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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 September 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
(State or other jurisdiction of
incorporation or organization) |  | 95-4700410
(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 October 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 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 September 30, 2003

INDEX

|                              |  |                                                                                                        |  |         
|----------------------------- |  | ------------------------------------------------------------------------------------------------------ |  | --------
|                              |  |                                                                                                        |  | Page No.
|                              |  |                                                                                                        |  |         
|PART I. FINANCIAL INFORMATION |  |                                                                                                       
|Item 1.                       |  | Financial Statements                                                                                   |  |         
|                              |  | Condensed Consolidated Balance Sheets as of September
30, 2003 and December 31, 2002                   |  | 3       
|                              |  | Condensed Consolidated Statements of Operations for the
Three Months Ended September 30, 2003 and 2002 |  | 4       
|                              |  | Condensed Consolidated Statements of Operations for the
Nine Months Ended September 30, 2003 and 2002  |  | 5       
|                              |  | Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 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                  |  | 15      
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                             |  | 28      
|Item 4.                       |  | Controls and Procedures                                                                                |  | 28      
|PART II. OTHER INFORMATION    |  |                                                                                                       
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                       |  | 29      
|                              |  | Signatures                                                                                             |  | 29      

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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)

|                                                         |                                                                                                                                                                                                                             |   |               |          |              |   |         |          |  
|-------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------- | -------- | ------------ | - | ------- | -------- | -
|                                                         |                                                                                                                                                                                                                             |   | September 30, |          | December 31,
|                                                         |                                                                                                                                                                                                                             |   | 2003          |          | 2002        
|                                                         |                                                                                                                                                                                                                             |   |               |          |             
|                                                         |                                                                                                                                                                                                                             |   | (unaudited)   |          |              |   |        
|Assets                                                   |                                                                                                                                                                                                                             |   |               |          |              |   |         |         
|Current assets:                                          |                                                                                                                                                                                                                             |   |               |          |              |   |         |         
|                                                         | Cash and cash equivalents                                                                                                                                                                                                   |   | $             | 891      |              |   | $       | 1,606    |  
|                                                         | Restricted cash                                                                                                                                                                                                             |   |               | 213      |              |   |         | 2,650    |  
|                                                         | Accounts receivable, net of allowance for doubtful accounts of
$1,279 at September 30, 2003 and December 31, 2002                                                                                                           |   |               | 2,000    |              |   |         | 2,000    |  
|                                                         | Prepaid expenses and other current assets                                                                                                                                                                                   |   |               | 3,314    |              |   |         | 442      |  
|                                                         | Assets related to discontinued operations                                                                                                                                                                                   |   |               | 99,731   |              |   |         | 99,263   |  
|                                                         |                                                                                                                                                                                                                             |   |               |          |              |   |         |          |  
|Total current assets                                     |                                                                                                                                                                                                                             |   | 106,149       |          |              |   | 105,961 |         
|Property and equipment, net                              |                                                                                                                                                                                                                             |   | 58            |          |              |   | 43      |         
|Other assets                                             |                                                                                                                                                                                                                             |   | 1,150         |          |              |   | 1,214   |         
|                                                         |                                                                                                                                                                                                                             |   |               |          |              |   |         |          |  
|Total assets                                             |                                                                                                                                                                                                                             | $ | 107,357       |          |              | $ | 107,218 |         
|                                                         |                                                                                                                                                                                                                             |   |               |          |              |   |         |          |  
|Liabilities and Stockholders Equity                     |                                                                                                                                                                                                                             |   |               |          |              |   |         |         
|Current liabilities:                                     |                                                                                                                                                                                                                             |   |               |          |              |   |         |         
|                                                         | Accounts payable and accrued expenses                                                                                                                                                                                       |   | $             | 3,990    |              |   | $       | 3,798    |  
|                                                         | Accrued restructuring costs, current portion                                                                                                                                                                                |   |               | 508      |              |   |         | 1,037    |  
|                                                         | Senior credit facility                                                                                                                                                                                                      |   |               | 4,735    |              |   |         | 4,735    |  
|                                                         | Current portion of long-term debt and capital lease obligations                                                                                                                                                             |   |               | 112      |              |   |         | 238      |  
|                                                         | Liabilities related to discontinued operations                                                                                                                                                                              |   |               | 13,237   |              |   |         | 12,257   |  
|                                                         |                                                                                                                                                                                                                             |   |               |          |              |   |         |          |  
|Total current liabilities                                |                                                                                                                                                                                                                             |   | 22,582        |          |              |   | 22,065  |         
|Long-term debt and capital lease obligations             |                                                                                                                                                                                                                             |   | 616           |          |              |   | 616     |         
|Senior credit facility                                   |                                                                                                                                                                                                                             |   | 26,184        |          |              |   | 22,465  |         
|Debentures due to affiliates, including accrued interest |                                                                                                                                                                                                                             |   | 51,579        |          |              |   | 47,748  |         
|Accrued restructuring costs, net of current portion      |                                                                                                                                                                                                                             |   |              |          |              |   | 427     |         
|Other long-term liabilities                              |                                                                                                                                                                                                                             |   | 1,722         |          |              |   | 1,990   |         
|Commitments and contingencies                            |                                                                                                                                                                                                                             |   |              |          |              |   |        |         
|Stockholders equity:                                    |                                                                                                                                                                                                                             |   |               |          |              |   |         |         
|                                                         | Preferred Stock, $0.001 par value, 10,000,000 shares
authorized, 600,000 authorized shares designated Series A,
41,828 and 39,630 Series A issued and outstanding at September
30, 2003 and December 31, 2002, respectively |   |               | 4,183    |              |   |         | 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 September 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
September 30, 2003 and December 31, 2002                                                                    |   |               | 4        |              |   |         | 4        |  
|                                                         | Additional paid-in capital                                                                                                                                                                                                  |   |               | 161,625  |              |   |         | 161,055  |  
|                                                         | Retained earnings (accumulated deficit)                                                                                                                                                                                     |   |               | (160,952 | )            |   |         | (152,932 | )
|                                                         | Accumulated other comprehensive income (loss)                                                                                                                                                                               |   |               | (216     | )            |   |         | (215     | )
|                                                         |                                                                                                                                                                                                                             |   |               |          |              |   |         |          |  
|Total stockholders equity                               |                                                                                                                                                                                                                             |   | 4,674         |          |              |   | 11,907  |         
|                                                         |                                                                                                                                                                                                                             |   |               |          |              |   |         |          |  
|Total liabilities and stockholders equity               |                                                                                                                                                                                                                             | $ | 107,357       |          |              | $ | 107,218 |         
|                                                         |                                                                                                                                                                                                                             |   |               |          |              |   |         |          |  

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)

|                                                              |                         |   |                    |       |      |   |        |      | 
|------------------------------------------------------------- | ----------------------- | - | ------------------ | ----- | ---- | - | ------ | ---- | 
|                                                              |                         |   | Three Months Ended
|                                                              |                         |   | September 30      
|                                                              |                         |   | 2003               |       | 2002
|                                                              |                         |   |                    |       |     
|Net revenues                                                  |                         | $ |                   |       |      | $ |       |     
|Cost of revenues                                              |                         |   |                   |       |      |   |       |     
|                                                              |                         |   |                    |       |      |   |        |     
|Gross profit                                                  |                         |   |                   |       |      |   |       |     
|Selling, general and administrative expenses                  |                         |   | 903                |       |      |   | 1,163  |     
|                                                              |                         |   |                    |       |      |   |        |     
|Operating loss                                                |                         |   | (903               | )     |      |   | (1,163 | )   
|Interest expense, net                                         |                         |   |                   |       |      |   |       |     
|Other expense                                                 |                         |   |                   |       |      |   | (621   | )   
|                                                              |                         |   |                    |       |      |   |        |     
|Loss from continuing operations before income taxes           |                         |   | (903               | )     |      |   | (1,784 | )   
|Provision for income taxes                                    |                         |   | 41                 |       |      |   |       |     
|                                                              |                         |   |                    |       |      |   |        |     
|Loss from continuing operations                               |                         |   | (944               | )     |      |   | (1,784 | )   
|Income (loss) from discontinued operations                    |                         |   | (1,674             | )     |      |   | 3,320  |     
|                                                              |                         |   |                    |       |      |   |        |     
|Net income (loss)                                             |                         |   | (2,618             | )     |      |   | 1,536  |     
|Preferred stock dividends                                     |                         |   | (76                | )     |      |   | (477   | )   
|                                                              |                         |   |                    |       |      |   |        |     
|Net income (loss) applicable to common stockholders           |                         | $ | (2,694             | )     |      | $ | 1,059  |     
|                                                              |                         |   |                    |       |      |   |        |     
|Net income (loss) per common share, basic and diluted         |                         |   |                    |       |      |   |        |     
|From continuing operations                                    |                         | $ | (0.03              | )     |      | $ | (0.06  | )   
|                                                              | Discontinued operations |   |                    | (0.05 | )    |   |        | 0.09 | 
|                                                              |                         |   |                    |       |      |   |        |     
|Net income (loss) per common share, basic and diluted         |                         | $ | (0.08              | )     |      | $ | 0.03   |     
|                                                              |                         |   |                    |       |      |   |        |     
|Weighted average common shares outstanding, basic and diluted |                         |   | 33,870             |       |      |   | 35,756 |     
|                                                              |                         |   |                    |       |      |   |        |     

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)

|                                                              |                         |   |                                |       |      |   |        |      | 
|------------------------------------------------------------- | ----------------------- | - | ------------------------------ | ----- | ---- | - | ------ | ---- | 
|                                                              |                         |   | Nine Months Ended September 30
|                                                              |                         |   | 2003                           |       | 2002
|                                                              |                         |   |                                |       |     
|Net revenues                                                  |                         | $ |                               |       |      | $ |       |     
|Cost of revenues                                              |                         |   |                               |       |      |   |       |     
|                                                              |                         |   |                                |       |      |   |        |     
|Gross profit                                                  |                         |   |                               |       |      |   |       |     
|Selling, general and administrative expenses                  |                         |   | 2,964                          |       |      |   | 2,860  |     
|Special charges (credit)                                      |                         |   | 1,921                          |       |      |   | (740   | )   
|                                                              |                         |   |                                |       |      |   |        |     
|Operating loss                                                |                         |   | (4,885                         | )     |      |   | (2,120 | )   
|Interest expense, net                                         |                         |   |                               |       |      |   |       |     
|Other expense                                                 |                         |   |                               |       |      |   | (621   | )   
|                                                              |                         |   |                                |       |      |   |        |     
|Loss from continuing operations before income taxes           |                         |   | (4,885                         | )     |      |   | (2,741 | )   
|Provision for income taxes                                    |                         |   | 102                            |       |      |   | 100    |     
|                                                              |                         |   |                                |       |      |   |        |     
|Loss from continuing operations                               |                         |   | (4,987                         | )     |      |   | (2,841 | )   
|Income (loss) from discontinued operations                    |                         |   | (3,033                         | )     |      |   | 8,465  |     
|                                                              |                         |   |                                |       |      |   |        |     
|Net income (loss)                                             |                         |   | (8,020                         | )     |      |   | 5,624  |     
|Preferred stock dividends                                     |                         |   | (220                           | )     |      |   | (1,279 | )   
|                                                              |                         |   |                                |       |      |   |        |     
|Net income (loss) applicable to common stockholders           |                         | $ | (8,240                         | )     |      | $ | 4,345  |     
|                                                              |                         |   |                                |       |      |   |        |     
|Net income (loss) per common share, basic and diluted         |                         |   |                                |       |      |   |        |     
|From continuing operations                                    |                         | $ | (0.15                          | )     |      | $ | (0.12  | )   
|                                                              | Discontinued operations |   |                                | (0.09 | )    |   |        | 0.24 | 
|                                                              |                         |   |                                |       |      |   |        |     
|Net income (loss) per common share, basic and diluted         |                         | $ | (0.24                          | )     |      | $ | 0.12   |     
|                                                              |                         |   |                                |       |      |   |        |     
|Weighted average common shares outstanding, basic and diluted |                         |   | 33,926                         |       |      |   | 35,705 |     
|                                                              |                         |   |                                |       |      |   |        |     

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)

|                                                                                     |                                             |                                       |        |                                |         |      |         |        |        |  
|------------------------------------------------------------------------------------ | ------------------------------------------- | ------------------------------------- | ------ | ------------------------------ | ------- | ---- | ------- | ------ | ------ | -
|                                                                                     |                                             |                                       |        | Nine Months Ended September 30
|                                                                                     |                                             |                                       |        | 2003                           |         | 2002
|                                                                                     |                                             |                                       |        |                                |         |     
|Operating activities                                                                 |                                             |                                       |        |                                |         |      |         |       
|Net income (loss)                                                                    |                                             | $                                     | (8,020 | )                              |         | $    | 5,624   |       
|Adjustments to reconcile net income (loss) to net cash
used in operating activities: |                                             |                                       |        |                                |         |      |         |       
|                                                                                     | Depreciation and amortization               |                                       |        | 7,225                          |         |      |         | 1,366  |       
|                                                                                     | Provision for doubtful accounts             |                                       |        | 1,105                          |         |      |         | 1,544  |       
|                                                                                     | Non-cash compensation charges               |                                       |        | 1,134                          |         |      |         |       |       
|                                                                                     | Non-cash interest Paid in Kind              |                                       |        | 3,831                          |         |      |         | 2,186  |       
|                                                                                     | Write-off of investments and fixed assets   |                                       |        |                               |         |      |         | 996    |       
|                                                                                     | Gain on sale of business unit               |                                       |        |                               |         |      |         | (621   | )     
|                                                                                     | Gain on reversal of restructuring charges   |                                       |        |                               |         |      |         | (740   | )     
|                                                                                     | Other                                       |                                       |        | 48                             |         |      |         | 54     |       
|                                                                                     | Change in operating assets and liabilities: |                                       |        |                                |         |      |         |        |       
|                                                                                     |                                             | Accounts receivable                   |        |                                | (2,137  | )    |         |        | (7,236 | )
|                                                                                     |                                             | Prepaid expenses and other assets     |        |                                | (10,116 | )    |         |        | 637    |  
|                                                                                     |                                             | Accounts payable and accrued expenses |        |                                | 1,485   |      |         |        | (5,265 | )
|                                                                                     |                                             | Restructuring costs                   |        |                                | (632    | )    |         |        | (2,722 | )
|                                                                                     |                                             | Other                                 |        |                                | 158     |      |         |        | 1,768  |  
|                                                                                     |                                             |                                       |        |                                |         |      |         |       
|Net cash used in operating activities                                                |                                             |                                       | (5,919 | )                              |         |      | (2,409  | )     
|Investing activities                                                                 |                                             |                                       |        |                                |         |      |         |       
|Purchase of property and equipment                                                   |                                             |                                       | (531   | )                              |         |      | (610    | )     
|Proceeds from sale of business                                                       |                                             |                                       |       |                                |         |      | 14,720  |       
|Changes in restricted cash                                                           |                                             |                                       | 2,437  |                                |         |      | (2,090  | )     
|                                                                                     |                                             |                                       |        |                                |         |      |         |       
|Net cash provided by investing activities                                            |                                             |                                       | 1,906  |                                |         |      | 12,020  |       
|Financing activities                                                                 |                                             |                                       |        |                                |         |      |         |       
|Borrowings (repayments) under Senior Credit Facility                                 |                                             |                                       | 3,719  |                                |         |      | (10,628 | )     
|Proceeds from debentures due to affiliates                                           |                                             |                                       |       |                                |         |      | 560     |       
|Repayments of long-term debt and capital lease obligations                           |                                             |                                       | (420   | )                              |         |      | (2,472  | )     
|                                                                                     |                                             |                                       |        |                                |         |      |         |       
|Net cash provided by (used in) financing activities                                  |                                             |                                       | 3,299  |                                |         |      | (12,540 | )     
|Effects of exchange rates on cash and cash equivalents                               |                                             |                                       | (1     | )                              |         |      | (16     | )     
|                                                                                     |                                             |                                       |        |                                |         |      |         |       
|                                                                                     | Net decrease in cash and cash equivalents   |                                       |        | (715                           | )       |      |         | (2,945 | )     
|Cash and cash equivalents at beginning of period                                     |                                             |                                       | 1,606  |                                |         |      | 4,465   |       
|                                                                                     |                                             |                                       |        |                                |         |      |         |       
|Cash and cash equivalents at end of period                                           |                                             | $                                     | 891    |                                |         | $    | 1,520   |       
|                                                                                     |                                             |                                       |        |                                |         |      |         |       

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 nine-month period ended September 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.

On September 25, 2003, Nextera and its direct and indirect subsidiaries Lexecon
Inc., CE Acquisition Corp. and ERG Acquisition Corp. entered into a definitive
asset purchase agreement with FTI Consulting, Inc. (FTI) and LI Acquisition
Company, LLC, a wholly owned subsidiary of FTI, under which LI Acquisition
Company, LLC will purchase substantially all of the assets Lexecon and its
subsidiaries use in their economic consulting business (Asset Sale).

The Boards of Directors of all companies have approved the transaction and
Nextera has called a special meeting of stockholders on November 14, 2003 to
approve the Asset Sale. In connection with the asset purchase agreement, FTI
and LI Acquisition Company, LLC have entered into a voting agreement with
stockholders of Nextera that control approximately 71.5% of the voting power of
the Company, which obligates these stockholders to vote to approve the
transaction at the special meeting. 71.5% of the total voting power of the
Company is more than the majority required to approve the Asset Sale.

Upon the consummation of the Asset Sale, Nextera will have exited its last
remaining operating subsidiary and will have exited the consulting business as
a whole. The asset sale is reflected in the accompanying financial statements
in accordance with Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets. Accordingly,
the results of operations for the three-month and nine-month periods ended
September 30, 2003 have been reflected as discontinued operations.
Additionally, the three-month and nine-month periods ended September 30, 2002
have been restated to reflect the results of operations of the consulting
business as discontinued operations. All assets to be sold as part of the
Asset Sale and all liabilities to be assumed as part of the Asset Sale have
been segregated on the balance sheet at September 30, 2003 and December 31,
2002.

Principles of Consolidation

The consolidated financial statements
include the accounts of the Company and its subsidiaries. Significant
intercompany accounts and transactions have been eliminated in
consolidation. The Company accounts for its investments in which it
owns less than 20% of the voting stock and does not possess
significant influence over the operations of the investee under the
cost method of accounting.

Reclassification

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

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NEXTERA ENTERPRISES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

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
September 30, 2003, the restricted cash balance was $213,000.

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 nine months ended September 30, 2003 and 2002. One
customer represented 7.6% and 8.1% of Lexecons accounts receivable as of
September 30, 2003 and December 31, 2002, respectively. Only one other
customer, which comprised of 5.9% of Lexecons accounts receivable balance at
September 30, 2003, was more than 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                            |        | Nine months ended
|                                    |  | September 30                                  |        | September 30     
|                                    |  | 2003                                          |        | 2002              |  | 2003 |        | 2002
|                                    |  |                                               |        |                   |  |      |        |     
|                                    |  | (Amounts in thousands, except per share data)
|Net income (loss) as reported       |  | $                                             | (2,618 | )                 |  | $    | 1,536  |      |  | $ | (8,020  | ) |  | $ | 5,624  |  
|Compensation expense under
SFAS 123 |  |                                               | (647   | )                 |  |      | (1,559 | )    |  |   | (2,014  | ) |  |   | (5,125 | )
|                                    |  |                                               |        |                   |  |      |        |      |  |   |         |   |  |   |        |  
|Pro forma net income (loss)         |  | $                                             | (3,265 | )                 |  | $    | (23    | )    |  | $ | (10,034 | ) |  | $ | 499    |  
|                                    |  |                                               |        |                   |  |      |        |      |  |   |         |   |  |   |        |  
|Net income (loss) per common        |  |                                               |        |                   |  |      |        |      |  |   |         |   |  |   |        |  
|share, basic and diluted:           |  |                                               |        |                   |  |      |        |      |  |   |         |   |  |   |        |  
|As reported                         |  | $                                             | (0.08  | )                 |  | $    | 0.03   |      |  | $ | (0.24   | ) |  | $ | 0.12   |  
|                                    |  |                                               |        |                   |  |      |        |      |  |   |         |   |  |   |        |  
|Pro forma                           |  | $                                             | (0.10  | )                 |  | $    | (0.01  | )    |  | $ | (0.30   | ) |  | $ | (0.02  | )
|                                    |  |                                               |        |                   |  |      |        |      |  |   |         |   |  |   |        |  

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.

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. Discontinued Operations

As mentioned in Note 1, on September 25, 2003, Nextera and its direct and
indirect subsidiaries Lexecon Inc., CE Acquisition Corp. and ERG Acquisition
Corp. entered into a definitive asset purchase agreement with FTI and LI
Acquisition Company, LLC, a wholly owned subsidiary of FTI, under which LI
Acquisition Company, LLC will purchase substantially all of the assets Lexecon
and its subsidiaries use in their economic consulting business (Asset Sale).
Accordingly, all consulting operations of the Company, including the human
capital business which was sold in January 2002, have been recorded as
discontinued operations in the accompanying financial statements. Prior year
results have been restated to present the consulting business as a discontinued
operation.

The terms of the asset purchase agreement provide that LI Acquisition Company,
LLC will pay cash in the amount of $130.0 million, plus additional
consideration, including the assumption of certain operating liabilities, in
exchange for the Lexecon assets. The Asset Sale is expected to close during
the fourth quarter of 2003. The Company expects to recognize a gain for
financial reporting purposes on the sale of approximately $14.0-$16.0 million.

9



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NEXTERA ENTERPRISES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Revenues from discontinued operations for the three-month periods ended
September 30, 2003 and 2002 were $15.9 million and $19.4 million, respectively.
Revenues from discontinued operations for the nine-month periods ended
September 30, 2003 and 2002 were $51.5 million and $58.4 million, respectively.
The three and nine-month periods ended September 30, 2003 include amortization
expense related to non-compete agreements with certain Lexecon key service
providers of $2.4 million and $6.3 million, respectively. No amortization
expense was recorded in 2002. The discontinued operations also include
interest expense of $2.1 million and $1.9 million for the three-month periods
ended September 30, 2003 and 2002, respectively, and $6.2 million and $4.9
million for the nine-month periods ended September 30, 2003 and 2002,
respectively. Interest expense has been allocated to discontinued operations
as the debt related to the interest expense will be repaid as part of the Asset
Sale.

Assets and liabilities of the discontinued operations are as follows:

|                                               |                                                                 |   |                    |        |                   |   |        |        | 
|---------------------------------------------- | --------------------------------------------------------------- | - | ------------------ | ------ | ----------------- | - | ------ | ------ | 
|                                               |                                                                 |   | September 30, 2003 |        | December 31, 2002
|                                               |                                                                 |   |                    |        |                  
|Assets related to discontinued operations:     |                                                                 |   |                    |        |                   |   |        |       
|                                               | Accounts receivable                                             |   | $                  | 19,376 |                   |   | $      | 18,346 | 
|                                               | Prepaid and other current assets                                |   |                    | 665    |                   |   |        | 442    | 
|                                               | Goodwill                                                        |   |                    | 77,504 |                   |   |        | 77,504 | 
|                                               | Other Assets                                                    |   |                    | 2,186  |                   |   |        | 2,971  | 
|                                               |                                                                 |   |                    |        |                   |   |        |        | 
|                                               |                                                                 | $ | 99,731             |        |                   | $ | 99,263 |       
|                                               |                                                                 |   |                    |        |                   |   |        |        | 
|Liabilities related to discontinued operations |                                                                 |   |                    |        |                   |   |        |       
|                                               | Accounts payable and accrued expenses                           |   | $                  | 11,615 |                   |   | $      | 10,221 | 
|                                               | Current portion of long-term debt and
capital lease obligations |   |                    | 185    |                   |   |        | 451    | 
|                                               | Long-term debt and capital lease obligations                    |   |                    | 39     |                   |   |        | 167    | 
|                                               | Other long-term liabilities                                     |   |                    | 1,398  |                   |   |        | 1,418  | 
|                                               |                                                                 |   |                    |        |                   |   |        |        | 
|                                               |                                                                 | $ | 13,237             |        |                   | $ | 12,257 |       
|                                               |                                                                 |   |                    |        |                   |   |        |        | 

Note 3. 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 of the covenant not to compete payments. Under the
terms of the agreements, Nextera made covenant not to compete payments
aggregating $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 was amortized through July 15, 2003.
The Company exercised its option of extending the non-compete provisions
through January 15, 2004 and paid Messrs. Fischel and Carlton payments
aggregating $3.7 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 $1.4 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 additional covenant not to compete payments aggregating
$20.0 million to Messrs. Fischel and Carlton on or before January 15, 2004.
Under the terms of the asset purchase agreement, at the Asset Sale closing,
Nextera is required to make payments

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NEXTERA ENTERPRISES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

to Messrs. Fischel and Carlton aggregating $20.0 million to extend the
covenants not to compete to December 31, 2008. These payments will be made
from the proceeds of the Asset Sale. Also, upon the closing of the Asset Sale,
Messrs. Fischel and Carlton shall have no further obligation to the Company and
will be subject to non-compete covenants under their new employment and
non-competition agreements with the acquiring company.

During the third quarter 2003, the Company entered into an employment agreement
with Joseph P. Kalt, an employee. In exchange for a covenant not to compete
extending from July 1, 2003 through December 31, 2008, Mr. Kalt will receive a
special bonus of approximately $2.9 million. Approximately $1.1 million will
be paid at the earlier of a sale event, as defined, or January 15, 2004 and the
Company shall have the option of paying Mr. Kalt $1.8 million or, at the
Companys sole discretion, depositing $2.0 million into an escrow account,
whereas, Mr. Kalt shall be paid $200,000 plus earned interest semi-annually
commencing June 2004. Under the terms of the asset purchase agreement, at the
Asset Sale closing, Nextera is required to make a payment to Mr. Kalt of $2.9
million to fulfill the non-compete payment obligation. This payment will be
made from the proceeds of the Asset Sale. Also, upon the closing of the Asset
Sale, Mr. Kalt shall have no further obligation to the Company and will be
subject to non-compete covenants under his new employment and non-competition
agreement with the acquiring company.

Note 4. Income (Loss) per Share

Basic net income (loss) per share (Basic EPS) is computed by dividing
net income (loss) by the weighted average number of common shares outstanding.
Diluted net income (loss) per common share (Diluted EPS) is the same as the
basic loss per share for the three and nine-months periods ended September 30,
2003 and 2002 because the computation of diluted income (loss) per share would
have an anti-dilutive effect on income (loss) per share.

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

|                                                                 |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        |  
|---------------------------------------------------------------- |  | ------------------ | ------ | ----------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                 |  | Three Months Ended |        | Nine Months Ended
|                                                                 |  | September 30       |        | September 30     
|                                                                 |  | 2003               |        | 2002              |  | 2003 |        | 2002
|                                                                 |  |                    |        |                   |  |      |        |     
|Loss from continuing operations                                  |  | $                  | (944   | )                 |  | $    | (1,784 | )    |  | $ | (4,987 | ) |  | $ | (2,841 | )
|Preferred stock dividends                                        |  |                    | (76    | )                 |  |      | (477   | )    |  |   | (220   | ) |  |   | (1,279 | )
|                                                                 |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        |  
|Loss from continuing operations available
to common stockholders |  | $                  | (1,020 | )                 |  | $    | (2,261 | )    |  | $ | (5,207 | ) |  | $ | (4,120 | )
|Income (loss) from discontinued operations                       |  |                    | (1,674 | )                 |  |      | 3,320  |      |  |   | (3,033 | ) |  |   | 8,465  |  
|                                                                 |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        |  
|Net Income (loss)                                                |  | $                  | (2,694 | )                 |  | $    | 1,059  |      |  | $ | (8,240 | ) |  | $ | 4,345  |  
|                                                                 |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        |  
|Weighted average common shares
outstandingbasic and diluted     |  |                    | 33,870 |                   |  |      | 35,756 |      |  |   | 33,926 |   |  |   | 35,705 |  
|                                                                 |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        |  

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NEXTERA ENTERPRISES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

|                                                     |  |                    |       |                   |  |      |       |      |  |   |       |   |  |   |       |  
|---------------------------------------------------- |  | ------------------ | ----- | ----------------- |  | ---- | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                                     |  | Three Months Ended |       | Nine Months Ended
|                                                     |  | September 30       |       | September 30     
|                                                     |  | 2003               |       | 2002              |  | 2003 |       | 2002
|                                                     |  |                    |       |                   |  |      |       |     
|Basic and diluted net income (loss) per
common share |  |                    |       |                   |  |      |       |      |  |   |       |   |  |   |       |  
|Loss from continuing operations                      |  | $                  | (0.03 | )                 |  | $    | (0.06 | )    |  | $ | (0.15 | ) |  | $ | (0.12 | )
|Income (loss) from discontinued operations           |  |                    | (0.05 | )                 |  |      | 0.09  |      |  |   | (0.09 | ) |  |   | 0.24  |  
|                                                     |  |                    |       |                   |  |      |       |      |  |   |       |   |  |   |       |  
|Basic and diluted net income (loss) per
common share |  | $                  | (0.08 | )                 |  | $    | 0.03  |      |  | $ | (0.24 | ) |  | $ | 0.12  |  
|                                                     |  |                    |       |                   |  |      |       |      |  |   |       |   |  |   |       |  

Note 5. Senior Credit Facility

Effective December 31, 2002, the Company entered into a Second Amended and
Restated Credit Agreement (Senior Credit Facility), which amended the First
Amended and Restated 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.

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 monetary value of 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.

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. As of September 30, 2003, the Company was
in compliance with all covenants. The Company has received consent from its
senior lenders to execute the Asset Purchase Agreement and the contemplated
Asset Sale transaction and has agreed to release all liens and encumbrances
held by or in favor of the senior lenders in the Companys assets. The consent
requires the Company to repay the Senior Credit Facility at the closing of the
Asset Sale. Upon the closing of the Asset Sale, Nextera will use
approximately $27.4 million of the sale proceeds to repay the Senior Credit
Facility in full.

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NEXTERA ENTERPRISES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Note 6. Special Charges

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

|                            |  |              |       |         |  |          |     |               |  |            |     |  |  |   |       |  |  |   |     | 
|--------------------------- |  | ------------ | ----- | ------- |  | -------- | --- | ------------- |  | ---------- | --- |  |  | - | ----- |  |  | - | --- | 
|                            |  | Balance at   |       |         |  |          |     | Utilized      |  | Balance at
|                            |  | December 31, |       | Q1 2003 |  |          |     | September 30,
|                            |  | 2002         |       | charge  |  | Non-Cash |     | Cash          |  | 2003      
|                            |  |              |       |         |  |          |     |               |  |           
|Severance                   |  | $            |      |         |  | $        | 785 |               |  | $          |    |  |  | $ | 522   |  |  | $ | 263 | 
|Facilities                  |  |              | 1,380 |         |  |          |    |               |  |            | 324 |  |  |   | 862   |  |  |   | 194 | 
|Operating lease
obligations |  |              | 84    |         |  |          |    |               |  |            |    |  |  |   | 33    |  |  |   | 51  | 
|                            |  |              |       |         |  |          |     |               |  |            |     |  |  |   |       |  |  |   |     | 
|                            |  | $            | 1,464 |         |  | $        | 785 |               |  | $          | 324 |  |  | $ | 1,417 |  |  | $ | 508 | 
|                            |  |              |       |         |  |          |     |               |  |            |     |  |  |   |       |  |  |   |     | 

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.

The remaining $0.5 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 represent certain amounts, substantially foreign currency
translation adjustments, that are reported as components of stockholders
equity in the accompanying balance sheet. During the third quarter of 2003
comprehensive loss totaled $2.6 million and during the third quarter of 2002
comprehensive income was $1.5 million. During the nine months ended September
30, 2003 comprehensive loss totaled $8.0 million and during the nine months
ended September 30, 2002 comprehensive income was $6.5 million.

Note 8. Income Taxes

No federal tax benefit was recorded for the three months and nine months ended
September 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 nine-month
periods ended September 30, 2002 due to the existence of net operating losses
available to be carried forward to offset taxable income.

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NEXTERA ENTERPRISES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

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 3, 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 $20.0
million on or before January 15, 2004. Additional funding will be necessary in
order to make all of the payments required to extend these agreements to
December 31, 2008. Furthermore, the Company is obligated to make payments to
Joseph P. Kalt aggregating $2.9 million at the earlier of January 5, 2004 or a
sale event, as defined, in consideration for Mr. Kalts non-compete agreement.
Under the asset purchase agreement, at the Asset Sale closing, Nextera is
required to make payments to Messrs. Fischel and Carlton of $10 million each
and to Mr. Kalt of approximately $2.9 million to extend the non-compete
agreements to December 31, 2008. These payments will be made from the proceeds
of the Asset Sale. If the Asset Sale is not consummated and 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, Carlton, and Kalt. 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

On September 25, 2003, Nextera and its direct and indirect subsidiaries Lexecon
Inc., CE Acquisition Corp. and ERG Acquisition Corp. entered into a definitive
asset purchase agreement with FTI Consulting, Inc. (FTI) and LI Acquisition
Company, LLC, a wholly owned subsidiary of FTI, under which LI Acquisition
Company, LLC will purchase substantially all of the assets Lexecon and its
subsidiaries use in their economic consulting business (Asset Sale).

The terms of the asset purchase agreement provide that LI Acquisition Company,
LLC will pay cash in the amount of $130.0 million, plus additional
consideration, including the assumption of certain operating liabilities, in
exchange for the Lexecon assets. The Boards of Directors of all companies have
approved the transaction and Nextera has called a special meeting of
stockholders on November 14, 2003 to approve the Asset Sale. In connection with
the asset purchase agreement, FTI and LI Acquisition Company, LLC have entered
into a voting agreement with stockholders of Nextera that control approximately
71.5% of the voting power of the Company, which obligates these stockholders to
vote to approve the transaction at the special meeting. 71.5% of the total
voting power of the Company is more than the majority required to approve the
Asset Sale. The Asset Sale is expected to close during the fourth quarter of
2003.

Upon the consummation of the Asset Sale, Nextera will have exited its last
remaining operating subsidiary and will have exited the consulting business as
a whole. The Asset Sale is reflected in the accompanying financial statements
in accordance with Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets. Accordingly,
the results of operations for the three-month and nine-month periods ended
September 30, 2003 have been reflected as discontinued operations.
Additionally, the three-month and nine-month periods ended September 30, 2002
have been restated to reflect the results of operations of the consulting
business as discontinued operations.

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##### Table of Contents



Nextera plans to use the proceeds from the Asset Sale to repay existing debt
obligations, make required non-compete payments to certain Lexecon key
employees, satisfy other unassumed liabilities and pay expenses related to the
sale. After the closing of the Asset Sale, the Company intends to review
opportunities with the goal of maximizing our resources and increasing
stockholder value. After the closing of the Asset Sale, we expect to have
approximately $15.0 to $17.0 million of unreserved cash and a net operating
loss carryfoward of approximately $30.0 million, the utilization of which is
subject to the generation of future taxable income and subject to limitations
under the Internal Revenue Code relating to changes in the ownership of our
stock. At this time, the Company believes that an increase in stockholder
value will be best obtained through the acquisition of one or more on-going
businesses or operations. To that end, the Company has retained an investment
banking firm to assist it in the identification and selection of appropriate
acquisition and merger candidates.

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

Selling, General and Administrative Expenses.Selling, general and
administrative expenses decreased 22.4% to $0.9 million for the three months
ended September 30, 2003 from $1.2 million for the three months ended September
30, 2002. The decrease in selling, general and administrative expenses from
the third quarter of 2002 was primarily attributed to the following components:
a decrease of $0.2 million in compensation, attributed to the departure of the
Companys former chief executive officer in February 2003, and a decrease of
$0.1 million in promotion and travel expenses. The decrease in selling,
general and administrative expenses was partially offset by higher insurance
costs.

Interest Expense, Net.Interest expense, net increased to $2.1 million
for the three months ended September 30, 2003 from $1.9 million for the three
months ended September 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 September 30, 2003 was
$50.9 million compared to $36.0 million for the quarter ended September 30,
2002, due primarily to the exchange of preferred stock to debentures in July of
2002.

Other Expense.During the quarter ended September 30, 2002, the Company
recorded an expense of $0.6 million to write down an investment in a company
affiliated with Knowledge Universe to fair value. This investment was reviewed
and written down to fair value when it was judged to be permanently impaired.

Income taxes. No federal tax benefit was recorded for the three months
ended September 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
September 30, 2002 due to the existence of net operating losses available to be
carried forward to offset taxable income.

COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2003 AND NINE MONTHS ENDED
SEPTEMBER 30, 2002

Selling, General and Administrative Expenses.Selling, general and
administrative expenses increased $0.1 million, or 3.6% to $3.0 million for the
nine months ended September 30, 2003 from $2.9 million for the nine months
ended September 30, 2002. The increase in selling, general and administrative
expenses from the first nine months of 2002 is primarily attributed to higher
insurance expense, $0.3 million, and fringe benefit costs, $0.2 million,
however, these costs were partially offset by lower compensation costs, $0.2
million, and lower depreciation expense and rent and utility cost, $0.2
million.

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

|                            |  |              |       |         |  |          |     |               |  |            |     |  |  |   |       |  |  |   |     | 
|--------------------------- |  | ------------ | ----- | ------- |  | -------- | --- | ------------- |  | ---------- | --- |  |  | - | ----- |  |  | - | --- | 
|                            |  | Balance at   |       |         |  |          |     | Utilized      |  | Balance at
|                            |  | December 31, |       | Q1 2003 |  |          |     | September 30,
|                            |  | 2002         |       | charge  |  | Non-Cash |     | Cash          |  | 2003      
|                            |  |              |       |         |  |          |     |               |  |           
|Severance                   |  | $            |      |         |  | $        | 785 |               |  | $          |    |  |  | $ | 522   |  |  | $ | 263 | 
|Facilities                  |  |              | 1,380 |         |  |          |    |               |  |            | 324 |  |  |   | 862   |  |  |   | 194 | 
|Operating lease
obligations |  |              | 84    |         |  |          |    |               |  |            |    |  |  |   | 33    |  |  |   | 51  | 
|                            |  |              |       |         |  |          |     |               |  |            |     |  |  |   |       |  |  |   |     | 
|                            |  | $            | 1,464 |         |  | $        | 785 |               |  | $          | 324 |  |  | $ | 1,417 |  |  | $ | 508 | 
|                            |  |              |       |         |  |          |     |               |  |            |     |  |  |   |       |  |  |   |     | 

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.

The remaining $0.5 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 nine months ended September 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.

Interest Expense, Net.Interest expense, net increased to $6.2 million
for the nine months ended September 30, 2003 from $4.9 million for the nine
months ended September 30, 2002. The increase is primarily a result of a
higher principal amount of debentures outstanding in the first nine months of
2003. The average balance of debentures outstanding for the nine months ended
September 30, 2003 was $49.6 million compared to $28.6 million for the nine
months ended September 30, 2002, due primarily to the exchange of preferred
stock to debentures in July of 2002.

Other Expense.During the nine-month period ended September 30, 2002, the
Company recorded an expense of $0.6 million to write down an investment in a
company affiliated with Knowledge Universe to fair value. This investment was
reviewed and written down to fair value when it was judged to be permanently
impaired.

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

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LIQUIDITY AND CAPITAL RESOURCES

Consolidated working capital was $83.5 million on September 30, 2003, compared
to a working capital, on a comparable basis, of $83.9 million on December 31,
2002. Included in working capital were cash and cash equivalents of $0.9
million and $1.6 million on September 30, 2003 and December 31, 2002,
respectively.

Net cash used in operating activities was $5.9 million for the nine months
ended September 30, 2003. The primary components of net cash used in operating
activities was an increase of $10.1 million of prepaid and other assets
(substantially relating to Messrs. Fischel and Carltons non-compete
agreements), an increase of $2.1 million of accounts receivable, a decrease of
accrued restructuring cost of $0.6 million, and a net loss of $8.0 million.
These cash outflows were offset in part by $13.3 million of non-cash items
relating to depreciation and fixed assets write-offs ($1.0 million), provision
for doubtful accounts ($1.1 million), amortization of non-compete agreements
($6.3 million), non-cash compensation charges ($1.1 million), and interest
paid-in-kind ($3.8 million). Also offsetting the cash used in operations was
an increase in accounts payable and accrued expenses and other liabilities of
$1.6 million.

Net cash provided by investing activities was $1.9 million for the nine months
ended September 30, 2003, primarily consisting of a $2.4 million decrease in
restricted cash, partially offset by $0.5 million of property and equipment
purchases.

Net cash provided by financing activities was $3.3 million for the nine months
ended September 30, 2003. The primary component of net cash provided by
financing activities was $7.5 million of borrowings under the Companys Senior
Credit Facility less repayments of $3.8 million and payment of capital lease
obligations of $0.4 million.

The Companys primary sources of liquidity are cash on hand, restricted cash
(for bonus payment and non-compete payments only), cash flows from operations
and the expected proceeds from the Asset Sale. The Company plans to use the
proceeds from the Asset Sale to repay existing debt obligations, make required
non-compete payments to certain Lexecon key employees, satisfy other unassumed
liabilities and pay expenses related to the sale. After payment of those
obligations, liabilities and expenses, the Company expects to have
approximately $15.0-$17.0 million of cash remaining from the transaction.

If the Asset Sale is not consummated, 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, other than
extending the non-compete options for Messrs. Fischel and Carlton from January
16, 2004 through December 31, 2008. 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 First
Amended and Restated 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 the
monetary value of 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.

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. As of September 30, 2003, the Company was
in compliance with all covenants. The Company has received consent from its
senior lenders to execute the Asset Purchase Agreement and the contemplated
Asset Sale transaction and has agreed to release all liens and encumbrances
held by or in favor of the senior lenders in the Companys assets. The consent
requires the Company to repay the Senior Credit Facility at the closing of the
Asset Sale.

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 $3.7 million,
including interest, and is required to make an additional aggregate payment of
approximately $1.4 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 covenant not to
complete payments to Messrs. Fischel and Carlton aggregating $20.0 million by
January 15, 2004. Furthermore, the Company is obligated to make payments to
Joseph P. Kalt aggregating $2.9 million at the earlier of January 5, 2004 or a
sale event, as defined, in consideration for Mr. Kalts non-compete agreement.
Under the asset purchase agreement, at the Asset Sale closing, the Company is
required to make payments to Messrs. Fischel and Carlton of $10 million each
and to Mr. Kalt of approximately $2.9 million to extend the covenant not to
compete agreements to December 31, 2008. These payments will be made from the
proceeds of the Asset Sale. If the Asset Sale is not consummated and 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, Carlton, and Kalt. In such event, the
Companys operations and financial condition would be materially and adversely
affected.

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 The Asset Sale

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 may not be able to obtain necessary third party consents to the transfer of
certain assets required for closing of the Asset Sale.

In addition to the other conditions that must be satisfied prior to closing the
Asset Sale, we are obligated to
obtain certain third party consents from our real property lessors and some of
our clients and customers, to the transfer of certain contracts or assets as
part of the Asset Sale. If we are unable to obtain these consents, the Asset
Sale may not be consummated under its original terms. The receipt of these
consents depends upon parties other than us over which we have no control.

The asset purchase agreement will expose us to contingent liabilities.

Under the asset purchase agreement, we have agreed to indemnify FTI and LI
Acquisition Company LLC for a number of matters including the breach of our
representations, warranties and covenants contained in the asset purchase
agreement. For further discussion, you should read The Asset Sale Proposal 
Survival of Representations and Warranties and Indemnification in our proxy
filed October 24, 2003. For example, an indemnification claim by FTI Consulting
or the Buyer might result if our representations made in the asset purchase
agreement are later proved to be incorrect in any material respect.
Approximately $103.0 million of the net proceeds of the Asset Sale will be used
to repay our outstanding indebtedness and make required non-complete and bonus
payments. Indemnification claims by FTI Consulting or the Buyer that exceed
the net proceeds we receive in the Asset Sale after payment of our outstanding
indebtedness could have a material adverse effect on our future prospects and
ability to acquire an new operating business.

Our ability to utilize our net operating loss carryforward may be limited or
eliminated in its entirety.

We have a substantial net operating loss carryforward that we will utilize to
offset our federal tax liability, other than alternative minimum tax, generated
from the Asset Sale. If our net operating loss carryforward is found to be
subject to annual limitations, our federal tax liability, and available cash
proceeds after the Asset Sale, may be materially different and our financial
position could be adversely affected. Following the closing of the Asset
Sale, we anticipate that we will have a substantial net operating loss
carryforward of approximately $30.0 million that we anticipate 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 our
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 (1) the issuance of certain
convertible preferred stock, options, warrants, or other securities exercisable
for common stock, (2) changes in our equity ownership occurring in the last
three years and (3) potential future changes in our equity ownership. The
amount of an annual limitation can vary significantly based on 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.

The public announcement of the proposed Asset Sale might adversely affect our
operating results and ability to retain key management, technical and
consulting personnel.

On September 25, 2003, we issued a press release announcing the Asset Sale.
The Asset Sale may cause our customers to terminate or modify their
relationship with us until after the outcome of the stockholder vote has been
determined, and may also adversely impact our ability to retain key management,
technical and consulting personnel who are primarily involved in providing the
services offered in our business. Even if the Asset Sale is not consummated,
these negative effects could continue indefinitely.

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We intend to use the net proceeds of the Asset Sale to acquire a new operating
business. If we unable to acquire a new business or to operate any new
business successfully, we may be forced to liquidate.

We intend to repay our indebtedness, make non-compete and bonus payments and
pay various transaction related costs along with other unassumed liabilities
from the proceeds of the Asset Sale. We intend to use any net proceeds that
remain after making the payments described above to acquire a new operating
business. We do not intend to distribute to our stockholders any portion of
the net proceeds from the Asset Sale. No assurance can be given that we will
be successful in acquiring or operating a new business. If we cannot
successfully acquire such a business we may be forced to liquidate. If we are
forced to liquidate, no assurance can be given that funds will be available to
distribute to our stockholders at that time, whether from the proceeds of the
Asset Sale or elsewhere.

We face 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, maintaining
a minimum bid price of $1.00 per share and maintaining an operating business.
Additionally, following completion of the Asset Sale, we will cease to own an
operating business. If we are unable to successfully acquire a new operating
business, our Class A common stock will be delisted from the Nasdaq SmallCap
Market. Furthermore, even if we are able to acquire an operating business
following the Asset Sale, we will have to continue to meet the other
requirements for continued listing on the Nasdaq SmallCap Market.

We received a letter from the Nasdaq Stock Market stating that while the
Companys Class A common stock has received a conditional listing on the Nasdaq
SmallCap Market, its common stock will be delisted upon the earlier of November
30, 2003 or the closing of the proposed Asset Sale. The reason given in the
letter for the delisting is that the Asset Sale will result in Nextera lacking
tangible business operations under Nasdaqs Marketplace Rules 4300 and 4330(a).

Nexteras conditional listing for its common stock is also subject to the
Company providing Nasdaq with at least three days prior notice of the closing
of the Asset Sale and prompt notice of any significant events that occur prior
during the conditional listing period.

Nasdaq also informed Nextera in the letter that at any time preceding the
delisting of its common stock, the Company may submit to the Nasdaq Listing
Qualifications Panel a definitive plan outlining how the Company will prevent
delisting. Any plan submitted by the Company will be considered by the Nasdaq
Listing Qualifications Panel to determine whether it is sufficient to provide
assurances that the Company will be able to sustain compliance with all
applicable listing standards of the Nasdaq SmallCap Market. No assurance can
be given, however, that the Company will be able to avoid delisting of its
common stock. If delisted, Nextera could seek to have its common stock traded
on the National Association of Securities Dealers OTC Bulletin Board.

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

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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.

Upon the closing of the Asset Sale, we will no longer have any consultants. If
the Asset Sale is not consummated, our future 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 will
expire during early 2004. 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 several 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 $3.7
million, including interest, and is required to make an additional aggregate
payment of approximately $1.4 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 payments to Messrs. Fischel and Carlton
aggregating $20.0 million by January 15, 2004. Additional financing will be
necessary in order to make all of the payments required to extend these
agreements to December 31, 2008. Furthermore, the Company is obligated to make
covenant not to complete payments to Joseph P. Kalt, an employee, aggregating
$2.9 million at the earlier of January 5, 2004 or a Sale Event, as defined, in
consideration for Mr. Kalts non-compete agreement. Under the terms of the
asset purchase agreement , at the Asset Sale closing, the Company is required
to make payments to Messrs. Fischel and Carlton of $10 million each and to Mr.
Kalt of approximately $2.9 million to extend the covenants not to-compete
agreements to December 31, 2008. These payments will be made from the
proceeds of the Asset Sale. If the Asset Sale is not consummated and 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, Carlton, and Kalt. In such event, the
Companys operations and financial condition would be materially and adversely
affected.

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

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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.

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 September 30, 2003, we had $30.9 million of outstanding indebtedness under
our Senior Credit Facility. In addition, as of September 30, 2003, we had
$51.6 million of outstanding indebtedness under debentures payable to
affiliates. We anticipate repaying our debt obligations from the proceeds
received from the Asset Sale. If the Asset Sale is not consummated, 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 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%. We
anticipate repaying the outstanding obligations under the Senior Credit
Facility from the proceeds of the Asset Sale. If the Asset Sale is not
consummated and 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 may not successfully compete with our competitors, including the retention
of our professional consultants, which could result in reduced revenues and
operating profits.

Upon the closing of the Asset Sale, we will no longer compete with other
companies in the economic consulting business. If the Asset Sale is not
consummated, we will continue to compete with other companies in the economic
consulting business. 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 41,828 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 September 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.

Upon the closing of the Asset Sale, we will have no business operations and
will not be profitable. There is no assurance that if the Company acquires a
new business that it will be profitable in the future.

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.

Upon the closing of the Asset Sale, we will have no continuing operating
business and no clients. If the Asset Sale is not consummated, we will
continue to serve our current client base. 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

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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.

Upon the closing of the Asset Sale, we will have no continuing operating
business, revenues or clients. If the Asset Sale is not consummated, we will
continue to serve our current client base. 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
38% of our net revenues for the three months ended September 30, 2003. No
client represented greater than 10% of net revenues for the three months ended
September 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.

Upon the closing of the Asset Sale, we will have no continuing operating
business, revenues or clients. If the Asset Sale is not consummated, we will
continue to serve our current client base. 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.

Upon the closing of the Asset Sale, we will have no continuing operating
business, revenues or clients If the Asset Sale is not consummated, we will
continue to serve our current client base. 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.

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.

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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.

Upon the closing of the Asset Sale, we will have no continuing operating
business, revenues or clients. If the Asset Sale is not consummated, we will
continue to serve our current client base. 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.

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

Upon the closing of the Asset Sale, we will have no continuing operating
business, revenues or clients. If the Asset Sale is not consummated, we will
continue to serve our current client base. 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.

Upon the closing of the Asset Sale, we will have no recorded goodwill related
to Lexecon. If the Asset Sale is not consummated, we will continue to own
Lexecon and have goodwill recorded on our balance sheet. As of September 30,
2003, our goodwill was approximately $77.5 million. Goodwill 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.

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.                        

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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
September 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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PART II  OTHER INFORMATION




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 July 31, 2003 regarding
a press release issued with financial information for the three and
six months ended June 30, 2003.                                                                                                                       
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | A Current Report on Form 8-K filed on September 26, 2003
regarding Nextera Enterprises, Inc. and related subsidiaries
entering into an Asset Purchase Agreement with FTI Consulting Inc.,
a Maryland Corporation, and LI Acquisition Company, LLC, a Maryland
limited liability company.




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: November 13, 2003 |  | By: /s/ Daniel R. Fischel                          
|                        |  |                                                    
|                        |  | Daniel R. Fischel                                  
|                        |  | Chairman of the Board,                             
|                        |  | President and Chief Executive Officer              
|                        |  | (Principal Executive Officer)                      
|                        |  |                                                    
|Date: November 13, 2003 |  | By: /s/ Michael P. Muldowney                       
|                        |  |                                                    
|                        |  | Michael P. Muldowney                               
|                        |  | Chief Operating Officer and Chief Financial Officer
|                        |  | (Principal Financial Officer)                      
|                        |  |                                                    
|Date: November 13, 2003 |  | By: /s/ Michael J. Dolan                           
|                        |  |                                                    
|                        |  | Michael J. Dolan                                   
|                        |  | Chief Accounting Officer and Corporate Controller  
|                        |  | (Principal Accounting Officer)                     

29