                                     |                                             |                                       |        |                          |        |      |         |       
|Net cash provided by (used in) financing activities                                  |                                             |                                       | 2,869  |                          |        |      | (12,169 | )     
|Effects of exchange rates on cash and cash equivalents                               |                                             |                                       | (9     | )                        |        |      | (15     | )     
|                                                                                     |                                             |                                       |        |                          |        |      |         |       
|                                                                                     | Net decrease in cash and cash equivalents   |                                       |        | (178                     | )      |      |         | (2,272 | )     
|Cash and cash equivalents at beginning of period                                     |                                             |                                       | 1,606  |                          |        |      | 4,465   |       
|                                                                                     |                                             |                                       |        |                          |        |      |         |       
|Cash and cash equivalents at end of period                                           |                                             | $                                     | 1,428  |                          |        | $    | 2,193   |       
|                                                                                     |                                             |                                       |        |                          |        |      |         |       

See Notes to Condensed Consolidated Financial Statements

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NEXTERA ENTERPRISES, INC.




NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of
Nextera Enterprises, Inc. (Nextera or the Company) have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation have
been included. Operating results for the six-month period ended June 30, 2003
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2003.

The balance sheet as of December 31, 2002 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.

These financial statements should be read in conjunction with the financial
statements and notes thereto, together with managements discussion and
analysis of financial condition and results of operations, contained in the
Companys Annual Report on Form 10-K filed by the Company with the Securities
and Exchange Commission on March 31, 2003.

Reclassification

Certain reclassifications were made to the 2002 financial statements in order
that they may be consistent with the 2003 presentation.

Restricted Cash

Restricted cash relates to cash deposits held by the Companys senior lenders,
in accordance with the Second Amended and Restated Credit Agreement dated
December 31, 2002, as amended, (Senior Credit Facility), to finance working
capital requirements related to employment compensation. The terms of the
Senior Credit Facility require the Company to restrict such amounts on a
periodic basis based on earned bonus amounts so that a certain percentage of
the projected earned bonus is escrowed or paid at specific times. At December
31, 2002, $2.7 million was escrowed in a restricted account for bonuses earned
and subsequently paid in January 2003. Beginning in the second quarter of
2003, the Company continued to escrow funds for bonuses earned for 2003. At
June 30, 2003, the restricted cash balance was $569,000.

Concentration of Credit Risk

The Company provides its services to customers in diversified industries,
primarily in the United States. The Company performs ongoing credit evaluations
of its customers and generally does not require collateral. The Company
maintains reserves for potential credit losses and such losses have been within
managements expectations. No customer accounted for more than 10% of net
revenues for the three or six months ended June 30, 2003 and 2002. One
customer represented 7.4% and 8.1% of accounts receivable as of June 30, 2003
and December 31, 2002, respectively. No other customers represented more than
5% of accounts receivables at the end of either period.

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NEXTERA ENTERPRISES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)

Recent Accounting Pronouncements

In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148, Stock-Based Compensation  Transition and Disclosure- an amendment of
FASB Statement No 123 (SFAS No. 148), which provides optional guidance for
those companies electing to voluntarily adopt the accounting provisions of SFAS
No. 123. In addition, the statement mandates certain new disclosures that are
incremental to those required by SFAS No. 123. Since the Company will continue
to record stock-based compensation in accordance with APB No. 25, no material
impact on the Companys financial position or results of operations is
expected. The Company has adopted the disclosure provisions of this statement.

Note 2. Other Assets

On December 31, 2002, the Company entered into employment and non-compete
agreements with two of the Companys key service providers: Daniel Fischel, the
Companys Chief Executive Officer, and Dennis Carlton. These agreements
contain covenants not to compete over specified periods in return for cash
compensation. The agreements became effective on January 7, 2003 upon payment
of the first installment. Under the terms of the agreements, Nextera made
aggregate payments of $5.0 million on January 7, 2003 to extend these
agreements through July 15, 2003. Messrs. Fischel and Carlton surrendered
approximately 1.8 million shares of the Companys Class A Common Stock worth
approximately $0.8 million in connection with the extension of the non-compete
provisions. Accordingly, an asset of approximately $4.2 million was recorded
in 2003 to recognize the non-compete agreements and is being amortized through
July 15, 2003. Amortization expense of $1.9 million was recorded in each of
the first and second quarters of 2003.

The Company exercised its option of extending the non-compete provisions
through January 15, 2004 by paying Messrs. Fischel and Carlton an aggregate
payment of $3.5 million, including interest, in July 2003. The exercised
option was recorded in the third quarter of 2003. As part of this option, the
Company is still required to make an additional aggregate payment of
approximately $1.6 million, plus interest at 3.5% per annum, from January 15,
2003 through the date paid, within 5 business days of the collection of a
specified accounts receivable, but in no event later than December 31, 2003,
whether or not the receivable is collected by that date. The Company has the
option of further extending these agreements from January 15, 2004 to December
31, 2008 by making an additional aggregate payment of $20.0 million to Messrs.
Fischel and Carlton on or before January 15, 2004.

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NEXTERA ENTERPRISES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)

Note 3. Income (Loss) per Share

Basic net income (loss) per share (Basic EPS) is computed by dividing net
income (loss) available to common stockholders by the weighted average number
of common shares outstanding. Diluted net income (loss) per common share
(Diluted EPS) is computed by dividing net income (loss) available to common
stockholders by the weighted average number of common shares and dilutive
common share equivalents then outstanding.

Basic and diluted income (loss) per share were calculated as follows:

|                                                   |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  
|-------------------------------------------------- |  | ------------------ | ------ | ---------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                   |  | Three Months Ended |        | Six Months Ended
|                                                   |  | June 30            |        | June 30         
|                                                   |  | 2003               |        | 2002             |  | 2003 |        | 2002
|                                                   |  |                    |        |                  |  |      |        |     
|Basic net income (loss) per Common Share           |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  
|Net income (loss)                                  |  | $                  | (2,339 | )                |  | $    | 2,360  |      |  | $ | (5,402 | ) |  | $ | 4,088  |  
|Preferred stock dividends                          |  |                    | (70    | )                |  |      | (407   | )    |  |   | (144   | ) |  |   | (802   | )
|                                                   |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  
|Net income (loss) available to common
stockholders |  | $                  | (2,409 | )                |  | $    | 1,953  |      |  | $ | (5,546 | ) |  | $ | 3,286  |  
|Weighted average common shares
outstandingbasic   |  |                    | 33,870 |                  |  |      | 35,756 |      |  |   | 33,954 |   |  |   | 35,705 |  
|                                                   |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  
|Basic net income (loss) per common share           |  | $                  | (0.07  | )                |  | $    | 0.05   |      |  | $ | (0.16  | ) |  | $ | 0.09   |  
|                                                   |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  
|Diluted net income (loss) per Common Share         |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  
|Net income (loss)                                  |  | $                  | (2,339 | )                |  | $    | 2,360  |      |  | $ | (5,402 | ) |  | $ | 4,088  |  
|Preferred stock dividends                          |  |                    | (70    | )                |  |      |       |      |  |   | (144   | ) |  |   |       |  
|                                                   |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  
|Net income (loss) available to common
stockholders |  | $                  | (2,409 | )                |  | $    | 2,360  |      |  | $ | (5,546 | ) |  | $ | 4,088  |  
|Weighted average common shares
outstandingbasic   |  |                    | 33,870 |                  |  |      | 35,756 |      |  |   | 33,954 |   |  |   | 35,705 |  
|Dilutive effect of convertible preferred stock     |  |                    |       |                  |  |      | 26,832 |      |  |   |       |   |  |   | 26,832 |  
|Dilutive effect of options and warrants            |  |                    |       |                  |  |      | 2,189  |      |  |   |       |   |  |   | 1,949  |  
|                                                   |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  
|Weighted average common shares
outstandingdiluted |  |                    | 33,870 |                  |  |      | 64,777 |      |  |   | 33,954 |   |  |   | 64,486 |  
|Diluted net income (loss) per common share         |  | $                  | (0.07  | )                |  | $    | 0.04   |      |  | $ | (0.16  | ) |  | $ | 0.06   |  
|                                                   |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  

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NEXTERA ENTERPRISES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)

Note 4. Senior Credit Facility

Effective December 31, 2002, the Company entered into a Second Amended and
Restated Credit Agreement (Senior Credit Facility), which amended the Prior
Credit Agreement. As part of the Senior Credit Facility, Knowledge Universe,
Inc., an affiliate of the Company, purchased a $5.0 million junior
participation in the Senior Credit Facility. On January 7, 2003, the Company
borrowed $5.0 million under the Senior Credit Facility to fund the first
payment required under the employment and non-compete agreements entered into
with Messrs. Fischel and Carlton. The Senior Credit Facility requires that
$4.7 million of outstanding borrowings be permanently reduced in each of 2003
and 2004. The maturity of the Senior Credit Facility is January 1, 2005.
Borrowings bear interest at the lenders base rate plus 1.5%. The Company
continues to pay annual administrative fees of $0.3 million, payable monthly. A
back-end fee of $0.9 million is payable upon the maturity of the Senior Credit
Facility. The back-end fees can be waived if the Company repays the Senior
Credit Facility prior to maturity. All administrative fees paid to the senior
lenders are recorded by the Company as interest expense. An affiliate of
Knowledge Universe has agreed to continue to guarantee $2.5 million of the
Companys obligations under the Senior Credit Facility. The Senior Credit
Facility contains covenants related to the maintenance of financial ratios,
operating restrictions, restrictions on the payment of dividends and
disposition of assets.

In July 2003, the Company entered into the First and Second Amendments (the
Amendments) to the Senior Credit Facility. Under the Amendments, Knowledge
Universe, Inc. purchased a $2.5 million junior participation in the Senior
Credit Facility. The Amendments also eliminated financial covenants for the
June 30, 2003 period and reset the financial covenants for the periods ending
September 30, 2003, December 31, 2003, March 31, 2004 and June 30, 2004.
Additionally, warrants previously issued to the senior lenders to purchase
1,818,351 shares of the Companys Class A Common Stock were modified reducing
the senior lenders put rights from $0.3525 per share to $0.23 per share,
reducing the put rights from approximately $640,000 to approximately $418,000.
As part of the Amendments, the Company is required to pay quarterly fees
aggregating $125,000 annually.

Note 5. Stock-Based Compensation and Other Equity Instruments

As allowed under Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation(SFAS 123) the Company has elected
to follow Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25) and related Interpretations in accounting for
its employee stock options. Under APB 25, because the exercise price of the
Companys employee stock options equals or exceeds the market price of the
underlying stock on the date of grant, no compensation expense is recognized.

The Company accounts for equity instruments issued to non-employees in exchange
for goods or services using the fair value method. Accordingly, warrants issued
to Knowledge Universe, Inc. in connection with an acquisition and warrants
issued to the senior lenders and other creditors have been recorded at their
fair value on the date of grant.

If the Company had adopted the optional recognition provisions of SFAS 123 for
its stock option plans, net income (loss) and net income (loss) per common
share would have been changed to the pro forma amounts indicated below:

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NEXTERA ENTERPRISES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)

|                                            |  |                                               |        |                          |  |      |        |      |  |   |        |   |  |   |        |  
|------------------------------------------- |  | --------------------------------------------- | ------ | ------------------------ |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                            |  | Three months ended June 30                    |        | Six months ended June 30
|                                            |  | 2003                                          |        | 2002                     |  | 2003 |        | 2002
|                                            |  |                                               |        |                          |  |      |        |     
|                                            |  | (Amounts in thousands, except per share data) |        |                          |  |     
|Net income (loss) as reported               |  | $                                             | (2,339 | )                        |  | $    | 2,360  |      |  | $ | (5,402 | ) |  | $ | 4,088  |  
|Compensation expense under SFAS 123         |  |                                               | (960   | )                        |  |      | (2,250 | )    |  |   | (1,367 | ) |  |   | (3,537 | )
|                                            |  |                                               |        |                          |  |      |        |      |  |   |        |   |  |   |        |  
|Pro forma net income (loss)                 |  | $                                             | (3,299 | )                        |  | $    | 110    |      |  | $ | (6,769 | ) |  | $ | 551    |  
|                                            |  |                                               |        |                          |  |      |        |      |  |   |        |   |  |   |        |  
|Net income (loss) per basic common
share:   |  |                                               |        |                          |  |      |        |      |  |   |        |   |  |   |        |  
|As reported                                 |  | $                                             | (0.07  | )                        |  | $    | 0.05   |      |  | $ | (0.16  | ) |  | $ | 0.09   |  
|                                            |  |                                               |        |                          |  |      |        |      |  |   |        |   |  |   |        |  
|Pro forma                                   |  | $                                             | (0.10  | )                        |  | $    | 0.00   |      |  | $ | (0.20  | ) |  | $ | 0.02   |  
|                                            |  |                                               |        |                          |  |      |        |      |  |   |        |   |  |   |        |  
|Net income (loss) per diluted
common share: |  |                                               |        |                          |  |      |        |      |  |   |        |   |  |   |        |  
|As reported                                 |  | $                                             | (0.07  | )                        |  | $    | 0.04   |      |  | $ | (0.16  | ) |  | $ | 0.06   |  
|                                            |  |                                               |        |                          |  |      |        |      |  |   |        |   |  |   |        |  
|Pro forma                                   |  | $                                             | (0.10  | )                        |  | $    | 0.00   |      |  | $ | (0.20  | ) |  | $ | 0.01   |  
|                                            |  |                                               |        |                          |  |      |        |      |  |   |        |   |  |   |        |  

The weighted average fair value of options granted during 2003 and 2002 was
$0.26 and $0.54, respectively, at the date of the grants. As recommended by
SFAS No. 123, the fair values of options were estimated using the Black-Scholes
option pricing model assuming expected volatility of 120% in 2003 and 130% in
2002, a risk free interest rate of 4.70% in 2003 and 2002, and an expected life
of 6 years in 2003 and 2002.

Note 6. Special Charges

The restructuring charges and their utilization as of June 30, 2003 are
summarized as follows (in thousands):

|                            |  |              |       |         |  |          |     |      |  |          |     |                     |  |   |     |  |  |   |     | 
|--------------------------- |  | ------------ | ----- | ------- |  | -------- | --- | ---- |  | -------- | --- | ------------------- |  | - | --- |  |  | - | --- | 
|                            |  |              |       |         |  |          |     |      |  | Utilized |     |                     |  |  
|                            |  |              |       |         |  |          |     |      |  |          |     |                     |  |  
|                            |  | Balance at   |       |         |  |          |     |      |  |          |     |                     |  |   |     |  |  |  
|                            |  | December 31, |       | Q1 2003 |  |          |     |      |  |          |     | Balance at June 30,
|                            |  | 2002         |       | charge  |  | Non-Cash |     | Cash |  | 2003    
|                            |  |              |       |         |  |          |     |      |  |         
|Severance                   |  | $            |      |         |  | $        | 785 |      |  | $        |    |                     |  | $ | 334 |  |  | $ | 451 | 
|Facilities                  |  |              | 1,380 |         |  |          |    |      |  |          | 324 |                     |  |   | 576 |  |  |   | 480 | 
|Operating lease
obligations |  |              | 84    |         |  |          |    |      |  |          |    |                     |  |   | 33  |  |  |   | 51  | 
|                            |  |              |       |         |  |          |     |      |  |          |     |                     |  |   |     |  |  |   |     | 
|                            |  | $            | 1,464 |         |  | $        | 785 |      |  | $        | 324 |                     |  | $ | 943 |  |  | $ | 982 | 
|                            |  |              |       |         |  |          |     |      |  |          |     |                     |  |   |     |  |  |   |     | 

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NEXTERA ENTERPRISES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)

In connection with the resignation of the Companys former Chief Executive
Officer in the first quarter of 2003, the Company incurred a $1.9 million
charge. Approximately $0.8 million of the charge related to salary
continuance until February 2004 and approximately $1.1 million related to a
non-cash charge for fully vested options, with an exercise price of $2.00 per
share, which was previously being expensed over the anticipated service period.
In accordance with the original employment agreement, the former chief
executive officer was to be granted a bonus, if and only if the above mentioned
options vested and became exercisable, equal to the exercise price of the
options at the time of the exercise of the options. The portion of the option
exercise price bonus not expensed at the time of the resignation of the former
chief executive officer was required to be expensed immediately and recorded in
equity due to the accelerated vesting of the options which occurred as a result
of the resignation.

Approximately $1.0 million of cash relating to special charges is expected to
be expended over the next twelve months, primarily related to real estate
rental obligations and employment matters.

Note 7. Comprehensive Income (Loss)

Comprehensive income combines net income (loss) and other comprehensive
items, which represents certain amounts, substantially foreign currency
translation adjustments, that are reported as components of stockholders
equity in the accompanying balance sheet. During the second quarter of 2003
comprehensive loss totaled $2.3 million and during the second quarter of 2002
comprehensive income was $2.3 million. During the six months ended June 30,
2003 comprehensive loss totaled $5.4 million and during the six months ended
June 30, 2002 comprehensive income was $5.0 million.

Note 8. Income Taxes

No federal tax benefit was recorded for the three months and six months ended
June 30, 2003 due to the Companys uncertainty associated with utilizing its
net operating losses. The Company did record de minimis state tax expense. No
federal tax expense was recorded during the three months and six months ended
June 30, 2002 due to the existence of net operating losses available to be
carried forward to offset taxable income.

Note 9. Commitments and Contingencies

The Company is subject to certain asserted claims arising in the ordinary
course of business. The Company intends to vigorously assert its rights and
defend itself in any litigation that may arise from such claims. While the
ultimate outcome of these matters could affect the results of operations of any
one quarter or year when resolved in future periods, and while there can be no
assurance with respect thereto, management believes that after final
disposition, any financial impact to the Company would not be material to the
Companys financial position and results of operations or liquidity.

As mentioned in note 2, the
Company has the option of further extending the employment and
non-compete agreements with two of the Companys key service
providers, Messrs. Fischel and Carlton, by making an aggregate
payment of $20 million on or before January 15, 2004.
Additional financing in amounts that cannot be determined at this
time will be necessary in order to make all the payments required to
extend these agreements to December 31, 2008. It is expected
that the Company will need to raise funds through one or more public
or private financing transactions in order to make the payments. The
Company may not be able to raise funds on favorable terms or at all.
If the Company cannot raise adequate funds on acceptable terms, the
Company may be unable to extend the employment and non-compete
agreements and lose the continued services of Messrs. Fischel
and Carlton. In such event, the Companys operations and
financial condition would be materially and adversely affected.

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NEXTERA ENTERPRISES, INC.




Item 2.

MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The disclosure and analysis in this quarterly report contain forward-looking
statements. Forward-looking statements give our current expectations or
forecasts of future events. These statements can be identified by the fact that
they do not relate strictly to historic or current facts. They use words such
as anticipate, estimate, expect, project, intend, plan, believe,
and other words and terms of similar meaning in connection with any discussion
of future operating or financial performance. In particular, these
forward-looking statements include statements relating to future actions or the
outcome of financial results. From time to time, we also may provide oral or
written forward-looking statements in other materials released to the public.
Any or all of the forward-looking statements in this quarterly report and in
any other public statements may turn out to be incorrect. They can be affected
by inaccurate assumptions or by known or unknown risks and uncertainties.
Consequently, no forward-looking statement can be guaranteed. Actual results
may vary materially.

Forward-looking statements are based on many factors that may be outside our
control, causing actual results to differ materially from those suggested.
These factors include, but are not limited to, those disclosed below under the
heading Factors That May Affect Our Future Performance. New factors emerge
from time to time, and it is not possible for us to predict all these factors
nor can we assess the impact of these factors on our business or the extent to
which any factor or combination of factors may cause actual results to differ
materially from those contained in any forward-looking statements. Given these
risks and uncertainties, you should not place undue reliance on forward-looking
statements as a prediction of actual results.

Overview

Nextera Enterprises exited the technology consulting business during the latter
half of 2001 and sold its human capital consulting business (Sibson) on January
30, 2002. After the January 30, 2002 sale, Nextera Enterprises consists of
Lexecon, one of the worlds leading economics consulting firms. For more than
25 years, Lexecon has provided law firms, corporations and regulatory agencies
with expert analysis of complex economic issues in connection with legal and
regulatory proceedings, strategic planning and other business activities.

Lexecon was founded in 1977. Lexecons clients include major law firms and the
corporations that they represent, government and regulatory agencies, public
and private utilities and national and multinational corporations.

Lexecons services involve the application of economic, financial and public
policy principles to marketplace issues in a large variety of industries. The
firms services fall into three broad areas: litigation support, public policy
studies, and business consulting.

Litigation Support: Lexecon provides expert witness testimony, economic
analyses, and other litigation-related services in adversarial proceedings in
courts and before regulatory bodies, arbitrators and international trade
organizations. The firm applies economic principles in understanding the
specific features of its clients business and the competitive and regulatory
context in which it operates. Antitrust is Lexecons traditional area of
expertise within the litigation support arena where it provides expert advice
and written and live testimony in antitrust proceedings. Litigation support
also encompasses financial litigation where the analysis focus ranges from
securities fraud to market manipulation and other areas as well. Litigation
support is Lexecons most significant practice area in terms of total revenue,
earnings and personnel.

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##### Table of Contents



Public Policy Studies: Lexecon has performed numerous public policy studies on
behalf of individual companies, trade associations and governmental agencies in
the United States and internationally. Lexecons studies have been submitted to
such agencies as the U.S. Department of Transportation, the Securities and
Exchange Commission, the National Association of Securities Dealers, the
Federal Communications Commission, and the U.S. Department of Commerce.

Business Consulting: Lexecon assists corporate clients in analyzing business
and strategic issues outside the context of litigation or regulation. Lexecon
consults on the likely competitive impact of proposed mergers, assessing the
possible reaction of regulatory agencies, competitors and customers to possible
business combinations. Lexecon also advises on pricing and other strategic
decisions, such as entry into new business areas, addition of new production
capacity, and by helping firms assess how competitors are likely to react and
how these events would affect the nature of future competition.

COMPARISON OF THREE MONTHS ENDED JUNE 30, 2003 AND THREE MONTHS ENDED
JUNE 30, 2002

Net Revenues. Net revenues decreased $1.4 million, or 7.4%, to $16.8
million for the three months ended June 30, 2003 from $18.2 million for the
three months ended June 30, 2002. Utilization of professionals in the
economic consulting business was 65.5% for the quarter ended June 30, 2003
compared to 65.4% in the second quarter of 2002. Annualized revenue per
professional in the quarter ended June 30, 2003 was $505,000 compared to
$465,000 for the quarter ended June 30, 2002 and the average consultant
headcount was 133 for the three months ended June 30, 2003 versus 156 for the
three months ended June 30, 2002. The decrease in headcount was primarily at
the lower levels and included individuals with lower than average utilization,
thereby, increasing overall average utilization rates and resulting in higher
realized revenue per day. The decline in revenue in the second quarter of 2003
from the second quarter of 2002 was primarily due to the winding down of
existing cases coupled with newer cases not yet reaching full capacity. The
decline in revenue was partially offset by an increase in realized revenue per
day.

Gross Profit. Gross profit decreased 16.9% to $5.9 million for the three
months ended June 30, 2003 from $7.0 million for the three months ended June
30, 2002. Gross profit as a percentage of net revenues decreased to 34.8% for
the three months ended June 30, 2003 from 38.8% for the three months ended June
30, 2002. The decline in gross profit as a percentage of net revenues was
primarily attributed to the decline in net revenues not being offset by the
marginal drop in cost of revenues due to the fixed nature of a significant
portion of the compensation and benefits. Also contributing to the lower gross
profit was an increase in overall compensation due to yearly annual base
compensation increases and the mix of utilization among the varying consultant
levels and offices.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 7.8% to $4.1 million for the three months
ended June 30, 2003 from $3.8 million for the three months ended June 30, 2002.
As a percentage of revenues, such expenses increased to 24.5% for the three
months ended June 30, 2003 from 21.0% for the three months ended June 30, 2002.
The increase in selling, general and administrative expenses from the second
quarter of 2002 was primarily attributed to the following components: an
increase of $0.1 million in selling and marketing expenses due to intensified
marketing efforts and an increase of $0.1 million in insurance expense,
primarily directors and officers liability insurance cost.

Amortization Expense. For the three months ended June 30, 2003, the
Company recorded $1.9 million of amortization expense related to the
amortization of non-compete agreements entered into with certain key service
providers in conjunction with employment agreements dated December 31, 2002.

Interest Expense, Net. Interest expense, net increased to $2.1 million
for the three months ended June 30, 2003 from $1.6 million for the three months
ended June 30, 2002. The increase is primarily a result of a higher principal
amount of debentures outstanding in the quarter. The average balance of
debentures outstanding for the quarter ended June 30, 2003 was $49.6 million
compared to $24.0 million for the quarter ended June 30, 2002, due primarily to
the exchange of preferred stock to debentures in July of 2002.

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##### Table of Contents



Income taxes. No federal tax benefit was recorded for the three months
ended June 30, 2003 due to the Companys uncertainty associated with utilizing
its net operating losses. The Company did record de minimis state tax expense.
No federal tax expense was recorded during the three months ended June 30, 2002
due to the existence of net operating losses available to be carried forward to
offset taxable income.

COMPARISON OF SIX MONTHS ENDED JUNE 30, 2003 AND SIX MONTHS ENDED
JUNE 30, 2002

Net Revenues. Net revenues decreased $3.4 million, or 8.8%, to $35.6
million for the six months ended June 30, 2003 from $39.0 million for the six
months ended June 30, 2002. Approximately $1.9 million of this decrease was
attributable to the sale of our human capital consulting business in January
2002. Net revenues from our economic consulting business were $37.1 million
for the six months ended June 30, 2002, $1.5 million higher than the first six
months of 2003. Utilization of professionals in the economic consulting
business was 66.4% for the six months ended June 30, 2003 compared to 69.5% for
the six months ended June 30, 2002. The decline in the economic consulting
business revenue is a function of the decrease in utilization due to the
winding down of existing cases coupled with newer cases not yet reaching full
capacity. The average number of consultants declined from 154 consultants for
the first six months of 2002 to 138 consultants for the first six months of
2003. The decrease in headcount was primarily at the lower levels and included
individuals with lower than average utilization, thereby, increasing overall
average utilization rates and resulting in higher realized revenue per day.
The decrease in net revenues was partially offset by an increase in higher
realized revenue per day.

Gross Profit. Gross profit decreased $2.7 million, or 17.5%, to $12.7
million for the six months ended June 30, 2003 from $15.4 million for the six
months ended June 30, 2002. Gross profit as a percentage of net revenues
decreased to 35.8% for the six months ended June 30, 2003 from 39.6% for the
six months ended June 30, 2002. A portion of the decrease in gross profit was
due to the sale of the human capital consulting business in January 2002. The
human capital consulting business gross profit in the first six months of 2002
was $0.8 million. The economic consulting business gross profit as a percent
of net revenues for the six months ended June 30, 2002 was 39.3%. The decline
in the economic consulting business gross profit as a percentage of net
revenues is attributed to a $1.5 million decline in 2003 net revenues not being
offset by cost of revenues due to the fixed nature of a significant portion of
the compensation and benefits.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $0.9 million, or 9.5% to $8.1 million for the
six months ended June 30, 2003 from $9.0 million for the six months ended June
30, 2002. As a percentage of revenues, such expenses decreased to 22.9% for
the six months ended June 30, 2003 from 23.1% for the six months ended June 30,
2002. The decrease in selling, general and administrative expenses from the
first six months of 2002 is primarily attributed to the absence of the human
capital consulting business, which was sold in January 2002, and had $1.1
million of selling, general and administrative expenses in 2002. The decrease
in the selling, general and administrative expenses from the human capital
consulting business was offset in part by higher insurance expense and
marketing costs associated with new initiatives.

Amortization Expense. For the six months ended June 30, 2003, the
Company recorded $3.9 million of amortization expense related to the
amortization of non-compete agreements entered into with certain key service
providers in conjunction with employment agreements dated December 31, 2002.

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Special Charges. The restructuring charges and their utilization as of June 30,
2003 are summarized as follows (in thousands):

|                            |  |             |       |         |  |          |     |      |  |          |     |                 |  |   |     |  |  |   |     | 
|--------------------------- |  | ----------- | ----- | ------- |  | -------- | --- | ---- |  | -------- | --- | --------------- |  | - | --- |  |  | - | --- | 
|                            |  |             |       |         |  |          |     |      |  | Utilized |     |                 |  |  
|                            |  |             |       |         |  |          |     |      |  |          |     |                 |  |  
|                            |  | Balance     |       |         |  |          |     |      |  |          |     |                 |  |   |     |  |  |  
|                            |  | at December |       | Q1 2003 |  |          |     |      |  |          |     | Balance at June
|                            |  | 31, 2002    |       | charge  |  | Non-Cash |     | Cash |  | 30, 2003
|                            |  |             |       |         |  |          |     |      |  |         
|Severance                   |  | $           |      |         |  | $        | 785 |      |  | $        |    |                 |  | $ | 334 |  |  | $ | 451 | 
|Facilities                  |  |             | 1,380 |         |  |          |    |      |  |          | 324 |                 |  |   | 576 |  |  |   | 480 | 
|Operating lease
obligations |  |             | 84    |         |  |          |    |      |  |          |    |                 |  |   | 33  |  |  |   | 51  | 
|                            |  |             |       |         |  |          |     |      |  |          |     |                 |  |   |     |  |  |   |     | 
|                            |  | $           | 1,464 |         |  | $        | 785 |      |  | $        | 324 |                 |  | $ | 943 |  |  | $ | 982 | 
|                            |  |             |       |         |  |          |     |      |  |          |     |                 |  |   |     |  |  |   |     | 

In connection with the resignation of the Companys former Chief Executive
Officer in the first quarter of 2003, the Company incurred a $1.9 million
charge. Approximately $0.8 million of the charge related to salary
continuance until February 2004 and approximately $1.1 million related to a
non-cash charge for fully vested options, with an exercise price of $2.00 per
share, which was previously being expensed over the anticipated service period.
In accordance with the original employment agreement, the former chief
executive officer was to be granted a bonus, if and only if the above mentioned
options vested and became exercisable, equal to the exercise price of the
options at the time of the exercise of the options. The portion of the option
exercise price bonus not expensed at the time of the resignation of the former
chief executive officer was required to be expensed immediately and recorded in
equity due to the accelerated vesting of the options which occurred as a result
of the resignation.

Approximately $1.0 million of cash relating to special charges is expected to
be expended over the next twelve months, primarily related to real estate
rental obligations and employment matters.

During the six months ended June 30, 2002, the Company recorded a net reversal
of $0.7 million of previously recorded restructuring reserves due to the
favorable settlement of real estate rental obligations. The reversal had the
effect of increasing diluted earnings per share by $0.01 for the three and
six-month periods ended June 30, 2002.

Interest Expense, Net.Interest expense, net increased to $4.1 million
for the six months ended June 30, 2003 from $3.0 million for the six months
ended June 30, 2002. The increase is primarily a result of a higher principal
amount of debentures outstanding in the first six months of 2003. The average
balance of debentures outstanding for the six months ended June 30, 2003 was
$49.0 million compared to $23.7 million for the six months ended June 30, 2002,
due primarily to the exchange of preferred stock to debentures in July of 2002.

Income taxes. No federal tax benefit was recorded for the six months ended
June 30, 2003 due to the Companys uncertainty associated with utilizing its
net operating losses. The Company did record de minimis state tax expense. No
federal tax expense was recorded during the six months ended June 30, 2002 due
to the existence of net operating losses available to be carried forward to
offset taxable income.

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LIQUIDITY AND CAPITAL RESOURCES

Consolidated working capital was $5.4 million on June 30, 2003, compared to a
working capital of $5.2 million on December 31, 2002. Included in working
capital were cash and cash equivalents of $1.4 million and $1.6 million on June
30, 2003 and December 31, 2002, respectively.

Net cash used in operating activities was $4.7 million for the six months ended
June 30, 2003. The primary components of net cash used in operating activities
was an increase of $5.1 million of prepaid and other assets (substantially
relating to Messrs. Fischel and Carltons non-compete agreements), an increase
of $2.0 million of accounts receivable, a $1.0 million increase of accounts
payables and accrued expenses, and a net loss of $5.4 million. These cash
outflows were offset in part by $8.8 million of non-cash items relating to
depreciation and fixed assets write-offs ($0.7 million), provision for doubtful
accounts ($0.6 million), amortization of non-compete agreements ($3.9 million),
non-cash compensation charges ($1.1 million), and interest paid-in-kind ($2.5
million).

Net cash provided by investing activities was $1.6 million for the six months
ended June 30, 2003, primarily consisting of a $2.1 million decrease in
restricted cash, partially offset by $0.4 million of property and equipment
purchases.

Net cash provided by financing activities was $2.9 million for the six months
ended June 30, 2003. The primary component of net cash provided by financing
activities was $5.0 million of borrowings under the Companys Senior Credit
Facility less repayments of $1.8 million and payment of capital lease
obligations of $0.3 million.

The Companys primary sources of liquidity are cash on hand, restricted cash
(for bonus payment and non-compete payments only) and cash flows from
operations. The Company believes that if it is successful in reducing its
current days sales outstanding level and achieving its forecasted
profitability, it will have sufficient cash to meet its operating and capital
requirements for the next twelve months. However, there can be no assurances
that the Companys actual cash needs will not exceed anticipated levels, that
the Company will generate sufficient operating cash flows, by reducing its
current days sales outstanding level and achieving its forecasted
profitability, to fund its operations in the absence of other sources or that
acquisition opportunities will not arise requiring resources in excess of those
currently available.

Effective December 31, 2002, the Company entered into a Second Amended and
Restated Credit Agreement (Senior Credit Facility), which amended the Prior
Credit Agreement. As part of the Senior Credit Facility, Knowledge Universe,
Inc. purchased a $5.0 million junior participation in the Senior Credit
Facility. On January 7, 2003, the Company borrowed $5.0 million under the
Senior Credit Facility to fund the first payment required under the employment
and non-compete agreements entered into with Messrs. Fischel and Carlton. The
Senior Credit Facility requires that $4.7 million of outstanding borrowings be
permanently reduced in each of 2003 and 2004. The maturity of the Senior
Credit Facility is January 1, 2005. Borrowings bear interest at the lenders
base rate plus 1.5%. The Company continues to pay annual administrative fees
of $0.3 million, payable monthly. A back-end fee of $0.9 million is payable
upon the maturity of the Senior Credit Facility. The back-end fees can be
waived if the Company repays the Senior Credit Facility prior to maturity. All
administrative fees paid to the senior lenders are recorded by the Company as
interest expense. An affiliate of Knowledge Universe has agreed to continue to
guarantee $2.5 million of the Companys obligations under the Senior Credit
Facility. The Senior Credit Facility contains covenants related to the
maintenance of financial ratios, operating restrictions, restrictions on the
payment of dividends and disposition of assets.

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In July 2003, the Company entered into the First and Second Amendments (the
Amendments) to the Senior Credit Facility. As part of the
Amendments, warrants previously
issued to the senior lenders to purchase 1,818,351 shares of the Companys
Class A Common Stock were modified reducing the senior lenders put rights from
$0.3525 per share to $0.23 per share, reducing in the put rights from
approximately $640,000 to approximately $418,000. Additionally,
the Company is required to pay quarterly fees aggregating $125,000 annually.
Under the Amendments, Knowledge Universe, Inc. purchased a $2.5 million junior
participation in the Senior Credit Facility. The Amendments also eliminated
financial covenants for the June 30, 2003 period and reset the financial
covenants for the periods ending September 30, 2003, December 31, 2003, March
31, 2004 and June 30, 2004. If the Companys results of operations
significantly decline below projected results and the Company is unable to
obtain a waiver from its senior lenders, the Companys debt would be in default
and callable by the senior lenders. If the Companys projections of future
operating results are not achieved and its debt is placed in default, the
Company would experience a material adverse impact on its financial position
and results of operations.

In July 2003, the Company exercised its option to extend the employment and
non-compete agreements with Messrs. Fischel and Carlton from their current
expiration of July 16, 2003 to January 15, 2004. The Company paid Messrs.
Fischel and Carlton an aggregate amount of approximately $3.5 million,
including interest, and is required to make an additional aggregate payment of
approximately $1.6 million, plus interest at 3.5% per annum, from January 15,
2003 through the date paid, within five days of collection of a specified
receivable, but in no case later than December 31, 2003, whether or not the
receivable is collected by that date. The Company exercised this option in
part by a $2.5 million advance from Knowledge Universe, Inc., an affiliate,
through its junior participation in the Companys Senior Credit Facility. In
order for the Company to further extend these agreements from January 16, 2004
through December 31, 2008, the Company will need to make aggregate payments to
Messrs. Fischel and Carlton of $20.0 million by January 15, 2004. Additional
financing in amounts that cannot be determined at this time will be necessary
in order to make all of the payments required to extend these agreements to
December 31, 2008. It is expected that the company will need to raise funds
through one or more public or private financing transactions in order to make
the payments.

Critical Accounting Policies

Our condensed Consolidated financial statements have been prepared with
accounting principles generally accepted in the United States of America.
Preparation of these financial statements requires management to make judgments
and estimates. Some accounting policies have significant impact on amounts
reported in these financial statements. A summary of significant accounting
polices and a description of accounting policies that are considered critical
may be found in our 2002 Annual Report on Form 10-K, filed on March 31, 2003,
in the Notes to the Consolidated Financial Statements, Note 2 and the Critical
Accounting Policies Section.

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Factors That May Affect Our Future Performance

You should carefully consider the following risk factors in your evaluation of
our company. If any of the following risks actually occur it could materially
harm our business and impair the price of our stock.

We heavily depend on a small number of senior consulting executives and other
key personnel, and the loss of any of them may damage or result in the loss of
client relationships and cause our business and reputation to suffer.

Our success is highly dependent upon the efforts, abilities, business
generation capabilities and project execution skills of a limited number of
senior consulting executives and other key personnel. This dependence is
particularly important to our business because personal relationships and
reputations are a critical element of obtaining and maintaining client
engagements. The loss of the services of any of these persons for any reason
could have a material adverse effect on our reputation and our ability to
secure and complete engagements. Several of our senior consulting executives
that are responsible for substantially all of our business are subject to
employment and/or non-compete agreements. Additionally, there are some senior
consulting executives whose contracts have already expired or will expire
during 2003. We may not be able to retain these persons or to attract suitable
replacements or additional personnel if necessary. We generally do not maintain
key person life insurance coverage for our employees other than certain key
management and consulting personnel.

In addition, if any of these key employees joins a competitor or forms a
competing business, some of our clients might choose to use the services of
that competitor or new company. Further, in the event of the loss of any such
personnel, we may not be able to prevent the unauthorized disclosure or use of
our technical knowledge, practices or procedures by these personnel. As a
result, we might lose existing or potential clients.

We may not be able to obtain the additional capital necessary for us to fund
the payments necessary for us to be able to extend the employment and
non-compete agreements with two key service providers, including our Chief
Executive Officer. In addition, if we are able to raise additional capital,
the terms of any additional capital may be unfavorable to Nextera or our
stockholders.

We have entered into employment and non-compete agreements with two of our key
service providers: Daniel Fischel, our Chief Executive Officer, and Dennis
Carlton. In July 2003, the Company exercised its option to extend the
employment and non-compete agreements with Messrs. Fischel and Carlton from
their current expiration of July 16, 2003 to January 15, 2004. The Company
paid Messrs. Fischel and Carlton an aggregate amount of approximately $3.5
million, including interest, and is required to make an additional aggregate
payment of approximately $1.6 million, plus interest at 3.5% per annum from
January 15, 2003 through the date paid, within five days of collection of a
specified receivable but in no case later than December 31, 2003, whether or
not the receivable is collected by that date. In order for the Company to
further extend these agreements from January 16, 2004 through December 31,
2008, the Company will need to make aggregate payments to Messrs. Fischel and
Carlton of $20.0 million by January 15, 2004. Additional financing in amounts
that cannot be determined at this time will be necessary in order to make all
of the payments required to extend these agreements to December 31, 2008. It
is expected that the Company will need to raise funds through one or more
public or private financing transactions in order to make the payments.

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If funds are raised through the issuance of equity securities, the percentage
ownership of our then-current stockholders may be reduced and the holders of
new equity securities may have rights, preferences or privileges senior to
those of the holders of our common stock. If additional funds are raised
through a bank credit facility or the issuance of debt securities, the holder
of this indebtedness would have rights senior to the rights of the holders of
our common stock and the terms of this indebtedness could impose restrictions
on our operations. If we need to raise additional funds, we may not be able to
do so on terms favorable to us, or at all. If we cannot raise adequate funds
on acceptable terms, we may be unable to extend the employment and non-compete
agreements and lose the continued services of Messrs. Fischel and Carlton. In
such event, our operations and financial condition would be materially and
adversely affected.

High levels of debt could
adversely affect our business and financial condition.

We have very high levels of debt in relation to the size of our business. As
of June 30, 2003, we had $30.4 million of outstanding indebtedness under our
Senior Credit Facility, $4.7 million of which was classified as a current
liability. In addition, as of June 30, 2003, we had $50.3 million of
outstanding indebtedness under debentures payable to affiliates.

Our high leverage could have important consequences, including the following:



| |  |  | a substantial portion of our future cash flows from operations must be
dedicated to the servicing of our debt, thus reducing the funds available
for operations and investments;     
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to obtain additional financing may be impaired;                                                                                                                          
|
| |  |  | our leverage may reduce our ability to adjust rapidly to changing
market conditions and may make us more vulnerable to future downturns in
the general economy; and                  
|
| |  |  | high levels of debt may reduce the value of stockholders investments
in Nextera because debt holders have priority regarding our assets in the
event of a bankruptcy or liquidation.

We may not have sufficient future cash flows to meet our debt payments, or
other obligations such as payments to employees, and may not be able to
refinance any of our debt at maturity.

We may be unable to comply with certain covenants under our Senior Credit
Facility which could result in an acceleration of amounts due and the
commencement of foreclosure proceedings.

The Company entered into the Second Amended and Restated Credit Agreement
(Senior Credit Facility) on December 31, 2002, with its senior lenders. Under
the Senior Credit Facility, the Company is required to make principal payments
of $4.7 million in each of 2003 and 2004. The debt is due in full on January
1, 2005. Additionally, the Company is required to comply with certain
financial and operational covenants. Borrowings under the Senior Credit
Facility bear interest at the lenders base rate plus 1.5%. If the Company
fails to comply with the covenants contained in the Senior Credit Facility, the
interest rate could increase 200 basis points. Additionally, such an event may
permit the senior lenders to accelerate the maturity of the Senior Credit
Facility and foreclose on the assets of the Company.

We face possible delisting from the Nasdaq SmallCap Market, which would result
in a limited public market for our Class A Common Stock, and may adversely
affect the price and trading volume of our Class A Common Stock.

There are several requirements for the continued listing of our Class A Common
Stock on the Nasdaq SmallCap Market including, but not limited to, a minimum
stock bid price of $1.00 per share. On February 14, 2002, we received
notification from the Nasdaq National Market (Nasdaq) that we had failed to
maintain a minimum bid price of $1.00 for 30 consecutive days and would be
delisted from the Nasdaq National Market unless by May 15, 2002 we complied
with the minimum bid price requirement for at least 10 consecutive days. Prior
to May 15, 2002, we submitted an application to trade on the Nasdaq SmallCap
Market, and on June 3, 2002, we began trading on the Nasdaq SmallCap Market.

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The Nasdaq SmallCap Market extended us a 180-day grace period to comply with
the $1.00 minimum bid price requirement, which expired on August 13, 2002. We
received a further 180-day grace period to comply with the $1.00 minimum bid
price requirement from the Nasdaq SmallCap Market, which extension expired on
February 13, 2003. On March 19, 2003, we received a further 90-day extension,
or until May 12, 2003, to regain compliance with the minimum bid price
requirement. On May 14, 2003, Nextera was notified that its securities would
be delisted from Nasdaq on May 23, 2003 unless we requested a hearing. We
requested a hearing on May 20, 2003 and subsequently met with the hearing panel
(the Panel). On August 8, 2003, the Panel determined to exercise its
discretionary authority in accordance with Marketplace Rules 4300 and 4330(d)
and grant us a 60-day extension to allow for further developments in the SEC
rule making process. Accordingly, on or before October 7, 2003, the Company
must evidence a closing bid price of at least $1.00 per share.

If our common stock is delisted, trading our stock may become more difficult
and our stock price could decrease even further. If our common stock is not
listed on Nasdaq, many potential investors will not purchase our common stock,
which would further limit the trading market for our common stock.

The Company currently believes that it may be in the interest of shareholders
to maintain listing on Nasdaq and to increase the share price of our common
stock to potentially increase its trading liquidity stock and attract
investment by institutional funds and investors that are currently prevented
from investing in our common stock at current price levels. Accordingly, at
the June 11, 2003 Annual Stockholders Meeting, our stockholders approved a
reverse stock split of the Companys common stock subject to the Board of
Directors discretion. The Board of Directors is currently evaluating the
merits of a reverse stock split. However, if the Board of Directors determines
to proceed with the reverse stock split and it is completed, a reverse stock
split may not result in a sustained minimum bid price for our common stock
sufficient to prevent delisting nor can there be any assurances that the price
of our common stock after a reverse stock split will rise in proportion to the
reduction in the number of shares of our common stock outstanding after the
reverse stock split becomes effective. Additionally, even if a reverse stock
split has the effect of increasing the price of our common stock, a broader or
more liquid market for our stock may not develop. The lasting effects of a
reverse stock split are unknown and the effects of reverse stock splits for
companies in similar situations as ours is varied.

We may not successfully compete with our competitors, including the retention
of our professional consultants, which could result in reduced revenues and
operating profits.

The economic and business consulting industry has a large number of competitors
comprised of economic consulting firms, individual academics, accounting firm
consulting practices, and general management consulting firms. We believe the
principal competitive factors in our industry are reputation, the analytical
ability of our professional staff, client service, and industry expertise. We
believe that we compete favorably with respect to these factors, however, some
of our competitors have greater financial and marketing resources and greater
name recognition than Lexecon. Because our business involves the delivery of
professional services, our success depends upon our ability to attract, retain,
motivate and train highly skilled consultants. We also face competition in our
efforts to recruit and retain professional staff. If Lexecon is not successful
in competition with its rivals, including the retention of consultants, it
could impair our ability to effectively manage and complete our client projects
and secure future client engagements, and as a result our reputation could
suffer and our future revenues and operating profits could decline.

Even if we are able to retain our current consultants and expand the number of
our qualified consultants, the resources required to attract, retain, motivate
and train these consultants could adversely affect our operating
profits.

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Nextera Enterprises Holdings owns 71.5% of our voting stock and can control
matters submitted to our stockholders and its interests may be different from
yours.

Nextera Enterprises Holdings owns 8,810,000 shares of Class A Common Stock,
3,844,200 shares of Class B Common Stock, and 40,375 shares of our Series A
Preferred Stock, which combined represents approximately 71.5% of the voting
power of our outstanding common stock. The Class A Common Stock entitles its
holders to one vote per share, and the Class B Common Stock entitles its
holders to ten votes per share, on all matters submitted to a vote of our
stockholders, including the election of the members of the Board of Directors.
Holders of Series A Preferred Stock are entitled to 145 votes per share, which
equals the number of whole shares of Class A Common Stock into which one share
of Series A Preferred Stock is convertible at June 30, 2003. Accordingly,
Nextera Enterprises Holdings will be able to determine the disposition of all
matters submitted to a vote of our stockholders, including mergers,
transactions involving a change in control and other corporate transactions and
the terms thereof. In addition, Nextera Enterprises Holdings will be able to
elect all of our directors. This control by Nextera Enterprises Holdings could
materially adversely affect the market price of the Class A Common Stock or
delay or prevent a change in control of our company.

Nextera Enterprises Holdings is indirectly controlled by Knowledge Universe,
Inc. Knowledge Universe, Inc. was formed by Lawrence J. Ellison, Michael R.
Milken and Lowell J. Milken to build, through a combination of internal
development and acquisitions, leading companies in a broad range of areas
relating to career management, technology and education and the improvement of
individual and corporate performance. Knowledge Universe, Inc. may form, invest
in or acquire other businesses which are involved in these and related areas,
among others, which businesses may be operated under the control of Knowledge
Universe, Inc. independently of us. Potential conflicts of interest between
Knowledge Universe and us may arise and may not be resolved in our favor. These
potential conflicts of interest include competitive business activities,
indemnity arrangements, registration rights, sales or distributions by Nextera
Enterprises Holdings of our Class A and Class B Common Stock and the exercise
by Nextera Enterprises Holdings of its ability to control our management and
affairs. This control and the potential conflicts of interest it creates could
limit our future independence and harm our reputation.

We were formed in February 1997 by entities which were under the direct or
indirect control of Lawrence J. Ellison, Michael R. Milken and Lowell J.
Milken. After our formation, ownership of our common stock originally held by
our founding entities was transferred to Nextera Enterprises Holdings. Lawrence
J. Ellison, Michael R. Milken and Lowell J. Milken may each be deemed to have
the power to control Knowledge Universe, Inc. As a result, Lawrence J. Ellison,
Michael R. Milken and Lowell J. Milken may each be deemed to have the power to
direct the voting and disposition of, and to share beneficial ownership of, any
shares of common stock owned by Nextera Enterprises Holdings.

We have a history of losses and there is no assurance that we can achieve or
sustain profitability in the future.

Since our inception in February 1997, we have incurred, on an historical basis,
net losses of $3.0 million and $17.2 million for the years ended December 31,
1997 and 1998, respectively, and net losses of $24.0 million and $117.5 million
for the years ended December 31, 2000 and 2001, respectively.

It is possible that we may not obtain net income in the future.

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If we fail to meet our clients expectations, we could damage our reputation
and have difficulty attracting new business and our engagements may result in
professional liability.

Our client engagements often involve projects that are complex and critical to
the operation of a clients business and involve difficult analytical
assignments that carry risks of professional and other liability. Many of our
engagements involve matters that could have a severe impact on the clients
business, cause the client to lose significant amounts of money, or prevent the
client from pursuing desirable business opportunities. Our failure or
inability to meet either our clients expectations or those of law firm that
engaged us in the performance of our services could result in litigation
against us and damage to our reputation, which could adversely affect our
ability to attract new business from that client or others. In addition, if we
fail to perform adequately on a project, a client could refuse to pay or sue us
for economic damages which could further damage our reputation or cause a
reduction in future revenues and operating profits. Litigation alleging that
we performed negligently or otherwise breached our obligations to the client
could expose us to significant liabilities and tarnish our reputation.

We have relied and may continue to rely on a limited number of clients for a
significant portion of our revenues and, as a result, the loss of or a
significant reduction in work performed for any of them could result in reduced
revenues.

We have in the past derived, and may in the future derive, a significant
portion of our net revenues from a relatively limited number of clients. To the
extent that any client or industry uses less of our services or terminates its
relationship with us, our revenues could decline accordingly. Our 10 largest
clients accounted for approximately 33% of its net revenues for the three
months ended June 30, 2003. No client represented greater than 10% of net
revenues for the three months ended June 30, 2003.

The volume of work we perform for a specific client is likely to vary from year
to year, and a significant client in one year may not use our services in
another year. Further, the failure to collect a large account receivable from
any of these clients could result in significant financial exposure. In
addition, any economic conditions or other factors adversely affecting any of
the industries or any increase in the size or number of competitors within the
industries we service could cause our revenues to decline.

Our quarterly revenues and operating results have varied significantly and, if
they continue to do so, the market price of our stock could decline.

Our operating results have varied significantly from quarter to quarter and may
continue to do so in the future. Our quarterly financial results could be
impacted significantly by the timing, mix and number of active client projects
commenced and completed during a quarter, the variations in utilization rates
and average billing rates for our consultants and the accuracy of our estimates
of resources required to complete our ongoing projects. Our operating expenses
are based on anticipated revenue levels in the short-term, are relatively
fixed, and are incurred throughout the quarter. As a result, if expected
revenues are not realized as anticipated, our quarterly and yearly financial
results could be materially harmed.

Government regulation and legal uncertainty relating to our markets could
result in decreased demand for our services, increased costs or otherwise harm
our business causing a reduction in revenues and operating income.

We derive a substantial amount of our net revenues from economic and litigation
consulting services related to antitrust matters, public policy and regulatory
matters, mergers and acquisitions, and securities matters. A substantial
portion of these net revenues were derived from engagements relating to United
States antitrust and securities laws. Changes in these laws, changes in
judicial interpretations of these laws or less vigorous enforcement of these
laws by the United States Department of Justice, the United States Federal
Trade Commission or other federal agencies as a result of changes in
philosophy, political decisions, priorities or other reasons could materially
reduce the magnitude, scope, number or duration of engagements available to us
in these areas.

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In addition, adverse changes in general economic conditions or conditions
influencing merger and acquisition activity could have a continued adverse
impact on engagements in which we assist clients in connection with these types
of transactions. Any reductions in the number of our securities, antitrust and
mergers and acquisitions consulting engagements could cause a reduction in our
revenues and operating income.

If a large client project or a significant number of other client projects are
terminated or reduced, or if we do not attract a sufficient number of new
projects, we may have a large number of employees who are not generating
revenue.

Our clients engage us on a project-by-project basis, primarily without a
written contract, and a client can generally terminate an engagement with
little or no notice to us and without penalty. When a client defers, modifies
or cancels a project, we must be able to rapidly deploy our consultants to
other projects in order to minimize the underutilization of our employees. In
addition, our operating expenses are relatively fixed and cannot be reduced on
short notice to compensate for unanticipated variations in the number or size
of projects in progress. Thus, any termination, significant reduction or
modification of our business relationships with any of our significant clients
or with a number of smaller clients would have an adverse impact on our ability
to generate revenue. As a result, we believe that the number of our clients or
the number and size of our existing projects may not be reliable indicators or
measures of future net revenues.

Loss of or limitations on our net operating loss carryforward.

We have a substantial net operating loss carryforward that may be used in the
future to reduce our federal tax liability. We established a full valuation
allowance against the net operating loss carryforward, along with all other
deferred tax assets, to reflect the uncertainty of the recoverability of this
asset. The utilization of this asset in the future is dependent upon the
Company having positive earnings. Furthermore, the likelihood of an annual
limitation on our ability to utilize our net operating loss carryforward to
offset future U.S. federal taxable income is increased by (i) the issuance of
certain convertible preferred stock, options, warrants, or other securities
exercisable for common stock, (ii) changes in our equity ownership occurring in
the last three years and (iii) potential future changes in our equity
ownership. The amount of an annual limitation can vary significantly based on
certain factors existing at the date of an ownership change. If such
limitations were imposed, they could have a material adverse impact on our
results of operations and cash flows.

Potential conflicts of interests reduce the number of both potential clients
and engagements.

We provide economic and litigation consulting services primarily in connection
with significant or complex transactions, disputes or other matters that are
usually adversarial or that involve sensitive client information. Our
engagement by a client to provide such services frequently precludes us from
accepting engagements with other entities involved in the same matter. In
addition, we may decide to decline engagements due to clients expectations of
loyalty, perceived conflicts of interests or other reasons. Furthermore,
potential clients may decline to request our services due to perceptions of
loyalty, perceived conflicts of interests or other reasons based on matters we
may be currently working on or may have worked on in the past. Accordingly,
the number of both potential clients and potential engagements is limited,
particularly in the economic consulting and litigation services markets.

Potential write-off of goodwill and other intangible assets relating to
personnel could reduce our operating results.

As of June 30, 2003, our intangible assets were approximately $77.5 million and
included $77.0 million of goodwill and $0.5 million for intangibles relating to
personnel. Intangible assets had been amortized prior to 2002 on a
straight-line basis principally over 40 years for goodwill and over five years
for intangibles relating to personnel. We ceased amortizing goodwill and
intangible assets relating to personnel commencing January 1, 2002 in
accordance with Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets.

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In accordance with accounting guidelines, we are required to evaluate the
recoverability of goodwill on an annual basis as well as when indications of
possible impairment are present by reviewing the fair value of the goodwill and
comparing such fair value to the carrying value of the associated goodwill. If
goodwill becomes impaired, we will be required to write down the carrying value
of the goodwill and incur a related charge to our operations. A write down of
goodwill would result in a reduction in our operating results.

Our stock price may be volatile and you could lose all or part of your
investment.

We expect that the market price of our common stock will be volatile. Stock
prices in our and similar industries have risen and fallen in response to a
variety of factors, including:



| |  |  | quarter-to-quarter variations in operating results;                                  
| | - |  | -------------------------------------------------------------------------------------
|
| |  |  | entering into, or failing to enter into or renew, a material contract;               
|
| |  |  | acquisitions of, or strategic alliances among, companies within our industry;        
|
| |  |  | changes in investor perceptions of the acceptance or profitability of consulting; and
|
| |  |  | market conditions in the industry and the economy as a whole.                        

The market price for our common stock may also be affected by our ability to
meet investors or securities analysts expectations. Any failure to meet these
expectations, even slightly, may result in a decline in the market price of our
common stock. In addition, the stock market is subject to extreme price and
volume fluctuations. This volatility has had a significant effect on the market
prices of securities issued by many companies for reasons unrelated to the
operating performance of these companies. In the past, following periods of
volatility in the market price of a companys securities, securities class
action litigation has often been instituted against that company. If similar
litigation were instituted against us, it could result in substantial costs and
a diversion of our managements attention and resources.

Provisions in our charter documents and Delaware law may delay or prevent an
acquisition of us, which could decrease the value of our common stock.

Provisions of our certificate of incorporation and bylaws and provisions of
Delaware law could delay, defer or prevent an acquisition or change of control
of us or otherwise decrease the price of our common stock. These provisions
include:



| |  |  | authorizing our board of directors to issue additional preferred stock;                                                                                                               
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | prohibiting cumulative voting in the election of directors;                                                                                                                           
|
| |  |  | limiting the persons who may call special meetings of stockholders;                                                                                                                   
|
| |  |  | prohibiting stockholder actions by written consent; and                                                                                                                               
|
| |  |  | establishing advance notice requirements for nominations for election
to the board of directors or for proposing matters that can be acted on
by stockholders at stockholder meetings.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

The Company is exposed to changes in interest rates primarily from our senior
credit facility. We do not currently use interest rate derivative instruments
to manage exposure to interest rate changes. A hypothetical 100 basis point
adverse move in interest rates along the interest rate yield curve would not
have a material adverse effect on interest sensitive financial instruments at
June 30, 2003.

Foreign Currency Risk

Currently, substantially all of the Companys sales and expenses are
denominated in U.S. dollars and as a result we have not experienced significant
foreign exchange gains and losses to date.




Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Companys Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions rules and forms and that
such information is accumulated and communicated to the Companys management,
including its Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow for timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired
control objectives, and management is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under
the supervision and with the participation of the Companys management,
including the Companys Chief Executive Officer and the Companys Chief
Financial Officer, of the effectiveness of the design and operation of the
Companys disclosure controls and procedures as of the end of the quarter
covered by this report. Based on the foregoing, the Companys Chief Executive
Officer and Chief Financial Officer concluded that the Companys disclosure
controls and procedures were effective at the reasonable assurance level.

There has been no change in the Companys internal controls over financial
reporting during the Companys most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Companys internal
controls over financial reporting.

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##### Table of Contents






PART II  OTHER INFORMATION




Item 4. Submission of Matters to a Vote of Security Holders

On June 11, 2003, an annual meeting of the stockholders of Nextera was held in
Chicago, Illinois. At the meeting, each director that was a member of the
Board of Directors immediately prior to the Annual Meeting was re-elected with
the exception of James Coriston who did not stand for re-election. Alan B.
Levine was newly elected to the Board of Directors. The matters voted upon and
the votes cast at the annual meeting were as follows:

|                      |                    |           |            |                |  |  |           |           | 
|--------------------- | ------------------ | --------- | ---------- | -------------- |  |  | --------- | --------- | 
|Election of Directors |                    | Votes For |            | Votes Withheld
|                      |                    |           |            |               
|                      | Ralph Finerman     |           |            | 67,763,382     |  |  |           | 285,785   | 
|                      | Steven B. Fink     |           |            | 67,001,363     |  |  |           | 1,047,804 | 
|                      | Daniel R. Fischel  |           | 67,042,432 |                |  |  | 1,006,735 |          
|                      | Keith D. Grinstein |           |            | 67,792,982     |  |  |           | 256,185   | 
|                      | Alan B. Levine     |           | 67,784,157 |                |  |  | 265,010   |          
|                      | Stanley E. Maron   |           |            | 67,041,107     |  |  |           | 1,008,060 | 
|                      | Richard V. Sandler |           |            | 67,041,032     |  |  |           | 1,008,135 | 
|                      | Karl L. Sussman    |           |            | 67,792,957     |  |  |           | 256,210   | 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |     |            |               |  |             |         |           |  |  |        |  |  |        |   | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --- | ---------- | ------------- |  | ----------- | ------- | --------- |  |  | ------ |  |  | ------ | - | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |     |            |               |  |             |         |           |  |  |        |  |  | Broker
|Other Matters Voted Upon                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | For |            | Votes Against |  | Abstentions |         | Non-Votes
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |     |            |               |  |             |         |          
|2. Approval of an amendment to the Third Amended and
Restated Certificate of Incorporation, as amended, to
change the Companys name from Nextera Enterprises,
Inc. to Lexecon Enterprises, Inc., with the timing of
the effectiveness of the amendment or the abandonment of
the amendment as permitted under Section 242(C) of the
Delaware General Corporation Law, to be determined at
the discretion of our Board of Directors.                                                                                                                                                                                                                                                                                                                                                                                 |  |     | 67,819,449 |               |  |             | 161,543 |           |  |  | 68,175 |  |  |        | 0 | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |     |            |               |  |             |         |           |  |  |        |  |  |        |   | 
|3. Approval of series of amendments to the Third Amended
and Restated Certificate of Incorporation, as amended,
to effect a reverse stock split of the Class A Common
Stock and Class B Common Stock, pursuant to which each
outstanding 5, 10, 20, 25, or 30 whole shares of Class A
Common Stock would be reclassified and converted into
one share of Class A Common Stock and Class B Common
Stock, respectively, with the number of Class B Common
Stock that the Company is authorized to issue being
reduced by the same ratio as that by which the Common
Stock is converted, with the timing of the effectiveness
of the amendment or the abandonment of the amendment as
permitted under Section 242(C) of the Delaware General
Corporation Law, to be determined at the discretion of
our Board of Directors. |  |     | 67,319,802 |               |  |             | 645,729 |           |  |  | 83,636 |  |  |        | 0 | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |     |            |               |  |             |         |           |  |  |        |  |  |        |   | 
|4. Ratification of the selection of Ernst & Young LLP as
the independent auditors for the fiscal year ending
December 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |     | 67,804,945 |               |  |             | 149,437 |           |  |  | 85,785 |  |  |        | 0 | 

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Item 6. Exhibits and Reports on Form 8-K



|(a) |  | Exhibits
|--- |  | --------



| | 31. |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002                               
| | --- |  | ------------------------------------------------------------------------------------------------------
|
| | 32. |  | Certification pursuant to Section 906 of the Public Company
Accounting Reform and Investor Act of 2002



|(b) |  | Reports on Form 8-K
|--- |  | -------------------



| | 1. |  | A Current Report on Form 8-K filed on May 12, 2003 regarding
a press release issued with financial information for the three
months ended March 31, 2003.
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------




SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                      |  |                                                    
|--------------------- |  | ---------------------------------------------------
|                      |  | NEXTERA ENTERPRISES, INC.                          
|                      |  | (Registrant)                                       
|                      |  |                                                    
|Date: August 14, 2003 |  | By: /s/ Daniel R. Fischel                          
|                      |  |                                                    
|                      |  | Daniel R. Fischel                                  
|                      |  | Chairman of the Board,                             
|                      |  | President and Chief Executive Officer              
|                      |  | (Principal Executive Officer)                      
|                      |  |                                                    
|Date: August 14, 2003 |  | By: /s/ Michael P. Muldowney                       
|                      |  |                                                    
|                      |  | Michael P. Muldowney                               
|                      |  | Chief Operating Officer and Chief Financial Officer
|                      |  | (Principal Financial Officer)                      
|                      |  |                                                    
|Date: August 14, 2003 |  | By: /s/ Michael J. Dolan                           
|                      |  |                                                    
|                      |  | Michael J. Dolan                                   
|                      |  | Chief Accounting Officer and Corporate Controller  
|                      |  | (Principal Accounting Officer)                     

28