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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, 2001
 
OR

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

For the transition period from ______ to _______
 
Commission File Number 0-25995
 
NEXTERA ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)

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

343 Congress Street, Suite 2100, Boston, Massachusetts 02210-1215
(Address of principal executive office, including zip code)
 
(617) 603-3100
(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 [   ]

As of October 31, 2001 there were 31,647,640 shares of $.001 par value
Class A Common Stock outstanding and 3,869,570 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                                                                 
|                                 |                                                                                               | Consolidated Balance Sheets                         
|                                 |                                                                                               | Consolidated Statements of Operations               
|                                 |                                                                                               | Consolidated Statements of Cash Flows               
|                                 |                                                                                               | NOTES TO UNAUDITED 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 Risks                          
|PART II. Other Information      
|                                 | Item 6 Exhibits and Reports on Form 8-K                                                      
|SIGNATURES                      
|EXHIBIT 10.1                    



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NEXTERA ENTERPRISES, INC.
Quarterly Report on Form 10-Q
for the Quarter Ended September 30, 2001
 
INDEX

PART I. FINANCIAL INFORMATION

|                          |                                                                                              |  |    |  | 
|------------------------- | -------------------------------------------------------------------------------------------- |  | -- |  | 
|                          | Page No.                                                                                    
|                          |                                                                                             
|Item 1.                   | Financial Statements                                                                         | 
|                         
|                          | Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000                   |  | 3  | 
|                         
|                          | Consolidated Statements of Operations for the Three Months Ended September 30, 2001 and 2000 |  | 4  | 
|                         
|                          | Consolidated Statements of Operations for the Nine Months Ended September 30, 2001 and 2000  |  | 5  | 
|                         
|                          | Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2001 and 2000  |  | 6  | 
|                         
|                          | Notes to Consolidated Financial Statements                                                   |  | 7  | 
|                         
|Item 2.                   | Managements Discussion and Analysis of Financial Condition and Results of Operations        |  | 12 | 
|                         
|Item 3.                   | Quantitative and Qualitative Disclosures About Market Risk                                   |  | 19 | 
|                         
|PART I. OTHER INFORMATION |                                                                                             
|                         
|Item 5.                   | Other Information                                                                            |  | 19 | 
|                         
|Item 6.                   | Exhibits and Reports on Form 8-K                                                             |  | 19 | 
|                         
|                          | Signatures                                                                                   |  | 20 | 



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PART I  FINANCIAL INFORMATION




Item 1. Financial Statements




Nextera Enterprises, Inc.
 
Consolidated Balance Sheets
(In thousands, except share data)

|                                                                                                                    |                                                                                                                                                                        |   |               |          |              |   |         |         |  
|------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------- | -------- | ------------ | - | ------- | ------- | -
|                                                                                                                    |                                                                                                                                                                        |   | September 30, |          | December 31,
|                                                                                                                    |                                                                                                                                                                        |   | 2001          |          | 2000        
|                                                                                                                    |                                                                                                                                                                        |   |               |          |             
|                                                                                                                    |                                                                                                                                                                        |   | (Unaudited)   |          |              |   |        
|Assets                                                                                                              |                                                                                                                                                                        |   |               |          |              |   |         |        
|Current assets:                                                                                                     |                                                                                                                                                                        |   |               |          |              |   |         |        
|                                                                                                                    | Cash and cash equivalents                                                                                                                                              |   | $             | 1,575    |              |   | $       | 4,322   |  
|                                                                                                                    | Accounts receivable, net of allowance for doubtful accounts of
$3,490 at September 30, 2001 and $2,551 at December 31,
2000.                                           |   |               | 30,452   |              |   |         | 36,890  |  
|                                                                                                                    | Costs and estimated earnings in excess of billings                                                                                                                     |   |               | 994      |              |   |         | 422     |  
|                                                                                                                    | Due from affiliates                                                                                                                                                    |   |               | 498      |              |   |         | 610     |  
|                                                                                                                    | Due from officers                                                                                                                                                      |   |               |         |              |   |         | 30      |  
|                                                                                                                    | Prepaid expenses and other current assets                                                                                                                              |   |               | 2,363    |              |   |         | 7,153   |  
|                                                                                                                    |                                                                                                                                                                        |   |               |          |              |   |         |        
|Total current assets                                                                                                |                                                                                                                                                                        |   | 35,882        |          |              |   | 49,427  |        
|Property and equipment, net                                                                                         |                                                                                                                                                                        |   | 8,227         |          |              |   | 14,542  |        
|Intangible assets, net of accumulated amortization of $12,574 at
September 30, 2001 and $9,417 at December 31, 2000 |                                                                                                                                                                        |   | 90,438        |          |              |   | 159,459 |        
|Other assets                                                                                                        |                                                                                                                                                                        |   | 4,472         |          |              |   | 10,674  |        
|                                                                                                                    |                                                                                                                                                                        |   |               |          |              |   |         |        
|Total assets                                                                                                        |                                                                                                                                                                        | $ | 139,019       |          |              | $ | 234,102 |        
|                                                                                                                    |                                                                                                                                                                        |   |               |          |              |   |         |        
|Liabilities and Stockholders Equity                                                                                |                                                                                                                                                                        |   |               |          |              |   |         |        
|Current liabilities:                                                                                                |                                                                                                                                                                        |   |               |          |              |   |         |        
|                                                                                                                    | Accounts payable and accrued expenses                                                                                                                                  |   |               | 23,556   |              |   |         | 18,140  |  
|                                                                                                                    | Accrued restructuring costs, current portion                                                                                                                           |   |               | 2,682    |              |   |         | 4,093   |  
|                                                                                                                    | Notes payable to bank                                                                                                                                                  |   |               |         |              |   |         | 187     |  
|                                                                                                                    | Deferred revenue                                                                                                                                                       |   |               | 1,380    |              |   |         | 1,758   |  
|                                                                                                                    | Senior credit facility                                                                                                                                                 |   |               | 42,472   |              |   |         | 8,050   |  
|                                                                                                                    | Debentures due to affiliates                                                                                                                                           |   |               | 22,523   |              |   |         | 2,503   |  
|                                                                                                                    | Current portion of long-term debt and capital lease obligations                                                                                                        |   |               | 2,648    |              |   |         | 3,222   |  
|                                                                                                                    |                                                                                                                                                                        |   |               |          |              |   |         |        
|Total current liabilities                                                                                           |                                                                                                                                                                        |   | 95,261        |          |              |   | 37,953  |        
|Long-term debt and capital lease obligations                                                                        |                                                                                                                                                                        |   | 1,147         |          |              |   | 3,516   |        
|Senior credit facility                                                                                              |                                                                                                                                                                        |   |              |          |              |   | 37,972  |        
|Debentures due to affiliates                                                                                        |                                                                                                                                                                        |   |              |          |              |   | 10,980  |        
|Accrued restructuring costs, net of current portion                                                                 |                                                                                                                                                                        |   | 4,644         |          |              |   | 377     |        
|Other long-term liabilities                                                                                         |                                                                                                                                                                        |   | 1,418         |          |              |   | 1,327   |        
|Stockholders equity:                                                                                               |                                                                                                                                                                        |   |               |          |              |   |         |        
|                                                                                                                    | Preferred Stock, $0.001 par value, 10,000,000 shares
authorized, 600,000 designated Series A Preferred Stock,
210,000 Series A Preferred shares issued and outstanding |   |               | 22,546   |              |   |         | 21,098  |  
|                                                                                                                    | Class A Common Stock, $0.001 par value, 95,000,000 shares
authorized, 31,647,640 and 31,371,419 shares issued at
September 30, 2001 and December 31, 2000              |   |               | 32       |              |   |         | 31      |  
|                                                                                                                    | Class B Common Stock, $0.001 par value, 4,300,000 shares
authorized, 3,869,570 and 3,873,930 shares issued and
outstanding at September 30, 2001 and December 31, 2000 |   |               | 4        |              |   |         | 4       |  
|                                                                                                                    | Additional paid-in capital                                                                                                                                             |   |               | 162,899  |              |   |         | 163,263 |  
|                                                                                                                    | Treasury Stock, at cost, 228,303 shares and 301,400 shares of
Class A Common Stock at September 30, 2001 and December 31,
2000.                                        |   |               | (294     | )            |   |         | (947    | )
|                                                                                                                    | Retained earnings (deficit)                                                                                                                                            |   |               | (147,589 | )            |   |         | (41,077 | )
|                                                                                                                    | Accumulated other comprehensive income (loss)                                                                                                                          |   |               | (1,049   | )            |   |         | (395    | )
|                                                                                                                    |                                                                                                                                                                        |   |               |          |              |   |         |        
|Total stockholders equity                                                                                          |                                                                                                                                                                        |   | 36,549        |          |              |   | 141,977 |        
|                                                                                                                    |                                                                                                                                                                        |   |               |          |              |   |         |        
|Total liabilities and stockholders equity                                                                          |                                                                                                                                                                        | $ | 139,019       |          |              | $ | 234,102 |        
|                                                                                                                    |                                                                                                                                                                        |   |               |          |              |   |         |        



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

|                                                    |                                   |   |                    |         |                    |   |        |         |  
|--------------------------------------------------- | --------------------------------- | - | ------------------ | ------- | ------------------ | - | ------ | ------- | -
|                                                    |                                   |   | Three Months Ended |         | Three Months Ended
|                                                    |                                   |   | September 30, 2001 |         | September 30, 2000
|                                                    |                                   |   |                    |         |                   
|Net revenues                                        |                                   | $ | 29,968             |         |                    | $ | 35,805 |        
|Cost of revenues                                    |                                   |   | 18,415             |         |                    |   | 25,492 |        
|                                                    |                                   |   |                    |         |                    |   |        |        
|                                                    | Gross profit                      |   |                    | 11,553  |                    |   |        | 10,313  |  
|Selling, general and administrative expenses        |                                   |   | 9,339              |         |                    |   | 17,268 |        
|Amortization expense                                |                                   |   | 1,042              |         |                    |   | 1,362  |        
|Goodwill Impairment                                 |                                   |   | 38,323             |         |                    |   |       |        
|Special Charges                                     |                                   |   | 8,804              |         |                    |   |       |        
|                                                    |                                   |   |                    |         |                    |   |        |        
|                                                    | Income (loss) from operations     |   |                    | (45,955 | )                  |   |        | (8,317  | )
|Interest, net                                       |                                   |   | (2,449             | )       |                    |   | (2,132 | )      
|Other expense                                       |                                   |   | (5,966             | )       |                    |   |       |        
|                                                    |                                   |   |                    |         |                    |   |        |        
|                                                    | Income (loss) before income taxes |   |                    | (54,370 | )                  |   |        | (10,449 | )
|Provision (benefit) for income taxes                |                                   |   | 99                 |         |                    |   | (4,208 | )      
|                                                    |                                   |   |                    |         |                    |   |        |        
|                                                    | Net income (loss)                 |   |                    | (54,469 | )                  |   |        | (6,241  | )
|Preferred Stock dividends                           |                                   |   | (391               | )       |                    |   |       |        
|                                                    |                                   |   |                    |         |                    |   |        |        
|Net income (loss) applicable to common stockholders |                                   | $ | (54,860            | )       |                    | $ | (6,241 | )      
|                                                    |                                   |   |                    |         |                    |   |        |        
|Net income (loss) per common share, basic           |                                   | $ | (1.56              | )       |                    | $ | (0.18  | )      
|                                                    |                                   |   |                    |         |                    |   |        |        
|Net income (loss) per common share, diluted         |                                   | $ | (1.56              | )       |                    | $ | (0.18  | )      
|                                                    |                                   |   |                    |         |                    |   |        |        
|Weighted average common shares outstanding, basic   |                                   |   | 35,269             |         |                    |   | 35,114 |        
|                                                    |                                   |   |                    |         |                    |   |        |        
|Weighted average common shares outstanding, diluted |                                   |   | 35,269             |         |                    |   | 35,114 |        
|                                                    |                                   |   |                    |         |                    |   |        |        

See Notes to Consolidated Financial Statements



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

|                                                    |                                   |   |                    |          |                    |   |         |        |  
|--------------------------------------------------- | --------------------------------- | - | ------------------ | -------- | ------------------ | - | ------- | ------ | -
|                                                    |                                   |   | Nine Months Ended  |          | Nine Months Ended 
|                                                    |                                   |   | September 30, 2001 |          | September 30, 2000
|                                                    |                                   |   |                    |          |                   
|Net revenues                                        |                                   | $ | 97,230             |          |                    | $ | 126,807 |       
|Cost of revenues                                    |                                   |   | 62,175             |          |                    |   | 76,700  |       
|                                                    |                                   |   |                    |          |                    |   |         |       
|                                                    | Gross profit                      |   |                    | 35,055   |                    |   |         | 50,107 |  
|Selling, general and administrative expenses        |                                   |   | 35,233             |          |                    |   | 44,896  |       
|Amortization expense                                |                                   |   | 3,761              |          |                    |   | 4,079   |       
|Goodwill Impairment                                 |                                   |   | 64,973             |          |                    |   |        |       
|Special Charges                                     |                                   |   | 22,258             |          |                    |   | 1,870   |       
|                                                    |                                   |   |                    |          |                    |   |         |       
|                                                    | Income (loss) from operations     |   |                    | (91,170  | )                  |   |         | (738   | )
|Interest, net                                       |                                   |   | (6,762             | )        |                    |   | (5,660  | )     
|Other expense                                       |                                   |   | (7,162             | )        |                    |   |        |       
|                                                    |                                   |   |                    |          |                    |   |         |       
|                                                    | Income (loss) before income taxes |   |                    | (105,094 | )                  |   |         | (6,398 | )
|Provision (benefit) for income taxes                |                                   |   | 541                |          |                    |   | (2,497  | )     
|                                                    |                                   |   |                    |          |                    |   |         |       
|                                                    | Net income (loss)                 |   |                    | (105,635 | )                  |   |         | (3,901 | )
|Preferred Stock dividends                           |                                   |   | (1,448             | )        |                    |   |        |       
|                                                    |                                   |   |                    |          |                    |   |         |       
|Net income (loss) applicable to common stockholders |                                   | $ | (107,083           | )        |                    | $ | (3,901  | )     
|                                                    |                                   |   |                    |          |                    |   |         |       
|Net income (loss) per common share, basic           |                                   | $ | (3.07              | )        |                    | $ | (0.11   | )     
|                                                    |                                   |   |                    |          |                    |   |         |       
|Net income (loss) per common share, diluted         |                                   | $ | (3.07              | )        |                    | $ | (0.11   | )     
|                                                    |                                   |   |                    |          |                    |   |         |       
|Weighted average common shares outstanding, basic   |                                   |   | 34,920             |          |                    |   | 35,129  |       
|                                                    |                                   |   |                    |          |                    |   |         |       
|Weighted average common shares outstanding, diluted |                                   |   | 34,920             |          |                    |   | 35,129  |       
|                                                    |                                   |   |                    |          |                    |   |         |       

See Notes to Consolidated Financial Statements



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Nextera Enterprises, Inc.
 
Consolidated Statements of Cash Flows
(In thousands, except per share amounts; unaudited)

|                                                                                          |  |                                                                                   |          |                    |        |                    |         |   |        |  
|----------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------- | -------- | ------------------ | ------ | ------------------ | ------- | - | ------ | -
|                                                                                          |  |                                                                                   |          | Nine Months Ended  |        | Nine Months Ended 
|                                                                                          |  |                                                                                   |          | September 30, 2001 |        | September 30, 2000
|                                                                                          |  |                                                                                   |          |                    |        |                   
|Operating activities                                                                      |  |                                                                                   |          |                    |        |                    |         |  
|Net loss                                                                                  |  | $                                                                                 | (105,635 | )                  |        | $                  | (3,901  | )
|Adjustments to reconcile net loss to net cash provided by
(used in) operating activities: |  |                                                                                   |          |                    |        |                    |         |  
|                                                                                          |  | Depreciation and amortization                                                     |          |                    | 7,909  |                    |         |   | 7,283  |  
|                                                                                          |  | Goodwill Impairment                                                               |          |                    | 64,973 |                    |         |   |       |  
|                                                                                          |  | Provision for bad debts                                                           |          |                    | 2,520  |                    |         |   |       |  
|                                                                                          |  | Write-off of Investments                                                          |          |                    | 7,162  |                    |         |   |       |  
|                                                                                          |  | Write-off of fixed assets                                                         |          |                    | 5,901  |                    |         |   |       |  
|                                                                                          |  | Non-cash compensation charges                                                     |          |                    | 1,143  |                    |         |   |       |  
|                                                                                          |  | Non-cash, other                                                                   |          |                    | 1,540  |                    |         |   |       |  
|                                                                                          |  | Change in operating assets and liabilities, net of
effect of acquired businesses: |          |                    |        |                    |         |   |        |  
|                                                                                          |  | Accounts receivable                                                               |          |                    | 4,118  |                    |         |   | (9,587 | )
|                                                                                          |  | Due from affiliate                                                                |          |                    | (88    | )                  |         |   | 153    |  
|                                                                                          |  | Due to affiliate                                                                  |          |                    |       |                    |         |   | (3     | )
|                                                                                          |  | Prepaid expenses and other current assets                                         |          |                    | 4,283  |                    |         |   | (6,124 | )
|                                                                                          |  | Accounts payable and accrued expenses                                             |          |                    | 7,121  |                    |         |   | (6,212 | )
|                                                                                          |  | Costs and estimated earnings in excess of billings                                |          |                    | (572   | )                  |         |   | 4,069  |  
|                                                                                          |  | Deferred revenue                                                                  |          |                    | (378   | )                  |         |   | 111    |  
|                                                                                          |  | Other                                                                             |          |                    | 91     |                    |         |   | 450    |  
|                                                                                          |  |                                                                                   |          |                    |        |                    |         |  
|Net cash provided by (used in) operating activities                                       |  |                                                                                   | 88       |                    |        |                    | (13,761 | )
|Investing activities                                                                      |  |                                                                                   |          |                    |        |                    |         |  
|Purchase of property and equipment                                                        |  |                                                                                   | (2,852   | )                  |        |                    | (5,520  | )
|Acquisition of businesses, net of cash acquired                                           |  |                                                                                   |         |                    |        |                    | (8,205  | )
|Other investments                                                                         |  |                                                                                   |         |                    |        |                    | (415    | )
|                                                                                          |  |                                                                                   |          |                    |        |                    |         |  
|Net cash used in investing activities                                                     |  |                                                                                   | (2,852   | )                  |        |                    | (14,140 | )
|Financing activities                                                                      |  |                                                                                   |          |                    |        |                    |         |  
|Proceeds from issuance of Class A Common Stock                                            |  |                                                                                   | 100      |                    |        |                    | 636     |  
|Borrowings (repayments) under senior credit facility                                      |  |                                                                                   | (3,550   | )                  |        |                    | 23,102  |  
|Proceeds from debentures due to affiliates                                                |  |                                                                                   | 7,500    |                    |        |                    |        |  
|Repurchases of Class A Common Stock                                                       |  |                                                                                   | (323     | )                  |        |                    |        |  
|Repayments of long-term debt and capital lease obligations                                |  |                                                                                   | (2,943   | )                  |        |                    | (834    | )
|Other                                                                                     |  |                                                                                   | (249     | )                  |        |                    | (263    | )
|                                                                                          |  |                                                                                   |          |                    |        |                    |         |  
|Net cash provided by financing activities                                                 |  |                                                                                   | 535      |                    |        |                    | 22,641  |  
|Effects of exchange rates on cash and cash equivalents                                    |  |                                                                                   | (518     | )                  |        |                    | (390    | )
|                                                                                          |  |                                                                                   |          |                    |        |                    |         |  
|Net increase (decrease) in cash and cash equivalents                                      |  |                                                                                   | (2,747   | )                  |        |                    | (5,650  | )
|Cash and cash equivalents at beginning of period                                          |  |                                                                                   | 4,322    |                    |        |                    | 7,011   |  
|                                                                                          |  |                                                                                   |          |                    |        |                    |         |  
|Cash and cash equivalents at end of period                                                |  | $                                                                                 | 1,575    |                    |        | $                  | 1,361   |  
|                                                                                          |  |                                                                                   |          |                    |        |                    |         |  

See Notes to Consolidated Financial Statements



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NEXTERA ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The accompanying 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 three and nine-month periods ended September 30, 2001
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2001.

The balance sheet as of December 31, 2000 has been derived from the
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 April 17, 2001.

Acquisitions

The Company has used the purchase method of accounting for all
acquisitions. Operating results of acquired companies have been included in the
Companys results of operations only from the date of each respective
acquisition.

2000

Effective January 1, 2000, the Company acquired substantially all of the
assets and certain liabilities of Cambridge Economics, Inc. (Cambridge
Economics), a Massachusetts-based consulting firm that provides strategic,
economic and business transformation and other services to a diverse group of
domestic and international clients. Cambridge Economics was acquired for $8.4
million of cash and a $2.1 million promissory note due January 2002.

Note 2. Earnings (Loss) per Share

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



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Basic and diluted earnings (loss) per share were calculated as follows:
(In thousands, except per share amounts; unaudited)

|                                                     |  |                    |         |                   |  |               |        |               |  |   |          |   |  |   |        |  
|---------------------------------------------------- |  | ------------------ | ------- | ----------------- |  | ------------- | ------ | ------------- |  | - | -------- | - |  | - | ------ | -
|                                                     |  | Three Months Ended |         | Nine Months Ended
|                                                     |  |                    |         |                  
|                                                     |  | September 30,      |         | September 30,     |  | September 30, |        | September 30,
|                                                     |  | 2001               |         | 2000              |  | 2001          |        | 2000         
|                                                     |  |                    |         |                   |  |               |        |              
|Net income (loss)                                    |  | $                  | (54,469 | )                 |  | $             | (6,241 | )             |  | $ | (105,635 | ) |  | $ | (3,901 | )
|Preferred Stock dividends                            |  |                    | (391    | )                 |  |               |       |               |  |   | (1,448   | ) |  |   |       |  
|                                                     |  |                    |         |                   |  |               |        |               |  |   |          |   |  |   |        |  
|Net Income (loss)
applicable to common
stockholders  |  |                    | (54,860 | )                 |  |               | (6,241 | )             |  |   | (107,083 | ) |  |   | (3,901 | )
|Weighted average common
shares outstanding 
basic   |  |                    | 35,269  |                   |  |               | 35,114 |               |  |   | 34,920   |   |  |   | 35,129 |  
|Dilutive effect of
options and warrants              |  |                    |        |                   |  |               |       |               |  |   |         |   |  |   |       |  
|                                                     |  |                    |         |                   |  |               |        |               |  |   |          |   |  |   |        |  
|Weighted average common
shares outstanding 
diluted |  |                    | 35,269  |                   |  |               | 35,114 |               |  |   | 34,920   |   |  |   | 35,129 |  
|Basic net income (loss)
per common share             |  | $                  | (1.56   | )                 |  | $             | (0.18  | )             |  | $ | (3.07    | ) |  | $ | (0.11  | )
|Diluted net income
(loss) per common share           |  | $                  | (1.56   | )                 |  | $             | (0.18  | )             |  | $ | (3.07    | ) |  | $ | (0.11  | )

Note 3. Comprehensive Income (Loss)

Comprehensive income combines net income (loss) and other comprehensive
items, which represents certain amounts that are reported as components of
stockholders equity in the accompanying balance sheet, including foreign
currency translation adjustments and unrealized gains and losses on
available-for-sale investments, net of taxes and reclassification adjustments.
During the third quarter of 2001 and 2000, the Companys comprehensive loss
totaled $54.8 million and $6.4 million, respectively. For the first nine
months of 2001 and 2000, the Companys comprehensive loss totaled $106.3
million and $4.3 million, respectively.

Note 4. Senior Credit Facility

Effective March 30, 2001, the Senior Credit Facility was amended to waive
compliance with certain covenants through January 2002. In connection with this
waiver, the Company agreed to permanently reduce the borrowings outstanding
under the facility by $8.05 million between April 2001 and December 31, 2001.
Additionally, no further borrowings or Letters of Credit may be drawn or issued
under the facility. Borrowings under the amended facility will bear interest at
the lenders base rate plus 3.50%, with payment of 2% of this rate deferred
until January 2, 2002 and waived if the facility is fully repaid by December
15, 2001. The waiver requires the Company to pay a fee to the Senior Lenders of
$0.9 million and to issue the Senior Lenders warrants to purchase 1,418,351
shares of the Companys Class A Common Stock at an exercise price of $0.86 per
share, exercisable at the Senior Lenders sole discretion at any time prior to
18 months after payment in full of all of the Companys obligations due under
the amended Senior Credit Facility. The Company also agreed that upon the sale
or other disposition (or any series of sales or dispositions) by the Company of
any of the Companys assets with gross proceeds, in the aggregate, in excess of
$10,000,000, the Senior Lenders can elect in their sole discretion to require
the Company to redeem the warrants for a $500,000 cash payment by the Company



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(except to the extent prohibited by a non-waiveable applicable law or
regulation). In addition, the Company has the right to call the warrants for a
cash payment of $750,000, which payment may only be made from new financing
sources. The Company issued the warrants to the Senior Lenders on November 14,
2001. Additionally, an affiliate of Knowledge Universe, an entity that
indirectly controls Nextera, guaranteed $2.5 million of the Companys
obligations under the Senior Credit Facility. This affiliate was granted a
security interest and lien in all of the Companys assets, junior and
subordinated to the security interest and lien of the Senior Lenders. Under the
provisions of the amendment, on January 15, 2002 the Company will be required
to deliver cash collateral for all outstanding letters of credit. The amended
Senior Credit Facility contains covenants related to the maintenance of
financial ratios, operating restrictions, partial payment of excess
consolidated EBITA to the lenders, and restrictions on the payment of dividends
and disposition of assets. The revised covenants were based on the Companys
operating plan for 2001.

As of August 31, 2001, the Company was not in compliance with certain
financial covenants contained in the Senior Credit Facility and in the March
30, 2001 amendment to the Senior Credit Facility. The Company and the Senior
Lenders entered into a Forbearance Agreement effective November 14, 2001 in
which the Senior Lenders agreed to defer commencement of any enforcement
actions to collect the debt remaining under the Senior Credit Facility until
January 2, 2002. This forbearance is subject to the Companys continued
compliance with the terms of the Forbearance Agreement, including delivering a
strategic and financial plan to the Senior Lenders and delivery of certain
other related security and credit documents.The Company is currently
reviewing its business plan with its financial advisors and the Senior Lenders
to evaluate the Companys ability to enhance liquidity and generate cash to
meet working capital and debt service requirements. The debt service
requirements are $4.5 million for the fourth quarter of 2001, of which $1.5
million was paid on October 31, 2001.

Note 5. Goodwill Impairment

In connection with the recurring losses, declining sales, and the
disposition of substantially all of the operations of the Technology Solutions
Group, the Company evaluated the value of the goodwill associated with the
several business units. Based on the estimated fair value of the groups,
goodwill was reduced by approximately $38.3 million in the quarter ending
September 30, 2001. Goodwill impairment for the nine months ended September
30, 2001 was $65.0 million. The fair value was based on a review of comparable
market prices of similar businesses.

Note 6. Special charges

During the quarter ended March 31, 2001, the Company approved actions to
re-align and re-size the Companys cost structure, primarily within the
Technology Solutions Group, as a result of softening market conditions and
reduced demand for technological services. As a result, the Company recorded
special charges totaling $5.4 million, consisting of $1.6 million for
severance, $0.6 million for the termination of certain Company initiatives,
$0.8 million related to the costs of exiting or reducing certain leased
premises, and $2.4 million related to certain employee incentives. The
headcount reductions included 48 consultants and 7 administrative personnel.

During the quarter ended June 30, 2001, the Company recorded special
charges to re-align and resize the Companys cost structure. As a result, the
Company recorded charges totaling $8.0 million, consisting of a $1.8



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million
severance charge associated with the second quarters headcount reduction of 60
professional and support personnel, primarily in the Technology Solutions
Group, in order to re-align the Companys cost structure with demand for
services; a $5.1 million charge to provide for the expected costs of exiting or
reducing certain leased premises and an employee incentive-related expense of
$1.1 million.

During the quarter ended September 30, 2001, the Company recorded $8.8
million of special charges for continued restructuring efforts. Included within
this charge is $1.1 million of severance associated with headcount reductions
in the quarter, $3.5 million to provide for the expected costs of exiting and
reducing certain leased premises, a $4.0 million write-down of assets,
substantially fixed assets, and an employee incentive-related expense of $0.2
million. The Company expects to record an additional severance charge of
approximately $0.8 million during the fourth quarter of 2001.

Cash outlays for restructuring actions during the nine months ended
September 30, 2001 were $12.3 million. Approximately $2.7 million of cash is
expected to be expended over the next twelve months, primarily related to real
estate rental obligations and severance, and the remaining $4.6 million is
expected to be paid over the next ten years.

The restructuring charges and their utilization as of September 30, 2001 are
summarized as follows (in thousands):

|                                         |  |                    |       |         |  |         |       |         |  |          |       |         |  |                     |       |          |  |   |        |   |  |   |         |   |  |   |      |   |  |   |       | 
|---------------------------------------- |  | ------------------ | ----- | ------- |  | ------- | ----- | ------- |  | -------- | ----- | ------- |  | ------------------- | ----- | -------- |  | - | ------ | - |  | - | ------- | - |  | - | ---- | - |  | - | ----- | 
|                                         |  |                    |       |         |  |         |       |         |  |          |       |         |  |                     |       | Utilized |  |   |        |   |  |  
|                                         |  | Balance atDecember |       | Q1 2001 |  | Q2 2001 |       | Q3 2001 |  |          |       | Accrual |  | Balance atSeptember
|                                         |  | 31, 2000           |       | charge  |  | charge  |       | charge  |  | Non-Cash |       | Cash    |  | Adjustment          |       | 30, 2001
|                                         |  |                    |       |         |  |         |       |         |  |          |       |         |  |                     |       |         
|Severance                                |  | $                  | 1,301 |         |  | $       | 1,574 |         |  | $        | 1,834 |         |  | $                   | 1,072 |          |  |   |       |   |  | $ | (4,667  | ) |  | $ | (429 | ) |  | $ | 685   | 
|Facilities                               |  |                    | 1,056 |         |  |         | 97    |         |  |          | 4,537 |         |  |                     | 3,554 |          |  |   |       |   |  |   | (2,761  | ) |  |   | (400 | ) |  |   | 6,083 | 
|Employee Special
Incentives              |  |                    | 1,736 |         |  |         | 2,378 |         |  |          | 1,090 |         |  |                     | 180   |          |  |   | (1,143 | ) |  |   | (4,241  | ) |  |   |     |   |  |   |      | 
|Fixed Assets and
other asset
write-downs |  |                    | 377   |         |  |         | 755   |         |  |          | 584   |         |  |                     | 3,998 |          |  |   | (5,556 | ) |  |   |        |   |  |   | 400  |   |  |   | 558   | 
|Other                                    |  |                    |      |         |  |         | 605   |         |  |          |      |         |  |                     |      |          |  |   |       |   |  |   | (605    | ) |  |   |     |   |  |   |      | 
|                                         |  |                    |       |         |  |         |       |         |  |          |       |         |  |                     |       |          |  |   |        |   |  |   |         |   |  |   |      |   |  |   |       | 
|                                         |  | $                  | 4,470 |         |  | $       | 5,409 |         |  | $        | 8,045 |         |  | $                   | 8,804 |          |  | $ | (6,699 | ) |  | $ | (12,274 | ) |  | $ | (429 | ) |  | $ | 7,326 | 
|                                         |  |                    |       |         |  |         |       |         |  |          |       |         |  |                     |       |          |  |   |        |   |  |   |         |   |  |   |      |   |  |   |       | 

Note 7. Other Expense

During the quarter ended September 30, 2001, the Company recorded Other
Expense of $6.0 million associated with the write down to fair market value of
certain investments. For the nine months ended September 30, 2001, the write
down to fair market value of certain investments was $7.2 million.

Note 8. Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill will no



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longer be
amortized but will be subject to annual impairment tests in accordance with the
Statements. Other intangible assets will continue to be amortized over their
useful lives.

The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statement is expected to result in an
increase in net income of $2.0 million ($0.06 per share) per year assuming no
tax provision or benefit. During 2002, the Company will perform the first of
the required impairment tests of goodwill and indefinite lived intangible
assets as of January 1, 2002 and has not yet determined what the effect of
these tests will be on the earnings and financial position of the Company.

In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations, which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. SFAS 143 is required to be adopted for
fiscal years beginning after June 15, 2002. Management is currently
determining what effect, if any, SFAS 143 will have on the Companys financial
position and results of operations.

In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 supercedes FASB
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long Lived Assets To Be Disposed of. SFAS 144 applies to all long-lived
assets (including discontinued operations) and consequently amends Accounting
Principles Board Opinion No. 30, Reporting Results of Operations  Reporting
the Effects of Disposal of a Segment of a Business. SFAS 144 is effective for
financial statements issued for fiscal years beginning after December 15, 2001,
however, early adoption is allowed. Management is currently determining what
effect, if any, SFAS 144 will have on the Companys financial position and
results of operations.

Note 9. Subsequent Event

In October 2001,Nextera sold substantially all of the operations of the
Technology Solutions Group for approximately $1.1 million in cash and the
assumption of certain liabilities associated with such operations. The
Company is in the process of fulfilling its remaining obligations to clients
and winding down the remaining operations of the Technology Solutions Group.
Upon completion of this process, the Company does not anticipate providing
technology consulting services in the future on a stand alone basis separate
from the economic consulting services and human capital consulting services
offered through its Lexecon and Sibson business units.



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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, foresee, should,, 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
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 in the Companys
filings with the Securities and Exchange Commission, which include risks
associated with: our limited operating history; availability of credit and
capital resources; effects of economic uncertainty on client expenditures;
growth of the Internet; dependence on key personnel; attracting and retaining
qualified consultants; new business solicitation efforts; intense competition;
changes in technology; and the continued quotation of our Class A common stock
on the Nasdaq National Market System. New factors emerge from time to time, and
it is not possible for us to predict all these factors nor can we assess the
impact of these factors on our business or the extent to which any factor or
combination of factors may cause actual results to differ materially from those
contained in any forward-looking statements. Given these risks and
uncertainties, you should not place undue reliance on forward-looking
statements as a prediction of actual results.

Overview

Nextera is a unique consultancy offering deep expertise in economic and
human capital issues through two distinct groups that are established leaders
in their respective markets.

Our Lexecon Consulting Group is one of the leading economics consulting
firms, combining theoretical understanding with persuasive empirical analysis.
We provide our law firm and corporate clients with analysis of complex economic
issues in connection with legal and regulatory proceedings, strategic-planning
decisions, and other business activities.

For more than 40 years, Sibson & Company  the forerunner to Nexteras
Sibson Consulting Group  has brought its unparalleled human capital insights
and strategies to many Fortune 500 clients. We help companies win the battle
for the best and brightest by improving their return on human capital,
optimizing performance, mobilizing and motivating people, and aligning employee
behaviors with strategic goals.



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We provide deep expertise to our clients across a broad range of
industries. Our culture is a combination of old-world ethicsprofessionalism,
reliability, proven qualitycombined with new-world innovation, agility and
excitement.

In addition to the practice areas and service offerings noted above,
Nextera has made selective minority investments in independently managed
companies that it believes are well positioned to take advantage of
opportunities created by the connected economy. It has co-invested in these
companies with other well-known early-stage investors.

Series A Cumulative Convertible Preferred Stock

On December 14, 2000, the Company entered into a Note Conversion Agreement
with Knowledge Universe, Inc. (the Note Conversion Agreement). Under the terms
of the Note Conversion Agreement, Knowledge Universe, Inc. converted
$21,000,000 of debentures into 210,000 shares of $0.001 par value Series A
Cumulative Convertible Preferred Stock (Series A Preferred Stock). The Series A
Preferred Stock bears dividends at a 10% rate from issuance through June 30,
2001 and at a 7% rate thereafter. Such dividends are payable quarterly in
arrears in cash or, at the option of the Company, in additional nonassessable
shares of Series A Preferred Stock.

For the period through June 30, 2001, the Company could, at its option,
exchange the Series A Preferred Stock into a debenture (the Exchange Debenture)
with equivalent terms as those contained in the debentures exchanged for the
Series A Preferred Stock on December 14, 2000. Solely for purposes of
determining the principal amount of the Exchange Debenture, in the event of
such an exchange, the Series A Preferred Stock will be deemed to have accrued
dividends at a rate equal to 12%, retroactive to December 14, 2000.

On June 29, 2001, the Companys Board of Directors approved the exchange
of the Series A Preferred Stock to the Exchange Debenture subject to the
approval of the Lenders under the Senior Credit Facility. Such approval has
not yet been granted by the Lenders. Knowledge Universe, Inc. has agreed to
allow the Company to extend its right to exchange the Series A Preferred Stock
into the Exchange Debenture until ten (10) business days after the Companys
receipt of written approval from the Senior Lenders of such exchange. If
converted, Stockholders equity would decrease by $22,546,000 and Debentures due
to affiliates would increase by approximately $23,000,000. The Debentures
would accrue interest at 10% and would be due on May 1, 2002. Principal and
interest amounts due under the Debentures would be subordinated to borrowings
under the Senior Credit Facility.

NASDAQ Listing

There are several requirements for the continued listing of the Companys
Class A Common Stock on the Nasdaq National Market including, but not limited
to, maintaining a minimum stock price of one dollar per share. On June 20, 2001, the
Company received notification from the Nasdaq Stock Market (Nasdaq) that the
Company had failed to maintain a minimum bid price of $1.00 for 30 consecutive
days and would be delisted from the Nasdaq National Market unless the Company
could comply with the minimum bid price requirement by September 18, 2001.
However, in September 2001 Nasdaq announced a moratorium until
January 2, 2002 on the delisting of companies unable to comply with the minimum bid price requirement for listing on the
Nasdaq National Market prior to January 2, 2002. Nasdaqs announcement stated
that under the temporary relief provided by the new rules, (i) companies will
not be cited for bid price or market value of public float deficiencies, (ii) companies currently under review for



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deficiencies will be taken out of the
process with respect to the bid price and (iii) no deficiencies will accrue
during the proposed suspension process. During this time, Nasdaq further
announced that it will consider whether it is appropriate to recommend further
and more permanent action with respect to its delisting policies regarding
minimum bid price and market value of public float deficiencies. On
October 8, 2001, the Company received a letter from Nasdaq
confirming the moratorium on delisting and stating that the delisting
process initiated by Nasdaq with respect to the Company and
referenced in the June 20, 2001 letter discussed above, was
closed. After January 2, 2002, if Nasdaq decides not to take further action regarding its listing
requirements, the moratorium on the delisting of companies would be
lifted and the Company would be required to maintain a minimum bid
price of $1.00 in order to comply with Nasdaqs continued listing
requirements. If the Company were unable to comply with
Nasdaqs continued listing requirements it would become subject
to the initiation of Nasdaqs delisting procedures, including
notification that the Company has failed to maintain a minimum bid
price of $1.00 for thirty consecutive trading days after
January 2, 2002. If the Company were unable to regain compliance
with Nasdaqs continued listing requirements, Nasdaq, in its
discretion, could decide to delist the Class A Common Stock. In
this instance, the Company would
have the right to appeal this decision, however, there can be no assurances
that such an appeal would be successful. If a decision to delist the Companys
Class A Common Stock is made, the Company may apply for listing on the Nasdaq
Smallcap Market, subject to Nasdaqs approval. The Nasdaq Smallcap Market
requires a minimum stock price of one dollar per share, and there can be no
assurance that the Company will be able to meet this requirement. If not, the
Companys Class A Common Stock may trade only over-the-counter. Delisting from
the Nasdaq National Market could adversely affect the liquidity and price of
the Class A Common Stock and it could have a long-term impact on the Companys
ability to raise future capital.

COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2001 AND THREE MONTHS ENDED
SEPTEMBER 30, 2000

Net Revenues. Net revenues decreased $5.8 million, or 16%, to $30.0
million for the three months ended September 30, 2001 from $35.8 million for
the three months ended September 30, 2000. This decrease was substantially
attributable to the decrease in technology and human capital service revenues
which decreased $9.9 million. The decline in technology and human capital
revenues were partially offset by revenue increases in the economic consulting
group.

Gross Profit. Gross profit increased to $11.6 million, or 12%, for the
three months ended September 30, 2001 from $10.3 million for the three months
ended September 30, 2000. Gross margin as a percentage of sales increased to
38.6% for the three months ended September 30, 2001 from 28.8% for the three
months ended September 30, 2000. The increase in gross margin was due to the
alignment of headcount, primarily within the Technology Solutions Group, with
revenue demand; thus increasing consultant utilization.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 45.9% to $9.3 million for the three months
ended September 30, 2001 from $17.3 million for the three months ended
September 30, 2000. The decrease is primarily due to lower non-billable
travel and entertainment expenses, reduced support staff compensation, and
lower recruiting expenses, all a direct result of lower headcount.
Additionally, there was a substantial decline in bad debt expense. As a
percentage of revenues, selling, general and administrative expenses decreased
to 31.1% for the three months ended September 30, 2001 from 48.2% for the three
months ended September 30, 2000. Such a reduction is attributable to cost
control measures enacted throughout the Company to bring overhead expenses in
line with the revenue base.

Interest Expense, Net. Interest expense, net increased to $2.4 million
for the three months ended September 30, 2001 from $2.1 million for the three
months ended September 30, 2000. This increase is attributed to higher
effective borrowing rates due to fees associated with the March 30, 2001
amendment to the Senior Credit Facility.



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Goodwill Impairment. During the three months ended September 30, 2001,
the Company recorded a $38.3 million goodwill impairment charge related to the
technology and human capital groups.

Special Charges. During the quarter ended September 30, 2001, the Company
recorded $8.8 million of special charges for continued restructuring efforts.
Included within this charge is $1.1 million of severance associated with
headcount reductions in the quarter, $3.5 million to provide for the expected
costs of exiting and reducing certain leased premises, a $4.0 million
write-down of assets, substantially fixed assets, and an employee
incentive-related expense of $0.2 million. The Company expects to record an
additional severance charge of approximately $0.8 million during the fourth
quarter of 2001.

Other Expense. During the three months ended September 30, 2001, the
Company recorded Other Expense of $6.0 million associated with the write down
to fair market value of certain investments.

Income tax expense. No tax benefit was recorded during the three months
ended September 30, 2001 due to the potential inability of the Company to
utilize its net operating losses. The tax provision of $0.1 million for the
three months ended September 30, 2001 relates to state and foreign taxes. For
the three months ended September 30, 2000, the Company recorded an income tax
benefit of $4.2 million, or 40.3% of pretax loss.

COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2001 AND NINE MONTHS ENDED
SEPTEMBER 30, 2000

Net Revenues. Net revenues decreased 23.3% to $97.2 million for the nine
months ended September 30, 2001 from $126.8 million for the nine months ended
September 30, 2000. This decrease was substantially attributable to the
decrease in Technology Solutions Group revenues which decreased $24.6 million.
Net revenues associated with human capital services also declined, however,
were partially offset from an increase in revenues from economic consulting
services.

Gross Profit. Gross profit decreased 30.0% to $35.1 million for the nine
months ended September 30, 2001 from $50.1 million for the nine months ended
September 30, 2000. Gross margin as a percentage of sales decreased to 36.0%
for the nine months ended September 30, 2001 from 39.5% for the nine months
ended September 30, 2000 due to a decline in utilization in the technology and
human capital service groups and increased compensation expense in the economic
consulting services group.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 21.4% to $35.2 million for the nine months
ended September 30, 2001 from $44.9 million for the nine months ended September
30, 2000. The decrease is primarily due to lower non-billable travel and
entertainment expenses, reduced support staff compensation, and lower
recruiting expenses, all a direct result of lower headcount. Additionally,
there was a substantial decline in bad debt expense. As a percentage of
revenues, such expenses increased to 36.2% for the nine months ended September
30, 2001 from 35.4% for the nine months ended September 30, 2000.

Interest Expense, Net. Interest expense, net increased to $6.8 million
for the nine months ended September 30, 2001 from $5.7 million for the nine
months ended September 30, 2000. This increase is attributed to higher
effective borrowing rates, due to fees associated with the March 30, 2001



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amendment to the Senior Credit Facility, and a higher average bank debt during
the period.

Goodwill Impairment. During the nine months ended September 30, 2001, the
Company recorded a $65.0 million goodwill impairment charge related to the technology and human capital groups.

Special Charges. During the quarter ended March 31, 2001, the Company
approved actions to re-align and re-size the Companys cost structure,
primarily within the Technology Solutions Group, as a result of softening
market conditions and reduced demand for technological services. As a result,
the Company recorded special charges totaling $5.4 million, consisting of $1.6
million for severance, $0.6 million for the termination of certain Company
initiatives, $0.8 million related to the costs of exiting or reducing certain
leased premises, and $2.4 million related to certain employee incentives. The
headcount reductions included 48 consultants and 7 administrative personnel.

During the quarter ended June 30, 2001, the Company recorded special
charges to re-align and resize the Companys cost structure. As a result, the
Company recorded charges totaling $8.0 million, consisting of a $1.8 million
severance charge associated with the second quarters headcount reduction of 60
professional and support personnel, primarily in the Technology Solutions
Group, in order to re-align the Companys cost structure with demand for
services; a $5.1 million charge to provide for the expected costs of exiting or
reducing certain leased premises and an employee incentive-related expense of
$1.1 million.

During the quarter ended September 30, 2001, the Company recorded $8.8
million of special charges for continued restructuring efforts. Included within
this charge is $1.1 million of severance associated with headcount reductions
in the quarter, $3.5 million to provide for the expected costs of exiting and
reducing certain leased premises, a $4.0 million write-down of assets,
substantially fixed assets, and an employee incentive-related expense of $0.2
million. The Company expects to record an additional severance charge of
approximately $0.8 million during the fourth quarter of 2001.

Cash outlays for restructuring actions during the nine months ended
September 30, 2001 were $12.3 million. Approximately $2.7 million of cash is
expected to be expended over the next twelve months, primarily related to real
estate rental obligations and severance, and the remaining $4.6 million is
expected to be paid over the next ten years.



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The restructuring charges and their utilization as of September 30, 2001
are summarized as follows (in thousands):

|                                         |  |                             |       |         |  |         |       |         |  |          |       |         |  |                              |       |          |  |  |         |   |  |  |          |   |  |  |       |   |  |   |       | 
|---------------------------------------- |  | --------------------------- | ----- | ------- |  | ------- | ----- | ------- |  | -------- | ----- | ------- |  | ---------------------------- | ----- | -------- |  |  | ------- | - |  |  | -------- | - |  |  | ----- | - |  | - | ----- | 
|                                         |  |                             |       |         |  |         |       |         |  |          |       |         |  |                              |       | Utilized |  |  |         |   |  | 
|                                         |  | Balance at
        December |       | Q1 2001 |  | Q2 2001 |       | Q3 2001 |  |          |       | Accrual |  | Balance at
        September
|                                         |  | 31, 2000                    |       | charge  |  | charge  |       | charge  |  | Non-Cash |       | Cash    |  | Adjustment                   |       | 30, 2001
|                                         |  |                             |       |         |  |         |       |         |  |          |       |         |  |                              |       |         
|Severance                                |  | $                           | 1,301 |         |  | $       | 1,574 |         |  | $        | 1,834 |         |  | $                            | 1,072 |          |  |  |        |   |  |  | ($4,667  | ) |  |  | ($429 | ) |  | $ | 685   | 
|Facilities                               |  |                             | 1,056 |         |  |         | 97    |         |  |          | 4,537 |         |  |                              | 3,554 |          |  |  |        |   |  |  | (2,761   | ) |  |  | (400  | ) |  |   | 6,083 | 
|Employee Special
Incentives              |  |                             | 1,736 |         |  |         | 2,378 |         |  |          | 1,090 |         |  |                              | 180   |          |  |  | (1,143  | ) |  |  | (4,241   | ) |  |  |      |   |  |   |      | 
|Fixed Assets and
other asset
write-downs |  |                             | 377   |         |  |         | 755   |         |  |          | 584   |         |  |                              | 3,998 |          |  |  | (5,556  | ) |  |  |         |   |  |  | 400   |   |  |   | 558   | 
|Other                                    |  |                             |      |         |  |         | 605   |         |  |          |      |         |  |                              |      |          |  |  |        |   |  |  | (605     | ) |  |  |      |   |  |   |      | 
|                                         |  |                             |       |         |  |         |       |         |  |          |       |         |  |                              |       |          |  |  |         |   |  |  |          |   |  |  |       |   |  |   |       | 
|                                         |  | $                           | 4,470 |         |  | $       | 5,409 |         |  | $        | 8,045 |         |  | $                            | 8,804 |          |  |  | ($6,699 | ) |  |  | ($12,274 | ) |  |  | ($429 | ) |  | $ | 7,326 | 
|                                         |  |                             |       |         |  |         |       |         |  |          |       |         |  |                              |       |          |  |  |         |   |  |  |          |   |  |  |       |   |  |   |       | 

During the nine months ended September 30, 2000, the Company recorded
special charges of $1.9 million as a result of severance costs incurred in
connection with management changes at the Companys Technology Solutions Group.

Other Expense. During the nine months ended September 30, 2001, the
Company recorded Other Expense of $7.2 million associated with the write down
to fair market value of certain investments.

Income tax expense. No tax benefit was recorded during the nine months
ended September 30, 2001 due to the potential inability of the Company to
utilize its net operating losses. The tax provision of $0.5 million for the
nine months ended September 30, 2001 relates to state and foreign taxes. For
the nine months ended September 30, 2000, the Company recorded an income tax
benefit of $2.5 million, or 39.0% of pretax loss.

LIQUIDITY AND CAPITAL RESOURCES

Consolidated working capital deficit was $59.4 million on September 30,
2001, compared with working capital of $11.5 million on December 31, 2000.
Included in working capital were cash and cash equivalents of $1.6 million and
$4.3 million on September 30, 2001 and December 31, 2000, respectively. The
Company has engaged an investment banking firm to assist the Company in
reviewing a range of strategic alternatives to strengthen the balance sheet and
to maximize the value of assets.

Net cash provided by operating activities was $0.1 million for the nine
months ended September 30, 2001. The primary components of net cash provided by
operating activities were a net loss of $105.6 million offset by non-cash
charges of $91.1 million (including a goodwill impairment charge of $65.0
million, investment write-downs of $7.2 million and other asset write-downs,
primarily fixed assets, of $5.9 million), a $7.1 million increase in accounts



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payable, $4.1 million decrease in accounts receivable, and a $4.3 million
decrease in prepaid expenses and other current assets.

Net cash used in investing activities was $2.9 million for the nine months
ended September 30, 2001 representing expenditures for furniture, equipment,
and leasehold improvements.

Net cash provided by financing activities was $0.5 million for the nine
months ended September 30, 2001. The primary components of cash provided by
financing activities were borrowings under debentures issued to an affiliate of
Knowledge Universe of $7.5 million, partially offset by $2.9 million of
long-term debt and capital leases payments and principal repayments of $3.6
million under the Senior Credit Facility.

The Companys Senior Credit Facility, as amended on March 30, 2001,
matures on March 29, 2002. Additionally, $10.7 million of debentures due to
affiliates are due upon demand, although neither principal nor interest can be
paid until the lenders of the Senior Credit Facility permit such payments to be
made, and $11.8 million of debentures due to affiliates are due May 1, 2002.
Accordingly, both the Senior Credit Facility and debentures due to affiliates
have been classified as current.

Effective March 30, 2001, the Senior Credit Facility was amended to waive
compliance with certain covenants through January 2002. In connection with this
waiver, the Company agreed to permanently reduce the borrowings outstanding
under the facility by $8.05 million between April 2001 and December 31, 2001.
Additionally, no further borrowings or Letters of Credit may be drawn or issued
under the facility. Borrowings under the amended facility will bear interest at
the lenders base rate plus 3.50%, with payment of 2% of this rate deferred
until January 2, 2002 and waived if the facility is fully repaid by December
15, 2001. The waiver requires the Company to pay a fee to the Senior Lenders of
$0.9 million and to issue the Senior Lenders warrants to purchase 1,418,351
shares of the Companys Class A Common Stock at an exercise price of $0.86 per
share, exercisable at the Senior Lenders sole discretion at any time prior to
18 months after payment in full of all of the Companys obligations due under
the amended Senior Credit Facility. The Company also agreed that upon the sale
or other disposition (or any series of sales or dispositions) by the Company of
any of the Companys assets with gross proceeds, in the aggregate, in excess of
$10,000,000, the Senior Lenders can elect in their sole discretion to require
the Company to redeem the warrants for a $500,000 cash payment by the Company
(except to the extent prohibited by a non-waiveable applicable law or
regulation). In addition, the Company has the right to call the warrants for a
cash payment of $750,000, which payment may only be made from new financing
sources. Additionally, an affiliate of Knowledge Universe, an entity that
indirectly controls Nextera, guaranteed $2.5 million of the Companys
obligations under the Senior Credit Facility. This affiliate was granted a
security interest and lien in all of the Companys assets, junior and
subordinated to the security interest and lien of the Senior Lenders. Under the
provisions of the amendment, on January 15, 2002 the Company will be required
to deliver cash collateral for all outstanding letters of credit. The amended
Senior Credit Facility contains covenants related to the maintenance of
financial ratios, operating restrictions, partial payment of excess
consolidated EBITA to the lenders, and restrictions on the payment of dividends
and disposition of assets. The revised covenants were based on the Companys
operating plan for 2001.

As of August 31, 2001, the Company was not in compliance with certain
financial covenants contained in the Senior Credit Facility and in the March
30, 2001 amendment to the Senior Credit Facility. The Company and the Senior



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Lenders entered into a Forbearance Agreement effective November 14, 2001 in
which the Senior Lenders agreed to defer commencement of any enforcement
actions to collect the debt remaining under the Senior Credit Facility until
January 2, 2002. This forbearance is subject to the Companys continued
compliance with the terms of the Forbearance Agreement, including delivering a
strategic and financial plan to the Senior Lenders and delivery of certain
other related security and credit documents.The Company is currently
reviewing its business plan with its financial advisors and the Senior Lenders
to evaluate the Companys ability to enhance liquidity and generate cash to
meet working capital and debt service requirements. The debt service
requirements are $4.5 million for the fourth quarter of 2001, of which $1.5
million was paid on October 31, 2001. Under the terms of the Forbearance
Agreement, Nextera is prohibited from making capital expenditures in excess of
$300,000 from July 1, 2001 through December 31, 2001.




Item 3. Quantitative and Qualitative Disclosures About Market Risks

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, 2001.

Foreign Currency Risk

Currently, the majority 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. While the Company is conducting
some transactions in foreign currencies, no significant foreign exchange gains
or losses are anticipated. The Company has not engaged in foreign currency
hedging activities to date.




PART II. Other Information




Item 6 Exhibits and Reports on Form 8-K

(a)  Exhibits

10.1  Forbearance
Agreement dated as of November 14, 2001

(b)  Reports on Form 8-K

No reports on Form 8-K were filed by Nextera during the three months ended
September 30, 2001.



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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 14, 2001 | By:                                                                                    | /s/ David M. Schneider
|                        |                                                                                       
|                        | David M. Schneider
President and Chief Executive Officer
(Principal Executive Officer)

|                        |                                                                                           |                         
|----------------------- | ----------------------------------------------------------------------------------------- | ------------------------
|                        | NEXTERA ENTERPRISES, INC.
(Registrant)                                                   
|                       
|Date: November 14, 2001 | By:                                                                                       | /s/ Michael P. Muldowney
|                        |                                                                                          
|                        | Michael P. Muldowney
Chief Financial Officer
(Principal Financial and Accounting Officer)



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